April 2008
Eric Ellis in Colombo
CHATTING with Ajith Cabraal, the amiable governor of the Central Bank of Sri Lanka, in his lofty eyrie above Colombo, one could be forgiven that he’s presiding over some approximation of a Switzerland-sur-tropique
Though his Indian Ocean homeland is besieged by a civil war escalated by an ambitious president with an advancing personality cult, “things aren’t near as bad as they might appear on CNN,” Cabraal says.
Lankans labour under lending rates and inflation both hovering around a crippling 20%, but Cabraal claims “our economy has always been very resilient, services are doing well and our industries are bouyant.” A chartered accountant two years into the governorship after a stint as economic advisor to his populist President Mahinda Rajapakse, Cabraal insists the banking sector is also in “very good shape.”
The thing is, in the face such trying conditions, Cabraal is mostly right, though perhaps a little in denial about his country’s plight. Still, while war-torn Sri Lanka is far from being Swiss, it not Iraq or Afghanistan either. Despite what Cabraal describes as CBSL’s tight fiscal leash, the economy is forecast to expand by a tigerish 7% in 2008, cushioned with a little help from unexpected friends when Iran gave Colombo a four-month holiday to make good $500 million in oil purchases.
But as Rajapakse makes a controversial new military advance to topple the breakaway Tamil Tigers from their northern lair, its what this blighted country – well into its third decade of civil war - misses that’s a truer, unquantifiable measure. Cabraal need only step onto the street outside his CBSL office in downtown Colombo for an eloquent illustration of Sri Lanka’s opportunity losses.
Janadhipathi Mawatha – or Queen St when Whitehall ruled here – should be a South Asian Threadneedle Street. Instead its deserted, with access to a street flanked by grand-but-derelict banking halls like passing through a locked-down airport. Roadblocks discourage ambient trade so the marquee real estate neighbouring the CBSL is effectively worthless.
It takes four security checks to get inside the CBSL, bombed by the Tigers in 1996 and killing 90 people. The nearby Hilton Hotel – scruffy, starved of renewal but still the best in town – is celebrating its 21st year but struggles with about 40% occupancy, aid agencies among its mainstay clients. A second generation of Lankans are growing up believing conflict to be normal, without realising its not.
“We take the crisis in our stride, we all have to adapt to the circumstances,” says a resigned Cabraal. “We don’t want to take any risks at all so we are going about our business in a pragmatic way.” With the CBSL such a potent state target, such is the concern for a repeat of the 1996 outrage that Cabraal admits the bank has “farmed out” many of its daily functions such as training and clearing to other locations in the heavily-fortified capital. In his defense, he says “you can’t even go into the IMF building in Washington without your photograph being taken.”
True, but IMF boss Dominique Strauss-Kahn doesn’t budget in the knowledge that his institution has to fund a war, as Cabraal has done this past year. After tearing up Colombo’s 2002 ceasefire truce with the Tigers in early January, a determined Rajapakse has gone after the Tamil separatists with vengeance. “We knew this year that we would have a fight and that was factored into our budgets, the possibility that it could have an impact on investment,” he says. Foreign action outlawing the Tigers from raising their warchest among the Tamil diaspora in the West has also emboldened Rajapakse. While its difficult to get a true sense of progress in the war – journalists are banned from the conflict zone and must rely on wildly differing duelling propaganda -, the quarter of the island controlled by the Tigers as de facto separate state is being steadily reduced by Rajapakse’s forces, for the moment at least.
“It may look bad to the outside but to us, oil going to $107 a barrel is a much bigger problem,” Cabral says. “Electricity here is 70% fuelled by oil. That keeps me awake is not the obvious things that outsiders might think but the same things common to other central banks; food prices, inflation.”
But as his soldiers advance, Cabraal has a plan, one that might seem familiar to colleagues in Seoul (or Pyongyang for that matter) and perhaps in Bonn and Berlin in 1989. Cabraal is convinced that military victory is nigh. His new challenge is to finance the expected peace and the anticipated reunification of the country.
Cabraal says recent military successes have prompted the CBSL into formulating plans to integrate the two sides. That may run into expensive billions – Sri Lanka’s entire GDP is measured at just $28 billion - but as Colombo fields blunt criticisms from traditional Western donors angry about human rights abuses and the ceasefire collapse, Cabraal says the government is not relying on aid to prop up the island.
“Aid is dangled at us but I don’t really believe it,” he says. “The north must be developed by ourselves. If you wait for (aid) to come, it will come with all types of strings.”
“Right now we are getting ready (to absorb the north),” he says. “We have our funding plans ready. are trying to liberate them as fast as possible so people can get livelihoods functioning. The government will send in the necessary infrastructure to develop those areas. Its not that the people of the south have advantages, its that those in the north have been deprived.”
“The president says you find the money, even if you have to borrow it, and we’ll develop it ourselves; the roads, the schools, the electricity, the hospitals. Once those are done fast, the people will respond. But if the people there know the money has come from somewhere else they will not have any ownership or affinity to the government. The government must put its money where its mouth is.”
“It’s a hearts and minds thing. We believe there will be a short, sharp window where the liberated people will be yearning for this change. They won’t want to wait five years,” he says. “We don’t know whether it will come tomorrow, next week or in six months but we are ready to fund a program where the economic benefits are there to see.”