By Hema Senanayake –
The Central Bank issued a Press Release on January 4th, 2023, on the same day, the Provincial Council election was gazetted by the Election Commission.
The Central Bank knowing that the government’s culpability in bringing this economic crisis could play a huge role in the election, it exonerated the Gotabaya regime’s responsibility from making the crisis in the first place and for prolonging the crisis under the Ranil Wickremesinghe’s presidency.
We all know that nothing will happen without the presence of necessary conditions. This principle is known as the cause-and-effect principle. No crisis could happen without the presence of necessary conditions.
So, everybody in this country knows that the President Gotabaya Rajapaksa’s regime set the cause for this economic crisis by not taking prudent and timely decisions. Instead, he lectured the Central Bank officials about running the Central Bank properly. Foreign currency reserves evaporated under his presidency. IMF warned about the necessity of taking care of debt sustainability months before the crisis and directly communicated it to the former Presidential secretary, Dr. P.B. Jayasundera. Neither Jayasundera nor President Gotabaya paid any attention and on the contrary, they argued as far back as July 2021 that fast tracking project loans from the World Bank, ADB and other multilateral and bilateral lender supported projects would be sufficient to meet the balance of payment problems; seeking IMF support was not necessary. Country crashed under their watch. In that sense Gotabaya’s government was responsible for bringing this economic mess.
This culpability of economic crime was exonerated by the very first paragraph of the Central Bank’s press release. Instead, it says that the current economic crisis was resulted due to Easter Sunday attacks in 2019, the outbreak of COVID-19 in 2020 and its protracted impact on activity in the aftermath in 2021, the socioeconomic and political crisis in 2022 amidst catastrophic balance of payment pressures. These were the causes for the crisis identified by the Central Bank. Then the Central Bank says the crisis itself led to make unprecedented policy trade-offs which have severely affected economic activity inflicting unimaginable hardships to individuals and businesses.
But we know that the sociopolitical crisis is the response not the cause as identified by the Central Bank. In fact, the Central Bank knows the truth. Then why it has said what has been said. I guess the Central Bank wants to exonerate the government’s culpability in making the crisis. But Gotabaya has gone. Then why the central bank wants to exonerate his regime from being responsible in creating this economic crisis. The second paragraph of the press release provides an answer to this very question.
The reason is to exonerate the present government for prolonging the current crisis. The second paragraph of the press release begins by saying that, “the government and the central bank were compelled to implement painful but unavoidable policy measures during 2022 aimed at restoring macroeconomic balance.”
The truth we know is that the present government prolongs the crisis by not bringing the macroeconomic balance soon. The central bank first exonerated the Gotabaya’s regime from the responsibility then exonerates the Ranil’s regime for prolonging the mess. At this moment the most important economic indicator is the “business confidence.” The present government is ruining it. The business confidence is an intangible and subjective parameter. But right now, it depends on a very objective variable known as the stability of the domestic currency or rupee. In turn this stability of rupee depends on the inflow of debt free dollars, a very objective parameter. Ranil’s government ruining the confidence. That is why the press release itself reveals that “measures were initiated to improve foreign exchange liquidity in the domestic foreign exchange market with the repatriation and conversion requirements of foreign exchange, thereby disincentivizing activity in the grey market.” What does this mean? It means that those who are capable of bring in debt-free dollars have lost confidence in the government and therefore the Central Bank had to impose punitive rules for repatriation of hard-earned dollars or other foreign currencies.
After hatching a constitutional coup and holding on to political power would not create any confidence domestically or internationally among all stake holders. They all know that the present regime is not a legitimate government, and its days are numbered. The way to revive lasting “confidence” is to set up a corruption free “united supper democracy” of all-party government for limited time period, say for one year. Then every political party, not selected few henchmen, will be included in IMF negotiations, debt restructuring, economic reforms etc. Such policies may continue even after the next parliamentary and presidential elections. Once I told this necessity to a prominent JVP member. He agreed and said that they will do it under their government without people of corruption allegations. Then, I agreed.
This means, I guess, all political parties know what is to be done to save the country. But the Central Bank doesn’t know it, it seems. That is why it tries to paint a rosy picture of what the government and central bank do right now. It never points out the need of true political stability which will transcend a positive message to all stake holders, motivating them to bring in debt-free dollars voluntarily, increase in tourist arrivals or fast-tracking lending to support balance of payment issues, in restructuring debt quickly, in providing bridging finance and even bringing in Foreign Direct Investments, etc. Political stability is the main thing. Ranil cannot do it by intimidation. Ranil will awaken to this reality possibly after the provincial council election. The sad thing is that to awaken him from an illusion, the election commission must spend nearly Rs. 10 billion. People will do what the Central Bank reluctant to do as the official economic adviser to the government.