{"id":222512,"date":"2021-09-14T13:25:03","date_gmt":"2021-09-14T07:55:03","guid":{"rendered":"https:\/\/www.colombotelegraph.com\/?p=222512"},"modified":"2021-09-20T14:01:55","modified_gmt":"2021-09-20T08:31:55","slug":"from-central-banking-to-presidential-banking","status":"publish","type":"post","link":"https:\/\/www.colombotelegraph.com\/index.php\/from-central-banking-to-presidential-banking\/","title":{"rendered":"From Central Banking To Presidential Banking"},"content":{"rendered":"

By Ameer Ali<\/a> –<\/b><\/span><\/p>\n

\"\"<\/a>

Dr. Ameer Ali<\/p><\/div>\n

It was in 1962 that Prof. H. A. de S. Gunasekera published his book, From Dependent Currency to Central Banking in Ceylon. <\/i>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, \u201cFrom Central Banking to Presidential Banking\u201d. From the time CBSL was established in 1950 it has remained a statutorily empowered independent institution until Professor W. D. Lakshman<\/a><\/span> was handpicked by President Gotabaya Rajapaksa<\/a><\/span> (GR) and appointed as the bank\u2019s Governor in December 2019. It was GR\u2019s golden handshake to a professor who was the chief architect behind the president\u2019s Viyathmaga<\/i><\/a><\/span> and grand vision of an \u201calternate way\u201d to achieve \u201cprosperity and splendour\u201d. 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\u2019s 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\u2019s favourites, and with clear instruction to all of them to assist implementing GR\u2019s 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\u2019s bank, what happened in Sri Lanka after 2019 was to turn CBSL virtually into a President\u2019s monetary tool. This change is not dissimilar to what happened to another institution in the country, the Supreme Court.\u00a0 \u00a0 \u00a0<\/span><\/span><\/p>\n

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 \u201ca tired anachronism based on dubious economics\u201d, and it should \u201cbroaden\u201d its policy making in order to \u201cimprove our society\u201d and protect \u201cthe future of our planet\u201d. 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\u2019s executive Presidency falling under an authoritarian schooled by the military that accountability has been lost. Under Lakshman\u2019s 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. \u00a0 \u00a0<\/span><\/span><\/p>\n

On a wider canvas, the resignation of Lakshman comes after similar resignation of medical experts and epidemiologists who were frustrated by a regime\u2019s 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<\/a><\/span>, an accountant and politician, as the 16<\/span>th<\/sup><\/span> governor of CBSL does not augur well to improve the image and role of CBSL. Just as Lakshman was the chief designer of GR\u2019s Viyathmaga<\/i>, so was Cabraal who was the chief brain behind \u201cMahinda Chintanaya\u201d. He was an economic advisor of the government during MR\u2019s 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\u2019s 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? <\/span><\/p>\n

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\u2019s 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\u2019s foreign policy. EU\u2019s threat of withdrawing GSP is one example of that and if that eventuates EU will kill the nation\u2019s apparel industry. The aftermath of the current UNHCR session in Geneva will probably carry more bad news to the economy. <\/span><\/p>\n

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\u2019s 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.\u00a0 \u00a0<\/span><\/span><\/p>\n

*Dr. Ameer Ali, School of Business & Governance, Murdoch University, Western Australia<\/i><\/b><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

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