Traditionally these two institutions have come under the Ministry of Finance, a portfolio currently held by Ravi Karunanayake, who on Tuesday said regulatory bodies were being brought under the Prime Minister.
This explains why the Central Bank and the SEC as well as the Public Utilities Commission have been brought under Wickremesinghe’s other portfolio of Policy Plan-ning and Economic Affairs. As per the gazette dated 18 January, Wickremesinghe has got additional subjects Child, Youth and Cultural Affairs as well.
However, insurance industry regulatory body IBSL continues to be within Finance Ministry. Similarly the Consumer Affairs Authority, also a regulatory body, is under the relevant Ministry of Food Security.
Another institution brought under Wickremesinghe is the Employees Trust Fund though the Employees Provident Fund is retained under the new Ministry of Justice and Labour Relations, a portfolio held by Wijeyadasa Rajapakshe.
The Central Bank under previous President Mahinda Rajapaksa regime became very prominent and equally controversial due to the role played by the then Governor Nivard Cabraal.
Deputy Minister of Policy Planning and Economic Affairs is Dr. Harsha de Silva, who was a vociferous critic of the previous administration, especially the Central Bank and its management of the Employees Provident Fund and borrowing program as well as alleged stock market manipulations.
Whilst it appears that the move of bringing the CB and SEC under the Ministry of Policy Planning and Economic Affairs is to ensure better governance, the development drew a mixed response.
“In a situation where Cabraal remains as Central Bank Governor, then bringing the monetary authority under Policy Planning and Economic Affairs makes sense so as to ensure better oversight. However, since Cabraal has resigned and a less politically-oriented person will be appointed and given the good governance assurances from President Maithripala and Premier Wickremesinghe regime, the latest move is puzzling,” analysts opined.
“Under the new scheme of things and emphatic assurances, it would have been best that the Central Bank and the SEC were retained with Finance Ministry,” they added.
Top banker Arjuna Mahendran has been reported as the new Central Bank Governor-designate.
Prior to release of the gazette detailing institutions under new ministries, Daily FT popular columnist and former Deputy Governor of the Central Bank W.A. Wijewardena on Monday in his article had a checklist for the new administration with regard to the Central Bank.
Among other things, Wijewardena emphasised that the central bank must act as an “impartial spectator” and not as a “policy owner.” If this recommendation is relevant, then Central Bank coming under the Ministry of Policy Planning and Economic Affairs could be interpreted as a situation where even under the new administration monetary authority will be a policy owner.
Others said that under the good governance promise of the new Sirisena-Wickremesinghe administration, thoughtemporary, what the Central Bank needs is not a shift of Ministry for oversight but true independence whilst retaining it under the Finance Ministry.
The shift however doesn’t mean the Finance Ministry will be spared of any links to the Central Bank. The Treasury Secretary will continue to be an ex-officio member of the Monetary Board.
In his widely-commended article, Wijewardena’s checklist on the future Central Bank included the following: Central banks are created to serve the people and not politicians; Central Bank can take ownership of only what is in its domain; Central Bank should present an apolitical view; and Central Bank reports should be dispassionate and objective.
With regard to the role of the Central Bank, Wijewardena said: “There are two legally-mandated goals which the Central Bank should seek to achieve. One is to maintain an inflation free world which is known as maintaining price stability. The other is to keep the financial system of the country in good health known as maintaining the financial system stability.
“Policies relating to these two goals are taken by the Central Bank and therefore it has the policy ownership for those policies. All other economic policies are taken by the Government and the Central Bank’s job in relation to them is to review policies independently and apprise the Government of the suitability of those policies.”
The former Deputy Governor emphasised that politicians should learn to honour Central Bank independence and emphasised conscience and not political will should guide Central Bankers. He also added that a subservient Central Bank will be cause of a Government’s electoral defeat and that the Governor should be accepted as an independent professional by the market.
Wijewardena went a step further suggesting the goal of ensuring full independence of the Central Bank could be included under the Sirisena-Wickremesinghe interim Government’s 100-day program which however focuses only on urgent political reforms.
Wijewardena said: “In the present 100-day program of the Government, the job of the Central Bank should be to take ownership of only the two mandates it has been given, namely, the maintenance of economic and price stability and financial system stability. It should not take ownership of the 100-day program, which seeks to establish democracy, rule of law, and good governance by abolishing the authoritarian executive presidency and re-establishing Parliamentary powers. However, the Central Bank can keep educating the public of the value of democracy, good governance and rule of law for long-term sustainable economic growth and improving the quality of life of people. Above all, the Central Bank can use this opportunity to win full independence from the Government since it goes well with the good governance principles being propagated by the Government in its 100-day program.”