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.

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.