Central Bank, commercial banks oppose Finance Minister’s ‘no-questions’ policyView(s):
Central Bank (CB) officials have opposed Finance Minister Ravi Karunanayake’s request for a ‘no-questions asked’ policy on depositing large scale remittances while commercial banks are rigidly sticking to tough anti-laundering and anti-terrorism financing laws on foreign currency transfers, the Sunday Times learns.
The CB’s Exchange Control Department has expressed opposition to a request from the Finance Ministry for officials to use their ‘own’ discretion in permitting ‘liberal’ current account transactions, the Sunday Times understands. Sri Lanka is desperately trying to shore up sagging foreign reserves and looking at different ways of attracting funds.
The view of the bankers was made clear at a recent Colombo meeting between the Finance Minister and banks to discuss budget taxes where a discussion on the controversial policy statement arose.
According to sources present at the meeting, Minster Karunanayake had asked banks whether they could at least relax stringent controls on foreign deposits or remittances below US$ One million and maintain the usual checks only for anything above. The banks had responded saying that they had to follow local and international laws pertaining to anti-laundering and anti-terrorism financing, laws enacted in Sri Lanka in 2006-2007.
“While we also agree that there should be more flexibility in allowing in foreign funds, the laws should also provide for such relaxed rules. No bank is going to risk breaking a single rule unless the government changes the laws. Even if that happens, sending banks (from the sender’s end) are bound by stringent rules in those countries,” one banker said.
Confusion is emerging in banking circles as to how to respond or implement the minister’s policy, first enunciated at a media briefing on October 4, 2015 on ‘no questions asked’ investments.
“We will ask no questions. In fact we will provide measures to make them (investors) feel safer,” he was quoted as saying, adding however that, “The money will come through the banking system in accordance with internationally accepted rules”.Speculation and more confusion arose last week after he was quoted in a media report as saying that an unnamed Belgian investor had deposited $500 million through a local bank with plans to invest another $500 million. Some local banks said they were unaware of such a transaction pointing out that if this is so, the foreign reserves account maintained by both the Central Bank and the Treasury would reflect this deposit.
The latest figures released by the CB show that gross official foreign reserves rose to $7.3 billion in November 2015, up by $800 million from $6.5 billion in October due to “the receipt of the proceeds of the 9th international sovereign bond issuance and other currency inflows”.
Treasury sources, who also said so far there is no record of a recent $500 million deposit in their books, noted that the minister has told officials that foreign investors will be allowed to bring in funds through any bank and that there is no necessity to bring them in through special investment accounts although exchange control, and capital account transactions are restrictive.
They say the present Securities Investment Account is still in operation and should be abolished if such huge transfer of funds is to take place.
“Was the minister’s ‘no questions asked’ a mere figure of speech or a policy? That is very unclear at the moment because he appears to be saying one thing at official meetings and taking a different posture with the media,” an economist attached to a bank said.