saraprobe
01-09-2010, 10:29 AM
Jan 09, 2010 (LBO) - Sri Lanka's opposition presidential had promised to cut diesel prices in the hope that it would bring consumer prices down, media reports said, echoing the failed 2004 petroleum price fixing policy that sent inflation rocketing up.
Opposition common candidate retired military general Sarath Fonseka has promised to cut diesel by 50 rupees a litre from the current 73 and kerosene by 30 rupees from the current 50, within 72 hours of being elected, The Daily Mirror newspaper said.
The newspaper said Fonseka the move would "lead to a drop in the prices of essential items.
"I will take steps to bring down the cost of living within seven day upon election to office," The Daily Mirror quoted Fonseka as saying.
Sri Lanka's politicians - especially left leaning ones - persist in an extraordinary belief that inflation is not monetary but is petroleum related and specifically related to diesel.
Déjà vu
In 2004, under an economic initiative called 'removing the plug', promoted by the Marxist nationalist Janatha Vimukthi Peramuna, Sri Lanka abandoned an automatic petroleum pricing formula that had helped improve government finances and money printing.
Within months, inflation which was near zero despite monthly increases in petroleum prices, rocketed as money was printed to make up for lost petroleum taxes.
In 2002 and 2003, instead of printing money, liquidity was withdrawn steadily from money markets and foreign reserves zoomed and inflation plummeted.
In January 2004, inflation measured by the Colombo Consumer Price Index was 0.5 percent, by March just before the government changed it was 2.5 percent. By December inflation had shot up to 13.98 percent.
Ironically opposition claims to waive cut petroleum taxes now comes at a time when the Central Bank has brought inflation down to 4.8 percent through tight monetary policy in place from late 2007.
Throughout 2009, the Central Bank withdrew rupee liquidity and foreign reserves rose.
Fonseka had also promised to raise salaries of state workers by 10,000 rupees per month, a move which the government says will cost 132 billion rupees a year.
But from 2004, petroleum taxes fell and money was printed to make up the gap.
The Daily Mirror said the Fonseka had "pledged to waive off taxes levied on fuel imports."
At the moment Sri Lanka taxes petroleum products at very high levels and petrol (gasoline) in particular.
Diesel, which is mainly used by business (and contains more energy) is lightly taxed and underpriced compared to petrol in Sri Lanka unlike in low inflation countries like Britain where prices change daily and diesel is priced slightly higher than petrol.
A unit of diesel is more expensive to import than petrol.
A senior economist recently dubbed some of Sri Lanka's popular but harmful policies 'voodoo economics'.
Arbitrary Rule
In Sri Lanka import and cess taxes on goods can be changed by mid-night gazette with no debate in parliament.
This gives Sri Lanka's rulers absolute control to change effective policies that have already brought good results with non consultation, no fact finding by qualified economists.
Policy 'decisions' can be taken at politburo levels or by small coteries of interest groups based on ideology and implemented by mid-night gazette.
Having a petroleum pricing formula reduced the arbitrary rule and re-introduces rule of law to the people liberating the man on the street from the arbitrary power of ruling politicians and as well as bureaucrats beholden to politicians.
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Opposition common candidate retired military general Sarath Fonseka has promised to cut diesel by 50 rupees a litre from the current 73 and kerosene by 30 rupees from the current 50, within 72 hours of being elected, The Daily Mirror newspaper said.
The newspaper said Fonseka the move would "lead to a drop in the prices of essential items.
"I will take steps to bring down the cost of living within seven day upon election to office," The Daily Mirror quoted Fonseka as saying.
Sri Lanka's politicians - especially left leaning ones - persist in an extraordinary belief that inflation is not monetary but is petroleum related and specifically related to diesel.
Déjà vu
In 2004, under an economic initiative called 'removing the plug', promoted by the Marxist nationalist Janatha Vimukthi Peramuna, Sri Lanka abandoned an automatic petroleum pricing formula that had helped improve government finances and money printing.
Within months, inflation which was near zero despite monthly increases in petroleum prices, rocketed as money was printed to make up for lost petroleum taxes.
In 2002 and 2003, instead of printing money, liquidity was withdrawn steadily from money markets and foreign reserves zoomed and inflation plummeted.
In January 2004, inflation measured by the Colombo Consumer Price Index was 0.5 percent, by March just before the government changed it was 2.5 percent. By December inflation had shot up to 13.98 percent.
Ironically opposition claims to waive cut petroleum taxes now comes at a time when the Central Bank has brought inflation down to 4.8 percent through tight monetary policy in place from late 2007.
Throughout 2009, the Central Bank withdrew rupee liquidity and foreign reserves rose.
Fonseka had also promised to raise salaries of state workers by 10,000 rupees per month, a move which the government says will cost 132 billion rupees a year.
But from 2004, petroleum taxes fell and money was printed to make up the gap.
The Daily Mirror said the Fonseka had "pledged to waive off taxes levied on fuel imports."
At the moment Sri Lanka taxes petroleum products at very high levels and petrol (gasoline) in particular.
Diesel, which is mainly used by business (and contains more energy) is lightly taxed and underpriced compared to petrol in Sri Lanka unlike in low inflation countries like Britain where prices change daily and diesel is priced slightly higher than petrol.
A unit of diesel is more expensive to import than petrol.
A senior economist recently dubbed some of Sri Lanka's popular but harmful policies 'voodoo economics'.
Arbitrary Rule
In Sri Lanka import and cess taxes on goods can be changed by mid-night gazette with no debate in parliament.
This gives Sri Lanka's rulers absolute control to change effective policies that have already brought good results with non consultation, no fact finding by qualified economists.
Policy 'decisions' can be taken at politburo levels or by small coteries of interest groups based on ideology and implemented by mid-night gazette.
Having a petroleum pricing formula reduced the arbitrary rule and re-introduces rule of law to the people liberating the man on the street from the arbitrary power of ruling politicians and as well as bureaucrats beholden to politicians.
:no::no::no::no::no::no::no::no::no::no::no::no: