Letters to the Editor
End of the road for development banks?

The prominent news item that a well known casino operator had taken control at the National Development Bank was surprising as well as unbelievable. What was even more surprising was the subsequent news report that the only other remaining Development Lender was being taken over or being controlled by the large trading house cum liquor business. It would mean that both development lending institutions which were set up by acts of Parliament by the UNP regimes in the 50s and in the 70s as 100% government owned institutions have now become for all purposes sole proprietorships bent on making a fast buck.

I am particularly incensed about the whole episode because my father who was a parliamentarian then was very much involved in the setting up of the DFCC and enacting the necessary laws. DFCC at that time and NDB subsequently was set up specifically to channel long term development assistance from the multilateral lending institution such as World Bank and the International Development Association (IDA). The Central Bank at that time under a no lesser person than N. U. Jayawardene realized that they were not competent enough to handle the intermediary role of channelling development lending to the private sector, even though Central Bank had been quite successful in handling the aid given to the state sector.

DFCC was very successful and progressed fast while obtaining private sector capital and expertise in making it a model development lender but under the watchful eye of the Treasury and Finance Ministry. With the election of J. R. Jayewardene government in 1977, the whole development outlook changed and DFCC was found inadequate and the National Development Bank (NDB) was set up through another act of parliament to supplement the activities of the former. Both functioned as state sponsored institutions and performed an exemplary role, particularly in bringing the development process of the accelerated Mahaweli scheme to the periphery. The growth of both these institutions was truly phenomenal. Even the foreign donor agencies showed an active interest in the equity participation of both these development lenders.

Unfortunately the PA government of 1994 for some hidden reason had different views and was bent on bringing these two institutions under private control. Once the privatization took place these institutions have quite understandably worked according to the dictates and priorities of the new owners and shareholders which were not the long and medium term development agenda of this country. They were more intent on short-term profitability conveniently forgetting the original objectives. Whereas the DFCC and the NDB of the past always gave a patient hearing to the customer in difficulty and rarely resorted to auctioning of assets these two institutions today have become notorious for Parate action against borrowers, even those in actual difficulties due to the economic downturn.

Newspapers these days are full of auction notices inserted by these two premier development lending institutions showing their impatience with borrowers difficulties. The main reason for this was that at the time of privatizing these institutions the PA government never wanted to keep a golden share where the government would have exercised the right to appoint at least two directors to influence the decisions. On the contrary, they gave over entire ownership to the private sector and the result is these two institutions have now become almost playthings of casino kings and liquor barons. The only saving feature is that pioneers such as my father are no longer alive to see the good work done by the last generation of politicians being undone by the next generation of politicians and Central Bankers in the name of globalization.
A. W. H. Gunasekera.