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.
So, a balance was struck and the decision to increase the petroleum prices was postponed until February 2012, because we knew that, by that time, the inflation figures would be very low, at less than 3%, and that benign situation would then give us a comfortable cushion to make the price adjustment, without harming the inflation numbers or the inflation outlook. This was then, just one, but a representative case study of holding on to a difficult position in the short term, to realize a long term position, so as to benefit by an even more significant outcome. It was, as Exter may have been happy to acknowledge had he been present, a pragmatic decision of the Government working closely with the Central Bank, cooperating on a complex and delicate issue, to deliver stability and growth in the long term. A “shared vision” and “goal congruence” Mr. Chairman, I am often asked by people as to the exact definition of the economic philosophy behind our country’s economic policies. As is usual in any field of learning, academics and scholars like to categorize a series of policies, according to a general character, or to place them in a framework of a pre-determined school of thought. Where then would our current economic policy framework, fit in? Is there a particular model that Sri Lanka follows? To respond to such questions, let us try to understand what exactly our economic planners are doing, and what they are attempting to achieve.