Economic crash, events leading to it and who’s responsible

This subject has been discussed in the media ever since the economic crash occurred and various views have been expressed. In this context, an interview given by the Central Bank Governor to the AFP news agency recently caught my eye since it outlined the events that led to the crash and is worth reiterating..

Dr. Weerasinghe had said that as the then Senior Deputy Governor of the Central Bank, he and his colleagues warned the then government three years previously of the dangers of the path being traversed. But no heed was paid and the government carried on regardless.” I saw the crisis coming,” the governor had said adding he had serious concerns about the Central Bank’s then monetary policy. But he was side-lined for warning of the dangers ahead.

The governor said that it was “obvious” that if the govt. continued with its policies of “excessive monetary financing, suppressing interest rates, bad exchange rate policy, fixing one rate for a long period and running down our reserves “, the country would head for disaster. He noted that what happened in May and July last year was exactly what he had predicted.

With the administration continuously ignoring the aforesaid warnings, Weerasinghe decided to take early retirement and migrated to Australia in September 2021. With the situation taking a turn for the worse and island-wide protests mounting, the then President invited him to come back and take over as Governor of the Central Bank.

The cost to the economy from the continuous ignoring of the warnings given by the Central Bank officials as stated above and also other economists and opposition members on where the country was heading can be gauged by examining the figures relevant to the time. When the then President took over in November 2019, Sri Lanka had reserves of more than seven billion USD and by the time the new Governor took over, this had dwindled to usable reserves of just 25 million USD.

Reading between the lines of the information provided by the Governor, it can be easily seen that the major responsibility for the economic crisis lies with the then President, the then Minister of Finance, the Monetary Board of the Central Bank plus bureaucrats heading the then President’s Office and the Ministry of Finance. If they are responsible for causing this calamity by ignoring proper advice given through the formal channels, they must be held accountable. In this day and age when accountability is almost a forbidden word in Sri Lanka, no one specially at the higher levels of government is held accountable for lapses relating to their responsibilities.

In this context it was interesting to see a front page headline in the Sunday Island (July 9) which read “All 225 sitting MPs must share the blame for the present crisis .” This was a statement made in Parliament by Minister Prasanna Ranatunga, the Chief Government Whip and Minister of Urban Development and Housing. He had added that “it is not right to accuse only a single government for the prevailing situation”, meaning that all governments down the line are responsible for the crisis. He is taking too wide a sweep, so much so that it will be practically impossible to specifically pinpoint any responsibility or accountability for this crisis. With such large numbers involved, at the end of the day all including the actual culprits will go Scot free. What Ranatunga said was akin to a school teacher holding a whole class responsible for the actions of a few.

This issue of who is responsible for the present crisis has been subjected to much discussion. It has been adequately demonstrated that the blame lies with the then Government and some key decision makers and not all policy makers. One key economic blunder was the overnight ban of imports of fertilizer and agro chemicals which led to a total breakdown of the food and plantation crop sectors. The decision was made by the then President based on advice given by some individuals who had their own wishful thoughts on crop production, sans any scientific basis. The then President also refused to abide by the advice subsequently given by several authorities on the subject to lift the ban immediately. The rest is history.

A.Bedgar Perera
Email < bedgarperera@gmail.com>