domestic assets have not expanded ( in other words, if the central bank has not inflated the economy ), “ there should be no ill - effects from paying out the central bank ’ s profits to the government, especially since in this case the government could not have been obtaining excessive accommodation from the central bank ”. the most important provision relating to the appropriation of profits of the central bank is the requirement that the bank should build reserves out of profits to back its demand liabilities, viz., currency issue and demand deposits maintained by the bank. exter ’ s recommendation was that such reserves should be equal at least to 15 percent of the bank ’ s domestic assets. such reserves need not be built up against foreign assets, since those claims on the rest of the world would in anyway back the currency and demand liabilities. but, the domestic assets which are created by the bank at its own discretion have no value in the domestic economy in a severe crisis. since the build up of the reserves would prevent the transfer of profits to the government, exter concluded that it would “ prevent them from adding to the expansion of central bank credit ”. given the ever rising provisional advances granted by the central bank to the government and its permanent nature making such advances another form of implicit profit transfer, it is questionable whether the minimum of 15 percent is an adequate backing for the bank ’ s currency and demand liabilities. for the provisional advances, there is no any collateral placed by the government with the central bank. hence, they are akin to unsecured overdrafts given by a commercial bank to its customers. since the risk weights given to such unsecured advances exceed even 100 percent, it is necessary for the central bank to plan for a higher level of reserves than the minimum 15 percent. the central bank management, having taken this prudential requirement into account, has decided, as a part of the bank ’ s modernization program, to raise the reserve level up to 100 percent of the domestic assets of the bank. this is being continued by the bank since 2003 and the reserve level today stands closer to 100 percent. however, it would be prudential to revisit even this percentage today in terms of its adequacy in view of the level of ever rising unsecured provisional advances and exter ’ s warning that the profits earned by inflating the economy should not be distributed. the build up of reserves by the central bank to be equal to its domestic assets has

we all have to push ourselves to a greater productivity level. we have to, • work smarter, • combine better, • deliver results, • get it right. it should be noted that the private sector has continued to make commendable efforts in order to improve productivity in the country. what can the icc sri lanka do? icc sri lanka too can play a prominent and essential role. since your organization establishes the business stance on broad issues of trade and investment policy as well as on vital technical or sectoral subjects including financial services, information technology, telecommunication, marketing, environment, transportation and etc., a vital role can be played in articulating the need for improving productivity. do it now. this will be a major contribution that you make to our country.