Independence is a state of mind : Cabraal
View(s):“I will adhere to the teachings of Lord Buddha”
NEWSMAKERS UNPLUGGED
By Duruthu Edirimuni Chandrasekera
“Do people expect me to be at logger heads with the government? Everywhere (in the world) crises were handled with the central bank and the government coming together,” argues Central Bank Governor Ajith Nivard Cabraal.
In an interview with the Business Times, the controversial governor, who has been accused by the opposition of playing politics, rejects accusations of bias, being a crony of the government and discusses the future of the economy in 2013.
Excerpts:
How will the exchange rate fare this year?
As the Secretary to the Treasury said, we are not astrologers. The economic fundamental will support the exchange rate. We think that this message has been taken by the business as well.
Some businesses are skeptical about the growth in the last quarter with factors such as the drought curbing it somewhat. What is your take on this?
These are factors that are beyond our control. And we have stated that we must continuously try to build spaces within the economy, so that these spaces can be utilized in the event there’s a shock. As an example, if we had low inflation even if there’s a spike in inflation as a result of the drought, that’s a shock we can absorb.
We have continuously built up spaces which grant us some leeway to manage. Drought under the normal circumstances would have resulted in a spike in price and a huge increase in inflation.
Commercial banks have been encouraged to borrow overseas to fill these gaps; thus will CB also refrain from bond issues?
This year the government will not go for commercial borrowings. This doesn’t mean that the government’s borrowing programme will be made zero. They will have other resources from which they will source funds that is required for the government’s activities and for public investments to be maintained. Also greater discipline will be brought into the entirety of the project sector. The way that the government has mentioned that DFCC and NDB will be given the ability to raise long term finances which then could be channeled for projects when that takes place, you’ll find that these are funds coming in which are required for the projects that are implemented by different state agencies and corporations and there’s a certain element of discipline that will also be brought into the situation, because it’s not the government that’s going to grant the money for the project, it’s the bank that will do so. So that would mean that there will
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| Different moods of the Governor.
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have to be an inbuilt mechanism that is put in place to ensure that the repayment also takes place, because generally what happens is when the government provides funds, the general feeling is that it doesn’t need to be repaid, but when a bank gives the money there’s a very clear notion that it has to be repaid. This means that those projects need to be a lot more viable, a lot more focused and a lot more disciplined. So we’re bringing in that new element into the economy where the state sectors are now being requested to be a lot more governance oriented, a lot more oriented towards delivering values, a lot more oriented towards ensuring that they’re able to make the repayment.
What about the state banks?
There will be opportunities for the state banks which are now matured to a great extent to go into that gap and to be able to raise finances. Maybe there’s an opportunity for the private sector banks to liaise finances through the market, so those will be the horizons that are now being opened up.
If you remember in 2007, when we went into the bond market, we stated very clearly that we would want us to be a benchmark for the others to also move in that is happening today. Sri Lanka is diversifying its borrowing sources, it’s financing sources, etc., and that’s a sign of a maturing economy.
With massive floods that were seen last December, lots of crops have been damaged. Will that impact on GDP in 3rd quarter and again lower estimated growth for this year?
Growth in the third quarter was based much on the drought and there has been a fairly big reduction in growth to 4.8 per cent, but we think that it’ll bounce back in the fourth quarter. We expect growth in the tourism sector and also in the agricultural sector there’s been a quick rebounded. So we see growth in the levels of being projected at 6.5 per cent for the whole year, which means we’ll see a rebound in the growth for the fourth quarter.
The Central Bank (CB) in its latest reports has raise concerns on government’s debt/expenditure. Can you comment on the spending concerns raised by CB in monthly monetary reviews?
We have seen the government being much disciplined. The government has delivered 6.2 per cent budget deficit and we want to commend them. We’re happy with the way that it has gone through. The seriousness of which the government approached the budget deficit to be delivered is something that we would like to see happening all the time.
Last year imports were taxed. The duties on imports add substantially to state revenue. By increasing these taxes, won’t the government revenue be affected?
Last year we controlled the rapid rise in imports. It was a multi- pronged approach. One was the tariffs which were increased-two were the interest rates that were increased and three was the exchange late which we would like to see a lot more flexible and next is the credit ceiling. All these policy measures had a dampening effect on the imports, as a result of which the import demand was curtailed to a great extent and we were able to deliver on the balance of payments surplus. Many were taken by surprise. Many said it won’t happen many wrote long stories about it (saying it won’t happen) and it has and now they’re quite going forward, several of those policy measures are still in place.
The policy rates are still higher compared to the region. Although we have not imposed the credit ceiling, we have given a clear indication to the banks that we’d like to see only 18.5 per cent growth this year. I think they’ll take it seriously. It’s a substantial amount and the tariffs remain. So we could see fairly good imports growth this year. As a result this will assist the balance payments to remain in the positive levels this year. It is a balance. We have many variables that we are dealing with – one is the revenue and another is the foreign exchange. These are all interdependent upon each other so it’s up to us to balance all this so that we don’t allow one area to become worse than what it should be or if there’s a huge gain on one (area) we don’t allow it to gain that much more, because we might pass that gain down to another sector, area or a variable.
There may be some losses in the revenue but there will be more stability in the external account which we’re looking at. The numbers have been worked out in such a way that all these competing interests are taken into consideration and we’re looking after the patient. So some bleeding in the finger has to be tolerated to stop a clot that shouldn’t be formed in the brain. Sometimes you need to consider the entire patient and his / her wellbeing to understand the rationale for a certain policy measure.
Have you set a new benchmark for the governor- when earlier governors were perceived as being independent and not getting into politics?
Do people expect me to be at loggerheads with the government? Everywhere (in the world) crises were handled with the central bank and the government coming together. If a central bank governor doesn’t realise what the government’s priorities and what it has been elected to do, then it’s a huge gap. A central banker should be aware of the overall thrust of the economy. The CB policies must also take into effect that if the people have a certain vision for the country and if they have endorsed that vision with the government, then it’s that path that we need to follow. I’m proud to say that we have been able to achieve a congruence which has served this country well. Low inflation for 47 months; never have we achieved that. Similarly growth, financial system stability, unemployment down to lowest, poverty levels decline, reserves at the highest, regional diversification at the highest and all this is because we worked closely with the government.
There are questions raised based on the independence of your position.
Independence is a state of mind. You say that you’re independent but if you are not acting in a manner that isn’t then you are actually not independent. Independence isn’t fighting in public; sometimes people make that mistake.
Today you see people who are saying that they are independent (but they fight) and those institutions are suffering. I have been able to exercise independence without making anyone suffer; that is the finesse that you must have if you are leading a sensitive institution. Independence is not having picketing measures and fighting with the government.
Your name appears in many issues like for instance TFC-NSB deal.
Political statements have been said all the time and I am used to them. These are totally biased and totally political and we don’t want to respond to this rubbish, because that is actually rubbish. I will adhere to the teachings of the Lord Buddha where he says that if someone says something wrong about you, not to accept it as it will revert to them.
Allegations are that you are friends with powerful businessmen. This is also raising issues about your independence.
The friendships that I have developed are where people respect me, where they know what I stand for and people know that if they do something wrong which warrants any action they will not be spared. Many of the bankers who have not had 100 per cent compliance have found out for themselves. I have really had no issue of that nature.
I don’t think anyone has made any accusations that I have given any favours to anyone or gone behind to punish anyone in an under fashion. These are statements that disturb the trend of thought and there’s nothing tangible.
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