Feature Article

Raiding dormant accounts makes no sense– Financial Times

[TamilNet, Monday, 17 July 2006, 00:05 GMT]
Tamils are seeing their community as the primary targets of Sri Lanka’s plans to seize money from ‘dormant’ bank accounts as the mass displacement of the conflict which has affected one in four Tamils has left many without the necessary paper work of physical access to banks. Meanwhile, the Financial Times, one of the world leading financial newspapers, in an editorial last week, criticised the notion of seizing money from dormant accounts as not making economic sense and duplicitous.

Sri Lanka announced Wednesday it would seize an estimated 30 million dollars in dormant bank accounts as part of a drive to clean up commercial bank books, press reports said.

Monetary authorities will use a provision under the Banking Act relating to "abandoned property" to access the dormant funds, AFP quoted Upali de Silva, Secretary General of the Sri Lanka Banks' Association, said.

The association published a notice Wednesday warning people to re-activate accounts dormant for over 10 years or risk the money being transferred to the Central Bank.

When Sri Lanka’s conflict erupted anew in 1995, hundreds of thousands of Tamils were displaced from Jaffna and then other towns in the Northeast. Lost paperwork, including identity documents, has hindered many families ability to stabilise their lives in new locations.

Before then hundreds of thousands fled to India and Western countries. Many have not been able to return for a number of reasons, including the scattering of their relations fro Jaffna and elsewhere.

"There are several billion rupees worth of unclaimed property and goods waiting to be claimed," de Silva told AFP.

Customers have until the end of August to re-activate bank accounts, the association said.

Rightful owners can still claim their money at a later date but will be forced to follow a lengthy legal process.

Interestingly, the notion of the government seizing money has been suggested by a Commission in Britain.

However, whilst Sir Ronald Cohen’s study suggests the money could fund a ‘Social Investment Bank’ and charitable causes, Sri Lanka’s government intends to spend the money it seizes.

The Financial Times, commenting on the Commission’s findings, observed in an editorial Thursday sub-titled ‘Raiding dormant accounts makes no economic sense’ that such a move served only as a way to inject banknotes into the economy, thereby fuelling inflation.

“Nobody seems to have noticed that this is a fantasy, a recipe for that non-existent delicacy, the free lunch,” the FT said.

“Spending the unclaimed cash will not generate new economic assets for the economy: it will simply crowd out some of what is already going on through higher prices or higher interest rates.”

When banks find their reserves trimmed they will lend less and try to take in more deposits, the prestigious financial daily said. Interest rates will thus rise.

“Anyone who earns money but doesn’t spend it is already a benefactor to the rest of society: by leaving their money unclaimed, they also … make everything a little bit cheaper for everyone else,” the paper said.

“This [scheme] is a bureaucratic way to inject banknotes into the economy. Why bother? The printing presses are in easy reach. But more honest politicians fund spending through taxes.”

 

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