Monetary authority not part of president’s political party* Wants LLRC recommendation guaranteeing CB independence
* Need truthful assessments of economy, not advertising campaigns that belittled, compromised officials of the bank
* No disclosure on exchange rate, IIFA and failed Commonwealth Games bid
April 19, 2012, 8:28 pm
UNP Economic spokesperson Dr. Harsha De Silva called on the government to immediately implement the recommendation of the Lessons Learnt and Reconciliation Report (LLRC) with the regard to restoring the Central Bank as an independent institution in the country.
"This should be a priority," the economist said yesterday (19) at a media briefing on the latest Annual Report issued by the Central Bank.
"The 2011 Annual Report of the Central Bank is an in-depth, comprehensive report on the state of the country’s economy and full credit must be given to the officials of the bank for compiling such a report. However, the report also tries to hide certain facts from the public and this is a shame. The Central Bank is highly politicised and we hold the Central Bank and the Monetary Board responsible for this," he said.
The economy recorded its highest post-independence growth rate of 8.3 percent last year and the per capita income increased from US$ 2,400 to US$ 2,836.
As reported in these pages, when President Mahinda Rajapaksa addressed the Central Bank launch of the 2011 Annual Report earlier this month, he said, "There is no point in having high growth rates if the people are not enjoying its fruits. We need to be sensitive to aspirations and needs of the people, and I believe we are."
Dr. De Silva yesterday commended the President for making such a statement.
"We are happy that the government realises that GDP growth is not a fool-proof indicator of economic development. We need to revive the Real Household Income index. This told us how much households were earning and was published for several years. Sadly, the Department of Census and Statistics no longer compiles this data and I have told the President that this data would be the best indicator for development. This index must be reintroduced soon," he said.
He said several economists, including him, warned of the impending balance of payments problem nine months ago.
"But the Central Bank and government chose to ignore these warnings and today, the Central Bank in its report indicates that it was aware of the problem and that running down reserves to keep the rupee stable was all part of the plan. It has lost its credibility. It can no longer give a truthful assessment of the economic issues in the country. The Central Bank is not a member of the President’s political party. It has lost its ability to self criticize and make frank assessments of the economy.
"The Central Bank today is like a blind man calling for other blind men to follow him. There is a funny sticker on some three-wheelers that say ‘don’t follow me I am lost’, the Central Bank is lost and expects everyone to follow it.
"The need of the hour is independent analysis of the entire economy, but what we have instead, is a Central Bank paying for newspaper advertisements to counter media reports of issues in the economy. We also see highly qualified Central Bank officials appearing in paid TV advertisements telling the public ‘we are right, this is how the economy is faring’ and so on. This is a big joke. Nowhere in this world has something like this happened.
"We should not belittle and compromise top officials in the Central Bank in such a manner. We want the government to stop coercing them to demean themselves and the office of the Central Bank in this big joke," De Silva said.
He said the Central Bank report failed to answer pertinent questions with regard to the IIFA and failed bid to host the Commonwealth Games.
"These are areas the Central Bank should not have got involved in the first place. The Commonwealth Games Bid Secretariat was set up in the Central Bank premises. There is no disclosure on how much was spent on these fruitless costly exercises, nor on who financed them. The private sector is believed to have coughed up US$ 5 million to finance the bid, but who were they?"
He also slammed the Central Bank for not making a critical disclosure on the rupee depreciation after the balance sheet date, which was an attempt to hide the truth from the people, as it distorted the computation of per capita income forecasts and created illusions.
The per capita income of US$ 2,836 was computed using an average exchange rate of 110.54 in 2011. The average exchange rate used in 2010 when the per capita income was US$ 2,400 was 113.
"The technical validity of Central Bank’s GDP number and per capita computation is not in question. However, it had the moral responsibility to include a post-balance sheet disclosure that the rupee depreciated to Rs. 113.90 to a dollar by the end of 2011 and thereafter to Rs. 130 within the first two and half months of this year. This was not done. The Central Bank that preaches good governance and ethical financial reporting did not make this critical disclosure," Dr. De Silva said.
He said if the rupee did not appreciate significantly this year, per capita income growth could actually be negative. "What would the Central Bank then do? It should have made this disclosure. Other central banks always disclose significant post-balance sheet events, but not ours and this is a shame," Dr. De Silva said.
"We need a Central Bank that can make an honest assessment of the economy and not conduct marketing campaigns that the economy is doing well," he said.