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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » “Don’t Shoot The Messenger – I Am No Economic Hit Man” – Dr Harsha De Silva

“Don’t Shoot The Messenger – I Am No Economic Hit Man” – Dr Harsha De Silva

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Director - Equity Analytics
Director - Equity Analytics

By Faraz Shauketaly

The principal opposition spokesperson on the economy, Dr Harsha De Silva (UNP MP) maintained that he is “not an economic hit man” whilst acknowledging that he is perhaps the principal outspoken Opposition Member speaking out about the economic ills the country is facing.

Dr Harsha De Silva, speaking to The Sunday Leader was of the view that the government was finding it impossible to maintain the rupee at the rate they would like it to be. The Rupee was held around the Rs 109 mark for a rather long time in a show of stability. It was Dr De Silva’s view that the Treasury Secretary ‘upset the apple cart’ by devaluing the rupee on the day of the budget. The Governor of the Central Bank maintained then that it was a one off devaluation and that the rupee would be maintained at around Rs 114.
However policy measures taken to handle the currency including the plan to sell down the US dollar currency in reserves resulted in the shrinking of the rupee in the market place resulting in higher interest rates. This impacted on growth which slowed down, job creation becomes difficult and in answer to that Dr De Silva maintained that the Central Bank undertook a programme of ‘sterilization’ – mainly by increasing of the Central Bank holding of Treasury Bills. If this methodology was introduced when there was a run on the currency then it is a measure that would work – but it would not work when there was clearly a fundamental economic issue, was the UNP’s de-facto chief economists’ view.

“The fundamental problem was that Sri Lanka was not exporting enough. The shocking revelation is that Sri Lanka used to export about 38% of its GDP 10 years ago, now it is only around 18%. What we are seeing is that the focus has shifted away from exports. You see it on the ground as well. There is no surge in export orientated businesses. Focus has been more on construction projects, contracts where there is lot of quick money to be made”. Investors, Dr De Silva said, have also looked at easy avenues to making money. “Export expansion has taken a hit due to the withdrawl of the GSP+ facility, the slowdown in the growth of the Euro zone, the developed world in general and the uncompetitive over valued currency. The other ways of bringing in foreign currency is FDI. That has been sorely lacking. These indicate a fundamental problem in the economy which cannot be fixed by manipulating the currency. This is a fundamental problem and you can ask any economist and this is the answer that you will find.”

Speaking openly about the Central Bank Governor’s view that the currency is being hit by ‘economic hit men’
Dr De Silva was of the view that the sliding currency had nought to do with the pronouncements of so-called ‘economic hit men’.

“The Governor maintains that we do not see the value of the infra structure development the government is undertaking. It is not quite like that – we value these developments but it is the costs, so astronomically high, that is the part we do not agree with. Hardly any of these projects are tendered for and mainly given to Chinese companies under undisclosed terms. Some investments simply do not make sense.” The airport in Mattala, the Lotus Tower, Mihin Lanka and the Convention Centre in Hambantota were cited by Dr De Silva.
He questioned the logic of reclaiming 500 acres of the Ocean in Galle Face for a F1 track and a Golf Course. “Some projects are good yes, others bad but the cost structure is not transparent. The funding mechanism is also ‘not optimum”.

“The government,” Dr De Silva maintained, “is of the view that the government has taken on itself to fund these projects as opposed to public private partnerships.” Dr De Silva bemoaned the fact that whereas in India airports are funded by the private sector, in Sri Lanka the government has taken it on itself but with highly expensive borrowed money, mainly from China. “This is not the optimum methodology. The government must open up certain sectors to private sector participation to fund sustainable infra structure development.”
Dr De Silva did not envisage a return to lower Dollar Rupee rates any time soon. He stressed the need to address fundamental economic issues as opposed to manipulative measures.

Turning his attention to the investments being made in the Tourism sector, the American qualified Economist said it was “best if the government stayed out of this area. Tourism has always been driven by the private sector and they had done well. It was best that it was kept that way. The Tourism Authority appears to be in complete disarray. We were the Small Miracle, then there appears to be no tag line. There must be a cohesive approach to promoting tourism. A number of issues need addressing like the granting of land. There was a need to go through powerful politicians to get land or else there was little chance,” charged Dr De Silva.

“I think the government should lay down the guidelines, regulate, promote and not interfere with the industry. The depreciation of the rupee will have a positive impact on the industry but the Eurozone recession will have a negative impact. We are told that big names are coming but we have not seen them. Shangrila under the Strategic Development Act (SDA) must complete by 2014. It is interesting to see if they don’t complete by then would the Expropriation Act then kick in if Shangrila does not complete by then? Unlike before the SDA has parliament approved performance targets. Therefore what we can see is that there is confusion. It is the same Ministry, the same people who are bringing in contradictory laws. Perhaps this is why larger investors have not come to Sri Lanka,” questioned Dr De Silva.

Challenged about his views on the EPF investments where Dr De Silva maintains that there are huge losses – Rs 12 Billion – and reminded that these were in fact ‘unrealised losses’ Dr De Silva responded by saying that the Opposition has an obligation to the people of this country to track these events. “The Central Bank is merely the custodian of the people’s savings of the private sector. It has nothing to do with a person or two but everything to do with the retirement monies of the working people of the country. “My critical comments on this issue started in mid-2010 when the market was beginning to boom. My interventions or pronouncements has been since then it is not a new phenomenon and it is incorrect to say that I am trying to make political mileage just because the market is down. The issue is whether we are doing the right thing or not. For instance there is an Investment Policy clearly setting out the guidelines in what one can or cannot invest in. Bank shares are prohibited from this.”

Dr De Silva was reminded that the Central Bank has maintained that the rules had been changed. Asked why the Opposition had not found out, Dr De Silva maintained that “the rules as far as we know are not changed”. We asked him if he thought that the government was ‘lying’. Dr De Silva responded by saying “I don’t want to say that but let us say that we are all confused. If it was changed then why was the market not openly told about it? We are talking of a Trillion Rupee investment fund. Very mysteriously the changes they say was changed in 2009. No reference made in their reports in 2009 or 2010. But they say it was changed in 2012. That is mysterious, many pronouncements and statements were made but no mention of this!” Dr De Silva questioned whether an opinion was sought between 2009 and 2011 from the Attorney General for any justification in those changes. According to Dr Amunugama, the EPF has Rs 61 Billion in the market, all belonging to the people for their retirement. The document highlights the cumulative losses as being Rs 12 Billion.

Dr De Silva stressed that they had no issue with the EPF investing in the stock market but it was the ignoring of the fundamental rules that was the real problem. The continuous ignoring of the guidelines is the problem – the impunity with which they carry these out is the worrying part. “My issue is their breaking the set investment policies. They are investing in banks, non-blue chips and the non main board. There is a right way and a wrong way. The Monetary Board is responsible for breaking the rules. We must be told as to who made those decisions and why and on what basis. The NSB TFC deal was nothing compared to the Laugfs or Grain Elevators transaction. I am criticizing them for making investments in ‘not so sound companies’ – breaking the set investment policies.”

Dr De Silva maintained that he was no ‘economic hit man’ but that he definitely was the Messenger, highlighting the fundamental flaws in the various policies of the Monetary Board. In an extensive chat on the economy Dr De Silva maintained that a future UNP government would have a professional Central Banker at the helm of the Central Bank, a position he maintained he would not seek himself.

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