Sri Lanka’s two state banks recently published their financials. It wasn’t compelling reading, but it certainly stirred up a few questions – and honestly, they are all the Big Questions.
D B Wijetunga as Finance Minister, wanted to privatise the State Banks; Trade Unionist Rusiripala Tennekoon asked him why. A shocked Minister said, ‘because they are bankrupt’. The Trade Unionist wasn’t throwing the towel in, instead asking, ‘Who owns the banks?’. Minister Wijethunga must’ve thought he was dealing with a nincompoop. He responded, ‘the government’. And then it was time for Rusiripala to play the final card, “Is the government bankrupt?”. Of course, not they were not.
The long, tall and short was that the government caved in – writing an almost famous letter to Rusiripala, addressing him as ‘Dear President’. Minister was quite correct; he was writing to the President of the Trade Union! The letter assured the Trade Unions that there would be no sell-off, the workers’ rights would be intact and inter-alia that the banks would be recipients of even more capital.
Over thirty years later the two banks show a modest financial gain. Scrutiny of their results shows that the Bank of Ceylon had invested 64% in government bills and bonds and invested in state owned enterprises. Peoples’ Bank had just under 60%.
Investing in bills and bonds are very low risk and consequently rather mediocre returns. You get what you paid for. The higher the risk, the greater the gain. The downside is the opposite.
The Bank of Ceylon invested 64% on such a mixed portfolio – bills, bonds and investing in SOE’s. The Peoples’ Bank was slightly lower at 59%. In essence what this meant was the two state banks had very little to stir the economies in areas out of the Colombo City. With such a large amount swimming with the political masters, only a small percentage was available to help develop key areas of the economy – like farming for instance.
Sri Lanka is comfortable it appears, in its current economic size of approximately USD 99 Billion. It is by and large a trading economy. We would aver that to grow the economy one must expect to be somewhat committed and dynamic – and have a vision. That vision should be aiming at an economy at least USD 150 Billion in size. The way forward may well be a shift towards a production economy.
Like him or hate him, President Mahinda Rajapaksa did help the infrastructure with his roads and highways investments. He is no more in active politics and has no say in the decision-making process of this administration – in short it is up to the government of the day to muster the expertise and hire professionals who will be committed to the political direction. That direction must be towards a production economy.
The State Banks investments in government ‘stock’ is way too high. The banks are presently and have been used as de-facto mini treasuries. The banks must be able to reduce the level of reliance (investment) in bills, bonds and in State Owned Enterprises. Afterall there are very few SOE’s that turn around a profit, many are instead a constant drain on the government. In effect a burden on an already burdened people.
Instead, the State Banks must increase their exposure in the farming heartlands, working with professionals who would guide, assist and educate the farming heartland on quite how they can be successful – and that capital is available. Professionals must be deployed to attract foreign investments into the country. Any conceivable red tape must be dismantled and thrown in the nearest bin. Much of the rules and regulations in place enables corruption and capital flight. Corruption or large-scale ones at that appears to be rather moot now. Is this the calm before the storm?
Until Sri Lanka makes a committed decision to secure themselves an economy at or around the USD 140 – 150 billion mark, the country will merely trundle along; the State Banks must stop being in effect, ‘mini-treasuries’ and instead play a far more dynamic role in helping grow the economy.
The wish list is long and fraught with obstacles. But then no one ever said democracy is easy.