“INDEPENDENT CENTRAL BANK” Sri Lanka must take lessons from what happened to Latvia

It is advised that people should not be too mesmerized by the word “independent”. Who can be independent in this interlinked world. Even decisions in the halls of the UN end up determined by a simple threatening phone call. The arm-twisting methods used would shock most. When Funding/AID is tied to numerous conditions & subject to interference in internal affairs of states, where is the independence? This thought should be in the background of the present attempt to make Sri Lanka’s Central Bank “independent”. Sri Lanka is likely to face a similar situation to that faced by Latvia.

Latvia is a former Soviet Republic securing independence in 1991. In 1992 Latvia’s Central Bank was declared “independent” of the Latvian govt. Latvian Central Bank was not to be subject to the decisions and regulations adopted by the Government or its institutions. This is similar to what is being proposed for Sri Lanka – by whom no one knows!

Ilmars Rimsevics, was appointed governor to Latvia’s Central Bank in 2001 & led Latvia into the Euro in 2004. He also sat as a member of the European Central Bank governing council.

He was accused of taking bribes from a bank in 2018. He was the first European Central Bank governor (19 other EU governors of the eurozone) to be put on corruption trial.

June 2018 – Latvia’s Central Bank Governor Ilmars Rimsevic was charged by the Latvian public prosecutor for accepting bribes. Rimsevic refused to resign. The Latvian authorities prohibited him performing duties as Governor in February 2018 but Latvia had no authority to dismiss him because the Latvian CB was “independent” while the Governor was a governing council member of the European Central Bank where he was “dependent” & abiding ECB laws.

Inspite of Rimsevic being accused of bribery/money-laundering, EU declared that Latvia does not have sufficient evidence to dismiss the Latvian central bank governor. ECB even challenged the Latvian governments decision. Latvian govt could not even appeal against the decision. This was the first time EU judges were asked to preside over dismissal of a ECB governing council member claiming that EU law provided protection to the central bank from political interference. European Court of Justice claimed Latvia had failed to provide evidence to justify dismissing Rimsevics.

Rimsevics took courage from his status at ECB to challenge Latvian govt in EU Court of Justice

Rimsevics sued the Latvian government in Europe’s top court- European Court of Justice, for restricting his ability to work at the ECB.

EU Court of Justice gave its judgement on 26 February 2019

Fellow members of the ECB Governing Council also brought action before the EU Court of Justice activating Article 14.2 of the ECB statute that “a decision to relieve a governor from office may be referred to the Court of Justice by the Governor concerned or by the Governing Council of the ECB on grounds of infringement of this Treaty or of any rule of law relating to its application”.

This meant that the powers Rimsevics had as a member of the governing council of the ECB protected him from any prosecution by a national government in which he was serving as the governor of its central bank. This was the level of “independence” the Latvian Central Bank Governor was enjoying. The national government had no power over the governor of its Central Bank!

The Latvian government argued that the Central Bank of Latvia was bound by legal & institutional links & that article 14.2 was not applicable. However this was rejected by the EU CoJ.

National acts were set aside in favor of the “independence” of the European Central Bank. Both Rimsevic & the Board of the ECB sought the CoJ to declare that the national measure is unlawful. The ESCB is a ‘novel legal construct in EU law” highlighting a new EU legal order against national legal orders.

Is there a clash between EU law & Member State law?

The current case proved so. What is likely to happen is to neutralize Member State law & bring it under a single EU order. The EU court declared a national act void – what if a national court declared an EU act void too?

Rimsevic obviously was hiding from one entity & shielding himself under another. This is the scenario likely to happen in Sri Lanka if the Central Bank Bill is passed. What if Sri Lanka’s Central Bank Governor is also given an international position providing him immunity over any litigation which Sri Lanka may bring against him as in the case of Latvia’s Central Bank Governor who was saved because he was on the Governing Council of the ECB! Is this the “independence” we seek?

Shenali D Waduge