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qrcode.30183456I was deeply concerned about what seems corruption in the Central Bank, an institution that had never previously roused any suspicion on such grounds. What we have thus far discovered at the Committee on Public Enterprises is startling, but obviously I cannot refer to this now.

I thought therefore of basing this article on the observations of Dr W A Wijewardena, former Deputy Governor of the Bank, who writes a regular column on Economic Matters.  Some weeks back his article was entitled ‘From bomb disaster to bond disaster: How to restore the lost reputation of the Central Bank’.

He dealt first with the bomb attack on the Central Bank way back in 1996. I still remember the incident vividly, since my sister was caught up in the attack, but unlike many of her colleagues she survived unhurt, being only drenched in blood (and walked back in that condition to our house).

Dr Wijewardena’s article commended the prompt actions of the Governor at the time, A S Jayewardena. Having described the actions he took to ensure that the Bank continued to fulfil its financial obligations, he discussed the way the media was handled. I can do no better than quote at length from what he said, in dealing with ‘a media briefing that was attended by both the local media and all the major international media agencies that had a presence in Sri Lanka. This was the opportunity which AS used to communicate to the Bank’s stakeholders that the Bank was not dead, it had started to offer its services through alternative methods until it would get back to normalcy and it would soon restore normalcy as desired by its stakeholders. The media, exercising their right to extract all the information to keep their respective audiences informed of the true status, were very critical and posed scathing questions to Governor and the senior officers of the Bank. Their questions were particularly directed to ascertain whether there was any cover-up of the true damage caused to the Bank by its senior officers. This was in fact a testing of the maturity and experience of Governor Jayawardena who was a career central banker, a former Finance Secretary and an international civil servant. Prior to the media briefing, the senior management of the Bank had participated in a crucial staff meeting and a meeting with CEOs of commercial banks. Hence, they were privy to what was happening and therefore could meet the press with one voice. That was important to quell the suspicions of the media-personnel. Thus, the media briefing was successful in communicating the Bank’s position to its stakeholders.’

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qrcode.26604602Nearly two months back the Liberal Party wrote to the President urging that he not hold elections in haste, and indicating that he should proceed first with the various reforms he had pledged. We got an acknowledgment, but not a response, though I suspect a call from a close relation urging that I support the President was a consequence of the letter. The refusal to consider issues seriously, while simply providing assurances that things will improve, is not however something that can be accepted ad nauseam. Indeed, while in India I was told by a political scientist who had been fully supportive of our destruction of the Tigers in Sri Lanka, that the President, having promised the Indians that he would implement the 13th Amendment, was heard to say as they were leaving that he had fooled them again.

I refused to believe this, and argued that the President would not have behaved like that. My own view is that he is generally sincere in the commitments he makes, and he did his best on various occasions to promote the LLRC. But unfortunately he imagines he is weaker than he is, and gives in to pressures from others, all of whom have their own agendas. So, following his commitment to the Indians, he did nothing when that was repudiated by a spokesman, and he did not bother when G L Peiris did not respond to a request for clarification sent by the Indian Prime Minister. As Lalith Weeratunge said with regard to the clear commitment to change the Chief Secretary of the Northern Province, he could do nothing because his hands were tied – but this was probably not, initially at any rate, by the President.

It is this failure to move straight, despite what I continue to believe are admirable political instincts, that led the Liberal Party last week to confirm its earlier decision and support Maithripala Sirisena. Though it is argued that the Sirisena candidacy is the result of a foreign conspiracy, it is in fact a continuation of the present regime that will lead to increasing interference in our affairs by the more prejudiced elements in the international community.

And we now have hardly any defences against such incursions that are based on rationality. I think the recent removal of Chris Nonis, following his able defence of the country when dealing with the international media, suggests that those close to the President are determined to destroy our defences. In some cases this may be due simply to jealousy, but I suspect this was stirred up for ulterior motives, the same motives that led to the dismissal of Dayan Jayatilleka and Tamara Kunanayakam.

Underlying all this is the absence of a coherent strategy. Tamara Kunanayakam relates how Sajin Vas Gunawardena had said that the government had no strategy when she asked what was the strategy to deal with the draft resolution against Sri Lanka that the Americans were preparing way back in September. Her staff had told her that this had been shared with Kshenuka Seneviratne on her private email address, but not communicated to Colombo.

Instead of looking into that aberration, the Ministry however was annoyed with Tamara for having found it out, and did not want to think about the matter. It was the President who had told Tamara to come to Colombo to discuss the matter, and been very clear in his instructions, to the effect that Tamara should not negotiate with the Americans, but should instead rally support amongst our usual allies. This Tamara did, and as had happened in 2007, when the British Ambassador had to allow the resolution he had tabled in 2006 to lapse, the American resolution, which the Canadians had tried to bring forward, was not moved.

But before that the Ministry had tried to prevent Tamara seeing the President, and had indeed ordered the Secretary to put her on a flight before the scheduled breakfast meeting with the President. Fortunately the Secretary then, Karunasena Amunugama, was a practical man, and when he found the ticket could not be changed, he had allowed Tamara to stay on. But contrary to the very clear instructions the President had given, which were in line with the strategy we had employed between 2007 and 2009 to defend our interests, Sajin had simply scoffed and said we had no strategy because the President changed it all the time. Read the rest of this entry »

In his brilliant account of our current economic situation, delivered at the Liberal Party discussion on Economic Reform, Indrajith Coomaraswamy spent some time in discussing the budget deficit, and why it is particularly worrying in the current context.

He noted that the current account of the balance of payments has been in deficit since 1957, while the current account of the budget has been in deficit since 1987. He made it clear that it is not a new phenomenon that government has been borrowing to meet some of its recurrent expenditure and all of its capital expenditure over the last 25 years. But he also noted why Sri Lanka needs now to be even more worried than before about living beyond its means.

A budget deficit is a principal source of instability in the system. High budget deficits lead to inflation by creating excess demand. The inflation differentials between Sri Lanka and its competitors and trading partners that result exert pressure on the exchange rate. But, given the high import component in our basic consumption bundle, it is politically difficult to maintain a flexible exchange rate policy.

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Rajiva Wijesinha

May 2019
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