Prudent fiscal management

Sri Lanka's economy proved its resilience even amid the worst financial crisis that swept the world since the great depression. There were no mass unemployment as was the case in the US. Nor were there food shortages and the cost of living did go through the roof. One could say that all this was due to the pragmatic economic policies adopted by the Government.

The economy also withstood the rigours of the final phase of the war when military spending was at its zenith. There were no welfare cuts or undue burdens cast on the public even while war expenditure soared - another index of the resilience of the economy. All this while development continued apace. It was the steadfast position of President Mahinda Rajapaksa that he would not allow the war to detract from the development effort. Today the fruits of these pragmatic polices could be seen in the soon to unveiled ports, airports, power plants and other mega development schemes.

Had the Government balked at going ahead with these projects due to the war, today we would have had to wait years nay decades until there was any hope of initiating these projects. This is because the cost of post war rebuilding and reconstruction would have strained the Governments financial resources to the limit leaving little for development. Be that as it may the country has emerged financially sound as at no other time in its post independent history.

One of the reasons that we were able to stay afloat while economies of world powers were crumbling like ninepins was the strong banking sector that stood like a rock despite the many vicissitudes it had to undergo. This is because the Government had put in place all the necessary mechanisms in place to ensure a proper regulation of the country's banking system. Banks no doubt are the vital oxygen that keeps the economy ticking and business and commerce alive. An uninterrupted money circulation is a sine quo non for the stability of the financial market. Any hint of de-stability in the banking sector therefore is bound to affect this smooth flow of liquidity resulting in the crash of business and enterprise. Therefore it is vital that the banking sector remain stable for sound economic functioning.

Speaking to Daily News Business Central Bank Governor Ajith Nivaard Cabraal said the track record of the Government and the Central Bank over the past five years in protecting banks and Registered Financial Companies was by far the best seen in history. "Overall our country's financial system is in very good shape and no stakeholder should get discouraged by those who are attempting to discredit our robust and fast growing economy," he said.

It is to the credit of the Central Bank that it did not allow any finance company to collapse, for this would have affected the Banking sector as a whole. The manner in which it dealt with the Seylan Bank crisis is indeed commendable. Its timely intervention halted the run on deposits and averted a major crisis. But for this act there was bound to have been a domino effect leading to a run on deposits on all banks resulting in drastic consequences to the economy by the upheaval caused in the financial market. The Government was able to restore confidence in investors and prevented the collapse of the country's banking sector, the lifeblood of the economy.

Even in the case of the Golden Key fiasco the Government has now come up with a workable solution with the concurrence of the depositors and not left them in the lurch to suffer the fate of the HPT depositors. It played a proactive role to compensate the depositors by taking the unprecedented step of making them shareholders of a new company to be formed that will manage the assets of the failed venture. Not only that, the depositors have been given the opportunity to increase the value of the assets through the appointment of a competent Management Board so that now they could even increase the share of their returns.

No doubt by such proactive measurers the Government has succeeded in restoring confidence in the depositors, for it has now placed itself as a sort of a buffer against any errant finance company or Bank. Moreover, it has guaranteed a stable financial market. This no doubt also is bound to boost the confidence of investors knowing the country's economy is in competent hands.