30/09/2024

BIZ & FINANCE MONDAY | SEP 30, 2024 17 New Sri Lanka leader stuck with painful IMF deal

Slowdown highlights economic inequality in Shanghai

o Lender of last resort very unlikely to budge on core components of US$2.9 billion bailout, says analyst

COLOMBO: Sri Lanka’s new leftist leader has little room to renegotiate an IMF bailout that threw a lifeline to his bankrupt country but imposed punishing and unpopular austerity measures, analysts say. Anura Kumara Dissanayake, 55, was a vocal critic of global lenders from the fringes of the island nation’s politics, including in the aftermath of Sri Lanka’s unprecedented economic meltdown two years ago. He won Saturday’s presidential vote in a landslide promising to reverse steep tax hikes, raise public servant salaries and renegotiate the International Monetary Fund rescue package secured by his predecessor. But after his inauguration two days later he appealed for international support to revive Sri Lanka’s economy, admitting he had no magic solution to its woes. “There are certain red lines that the IMF will not agree to negotiate,” Murtaza Jafferjee of the Colombo-based economic think tank Advocata told AFP. He said the Washington-based lender of last resort would be very unlikely to budge on core components of its US$2.9 billion

His policies ended the shortages as well as runaway inflation and returned the country to growth but left millions struggling to make ends meet. The IMF said Wickremesinghe’s administration had made a great deal of progress in repairing the nation’s ruined finances after a US$46 billion foreign debt default two years ago. But fund spokesman Julie Kozack also warned ahead of the presidential poll that Sri Lanka was “not out of the woods yet”. One of Dissanayake’s first acts of business will be to secure a parliamentary endorsement for a debt restructuring deal with international bondholders, negotiated by his predecessor at the eleventh hour and announced last week. That will have to wait for the election of a new Parliament, as Dissanayake sought to capitalise on his landslide win by calling snap polls last Tuesday, the day after he was sworn in. Umesh Moramudali, an economics lecturer at the University of Colombo, warned that failing to secure the deal’s passage could open Sri Lanka to legal action from its creditors. “It would be in the best interest of the country to avoid litigation with bondholders,” he told AFP. Sri Lanka also owes billions to China and India, its two largest bilateral creditors who are both competing for influence in the island nation, which is strategically situated on global east-west sea routes. Both nations have congratulated Dissanayake on his win and pledged to work with his administration. Dissanayake’s ideological leanings, his campaign against an India-backed energy project and the JVP’s historical anti-India stance had led some experts to suspect his administration would lead Sri Lanka to a closer relationship with Beijing. But he used his inauguration speech to reject “power divisions in the world” and pledged to work with all other countries for the benefit of his own. “The new leader’s foreign policy stance will be important,” said Farwa Aamer of the Asia Society Policy Institute. “It will be in his interest to work with India, as a regional partner, as he focuses on economic development.” – AFP

SHANGHAI: China’s leaders admitted the country’s economy was facing “new situations and problems” last week but people on the streets of financial powerhouse Shanghai suggested that not everyone is being hit equally. China has struggled with high youth unemployment, falling consumption and a property sector crisis in recent years, all of which threaten the government’s goal of five percent growth this year. Chang Guiyong, proprietor of a hole-in-the-wall eatery in central Shanghai, is part of a group of lower income citizens and small business owners who have borne the brunt of falling domestic demand. “Doing business is even tougher this year than it was during the pandemic,”Chang, 58, said as he stood in his empty shop. “People no longer want to consume, even white-collar workers are bringing lunchboxes to eat at the office. “We regularly face pressure, we have to pay rent for the shop, rent a place to stay, and there’s the cost of ingredients, water, electricity and gas.” After months of incremental measures, Beijing unveiled a raft of policies last week intended to boost its flagging economy, including interest rate cuts and lower down payments for homebuyers. Interviews with Shanghai residents suggested a distinct divide between people such as Chang and those with higher incomes. Many told AFP their lifestyles had not changed even as the practice of “consumption downgrade” spreads among lower-income households. “I don’t believe in saving money, I think to spend one’s life consuming is a happy thing,” 70-year-old Wang told AFP as he sat at a cafe on Anfu Road, a thoroughfare lined with fashion boutiques. Other people “may feel that their future isn’t very secure, so they don’t consume too much”, Wang said, noting that he was not among that group. For Cassie Lu, the new stimulus measures “currently have no impact”. “The people around me are similar, they mostly spend as they please,” said the 24-year-old, a frequent shopper. Claire Yi, a jewellery designer, also said she had not been affected by the economic downturn. “I don’t think people have stopped spending, but maybe their habits have changed. They might have shifted from a higher level of consumption to an upper-middle level.” Chang was unsure what impact the new policies would have on him.

clear, his party moved quickly to assure markets and creditors that it would adhere to the broad strokes of the bailout deal. “We will not tear up the IMF programme,” JVP politburo member Bimal Ratnayake said. “It is a binding document, but there is a provision to renegotiate.” The ironic outcome of the pledge was that the same day as an avowed Marxist assumed the presidency, Colombo’s stock exchange rallied by 1.5%. But by committing to maintain the rescue plan, Jafferjee said that any tweaks pushed by Dissanayake would necessarily be minor. “On the fiscal side, there is not much adjustment that can be done,” he said. Dissanayake’s predecessor, Ranil Wickremesinghe, was voted out of office after doubling income taxes and imposing other reviled austerity measures.

(RM12 billion) bailout, including a ban on printing money and revenue and spending targets agreed by the last administration. Dissanayake’s party, the People’s Liberation Front (JVP), sports the hammer and sickle motif of the international communist movement on its logo. The JVP was confined to the political wilderness for decades after leading rebellions in the 1970s and 1980s that left more than 80,000 people dead, before the party renounced violence. Months of food, fuel and medicine shortages that accompanied the 2022 financial crisis and foreign debt default rallied the public behind it. Dissanayake’s call to upend the island’s “corrupt” politics resonated with a public infuriated by chronic economic mismanagement and graft scandals in government ranks. As the size of his victory became

A vendor arranging Sri Lankan newspapers on display for sale with front pages on the presidential election results in Colombo last week. – AFPPIC “I hope the economy will get better, and ordinary folk will find it easier to do business,” he said. – AFP South Korea pension fund to ease FX rules to mitigate market impact

SEOUL: South Korea’s state pension fund will ease foreign exchange rules to minimise the market impact from its buying of dollars for overseas investments, the Welfare Ministry said last week. The National Pension Service (NPS) will relax the limit on the amount of foreign exchange it can

procure in advance to US$6 billion (RM25 billion) per quarter and US$3 billion per month, from the current US$1 billion per month. The change will come into effect from next month, according to the ministry in charge of overseeing the fund’s investment policies. The NPS, the world’s third-largest

public pension fund, has been actively raising investment in foreign assets in recent years for higher returns, a move which is often cited by market players as a major structural factor weighing on the won currency. In June, South Korea’s foreign exchange authorities expanded a

currency swap line with the NPS to US$50 billion from US$35 billion so that the pension fund can borrow dollars from the central bank instead of going to the onshore market. The ministry also said after a regular policy meeting that the NPS would start to engage with foreign firms as a shareholder for management work

from next year, which it had been already doing since 2019 with domestic companies for social responsibility and long-term investment returns. The NPS held 1,147 trillion won (RM3.5 trillion) in assets as of the end of June, with 55.1% of the total in foreign assets. – Reuters