5 July 2016 05:42 pm
“My job was to provide him with research reports,” Dr. Coomaraswamy said addressing his first news briefing as the Central Bank Governor.
Criticism has already been levelled at him by joint opposition parliamentarians about his connection to the Galleon Fund of the disgraced Mr. Rajaratnam, who was sentenced to11 years after he was found guilty of a securities fraud in the US.
Dr. Coomaraswamy said he got to know Mr. Rajaratnam as a friend from his university days.
“I set a framework when I was in London to provide him with macroeconomic research. He knew my background and he wanted me to help. This happened for about 10 to 11 months and then he was charged. So it took about a year after that for me to legally wind up the operations,” he said.
“I knew him as a friend…he helped Sri Lanka and he had done a lot of positive things…lot of charity work. That was the Raj Rajaratnam I knew.”
Speaking about major challenges faced by the economy in the short-term, Dr. Coomaraswamy said it all boils down to fiscal discipline. Protracted high fiscal deficits by successive governments have been a major drag on the Lankan economy and the main cause for the present instability. Dr. Coomaraswamy, throughout the past, has continuously criticized the vicious cycle of higher budget deficits, higher interest rates, and higher inflation and overvalued exchange rate, which have made the country’s exports less competitive.
This is diametrically opposed to what many of those South East Asian economies did managing their economies for prosperity.
Dr. Coomaraswamy minced no words to say that the co-ordination of fiscal and monetary sectors will be key to achieving economic stabilization in a sustained manner.
“Clearly the Finance Ministry has a very important role to play as well,” said Dr. Coomaraswamy who served both in the Central Bank and the Finance Ministry in his early career. However in a country where politics trumps economics almost all the times, this cohesion is going to be extremely challenging.“The main challenge is to ensure stabilisation of the economy is achieved in a sustained way. Because if you look at our history during the last 30 to 40 years, we start implementing stabilisation programmes, but we never pushed them through. So, we have these ‘stop-go-policies’ – we let the economy get overheated and then we get in to balance of payment problems (because we lack strong macro-economic fundamentals) and/or high inflation and then we hold breaks by putting in place contractionary policies.
If you look at it, we have had these repeating ‘stop-go-policy’ cycles,” he reminded.
Therefore he reiterated the biggest challenge is for the Central Bank and the policy makers to commit to strong macro-economic fundamentals, which can be sustained for over 30 to 40 years.
But he warned the process would be not without pain.
“The stabilisation programme means pain. So, we need to get through that pain. If we do get through that pain, I think there are prospects of faster growth going forward,” he remarked.
Video by Amantha