Central Bank will function independently - Dr. Harsha de Silva

By Lalin Fernandopulle

The government will raise household income levels by generating new income avenues which will enable people to save and lead a better quality of life, said Plan Implementation Deputy Minister Dr. Harsha de Silva at the launch of the book, 'Money, Inflation and Output’ authored by former Assistant Governor of the Central Bank, Dr. H.N. Thenuwara. He said that when he inquired from small scale grocery store owners in the vicinity of his residence they said that there are people who buy teaspoonfulls of milk powder, a handful of vegetables and a single sausage as they cannot afford anything more.

There is no point in having a high GDP, per capita income level, low inflation and interest rates in books when the benefits of economic growth does not rickle down to the masses. Officials of the Central Bank in the former government said the per capita income level had risen to around US$ 2,500 and that they target US$ 4,000 by 2016. “Economic indicators should reflect the quality of life. If people still lead a hand-to-mouth existence what is the use of indicating numbers in Central Bank reports.

The former policy makers exaggerated figures to gain political mileage and took people for a ride. They tried to hoodwink investors which was a failure”, Dr. de Silva said. Finance Minister Ravi Karunanayake made reference in his budget speech to inflated growth figures presented by policy makers painting a rosy picture of economic growth to lure investors.“It is hilarious to have a high GDP growth rate and a per capita income level when low-income people cannot afford a square meal.

We need to first boost the household income level so that people could educate their children, give them in marriage, buy furniture for the house and save money for a rainy day,” Dr. de Silva said.

He said the country needs ports, airports, roads and bridges to develop the economy but all those should go along with the development of household income.

There should be a genuine discussion with all stakeholders to boost inclusive economic growth.

"We will not respond to petty minded criticism by slinging mud through the media,” he said.Prime Minister Ranil Wickremesinghe has given me a free hand and entrusted me with the task of formulating a strategic plan for development obtaining the support of experts and professionals.

We should take into account market conditions to drive exports.

"The independence of the Central Bank is vital to provide authentic policy direction. We will ensure its independence,” Dr. de Silva said.

Dr. Thenuwara citing Robert Barro has said in his book that Central Banks are independent to different degrees. An example is West Germany.

Before the setting up of the European Central Bank, the West German Central Bank had the highest degree of independence.

He said that low inflation is associated with independent Central Banks as they could act freely and hire high quality human capital, be accountable for its actions and outcomes and win the confidence of people by price stability.

"Central Banks should not only be accountable for its actions but also be transparent in its policies which implies the public disclosure of policies undertaken, the reasons for such policy actions and the intended results”, Dr. Thenuwara said.

He said excessive issue of money by Central Banks leads to high inflation which will result in economic growth stagnation as in Zimbabwe which went into hyper inflation where there was no value for its currency.

"Financial discipline of a Central Bank is vital as the cost of running it contributes to tax and inflation”, the former Central Bank Deputy Governor said.

Former Central Bank Deputy Governor W. A. Wijeiwardena said that unlimited printing will devalue money and lead to inflation.

There is development and people prosper in countries which print less money.

He said that the Central Bank proposed tight monetary policy, high interest rates and limited printing of money to curb inflation. Inflation rose to around 20 percent in 2008 and 2009.

Wijewardena paid tribute to Dr. Thenuwara for translating the book into the vernacular and present it in a simple form which the reader could fathom easily.