18 September, 2021

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From Central Banking To Presidential Banking

By Ameer Ali

Dr. Ameer Ali

It was in 1962 that Prof. H. A. de S. Gunasekera published his book, From Dependent Currency to Central Banking in Ceylon. If someone were to write a sequel to that book today, the author may have to add at least a whole chapter with the title, “From Central Banking to Presidential Banking”. From the time CBSL was established in 1950 it has remained a statutorily empowered independent institution until Professor W. D. Lakshman was handpicked by President Gotabaya Rajapaksa (GR) and appointed as the bank’s Governor in December 2019. It was GR’s golden handshake to a professor who was the chief architect behind the president’s Viyathmaga and grand vision of an “alternate way” to achieve “prosperity and splendour”. The fact that by 2019, Lakshman, like several of his academic colleagues at Peradeniya, had embraced the ideology of Sinhala Buddhist ethno-nationalism, made GR’s choice politically appropriate. However, with this appointment and removal of a couple of members of the then monetary board, to be replaced with the President’s favourites, and with clear instruction to all of them to assist implementing GR’s economic policies, the foremost economic institution of Sri Lanka, which remained independent until then became a tool in the hands of an executive president. Although in theory central banks are known as government’s bank, what happened in Sri Lanka after 2019 was to turn CBSL virtually into a President’s monetary tool. This change is not dissimilar to what happened to another institution in the country, the Supreme Court.     

The theoretical independence of a central bank does not mean that it could adopt a set of monetary policies totally in contradiction to the economic ideology and policies of ruling governments, even though there may be occasions when a central bank may be compelled to take that stand in order to inject some shock treatment to an economy inflicted by irrational fiscal policies. Even in mega economies like those of US and EU for example, the ideology of central bank independence has come under constant criticism recently. According to one commentator, central bank independence is “a tired anachronism based on dubious economics”, and it should “broaden” its policy making in order to “improve our society” and protect “the future of our planet”. In many emerging economies therefore, there is increasing strategic coordination between monetary and fiscal policies. However, in broadening the reach of central bank policy making the bank must be subjected to democratic accountability and political oversight. With Sri Lanka’s executive Presidency falling under an authoritarian schooled by the military that accountability has been lost. Under Lakshman’s governorship CBSL simply became a money printer to provide liquidity to an economy hit by a pandemic caused worldwide depression worsened by a regime of fiscal policy born out of thought bubbles from a megalomaniac President.    

On a wider canvas, the resignation of Lakshman comes after similar resignation of medical experts and epidemiologists who were frustrated by a regime’s unwillingness to entertain independent thinking and expert advice. There seems to be a culture of irreverence to rational thought within the ruling political circle. That said, the replacement of Lakshman, an economist, by Nivard Cabraal, an accountant and politician, as the 16th governor of CBSL does not augur well to improve the image and role of CBSL. Just as Lakshman was the chief designer of GR’s Viyathmaga, so was Cabraal who was the chief brain behind “Mahinda Chintanaya”. He was an economic advisor of the government during MR’s Presidency. His record as previous governor is also not clean, and the saga of the Greek bond disaster masterminded by Cabraal is still fresh within the financial community. Therefore, how independently CBSL and its Monetary Board would function under Cabraal, and ignore pressures from President’s office is not clear. In all probability CBSL Monetary Board may act as rubber stamp to decisions made personally between Cabraal and GR. Why then the need for a Monetary Board at all?

Cabraal was the man who continued to resist approaching IMF for assistance. Now he seems to be singing a different tune. Yet, IMF help comes with conditions attached to it. Will he advice the government to accept those conditions, which would certainly force changes in the current fiscal regime? Import restrictions endorsed by Lakshman’s regime may help conserve foreign exchange in the short run, but will lose more in the long run if foreign exporters respond by cutting their imports from Sri Lanka. Sri Lankan exports are also threatened by difficulties emanating from government’s foreign policy. EU’s threat of withdrawing GSP is one example of that and if that eventuates EU will kill the nation’s apparel industry. The aftermath of the current UNHCR session in Geneva will probably carry more bad news to the economy.

CBSL has therefore a very critical role to play in the current economic environment. Its monetary policy has to help primarily to reduce the punishing the cost of living at home while improving the nation’s external financial stability. This is a difficult task to achieve and needs creative and independent thinking which is not possible when the head of the institution is a politician attached to the ruling regime.   

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

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  • 28
    2

    A very revealing observation by Dr. Ameer Ali.
    ……….The fact that by 2019, Lakshman, like several of his academic colleagues at Peradeniya, had embraced the ideology of Sinhala-Buddhist ethno-nationalism……………

    It was the LTTE that was hell bent on creating a Separate State; Now,it looks as if even Peradeniya academics are hell bent on creating a Sinhala-Buddhist State, via the Viyathmaga- A Learned society.

    The Rajapakse Chinthanaya has been quite infectious!

    • 5
      12

      Plato,
      “Now,it looks as if even Peradeniya academics are hell bent on creating a Sinhala-Buddhist State,…”
      —-
      Sinhale/Sri Lanka is a Sinhala-Buddhist State and will remain as a Sinhala-Buddhist State. ‘Yahapalana’ Government tried to change that but failed. So, Peradeniya academics do not have to hell bent on to create a Sinhala-Buddhist State.

      • 3
        0

        Eagle,
        “Sinhale/Sri Lanka is a Sinhala-Buddhist State and will remain as a Sinhala-Buddhist State. “
        I find it very strange that you prefer to live in the evil West, not the Sinhala Buddhist paradise . Is there something you know that we don’t?

    • 3
      13

      Plato,
      “The Rajapakse Chinthanaya has been quite infectious!”
      —-
      May be but not so dangerous as Prabhakaran’s ‘Bheeshanaya’.

      • 5
        1

        This sad……..why don’t you add SJV……demulu. .but back home regardless people are dying starving …..sad and sick this sort of mentality still …..

      • 7
        2

        Eagle ‘dimwit’ Eye, did your Tamil boss beat you with a bata slipper when you were cleaning his toilets?

    • 0
      2

      Hi Plato
      The facts are …
      Under Ajith Nivad Cabraal, the economic growth for the five years from 2010 to 2014, was at an average rate of 6.8% and the investment outlook was steady and robust. On July 29, 2014, the IMF stated: “Sri Lanka’s economic growth has been one of the fastest among Asia’s developing economies in recent years”

      Under Yahapalanaya, Rani-L friend Governor Arjun Mahendran single handedly took the Central bank to the cleaners and the growth rate bottomed to 2.3 in 2019 compared to 9.1 in 2012 under Cabraal.

      I think Cabraal would repeat his achievements this time also… With country achieving highest rate of vaccinations, tourism/industrial output would flourish along with port city and other investments… Hopefully, bad time due to Corona is behind the country…
      Cabraal’s patriotic flavor will really help in putting the country for long growth. I admire his homegrown patriotic economic policies.

  • 13
    2

    Dr. Ameer Ali,

    You have summarised well about what happened to the Central Bank of Sri Lanka in the recent past, particularly from 2019. Even now people who decide who should run this country cannot understands the reality of importance of accountability and independence of judiciary, military, rule of law and Central bank and the need for every one in power should be accountable for what they do. They should also learn lessons from independence until now that every one should treated equally. In other words, the country need strict rules and regulations that is not biased to President or ordinary citizen.

  • 13
    0

    While the author’s premonitions regarding the fate of independent monetary policy based on sound economic principles rather than political expediency seem accurate, he has not mentioned the China factor in this unfolding banana-republic drama. Traditional western-based economic policy is being shunned by the “nationalist” set of government advisors and sycophants verily because China has given a carte blanche agreement to support the country, come what may. This is somewhat akin to a monkey being given a “daeli pihiyer” (a barber’s shaving knife) with instructions that the giver trusts it will be used properly. Unfortunately the resulting cuts and gashes will be on the body of the nation, with essential “imports” being curtailed and basic foods like milk-powder or turmeric becoming “luxury” items. I do not believe that Cabraal will be a conscientious employee of the treasury. He is far too loyal to political agendas of the ruling party to remain independent in the interests of the people.

    • 0
      2

      hi Lasantha
      Read my posting above to Plato…
      People like you always prepared to lick western backs …. What a western China hated mindset these guys have … They would never come out of it … Your wish of banana republic drama to the country would never materialize .. Hating China and kissing west is disappearing fast.

      West always try to use countries like ours for their own agendas.. Look at Libya, Iraq, Afghanistan … Even look at India.. What a failed country … West’s early darling Pakistan was used to contain Russian friendly India in the past. Now they use India to contain China and India would be badly hurt in years to come. Chinese friendly Pakistan without the west is better in shape now than anytime during recent past.

      Cabraal’s loyalty to political agendas is no barrier to put the country in right path as he proved in his last tenure as Governor of the central bank…

  • 7
    1

    The sordid picture Ameer Ali painted is not really a picture, but a photograph, – the true state of our State, in every sense!

  • 8
    1

    Anyone still remember Indrajit Coomaraswamy? A man from good stock …….. a vanishing breed.

    Rajapakses have made shamelessness a virtue.

    All these high-flown talk is worthless: have been going on for eternity ……. the need of the hour …….. to punish all the crooks ……. rescind the presidential-pardon and put the murderers back where they belong. Put the looters of national wealth in jail.

    That’s the only panacea for all ills.

    Unaccounted corruption and good-governance cant cohabit …….. gotta get the priorities in order ……

    If the crooks are punished ……. the country will right itself …… like magic …….


    I’m curious how Gota and Basil get their loot to the USA ……. checkout what happened to Paul Manafort

  • 1
    8

    “…the foremost economic institution of Sri Lanka, which remained independent until then became a tool in the hands of an executive president.”
    —-
    AA seems to be suffering from selective amnesia. It looks like what happened during ‘Yahapalana’ Government have been completely erased from his memory.

  • 6
    1

    Rename it from “Central Bank” to “Royal Treasury”. The Looters’ Bazaar!

    If there is no salt, a mother may still make roti and feed her children with the flour she has. Problem here is that my mother don’t have flour, but only salt. No way she can make a roti. Hoping to bring a military government under 18A, Rowdy Old King conducted 2 years early the election seeing that they cannot run the government. The UNP Yahapalanaya resigned one year early and handed over the power back to Royal Aanduwa. We have to think why these ugly, greedy politicians are resigning before their time. They only come to loot, when there is nothing more left in that season, they quit. IMF loan has no way to fix this economy. That idea is coming from those who have no idea of what a country’s economy means. Even Jaffna University Sadampi won’t be able to positively spin those guys’ talk of MMT.

  • 7
    0

    This Cabal guy emptied the sovereign bond and left. Mahendran looted the local banks & EPF and wrote 172 checks for local politicians. Dr. Coomaraswamy did not wanted to accept that he failed but quit. This JVP Guy Dr. Lakshman had no way to roll money so printed as much as he wanted. It is wrong to interpret that he believes in MMT. It is Just the way they explained why the standardization and Sinhala Only were good for the country, MMT is an explanation to their new looting technique. It is over and Cabal returning.

    Cabal’s return is an indication that, though Old Rowdy lost FAM but no sand on his mustache. The ladle is now in his Golayah’s hand. Cabal is master brave in fearless looting; he will do it promptly. Cabal will take care of Old Rowdy, too. Old Rowdy went to see the Pope, but Cardinal comedy refused to accompany this time, fearing Western Government would get antagonized. So, Old Rowdy once again wiped his mustache, in Italy.
    Viva Lankawe Politics!

  • 3
    1

    From Central Banking to Family Banking!

  • 0
    0

    This sad……..why don’t you add SJV……demulu. .but back home regardless people are dying starving …..sad and sick this sort of mentality still …..

  • 1
    0

    The looters of national wealth during Mahinda’s regime at the end of 2015 are back again. Mr. Cabral and Co, at that time responsible for looting the Treasury funds- mostly currency notes and delivered them at the Temple trees residence, yet no action was taken against them. Now he is being brought in for carrying out the same Cabrala- job as the kinsman of Rajapakssas.

  • 2
    0

    Our Economy is in trouble . Our Religions are in trouble . Our Politics is in trouble .
    Our Democracy is in trouble . Our Justice system is in trouble . Education , Health
    Transport all in real trouble . Who put the country in this situation ? All bad
    leaders of all hues ! First they blamed the Colonialists , then came the Tamils and
    now the Muslims , Catholics are waiting for their awards sooner than later ! Real
    picture is getting wider and wider and explaining what sort of prosperity to expect
    from a bunch of crooks who know or care nothing about generating economy but
    experts in degenerating it ! Minimalism must have been the Mantra for the country
    for a long time after the Colonialists left , the way forward on the Prosperity ladder.
    But what followed and encouraged was Extravagance and False Patriotism !
    Practically there’s no independent institution as such in the country . So , how
    come a Central Bank ? Thuggery ,without doubt is the language now in use in
    different forms and shapes ! So , how will CB work independent of such Politics ?

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