The reduction in bank rates that came into effect
yesterday was a welcome measure. It provides relief across the
board to almost all sectors. This ought to have a salutary
effect in reviving the economic activity. At a time when Sri
Lanka is feeling the impact of the global financial crisis
resulting in a slowdown of economic growth and activity the
relief measures outlined are like welcome rain after a long
period of drought.
Small and medium entrepreneurs in industry, agriculture and
commerce as well as those engaged in tourism would directly
benefit from the reduction in bank rates. Construction industry
also would be a beneficiary.
Of special significance is the suspension of penal interest
on defaulting loans. It would provide an impetus to activate
payment and make these loans operable. The reactivation of the
low interest housing loan scheme for public servants would
benefit a large number of them.
Once the state banks reduce the rates, the non-state banks
would follow soon, lest they become non-competitive.
Skeptics may dismiss this decision of the government as an
election gimmick. In actual fact, it is far from the truth. The
truth is there is sufficient growth in the economy to warrant
such redress as an impetus to revive economic activity or put it
in fast gear.
As leading economists have pointed out the crash of several
financial institutions such as those belonging to the Ceylinco
Group have made depositors to withdraw their moneys and place
them in state banks.
State banks have received considerable deposits so that they
could afford to lower the rates.
Those who have savings deposits need not have any anxiety
over the reduction of interests as inflation has gone down. The
interest they would get would be almost the same or more in real
The decision of the President to lower interest rates has
received wide acclaim from both professionals and corporate
bodies. For example, the National Chamber of Exporters has
hailed it as a long overdue measure, something they were
agitating for. Low interest rates would compel them to start new
projects with assurance. It would in turn generate new
Equally important is the decision to apply the reduced rates
to loans that are already in operation and suspend penal
interest. At a time of crisis it would be a great relief
especially to public sector employees who have to repay housing
loans as well as small and medium entrepreneurs.
We could foresee more investment and consequently more
production. More production would decrease prices and raise the
standard of living, especially of the middle classes.
There is also a corollary to all this. That is we have to
work hard to get the best benefit out of the redress given.
Development comes at a price, at the cost of sweat and
What is noteworthy is that Sri Lanka, a Third World country,
relatively poor has now a better track record of economic and
financial management than most of the First World countries that
are supposedly blessed with managers produced at elite business
schools such as Harvard and MIT.
A modern fable
Legend has it that once upon a time seven thick pals,
from Andhra Pradesh or so, decided to night out at a wayside
rest. Seeing no restaurant or eating house nearby they placed a
pot of water on an improvised stove and agreed to put a fistful
of rice each to prepare a rice soup for dinner.
Known misers they were, each one thought that he need not
contribute as others' contribution would suffice for all.
They only pretended to put a fistful of rice but actually
their fists were empty. When they doused the fire after giving
sufficient time for the soup to boil, they found that no one has
contributed and they were left with plain hot water.
Now at the present moment, re-living the legend, another set
of pals have got together looking for a soul to present as their
common avatar at a Right Royal contest yet to be announced. Will
they, meet the same fate as the seven Andhra pals of yore is the
thousand dollar question in the halls of fame in an island known
for its serendipity.