Making bankers work — the story of the stimulus and the criticism | Sunday Observer

Making bankers work — the story of the stimulus and the criticism

Apparently there is a recipe for economic resurgence. When Small Business has been strangulated, when the labour class is prone and crawling under the weight of jobless numbers and when the whole world is collectively gasping for breath to save itself from Covid induced economic peril, the former Minister of Finance M. Samaraweera wants to strangle the suffocating hordes some more. He wants to smother them into oblivion — to Kingdom Come.

He doesn’t want a stimulus. He says that the trick is to shore up the banking reserves so that there is no run on banks, as there was a run on certain financial institutions.

Are these people, to use the lingo of the practised existentialist, ‘for real’?

Samaraweera and organisations such as the Pathfinder Foundation want strict financial discipline at this time of economic disaster worldwide. It’s like asking a man that starved for three months at a stretch to drink skimmed milk, Diet Coke and scrupulously watch his fat intake.

Yes, oppositions want to oppose, and opposition politicians want to show they can do things differently and do them better. That comes with the territory of being on the opposing side, and that’s granted.

But in the pursuit of contrary opinion, to abandon all reason to advocate no stimulus and strict fiscal discipline and then say that the Central Bank should be left to its own devices, is so far out that it’s incredibly breathtaking. It’s out of this world idiotic.

Worship

These are the folks who worship the US, both Samaraweera and the Pathfinders. They have told us that the sun shines from the Pentagon and that Wall Street is the engine of the world’s forward momentum. If not in so many words, they have always implied as much.

So when Donald Trump and the US government gives the people a mammoth stimulus, and when the collective leadership of the most powerful country on earth thinks that the best economics after the ravages of a pandemic is a stimulus, their boot lickers here want the President to order strict anti stimulus economic discipline on overdrive, because they say ‘that’s what we did when we were in power.’

That’s true. The economic doctrine of people such as Samaraweera who won’t know a boom from a bust, or exponential growth from recession, has been the fiscal discipline of the ignorant sadist.

But their unmitigated gall to say ‘what we built up’ in contrast to what the President and the Prime Minister did facing Covid, is fascinating. Samaraweera’s barefacedness in pretending that Covid-19 never happened is as bad as saying that the Central Bank should not be taught how to implement the government’s economic policy.

There has been the usual quota of pundits saying that the Central Bank does not have a role to play in the implementation of economic policy, and that Central Bankers are taciturn professional ‘independents’.

It’s like saying our national cricket team’s coach has no role to play because it’s the players who play the game out there in the middle.

Central Banks have multiple roles to play and among these is the creation and expansion of financial institutions, just to take one particular example. The Central Bank for instance can facilitate if not create a network of cooperative credit societies that operate under an apex bank that is financed by it.

That’s one way of making productive use of the voluntary savings of the small time cultivators who manage their day to day affairs in a rural setting. When Dr. P. B. Jayasundera said that these people make use of gold loans — euphemism for pawning — he was right.

Kabir Hashim who must have learnt his economics from Harsha de Silva, sought to poke fun at this observation by Premier Rajapaksa’s former economic czar, who is now the Secretary to the President. Hashim seems to think that the mere mention of the word pawning somehow makes PBJ an economic scavenger who is beneath his high brow economic worldview.

This is not economics, it is image – nomics. It betrays the shallowest of shallow understandings of the economy a la the high heel and short frock prosperity touted by that batty statistician Harsha de Silva.

De Silva has no background in economics. His higher learning so called is in statistics and a boring statistician calling himself an economist is at the level of the kitchen drain aspiring to be the Mahaweli in spate.

Straight and narrow

The point is that the Central Bank does not seem to have the core competencies to enforce due diligence by finance companies and banks. Or at least did not appear to have the confidence for that endeavour.

The Central Bank finally, at the time of writing, after the appointment of the new members to the Monetary Board this week, has decided on a scheme to grant loans at low interest, and with a grace period to certain small businesses.

The Central Bank at rank and file level now has to ensure that the banks do their part and are also properly regulated so that there is no run on them if defaults occur.

Surely, the top echelon of the country’s financial establishment should be able to walk and chew gum at the same time. They should be able to grant the money to the commercial banks and ensure the banks do their bidding, while making sure that there is no run on such banks.

It appears that the Central Bank did give the guarantee, at the time of writing.

This means that the risk is being absorbed by the State and that seems to be the only way to go forward.

If the State wants to do things in the straight and narrow way that Mangala Samaraweera suggests, and wait for a stash of cash to even think of a stimulus, the economy has zero chances of recovery. Certainly, in the near term, none whatsoever. Besides, the stimulus is something that’s granted to businesses as a matter of urgency, and that’s axiomatic.

Ghouls

The urgency is because there is an immediate need to recover the economy; not do it the year after next, as Samaraweera appears to suggest. The human suffering such a strategy will entail would be incalculable.

The question that has to be asked is, who are these people?

Are they ghouls? They had their heads in the sand and ruined the economy precisely due to these dunderheaded balance budget/fiscal discipline economic strategies in the five years following 2015. That Samaraweera and Co. wants more of the same now beggars belief. Is the former Finance Minister suggesting what he does with a straight face?

The Government is willing to take a level of calculated risk on behalf of the people. The risk is inherent because we as a country are cash strapped, and that’s on Mangala and Co’s account, to be sure.

It’s precisely because of them and their wrongheaded policies since 2015 that the economy is cash strapped today.

It’s as if the guys who broke the bank are now claiming only they can fix it. That’s said by way of metaphor, but in reference to Mangala’s set, it can be taken literally too.

The next six months or so will be crucial, and a lot will depend on how the world economy performs. Though Covid-19 is still raging worldwide, the global economy seems to be on the mend at least in baby steps.

If that trend continues, the government will be confident that things will improve with the new measures that it has been able to take despite the deep seated systemic resistance that was evident.

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