An economy devoid of trivialization and fairytales?

24 April 2012 09:55 pm - 1 - {{hitsCtrl.values.hits}}

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It was quite sad to see how a number of Cabinet Ministers and public officials who have been entrusted in running the country's economy, education, trade etc. were subjected to absolute ridicule as a result of some remarks they had made recently.

Consequently, not only they have become the most desired caricatures of Sri Lanka's league of newspaper cartoonists, but also have faced the threat of losing their credibility in the public's eye.
Trivializing matters is not good. Trivializing matters dealing a country's economy can be fatal. There was a time when Sri Lanka's Central Bank report was considered the highest and the most trusted source of economic data and analysis. As students we were asked to refer the Central Bank annual report all the time. But now it would be appropriate if a research company such as AC Nielson can conduct a survey amongst the country's economics fraternity to find out the dependability of the Central Bank annual report.
It is evident how rash but popular political statements have made their way to the country Central Bank and to the Treasury.
If one has read Machiavelli's most celebrated work 'The Prince', it would be no surprise to discover why politicians make such statements.
Hence, whatever statement a politician makes, a person who has the vaguest touch with reality knows that the probability of it becoming true or real is highly uncertain. But the problem arises when the economists and central bankers who should ideally follow Kautilya, Lord John Maynard Keynes or Fredrick Von Hayek begin to follow Machiavelli!
Politics is said to be operated on policies. But economics truly operate on policies and fundamentals. Therefore, economics hardly provide anyone the chance to make spontaneous statements.
IMF: The bitter truth
Though it was not long ago when the Central Bank Governor Ajith Nivard Cabraal said that Sri Lanka would not draw the last tranche of US $ 400 million from the US $ 2.6 billion IMF (International Monetary Fund) facility, asserting that Sri Lanka has enough foreign reserves.
"The need is no longer there. Our (foreign currency) reserves are at fairly comfortable levels, Sri Lanka had already informed the IMF that it did not need the remainder of the money," Governor Cabraal was quoted as saying to AFP on February 1.
But last Friday, the IMF made it public a letter sent to them by the Sri Lankan government requesting the final tranche of US $ 400 million. Both the Central Bank Governor Ajith Nivard Cabraal and Deputy Finance Minister Geetanjana Gunewardena had signed the said letter.
It is important to recall that in 2009, the Central Bank held an emergency press conference to stress that the country's foreign reserves were intact and there was no need to ask for IMF support, when a few independent economists pointed at the depleting foreign reserves and the need for the urgent negotiation of an IMF Stand-by facility.
Once the Stand-by facility was in the process of approval, the Central Bank and the Treasury tried to convince the public that there were no conditions attached with the loan. Anyone who has the slightest idea about how IMF operates knows that IMF expects governments to shut their fiscal leaks by minimizing losses of state enterprises, cutting of certain subsidies and a whole lot of politically unpopular things, if they are to support them.
It was no secret that the sudden devaluation of the rupee, hike in import taxes of motor vehicles, rise in interest rates, determining of fuel prices in line with international prices were done to obtain the last two tranches of the IMF facility. Unless would it have been the sudden realization by economists at the Central Bank and the Treasury that a floating rupee is far healthier to the country's economy than intervening in determining the interest rate, after squandering about US $ 3.6 billion in few months in defending the rupee?
Economic growth: Is somebody bluffing?
The Central Bank and the government are shielding any criticism towards the country's economic management by pointing at the GDP growth rate of the last two years, which according to the Central Bank stood over 8 percent. Although a number of independent economists have raised their concerns over the possible shortcomings in the calculation of such growth rates, there has not been a feasible way that one can prove the Central Bank wrong. There is no doubt that the country's economy grew during the last two years. But the million dollar question would be how a country with over 8 percent growth running huge trade imbalances and more than one occasion saw balance of payment nightmares?
Isn't it always better if policy makers address these issues, rather than carrying out marketing stunts such as advertising campaigns that cost them millions of rupees?
EPF scandal
Another area of concern is the scandalous investment the Employees' Provident Fund (EPF) has made in the country's equity markets with the hard earned moneys of every working person in Sri Lanka.
EPF has been quite rhetoric about the sound investment decisions it has made and the rate of return the investments are giving to its members. But one has to ask from the EPF what the investment rationale was when it invested nearly Rs.1.5 billion in Galadari Hotels PLC which was incurring heavy losses and had over Rs.6 billion in debt?
EPF bought the Galadari Hotels shares from the Nawaloka Hospitals group and in one of its annual reports, Nawaloka Hospitals Deputy Chairman Jayantha Dharmadasa told the shareholders that the sale was a "great relief from a financial perspective"!
Galadari was not the only so called investments the EPF made by looking at 'strong fundamentals'. The EPF bought large stakes in Laugf Gas, Ceylon Hotels Corporation etc. at premium prices which for some time give the pension fund negative returns.
According to the EPF'S 2010 annual report EPF has increased its investments in the Colombo Stock Market to Rs.43.7 billion from Rs.9.8 billion in 2009.
On the contrary, EPF'S investment in government securities has only increased by around 1.13 times from Rs.716.5 billion in 2009 to Rs.815.7 billion in 2010.
However, regardless of the 400 percent increase in equity investments, the income received by the EPF during the year 2010 remained at mere Rs.1.7 billion with a rate of return of 3.81 percent, the accounts showed.
According to Verité Research, a private research firm providing strategic analysis for corporate and government institutions in Asia, the quantum of investments EPF had made in equities should have earned an expected market return of Rs.73.9 billion based on performance of the All Share Price Index (ASPI) during the year against Rs.1.7 billion, which is an adverse ratio of 43:1. But this hasn't stopped the EPF and the Central Bank to go town saying that EPF is giving the highest rates of return!
Are we that dumb?
Why do authorities always tend to think it is insanely easy to pull the wool over people's eyes by trivializing or misinterpreting facts? For god's sake we are living in an age of information. There's no way that authorities can hide facts from people for long. Hence when the truth comes out it always makes authorities really embarrassed. So it's high time that the authorities comprehend that people are not that dumb and get rid of their cheap tricks and dinosaur egos and start dealing with the public on a more transparent and honest platform.

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Comments - 1

jay gunasekara Thursday, 26 April 2012 05:03 AM

Cabraal is a political lackey. As we all know he is the first accountant to hold the governers job. Iam sure he has read that book How to lie with statistics.Srilankan voters are very ignorant
and gullible.The question is how long can you keep on fooling the people.Maybe Bandula .G with his economics degree can handle the balance of payments problem.

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An economy devoid of trivialization and fairytales?

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