Culpability of officials in causing the economic crisis

Two weeks ago, the Supreme Court in a landmark judgment ruled that the Rajapaksa brothers and senior officials who held enormous power within the realm of economic policymaking under the Gotabaya presidency such as Dr. P.B. Jayasundara (PBJ), S.R. Attygalle, Prof. W.D. Lakshman, Ajith Nivard Cabraal, in addition to several Monetary Board members, bore the responsibility for Sri Lanka’s severe economic crisis and thereby violated the fundamental rights of the people by mismanaging the economy between 2019 and 2022.

Subsequent to the judgment, politicians have expended much of their energy on attacking the Rajapaksa brothers for their acts of omission and commission that paved the way for the economic catastrophe in 2022. However, not much focus has been directed on the officials who were entrusted with the task of advising the political authority on economic policy. It is the view of this columnist that officials who were reprimanded by the highest court in the land had a greater contribution in the calamity that took place more than the aforementioned politicians. As Gotabaya had very limited exposure to public policy matters prior to presidency, he had to be provided with accurate economic advice, but PBJ & Co awfully ignored that responsibility.

PBJ’s approach has rarely been discussed in the many post-mortems that were carried out examining the incidents that led to the unfortunate state of affairs. As Secretary to President, he was controlling three important pillars of economic policy decision-making – the Monetary Board, Treasury, and the Presidential Secretariat. PBJ is a career Central Banker, and someone who has a good understanding in economics. It is reliably informed that officials of the Central Bank’s Economic Research department had submitted detailed presentations in advance to the former Secretary to President about the dire necessity of seeking help from the IMF, but instead of heeding to such counsel he had berated those officials for disclosing the bitter truth. When PBJ was Secretary to the Treasury under former President Kumaratunga, he was a keen advocate of market economic principles and spearheaded reformist initiatives like the privatisation of Air Lanka during the late 90s. Nevertheless, during his service to the Rajapaksa brothers, a complete about turn was witnessed in his outlook and he presided over regressive policies like expropriating private businesses, expanding the State sector by undertaking large-scale recruitments, imposing drastic trade restrictions, etc.

With the resignation of Indrajit Coomaraswamy from the Central Bank (CB) Governorship, PBJ persuaded Gotabaya to appoint his confidante Professor W.D. Lakshman as Coomaraswamy’s successor. At the time of Lakshman’s appointment, question marks were raised about his lack of practical experience in monetary policy, but such reservations were ignored. During Lakshman’s stewardship of the Monetary Board, he promoted the Modern Monetary Theory – a doctrine discarded by mainstream economics – which was later described as the Maligned Lakshman Shock by this newspaper’s regular columnist – W.A. Wijewardena. According to Wijewardena, in Lakshman’s tenure, the CB became a virtual printing press and expanded the money stock by Rs. 2.8 trillion or 35% in the guise of following an alternative economic policy stance.

Last but certainly not least, one cannot ignore the role played by the accountant-turned politician Ajith Nivard Cabraal. Unlike the previous two individuals, Cabraal is a complete stranger to economics and despite a previous term as Governor, there were questions raised when chosen as Lakshman’s replacement due to the baggage of controversy and excesses he carried previously. In submissions to the Supreme Court, former Monetary Board member Sanjeewa Jayawardena alleged Cabraal of unilaterally amending a letter dated 18 March 2022, despatched to the IMF, from a communique plainly seeking a fund-assisted mechanism into a request which was rather hesitant and ambiguous. It was shameful to see that Cabraal was trying to pass the buck on the current CB Governor and Secretary to the Treasury before a parliamentary special committee despite overwhelming evidence that he played an influential role in precipitating the unprecedented predicament.