AS
became the Governor of the Central Bank in December 1995, a kind of a
‘coming-back-home’ for him. He returned to the bank with a lot of ideas
in his head to reform not only the Central Bank, but also the whole
financial system. At his first meeting with senior officers, he took
stock of the bank’s position. His training at IMF as its Alternative
Executive Director had brought him up to date with modern central
banking. His wish was to practice them in the Central Bank.
However,
within less than two months, his plans for reforming the bank were
shattered to pieces by LTTE. It exploded a powerful bomb in front of the
bank’s Head Office in Fort destroying everything in vicinity.
There
were casualties on all fronts: men, material and money. Forty one bank
employees lost their lives. About 1,200 employees got seriously injured.
One wing of the bank building was completely gutted by fire. The
columns of another wing were irreparably damaged, making even a
temporary entry dangerous. The wing that was saved from fire or blast
was filled with debris. All this and many other losses entailed money.
When I saw AS in front of the still smoking bank building the following
day, he was not a happy man at all. He was visibly down, but not out.
The
Central Bank is the heart of the country’s financial system. The
destruction of the heart would have meant the destruction of the whole
economy. That was why the terrorists had made a meticulous plan to
attack it. Admitting defeat to terrorists would mean admitting the loss
of everything. When I asked him ‘Governor, what do we do now?’ his
answer was straight. He said, ‘We’ll rebuild a new central bank of which
even the terrorists would be envious. The Phoenix will rise from the
ashes.’ That was AS’s resolution and in the next eight years, he carried
it out to the letter.
I have written elsewhere how he managed to
build public confidence in the Central Bank against this horrible
disaster (available at:
http://www.ft.lk/article/398709/From-bomb-disaster-to-bond-disaster--How-to-restore-the-lost-reputation-of-the-Central-Bank).
This is a summary of what I said:
Moving to an alternative location
AS
appeared on national TV on the same day night and assured the public
that the bank would start its operations in an alternative location
immediately. He said that terrorists could destroy the Central Bank
building but not the morale of its employees. Hence, the terrorists had
failed to achieve their objective. This was reassuring enough for the
bank’s stakeholders who had feared that the Central Bank had completely
been destroyed by the terrorist attack.
True to his word, the
bank started its operations on the following day at its Staff Training
College at Rajagiriya. All the senior officers were summoned to
Rajagiriya and a staff meeting was held to identify the urgent work to
be done and decide on how the bank should continue its normal
operations. It was pointed out that certain foreign and local debt
repayments had fallen due and they cannot be postponed even for a single
day without compromising the reputation of the bank. It was unanimously
decided by the senior management of the bank that the debt repayments
should be honoured forthwith because the bank should in no way
compromise its reputation. This staff meeting was followed by two other
important meetings chaired by AS. I had the opportunity to be present at
both these meetings.
Support pledged by commercial banks
The
first was a meeting with Chief Executive Officers of all the commercial
banks. The banks were instructed to make an estimate of the currency
held by them in their vaults and ensure that there would not be a
shortage of currency in the market. That was because any shortage of
currency would have been a serious dent in the reputation of the bank
and it should have been avoided by all means.
The Central Bank
which could not open its vaults immediately too ran into a currency
shortage for making numerous payments it had to make. On this count, the
Bank of Ceylon, the largest and the most stable commercial bank,
offered a credit line to the Central Bank so that the bank could make
its immediate payments without losing its reputation. This was a rare
occasion in which the Central Bank, the banker to commercial banks, had
to rely on a commercial bank to settle its payments. But, it was
necessary to assure the public that the bank had not been destroyed as
targeted by terrorists.
Similarly, People’s Bank offered its
services to disburse funds and receive repayments under the bank’s
development credit schemes which had been funded by many donors
including the World Bank and ADB. Thus, funding flows to development
projects continued without any interruption. Both the Bank of Ceylon and
the People’s Bank came forward to assist EPF to receive contributions
from employers and make refunds to members. Thus, Governor Jayawardena
was able to marshal the needed support of all commercial banks to manage
the financial economy without interruption.
Convincing the media with confidence
The
second was a press briefing that was attended by both the local and
international mediamen. This was the opportunity which AS used to
communicate to the bank’s stakeholders. He wanted to convey them that
the bank was not dead, it had started functioning again and it would
soon restore normalcy as desired by its stakeholders.
The media,
exercising their right to extract all the information to keep their
respective audiences informed of the true status, were posing scathing
questions to AS and the senior officers of the bank. Their questions
were particularly directed to ascertain whether there was any cover-up
of the true damage caused to the bank. This was in fact a testing of the
maturity and experience of AS who was a career central banker, a former
Finance Secretary and an international civil servant.
Prior to
the media briefing, the senior management of the bank had participated
in a crucial staff meeting and a meeting with CEOs of commercial banks.
Hence, they were privy to what was happening and, therefore, could meet
the press with one voice. That was important to quell the suspicions of
the media personnel. Thus, the media briefing was successful in
communicating the bank’s position to its stakeholders.
Clarity and transparency in Central Bank communications
What
AS demonstrated was that the Central Bank’s communication policy was
important in establishing its reputation among the stakeholders. The
bank should not have any fear of coming before the media and explaining
its position to the public. If it does not, the media as well as the
public start suspecting that there could be some underhand dealings in
the central bank which the bank attempts to conceal from the public.
What
AS did was the observance of the three basic pillars of a central
bank’s communication policy. They were the clarity, transparency and
predictability of central bank actions. The central bank should be ready
to clarify not only what it has done or what it has proposed to do but
also any rumour in the market damaging the bank’s reputation. In doing
so, it should speak the truth so as to win the confidence of the public.
If it does not, it cannot prevent the public from losing their
confidence in central bank’s actions. The loss of confidence will erode
the reputation of the bank as well.
Team spirit is key to regain reputation
One
important contributor to the rebuilding of the Central Bank while
preserving its reputation after the bomb explosion was the excellent
teamwork displayed by all the senior officers of the bank. There was
healthy competition among the senior officers to do the best for the
bank as it should be in any growing and dynamic institution. However,
when it came to rebuilding and modernising the bank, all senior officers
functioned as a single team demonstrating team-spirit in every move
they made. Within teams, there were differing opinions expressed by team
members. Harbouring differing opinions by staff was encouraged because
that culture led to the building of a creative workforce. However, they
were debated freely at team meetings allowing the Bank to choose the
best path for its future development.
‘The Long Room’ operation
The
bank set up temporary field office at its Staff Training College at
Rajagiriya. A.S occupied one of the lecture rooms which had a long
table. Immediately, it was christened ‘The Long Room’. A.S. was at the
head of the table, the two Deputy Governors, S. Easparathasan and P.
Amarasinghe, next to him. All Executive Directors were seated wherever
they could sit at the table. When heads of department visited him, he
gave orders for various actions but not before writing them down in a CR
register. That was to keep a record of all the orders he had issued.
From that long table, AS, two Deputy Governors and Executive Directors
mapped out the plans for the restoration of the bank.
Identification of excess fat in the bank
Because
of the space limitation, the bank could accommodate only about 500
employees at the Staff Training College. Out of the total staff of about
2,200, about 1,200 had been injured and were at hospitals or at homes.
Out of the balance 1,000, only a skeleton of about 500 were called for
duty and the balance 500 were kept on compulsory leave. With that
limited staff, the bank was not only able to do all the work it had to
do, but also do a better job.
This was an important discovery for
A.S. At a heads of department meeting later, this matter was discussed
and it was concluded that the bank had been overstaffed. It was
necessary to bring down the staff strength to a lower level. A motto
developed to describe the new situation: ‘Go for a lean but an efficient
bank’. This was the birth of the modernisation project that was
implemented in the bank from 2000 to 2005.
Steering Committee on Modernisation
Under
AS’s guidance, several internal workshops were held by the bank to
discuss the details of the modernisation project that was to be embarked
by the bank. After the bank’s senior staff decided how the
modernisation should be carried out, the bank was supported by IMF and
the World Bank, IMF providing technical expertise and the World Bank,
funding.
I had been elevated to the Deputy Governor’s position at
that time. Hence, I was commanded to chair the Steering Committee that
planned and executed the modernisation programme under AS’s guidance. He
gave me a free hand in running the affairs with the requirement that I
consult him on all important matters. I was supported by the other
Deputy Governor, the late P.M. Nagahawatta, all the Executive Directors
and other staff. I had frequent meetings with AS and it was at those
meetings that I came to know the real visionary in AS.
The
project was funded jointly by the Central Bank and the World Bank as an
external funding agency. AS insisted that the World Bank funding was
necessary to meet the foreign exchange commitments involved in the
expenditure. It was a soft loan granted to the Government and the then
Treasury Secretary, P B Jayasundera, made available the loan funds as a
grant to the Central Bank.
Pillar I of the Modernisation Project: Technology improvement in the bank
The
modernisation project had four objectives: introduction of modern
technology to the bank, updating the legal structure of the bank,
creating a lean but efficient organisation and improvement of the
talents and technical skills of the bank’s staff. The introduction of
modern technology had three components: the establishment of a modern
payments and settlement system including a real time gross settlement
system, known as RTGS, the automation of the general ledger of the bank
and the introduction of a scripless government securities system with
the associated Central Depository System or CDS.
Pillar II of the Modernisation Project: Lean organisation
It
had already been noted that the bank had been overstaffed and it could
be well managed with a staff of only 800. The Steering Committee mapped
out offering a voluntary retirement scheme to the excess staff. It was
to be funded up to 80% out of the World Bank money, to be received by
the Government as a grant.
Since the bank employees at all levels
were enjoying high perks, it was necessary to offer them an
equally-high compensation formula. Accordingly, the final formula
offered was one of the best in the country but, in view of the available
facilities in the bank, was not so generous as many had believed. Thus,
the unions were against it and openly canvassed that the staff should
not take it. This was a show of strength between AS and unions.
AS
explained the benefits to staff if they take up the voluntary
retirement scheme in a series of long memos; though there was no
interest shown by the staff for the scheme at first, toward the last few
days, thanks to AS’s long memos, a renewed interest was shown by
everyone. On the last day before the deadline, 1,000 bank employees had
applied for voluntary retirement that strangely included almost all the
office bearers of the main trade union that had been fiercely against
it, the Central Bank Employees Union.
Pillar III of the Modernisation Project: Creating a learning organisation
The
main asset which the Central Bank has is its staff but that staff would
mean nothing if they have not upgraded its knowledge to be on par with
the growing talent requirements of a modern central bank. AS wanted to
convert the bank into a learning organisation. He allocated a generous
budget for postgraduate studies and training. A special Management
Development Centre was set up to train the staff continuously. A monthly
public lecture programme was introduced in order to bring the staff and
the public up to date on emerging development issues. Foreign experts
in the relevant fields were engaged to deliver the lectures. Staff
talent mapping and performance based staff evaluation methods were
introduced. Learning at all levels and at all times was the motto of the
bank.
Pillar IV of the Modernisation Project: Legal Changes
It
was necessary to make sweeping changes to the law relating to central
banking and commercial banking up to date. As a first step, Monetary Law
Act was amended clearly focussing on two co-objectives of the bank:
economic and price stability and financial system stability.
Previously,
the bank had multiple objectives which very often clashed with each
other when the bank sought to attain them. Hence, the necessity for
focussing on two main co-objectives. However, making economic and price
stability a one of the co-objectives ran into trouble because no central
bank in the world had this strange addendum called ‘economic’ added to
price stability objective of the central bank.
All of us were
puzzled but AS had a fine explanation to the addendum. He said that if
the bank focused only on price stability, it would run the risk of
seeking to stabilise a price index which cold be attained by artificial
means. An obvious misuse was price controls which would record a lower
growth in the index today but would bring about inflation in the future.
Hence, the central bank should not be complacent about until it has
stability in the whole macroeconomy. The events that took place
subsequently fully justified AS’s foresight.
The above is only a
few contributions which AS made for the long-term development of the
Central Bank. It suffices to say that to do full justice to this
visionary, one may have to write a book. He faced a lot of adversities
during his tenure as the Governor. But his remarkable quality was that
he managed to convert all those adversities into prosperities.
Vasantha Sriskantharajah is dreading next summer. It’s not the Jaffna heat that is worrying her, she is used to it. What she is not used to is being away from the collection of books she has seen grow at the Jaffna Public Library through decades of war and recovery.
