Comment

Restructuring the Central Bank

After fifty years of the Central Bank's existence, there appears to be a major effort to restructure it. The Central Bank is to be made a leaner body by a major downsizing of its functions and staff. As reported by us in last week's Sunday Times Business, the restructuring is with the financial assistance, technical support and initiative of several foreign agencies, led by the IMF and World Bank.This is in keeping with the usual practice of the country undertaking reforms only at the initiative and assistance of foreign agencies.

One of the important reforms envisaged is the shedding of a number of functions that have devolved on the Central Bank. This has no doubt happened due to the inability of public service organizations to effectively run key institutions like the EPF.

In a developing country with weak financial capabilities, it is justified that a Central Bank performs certain developmental functions and roles that are not the traditional functions of Central Banks of developed countries.

In fact the founders of the Central Bank of Ceylon clearly envisaged the Central Bank playing a developmental role. The economic and financial history of the country amply demonstrates the vital and positive role which the Central Bank has played in developing the financial structure of the country. It has also played numerous catalytic functions in national development. These are undeniable.

However this developmental role should have been time bound. After a certain period of time the institutions and their functions should have been jettisoned to become independent organisations. Similarly its agency functions for the government should have been turned into independent agencies. Instead the Central Bank has grown unwieldy and lost its central focus. It is now opportune that it returns to its core functions and performs them well.

The Central Bank has had a pool of skilled personnel that other public sector institutions did not possess. This has been mainly due to the higher recruitment requirements, remuneration offered by the Bank and the training it has given its officers both at home and abroad.

Both the financial capacity of the Bank and its enlightened administration over the years have been responsible for this, The superior skilled resources of the Bank has enabled it to second many of its officers to the state commercial banks, public corporations and government departments, mainly the treasury and finance ministry. The country would have been the poorer without these skilled resources to draw upon. However the reliance on the Central Bank may have also resulted in these institutions not developing their own resources.

Over time this tendency for the Central Bank to take over numerous functions which are an extension of its mandated functions and some not even so, has resulted in the Bank over expanding and taking on duties and functions which have distracted it from its core functions. In fact the Bank may have even compromised its regulatory function of monitoring and supervising commercial banks and financial institutions by running or owning such financial institutions.

There are several ways in which the growth and expansion of the Bank has become counter-productive. The most serious deficiency is that it may have lost its clear focus on the core functions of central banking. The expansion of the Bank meant recruitment of larger numbers. This invariably results in the lowering of quality. In the early decades of the Bank, only the best graduates, mainly in economics, were recruited. A small staff and quality recruitment enabled it to pay higher wages and give better conditions of service. This has been eroded. In fact now the Central Bank is in no position to offer competitive wages. Central Bank recruits are paid only a fraction of salaries and perks paid by the leading private sector banks and financial institutions lorge organisations catering to a multitude of functions cannot pay high salaries nor recruit the best personnel.

It is vital that the Central Bank reforms envisage a future, in which quality staff is recruited by paying market salaries, offering quality training and good future prospects to retain them. The shedding of the numerous functions it has taken on would indeed be a pre-condition to making this possible.

There is another reform that we hope will be considered and implemented.

This relates to the composition of the Monetary Board, which governs the affairs of the Bank and is responsible for the monetary policy of the country, the management of the exchange rate and being the economic advisor to the government. As it is presently constituted, it is virtually an official body. It consists of the Governor, the Secretary to the Treasury (himself till recently a Central Banker) and an independent member (a former Secretary to the Treasury).

We would suggest that the monetary Board consist of five or seven members. The additional members could consist of representatives of professional and commercial bodies, who would reflect a wide spectrum of professions and private sector interests. Such a monetary Board would reflect the changes that have occurred in the economy as well as bring broader perspectives and skills and experience to bear on the apex body.

The founding fathers made every effort to ensure the independence of the Bank and placed provisions that they thought would ensure that independence. However, they could not see the changing political and social milieu that politicised all institutions in the country. The Central Bank has not been spared of this process of politicisation, which has robbed the Bank, a robust and sturdy independence so essential for the long run economic growth and development of the country. It is time for the reforms to device new methods by which its independence is secured. It must look to countries like New Zealand to find innovative ways by which that independence is secured.

We earnestly hope that the restructuring and reforms of the Central Bank would ensure a more efficient regulation and supervision of the financial system ,more rational and effective monetary policy and a more independent Central Bank that would tame the profligacy of our elected rulers.

Whose business is it anyway?

Law and order breakdown threatens business, economy-ccc

The deteriorating law and order situation in Sri Lanka has not only alarmed civic society but also the country's business community prompting the Ceylon Chamber of Commerce (CCC) to study this crisis and prepare an in-depth report.

The results are frightening as extracts of this report, reproduced here, show and calls for urgent action by the government. When the J-Biz Forum met President Chandrika Kumaratunga last week, CCC representatives urged her to take action on the report. The President's contention however was that crime rates, according to figures given to her by the police, have in fact fallen in the past few years and challenged the contents of the chamber study. She however agreed to look into the issues raised in the report.

Just as two recent studies on the economic cost of ethnic conflict reflected on the damage to the economy in terms of lost earnings and human resources, the chamber report raises the crucial question of - is Sri Lanka losing millions or rupees due the law and order crisis in the country?

Economic development can take place only in an environment of law and order. Today, the security situation threatens economic enterprises, discourages investment, burdens economic activities with a cost that erodes their competitiveness and affects the social fabric of decent, law-abiding citizens. We consider the breakdown of law and order and the continuing escalation of crime, the most potent danger to individual business organisations and to the Government.

The Ceylon Chamber of Commerce identified the following situations as the ten Most Critical Factors responsible for the current situation.

o Army deserters estimated at over 25,000 and missing weapons approximately 7,000;

o Drug abuse and protection of the drug trade by people in powerful positions;

o Poverty - which leads to crime and rebellion (also pollution and waste of human capital);

o Political patronage of undesirable elements within society;

o Delays in the administration justice - destroys evidence, invalidates (eliminates) witnesses, fades memory and erodes public confidence in the judicial system;

o Non-summary trails, the high costs and prolonged delays associated with litigation drive many citizens to seek underworld assistance to secure rights (e.g. re-possession of property rented out);

o The 1978 Constitution - that places the President above the law (and therefore encourages certain elements to break laws under the guise of approval);

o The absence of an independent and effective Police Commission, Judicial Service Commission and Public Service Commission;

o Rampant corruption among many Police Officers, fear of political interference in the Police and absence of protection to officers who step out to uphold the law;

o Non-enforcement of existing laws (such as death penalty or life imprisonment for the illegal possession of an automatic weapon).

Swift Police action and judicial hearing elements crime and builds public confidence (for example rescuing a kidnapped business leader, taking the accused to Court and recent practice of Trial at Bar for the more heinous crimes).

The initiatives taken by this Government to assist the promotion and guarantee of basic human rights and in eliminating state terror and establishing economic stability will be destroyed if the current deterioration of the law and order situation in the country is not arrested. This problem is as damaging or more destructive than the North East conflict but unlike the war, it can be controlled and eliminated with the resources we possess.

(I) Summary of Incidents Reported by Chamber Members

The Chamber received thirty written representations within a period of one week from members giving details of specific incidents, the majority of which, generally described the commission of the more serious type of offenses against such persons/entities. The incidents which are summarised below, clearly demonstrate that the serious and rapid deterioration of law and order in this country has adversely affected the ability of business entities to generally engage in the peaceful and legitimate conduct of business and enterprise. The right of every citizen to engage in any lawful profession, trade or business is a right guaranteed by the Constitution of this country and while its significance needs no further emphasis, we submit that this adverse situation as it exists is a serious threat not only to the peaceful exercise of this fundamental right but if allowed to continue unabated, in the absence of a programme of planned and effective action by the State and its organs, will further retard the growth of business and investment in an already threatened economic climate.

The representations received by the Chamber have been classified below on a sectoral basis. Such classification is intended to serve both as an indicator of the effects of the general decline in the law and order situation on a particularly trade sector as well as to draw attention to the particular types of disorder or unlawful/criminal activity that have been experienced by these sectors.

1. Tourism sector

Incidents reported covered a wide range of offenses against the person and property. They included the recent murder of an owner of a holiday resort situated along the southern coast of Sri Lanka, several incidents of assault on employees of hotels and tour guides/tour drivers, sometimes by armed persons, criminal damage to vehicles transporting tourists, illegal constructions on public property and threats of intimidation preventing managerial staff from taking disciplinary action against staff or terminating their services. Special emphasis is placed on the growing population of "beach boys" in popular coastal resort towns, a population which is described by one tourist hotel manager as "an open market for male and female prostitution".

The phenomenon of beach boys has further contributed to the creation of an environment conducive for other illegal activity (selling of illegal drugs, illicit liquor and contraband cigarettes), carried out under the protection of organised networks of "underworld" operators wielding strong political power and therefore unfortunately immunity from the law and law enforcement officers. It is also clear from the representations received, that the power exercised by these organised gangs over the legitimate activities of businesses in the tourism sector is often extensive and perverse extending far beyond the control of activities of beach boys. In one particular incident, which occurred in a popular resort town on the southern coast, a tourist bus was stopped by a group of persons who then assaulted the driver, conductor and tourist guide and left, leaving the tyres of the vehicle slashed and its foreign occupants in a state of shock. In another incident, armed men stormed a hotel demanding information as to the management of the hotel and assaulting the Front Office staff of the hotel in full view of the resident guests. Such gangs also exercise control over the supply of goods (mainly food items) to these businesses which results in such goods being sold at inflated prices, above the market rates to hotels operating in certain areas.

2. Plantation sector

Details of incidents that had occurred in the plantation sector ranged from criminal damage to estate property including damage to plantation terraces, theft of tea, the assault of managerial staff (more evident in the 'up country' plantations) and arson attacks on managerial staff quarters to encroachment of estate land for private cultivation and illegal tapping of power lines. It is noted that strikes among workers often lead to an increase in the level of violence on these plantations. In addition, the existence of organised gangs involved in the production of illicit liquor has also contributed to violence on estates.

3. Banking sector

The banking industry has been subject to numerous armed robberies and incidents of theft were also reported in the representations received from members.

4. Manufacturing sector

Incidents notified were commonly linked to trade union action/workers' strikes during which damage to company property, intimidation, threats and assault of non striking employees or managerial staff had taken place. The assaults in one case were of a serious nature requiring hospitalisation of the victims. Several incidents of theft and armed robbery were also reported by manufacturers, commodity traders and shop owners. Threats of intimidation and of assault had also been received by a number of traders, in one instance from a Member of Parliament and in another instance with the objective of receiving "Protection Money".

5. Role of the police

The general concern of members was that the law enforcement authorities were lackadaisical in investigating such incidents despite the majority of these offenses being of a serious nature. Action by the police in relation to most of the incidents stated above was limited to that of recording complaints made by the victims. The influence of various groups including political parties and trade unions over the police was stated to be the principal reason behind the inability of the law enforcement officers to cause proper investigations to be carried out (or pursued) and to prosecute offenders.

(II) Measures to arrest crime

1. An apparent feature of the incidents detailed above is the increase in the use of firearms in the commission of grave crimes such as murder, robbery, bank hold ups etc. This is despite the existence of severe penal provisions which if implemented would deal with the problem effectively. We make specific reference to the amendment to the Firearms Ordinance (No. 22 of 1996) which was enacted in order to deal with the prevailing "gun culture" but which has not been vigorously implemented and therefore has had limited effect deterring offenders.

2. While the number of deserters have been estimated at over 25,000 and missing weapons approximately 7,000 the number of persons who are illegally in possession of weapons cannot be underestimated. It is therefore of vital importance to conduct a concerted campaign to take into custody all illegal firearms. An amnesty should be declared for persons to surrender weapons after which an islandwide campaign be launched to search for and detect all illegal firearms.

3. Increased consumption of illicit liquor and drugs has a direct bearing on the increase in crime which is also evident from incidents detailed above. Action must be taken to minimise interference with police operations against illicit liquor and drugs.

4. The Police Force

The primary obligation to maintain law and order rests on the Police being the executive arm of the Criminal Justice System.

Section 56 of he Police Ordinance expressly states that:-

"Every Police Officer shall... be considered to be always on duty... It shall be his duty, inter alia,

(a) to use his best endeavours and ability to prevent all crime, offences and public nuisances;

(b) to preserve the peace;

(c) to apprehend disorderly and suspicious characters;

(d) to detect and bring offenders to justice."

Unless Police Officers assiduously execute their specially ordained duty to "detect and bring offenders to Justice" the other arm of the system, the Judiciary is not in a position to deal with the offenders and impose on those proven guilty, the punishment they deserve. Therefore it is important to ensure police officers at all levels execute their statutory duties particularly in detecting and bringing offenders to justice. The following are various measures that may assist in restoring the effectiveness and efficiency of the police in the execution of their duties.

4.1 The traditional and effective form of crime prevention i.e patrolling must be carried out with renewed vigour. It is acknowledged that crime has increased mainly due to the absence of frequent patrolling and the general availability of the Police, particularly to respond to public calls for assistance at short notice. Frequent patrolling will help rebuild public confidence in the Police Force and certainly enhance their role as principal actors in the maintenance of law and order and as preservers of the public peace.

4.2 The quality and integrity of police personnel must be assured. Honesty, integrity and efficiency of police personnel are prerequisites for persons appointed to the posts of Officers in Charge of Police Stations. Such officers must be also held accountable and responsible for any increase in crime which occurs in their areas. Corruption which is particularly prevalent at the level of supervisory officers must be swiftly dealt with as it is well known that the activities of some of the underworld and drug dealers have the passive or sometimes even active support of a certain number of police officers.

4.3 A severe shortage of manpower exists in the police force for the carrying out of their statutory duties. This problem of human resources could be overcome to some extent if a scheme is devised whereby Police Officers could be paid overtime if they are willing to work outside their daily specified tour of duty. Such scheme was carried out with success on the western coast where patrolling by the Police on the beaches minimised harassment caused to tourists by the activities of beach boys and vendors peddling illegal substances. Similar schemes could be extended to other commercial organisation/activities in need of special Police protection.

4.4 The establishment of an independent Police Commission is of paramount importance for the effective and efficient functioning of the police force. Transfers and promotions/demotions are often made on purely political grounds, which have deprived many officers of the opportunity to carry out their duties free from the perverse influences of political groups. Interference of this nature, which must be dealt with severely at all levels, often frustrates and jeopardises the often laudable attempt made by efficient police officers to restore law and order in the areas under their control.

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