“CBSL independence a priority reform”- Former Governor | Daily News

“CBSL independence a priority reform”- Former Governor

Admits wrongdoing and accepts blame for current crisis
Indrajit Coomaraswamy
Indrajit Coomaraswamy

A new Central Bank act shall be at the forefront of IMF’s proposed reform. An existing legal framework has already gotten cabinet approval under the previous government. The new act was largely formulated with domestic policy expertise inclusive of current Central Bank governor.

Unlike other policy interventions prescribed by multi-laterals, the new act looks to emulate frameworks that developed countries have established within their own jurisdictions. Former Governor Dr Indrajit Coomaraswamy called on policy concerns against Central Bank independence to be made public and overtly.

The Central Bank has admitted to mismanaging foreign currency solvency of the economy under political direction. The Central Bank chose to both exhaust long-standing relationships with regional central banks through currency swaps and further suck dollar liquidity out of the domestic banking system. This has all resulted in even viable enterprises generating foreign exchange to be short of the necessary working capital to operate. Enterprises are even unable to borrow internationally due to concerns about the domestic economy. Coomaraswamy echoed sentiments by current Finance Minister and President Ranil Wickremesinghe that the Central Bank has manipulated data to enhance the borrowing capacity of the government. Calling for the new act he said, “(We need the act) to safeguard the operations of the CBSL from political interference, particularly in relation to the operation of its technical work.”

Coomaraswamy was speaking on September 1 at the 72nd Anniversary Oration of the Central Bank. Coomaraswamy promised German economic outcomes through Central Bank reform. He said, “The Bundesbank’s (German Central Bank) mandate and operations were very strongly influenced by the hyperinflation that created devastation to the German economy in the period of the two world wars.” The legal changes would help make Sri Lanka a haven for international investors in the broader SAARC region in line with the role Singapore and Hong Kong play in their respective geographies.

“The German economy went so far as to put in place constitutional safeguards to ensure the sustainability of fiscal policy.”

The Governor defended recent policy interventions by the Central Bank to greatly tighten monetary policy. He noted that without such measures the economy would face even higher rates of inflation than currently seen. “Even with this monetary policy adjustment inflation has gone up to 60%. The current Governor sees it peaking at 70% in September and then heading downwards.”

Coomaraswamy defended the focus on inflation (single mandate) the Central Bank would have under the new act.

“Inflation is an implicit tax that disproportionately harms the poor and vulnerable. The wealthy have assets that can serve as a hedge against inflation. Hyperinflation can have devastating consequences for them.”

Despite the recent malfeasance by the Monetary Board and former governor, they do not face any real threat of legal consequence.

Under the new act, monetary policy goals would be made public by way of a gazette and any long-term deviation of outcomes from said goal would result in the resignation of the governor and reconstitution of the monetary board.

Political interference in monetary policy would initially be reduced by the removal of the Secretary to the Treasury from the Monetary Board.

In line with said principles and conflicts of interests, the Central Bank shall over time remove itself from government debt management, provident fund management, and oversight of capital markets. (DP)



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