Ajith Nivard Cabraal: Harmonizing fiscal and monetary policies to deliver
stability and growth
Text of the 18th Annual Oration by Mr Ajith Nivard Cabraal, Governor of the Central Bank of
Sri Lanka*, organized by the Faculty of Taxation, Institute of Chartered Accountants of
Sri Lanka, Colombo, 27 August 2013.
* * *
*Also: Past President, Institute of Chartered Accountants of Sri Lanka; Past President,
South Asian Federation of Accountants; Former Secretary, Ministry of Plan
Implementation.
Chairman, Mr. Sujeewa Rajapaksha, President, CA Sri Lanka;
Honourable Ministers;
His Lordship Mohan Pieris, Chief Justice;
Dr. P B Jayasundera, Secretary, Ministry of Finance & Planning;
Secretaries to Ministries;
Your Excellencies;
Mr. H.A.S. Samaraweera, Auditor General;
Deputy Governors and my colleagues at the Central Bank;
Vice President and Council Members of CA Sri Lanka;
Mr. N. R. Gajendran, Chairman, and Members of the Tax Faculty of CA Sri Lanka;
Mr. Esmond Satarasinghe;
Fellow Chartered Accountants;
Members of the Business Community;
My dear friends,
At the outset, let me thank CA Sri Lanka for inviting me to deliver the 18th Annual Oration on
Taxation organized by the Faculty of Taxation of CA Sri Lanka. I consider myself deeply
privileged to have this unique opportunity. I am further pleased because the topic of the
Oration, "Harmonizing Fiscal and Monetary Policies to deliver sustainable growth and
Stability" is one that is relevant and timely, since there are a large number of global and
national developments which regularly underscore the vital importance of harmonization of
the Monetary and Fiscal policies in countries as well as in regions.
Monetary policy and fiscal policy
In order to set the backdrop for today's Oration, let me initially provide you with a brief insight
as to what Monetary policy and Fiscal policy entails.
Monetary policy is the means by which a central bank seeks to achieve
macroeconomic stability. In Sri Lanka, the authority responsible for the formulation and
implementation of monetary policy is the Central Bank of Sri Lanka. The Monetary Law Act
No.58 of 1949 is the legislation under which the Central Bank (CB) was established, and it
provides a wide range of instruments that could be used by the Central Bank for monetary
management. Developments in the economy and the financial system have led to a gradual
evolution of the objectives, and the framework for the conduct of monetary policy. In 2002, in
an amendment to the Monetary Law Act No. 58 of 1949, the objectives of the Central Bank
were re-defined as "economic and price stability" and "financial system stability", with a view
to encouraging and promoting the development of the productive resources of Sri Lanka.
Fiscal policy is the framework that is implemented by the government in order to
influence economic activities via the allocation of resources towards achieving the
overall goals of stability and growth. This policy framework is mainly implemented through
the Ministry of Finance (MoF) in Sri Lanka, with the traditional policy tools used for this
purpose being taxation, government expenditure & borrowing, and debt management.
In the meantime, it would also be noted that the financing of the budget and debt
management has monetary implications, while the composition of debt instruments, the
timing of debt issues and their maturities, has a close relationship with both fiscal and
monetary implications. We need to understand that Fiscal policy is broader than taxation.
Therefore, perhaps the next post-budget seminar of the Institute should attempt to convey
this position so that the popular misconception amongst many Chartered Accountants that
"fiscal policy is only about taxation" is removed, thereby encouraging Accountants to focus
on fundamental fiscal philosophies and implementation methods at their important pre and
post-budget seminars. Needless to say, a greater appreciation of the entirety of the fiscal
policies would enable Chartered Accountants to pay more attention to the wide range of
subjects encompassing fiscal policy, so that the Accountants' knowledge and ideas in this
field could be regularly harnessed for the benefit of the country at large.
Mr. Chairman, while it may be reasonably easy to define what Monetary Policy and Fiscal
Policy means, it would not be so easy to define as to under whose purview such policies
would fall into, when it comes to implementation. Of course, it is clear that the bulk of the
Monetary Policy would be the direct responsibility of the Central Bank, and the bulk of the
Fiscal Policy would be the responsibility of the Ministry of Finance. However, there are
several grey areas and overlaps, which blur the boundaries of these policy frameworks, and
therefore, there are many instances of policy actions of one institution impacting and
influencing upon the policy framework of the other, and vice versa.
Relationship between the central bank and the ministry of finance
With that in mind, let us now examine as to how the relationship between the Central Bank
and the Ministry of Finance have been structured according to our Laws.
Mr. Chairman, as I already stated, the basic law governing the operations of the Monetary
Board and the Central Bank, is the Monetary Law Act No.58 of 1949. The Monetary Law Act,
(popularly called the MLA), covers the powers and purposes of the Central Bank, Monetary
Board, Governor and Deputy Governors, Departments of the Central Bank, Reports and
Publications, Profits and Losses and the Accounts of the Bank etc. In addition, chapters are
devoted to the powers and purposes of the Central Bank, National Monetary Policy,
instruments of the Central Bank, and the Central Bank's relationship with the Government.
What perhaps is most relevant for today's discussion is how the MLA has defined the Central
Bank's relationship with the Government. Towards that end, a careful examination of the
MLA as well as John Exter's "Report on the establishment of the Central Bank of
Ceylon" in November 1949, (popularly called the Exter Report), will provide some useful
insights as to the objectives and background of one of the most important pieces of
legislation in our country.
At this stage, a quick introduction of John Exter may also be relevant. John Exter was a
senior official of the Federal Reserve System who was seconded for service in late 1948, to
the Government of Ceylon by the US Government, to advise the Government of Ceylon
about the organization and the functions of a Reserve Bank for Ceylon, and to frame
proposals for a draft constitution for the Reserve Bank of Ceylon. Exter who was a brilliant
banker and scholar, fulfilled his mission and was thereafter appointed as the first Governor of
the Central Bank of Ceylon in 1950. John Exter's Report, now serves as the most important
and authoritative reference for Central Bankers in Sri Lanka, and is referred to often by
academics and practitioners of Central Banking, whenever a clarification is required on any
issue relating to central banking in Sri Lanka.
Getting back to our topic, what does this analysis of the MLA reveal? In my view, some very
interesting positions:
First: The MLA has been designed to ensure that the Central Bank functions as an
independent body, with a high degree of autonomy to fashion and implement its
policies, which have far reaching implications for the people.
Mr. Chairman, let me now cite from the first paragraph of the Exter Report where he deals
with the significance of the Central Bank System. I quote: "The decision of the Government
of Ceylon to establish a central bank was a decision with far reaching implications for the
people of Ceylon. One implication already stands out very clearly: in taking steps to establish
an independent monetary system to be administered by a central bank, the Government has
demonstrated unmistakably its intention to achieve genuine economic freedom as a
corollary of the political freedom achieved a year and a half ago."
Having set the stage, Exter goes on to elaborate the responsibilities to be undertaken by the
Central Bank: "A central bank thus undertakes a great responsibility, and the broad powers
given to the Central Bank of Ceylon under the draft bill in Part II of this report are
commensurate with the magnitude of this responsibility. The Bank should not be
hampered by rigid limitations which might prevent it from fulfilling its purpose."
Second: Exter reports on the need for the Central Bank to function in the context of
the other agencies of government.
He reports, and I quote: "Under the draft law, the Central Bank will be the principal monetary
authority, but it is obvious that it cannot exercise its authority in the monetary field as in a
water-tight compartment, from which the various ministries and other agencies of the
Government, are excluded.
There is no fine line separating monetary policy from other
policies, such as fiscal and trade policies. The Minister of Finance through his fiscal
policy, or the Minister of Commerce and Trade through his authority to control imports and
exports, can exert a powerful influence upon monetary conditions in Ceylon. But it is the
clear intent of the Bill to concentrate, in so far as it is considered practicable and
constitutional to do, as much monetary authority and responsibility as possible in a
single regulatory and operating agency - the Central Bank".
Third: The Monetary Law Act (Chapter 6) envisages the Central Bank acting as the
Fiscal
Agent, Banker and Financial Advisor to the Government.
Sections 106, 113, and 114 set out clearly the Central Bank's role in relation to the
management of the public debt and the borrowings by the Government and any agencies of
Government. Those Sections read as follows:
"Section 106. (1) The Central Bank shall act as the fiscal agent and banker of
the Government and of agencies or institutions acting on behalf of the
Government, whether established by any written law or otherwise."
"Section 113. The Central Bank shall, as agent of the Government, be responsible
for the management of the public debt."
"Section 114. No new loan shall be raised and no new issue of stock or debentures
shall be made by the Government or by any agency or institution referred to in
subsection (1) of section 106, whether in pursuance of authority conferred by any
written law or otherwise, unless the advice of the Monetary Board has first been
obtained upon the monetary implication of the proposed loan or issue."
The Exter Report elaborates the thinking behind these sections: "In a small country like
Ceylon, it is clearly advantageous to place the responsibility for co-ordinating the activities of
all Government credit institutions in the Monetary Board of the Central Bank. The Board
determines monetary and credit policy in general, and should have some means of
ensuring that the policies of other credit institutions conform."
He further clarifies: "The Board should be able to co-ordinate both the borrowing and
the lending and investment operations of such institutions. With respect to borrowing,
co-ordination is necessary in order to prevent separate Government agencies from
competing with each other and 'spoiling' the market, especially in the early stages of its
development, and to make possible the formulation of a properly diversified pattern of
interest rates and maturities for the entire Government borrowing program."
Those Sections of the MLA that I referred to, and the relevant annotations in Exter's Report,
strongly suggest that the Central Bank should play a dynamic role in the formulation of
fiscal policy, particularly in relation to a significant part of fiscal policy's sphere of
influence, namely that of borrowing and lending. In that context, it may be safely argued
that, whilst the overwhelming responsibility for monetary policy has to be assumed by the
Central Bank, a sizeable part of the responsibility in relation to fiscal policy is also cast upon
the Central Bank.
Fourth: Exter explains the unique position of the Governor, and the need for the
Governor to be independent.
This position is assured by the fact that the Governor is appointed for a 6 year term and
cannot be removed from office, unless he has done any act, which in the opinion of the
Governor General, (now, the President), is of a fraudulent or illegal character, or is against
the interest of the Central Bank.
Fifth: Exter discusses the limitations of the Central Bank:
"A central bank influences the economic life of a nation principally
Once again, let me quote:
by monetary action. While such action can be tremendously effective under certain
conditions, its limitations should be frankly recognized. Thus, through its control of money
the Central Bank can assist, but by no means ensure, the achievement of the above
objects. A monetary system that is stable and at the same time responsive to the needs of a
growing country is a necessary, but not a sufficient condition of orderly economic
development."
Sixth: Exter reports on the vital importance of harmonizing between the Government
policies and the Central Bank policies.
Here, Exter's comments are unambiguous and far reaching. I quote:
"There are, however,
many important problems of monetary policy, especially those relating to fiscal policy,
on which a central bank must necessarily work in close harmony with the government.
On such problems, experience in many countries has shown that a central bank, with a
degree of independence of the government proper, can make economic analyses and hold
views which are more detached and objective than those of a government department. Many
governments have learned to value and to use the sort of independent and objective advice
on monetary and other aspects of economic policy which central banks have been able to
give. On matters of vital interest to the state, however, it must be recognized that... it would
be impossible for the Central Bank to adopt a policy or pursue a course of action contrary to
the policy of the Government of the day. No agency which is a creature of the
While the Government may
Government can be entirely independent of the Government.
be prepared to give an independent regulatory agency rather wide discretion in a field such
as that of money, there is no gain-saying that, in the last analysis, the Government must
The Governor and the
assume responsibility for monetary policy as for other policies.
appointed member of the Monetary Board cannot help being acutely conscious of the fact
that, since no Parliament can bind its successors, their independence and tenure in office
under the proposed legislation is limited by the ultimate power of the Government to change
the law."
Exter also makes a further useful observation: "The exact degree and independence of the
Central Bank is likely to vary from time to time. For example, central banks can ordinarily act
more independently in stable, peace-time economic conditions, than in time of war or other
national emergency.
They also tend to take stronger stands on issues which are
primarily monetary in character, than on related issues which may simply have
monetary repercussions".
Seventh: Exter describes the ideal situation as contemplated by the MLA.
I quote once again: "The ideal which it is hoped that the proposed law will achieve is
one in which there will be continuous and constructive co-operation between the
Monetary Board and the Government. The principal instrument for achieving this
co-operation should be the Permanent Secretary to the Ministry of Finance, whose
membership on the Board will ensure at all times, that his Minister's views will be
made known to the other members of the Board. The effectiveness of this cooperation
and co-ordination between the Board and the Government will depend more upon the
men occupying the key positions at particular times than upon any legal formula, no
matter how carefully or elaborately it might be worked out. A relationship as complex,
and sometimes as delicate, as this one is certain to be, cannot be established
full-blown by a piece of legislation. It must be the result, as in other countries, of years
of experience and the slow growth of political conventions."
A reading and understanding of these Exter annotations clearly indicate the delicate and
complex nature of the envisaged relationship between these two vital institutions, and the
men (or women!) occupying the key positions. It would also be observed that Exter is
suggesting, and the MLA is legislating, a somewhat paradoxical situation. On the one
hand, (now, I am speaking like a traditional Economist!), the Central Bank must exercise a
high degree of independence, while, on the other hand, the Central Bank must act in
harmonization with the policies of the Government! It is of course obvious that this paradox is
not unintentional, and has, in fact, been carefully thought through and deliberately
introduced, and has obviously been done in order to establish an extremely vital and far
reaching principle. That is, the need for the Central Bank to retain intellectual and
operational independence, but to temper it with the pragmatism of the national
deliverables of the economic agenda that has been decided by a democratically
elected government. Going further, Exter's comment that "the effectiveness of this
cooperation and coordination between the Board and the Government will depend more
upon the men occupying the key positions at particular times, than upon any legal formula",
emphasizes the complexity and the delicateness of the relationship, which he has described
in lucid and clever language.
Mr. Chairman, All these positions that I described to you now highlight another very important
fundamental principle that was set out in Exter's Central Bank Report of 1949. That is,
Exter's wise words that "good central banking is less good law than good practice". After
7 years as the Governor, I can tell you that that is one of the wisest comments in the Exter
Report, and an appreciation of that principle must be understood by all stakeholders,
especially at the current turbulent times, when Sri Lanka is on a fast track to economic
development.
In fact, over the past several decades, monetary policy objectives, instruments and operating
mechanisms have changed significantly. Today, in the aftermath of global financial crisis, the
key focus of central banks is both the successful conduct of monetary policy and
macroprudential policy, in order to reinforce each other to stabilize economies. In Sri Lanka
too, monetary policy formulation, operational framework and strategies adopted, have all
evolved in line with the changing structure of the economy, developments in the financial
markets, and the availability of data and communication strategies. I do not intend to discuss
these changes in detail here, but would like to highlight that a greater coordination of
monetary and fiscal policies would become even more crucial in the implementation of
monetary policy and achieving macroeconomic stability, in the future than in the past.
Another position that should be clear to us is that the need for harmonization between the
Central Bank and the Ministry of Finance, is not a virtue that has been suggested recently,
but a vital ingredient that had been provided for, since the establishment of the Central Bank,
in order to ensure the sound economic management of the country.
The recent evolution of our economy
Armed with that background, I would now like to proceed to share with you, some instances
of harmonization that has taken place in the recent past in our country. However, before I do
that, I think it is necessary to first touch upon the recent evolution of our economy in order to
set the stage for what would follow.
To do so, let us initially examine a snap shot of our economy in 2005. Growth in 2005
was 6.2%, with the average growth for the 7 years, 1999 to 2005, being 4.3%; Foreign
reserves were around US$ 2.7 billion, or about the equivalent of 2 1⁄2 months imports; The
country was at the mercy of a ruthless terrorist group and on the brink of war; Unemployment
was at 7.2%; Poverty was at a level over 15%; Inflation was on a sharp rising trend; The
banking system was vulnerable and displaying several worrisome cracks; Public debt to
GDP level exceeded 90%; Per capita income was under US$1,250; GDP was around
US$24 billion; The Western Province share of GDP was an overwhelming 51%;
Infrastructure development was almost non-existent; The fiscal deficit was over 7% although
very little infrastructure development work had been carried out. All in all, a rather bleak
picture, and worse still, a bleak outlook.
Let us now see what it is like today: Growth is over 7%, and average growth from 2006 to
2012 has been 6.7%; Growth appears to be on course to reach around the 8% level from
next year; Foreign reserves exceed US$ 6.3 billion and around 4.4 months of imports; The
country enjoys peaceful and stable conditions; Foreign investment inflows are strong and
foreign Investment via international sovereign bonds and Government paper amounts to
about US$7.0 billion; Unemployment is around 3.6%; Poverty is down to about the 6% mark;
Inflation has been at single digit levels over the past 4 1⁄2 years; GDP is at about
US$60 billion; Per capita income is around US$ 3,000; The economy is being diversified
under a 5Hub + Tourism strategy to avoid the middle income trap; The Fiscal deficit has
been limited to 6.4% in 2012, and on a reducing trend; The Debt to GDP level is below 80%
and falling; The level of infrastructure has improved tremendously; The Doing Business
global rank is at the 81st, and is poised to jump about 10 places this year; Regional
development has made tangible progress and the Western Province share of GDP has
dropped to around 43%; Regular foreign investment is flowing into banks and the stock
market; Private remittances have reached nearly 10% of GDP, or about US$ 6 billion in
actual inflows; The banking system has been stable and even in the midst of very difficult
global circumstances, the country enjoys favourable reviews from many influential
international quarters.
Mr. Chairman, a dispassionate comparison of the conditions prevailing in 2006 and 2013 tells
us that our economy has made an unprecedented transformation over the past 7 years, with
strong economic growth, and stable macro-economic conditions.
Harmonization of monetary and fiscal policies - case studies
The discussion point that then arises is, as to what factors, processes and conditions
contributed to this current level of growth and stability. Of course, we are all aware that many
factors contributed to the current state of affairs of the country, and those could be the
subject of, maybe 50 other Orations!
But, for today's discussion, let us confine ourselves
to examining the background of some significant initiatives that would have
influenced the current state of the economy, and to understand how the present day
outcomes were supported and/or impacted by the harmonization of the Fiscal and
Monetary policies.
One striking feature in the implementation of Monetary and Fiscal policy over the past
7 years, has been that both institutions, MoF and CB have been taking a keen and enduring
interest in both monetary and fiscal policies. We realized that a "blame game" would be of
no value to the country or to the stakeholders, and that it was absolutely vital that we
should deliver on both fronts simultaneously.
Mr. Chairman, having said that, we will now discuss some case studies that would throw
some light about the degree of harmonization that took place between the policies of the
Central Bank and the Ministry of Finance, in order to deliver some of the vital results to our
country and economy, over the past 7 years.
Case Study 1: Opening out Sri Lanka Treasury Bills and Bonds to foreign investors
Mr. Chairman, the first case study that I would like to cite is the November 2006 move to
open out Sri Lanka Treasury bills and bonds to foreign investors. By late 2006, in Sri Lanka,
a massive infrastructure development programme had been launched, and the critical
humanitarian operation had begun. These twin programmes had demanded a regular, steady
and massive flow of funds, and it was becoming increasingly clear that we would not be able
to secure the new fund requirements only via local taxes and local borrowing. If such a
quantum of funds were to be sourced from within, an enormous pressure would have been
exerted upon the entire economy. In fact, such an attempt would have pushed interest rates
to unacceptable levels, and may have even dragged the economy towards negative territory,
and placed the entire monetary system at considerable risk. Such fears may have perhaps
been one of the reasons that prompted successive governments of the past, to avoid large
scale infrastructure development programmes or attempt to launch a full scale counter action
programme against terrorism. However, the government of President Mahinda Rajapaksa
took the bold decision to undertake both these missions, and the fiscal and monetary
authorities had then to find innovative ways to support those missions, without placing the
economy under undue risk or peril.
As a response therefore, in late 2006, the Treasury and the Central Bank decided to open
out a small portion of the Government Treasury bills and bonds to foreign investors. This was
the first move to attract foreign investment into Government rupee paper, and it was
naturally a fresh and exciting experience for both the Sri Lankan authorities as well as foreign
investors. You may note that I said, "foreign investment", and not "foreign direct investment"
or FDI. That is because, in our view, what was vital was that "foreign investment" should be
allowed to flow through convenient instruments to supplement the shortfall in savings and
investments in our country's economic structure, and such inflows need not necessarily have
been only via FDI. The move resulted in new and quick inflows, and as a result, debt
management became more dynamic and robust. It also provided a new tool to address the
wide fluctuation of interest rates that was taking place in the country, prior to the move.
This initiative of course necessitated close cooperation and follow up between the MoF and
CB, particularly because it resulted in a significant infusion of forex into the country that
needed to be properly managed from the point of view of the Central Bank. In retrospect, I
can also state that this important move enabled the economy to face the emerging
challenging times confidently, with the new inflows assisting the Government to maintain the
growth momentum, while also allowing the Central Bank to maintain stability.
One of the important lessons that we would take away from this case study is that the
initiative was implemented as a result of the close harmonization between the MoF and the
Central Bank. Had any one of the two agencies not fully supported this bold and imaginative
move, the initiative would have failed, or worse still, been still-born.
Case Study 2: Debut International Sovereign Bond
The second case study that I would describe this evening is the debut international sovereign
bond of Sri Lanka, in 2007.
Mr. Chairman, as you may recollect, by the second half of 2007, the country was fully
engaged in the major humanitarian operation, while the global environment was becoming
more and more unstable. The local environment was also tense, notwithstanding all efforts.
Inflation was high; interest rates were high; the exchange rate was under threat; and the
fiscal deficit was expanding rapidly, because of the ever increasing need for finances to fund
the massive infrastructure development programme and to meet the costs of the
humanitarian operation. To deal with this challenging situation, the MoF and the CB decided
that it was vital that a further sizeable injection of long term foreign funds was given to the
economy. It was only such an infusion that would allow us to maintain stability, as well as be
able to have the much needed funds to keep the infrastructure development effort going.
Some financially savvy members of the Opposition too, realized the significance of such a
fund infusion into the economy, and tried their utmost to scuttle that effort. But, fortunately,
we were able to defeat those endeavours, and raise the all important bond, and tide over the
risky period.
The infusion of the new funds immediately brought stability to the economy and also acted as
an important stimulus for growth, with the new additional resources quickly filtering down into
the economy. Hence, as a result of the move, the Fiscal framework was supported with the
moderation of interest rates; the monetary framework was facilitated with the stabilization of
prices; and exchange rate was supported by the buttressing of international reserves.
Mr. Chairman, I believe that, some day when Sri Lanka's economic history is being written,
this 2007 infusion of US$ 500 million through the international sovereign bond, would be
marked as a major "turning point" in our economic landscape. I also believe that the benefits
of this land mark move has been of an enduring and permanent nature, as evidenced by the
fact that, over the next 5 1⁄2 years, the Government has been able to raise a further
US$3 1⁄2 billion from international bonds, with the coupon rates tightening considerably each
year. Another benefit that this initiative entailed, was that it paved the way for several banks
and corporates to also issue international bonds, thereby accessing savings from outside the
country. By doing that, we had also been able to bridge the chronic savings/investment gap
that has been regularly referred to by a never ending stream of experts since independence,
as a major deficiency that was hampering growth in our economy.
Case Study 3: Intervention to stabilize a systemically important bank
The third case study that I would like to illustrate is the instance where the Central Bank and
the Ministry of Finance teamed up to stabilize a systemically important bank that was facing
a liquidity crisis in late 2008/early 2009.
Mr. Chairman, If we take our minds back to that period, in late 2008, we would recollect that
the external environment, internationally and locally, had become even more hostile and
highly uncertain. Internationally, the global financial crisis had taken a major toll, with
hundreds of banks collapsing across the world. Each day, we were hearing about the
collapse or the imminent failure of many big names in the global financial landscape. In many
countries, the Ministers of Finance and the Governors of the Central Banks were huddled in
endless discussions as to what should be done to arrest the crises, or how to stop the
bleeding. Businesses were going bankrupt by the thousands. Business confidence level was
at rock bottom. People in all parts of the world were in panic. Locally, our humanitarian
operation had entered a final and most critical stage, and enormous pressure was being
exerted on the economy.
In that background, when a systemically important bank showed signs of a liquidity crisis, we
knew that such an event, if allowed to escalate, could have dragged our economy to chaos,
and our humanitarian operation to a standstill. We had to act decisively, and fast. We could
not have delayed responding to this grave threat, or got it wrong. Fortunately, the Central
Bank was ready. We had already developed a bank intervention operation, code named
"Sigiriya", to deal with a situation of a liquidity crisis in a bank. The time had come to activate
such a mission. But to do so, the first step was vital. That was to apprise the Minister of
Finance and obtain his approval to make the intervention. If the Minister of Finance were to
approve such an intervention, if would be the first time ever, in Sri Lanka, that such a rescue
operation was attempted. At the same time, the experiences of other countries during that
period, were not too encouraging. In many countries, including the UK, (as in the case of the
Northern Rock Bank), the Finance Ministers and the Governors of the Central Banks had
been in protracted discussions for many weeks about this type of intervention, without
reaching agreement.
Fortunately for Sri Lanka however, such procrastination did not take place. The Minister of
Finance was decisive, and after a single "one-on-one" discussion with me, he gave the
approval for the Central Bank to proceed with implementation of the intervention plan. The
rest is history. The newly appointed directors and