Face masks, meant as the first shield of defence against any airborne COVID droplets, came to the unexpected aid of Central Bank’s squirming top league of officials to hide their shame behind its veil, when President Gotabaya Rajapaksa delivered a no-holds-barred tongue lashing over their gross failure to come with a solution to kick start [...]


President’s tongue lashing leaves Central Bank’s top brass red faced

‘You have the tools but you don’t use them to do your job’

Face masks, meant as the first shield of defence against any airborne COVID droplets, came to the unexpected aid of Central Bank’s squirming top league of officials to hide their shame behind its veil, when President Gotabaya Rajapaksa delivered a no-holds-barred tongue lashing over their gross failure to come with a solution to kick start the corona hit moribund economy back to dynamic life.

The charge sheet the President waived during a meeting with top Central Bank officials led by the bank’s Governor held on Monday, was indeed a damning indictment on the shoddy performance doled out by the Central Bank in its role as the Government’s Banker.

It revealed how lethargy had taken up residence in an office complex where negligence was rife and tolerance toward it was high, where smug complacency ruled the roost and nonchalance was allowed free rein to mock and dismiss any form of ingenuity and inclination towards dynamism, an institution now reduced to a shell of inertia but still believed itself to be the nation’s oyster, with its top staff blithely on the gravy train, ignorant the country was in imminent danger of hitting the buffers.

Clearly, the President had come to the end of his tether to discover the Central Bank, this institution responsible for the nation’s finance and its monetary policy, had idly sat through the entire COVID crisis and watched remorseless, private businesses tottering on the brink of collapsing en masse, without its top brass even striving to formulate a blueprint for the resurrection of the Lankan economy which was a hair’s breadth away from giving up the ghost.

One of the core functions, if not its numero uno, of the Central Bank of Sri Lanka is the conduct of the nation’s monetary policy, the process by which it manages the supply and the cost of money in the economy.  As its own site describes, this mainly involves setting the policy interest rates and managing the liquidity in the economy. The monetary operations of the Central Bank influences interest rates in the economy, affecting the behaviour of borrowers and lenders, economic activity and ultimately the rate of inflation. Therefore, the Central Bank uses monetary policy to control inflation and keep it within a desired path.

But has it done so? Has it used the many tools it has in its hands to energise the economy and create economic activity? None, according to the President. Especially in the present COVID crisis which has led to a worldwide economic shutdown, the Central Bank should have done its utmost to prevent Lanka’s economic decline from sliding further into the nadir. Instead, it had shut its eyes and looked askance, blind toward the immense responsibility it bore and which the nation demanded it to discharge, however difficult the task may have been. The Central Bank’s upper echelons had not even tried to contribute even a widow’s mite to salvage the economy from the ruin it faced and still faces – the indispensable economy upon which all facets of society are dependent upon for survival.

In the litany of Central Bank’s heinous sins, the most odious in the President’s eyes, and which he outlined, are as follows:

  • ’Central Banks in leading countries such as the United States, Japan and Australia as well as in small countries have put in place required mechanisms to revive economies in their respective countries. What has the Central Bank done to revive the Lankan economy? Nothing. It has not put forward a single proposal to rebuild the economy.’
  • ‘What is the tool the Central bank has used?  None. The Central Bank has not done anything towards this. Monetary and Fiscal Policy is formulated by the Central Bank. That should be done in accordance with the economic policy of the President of the country. The Central Bank has several tools that can be used. Those tools have to be utilised. However, our Central Bank does not use a single tool. It just stays idle.’
  • They had spurned the President’s offer to provide Rs. 150 billion to distribute to state banks which in turn, keeping the sums allocated to them as collateral, could lend money to help flattened companies to get back on their feet again. In this present corona crisis, it was not the fault of the companies that they were down and out.
  • ‘The Government owes a huge sum of money to companies due to mismanagement in the past. Let this money be kept as a security for banks to release loans to them. Then they can run the economy. This is a money circulation process. This is a very simple tactic and this is a basic economic principle. But, what are the Central Bank top notch doing? The Government has to take the blame for their conduct.’

The President told the Central Bank Governor and the gathered senior officials, in no uncertain terms: ‘Look at what governments of other countries have implemented to save their small scale and medium scale businesses. Do we see the same efforts over here? It looks as if you are here to hinder the government effort and are trying to impede my duties. I do not have to assume this tone if you stood by your duties.  Some of you were there when the Central Bank bonds scam was executed. If you supported them to commit this crime, there is no reason for all of you to not join hands with me to deliver results.’

PRESIDENTIAL BLAST: President Gotabaya gives a piece of his mind to Central Bank officials

The President also spoke of the scandal involving finance companies. He said: ‘Look at the status of finance companies. You do not monitor. It is your responsibility to regularise and monitor these companies. However, you have failed in your task. Leasing companies evade their responsibilities. The ETI is not in a position to repay the people. The Finance has been closed down without informing. How are we going to pay for that?

And then came the Presidential warning: ‘’All at the Central Bank are economic specialists drawing very high salaries. You have a responsibility. I have presented you a mechanism. If you are unable to follow it, present me your version of the mechanism 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 you are not on the same page with my suggestions please give me your strategies to revive our economy by tomorrow morning.’

When the meeting ended on that note, the Central Bank officials scampered off like jittery bunnies to their 5 tower Fort burrow to burn the midnight oil and pull out from their economic hats, the optimum tool available to battle the crisis before the morning deadline.

And what did they come up with in a jiffy, probably after dusting off the old file cover? A decision to further reduce the Statutory Reserve Ratio applicable to commercial bank deposits, by 200 points to 2 per cent. This reduction will inject Rs. 115 billion liquidity to the domestic money market. It will expedite credit flows to the economy, the Central Bank announced on Tuesday, the day following the presidential meeting.

The statement said, ‘the financial sector is expected to pass the benefit of the high level of liquidity and the reduced cost of funds to the economy without delay, by increasing lending to businesses and households at low cost.’

It however made clear that this was not the first time this year that the Reserve Ratio had been reduced. It said, ‘With today’s decision, the Central Bank has reduced the SRR by a total of 300 basis points thus far during 2020.’ It has also cut policy interest rates by a total of 150 basis points and Bank Rate by 550 basis points during the past six months.. ‘ The Central Bank statement does not state whether this particular tool chosen will be holistic in its application and whether pensioners who live off their bank savings will be adversely affected by the cut in interest rates on deposits.

What will, no doubt, be honey in the presidential ear will be the good news that the Central Bank on Tuesday, had announced that it will be implementing the two proposals put forward by the President at Monday’s meeting, namely, that the Rs. 150 billion given to the Central Bank will be used as collateral to provide Rs. 150 billion in total to the businesses affected by the COVID-19 pandemic; and the construction sector enterprises will be provided with a facility to borrow from banks, using guarantees issued by the government equivalent to the amount due on account of contracts carried out in the past.

And that’s not all. To complete the presidential hat trick, the Central Bank also announced on the same day it has appointed a three-member committee to look into irregularities at financial and leasing companies, even though it has been one of its main statutory duties to ensure the stable door is bolted throughout, not appoint committees to lock it after the colts  have fled.

The presidential outburst, which was aired on national television, was justified, as it was timely. It gave vent to his frustration, gave voice to the people and gave hope to businesses. Hopefully, it also gave the necessary wakeup call, with siren so loud, to shake the slumber out of those nodding on the job in the top floor offices of the Central Bank high command.

Sometimes, it seems, some sacred cows need to be kicked-ass sore to produce milk.

Share This Post


Leave a Reply

Your email address will not be published. Required fields are marked.
Comments should be within 80 words. *


Post Comment

Advertising Rates

Please contact the advertising office on 011 - 2479521 for the advertising rates.