* Govt. economists who saw BOP crisis in trouble
* ‘Very sad and disappointing episode in post-conflict Sri Lanka’, says one economist
UNP MP Dr. Harsha De Silva said he was disappointed that the International Monetary Fund did not disclose governance, management and institutional flaws of the economy in its recent post review mission statement, charging that it was wrong on the status of the country’s financial stability.
"I have always pointed out to the IMF mission that there are governance issues with the way the economy is managed, particularly with regards to the Central Bank investing EPF funds in banking stocks. The IMF vaguely touched on the matter on a previous review, but not this time. We are on the verge of receiving the last tranche under the US$ 2.6 billion standby arrangement. All this money is being borrowed by the people of the country so the IMF had a duty to disclose the systemic flaws it has observed," Dr. De Silva told a press conference yesterday when The Island Financial Review asked for his views on the matter.
The IMF last week said that the financial system was stable. But Dr. De Silva says otherwise.
A damning review by ratings agency Standard and Poor’s said earlier this week said that the country’s economy and banking sector was at high risk and also mentioned the weak regulatory capabilities of the Central Bank and its controversial stance of investing EPF funds in banking stocks.
"The IMF’s view on financial stability is clearly in contradiction to what Standard and Poor’s has said. We have consistently pointed out the issues to successive IMF review missions, so it was disappointing that they did not say anything about this," Dr. De Silva said.
Dr. De Silva said the rupee has depreciated nearly 22 percent while interest rates have gone up 75 percent since authorities took a slew of policy measures to curb a balance of payments crisis. He said the people were suffering while small and medium enterprises could not borrow from lending institutions either. Inflation too is a big worry, expected to reach 9.5 percent, according to the IMF which has forecast a growth rate 6.75 percent this year, far below the 7.2 percent growth forecast by the Central Bank and Treasury.
Dr. De Silva charged that the government was being controlled by the IMF. The depreciation of the rupee, increasing interest rates, increase to domestic fuel prices and electricity tariffs was all according to the IMF’s set of conditions.
The Island Financial Review asked Dr. De Silva whether there was alternative measures, and also asked him for his views on the IMF expressing satisfaction with how the brave policy measures were implemented.
"We have consistently maintained that the policy measures taken by the government should have been implemented last year. But the government chose to ignore our warning and now the people are suffering more than they should. The government should not have manipulated markets, the exchange rate and interest rates were kept at artificial levels. Of course the IMF is happy now that these policy measures have been taken, because they prescribed them," Dr. De Silva said.
"There were economists on the government side who saw and understood the problem but they were ignored and now I hear they are in trouble," he said.
Many economists who had openly warned the government about the balance of payments crisis, which broke out after May last year (2011), were ostracized into silence.
One such economists, still preferring not be quoted, said, "We were vindicated when the government and Central Bank changed their policy stance to contain the balance of payments crisis, but it was too late for the country, and we are going through a more painful adjustment now. Had the Central Bank and government had some sense, the burden on the public would have been far far less. It was a very sad and disappointing episode in post conflict Sri Lanka. Hopefully we can learn from this, but attitudes will have to change. The Treasury and Central Bank made the whole country suffer, for what? To keep egos inflated."
Since June last year, month and in and month out, the press had constantly flagged the balance of payments crisis only for the Central Bank to deny such a problem existed. But by February this year the problem could no longer be ignored.