Former Governor of CBSL, Dr. Coomaraswamy:
“My generation has let the country down…”
By Shmaindra Ferdinando
Former Central Bank Governor Dr Indrajit Coomaraswamy said the failure of successive governments to manage spending since the country’s independence has caused the current economic instability.
Sri Lanka has been plagued by a toxic combination of populist politics and an entrenched culture of entitlement among the people, Dr Coomaraswamy said. The Island. “Time and time again, the electoral calendar has undermined fiscal discipline,” said Dr Coomaraswamy, who had served as governor (July 2016 to December 2019).
Dr Coomaraswamy said so when asked to explain why he had advised the electorate to be extremely careful in exercising their right to vote during the yahapalana administration at a time when the national economy was doing much better.
Dr Coomaraswamy was testifying before a Presidential Commission of Inquiry (PCoI) investigating endemic corruption in the public sector.
President Maithripala Sirisena has appointed Dr Coomaraswamy as Governor of the Central Bank following the second treasury bill scam. Dr. Coomaraswamy who previously served the CBSL for a period of 15 years in its economic research, statistics and banking supervision departments. He had also worked at the Ministry of Finance and Planning from 1981 to 1989 under the administration of the UNP.
raised the issues at hand with Dr Coomaraswamy on the heels of former Auditor General Gamini Wijesinghe who lashed out at Parliament for its failure to ensure fiscal discipline. Wijesinghe, who served as AG (2015-2019), alleged that the country is now paying a huge price for electing those who pursue a destructive agenda. Wijesinghe said he felt the electorate lacked the political acumen to elect sensible people.
Dr Coomaraswamy explained that for many decades Sri Lankans had been living beyond their means and getting by on generous influxes of concessional loans and grants. However, the situation has changed although elected officials seem determined to follow the same policies, he said.
Sri Lanka should not forget that the country has upgraded to middle-income status and is no longer eligible for concessional aid, the former central bank governor said. “At the same time, there has also been a reduction in the availability of long-term loans from official sources. As a result, since then, more recourse has had to be had to more expensive borrowing in the international capital markets. It’s a whole different paradigm. Increased exposure to capital markets and rating agencies requires much greater discipline in macroeconomic policy-making.
The former BC governor stressed that much-needed discipline could only be achieved if politicians understood the parameters within which macroeconomic policies should be set. “They must also have sufficient understanding to play a leading role in sensitizing the population to the most urgent need for fiscal discipline. It is therefore important that Sri Lankans exercise their right to vote wisely to ensure that the right people are in Parliament.
Commenting on the responsibility of those managing the economy, especially at a time when the country was in turmoil, Dr Coomaraswamy pointed out that large budget deficits were leading to what he called excessive aggregate demand, which fueled inflation. and exerted pressure on the balance of payments. It would be relevant to point out that large budget deficits ultimately undermined the value of the currency.
These are the main negative impacts on the population of politicians not exercising parliamentary oversight of public finances responsibly, Dr Coomaraswamy said.
“There are challenges on many fronts. My generation has let the country down. It is now up to young people to chart a new course for the country. I hope enough talented people will stay in the country to do that,” he said.
Dr Coomaraswamy however expressed his confidence in the talented young people remaining in the country amid reports that many are seeking to migrate.
Dr Coomaraswamy and Gamini Wijesinghe have demanded immediate corrective action to restore financial discipline as President Gotabaya Rajapaksa finally confirmed negotiations with the International Monetary Fund (IMF) to overcome the financial crisis.
Former Central Bank Deputy Governor Dr. WA Wijewardena recently said that Sri Lanka should have requested IMF intervention in April 2021 during Prof. WD Lakshman’s tenure as CBSL Governor. The government forced Professor Lakshman to resign in September 2021 to bring in incumbent Governor Ajith Nivard Cabraal.