The Central Bank’s reluctant redeemer

W. A. Wijewardena was an outspoken central banker and still campaigns for its independence, but he is not interested in the governorship

By devan daniel.

Published on April 21, 2015 with No Comments


W. A. Wijewardena is the best candidate to lead Sri Lanka’s central bank and restore its credibility. However, it’s rumoured that he spurned an offer of the central bank governorship recently.

Echelon asks Wijewardena about this but he skirts the question. He lucidly articulates the challenges that face the bank and the economy. His answer to the treasury bonds controversy is short but brutishly decisive. He speaks about the adeptness of those in power at breaking the institution that made him.

He recalls his primary school teacher who set him on a collision-course with a president. Months before Wijewardena retired from the central bank in 2009 after serving as its deputy governor for nine years, then-president Mahinda Rajapaksa addressing a forum at the bank, made a cold remark about retiring central bankers. In his signature deep-raspy voice he almost whispered “should I say this or shouldn’t I…those leaving the bank, we hope, will not criticize us” and smiled. It was not a joke, it was not a threat, but it did send cold shivers.

DSC_6895You have always said that you were looking forward to retiring from the central bank and become a writer and educator. In both these, you have done well. You are a leading thought-leader in economic and monetary policy and your writing is well received and widely shared and quoted. Can you tell us how these ambitions germinated during your years at the central bank? How has your writing evolved and officials and civil society responded?
Wijewardena: First of all, I have to give full credit to the central bank for what I had been in the past and what I am today and what I will be in the future. The choice of the central bank in 1973 was over a very pleasing academic position at the then Vidyodaya University. When it was a hard decision to make, all those who were around me at Vidyodaya encouraged me to leave the university for the central bank. In hindsight, I might say that that was the right decision to make.

In the central bank, I had the opportunity to associate myself with the cream of the country’s intellectuals. The list is long but some notable names are A S Jayawardena, Nimal Sanderatne, Wimal Hettiarachchi, H N S Karunatillake, Warnasena Rasaputra, S T G Fernando, P B Jayasundera, Upananda Vidanapathirana, D S Wijesinghe, A G Karunasena, H N Thenuwara and so on. All these people had different views on the economy. But they respected counterviews and I too was groomed in that culture. We were also encouraged by our superiors to think out of the box. So we always looked for the better alternative.

Another benefit which you will get when you work in the central bank is the facility to improve your writing skills. What you write is vetted by a number of people at different levels and in the process you not only produce a good document but also learn how to write correctly. So if the market appreciates what I write after my retirement, they should give full credit to the central bank which trains its officers in the fine art of writing too.

So all I do is simply present that counterview using the writing skills I acquired while working in the central bank. The market would have come to appreciate it because they have been listening to only the official views that did not give the true picture.

cb4You are the president of BMS (Business Management School). Tell us about BMS. What’s its story and plans?
A: I joined BMS in January 2010 and by that time, it had been in existence for ten long years. Since then, we have expanded our services reaching out to students in far locations in Sri Lanka and in other countries in the region. We started new courses in biomedical science and biotechnology. Our diploma holders in these subjects have been accepted by Northumbria University for direct admission to their final year degree in the two respective subjects.

Northumbria University has been very happy about the standards we have maintained in these two diploma courses. So, as from 2015, they have approved us conducting the final years of their degree programmes in Sri Lanka at BMS.

At present, we offer degree courses of Northumbria University but our aim is to become a degree awarding university in the future in terms of the new policy of the government.

Being a visiting lecturer you meet students here and abroad. Tell us about this experience and how you feel about the students you meet?
A: My reading of the present generation is that they are pretty much ahead of us compared to what, and who, we were at their age a long time ago. They are technology savvy and have mastered numerous disciplines. All they have to do is to sit and apply their newly acquired knowledge creatively.

However, I see one deficiency in our undergraduates in local universities. They are intellectually superior but too silent and too obedient. They do not think that it is their right and duty to question their teachers.
Thus, it is only one-way communication that I have with students here.

At AIT (Asian Institute of Technology, Thailand) where I teach as an adjunct faculty member, students are a little different. They come to the class armed with a mobile instrument like a laptop or a tablet and get themselves connected to internet via Wi-Fi. If I say something incorrect, they immediately check it on the internet and bring that to my notice. Therefore I have to be very careful when I appear before them. It is a challenge as well as a learning experience. Undergraduates in local universities don’t challenge their teachers in the class. But, at Sri Jayewardenepura University where there is an online learning system called Learning Management System, students could post as comments their own views on subjects I have been teaching. Some students have language deficiency but I find they post the best comments on issues I have raised in the class. Hence, language skills are useful but not essential for de veloping one’s intellect. The modern generation may have deficiencies in English. But they have superb brains.

cb3Tell us something about your own education, the challenges you faced and luminaries who guided you along the way. Do you still remember your Montessori teacher?
A: I studied at both primary and secondary levels in a remote school in Horana called Maputugala Maha Vidyalaya. The instructions there were in Sinhala medium and we didn’t even have a good English teacher. Therefore, I got, like others in the school, an ‘F’ pass in English language at the ordinary level exam. But that school created a true learning environment in which we read in Sinhala, debated in Sinhala and wrote in Sinhala. After passing the A-level, I joined Vidyodaya University to read for an honours degree in Public Administration. I have worked to earn my bread from the very earliest days of my life. I have done numerous jobs such as labourer, arecanut seller in the Horana Weekly Pola, Clerk at the University of Colombo and story writer to newspapers just to mention some of them. All these jobs gave me a hard training which anyone else would not have got. I was conditioned by that training to be an achiever and a worker who could bear an enormous amount of pain. Somerset Maugham once said ‘A genius is a person who could take an enormous amount of pain without complaint’. Only in this sense, and not intellect per se, am I a genius.

There were many teachers at school who guided us in the correct path. I didn’t go to a Montessori school because in our time, they were not even heard of. Even if they existed, we didn’t have money to spend on such luxuries. Hence, it was the government school which provided free education that built us into who and what we are today. At the primary level, I still remember there were two teachers who were very influential. One was Mr. Piyasena and the other was Mr. Bamunusinghe. Mr. Piyasena later specialised in the education of children with special needs and retired as Director of Education in charge of that subject. Recently, he published his autobiography in Sinhala titled ‘An Unsung Mission’. In that book, he makes the following reference about me: “At that time, there was a very clever student in Grade 3 who learned English from me. I met him recently. He was a gifted student who outshone all other students in the class. His name was Wijewardena and he later became the Deputy Governor of the Central Bank” (p 91). This is the highest accolade that you can expect to get from one of your teachers who had taught you in 1957 and he had still remembered me when he wrote his autobiography in 2011.Other than Mr.Piyasena, there was another teacher at school by the name of Mr.Jinadasa. He had just graduated from Vidyodaya University when he came to our school. He became our class teacher. I had those days edited a daily newspaper titled Janahatana, handwritten by me and sent around like a circular among the students. At the end of the day, the newspaper came back to me. In one of the issues, I had criticised the Principal and that was not to his liking. I was censured and prohibited to redo the newspaper. Mr.Jinadasa, found fault with me for stopping this handwritten newspaper because in his opinion, the Principal had been unfair. He wanted me to stand up to injustice no matter the consequences because he firmly believed that justice would finally prevail. This was one of the important lessons that I learned from a teacher: never yield to injustice under any circumstance.

cb2You were always admired for your forthrightness when you were in the central bank, and sound judgment seemed to drive you. You were not a loose-cannon. How did you do it and what was the experience like?
A: If the market has that impression about me, I am happy. But, it is something which the market has formed by looking at what I have been doing in the central bank. The secret is that when you are guided by a certain philosophy, you don’t deviate from it. I am a hardcore free market economist who upholds liberty as one of the fundamental pillars of the system. When you are guided by such a philosophy, you don’t deviate from the assigned path. It also helps you to be consistent throughout.

That has not always been helpful to me in my career at the Central Bank. As a result, when there was an SLFP government, I was branded as pro-UNP. When there was a UNP government, I was branded a SLFP sympathiser. I was in trouble for speaking the truth. One such incident took place in 2002 when the present Prime Minister Ranil Wickremasinghe headed the UNF government. In one of the press conferences, a journalist asked me about the government’s plan to export rice to other countries since the government had claimed that there was a surplus in rice production. I said that Sri Lanka has not reached self-sufficiency in rice because we produced only 85% of the country’s requirement. As for the export of rice, I said that the short grain rice which Sri Lanka produced did not have an export market because the market preferred longgrain rice which was produced by Thailand and USA. Therefore there was no demand for Sri Lanka’s rice. This was published in newspapers the following day and the government minister who was in charge of agriculture got agitated. He raised this matter at the Cabinet and there was another Minister who supported him. That Minister had expressed his desire to rehabilitate the bankrupt Pramuka Bank and I had said in a press conferences that whoever liked to do so should bring in new capital amounting to Rs 10 billion because the bank’s its net-worth was negative. So, these two ministers pressurised the Cabinet to call for an explanation from me. The Governor at that time, A S Jayawardena, sent a detailed explanation to the Ministry of Finance justifying the stand I had taken and the government
had to lay the matter to rest.

Then, again when the SLFP-led United Front government was formed in 2004, I was labelled a UNPer who had allowed the exchange rate to depreciate. Two politicians, one a minister and the other a leading figure in the government, took this to the people and they accused me publicly in TV discussions and interviews with newspapers. But the rupee was depreciating not because of me, but due to the bad policies of the government. These two politicians continued their charges against me without any counter measure from the Ministry of Finance or the Monetary Board. Then, Governor Sunil Mendis decided to call the leading politician to the central bank and explained to him how the rupee was depreciating in the market. To his credit, he did not raise this issue again. So, being straightforward means that you will face trouble in life and you will make many enemies. But if you are consistent in both your words and deeds, even your enemies begin to appreciate you later. The politicians involved in the above incidents have now become my fans who admire my work.

You have extensively addressed the challenges facing the economy in your writing and at various forums, but what would be some of the four critical areas that need to be addressed and why do they matter?
A: Sri Lanka’s economy is at crossroads today. It has reached the lower middle income stage but for it to move up to a higher middle income country and from there to a rich country is a formidable challenge. That challenge involves many critical areas but the most important four are the following. Sri Lanka is losing its advantage of cheap and abundant labour. The challenge is to improve productivity, introduce new technology and human capital development. We need to move into high-tech means of production from the simple technology the country is using right now. These are all related to real economic growth which the country has to have in order to become a rich country one day.

The same goes for the Central Bank you served for many years. What are the four main challenges facing the bank?
A: It is necessary to introduce new central banking legislation to make it free from excessive governmental controls so that the bank will be able to have in place appropriate policies to attain its main goals. Right now, its main challenge is to maintain price stability on a sustainable basis, build-up foreign reserves to sufficient levels, have sufficiently high net-worth to cover the currencies and other demand liabilities it has assumed and improving the productivity and knowledge base of its staff on a continuing basis.

cbYou have also written that a profit-making central bank is not always a good thing. Can you explain why?
A: There is a qualification to this argument. Profits made by a central bank from its domestic operations come from printing new money and inflating the economy. Hence, a central bank can make enormous amounts of profit at the cost of losing its grip on price stability. However, there is nothing wrong for a central bank to go for a profit target with respect to excess foreign exchange reserves. Such profits come from outside the country and will become inflationary only when they are shared with the government. As long as such profits remain within the central bank as internal reserves, there is no inflationary impact generated by such profits. That is why experts on central banks argue that they should not pursue profit targets relating to their domestic operations.

What are your thoughts on the Treasury bond controversy?
A: The current scandal relating to the issue of Treasury bonds is under investigation and I believe that the committee appointed has got the benefit of advice from technically qualified experts on the subject. The scandal involves insider trading by one primary dealer and to prevent such incidents from recurring, the central bank has to take stern action against those who have violated the code of ethics relating to primary dealers.

Many, including financial journalists and economists, ask why you did not get the job to head the central bank. This regime offered the post twice, but you declined. Why?
A: They were just speculations and I didn’t have the ambition of becoming the Governor. Besides, I have an important mission in life involving education and the dissemination of knowledge. Holding an official position will impede this mission.

Where will Sri Lanka be 20 years from now and where ought we to be?
A: Sri Lanka has the potential to be a rich country in 20 years if we pursue economic policies that are conducive to such a goal. Our right place is not to remain a middle income country. With our superb human capital, we should become a rich nation in the future.


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