Only Resoluteness Can Save Us

By Rusiripala Tennakoon –MARCH 26, 2022

Rusiripala Tennakoon

One of the main objectives of the Central Bank is to maintain Financial System Stability. Without a stable financial system it will not be possible for the CBSL to engage mobilising savings and allocating them to productive investments, managing risks and settling payments, without materially affecting economic growth and welfare of the people even during economic shocks and stressful circumstances.

Finance ministry has to play the role of socio-economic development of the nation. In addition it is the finance ministry as the policy-maker in financial matters, that is responsible to play a role of co-ordinator and controller and to mobilize national resources and control public expenditure.

Consultation, conference and consensus at the decision making level will be an extremely important pre requisite for a balanced and well managed economy of the country. There should be a closer liaison among the persons associated with these critically important institutions.

Politics sans these always end up in a mess leaving everyone guessing and undecided.

If a wheel balancing is not done we are going to lose the race. Sri Lanka today is becoming well known as a country having an administration with square pegs in round holes.. Choosing and selecting for positions is happening apparently in an unknown background conjectured as confined to a closed circle under self-centered concerns with least regard to the suitability factor.

This is now an opinion held by many here as well as overseas. Just to quote an example, at a recent international forum ‘Asia Society’ Imran Khan, the Prime Minister of Pakistan had this to say; “…….. I supported him. I really thought he is someone who could face sincerity like he does. He is brilliant at that I fell for it. And for 2 1/2 years we thought that the man has got rid of sham democracy and was going to bring genuine democracy. In the end I discovered that it is not the fault of Generals. It is the institution which they come out of. They just don’t have the vision to run a country. They are not equipped to deal with normal human beings. They don’t understand debate and consensus and such stuff. And as Churchill once said, “war is too serious a business for Generals”

I really believe that they are not equipped to make these decisions. Instead they should be given projects like ‘go capture that hell’ (laughter)

But when you tell them to run a country it does not work” (E&OE)

The Farce that was of the all party round table

Many of those who were making a loud out cry demanding an All Party Conference as a high priority measure to solve the current crisis, shamelessly withdrew from it except RW-Sirisena combination. They of course had their own reasons as parties with no power or peoples backing but individually pressurised to attend to be in the good books of the ruling party for their own security, shelter and insurance.

But on the whole the entire episode became a farce and mockery lacking in any seriousness. RW despite his public demand to hold this All Party Conference, only asked for a copy of the IMF country report at the table. Sirisena as expected had nothing to add according to available reports.

Other noisy elements who contributed to this demand in different ways, kept off probably because they had second thoughts that the forum would not understand their formal and methods!

As far as we know there is no need for any new recommendations from the IMF as we are already under their surveillance and guidelines due to our previous borrowings in 2016, still outstanding. When the RW/Sirisena govt. sought IMF support as a bailout package to avert a balance of payments crisis then under a proposed Extended Fund Facility the IMF granted SDR1.5 billion. While granting that facility IMF laid down certain conditionalities. They were beneficial to us but the government continued the affairs without seriously addressing the recommended correction process.

One glaring example was allowing the continuation of the deterioration in the administration and the performance of the SOEs and the SOBs.RW/Sirisena Govt. did not pay any special attention to those. AS a result the accumulating debts of Sri Lankan Airlines, CEB, CPC and many other State-owned enterprises soared to sky-high levels. We did not come across any efforts taken by the government to arrest the situation. The irony is while these institutions continued to increase their debts the SOB profits soared to high levels with what they earned as interest incomes, commissions, charges and foreign exchange margins on account of these never reducing outstanding balances of these institutions.

The previous Govt. as well as the new Govt. allowed this state of affairs to continue relentlessly. Some of the Economic Wizards of the SJB (the famous econ trio) Harsha Eran and Kabir were making comments often about the current state of the economy hiding behind the fact that they have contributed in a big way to the current precipitation. It was shocking to see how they were talking in TV shows when the Monetary Board of the CBSL issued a directive limiting the State Banks from lending to these heavily loss-making CPC and CEB and such other SOEs without any limitation branding it as a move to hit the banking system. The gullible public are badly deceived by such pompous talking. For those who know it was only a step in keeping with the IMF directives although taken belatedly. They are only trying to hide their negligent contributory role leading to long queues and shortages that we experience today.

Profit shown statistically is something that all of us have to be cautious about. When the reports show profits in billions, people are generally perplexed. They do not care to examine whether there have been any juggleries employed in producing those figures. But according to our own experience we have come across similar situations. During the UNP Govt. era in 1992 the World Bank initiated an international audit on the two State Banks, Bank of Ceylon and Peoples Bank. They were making profits although not so high as today. Nevertheless, the audit revealed alarming things like under provisioning on account of liabilities, inadequate loan loss provisioning etc. The net result was a revelation of a huge capital inadequacy in both banks running to about 23 billion LKR.10.4 billion in the PB and 13+ billion in BOC.

These young politicians may not have been exposed to such hence their complacency with the huge profit figures shown. I can only ask them to take a look at the Hansard records in the Parliament Library to acquaint themselves with what really happened then. They are sure to see a repetition of the phenomenon but only in a worse form than then. They will be shocked if they make a comparison of those shortfalls highlighted then with the actuals of the banks today.

In a crisis situation like this people expect not only criticism. They are eager to find out who has a better solution and not only ammunition to attack. If all candidly admit their own faults under different regimes it would be a positive step towards a better understanding. What we need today most importantly is political reconciliation as a priority before racial reconciliation.

As members of the public we are carefully watching the various statements these people make from time to time. Sri Lanka was maintaining a dollar peg from a long time. We maintained our currency value at a fixed exchange rate to the US Dollar. The CBSL controlled the value of the currency so that it fluctuates along with the dollar. Suddenly there came a hue and cry to make the currency free floating. Because the various schools of economics advocate so. When relaxed to a certain degree as of now, we are beginning to see the effect. Not only have the imports gone up even Brinjals grown in Anuradhapura has gone up in price. Not because we are paying in dollars. But because of the indirect influence of the Dollar value affecting the fuel , transport and host of other things. And we are yet to see a visible increase and inward flow of exchange due to this relaxation. Well, hope for the Best .The views of the experts should prevail in the end at any cost.

Then there was a big cry not to pay for the sovereign Bonds on maturity. They later qualified it by saying delay the payment. Delay or no pay, to us is a default. But for some waiting to do a business and create a market for the differed bonds it was a economic theory. As ordinary folk we thought it would be better to keep the opportunity open without sabotaging the chances of future bond issues. But when the CBSL paid them in time showing our credibility they now say go to the IMF. We expect them to say something better. There is nothing sacrosanct in going to the IMF. If a country can impose conditions on themselves in a more acceptable manner and look for alternate avenues before trying to hang on to the refuge of the last resort it would leave us with some consolation and hope. But those who ran to the IMF with no Covid or Tsunami failing to keep the BOPs only due to their economic bungling) are pressurising the Govt. to follow what they did probably to dilute the effect of their doing in a political sense.

The government on the other hand should seriously concentrate to explore opportunities to attract increased foreign remittances addressing the relevant fields. If we got USD 7.5 billion sometime back as inward remittances from those employed overseas and we are now getting only around USD 3 billion, that leaves us with a clear achievable target of 4.5 billion to chase. Let us see why it went down and take suitable remedies. There is no point in raising the dollar value indefinitely to run a never-ending race with the black marketeers. When the Govt. raises they will increase more. This is where we have to think of more feasible, practicable solutions which will lead to the generation of quick results.

Only way to beat the blackmarketeers is to offer attractive incentives which they cannot match. For example, if the overseas employed remitting exchange through the formal system could be offered Car Permits to import their own vehicle they are using overseas or to buy one and send it, under a properly controlled scheme to be introduced with announced eligibility requirements there will be many Sri Lankans working overseas who will join in. They can be asked to pay all charges and levies including the duty component (which should be on a concessional basis) in foreign currency this will immediately bring in a large amount of foreign exchange without the country losing any. The registration and transfers could be curtailed under the scheme to prevent unethical deals which may cause indirect exchange losses.

The Banks can lend to these importers against the security of the value of the vehicle on condition that they repay the instalment of the facility in USD thus ensuring a continuous inflow. Even the Loan could be under special rates of interest under a suitable accommodation by the CBSL.

The UDA constructed properties, apartment houses, could be offered at a discounted special price to the foreign employed persons who could make the initial payment as well as any future loan instalment component in foreign exchange.

Even an opportunity to admit a child to a leading school will be an attractive offer to those who need such, subject to the offer being made conditional upon the fulfillment of Foreign Exchange remittance requirement.

All these and any others of a similar nature which the experts can come up with will be short term measures. The Government could plan medium and long term measures to ensure a high inward flow of remittance by other measures. Perhaps the vociferous TRIO together with their former boss RW can help develop some. They can be appointed to a special parliamentary committee to decide and recommend such by engaging in something of national importance rather than wasting their valuable time engaged in obsolete criticisms.

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