Presidential rebuke
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President Gotabaya Rajapaksa was in a bad mood when he confronted senior Central Bank officials led by the Governor Prof. W.D. Lakshman on Tuesday.Removing his face mask, he pitched into the officials of the country’s main banking regulator blaming them for not jump-starting the COVID-19 economic revival.
“Our Central Bank has not done anything towards this (providing new tools to revive the economy). Monetary and Fiscal Policy has been formulated by the Central Bank. That should be done in accordance with the economic policy of the President of the country. If you are not on the same page with my suggestions please give me your strategies to revive our economy by tomorrow morning. Give me your suggestions on how to strengthen the economy, how to assist banks under these dire circumstances, how to categorically assist small-scale and medium-scale businesses. If what I say is wrong, do not hesitate to let me know,” he has said, according to a statement issued by his office.
Central Bank officials were stunned and too shocked to respond to the President’s comments. Ironically, Prime Minister Mahinda Rajapaksa, under whose purview the Central Bank comes, as he additionally holds the Finance Ministry portfolio, was not present at the meeting.
This is not the first time a president has been miffed with the Central Bank. During President Maithripala Sirisena’s tenure of office, he had requested Prime Minister Ranil Wickremesinghe to remove Central Bank Governor Arjuna Mahendran over the bond scam. That didn’t happen.
While former Governor Dr. Indrajit Coomarswamy had an excellent working relationship with both Sirisena and Wickremesinghe, the relationship between the current administration and the Central Bank appears to have soured, compounded by the COVID-19 pandemic economic measures.
As I was reflecting on these developments, the phone rang. It was Kalabala Silva, the often agitated academic, on the line. “Hello… hello,” he said, adding: “The President seems to have got very angry with the Central Bank.”
“Yes….I wonder what provoked this anger,” I said. “While this may have been due to various people informing the President that the government’s relief packages were very slow and blamed the Central Bank, there may have been procedural matters at the Bank which delayed disbursement,” said Kalabala Silva, who has good contacts at the Central Bank.
“Remember there are always two sides to the story and I think someone may have misrepresented matters to the highest authority of the land,” he said, in defence of Central Bank officials. “But the President was also upset over the handling of matters pertaining to finance companies and leasing companies and reprimanded the officials over this too,” I said.
This is the second time in recent times that the spotlight has turned on the Central Bank after the early resignations of two members of the Monetary Board – Nihal Fonseka and Dr. Dushni Weerakoon – at the request of Presidential Secretary Dr. P.B. Jayasundera.
“I wonder what authority the President’s Secretary has,” Kalabala asked. “Since the members are appointed by the President on the recommendation of the Minister of Finance, the President’s Secretary may have the authority to request a member to step down,” I said. We then discussed various matters pertaining to the country’s economic state.
While I was talking to Kalabala Silva, there was a slight commotion at the gate with the trio – wearing face masks – having a small argument with the ‘choon paan karaya’.
“Eeye maalu-paan parana eva. Eh ei (Yesterday’s ‘maalu paans’ were not fresh. Why?),” asked Kussi Amma Sera. “Eva aluth eva (They were fresh),” vouched Aldoris defensively, as Serapina chipped in with: “Matath denuna mokak hari deyak hari-ne kiyala (I too felt something was not right).”
“Mama paara-uda thiyena bekeriyen gaththa ‘maalu paan’ hondai (What I purchased from the bakery at the top of the road was fresh),” said Mabel Rasthiyadu.
Getting back to my work, I phoned a couple of high-level contacts to get to the core of the issue pertaining to the problems at the Central Bank. Piecing this together from various sources, the following is what appeared to have happened that led to the President’s tongue lashing:
Several weeks ago the Central Bank announced a scheme to disburse Rs. 50 billion as re-finance and working capital loans at an interest rate of 1 per cent to commercial banks, while the banks in turn use this money to lend to COVID-19 affected businesses at 4 per cent interest. This was based on a government decision to help affected businesses.
The Central Bank decided to release a sum of Rs.20 billion to the market, and another Rs. 10 billion and proposed that the balance be utilised from funds available in the banking system for which the Central Bank would provide a guarantee in case of default by a company or individual who had obtained a loan. The banks had received applications worth Rs. 57 billion.
However, higher authorities in the government argued that it was more advisable for the Central Bank to print money or issue Treasury bills. This was countered by Central Bank officials who had said that this suggestion would result in the banks having to bear the burden of defaulting loan repayments, while the Central Bank proposal was also based on enough liquidity in the system for the banks to dig into their resources to fund the balance part of the facility. The banks had more access to funds since the Central Bank had on two or three occasions reduced the reserve ratios, reducing the amount banks have to statutorily keep in the Central Bank as a daily requirement.
It was this disagreement plus complaints that the President may have received from the business community and individuals that had led to President Rajapaksa’s comments.
Bankers say that there is a need to immediately disburse these funds as emergency working capital to jump-start the economy. “Otherwise, the situation worsens, if there are delays,” one banker said.
While the President’s reaction is understandable when he receives complaints that there are long delays, the other side of the story is that it was not entirely the fault of the Central Bank for the delays in disbursing these loans.
On Wednesday, the Central Bank responded fast to the President’s call, announcing another credit scheme to affected businesses while further reducing the reserve ratios which releases an additional Rs. 115 billion to the domestic money market.
As I wound up the column, sipping a cup of tea and watching the trio continuing to harass Aldoris, uppermost on my mind was that the President and higher officials at the President’s Office, Treasury and the Central Bank should strive to come together for the common cause of serving the people.