Sri Lanka ex-Chamber chief calls for central bank reform, curbing macro risks
ECONOMYNEXT – A former chief of Sri Lanka’s Ceylon Chamber of Commerce has called for better macro-economic management and central bank reforms as the country goes through the third balance of payments crisis in less than a decade.
Chandra Jayaratne, who is also an activist for governance reforms said there had been ample early warning in the media by economic analysts, economists, and Pathfinder Foundation, a think tank.
In a letter to the CCC, he said business chambers could highlight the need "for effectively managing the critical and vulnerable economic variables and have in place an assurance of effective risk management strategies to be implemented in the event any such material risks crystallize."
Analysts had warned for over eight months that the monetary and exchange rate policies of the Central Bank were contradictory and too much money was printed to keep interest rates down despite a rising budget deficit, which would hit the currency and the balance of payments.
On Friday contradictory exchange and monetary policies were reduced by ‘floating’ the rupee, but rates are still low.
Jayaratne added his voice to ongoing calls for central bank reforms. He said business could play an advocacy role in averting balance of payments crises and called for the "restructure and re-organization of the Central Bank; eliminating potential future risks of losses ; and focusing its resources and capability to its defined roles."
Analysts say in Sri Lanka Mercantilism is routinely taught in school in the name of economics and it was the norm to blame balance of payments trouble on imports and ‘exogenous’ shocks. There was little understanding that a money printing central bank created in 1950, which accommodated budget deficits and other credit, was the source of the country’s troubles.
Currency depreciation like inflation is a monetary (money and credit) phenomenon, where trade is just a real-economy symptom.
The full letter by Chandra Jayaratne is reproduced below:
Mangala Yapa Esq.
Secretary General/ Chief Executive Officer,
Ceylon Chamber of Commerce
50, Nawam Mawatha,
CCC Advocacy and Membership Advisory Requested
With amber signals of an economy under stress becoming evident in the review of several key economic indicators, as recently reported in news alerts, (some of which are attached), and also detailed in several articles published in the media by W.A Wijewardena, Path Finder Foundation and R.M.B. Senanayake, I believe it will be timely for the Ceylon Chamber of Commerce and / or the Economic Intelligence Unit of the CCC, to engage in membership advisory services and present its voice of advocacy, in highlighting the priority need for effectively managing the critical and vulnerable economic variables and have in place an assurance of effective risk management strategies to be implemented in the event any such material risks crystallize.
I believe special attention of the Ceylon Chamber team needs to be focused in the above advisory and voice of advocacy initiative in regard to the under noted economic management issues and potential risk management strategies;
1. Effectively managing Balance of Payments ; averting any potential crisis ; and having in place an international immediate drawdown arrangement in the event of an unforeseen situation;
2. Effectively managing exchange rate and inflation risks, especially those negatively impacting on value adding export and local manufacturing sectors, as well as the cost of living impact on vulnerable segments of society;
3. External debt repayment and roll over commitments/plans, whilst continuing to restructure the shorter tenor and high cost external debt;
4. Managing effectively the credit growth with focus in supporting value adding sectors and effectively managing the expansion in state sector credit growth;
5. Effectively managing the country credit rating and country risk premiums;
6. Reviewing the potential ill effects of continuous draw downs on currency swap arrangements with the R.B.I.;
7. Restructure and re-organization of the Central Bank; eliminating potential future risks of losses ; and focusing its resources and capability to its defined roles;
8. Fiscal deficit management with more efficient and effective revenue raising measures and effectively managed spends and resource allocations;
9. Higher economic growth fueled by effective investment and trade promotions with increased FDI flows and expansion of external trade
10. More effective controls and management actions aimed at curtailing the growing informal economy and minimization of risks of money laundering
With Warm Regards