When politicians fail, bankers may prevail

With this week mirroring the State sanctioned violence of 1983 and the return of usual suspects to old positions, Sri Lanka cannot catch a break. Almost everyone remains in agreement that indecisiveness is a vice that cannot be tolerated, however the political machine laggardly moves through. From meetings that are not held online and with Parliamentary sessions delayed, the President’s parroted promise to find solutions is simply lip service to appease the masses who are clear and adamant in their demands. This inaction now causes more alarm bells to be rung.

The economy will "collapse beyond redemption" unless a new Government is appointed within two days and political stability restored, asserts the Governor of the Central Bank Dr. Nandalal Weerasinghe, a newly appointed silver lining to the storm cloud gathering in the central bank. He has been very forward and forthcoming about what needs to be done. He expressed his views that the resignation of the Prime Minister along with the violent outbreak that ensued has certainly thrown a wrench into CBSL’s recovery plan. While this should be addressed urgently, an old but new replacement as a premier would prevent matters worsening. However, this one seat being filled is not enough.

Early on in his appointment, Dr. Weerasinghe admitted the fate of the country was like that of a runaway car going down a slope, to which applying the brakes was the need of the hour. This brake has been applied through monetary tightening measures such as through raising interest rates by 700 basis points and even going to the IMF on our 51-billion-dollar external debt restructuring. “I thought we were able to apply the brakes, but with the events of Monday, the brakes no longer work - my being here as Governor will not help," he said. "I will resign if there is no immediate action to form a Government."

Economic reform without political stability would not hold any weight as the necessary legislative and executive powers are not able to effect fiscal changes and decisions in the real economy. For example, much needed tax reform, that has been a blatantly obvious place to start fiscal reshaping, is continually delayed as no proper Cabinet of Ministers to sign off on any proposal can be considered. 

This is to say that all non-binding discussions with the IMF thus far, in the worst case, could be challenged by a new Government if appointed. All the while it is crucial to implement reform, addressing the severe shortage of dollar reserves to import essentials becomes an unavoidable problem. With less than two weeks of reserves available for essential imports, two weeks without a Cabinet and a Parliament can very well be the undoing of it all.

"If we don't have political stability, very soon we will run out of what little petrol and diesel is left. At that point people will get on the streets to protest peacefully or violently," Dr. Weerasinghe pointed out. After former CBSL chief Ajith Nivard Cabraal hastily resigned amidst running the economy on its last leg, halfway to the ground, Dr. Weerasinghe’s appointment showed that tough people are made in tough times. He along with Finance Minister Ali Sabry and Treasury Secretary Mahinda Siriwardena took part in the initial IMF discussions and media briefings, managing to instil confidence in the market and for international onlookers, towards an institution that had fallen along the wayside.

From directly addressing root issues of Sri Lanka’s woes to even implementing unorthodox strategies such as suspending open account payment methods, the course correction – albeit painful and long has been largely positive. However, Dr. Weerasinghe at the end of the day is only an economist and a banker, not a miracle worker who can rid the country of its biggest misfortune – opportunistic politicians.