The wonderful threesome that have destroyed what was built over the last 5 years

Kottamalli economist Harsha de Silva, Iligal immigrant and Bond Banda Ajun Mahendran along with Karunga puwak financial analyst Ravi K have ensured that you and the whole country pays a huge cost by their neo liberal and incompetent actions to depreciate the rupee. You lose while their henchmen win.

Here is how they have made you pay for voting them into government!

A. They depreciate the rupee exchange rate according to neo liberal policies of the West. They think it's the solution for their incompetency. They also think that the middle class is an ignorant and passive segment. So they decide to depreciate the rupee, doing so would mean that all Import costs of all consumer goods and services would increase. From milk food, dry fish, tin fish, poultry, processed foods, sugar, infant milk food, essential drugs and many other goods would all increase. As these goods do not have substitutes and are relatively inelastic. Impacting real incomes negatively.

Intermediary import goods such raw materials crude oil, kero, gas oil would now increase. The cost would have be absorbed by the government or passed on to the consumer. Here too there are no substitutes and demand for goods are inelastic.

The price increases would gradually happen now as Kottamalli economist Harsha de Silva, Iligal immigrant and Bond Banda Arjun M along with Karunga puwak financial analyst Ravi K actions have being fully endorsed by Chandrika and Ranil W.

B. The rupee depreciation does not improve export market share as we don't have control of markets or price. So export earnings in absolute terms would not increase but decrease. As the depreciation would force exporters to cut export prices as buyers would now demand it be so.

C. Speculation takes hold of the real and financial sectors. People will spend significant time managing the currency volatility as opposed to increasing productivity and focusing on market share.

D. All Rupee bonds held by foreign investors will be sold. As no one wants to hold a depreciating financial asset. This would result in an further out flow of foreign currency. Domestic Banks will incur huge losses on their investment in government bonds as prices for bonds would fall. Affecting their trading and available for sale portfolios.

F. Financing the budget deficit will now be harder. As volatility in forex markets would push debt servicing cost higher. Therefore Sri Lanka would now have to compensate by way of issuing higher coupon bonds to make up for rupee depreciation. In other words high cost of financing of budget. This is a way of disguising tax burden on to the public.

G. Significant pressure on foreign reserves as exports decline imports remain constant and outflows of bonds and equity takes place. Also note that all input cost would be directly affected by the rupee depreciation. It would slow down domestic construction industry which was the main driver of economic growth in the last 5 years. Inputs such as steel, cement, ceramic, copper aluminium and other semi and finished product would increase significantly.

H. Foreign remittance too would slow down because of the expectations of further rupee weakness in the months ahead. This would widen the balance of payments. Making it impossible to manage external finances.

The time to pay for the "Change" from the stability of MR to the instability of MY3 Chandrika and Ranil is not too far away! Sri Lanka professionals it's time that you ask serious questions about the Good Governance tag line and who is the Hora Hora Hora! For Chandrika and Ranil government have taxed you indirectly much more than any other format of TAXES. The burden placed is going to be felt for years to come. As you have lost your real income and additionally also have to pay for the higher loan cost, debt servicing and wider balance of payments outcomes.

What a Change! The pain for Change has only just

Ravi Karunanayake’s Foot in Mouth Disease: Parliament dissolved due the mismanagement of the economy!

In the past 6 months Ravi Karunanayake and Harsha de Silva have managed to make sure that you and the whole country pays dearly. The mismanagement of the economy is evident in the recent foreign reserves data of $6.4 billion or 3.8 months of imports, rising external debt cost of 6.125%, domestic debt increase of $216 billion (in the first 3 months of 2015), snail pace real sector activity as indicated by the low GDP 1Q rate of 6.4%. The 30 year bond robbery. A fragile and weak Sri Lankan Rupee of 140 to the US Dollar and an increased budget deficit of 9%.

Despite all the obvious indicators showing red flags the duo continue to say that the economy is in good health. What is ironic is that they openly say that they inherited a broken economy.  However, real data suggests otherwise.

For all the above, macro indicators were significantly better as at December 2014.  Foreign reserves stood at $9.0 billion. Total Domestic borrowing was $850 billion. USD 10 years bonds were at 5.85%. GDP in the first quater grew at 7.6% The 30 year bond was 9.75%. Sri Lankan Rupee exchange rate was 130 to the US Dollar. Fiscal deficit was 6.4% Therefore the data  shows the breakdown of the whole country.

It is indeed rather worrying to find that Ravi and Harsha arguing to the contrary, when in fact they and UNP are solely responsible for the plight we are faced with currently. It should be obvious that the Yahapalana is continuing to lie and run down a strong and hard earned economy that they inherited from President Rajapaksa.

As smart professionals and young adults we must not be fooled anymore. The failure in 6 months is sufficient to cripple the country for the next two years.

If the economy was in good shape as professed by Ravi and Harsha would they have dissolved parliament?

The Biggest Fabrication of the Truth by Harsha de Silva

The Hambantota port project was a long overdue long term investment. The investment in the southern port was done with the intention of providing employment and capturing of significant foreign exchange revenue from fuel bunkering and transhipment facilities. This was discussed and debated during the 2002 government of Chandrika and Ranil but it did not get the required leadership and management to commence the project.

It was President Rajapaksa who embarked on this much needed southern port project in 2008. Phase-1 was estimated at $60 million.

Exim bank China was agreeable to finance 85% of the project cost. The final financial term sheet of 15 years was given by the Chinese bank. With 3 to 5 years grace periods. Based on buyer finance. This facility was offered on fixed rate or floating rate (i.e. variable interest rate) while the currency of finance was USD.

The fixed rate borrowing is where the lender fixes their interest rate payments throughout the tenure of 15 years. The floating rate interest rate is based on USD LIBOR ( London Inter Bank Offer Rates) plus a credit spread. So during the term of the loan the credit spread remains fixed while the LIBOR changes each period, as it's a variable rate.

The decision to choose between the two interest rates options was given to the borrower i.e. the Sri Lankan Government. The forecast was that LIBOR rates would increase during the period of 15 years. This was also projected by investment banks and multi lateral agencies.

This made the decision difficult. However the comparative study indicated that a fixed rate of 6.25% was acceptable given that the LIBOR rate plus credit spread would work out at 7.45%.

Additionally the country was on a war footage since 2005. Foreign Funding costs were high as the country's Credit Risk Premium was high. Any Dollar Bond financing was going to be very costly. Furthermore Bond financing does not have a grace periods of 3 to 5 years. Additionally we must be mindful that international lenders would not have taken Sri Lanka’s 15 years credit risk during the war period. Therefore the maximum tenure available for Sri Lanka’s Dollar Bond was 10 years. This made the Chinese finance more pragmatic and beneficial from the analysis.

However after the signing of the loan agreement in 2008 the global financial crisis hit and USD LIBOR rates plummeted to an all time low. Interest rates and commodity (crude oil too) prices fell globally. Average USD LIBOR fell from 4.5% in 2005 to 1.50% in 2009 and to 0.25% by 2013. The Sri Lankan Government discussed this situation with China and was making arrangements for the loan to be re-converted to floating rate agreement.

However the government changed. This is what happened.

The current “Sirisena, Chandrika and Ranil Trio" Government also proved their incompetency and poor judgment as they borrowed $500 million for 10 years at a fixed interest rate of 6.125%. This is despite the current government inheriting a country free from war, improved external reserves and improved external credit rating (confirmation received by Fitch Rating Agency USA).

On the other hand in 2008 given all the difficulties locally and globally President Rajapaksa secured 15 years funding at today's borrowing costs incurred by the Trio and Kottamalli Economist Harsha de Silva.

I challenge Harsha to hedge oil import contracts and all other foreign currency interest rate obligations. As these are at their lowest level now.

Colombo-Katunayake Expressway: Corruption at its finest

In 1984, a feasibility study prepared by Japan International Cooperation Agency recommended the construction of an expressway to the east of the existing Colombo-Negombo road. The proposal was accepted for implementation by President Premadasa in 1989.

Estimated cost: Rs. 5,544 million or $ 110 million in 1991. The route was finalised, designed, and ready to be commenced when President Premadasa’s demised on May Day 1993.

During the presidential elections in 1994, Chandrika Kumaratunga promised to abandon the land route that required the demolition of a large number of houses and shift the road over the Muthurajawela marshes (She wanted to save 60 houses & demolished 700 at the end!). Kumaratunga won the elections and instructed the route to be moved.

International tenders were called for the construction of the expressway and the contract was awarded to the Daewoo-Keangnam joint venture from South Korea for Rs. 9,516 million in August 1999, shortly before the presidential elections CBK was re-elected. The Koreans were not the lowest tenderer and the award was marred by allegations of corruption.

With the changes on the political front, Ranil Wickremesinghe was appointed Prime Minister in December 2001. The tight monitory policies of the new government reduced payments to the contractor and the progress slowed down, resulting in a mutually accepted termination in January 2003. The contractor had already incurred costs and in settlement, the contractor was paid a total expenditure amounting to Rs. 5,444 million. Which means Rs 5,444million were paid just as PENALITY and NOT for any finished project.

After President Rajapaksa came into power, the funding of the long-delayed project was then agreed with the Chinese Government with US $ 292.4 million on a loan facility extended by China. The Chinese offer was for 85% of the project or US$ 252 million, with the Sri Lankan Government to fund the balance 15% or US$ 40 million. Based on the above, China Metallurgical Construction Group Corporation (MCC) submitted a financial proposal in March 2006, and the contract agreement was signed in May 2008 for the construction of the Colombo-Katunayake Expressway project, with work to commence in 60 days and to be completed in 39 months (November 2011). The Chinese Government owned company was to fund, plan, design and construct the 25.6 km long expressway for a cost of US$ 310 million (Rs. 35,600 million).

The route for the expressway remained unchanged from the abandoned Korean contract, with minor modifications.

The most important factor in the construction of any project is the cost. The expressway proposed in 1991 was estimated to cost only Rs. 5,544 million or US$ 110 million. The cost of the completed expressway amounted to over Rs. 45,000 or US$ 342 million. In addition the failed Korean contractor’s work cost the country Rs. 5,444 million in breached contract penalty charges. Thus the total costs amounted to over Rs. 50,444 million or Rs. 50 billion, almost a 10-fold increase, which needs to be borne by the citizens.

If the 1991 proposal was carried out, the highway would have paid for itself by now.

To be able to finish this Katunayake Expressway after 37 years in the making and ten times the original cost itself is an achievement that no other person than President Rajapaksa could have achievedeven after been exhausted by a protracted war.

In the last 30 years all Presidents and Prime Ministers with the exception of President Rajapaksa benefited from the war and made political promises that would cost the country billions in losses. He has been accused of corruption and is yet to be proven guilty. But this right here is true corruption and it happened again with projects like Colombo Port City. We were paying for constructions that were unfinished and President Rajapaksa was the only leader who pulled through for the good of the country with a vision for a united and prosperous Sri Lanka.

Chandrika, Ranil and President Sirisena, please keep your personal grudges personal, don’t let our economy, our national security and our sovereignty suffer because of your election promises and deals you cut with the devil. Haven’t we all sacrificed enough?

Reference: http://www.ft.lk/2013/10/25/colombo-katunayake-expressway-from-rs-5-5-billion-to-rs-50-billion/

Thank you DailyFT.