Ceylon Today Editorial

Regaining lost independence

 26 August 2016

The seeming regaining of the lost independence of the Central Bank of Sri Lanka (CBSL) was resonated by the speech made by CBSL Governor Dr. Indrajit Coomaraswamy at the two-day CIMA Business Summit inaugurated at a leading Colombo hotel on Tuesday.

Development Strategies and International Trade Minister, Malik Samarawickrama, who was the chief guest at this event, said that with the Government of Sri Lanka's (GoSL's) coffers virtually dry, GoSL's involvement in development works will be through public-private partnerships (PPPs).

Samarawickrama's speech was soon followed by Coomaraswamy's who was the guest of honour at this occasion. The Governor, however, said as GoSL's finances were parlous, that even engaging in PPPs may be difficult.

Samarawickrama, by prior notification, left the meeting during Coomaraswamy's speech. Therefore, it's not clear whether the Minister was present when Coomaraswamy made this statement. But the duo at least at face value, appear to have more things in common than working at cross purposes.

They are virtually of the same vintage, they studied at the same school in Colombo, both come from middle-class backgrounds, while Samarawickrama is a creature of the private sector, Coomaraswamy is an economist and a central banker, having had previously held a top economist post at the Commonwealth Secretariat in London, which has a market oriented view.

And the UNP, the party which Samarawickrama represents in Parliament, is better known for its pro- market policies, than to the contrary.

Further, both have the passion for the same sport, rugby, having had excelled at the premier league level, with Coomaraswamy ending up captaining the national side. And, Coomaraswamy, prior to his appointment, was an adviser to Samarawickrama at his Ministry.

That's not all, Coomaraswamy in his speech said that it was Samarawickrama who was responsible for his appointment.

Nonetheless, it may be assumed that Samarawickrama and Coomaraswamy think alike in most matters, not least on the economy, presumably, making it that much easier for the Governor to fulfil his writ, which is to maintain both price and financial sector stability.

And, another feather in GoSL's cap is the ability to tolerate divergent views, at least in public, by those holding key positions in government, which certainly was absent, at least in the Mahinda Rajapaksa era.

And, on this score, Coomaraswamy explained the separation of powers between the CBSL and the GoSL vis-à-vis monetary policy and fiscal policy respectively, but was quick to add that the former was subservient to the latter and not vice-versa. He said that social development alone is not enough to see Sri Lanka through and cited the two southern insurgencies and the northern separatist struggle as examples. Globalization is of being competitive, the Governor said. Growth and equity are possible by private sector-led development, complemented by exports and foreign direct investments (FDIs). GoSL has no money, so it has to be the private sector which will have to drive growth, said Coomaraswamy.

GoSL is borrowing money to payoff debt, the Governor said, an action known as rolling over maturing debt by accumulating new debt. The size and liability of this new debt would be determined by the value of the interest rate component at which the new debt is subscribed to.

If the interest component at which the new debt is borrowed is smaller than the interest component charged on the old debt for which such a borrowing is made to settle, then all is fine, on the hypothesis that the economy is growing satisfactorily. But if not, compounded by a high interest rate regime at which price the new debt is subscribed to, then, that's a problem, of which Coomaraswamy is undoubtedly aware.

With reference to GoSL's objective of creating a social market economy, the Governor said that, that could be done by education to get decent jobs and not through subsidies. In 1980 Sri Lanka's and Thailand's export profile was similar. But now, Thailand exports automotives and high value, processed agro products, the Governor said.

In the 1977 era, Sri Lanka was the second country after Chile to liberalize. "But we, spoilt by donors, dodged being lean and mean to be competitive in a global economy, dishing out populist and welfarist policies," he said.

Nonetheless, the aid door is still open, as underlined by Samarawickrama's speech at the CIMA function, where he said that the severity of hardships may be mitigated with aid from the international community.

So, it's not all doom and gloom.