Sri Lanka’s Finance Minister Ravi Karunanayake reaffirmed his intentions to reduce the autonomy of the Central Bank by noting the failures of the institution during a media briefing held recently. “After it became politicized only the problems came. We want to ensure that there is proper regulation,” he said in response to a question Mirror Business posed on how he would “revolutionize” the Central Bank going forward. Karunanayake last week said that he wanted to “revolutionize” the Central Bank’s functions— since some of the actions undertaken by the monetary authority were “sometimes undesirable”— after presenting a budget he termed “revolutionary” that was seeking to trample the autonomy of the Central Bank. He had further said that the Central Bank falls under the purview of the Finance Ministry under law and that it should only be monitoring the monetary policy measures that the government wants to implement and not advise on how to run a country. Interestingly, the United National Party (UNP) that Karunanayake is part of, while in opposition had consistently criticized the past regime for not giving the Central Bank the independence it needs to conduct the monetary policy. However, no love seems to be lost between the central bankers and finance minister. “They profess as if they (central bankers) are the saviours of the nation but it has been politicized.
It was a sacrosanct place that was giving out—due to bias of those— political information related to government’s activities,” Karunanayake told a press conference last week. Current Central Bank Governor Dr. Indrajit Coomaraswamy, who has received widespread approval, had last week said that the dominance of the fiscal policy over the monetary policy needs to end. He had also said recently that the decision to move government debt management out of the Central Bank is welcome, since the Central Bank does not have enough visibility to manage government debt. Former Central Bank Governor Arjuna Mahendran too had famously defied Karunanayake’s attempts to bring in a 90 percent loan-to-value ratio for vehicle leasing, capping the limit at 70 percent late last year. Karunanayake meanwhile further justified the move to reduce the Central Bank autonomy by pointing out that the many banks and financial institutions have crashed due to an inept monetary policy regulator. A number of financial institutions and a primary dealer engaged in alleged fraudulent activities were taken under the management of the Central Bankapproved director boards during the governorships of Ajith Nivard Cabraal and Arjuna Mahendran. However, the Central Bank last month moved to set up an enforcement division in an attempt to monitor frauds at financial institutions more closely. Meanwhile, when Mirror Business inquired whether the Central Bank was politicized under the UNP’s watchful eye, since a massive bond scam occurred during the governorship of Mahendran, who was appointed by Prime Minister Ranil Wickremesinghe, Karunanayake responded in the negative. He said that it was only the media interested in proving that a bond scam had occurred. He further went on to say that the proposed national payments platform— which has received widespread criticism for invading into the Central Bank processes—will be implemented through the Information Communication Technology Agency (ICTA) because the finance minister has the power to do so. “Under the Payments and Transactions Act, the Finance Ministry could use the Central Bank. So now we are using the Central Bank and ICTA,” he said and shot down allegations that the national payments platform would be managed by private companies. The recent budget had also proposed to create quotas for bank lending based on geographic and industry categorizations, a decision usually taken by the Central Bank. (CW)