Web of Life

It should not be too simplistic or naïve to say that Sri Lankans are a Nation of finger-pointers. Of course, this does not refer to innocuous finger-pointing that one does when, say, one tries to show a child a star in the night sky or a bird perched within the foliage of a tree. Neither does this refer to that social faux pas of finger-pointing that one does, say, when one is trying to identify an individual in a crowd.

Instead, this refers to that act of finger-pointing that, considering its social and moral implications, hinges on political knavery and malice.

I think that finger-pointing has become a part of Sri Lankan culture. I remember once, a long, long time ago, when my mother inquired of me about the culprit who put his teeth into the sponge cake that she had left on the table, I pointed my chocolaty finger at my baby sister who in turn pointed her slobbery fingers at the family dog (kukka), which had not yet learned the vices of finger-pointing, and, hence, trotted away with a rueful look in its eyes and, a soft whimper, to its usual spot under the mango tree.

Finger-pointing goes on at other levels too, which has wide ramifications for the individuals and societies concerned. For example, there are those who have failed to secure themselves a decent remunerative opportunity (due, perhaps, to a lack of merits), and who, therefore, pointed their fingers at others over on the other side of the ethnic or social divide (saying, perhaps ''he grabbed the opportunity that I was entitled to''. This is an attempt at stirring ethnic or social tensions within the country. Hoping, perhaps, that when a sufficient number of fingers have been pointed at each other, it would lend legitimacy for the goons to resort to violence on innocent souls on either side of the ethnic and social divide. Thus, unleashing yet another ethnic and social strife, making it possible for the finger-pointers to bag some of its spoils. Spoils of war do not refer only to loot from innocent people but also what they may bag from dealing in arms, amounting to exorbitant sums.

Finger-pointing is, to a large extent, a political act of 'white washing' oneself and blaming another. It is also a way to shrug off one's responsibility in remedying problematic situations.

Right now there is so much finger-pointing going on in Sri Lanka that one has to be extremely careful when one moves about in society. The chances are that one could get someone's finger in one's own … eye.

Let's discuss one specific act of finger-pointing and its true bearings.

Once there was a man who asked, 'Why is there this price rise in goods and services? Who is responsible for this?' Then he was joined by others who too asked the same question. Then when the noise became louder, reverberating on the walls of the capital, one pointed his finger at another, the other pointed his finger at the third. Then when finger-pointing went a whole round in the city, the last one held his arm outstretched, pointing his finger at the horizon, where the sky meets the sea, and declared: "We are not the culprits. The culprits are over there, over the seas. It is they who pushed up the price of oil. It is as a result of that, the prices of goods and services in Sri Lanka have increased."

Presto! Now everybody has joined the man who, first, held his arm outstretched pointing his finger at the horizon. Some dithering, perhaps in doubt and hesitation, however, with their fingers poised as if they are ready to poke them somewhere. Let's stop there for a moment, retract the finger, drop the hand, and ask the basic questions: Did the oil price really increase? How did we measure the price increase? Could there be, perhaps, a fundamental error in our perception of price fluctuations?

There is a similarity to Einstein's attempt at explaining the measurement of the length of sound waves emanating from a roadside bell whilst one is listening to it from a moving train. Hence, the pertinent question is: what actually is moving, is it the price of oil or the value of the SLRupee?

It is true that the nominal price of a barrel of crude oil has, in terms of USDollars, fluctuated regularly over the past three decades. (The price of oil has always been quoted in USDollars.) Just prior to the first oil crisis of 1973, a barrel of crude oil in the spot market was at US$ 2.75. Then following the oil crisis of 1973, the price jumped to US$ 20 per barrel, which further soared in 1978 to US$ 40 a barrel. The surge in price of crude oil was attributed to the formation of the oil cartel of OPEC (Organisation of Petroleum Exporting Countries) in 1973.

After 1980, however, the price started to decline. The worst was in 1985, when the price of oil came down to US$ 13 per barrel. The drop in the price of crude oil in the 1980s was attributed to the entry into the market by non-OPEC members such as Norway, UK, Russia (USSR), Mexico, Indonesia, Brunei and other countries that weakened the oil cartel. Non-OPEC members were not required to abide by OPEC conditions of quotas. Then, during the 1990s the oil prices were highly volatile. At one point it dropped to as low as US$ 15 per barrel. However, for the most part, it remained at US$ 25 per barrel.

What is the cause of this volatility in the price of oil in the market? We shall discuss the factors that affected the oil price in Sri Lanka over the last one year.

There were three major factors that contributed to the increase in the price of oil in Sri Lanka, over the last one year.

1. Depreciation of the SLRupee against the USDollar.
2. Depreciation of the USDollar.
3. Terrorism and Political instability in West Asia.

As the spot market price of oil is quoted in USDollars, fluctuations in the exchange rate of the SLRupee affects the price of oil. Over the past one year the SLRupee depreciated by about 10% and consequently the SLRupee price of oil increased proportionately by 10%. This means that if we were to purchase oil for Rs 10,000, one year ago, in order to purchase the same quantity of oil today, we must, assuming that other aspects of the economy remain the same, pay Rs 11,000. Hence, depreciation of the SLRupee is one contributory factor to the increase in the Rupee price of oil in Sri Lanka.

Secondly, over the last one year, the value of the USDollar has depreciated considerably. The value of the USDollar may be checked against the price of gold or against a basket of currencies including the Euro, Sterling Pound and the Japanese Yen. According to both these instruments of measure, the value of the USDollar has, over the past one year, depreciated by about 33%. For example, one year ago US$ 1 = Euro 1.2. Today, US$ 1 = Euro 0.85. In other words, a quantity of gold at US$ 100 one year ago, would cost US$ 130 today.

Then, considering the price of oil is quoted in terms of USDollars, when the US Dollar appreciates, the nominal price of oil decreases and, vice versa. (It seems that the price of oil has acquired almost a similar status as the price of gold.) It has, since the early 1980s, been incumbent on OPEC to adjust the quantity of oil supplied to the world market with the purpose of regulating the price of oil. That in turn, guarantees the purchasing power of the oil income. In other words, the oil suppliers do not wish to lose out in real income from oil due to fluctuations in the currency market for USDollars.

Thus, when the USDollar depreciates in the currency market, the nominal price of oil increases and, conversely, when the USDollar appreciates in the currency market, the nominal price of oil declines to a corresponding degree. Thus, the real value of oil is expected to remain constant.

The price of crude oil in the spot market a year ago was US$ 30. Except for a fortnight in October, the price reached the US$ 45 mark. This increase in the price of crude oil in the spot market roughly corresponds to the depreciation of the US Dollar in the currency market.

One must note too that the SLRupee has, for good or bad, been for the past several decades pegged to the USDollar. (US being a major trade partner, there were numerous benefits that Sri Lanka could reap over the years from having the SLRupee pegged to the USDollar.) Being pegged to the dollar, the rupee was allowed to fluctuate only very marginally. This is disregarding the 10% depreciation of the SLRupee over the last year. Otherwise the SLRupee has been fluctuating in tandem with that of the USDollar.

Third, over the past six weeks or so, the oil price has been affected by fears of terrorism and political instability in West Asia. Considering that the equilibrium price of oil (with reference to the specialists of the oil market) rests at about US$ 43 per barrel (in terms of current value of the USDollar), the price we have observed for the past few months has been above this only very briefly.

For about three weeks the price of oil remained over and above its equilibrium price, which was almost certainly due to the fear of terrorism and political instability in Iraq, the fear of the war spreading into Iran and the fear of terrorist attacks in Saudi Arabia and Kuwait. But these brief increases have not been as high as the oil price increase in Sri Lanka due to depreciation of the SLRupee and the USDollar. Price increase of oil due to terrorism, war and political instability in West Asia has not exceeded 15%.

Thus, we cannot blame the oil exporters solely for the oil price increase in Sri Lanka. First, the consequences of the SLRupee depreciation have to be borne by the Sri Lankans and by the Sri Lankans only. Secondly, the consequences of oil price increase in Sri Lanka due to the USDollar depreciation has to be faced by the Sri Lankans and Sri Lankans only.

This is because it is not somebody else but the Sri Lankans who pegged the SLRupee to the USDollar. Finally when it concerns oil price fluctuations, due to social and political instability in West Asia, we could blame someone else.

In this case I shall not beat about the bush but, place the entire responsibility on those who wish to point their fingers at … who knows where!