“In the emerging developmental state, the central bank stands ready and is willing to join hands with fiscal and policy planning authorities to help open the vistas of prosperity for the benefit of the people,” Governor Lakshman said delivering the 70th anniversary lecture of the agency.
“Having experimented with different development policy stances and frameworks, Sri Lanka has now arrived at a warship watershed like situation where the people seem to have opted for shared and inclusive socio economic development through a state guided policy regime.”
Sri Lanka is developing its own model of a developmental state, he said.
The policymaking systems and approaches, and administrative and other mechanisms are being developed to facilitate the above result.
‘In this context, the Central Bank of Sri Lanka, with its 70 years history is being expected to play its role as an agent of development,’ he said.
Sri Lanka’s central bank was set up under a law prepared by John Exter, one of several experts from the US Federal Reserve that set up sterilizing central banks in Latin America after the Great Depression and South East Asia after World War II.
“Market mechanisms and processes are carefully planned in a developmental state, closely monitored and guided by the state if the overall system is market based and dominated by markets,” Governor Lakshman said.
Alternatively, if the overall system is socialist and centrally planned, markets are allowed to freely operate in limited subject areas.
‘The developmental state in some strategic sense, a mixed economy, with markets and state mechanisms operating side-by-side in a manner, that is complementary and mutually reinforcing.”
He said that several East Asian nations had such a structure and also named Japan, which had industrialized before World War II, starting from the Meiji restoration.
He said such countries gave subsidized credit. Also there was protectionism and technological support in the form of technology.
Korea, where another US Fed expert, Arthur Bloomfield also set up a sterilizing central bank. The first currency it issued, the ‘Hwan’ was abandoned less than a decade amid record depreciation. Amid high interest rates and reserve ratios, Korea also gave subsidized credit.
Exter’s currency however has survived for 70 years.
Meanwhile Governor Laskshman said discussions were underway to set up a new development bank and a credit guarantee agency. (SB-Colombo/Aug31/2020)