gossip lanka

Central bank to assist in development

The Central Bank of Sri Lanka is going to take active participation in the development of Sri Lanka. Governor Professor W. D. Lakshman said that indirect methods of monetary policy (through financial markets and interest rates) currently practiced are not as effective as direct credit allocation methods like subsidized interest rates, capital controls, credit ceilings, and targeted lending.

Prof. Lakshman cited Japan after the Second World War and the successful economies of East and Southeast Asia as having a high growth trajectory following the adoption of a developmental state structure.

Prof. Lakshman noted that a developmental state structure was not conceptually defined but rather a ‘practical combination of systems, institutions, and practices with a clearly laid out objective of achieving developmental objectives.’

“Market mechanisms and processes are carefully planned in a developmental state. They are closely monitored and guided by the state. In a socially planned state markets are allowed to function in specific areas.”

Prof. Lakshman expressed these views at the Central Bank’s 70th Anniversary Oration on August 28.

Governor noted that the comparative advantage of a country is dynamic and changeable. He said that Sri Lanka mainstream view in the 1990s changed towards the advocacy of a neoliberally understood independent Central Bank.