By Rusiripala Tennakoon –

“The country’s financial architecture must emerge from this reform era not merely stabilised, but strengthened in governance, transparency, purpose and accountability. Sri Lanka cannot afford to relearn old lessons at new cost.” These words, recently highlighted by me in my previous article, capture the essence of the concern I sought to express. Yet when a word becomes ubiquitous, it risks becoming imprecise.

They were written at a time when the word “reform” has become perhaps the most frequently invoked term in our national discourse — particularly within the framework of IMF-supported stabilization. Reform is now spoken of as necessity, obligation, and inevitability. It appears in policy pronouncements, legislative amendments, institutional restructuring, and fiscal recalibration. This concern becomes more important in the context of what the visiting IMF remarked about our economy. She said , Quote “IMF chief commends Sri Lanka’s economic stabilization efforts…”

While the IMF’S appreciation of Sri Lanka’s stabilization efforts is welcome, stabilization alone is not transformation. The real test is whether the reforms are practical, growth-oriented , and socially sustainable. Commendation must be matched by careful evaluation of long term feasibility and developmental impact.

Partly as a further elucidation — and partly in response to thoughtful exchanges that followed my previous article — I feel compelled to clarify what I mean by reform. My concern is not reform as procedural compliance under an international programme. My concern is reform as a transformation of institutional character.

IMF-supported reform provides structure and urgency. But national transformation requires internal conviction.
The question before us is therefore deeper than compliance:

Will this reform era merely correct imbalance?

Or will it cultivate institutional maturity?

Beyond Stabilization

Sri Lanka has previously demonstrated the ability to stabilize after crisis. Fiscal adjustments are implemented. Monetary discipline is restored. External confidence gradually returns. Legal frameworks are strengthened.
But stabilization is not the same as strengthening.

Once immediate pressure eases, vigilance can soften. Oversight becomes routine rather than rigorous. Governance structures remain intact in form, but weaken in spirit. Development mandates risk dilution. Autonomy may slowly resemble insulation.

It is this pattern of institutional drift — not reform itself — that warrants attention.

Reform must alter behaviour, not merely balance sheets.

True transformation requires that:

* Transparency becomes instinctive rather than reactive,

* Accountability operates continuously rather than episodically,

* Boards understand development mandate alongside commercial prudence,

* And autonomy remains anchored to structured responsibility.

Without such behavioural embedding, reform risks remaining procedural rather than foundational.

A Lesson from the 1990s

Our own history provides sobering insight.

During the 1990s, Sri Lanka confronted a serious episode involving the financial distress of state-owned banks. The response was deliberate and carefully negotiated. Safeguards were crafted. Prudential standards were reinforced. Oversight arrangements were strengthened. Explicit warnings were recorded with the clear intention of preventing recurrence.

The framework was well designed. The safeguards were clear.

Yet within a few years, weaknesses resurfaced. Risk concentration re-emerged. And ultimately, the Treasury was once again compelled to provide recapitalization support. Not once more ,but number of times.

Even carefully crafted conditions can erode if vigilance declines. Even explicit safeguards can weaken if internal discipline fades. Structures alone do not guarantee sustained prudence.

The deeper lesson is this: recurrence becomes possible when institutional memory does not translate into institutional culture.

If we are to avoid relearning old lessons at new cost, reform must embed behavioural resilience — not merely draft preventive clauses.

Development and Social Enrichment

A thoughtful observation made in private discussion with an eminent economist cum senior central banker often educating the country through multiple sources , deserves recognition: “development cannot be confined to fiscal ratios or macroeconomic stabilization. It must incorporate social enrichment, educational expansion, and upward mobility extending to the lower strata of society.”

This perspective is not new. As he pointed out the early French economist Richard Cantillon, writing in the 18th century, understood that economic systems are living social organisms. Wealth was not merely accumulation of money, but the productive vitality of a nation — rooted in its people, incentives, and social structure.

Later traditions in political economy reinforced this insight: sustainable prosperity rests upon human capability, education, productivity, and inclusive opportunity.

Thus, when I refer to development mandate, I do not speak of expansion of balance sheets alone. I refer to a financial architecture that supports:

* Productive enterprise,

* Technological modernization,

* Education and skill formation,

* Regional balance,

* Responsible risk management,

* And broad-based participation in economic growth.

Financial discipline and social enrichment are not competing objectives. They are mutually reinforcing pillars of durable development.

Institutional Character: The Core Issue

Where, then, does vulnerability persist? It lies not in absence of reform intent, but in institutional character.
Institutions can drift. Commercial incentives can overshadow developmental responsibilities. Political pressures can distort prudence. Conversely, excessive insulation can weaken alignment with national priorities.

The test of reform is therefore not immediate compliance but sustained conduct. Five years from now, when external monitoring relaxes and crisis memory fades, will transparency remain robust? Will reporting linkages function meaningfully? Will boards balance independence with accountability? Will development mandate remain integrated with social advancement? If the answer is yes, then reform will have matured.If the answer is uncertain, then stabilization may prove temporary.

The Cost of Relapse

The recent crisis imposed heavy economic and social burdens. Public trust was strained. Confidence was weakened. Patience was tested.

A second relapse — particularly one arising from preventable governance failure rather than external shock — would carry a far heavier cost. It would undermine not only fiscal credibility but the legitimacy of reform itself.
Citizens may endure hardship once in expectation of structural correction. Repetition of avoidable mistakes would erode trust more deeply.

Reform must therefore be cumulative, not cyclical.

From Event to Condition

Stabilization is an event. Maturity is a condition.

Stabilization can be engineered through fiscal tightening and legislative recalibration. Maturity requires consistent institutional behaviour over time.

The present reform era offers a rare opportunity. Crisis has generated urgency. Urgency has produced reform. Reform now offers the possibility of renewal.

But renewal demands vigilance beyond crisis.

The objective is not merely to prevent default. It is to cultivate institutions whose conduct reflects discipline even in stability; whose transparency survives beyond scrutiny; whose autonomy is matched by accountability; and whose development mandate integrates financial prudence with social enrichment.

Only then can Sri Lanka’s financial architecture emerge from this era not merely stabilized — but strengthened in governance, transparency, purpose, and accountability.

And only then can we confidently say that old lessons need not be relearned at new cost.