Startling revelations emerge at Central Bank bond scam probe
Central Bank Governor Dr. Indrajit Coomaraswamy arriving for the hearing.
Amystery Gazette notification on Central Bank bond issue dated January 1 2015 signed by former President Mahinda Rajapaksa raised some eyebrows on the 3rd day sittings of the Presidential Commission of Inquiry probing the controversial Treasury bond issues, in Colombo this week.
The Commission comprises Supreme Court judges Justice K.T. Chitrasiri, Justice Prasanna Jayawardena and retired Deputy Auditor General Kandasamy Veluppillai.
During the afternoon session on Thursday, Commission Chairman Justice Chithrasiri suspended the recording of evidence from Finance Ministry Secretary Dr. R.H.S Samaratunga following the presentation of the Special Gazette notification to the commission.
The Commission detected a discrepancy about the actual date on which the special gazette notification dated January 1, 2015 was printed. The date is prior to the new government taking office.
When a copy of the said gazette notification was forwarded to the Finance Ministry Secretary by Senior State Counsel Dr. Avanthi Perera and questioned about the veracity of it, Dr. Samaratunga had said he had no knowledge about it.
He said that when the gazette notification was issued he was not the Secretary to the Finance Ministry.
The Commission ordered to record a statement from the Government Printer before the Commission resumed hearing of evidence of other witnesses.
Justice Chitrasiri said the Commission required to rectify on which date the gazette notification dated January 1, 2015 was actually printed.
It has been revealed that former Finance Minister (and former President) Mahinda Rajapaksa’s name was mentioned as a signatory to the gazette notification. This has to be verified, the commission stressed.
When Senior State Counsel Dr. Perera told the Finance Ministry Secretary that in the gazette notification dated January 1, 2015 it was mentioned about the issuance of Treasury Bonds of 30 years, worth Rs. 10,058 million at an interest of 12.5 per cent on March 15, 2015. Dr. Samaratunga has said he had no knowledge of it.
At this point the commission suspended its sittings and ordered the Finance Ministry Secretary to appear before the Commission tomorrow, February 27.
Earlier in his evidence before the commission on Thursday, Dr. Samaratunga said the public debt management function is entrusted to the Central Bank (CB) and its Public Debt Department (PDD) acts as the agent of the Government in handling domestic debt, while several other government institutions deal with activities related to foreign debt.
Debt management should be carried out in such a way so as to minimise the direct and indirect cost of public debt on a long-term perspective and avoid volatility in debt service cost and guarantee a balanced distribution as well as prevent an excessive concentration on redemptions.
He noted that the Treasury’s responsibility is to manage government revenue, expenditure and public debt and the PDD should service government debt on time with 100 per cent accuracy.
President’s Counsel, Additional Solicitor General Yasantha Kodagoda lead the evidence.
Dr. Samaratunga told the Commission that the gross borrowing requirement in 2015 in the interim budget was fixed at Rs. 1780 billion and in the Budget 2015 presented in January it was revised to Rs. 1699 billion.
In 2015 the government had planned to borrow Rs. 251 billion from foreign sources and Rs. 248 billion from local sources, he said, confirming these figures when documents were produced to the commission as marked items.
The Commission’s inaugural sittings was on Tuesday, recording a statement by Central Bank Governor Indrajit Coomaraswamy as the first witness.
The Governor detailed about the process pertaining to bond issues. He expressed his dismay on the unsystematic manner in which the Treasury bonds had been issued by the Central Bank in previous occasions.
He told the Commission that there is no time frame to issue Treasury bonds and the authorities decide the dates as and when such issuance is required.
The Central Bank is now taking measures to streamline the process by introducing an annual auction calendar, he disclosed.
President’s Counsel Senior Additional Solicitor General Dappula de Livera and Senior State Counsel Shaheeda Barrie lead the evidence.
Dr. Coomaraswamy noted that he was not holding the post of Governor at the time of the issuance of Treasury bonds which created a controversy.
He made this observation when he was cross-examined by the Senior State Counsel Barrie as to who is responsible to decide on a method, direct placement method or otherwise, to issue a Treasury bond.
He further stated that he was unaware as to who decided on the method of issuing the bonds now under investigations.
He noted that the decision must have been taken by the Domestic Debt Management Committee (DDMC) or the Monetary Board of the Central Bank.
Dr. Coomaraswamy categorically stated that a Central Bank Governor normally looks into the exactness of the information regarding an issuance of bonds but does not usually get involved in the process of issuing bonds.
At present, there was no involvement of the Governor of the Central Bank in the issuance of treasury bonds, he emphasised.
When questioned as to whether the Central Bank monitors the bond trading in secondary market, he noted that from September 2016 the CB is monitoring the secondary market. Before September 2016, there was no way for the CB to gain real-time information on the secondary market, he pointed out.
He expressed surprise at the former Governor’s decision to allow direct placements rather than conducting auctions in the issuance of bonds. It was during former governor Nivard Cabraal’s tenure that there were private placements.
Dr. Coomaraswamy said the DDMC must have taken the decision to issue a higher than previously notified amount of bonds.
He also recalled that a meeting held on February 27, 2015 could have been on bond issuances for March 2015.
Meanwhile primary dealer, Perpetual Treasuries Ltd, accused of involvement in the bond scam, has been granted permission for its legal counsel to appear before the Commission.
Permission was granted at the request of the lawyers appearing on behalf of the company.
Presidents Counsel Nihal Fernando sought permission to appear for Perpetual Treasuries when the Commission commenced its hearing at 10 o’clock on Wednesday.
At this instance, Commissioners recommended obtaining the Attorney General’s advice with regard to the request.
Later, the hearing was adjourned for 5 minutes. Having consulted the Attorney General, the Commissioners who recommenced the hearings stated that Perpetual Treasuries had been granted permission to appear before the Commission under Section 16 of the Presidential Commission Act.
Permission was also granted for a lawyer to appear on behalf of the Deputy Governor of the Central Bank P. Samarasiri who chaired the Tender Board during the Bond issue. There have been various accusations against Mr. Samarasiri pertaining to the bond scam, which he has vigourously denied.
Dr. Coomaraswamy continuing his evidence stated that the Treasury Securities system was in operation earlier, but the Treasury bond system came into operation in 1997.
It was to advance the development of the Government Securities market by instituting this system of primary dealers so that they can act as market makers and there is a significant development of that market.
He noted that that in a relatively undeveloped market the auction system could be manipulated or which can be determined by market forces.
He said that the earlier market from which he w knew had a far simpler modality than the comparative auction or bid auction system.
In a relatively undeveloped market, there are hybrid systems that provide benefits. But even the hybrid system may not be appropriate, if there is a very large domestic debt obligation, he disclosed.
He said a new bond issuance system has been devised with the assistance of the IMF and the World Bank.
There were times when the auctions were conducted under the direct placement without direct reference to auction, he said adding that the hybrid system worked well.
Counsels who led evidence were Dappula De Livera, and the Senior Additional Solicitor General; Ms Shaheeda Barie, Senior State Counsel while Nihal Fernando PC, appeared for the Perpetual Treasuries and Harsha Fernando appeared Mr. Samarasiri.