Harsha alleges CB’s 2012 roadmap was “directionless, off track”; wants a wiser Cabraal

Upping the tempo early in the new year, UNP MP Dr. Harsha de Silva yesterday alleged that the Central Bank’s 2012 Roadmap was “directionless and off track” and hoped for a  more realistic 2013 version to be unveiled today.

Last year, reacting to the ‘Monetary Policy Road Map for 2012’ unveiled by Governor Nivard Cabraal on 3 January 2012, Dr. de Silva recalled that he said on behalf of the UNP that it was a “nauseatingly one-sided propaganda attempt”.

“My criticism was focused. I said it has no analyses of the possible scenarios for exchange rates and interest rates given the current rupee defence strategy, but says it has more than sufficient reserves to intervene in the foreign exchange market, presumably to hold the currency at the current level,” the UNP MP said. He said in fact the Governor was quoted by Reuters on 20 December 2011, when the rupee was fixed at 114 to the dollar, as saying “we can sustain it for any length”.

“I reiterated my point by saying ‘the three words balance of payments which is absolutely the most important issue of the day was not even mentioned once in the entire presentation’. I concluded by saying the presentation was like Hamlet without the Prince of Denmark.”

“A year later when we look back, what do we see in the rear-view mirror?” asked Dr. de Silva.

According to him, the biggest impact of 2012 came from the massive readjustment of macro policy, where the rupee, which could have been “sustained for any length,” had to be floated, hitting almost 134 to the dollar before settling around 130.

The UNP MP said the Central Bank that did not even mention balance of payments had to deal with it in a way that jolted the entire population.

For the common household, it was the Valentine’s Day gift of increased prices for everything, and for the small and medium businessperson, a grinding halt to expansion with sky high interest rates. With this sudden policy change in mid-February that was not even hinted in early January at the road map presentation, all estimates for 2012 changed.

“The important point is that I believe the Central Bank was fully aware of the reality but the Governor opted to paint an illusion in the road map presentation assuming things would change for the better. That is why I was so critical of it,” pointed out Dr. de Silva.

He said some of the key predictions for 2012 were that of eight per cent GDP growth and per capita income of US$ 3,129 and added, “We will be nowhere near that. I would be surprised if we reach 6.5 per cent growth and US$ 3,000 per capita.”

Inflation was estimated at 5.5 per cent, but that too is way off the mark with the price level rising at over nine per cent per annum at present. Even with the overvalued currency, the bank estimated exports to increase to US$ 12.5 billion, but even after the massive depreciation, exports won’t hit US$ 10 billion for 2012.

Another huge overestimation according to UNP MP was on Foreign Direct Investments.

“The 2012 estimate was US$ 2 billion. The reality is FDIs may not even cross the US$ 1 billion with none of the big projects listed including Sun City and Sheraton not happening while the proposed petrochemical, cement, fertiliser and sugar plants at Hambantota also still on the boards if at all. Then on the stock market the Governor said we would see a net inflow of US$ 500 million but the reality is it will only be around US$ 300 million at most with the confidence in CSE having being eroded with allegations of market manipulation by the so-called stock market mafia.”

The UNP MP said on the borrowing side also the Road Map was grossly inaccurate with net foreign purchases of Treasury bills and bonds estimated to be only about US$ 500 million while the actual borrowing via Treasuries might be well over US$ 2 billion besides more than US$ 2.6 billion in loans by the Government.

“In effect the 2012 Road Map was completely off track. More than being off track, it hurt business planning and dealt a huge blow to the confidence in the ability of the Central Bank to assess the true nature of the economy. Let us hope this new year the Governor would be wise enough not once again present a make-believe story,” UNP MP de Silva said.