Real relief

The reduction in bank rates that came into effect yesterday was a welcome measure. It provides relief across the board to almost all sectors. This ought to have a salutary effect in reviving the economic activity. At a time when Sri Lanka is feeling the impact of the global financial crisis resulting in a slowdown of economic growth and activity the relief measures outlined are like welcome rain after a long period of drought.

Small and medium entrepreneurs in industry, agriculture and commerce as well as those engaged in tourism would directly benefit from the reduction in bank rates. Construction industry also would be a beneficiary.

Of special significance is the suspension of penal interest on defaulting loans. It would provide an impetus to activate payment and make these loans operable. The reactivation of the low interest housing loan scheme for public servants would benefit a large number of them.

Once the state banks reduce the rates, the non-state banks would follow soon, lest they become non-competitive.

Skeptics may dismiss this decision of the government as an election gimmick. In actual fact, it is far from the truth. The truth is there is sufficient growth in the economy to warrant such redress as an impetus to revive economic activity or put it in fast gear.

As leading economists have pointed out the crash of several financial institutions such as those belonging to the Ceylinco Group have made depositors to withdraw their moneys and place them in state banks.

State banks have received considerable deposits so that they could afford to lower the rates.

Those who have savings deposits need not have any anxiety over the reduction of interests as inflation has gone down. The interest they would get would be almost the same or more in real terms.

The decision of the President to lower interest rates has received wide acclaim from both professionals and corporate bodies. For example, the National Chamber of Exporters has hailed it as a long overdue measure, something they were agitating for. Low interest rates would compel them to start new projects with assurance. It would in turn generate new employment opportunities.

Equally important is the decision to apply the reduced rates to loans that are already in operation and suspend penal interest. At a time of crisis it would be a great relief especially to public sector employees who have to repay housing loans as well as small and medium entrepreneurs.

We could foresee more investment and consequently more production. More production would decrease prices and raise the standard of living, especially of the middle classes.

There is also a corollary to all this. That is we have to work hard to get the best benefit out of the redress given. Development comes at a price, at the cost of sweat and sacrifice.

What is noteworthy is that Sri Lanka, a Third World country, relatively poor has now a better track record of economic and financial management than most of the First World countries that are supposedly blessed with managers produced at elite business schools such as Harvard and MIT.

A modern fable

Legend has it that once upon a time seven thick pals, from Andhra Pradesh or so, decided to night out at a wayside rest. Seeing no restaurant or eating house nearby they placed a pot of water on an improvised stove and agreed to put a fistful of rice each to prepare a rice soup for dinner.

Known misers they were, each one thought that he need not contribute as others' contribution would suffice for all.

They only pretended to put a fistful of rice but actually their fists were empty. When they doused the fire after giving sufficient time for the soup to boil, they found that no one has contributed and they were left with plain hot water.

Now at the present moment, re-living the legend, another set of pals have got together looking for a soul to present as their common avatar at a Right Royal contest yet to be announced. Will they, meet the same fate as the seven Andhra pals of yore is the thousand dollar question in the halls of fame in an island known for its serendipity.