Cabraal’s gamble: Lanka loses billions in bankrupt Greece


A Central Bank investment of about 22 million euros valued last year at more than Rs 3.4 billion in Greek Government Bonds will be lost to Sri Lanka due to the acute economic crisis in that country.

This week, the Committee on Public Enterprises (COPE), the parliamentary watchdog that monitors finances in state organisations, learnt that the Auditor General (AG) has questioned the “viability” of the Central Bank’s analysis on “market conditions” and held that this “investment is questionable”.

The AG has also noted that at the time the transaction was made, the international rating agency Moody’s had downgraded Greece to “B1”. Even obligations rated “B”, the AG has noted, are considered speculative and subject to high risk.
Making matters worse is the AG’s observation that no approval of the Central Bank’s Monetary Board has been obtained for the investment in question. Approval had been given by Governor (Nivard Cabraal), a Deputy Governor and an Assistant Governor “stating that these securities will be added to the high yielding tranche and in general to be kept until maturity……”

In their response, the Central Bank did not dispute the colossal loss nor offer answers to the Auditor General’s observations. A statement posted on its website simply claimed that when the investment was made, Greece “had the backing of the European Financial Stability Fund (EFSF) which had an AAA rating and therefore the Greek Bonds were considered sound even though Greek rating itself was lower than the investment rate.” The Bank said “The investments in Greece Bonds were a small fraction of the Central Bank total Europe portfolio and the loss of the Greek bonds was comfortably offset by higher returns from other investments.”

The Central Bank investment on Greek Government Bonds had a face value of 30 million euros. That was for a real investment of 22,163,500 euros (or Rs 3,472,576,045) on April 5 last year. A shocked COPE Chairman and Minister D.E.W. Gunasekera had asked Governor Cabraal whether he did not realise that Greece was headed for economic ruin when the investment was made.

Mr. Cabraal defended his action saying the Central Bank had looked at all portfolios before making the investment. He had suggested that in some investments the Bank also took calculated risks. He had then gone on to elaborate on the gains made by the Bank in different areas.
Before joining the Eurozone, Greece had been living beyond its means. Unlike in other Eurozone countries, the public spending in Greece skyrocketed after it joined. Whilst there was outflow of money from the Greek Government’s coffers, its income was hurt by widespread tax evasion. Years of overspending led to the budget deficit spiralling out of control. Added to that was the global financial turmoil. Greece was not prepared to cope as its debt levels shot up to heights where the country was unable to repay its loans. It was forced to ask for help from its European partners and the International Monetary Fund (IMF) in the form of massive loans.

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