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. ” bis central bankers ’ speeches 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 : once again, let me quote : “ a central bank influences the economic life of a nation principally by monetary action. while such action can be tremendously effective under certain conditions, its limitations should be frankly recognized. thus, through its control

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 ½ years, the government has been able to raise a further us $ 3 ½ 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