A two-faced act?

By Cheranka Mendis

UNP MP Dr. Harsha de Silva yesterday accused the Government of playing a two-faced role to the IMF and the people of the country.

Quoting from a letter allegedly handed over to then MD of IMF Dominic Strauss-Khan signed by Central Bank Governor Nivard Cabraal and then Deputy Minister of Finance and Planning Ranjith Siyambalapitiya, de Silva charged that the Government’s “unintelligent” and “egocentric” economic planning was the cause of all evils, such as rising costs.

Dr. De Silva asserted that the Government had made contradictory promises to the country and the world.

“For the past nine months we have warned the Government that their actions will lead to a negative outcome in the economy,” he said, adding that the start of the problems was when the decision was made to artificially lower interest rates and raise exchange rates.

The combination of the two led to a massive problem in the balance of payment in the trade account. “In spite of all that, the Government wanted to keep the rupee at the arbitrary 110. Their ego was bigger than the fundamentals. They managed the economy in an egocentric, self-centred manner. However, rules of economics are like the rules of gravity – what goes up must come down. Cabraal cannot change the rules and get away with it.”

With the increasing trade balances, Cabral, he said, had to sell the reserves to keep the value of the rupee as expected. As a result, the country’s reserves have decreased from US$ 8 million to US$ 5.5 million, which led to a liquidity problem in the money market.

“Instead of letting the interest rates increase, the CBSL printed more than Rs. 200 billion and tried to do something that was impossible. By doing all that, the problem was aggravated.”





De Silva said: “The IMF then stopped the loan it was giving the country. After publicly claiming this was no issue, the Government then started selling US$ 400/500 reserves per month. If the situation continued, the economy would have been in pieces soon. Finally, Treasury Secretary P.B. Jayasundera convinced the President to devalue the rupee almost in secret. Cabral then stated that this was a one-off devaluation.”

He noted that when the realisation hit that there weren’t enough reserves to sell, the Central Bank had to seek IMF help. De Silva maintained that the IMF agreed to give the full complement of the loan that was agreed upon – US$ 800 million – if the conditions on the agreement were met.

Quoting from the letter signed on 16 July 2009, De Silva read, “The Government policy is to ensure that the State-owned commercial enterprises will run efficiently and do not rely on the subsidies of the Treasury and specifically the aim is to ensure Ceylon Electricity Board and Petroleum Corporation breakeven by 2011.”

Maintaining that the UNP stand was to give subsidies to a target group and not everyone, he said: “The problem, however, is what they said under the ‘Mahinda Chinthana’ when they ran for election last time. They said ‘we are going to give people subsidies,’ but have now completely turned around. They say one thing in English and another in Sinhala.”

“Our problem is not whether this is right or wrong, but the contradictory statements made to the people and the IMF. They agreed to give the money on conditions. They had to depreciate the rupee for the net international reserve target must be shown to the IMF, interest rates had to be jacked up and subsidies had to be cut, according to the agreement in the letter. I am assuming now Nivard Cabral or Sarath Amunugama will go back to the IMF and say ‘we have done everything so please give us the rest of the money.’”

He posed a challenge for anyone from the Government including President Rajapaksa to claim there was no such letter as he had proof of its contents.