Uthum Herat, Homo economicus la excepción (1957-2009)

Uthum Herat, PhD., Deputy Governor of Central Bank of Sri Lanka is no more. At the relatively young age of 52, an unexpected stroke took the life of this brilliant economist, only few months after he assumed duties as the senior most non-political appointee with the old lady of Janadhipathi Mawatha.

This is no ordinary obituary as Herat was no ordinary human being. He was an economic man – of a different breed.

Parents couldn’t have named him better. He lived upto the name. Uthum (Great) was everything he did.

The term ‘Economic Man’, says Wikipedia, is largely associated with the works of John Stuart Mill on political economy. Mill proposed an arbitrary definition of man, as a being who inevitably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labour and physical self-denial with which they can be obtained. In ‘The Wealth of Nations’, Adam Smith wrote: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

Herat was different from Smith’s butcher, brewer and the baker – or for that matter many of us ordinary economic men and women. His contribution to society was not purely in self interest. Never did exist the ‘smallest quantity of labour’. He selected to pay irrationally more, and thus fell out of the typical definition. In ‘The Logic of Life’, Tim Harford may argue that too is rational, but one may not necessarily agree. Spending billable time sharing one’s knowledge with postgraduate students at a local university for a fee of three thousand rupees a day is hardly economical.

Herat believed in markets in his profession, but when observing Sabbath, appreciated the importance of charity. He did both with a passion.

He was a legend, even in his university days. Anecdotes galore. His batchmates remember how they avoid smoking in front of Herat, out of sheer respect – reciprocating the respect he showed others. An assistant lecturer of his was recruited to the Central Bank in the same batch. Herat never stopped calling the former teacher ‘sir’. It was with great difficulty he was convinced such formal addressing is no more necessary between equals.

Having never played the political game, he may not have gained the fame of a typical Sri Lankan economist, but his mastery of the subject was exceptional. Deductions were based purely on evidence, never on politics. Presenting the Annual Report of 2003, to a packed audience, as then head of Economic Research, he denied the popular theory of ‘poor becoming poorer’ under the Wickremasinghe government that was hastily losing its popularity: “I am not kidding anyone. The rich have become richer, but poor too are better off.” Even when challenged by the equally distinguished peers during Q&A, Herat firmly stood on his grounds.

His loss will be felt seriously at the Central Bank. Having entered to fill the vacuum created by the departure of W. A. Wijewardena and Rani Jayamaha, two of the most experienced Central Bankers, who retired recently, Herat now will not serve for eight more years, as expected. The intellectual capacity these three took with them is not something the old lady will easily satiate from its second ranks, even after considerable amount of training.

Larger will be the loss to the country. With a dominant and politically biased Monetary Board (Read the latest Annual Report, if you doubt) the sole consolation to the nation was the professionally trained Central Bankers behind them carefully scrutinizing every move and safeguarding the national interests. Thank them for Sri Lanka still not following Mugabe’s footsteps. The highest currency note is LKR 2,000 not LKR 1 billion. The demise of Herat, unfortunately, will take away this sense of security. The coming years will surely see currency notes with larger denominations and no prizes for guessing whose smiling face will decorate them.

Herat was someone who has certainly made his due contribution to the nation. May his soul rest in peace.

Poor Mahinda maama gets the boot from Hillary aunty

US Secretary of State Hillary Clinton said Thursday it “is not an appropriate time” to consider a massive International Monetary Fund loan for Sri Lanka.

Clinton told reporters that the United States has been “trying to convince both sides,” the Sri Lankan government and the Tamil Tiger guerrillas, to stop fighting.

“We have also raised questions about the IMF loan at this time. We think that it is not an appropriate time to consider that (loan) until there is a resolution of the conflict,” Clinton added.

The United States is the main shareholder in the IMF and its approval is key to the release of the loan.

Clinton’s comments came two weeks after the IMF said talks with Sri Lanka for a bailout package of around two billion dollars were continuing despite reports the fund was under pressure to withold the planned financing.

News reports said US officials indicated that they want the IMF loan to Sri Lanka, aimed at helping the low-income Asian country cope with the global financial crisis, delayed to prod Colombo to step up aid to civilians.

The central bank in Colombo said at the time that an IMF mission was in Sri Lanka to try to ensure there are enough controls to verify that the IMF funds for balance-of-payments support are not used for other purposes.

Sri Lankan central bank governor Nivard Cabraal said the IMF loan was on track and procedures such as safeguard assessments had to be finished regardless of whether the United States was dragging its feet over the loan.

Jeff Anderson, a US embassy spokesman in Colombo, rejected any notion that Washington was threatening to stop the IMF loan, which according to reports ranges from 1.9 billion dollars to 2.4 billion dollars.

But the French ambassador to the United Nations in New York, Jean-Maurice Ripert, was quoted in a media report as saying that the “Americans want to play with the question of the IMF loan.”

Clinton and her British counterpart David Miliband, during a joint appearance here Tuesday, called on all Sri Lankans to stop fighting immediately and allow trapped civilians to escape the conflict.

It was the latest in a series of so far futile international calls aimed at ending the fighting between government forces and the separatist guerrillas, holed up on a coastal strip in the island’s northeast.

They also expressed “alarm at the large number of reported civilian casualties over the past several days in the designated “safe zone” along the coastal strip.

The pair urged the warring sides to allow a UN humanitarian team to visit the conflict zone and help evacuate the civilians as well as allow food and medical aid to reach those trapped by the fighting.

In New York on Monday, Miliband and his counterparts Bernard Kouchner of France and Michael Spindelegger of Austria issued an appeal that called on the UN Security Council to address the “appalling” crisis in Sri Lanka.

Report from: www.dailymirror.lk

Sri Lanka’s Economic Independence: A Distant Dream?

Political independence in 1948 economically meant little to Ceylon. It was more a declined economic opportunity – to be a part of a trade empire on which the sun never set could have been far advantageous. Still independence was no excuse for failure. Not every post WWII-independent Asian nation took the wrong turn. Then most were behind us. Now they have surpassed us not just in GDP terms, but even in human development – what we used to boast about. Memoirs of Lee Kuan Yew, who once dreamt emulating the Ceylonese economic model, describe why and how we failed, in style.

The true independence, if anyone cares to celebrate, gained not in 1948, but in 1170 AD – give or take few decades. That was when Parakramabahu the great –the greatest to ever rule us – not only liberated the isle from the mighty Chola Empire but converted it to an economic powerhouse. Contrary to popular belief, agrarian self-sufficiency was not Parakramabahu’s goal. His futuristic strategy was to be the trade hub of South Asia. Indian, Roman, Arab, Javanese and Chinese traders were frequent visitors to Serendib. The twelfth century ‘granary’ of Asia, probably was the equivalent of modern Singapore.

The dark ages that followed the fall of Polonnaruwa kingdom saw less political stability, more power centers, more civil wars and less trade. Arya Chakravarties of Nallur, arguably the most powerful in the interim period were said to have a large naval force, but still no records that business was their forte. Meanwhile in the South it was more a battle among each other.

Like it or not, it was the Portuguese followed by Dutch, who brought the lost glory. Spices suddenly became hot products; cutting a cinnamon plant was punished by death. British, after capturing Kandyan kingdom in 1815, introduced coffee, tea and rubber – the new economic crops. This gave birth to two classes of entrepreneurs – first British but towards the end of nineteenth century, domestic. The transition from feudal to modern economy materialized many dreams – highways and railways, commercial sea ports, administrative system, fixed income jobs, developed corporate sector, postal service, communication system followed by even quality education and proper healthcare. By the middle of the last century Ceylon successfully eradicated a predicament as serious as foreign invasions to ancient rulers: Malaria

Thus strictly speaking, it was not the Europeans who robbed our independence. Rather it was them who brought it back directing us to a new age. Otherwise Seylan could have easily ended up another Burma, Cambodia or Nepal.

Post independence economic reveries were short lived. The Colombo Plan, which aimed to ‘uplift’ neighbours to our own level, is long forgotten. First Central Bank chief John Exter’s objections to subsidies in the middle of rubber-crisis were met with a Hartal to be followed up with the first populist government in 1956. The rest is history.

To cut short, Singapore had Dr Goh Keng Swee and we had Dr. Nanayakkarage Martin Perera. Both were products of London School of Economics – students of legendary Harold Laski and no doubt, brilliant economists. Strangely they acted in ways diametrically opposite. Their footprints were long seen in the respective economies. By mid 1970s Singapore had a first-rate airline and one of the busiest airports. We had kerosene smelling t-shirts, transparent sarongs (aptly named ‘Ganta mark’) and maniocs – to be eaten twice weekly.

J.R. Jayawardena, sadly the typical scapegoat for every woe, was the one who took us out of that mess. 1978 economic reforms were the beginning of a new era. It made possible almost every economic benefit we enjoy today; banking facilities, garment industry, tourism and information and communication technologies. Post-1978 Economic liberalisation brought more employment opportunities than ever imagined. The impact was so strong that even the SLFP, a political party that traditionally vowed closed statist economic policies, had to embrace open economy in 1994. JVP- the extreme statists hitherto, settled for a hybrid.

Unfortunately, J.R. Jayawardena could not complete the revolution he began – in the backdrop of ethnic tensions and the second JVP insurrection. Reforms in education, power, railway and even agriculture sectors hardly happened. (Interestingly, Dr. Sarath Amunugama, a former finance minister later called four of such sectors as ‘paraassayaas’ or demons, that suck the blood from the national economy) Decision making power, in spite of the 13th amendment, has sacredly maintained at the centre. Enthusiasm in infrastructure building was lost on the way. A sizable fraction of state income has continuously been spent in education and healthcare subsidies. Government grew till it provided job opportunities for every one in sixteen of the population – again, a large section is political henchman. Money printing, at the cost of thumping inflation rates became the norm of the day.

The only break in this vicious system was the two brief years from 2002-3. At least the first year saw a systematic approach in building the economy. We saw Sri Lanka starts shining after a long period of suppression. Then the masses rejected the system – it did not meet their short term goals; government jobs and fertiliser subsidies.

This brings us to the days of ‘national economy’ – whatever it means. Patriotism has many facets. We are back to 1970-77 times, sans queues and barriers. Government takes pride in the number of jobs newly created within, and has absolutely no shame in imposing high taxes (tax on petrol is 189%) and printing money to support war efforts. We believe in isolated economic models that can be ‘plugged out’ from international trade. Protectionism is more a religion. Be Lankan; buy Lankan is the theme of the day. Just like in any sub Saharan African state the opportunities for new ventures are traded under the table. Private sector is looked with suspicion. Bribery remains the best strategy, and centralised now, the process perhaps is less cumbersome. (Just bribe one big man, not five on the way!) The masses are insensitive, as long as they receive their fair share. Money is not the only commodity that makes a mass exodus; brains too do so.

We still cheer for independence and a government that failed to carry out a single economic reform since the day it took office in November 2005.

Is our economic independence a distant dream? You tell me.

Former Parliamentarian Dr. Wimal Wickremasinghe, no more

Former Parliamentarian Dr. Wimal Wickremasinghe, 66, passed away after a brief illness.

He held various Cabinet portfolios such as Minister of Environment and Minister of Policy Planning and Parliamentary Affairs in addition to being the Chief Government Whip. Whilst being the research director of Central Bank of Sri Lanka, he pioneered the set up of the Export Credit Insurance Corporation and was subsequently appointed President of the International Association of Export Credit Insurance of developing countries.

An economist and a journalist, Dr. Wickremasinghe retained his professional expertise whilst being a politician as well. He leaves his wife, a retired professor of linguistics and a son and a daughter domiciled in USA. His funeral takes place on Monday at 5 pm at Kohuwala Public Cemetery.

Golden Key crisis: Seylan Bank director board dissolved

The monetary board of the Central Bank has dissolved the board of director of Seylan Bank. Operations of Seylan Bank have now been brought under the Bank of Ceylon.

CB said in a statement today (Dec. 29th), “The attention of the Monetary Board has been drawn to the recent events in the Ceylinco Group and the difficulties being encountered by Seylan Bank PLC with regard to deposit withdrawals and ensuing liquidity problems.”

“The difficulties of Seylan Bank PLC presented a potential danger to the stability of the financial system,” it said.

The CB said it was retaining the current chief executive officer and employees.

BoC has been tasked with carrying on the business of the bank and to appoint a new board of directors to the bank.

The Ceylinco Group has already announced that it was planning to sell out of Seylan Bank to repay depositors of Golden Key Credit Card Company, which ran into a liquidity crisis.

The sale of Seylan shares ix expected to proceed while the BoC performs a caretaker role in running the bank.

www.lankadissent.com

Pooneryn captured 15 years ago too: Did it change anything?

As President Mahinda Rajapaksa celebrated his third year in office, 79 of his closest relatives hold top government positions, including as ministry secretaries, parliamentarians, presidential advisors, diplomats and chairmen of corporations, said leader of SLFP Mahajana Wing Mangala Samaraweera.

Mr. Samaraweera was speaking at a media briefing titled “Three years for Chinthana: Country is lost” in Colombo today (Nov. 20th).

He said, “Upon being elected President on November 19th, 2005 Mr. Mahinda Rajapaksa, on November 23rd, had got his salary increased four-fold, a proportion unseen from the time of President J.R. Jayawardene. This is mentioned on page 1,210 of the Hanzard.”

As President — J.R. Jayewardene, Ranasinghe Premadasa, D.B. Wijetunga and Chandrika Bandaranaike Kumaratunga — all received Rs. 25,000 as their salary.”

Commenting on the capture of Pooneryn, Mr. Samaraweera said, “The government has been saying in the past couple of days that our security forces have captured Pooneryn area. On most occasions, it was painted as an achievement of the President himself. We must pay out tribute to the heroic soldiers who fought and laid down their lives to recapture Pooneryn area.”

“But, 15 years ago, we similarly celebrated the taking of Pooneryn. This is mentioned in Dinamina. It is an irony of fate that it was captured on 15th November 1993 when D.B. Wijetunga was president, with Ranil Wickremesinghe as prime minister.”

“That day too, we captured Pooneryn at the cost of a large number of lives in the security forces. Today as well, we have gained it by sacrificing members of the security forces of yet another generation. We may feel happy that Pooneryn has been captured from time to time, but we still cannot provide a solution to the national conflict.”

“This is an endless war. Newspapers do not publish these things. You will not be allowed to publish these either. I know that by last Tuesday, 235 injured soldiers were brought to Colombo National Hospital. It was reported that 85 were brought to Kalubowila, 90 to Jayawardenepura and more than 300 to Military Hospital. Also, the bodies of more than 200 brave sons of this country were brought to Jayaratne Funeral Directors. This government is preparing to sacrifice any number of lives to hide all these and cover up its inabilities.”

The SLFP (M) leader also commented on the state of the economy.

“The IMF and the World Bank held a joint meeting in Washington on October 10th to discuss the collapse of the global economy. At that meeting, they released a report on 160 countries. Of those 160 countries, Sri Lanka is among the 28 weakest of economies. The other countries include Eritrea, Ethiopia, Tajikistan, Madagascar, Rwanda, Malawi and Haiti. Three years of Mahinda Chinthana, and our country has fallen to the level of these countries. I am not saying this. It is the World Bank report that says so.”

“We have not yet felt the effect of the global economic collapse. At present, we are feeling the economic crisis brought about by the waste, corruption and fraud of the Rajapaksas. It is only when we prepare to celebrate New Year in April that we will feel the burden of the world economic crisis. The Central Bank governor recently admitted that foreign reserves had declined by 30 per cent within three months. We will have to take money in suitcases to buy goods for Sinhala New Year. By that time, the value of the Rupee will be depreciated that much.”

www.lankadissent.com

Will the puritans – Media and Central Bank – now step forward and cast the first stone at Sakwithi Ranasinghe?

Sakwithi Ranasinghe is virtually crucified. Stable gates are tightened. That should make everybody happy – at least till next such event. Time to wipe out the entire episode from mass reminiscence and move to cricket, if not Kilinochchi.

So this might be my last post on Sakwithi. (BTW, I will appear in TNL’s Bihidora on Wednesday 9.30 pm to speak on the subject.)

Nalaka Gunawardene disrobes the media prostitution. The very media now chastise Sakwithi sir, once willingly slept with him to build his larger than life image. Media moguls could have been a bit more discretionary on advertisements to minimize the damage. Apparently they did not care and the gullible mice followed the Pied Piper. So how ethical is it for media to wash its hands and shed crocodile tears now? (Ironically, ‘Lankadeepa’ of Sept 28 simultaneously brands D. K. Udayasiri of Sakwithi’s ilk as a bogus or ‘hora’ investor in its lead news, and carries a half page ad for him inside!)

Let me take on the other puritan – The Central Bank of Sri Lanka.

I do NOT – repeat NOT – blame Central Bank for not playing the role of the regulator, it isn’t. Central Bank ‘s mandate is limited only to supervise registered finance companies, and Sakwithi sir was not within that category. He should have been taken care by the Police, but what use blaming a force headed by an IGP who expects video clips from rape victims? I hear few SPs and ASPs are among those who were taken for a ride by Sakwithi sir. I am not surprised.

I blame Central Bank for a different reason – creating the breeding ground for Sakwithis.

It is simple arithmetic. Inflation is as high as 25-30%. Maximum interest commercial banks pay for fixed deposits is 16-18%. Registered finance companies go a little further but still cannot catch the inflation demon. So even a fifth grader can figure out if you leave your money at a bank, by the end of the year you are worse off.

Investing in real assets is the only intelligent option to beat inflation, but not everyone is wise. Plus there are issues with real assets. Lands do not come in customizable sizes and gold is difficult to protect. So when Sakwithi says he offers Rs. 4,000 per month for a deposit of Rs. 100,000 (that is about 50% annual interest) they jump in without thinking twice.

It is not that they are greedy. They are made to run non-stop for mere survival. When the formal financial sector cannot address their needs they turn for informals. Sakwithi Ranasinghe, strictly speaking, might not have been a crook- he could have been an investor who failed by taking risks too high. (not that I endorse it) An interest rate of 50% is not as high it seems for an investor in construction industry. Minus inflation it is about 20% and building material prices escalate at a higher rate.

If Central Bank thinks they can stop Sakwithis by placing advertisements in newspapers and exposing few like him once in a while they are badly mistaken. It is like trying to control Dengue by killing mosquitoes. No matter how many killed, mosquitoes will be there as long as their breeding grounds exist. So do risky investments.

None other than W. A. Wijewardene, the very Deputy Governor of Central Bank, recently equated ‘Inflation’ to ‘terrorism’. If so, Sakwithi is a suicide bomber. Sheer vigilance is necessary, but not adequate to prevent him. Death of one suicide bomber does not prevent others. It is a larger game. Whether it likes or not Central Bank should take the inflation bull by its horns, sooner than later. Unless it does so, there is little use in blaming Sakwithi Ranasinghes.

P. B. Jayasundera uncle and the tragedy of ‘56 daruvas’

“Hey, Hey, LBJ! How many kids didja kill today?” was a popular anti-Vietnam-war slogan of the days of President Lyndon B. Jonson. With a little twist, perhaps it is our time to sing “Hey, Hey, PBJ! How many millions didja you rob today?”

Jokes apart, our P. B. Jayasundera uncle, or PBJ as he is well known, is in deep manure. Recent Supreme Court order that saw him guilty is too visible to ignore – though the fine of Rs. 5 lakhs might be peanuts to him. The court comment that “The allegation that Jayasundera worked in collusion with Ratnayake of John Keells to secure illegal advantages to the latter, adverse to the public interest is established.” clearly implies that cheating and fraudulent activities were used to win this deal.

Had this happened in any developed country a resignation letter would have been submitted and accepted immediately. A senior officer doing favours to private parties, at the cost of public, is no trivial matter. But this is Sri Lanka. We also know about Jayasundera uncle and his boss. If he were to sack officials involved in corruption Jayasundera uncle’s boss might have closed down the shop and helping Hamabantota by now.

P. B. Jayasundera uncle is a so called ‘Panas Haye Daruva’ – a child of ’56. A beneficiary of the SLFP’s so called ‘social revolution’ of 1956, he was fortunate enough not to be prevented climbing the corporate ladder on the basis of his humble Nikaveratiya based middle class origins, as his ilk were – in the pre-56 era. A Economics degree with a First Class from University of Peradeniya landed him at Central Bank of Sri Lanka, one of the best state sector employers of the day. He worked there till he was ‘released’ to be the Deputy Secretary to the Treasury under Chandrika Bandaranaike Kumaratunga government. The rest is history.

Interestingly there is almost nothing that differentiates P. B. Jayasundera uncle from his peers – the rest of 56 daruvas. So if it fair to treat his tragedy as the one of the whole generation of children of ’56.

The generation of bureaucrats that preceded Jayasundera uncle’s was poles apart. They were hailing invariably from rich families that could send the children to Royal, St. Thomas or Trinity and then probably to London to graduate. They spoke impeccable English and used vernacular only to converse with peons. These ‘Brown Sahibs’ looked more like the last bond we had with the colonial masters.

Call them snobbish, elitist or arrogant. Majority of them actually deserve it. What they did not deserve was to be called ‘corrupted’. Those ‘Brown Sahibs’, unlike P. B. Jayasundera uncle’s generation were ‘Pukka Sahibs’ – true gentlemen to the dot.

The rationale is obvious. Money or status were not things that could move them. They had it from birth. Their needs were more towards the top of Maslow’s pyramid. Esteem needs stood distinct. Facing a corruption charge would have left with them with no choice other than a ‘harakiri’. So no political master could buy them offering any.

Panas Haye Daruvas were different. They (and their wives, specially) liked extravagance. Mansions, BMWs, government sponsors trips to Disneyland motivate them. Their needs are more at the bottom of Maslow’s pyramid. This weakness makes them easily purchasable goods. For the right currency, one can have ten Jayasundaras waiting inline.

That is exactly what happened in 1994. At least three Central Bankers sold their soul to then opposition in preparing its populist manifesto. In fact, one of them even robbed the material from the intended UNP manifestoes and passed it to PA. (The other two names are not mentioned here because one is no more with us and another is passing his last days now, critically ill)

All three of these Central Bankers were rewarded generously for their work. Perhaps P. B. Jayasundera uncle got the best deal. Everybody knows he was eventually made the Secretary to the Ministry of Finance. What everybody does not know is that he is the only individual in the 58 years of Central Bank history who received three simultaneous promotions. He was released to Ministry of Finance as a Deputy Director, but ultimately retired from the Bank as a Deputy Governor, the highest non-politically appointed position. This is to enable him drawing the pension of a Deputy Governor. Of course, it is in addition to the salary as a Secretary to a ministry.

The ‘unwritten eleventh commandment’ of most third world public servants is “Thou shalt not be caught”. This means you can do any dirty thing if you can go free. P. B. Jayasundera uncle was not so fortunate. He was caught his hand inside the cookie jar. In a country like Sri Lanka, he can still show a straight face and continue as if nothing happened. The circles P. B. Jayasundera uncles moves in does not think robbing public is a serious crime – it is more the norm. I do not think he will ever be asked to resign – as for his boss this is a pardonable mistake. Still we know what he did. We also know he may repeat. So at least we can keep watch.

Lalkantha – the David to strike the Goliaths

I am no fan of Lalkantha. To give my personal opinion, taking all hats off, I am also not in favour of strikes of any kind – least the ones by professionals. Traditionally, it was the left that believed in trade union action, not the UNP. We have always believed in nation building by working more, not less.

Since independence, the damage blind trade union actions have done to the economy is only next to that caused by terrorism. Lee Kuan Yew was dead right in thanking the Ceylonese left leaders, who organized a string of strikes in 1960s which resulted diverting most Colombo port bound sea traffic to Singapore, making it the most favoured port between Europe and China. I would have some more respect for Dr. N. M. Perera, and old boy of my own alma mater, had he not been the one responsible for generating such unproductively.

Having said that, I do not deny my interest this time. It is more as an observer. What stimulates most of us is the contrast in confrontation. On one side we have the entire government mechanism using all its influences like a giant octopus. On the other side we have Lalkantha sahodaraya – who is next to nothing. He is an MP, but that is nothing when compared to the establishment he is fighting against. Lalkantha sahodaraya does not give a darn. His confidence impresses me. He is a David, brave enough to attack the Goliaths – with only a catapult in hand. I wish UNP too had more leaders of Lalkantha’s caliber.

Though I hesitate to endorse this kind of trade union action, I empathise with the public and private sector employees on a fixed monthly salary. With the sky rocketing commodity prices most of them find it hard to make ends meet.

Even the essential items now cost twice more when compared with pre-2004 prices. We hear about families that save milk only for the youngest children in the family – others have to be satisfied with plain tea. We see people buying 250 g of vegetables – they cannot afford more.

This is the ‘development’ brought by ‘Mahinda Chinthana’. Minister of Consumer Affairs is shameless in admitting he has no control over the COL. Poor Ajith Nivard Cabraal, the clueless Central Bank Governor, does not even know how much money his organization prints. The inflation level was 30% last month – the highest in South Asia. It would be a miracle if people do not protest.

Is there a solution?

Here is one: Minister Dullas Alahapperuma wants the poor people to reduce one curry from the plates – so that costs will be less.

Look who is talking. I would be very much interested in knowing whether the minister and his wife are ready to do the same. This couple, average sized human beings just one decade ago (before Dullas Alahapperuma got into politics) now look more like Mr and Mrs. Obelix. I am not kidding. They are two walking globes of fat. An observer is forgiven for wondering whether they are the singular reason for the food crisis in Sri Lanka. How come they have become so overgrown during this short period?

This is the pathetic reality in our society. Minister Dullas Alahapperuma and his wife Pradeepa Dharmadasa who once sang about Sarojaas now shamelessly maintain super-luxury lives on the money robbed from poor Sarojaas. They are light years ways from reality.

Given the enormous amount of food they may seem to consume it might not be too difficult for Minister Dullas Alahapperuma and his wife to cut down one curry from their plates. In fact it would be good for their health too. Both of them badly need reducing so many layers of fat. On the other hand, how many poor people will be able to do so?

Perhaps minister Dullas Alahapperuma might not be aware about the millions in this country who take rice only with one curry (most probably the simple pol-sambol) or those who eat rice only for one meal a day. Does the minister what them to also to reduce one curry from their plates? Does the minister Dullas Alahapperuma want children also to cut down on their food? Isn’t he aware that it might result in mass scale malnutrition? Does his wife, who was so emotional about poor Sarojaas now wants to see them malnourished?

That is why the people take trade union action. The strikes might be unproductive but maintain 109 fat ministers at the cost of poor, while they are starving is far more unproductive. Perhaps that is the point Lalkantha sahodaraya wants to make.

To kurakkan boy this action would bring some poetic justice. UNP’s stance has always been a lean government. Ranil Wickremasinghe government of 2001-4 has given special attention to developing private sector so that mass scale employment opportunities are created outside the government. It was the UPFA government that wanted to limitlessly expand public sector for its political gains. What it did not realize was the short of money to sustain such a huge work force. So it is fair that the same government that did that historical mistake now encounter this. Let us see what kurakkan boy has to say.

Central Bank of Sri Lanka: A donkey doing dog’s work but not its own

A colourful half page advertisement in Daily News says it all. Central Bank plans a new currency museum at Anuradhapura.

This adds to Central Bank’s innumerable current functions; researching oil drilling, conducting lectures for A/L students, micro-managing micro finance, insisting so called ‘good governance’ on others but not on itself, publishing books on Sri Lanka’s heritage and branding those question them ‘terrorist sympathisers’.

Are these what a Central Bank supposed to do?

We have one most over-staffed Central Banks in the world. One Central Banker for every 10,000 in population. Its per capita staff cost is on par with those at developed countries like Japan, Canada and UK. Majority of this gigantic workforce is doing things nobody expects them to do. Why need a Central Bank for managing provident fund? Where else in the world Exchange control is considered a Central Banking function? (In manpower terms, the largest department of Central Bank of Sri Lanka is Security Services!)

Any Central Bank is supposed to ensure two and only two things:

(a) Financial stability
(b) Price stability

How successful in Central Bank of Sri Lanka in these two functions?

Dreadful. I would not even consider a C minus.

Financial stability?

One day we cannot wake up to find our banks not returning deposits due to a financial system collapse. That is why we pay to have Central Banks. They are supposed to guarantee that financial system is alive and kicking. They are supposed to supervise, catch and stop any culprits.

The banking system in Sri Lanka still stands on its feet not because of Central Bank. The private banks are cautious. The state banks need not be cautious because they are backed by treasury – thanks to tax payers. Had it not been for the treasury support one of the state banks would have taken the system down drains long ago – given the somersaults they do. Pramuka Case is adequate illustration for Central Bank’s ability to prevent a financial institution under its supervision taking enormous risks. Attempts to micromanage micro finance (with less than 1% aggregate capital within system) show their ‘expertise’ in financial systems.

Price Stability?

Ha Ha Ha Don’t make me laugh!

As the sole currency issuing authority (Prabhakaran or Pillayan have not got the idea yet!) Central Bank of Sri Lanka is supposed to maintain the price of Sri Lanka Rupee against international currencies and also its own. It cannot control the rise of price of bread, but if everything costs more than what it was last week, surely there is something wrong with monetary policies. That was what Nobel laureate Milton Friedman said: Inflation is everywhere and always a monetary phenomenon.

Right now Sri Lanka records the highest inflation rate in South Asia and within the top ten countries worldwide. (To be fair, we are still better than Zimbabwe) For the last year it was from 20 – 25%, and now nearly 30%. Markets prices of all goods and services, including essential services are of continuous rise. It has risen to such uncontrollable levels Central Bank of Sri Lanka even unsuccessfully changed the Colombo Consumer Price Index, to diverge the blame. High prices spoiled even the annual Avurudu celebrations throughout the country. Every evidence points that Central Bank is not of control. It has failed to stop printing money (=increasing money supply) in bulk. It has failed to tighten monetary policy. The inflation is so bad the Minister for consumer affairs admits his inability to control prices. A hyperinflation situation is on the cards. This could lead to protests as happened in other countries under similar circumstances.

Inflation is common symptom of a war. Any war needs money, in bulk and fast. The only solution most governments have is to print money in bulk. This brings down the value of money, as there is no increase in the supply of goods and services. 

The negative correlation between the war and economy is not readily understood by the politicians. That is why we need Central Banks. One key role of any Central Bank is to be government’s economic advisor. It is supposed to give independent opinion. We pay for that. Central Bank of Sri Lanka has an Economic Research Department of more than 100 researchers to do just that. Had a single researcher in Central Bank ever pointed out the cause of this inflation? Did they ever advise the government to stop this meaningless war and enter into talks with rebels?

Perhaps it is useless blaming Central Bank as a whole. Its head is a political appointee whose only task seems to be justifying every stupid act of the government. It is unfortunate that Mr Ajith Nivad Cabraal, whose only qualification is an unsuccessful local government politician, sits in the same chair once held by eminent economists of the land. He is not an economist. His knowledge of economics, or rather lack of it, was amply demonstrated when he said he did not print any money and all currency notes in circulation were autographed by the previous governor. What can be expect from somebody who does not even know that in economics ‘money printing’ means an activity far more complex than mere physical print of money?

In UK, the Governor of Bank of England was supposed to write to exchequer informing the remedies if inflation rate crosses mere 2%.  If that cannot be brought under 2% within a period of six months the Governor has to submit his resignation. Mervin King now behaves as his pants are on fire. Fair enough. That was what he is being paid for. Unfortunately no such good governance is practices in this side of the Suez canal.

The evident neglect of duties by head of Central Bank can only lead to a definite economic crisis. What plans government has to stop it? Does at least Mr Ajith Nivad Cabraal admit that it is his fault? Or will we have to continue blaming government for appointing this hapless individual for such a responsible post?