When something is this hung, it gets a little smelly

Yes, it has been some time since we last appeared in your sights so for those of you who have missed our pithy and insightful commentary on the rights and wrongs of the world, here’s another installment.

Our attention has been focused this last week on events in far off Blighty where the small matter of an election has been taking place.

As many of you know, the results are inconclusive with no party having an absolute majority and so confusion reigns. How are we going to reduce our quite staggering fiscal deficit? What reforms are going to be put in place?

The answer is “we don’t know,” and those are the words the financial markets hate to hear because it leads to further uncertainty.

As a result, Sterling dropped like the proverbial stone on Thursday and Friday fared little better.

So what has that to do with Sri Lanka?

Well, because the rupee is tied to the Dollar if Sterling falls against the Dollar, it also falls against the Rupee.

In just 2 days it dropped from Rs171 to Rs165 before recovering slightly and, I suspect, temporarily.

This means that anything we import from the UK will be cheaper and anything we sell to the UK will be more expensive. It doesn’t matter what it is, from software services to garments, hotel rooms to coconuts.

Anything we earn in Sterling will also translate back to lower prices when converted to Rupees. Not good news either for the local ex-pat families who receive inward remittances from family living in the UK.

A Rs6/- drop might not seem like much, but when you’re dealing in RsMillions it can be a dealbreaker. Couple that with the confusion surrounding the Greek debacle (who get paid more by the State not to work than put in an honest 8 hour day) and its possible spread to Euroland and we’re staring at another problem that could dwarf the implosion of Lehman’s and other financial giants in late 2008.

For those in marketing, anything that you want to buy in the UK will be slightly cheaper. Advertising space, data, books Exhibition stand space (and hopefully airfares), and so on. It’s only when you want to import anything back that the price gains are wiped out by shipping costs.

It would not be wise to go off on a spending spree on British goods just yet though. Far better to wait and see if the gains of last week remain at their current level.