14 July, 2020

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Coercive President, Conservative Central Bank & Crippled Economy

By Ameer Ali

Dr. Ameer Ali

“Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.” ~ John Maynard Keynes

“… the new world of highly integrated economies, global capital markets, shadow banks, instantaneous cross-border global money flows, the rapid evolution of forms of money, technology-enabled changes like fast trading, block chain payments, online lending, virtual digital currencies, insider credit, proliferating new forms of financial securities and highly liquid financial markets in which they trade, and the accelerating expansion of new global financial institutions … (have made) central banking … an institutional anachronism in the21st century.” ~ Jack Rasmus, Central Bankers at the End of Their Rope, USA: Clarity Press Inc., 2017.

The Sri Lankan economy, like several other open economies, is crippled, largely and not solely, because of the pandemic. The threat of a second wave of Covid-19 is sending more tremors to an already shocked and shattered world economic leadership. 

Sri Lanka also has a military trained president, who in more than one sense fits the description of a control freak. He has extended his control over almost all branches of the country’s administration and governance. His latest is the interference in the supreme financial institution of the country, the Central Bank. Frustrated by the tardiness of the bank’s role in assisting economic recovery of the nation, President Gotabaya Rajapaksa did not mince his words, when he summoned CB’s governing body and told them that, “monetary policy has to be formulated by the Central bank in accordance with the economic policy of the President of the country”.  

What is crucial here are the words, “of the President”, and not of the Prime Minister or his cabinet. Of course, there is no legislature even to discuss his policies. Economic policy making has thus become the monopoly of one person. Therefore, its success or failure should be laid solely at the doors of the president.

Surely, there must be a few “defunct” economists or “academic scribblers” backing the “practical” president, who must have advised him that Central Bank should also be turned into a political tool rather than remain and act as an independent monitor and guardian of the economy. The forced retirement of two members of CB’s Monetary Board, before their term ended, and the appointment of two of President’s favourites indicate that politicisation of that institution has already set in motion.   

To be fair by the president, it should be stated that this supreme monetary institution, like its counterparts elsewhere, is a product of a different world and is losing its relevance in a fast changing, highly financialised and tightly integrated global economy, in which money itself has lost is original definition. If one does not know what money is how can one control its supply? This is why it is being called “an institutional anachronism”.

Central Bank’s conventional tools of monetary management such as, interest rates, reserve ratio and open market operations have lost their sharpness, and today’s moneyed class has too much influence over governments and banking and credit institutions that it could easily escape Central Banks’ monetary surveillance. This is why there are too many irregularities in the world of banking and finance, and those irregularities and malpractices take their toll on the economy and ultimately on investors and businesses. In this context, the three member committee appointed by the Governor of Central Bank to investigate and report within a couple of weeks on irregularities in financing leasing businesses can only scratch the surface. The malaise is much deeper and needs thorough investigation into the country’s financial sector, by an independent body of experts.  

Therefore, President GR has a case when he demands that CB should come out of its monetary conservatism and engage more robustly through a development oriented monetary policy so that he could implement his economic policy. In response, CB has slashed interest rates. That alone is no guarantee that investment will increase, because what matters for an entrepreneur is not the cost of capital per se but profitability of his/her investment. If the market does not look promising who is going to borrow and invest? Also, if interest rates are slashed that will affect the income of pensioners and elderly, who depend on the return from their deposits with banks and other financial institutions.   

Besides, the President has not yet detailed what his economic policies are, except when he said once that he wanted an economy appropriate to Sri Lanka. He has not elaborated on it since then. His ultimate objective however, is to achieve “prosperity and splendour”, by creating a “secure, disciplined, virtuous and lawful” society. How he is going to achieve that is nowhere stated.       

One could also detect an element of urgency and hastiness in the president’s address to the Central Bankers. Pressured by the economic downturn and facing a crucial General Election in August in which the magnitude of MR-led SLPP’s victory is going to decide the volume of the President’s power, he is desperate for a quick turnaround on the economic front, so that he and the party he supports could face the voting public with a triple crown: victory over LTTE, victory over Covid-19 and victory over economic recession. The first was solid and comprehensive; second is qualified success, (the fact that the country is an island like New Zealand and Australia is a natural advantage, where the government can shut the borders and stop diseases entering from outside); and the third is illusive and not possible in the immediate short term and certainly not before the election. Sri Lanka’s economic recovery is closely tied to the recovery of world economy, and more importantly with the recovery of the country’s trading partners. They are all facing a dismal future, at least for the next couple of years.

However, there are certain areas like food production and small and medium scale consumer industries that can be revived and domestic demand could be satisfied. This is not to create a closed economy, but to gain independence in certain vital economic areas, which could help Sri Lanka to immunise itself from future global economic turbulence. To achieve that, public peace, democratic freedom and national unity, which are not strictly economic variables, are absolutely essential. 

In the final analysis, economic development is for the people and by the people, a fact commonly ignored by economic experts who treat the economy as some sort of an artificial creation run by mathematical models with robotic technology. Without the willing cooperation of the people no economy can survive and thrive. What matters ultimately, is not the growth of Gross National Product (GNP) but Gross National Happiness (GNH).  

The multi-ethnic, multi-religious and multi-cultural Sri Lanka is deeply divided, and increased militarisation of the polity and administration under GR’s Presidency is not increasing but decreasing GNH. The Central Bank does not have a magic wand to produce economic miracles. The crippled economy needs collective effort to recover. That effort will not be forthcoming when communities are trampled under parochial and ultra-nationalistic policies and practices. It is good to dream about “prosperity and splendour”, but end should not justify means.

*Dr. Ameer Ali, School of Business and Governance, Murdoch University, Western Australia

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Latest comments

  • 18
    7

    Gota’s cheap media show is costing the country dearly. A state bank loan offer was stabbed in Wadduwa after a customer demanded a loan promised by Gota!

    Needless to say giving out loans casually will bankrupt state banks.

    • 15
      1

      Gota the Great Redeemer is in deep shit, and he knows it. That explains his temper tantrums. He is thrashing around looking for solutions. Listening to his speech, I was curious why the man kept using English words in places where there were perfectly acceptable Sinhala terms? Did he feel the need to impress the economists with his erudition? Or does he use English when angry?
      Shouting at people is not the way to get things done. Coercing the bank into rash moved like money-printing will cause hyper-inflation. It is not the Central Bank’s job to win elections. The CB is a permanent institution. Presidents are temporary occupants of the position, here today and gone tomorrow.

      • 4
        0

        Not Gota, he wants to be a dictator. The naive supporters who voted for him wanted an authoritarian, and the streets clean. They should have been careful what they wished for, the entire nation will suffer the consequences.

  • 22
    4

    In a dictatorship, everything is dead. Gotabaya is a dictator. Dictator always think in one direction. His thoughts are: I am the top. I know everything. Every one else are brainless. That is what it is happening in Srilanka. He was like a psychopath. His laugh is a monster laugh. He thinks his military man will do everything. That is why he ordered to kill all those surrendered at the end of war. Unfortunately, the fault came to former President Mahinda who feared about electric chair. When he ordered Central Bank staff to follow his order, for the staff have no other alternative because they are humans and they are afraid of death and they have to deal with a psychopath. Poor Mahinda couldn’t find any other way to come to power other than getting help from his psychopath brother. Today, he is speechless, powerless and his life under threat. Namal doesn’t open his mouth now. This is what Buddhist Sinhala wants from their leader. But poor Sinhala masses will feel their mistakes very soon.

    • 6
      11

      Ajith,
      “That is why he ordered to kill all those surrendered at the end of war.”

      Gotabhaya Rajapakshe did not give orders to kill those who surrendered. About 12,000 LTTE cadres who surrendered were rehabilitated and released. They are alive. ‘Para’ Demalu are ace liars. The anti-Sri Lanka and anti-Sinhala propaganda campaign carried out by Tamil Diaspora to get sympathy from the International Community was based entirely on fabricated stories.
      Let me tell one of my experiences. At a seminar held in an academic Institution in The Netherlands, the Tamil speaker showed a photo of a man hanging from hooks and said this is how the Sri Lankan Army is torturing Tamils. When I checked the photo, I realized that it was a photo of a Tamil devotee hanging from hooks probably at Kataragama. I revealed the truth putting the speaker to a highly embarrassing situation.

      • 5
        1

        eager less p…..’
        you are and have been a fornicator with a para Demala meenachi for more than 60 years of your sick demented racist life.
        =
        What a bloody clown of a hypocrite.?

      • 4
        1

        Eagle,
        “When I checked the photo, I realized that it was a photo of a Tamil devotee hanging from hooks probably at Kataragama.
        Is that for all you need your blind eye and dead brain? Horrible Horrible Blind Eye!

        Next time, load the picture to some website, link it here and ask me, I tell you whether it was from Kathirkamam, Selva Sanadhi, Mavidapuram, Nallur, Chunnakam, Bambalapitiya, Okanda(Ukanthai) ……….For the time being just relax you blind eye. (You think, in Hague, the lawyers and judges are thinking they are in Dalada Maligawa and had come to watch Kandyan Kooththu and listen to the Bald Heads crying on the speaker? Your people believe the rice from moon, but not your moda stories.)

      • 4
        1

        Eagle Lie,
        Do you know who issued an illegal passport to foamier minister Vinayagamoorthy Muraleetharan to travel to UK illegally in a diplomatic passport? According to Vinayagamoorthy Muraleetharan it was Gotabaya who issued to him. He became minister after serving 9 months prison in UK. Now same Muraleetharan claimed that he killed over 3000 Sinhalese soldier and it is he who attacked the Daladha Maligawa and the Central Bank and another 600 Sinhalese police man. So, what a Buddhist Sminhalyo you are to honour such a murderer of Sinhalayo and put an innocent Tamil who gave food to Vinayagamoorthy Muraleetharan in Jail. You all cheat not Tamils but Buddhist Sinhala.

    • 2
      1

      Which reminds me of his cackle and the “who’s Lasantha” response.
      He dismissed a brutal murder so easily.

    • 2
      2

      There are no more POOR SRI LANKANS in our Heladiva ( Ariyans Heladiva people, 79% Helayans( Sinhalese Ariyans) .Sinhalese (Helayans) Ariyans voted to Gotabaya around 7 millions with majority around 13 laks. Japan is belongs to Japanese, Cambodia is belongs to Cambodians, Malaysia is belongs to Malays, Thailand is belongs to Thai people, Korea is belongs to Koreans, Vietnam is belongs to Vietnamese people, Miyanmar (Burma) is belongs to Burmese people, Indonesia is belongs to Indonesians. Maldive Islands belongs to Maldivians, India is belongs to Hindus and Sri Lanka (Heladiva) belongs to Sinhalese Aryans.

  • 7
    2

    What on earth does the kallathoni war criminal, the rest of hora boru rajapuka clan including the catchers on and those in the thieving SLPP mangy mongrels along with those military murdering of the innocents’ fellow killers in uniform know about economics.?
    It might be the first time that they would have ever heard of this dirty word.
    =
    The economy since 1956 has been on Kota Uda wheels going down the pallan uncontrollable.
    The American dollar is nearly double the value of the Lankan rupee.
    The nation receives more monetary value for its exports and incomes from the ayah amma’s but they have to pay more their imports.
    At the moment for years imports have been always more in volumes than exports.
    Sad sorry Lanka has always devalued its worthless paiza to bring in more for its export earnings.
    =
    This nation robbing rajapuka’s who took advantage of the nearly 7 million Sinhalese petty racist fools who do not know whether they are coming or going strode into power for their kallathoni of a war criminal.
    =
    Soon after they could not maintain their electoral promises, the costs of living for the average daily wage-earning itinerant labourer Punchi Banka went beyond the moon which means a large proportion of the masses are on a diet of starvation, malnutrition and very soon they will just drop dead with pangs of hunger.

  • 4
    0

    “I am the State” was what Louis XIV an achiever Monarch said in an absolutist environment. In less than two generations that mental frame was washed out in blood in 1789. Stalin said all 50,000 German prisoners of war should be shot. A horrified Churchill after violent protest walked out of the meeting. With no such restraint at Mullivaikkal a multitude perished. The endorser (7 million minus) not the achiever, will meet with retributive justice.

    Does that feat confer omniscience on the doer. Yes it has done its deed in a malevolent land . Come August 6 and 1/2 or 2/3 or 3/4 or 4/5 will make one the Monarch of all he surveys. After that the debate about who will perform will not be ‘generalist or specialist’ but GENERALS for governance.

  • 4
    9

    Ameer Ali,
    It was your buddy in ‘Jadapalana’ Government that turned Central Bank into a political tool by appointing a foreign citizen as Governor and robbed the CB in broad day light. There are no “defunct” economists or “academic scribblers” backing the “practical” president. However, during ‘Jadapalana’ Government, there was a ‘Royal Gang’ consisting of croo-kes deciding the economic policy. What was the outcome? The economy that was growing around 7% in 2015 fell down to around 2% by 2019. While the economy was going down the drain, the ‘Big Boss’ had a nice time in Deniyaya.

    “Surely, there must be a few “defunct” economists or “academic scribblers” backing the “practical” president, who must have advised him that Central Bank should also be turned into a political tool rather than remain and act as an independent monitor and guardian of the economy. “

  • 5
    4

    The majority in SL (at least 44% or thereabout if I am not mistaken) have confidence in a military leader & an authoritarian regime, even though the military cronies come with alleged abuse of power, human rights violations & corruption ‘baggage’. It is to be expected, because, due to the sheer ineptness & bungling under a stupid & a ‘waste of space’ President Sirisena, even a monkey on a pedestal would look better, so in this light, I can accept the thoughts of the majority.

    North Korea has ‘Dear Leader(s)’ in the form of a family dynasty, revered by the simple folk who believe the leader knows what is best for the country. Hitler, too, had a similar background & vision of GR but in a matter of 10 years, mad with absolute power, Hitler was responsible for the destruction of Germany, deaths of millions & misery to the world, brought about by a war he instigated. Even though SL will not go to same extremes, in a few years from now, will GR take responsibility if he was unable to achieve “prosperity and splendour” by creating a “secure, disciplined, virtuous and lawful” society singlehandedly?

    In my reckoning, in a few years under GR & his family dynasty, SL will be another North Korea at worst or an unofficial Chinese colony with a (Rajapakse) puppet regime, controlled by Beijing, at best. Anyway, things aren’t too bad in Hong Kong, so we can hope for the best.

  • 7
    0

    After the Elections They may win with thin majority.they will have to some time take back some thambiyas as they call them to make sure the majority.there will be enough thambiyas whom they can simply buy for money and a powerless junior minister post.but the big problem SLPP MPS will face as to whose side they take.WHETHER IT IS MAHINDAS OR GOTHAPAYAS SIDE.Even now there are so many MHINDAS golayas showing signs of tilting in favour of GOTHA.Some are undecided and on the fence waiting like frogs to jump to any side to GET CABINET POSITIONS.YOU CAN SEE A MUSICAL CHAIR POLITICAL CARNIVAL AFTER ELECTIONS.THE RIFT IS ALREADY THERE WHICH THEY ARE HIDING NOW BUT IT WILL SPREAD LIKE CORONA AFTER AUGUST 5TH.IT MAY SOME TIME THE ARMY MAY BE CALLED IN TO STOP THIS POLITICAL CORONA AND KEEP SOME MP,S UNDER CORONA WATCH FOR 15 DAYS OR MORE.

  • 0
    0

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  • 1
    1

    When it comes to dictatorship there are some advantages for a country like Sri Lanka.
    Democracy has lot of defects . Sri lankan vote base is politically uneducated, corrupt , ethnic minded and has selfish attitude. They vote for short term petty gains more than development of the country. In Sri Lankan style democratically elected leader is ransomed by corrupt parliament leading to mass scale favors., bribery and loss of public money. It may be good on paper but not worked well for us for 5 decades from independence.
    It is better to ruled by dictator with time limit on his or her rule as that person can get decisions without being partial to parties with vested interest. It he has not performed up to the peoples expectation he can always be defeated in presidential election. I don’t condone to all Gota’s policies but let him implement them for 5 years and get rid of him after five years if he has not perform well.

  • 1
    0

    The central Bank cannot work in isolation.

    The context is important.

    It means in the context of international economy.

    economic Policy of the Central Bank at the short term has to be flexible to be effective

  • 1
    0

    Eagle, WOW. I am speechless but surprised that your vision is still intact. You were even able to make out the identity of the person because I am told many non Tamils not only visit such temples (especially Kataragama) but participate in rituals. Investigative Journalism ???? I guess you can be of help to Mahindananda ,s inquiry commission.

  • 1
    0

    This is an excellent thought-provoking piece by Dr. Ameer Ali. Instead of focusing on the main ideas of his brief note, our country folks seem to hurl insults at each other. This is disappointing and does not say much about the English-speaking middle class of our country. That notwithstanding, I would tend to think that the piece does not capture the main issue. That is, the problem of coordination of monetary and fiscal policies. For a developing country like Sri Lanka this policy coordination is crucial. We are not like the US, Canada, UK, Australia, where the system can operate with a so-called “independent” central bank. That idea by the way is also under close scrutiny in the west. Besides, think about the efficacy of interest rate adjustment in an economy like Sri Lanka. Note the issues of effectiveness as well as long lags involved. Furthermore, I think Dr. Ali has an excellent point about focusing on domestic supply (such as food production) in the short-run at least. It emphasizes the idea that we have to survive in the interim transition to an emerging global order. Nobody knows what that order would be. By the way, the issue is not only for the central bank to wake up, the whole country needs to wake up.

  • 1
    0

    The request by the President to the Central Bank to provide low cost funding for businesses affected by the Covid-19 pandemic, is consistent with similar requests made by Heads of State of many other countries. It has borne results.

    It is unfortunate that he is ignoring the low hanging fruits that can accelerate the growth of the economy. A good example is the attempt to shelve the JICA funded LRT project, which has proved successful in Delhi. Another is his opposition to the cultivation of Palm Oil even by small holders, without allowing scientists for and against the cultivation of Palm Oil to achieve a consensus on how it should be done, to reduce the 80% of our cooking oil imports to at least 50% in five years. We need all the foreign funded projects to revive the economy.

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