The Prime Minister, under attack in the past few weeks over his defence of the Central Bank (CB) Governor Arjuna Mahendran who is seeking a new, 5-year term, must be commended over a recent proposal to set up clear and transparent criteria in the selection of chairpersons and directors to boards of state companies.  Laudable [...]

The Sunday Times Sri Lanka

Appointments to state bodies


The Prime Minister, under attack in the past few weeks over his defence of the Central Bank (CB) Governor Arjuna Mahendran who is seeking a new, 5-year term, must be commended over a recent proposal to set up clear and transparent criteria in the selection of chairpersons and directors to boards of state companies.  Laudable because no other leader, in the past, has installed such a selection process and, a welcome move because members of the public appointed to these bodies have mostly been either relatives, political stooges, mavericks or misfits resulting in an erosion of public confidence in these institutions. While it was bad in the past few decades, it worsened during the last regime with cronyism being the order of the day. One has to simply look at how TV and newspapers nowadays are constantly showing a number of former heads and directors of these institutions trooping into the Financial Crimes Investigation Division (FCID) to face allegations of corruption.

The proposal titled “Criteria for consideration for appointment of chairman and boards of directors of state owned enterprises” and approved by the cabinet two weeks ago, plans to adopt criteria on professional and management experience, maximum age limits, provisions for prevention of conflicts of interest, disqualifications, etc. It said that the lack of “clear-cut policy directives with regard to management of public enterprises, failure to delegate decision-making to senior management, absence in commercial consideration in business decisions, political interference in appointment of staff, failure to adopt practical guidelines for the selection and failure to adopt practical guidelines for appointment of management level officers have been identified as some of the key constraints to improve performance of these enterprises.

”  However, would these good intentions remain only on paper given Sri Lanka’s inability, more often than not, to implement good and well-thought of policies? Unfortunately Sri Lanka’s political culture doesn’t accommodate such positive and forward-thinking policies – whichever government in power. Politics always stands in the way.  Over the years, the wrong people have been appointed to state agencies. Only on a few occasions have the right people – those who were qualified, the right fit for the job and no conflicts of interest, the last being the most important – been appointed. What is the definition of conflicts of interest? There are many definitions. According, it means: “A situation that has the potential to undermine the impartiality of a person because of the possibility of a clash between the person’s self-interest and professional interest or public interest or a situation in which a party’s responsibility to a second-party limits its ability to discharge its responsibility to a third-party.”

This covers a range of issues and if a straw poll is taken today, the most likely result is that a large percentage of the heads and directors of boards of these organisations would have some conflict of interest. A few years ago when a senior journalist reminded a veteran but ineffective politician that such positions should abide by the conflict of interest rules, the latter’s response (typical of a politician) was: “Aiyo, if that is the case, we won’t be able to appoint any ‘good’ person to these positions”!  To make it work, apart from cabinet approval or the president’s prerogative to appoint the ‘most suitable’ person to some of the high posts, the criteria should also undergo scrutiny by parliament and the public. An open discussion – with a white paper presented for public comments – ending up with a debate in parliament and eventual ratification by all parties in the legislature as a law, should be the norm.

While the re-appointment of CB Governor Mahendran should also ideally follow this ‘diligent process’ path, a bigger issue emerging is possible re-allocation of functions of the banking regulator – as a means of appeasing public criticism and winning over President Maithripala Sirisena, who is under pressure from his party to appoint another person for the job.  In terms of Section 113 of the Monetary Law Act, the CB is responsible for the management of the public debt as the “Agent of the Government”. However there is a plan to remove public debt from the authority of the CB and bring it under a different structure. By doing so, it is argued, the Governor (if Mahendran is re-appointed) would have no say in public debt, which has been the centre of allegations over bond issues, etc.  There are some examples to follow in the world.

For instance in Britain, since April 1998, public debt has been the responsibility of the UK Debt Management Office (DMO) after it was transferred from the Bank of England. In the US, public debt is managed by the Bureau of the Fiscal Service.  However in Singapore public debt comes under the Monetary Authority of Singapore (central bank) and also in India, where it is the responsibility of the Reserve Bank of India.
In situations where it is necessary, a re-allocation of functions is inevitable. Precedents are not an issue when changes have to be made for the betterment of the country and its people. The problem arises only when decisions are taken due to political expediency and in this case, it is (just like earlier bringing the Central Bank under a different ministry instead of Finance which has traditionally overseen the functions of the regulator) a move to remove an irritant in endorsing Mr. Mahendran’s extension.

Setting a precedent for the right reason is unavoidable, but is this the right reason? What if other political rulers keep changing the goalposts for their own gains but in the name of the people?  In recent times the departure of norms and practices has led to confusion, delays, uncertainty and duplication of work in some ministries.  Thus it’s not enough for only the cabinet to approve the criteria on appointments. It must be made law for the simple reason that a good appointment saves money and earns respect. A bad appointment could result in billions of rupees lost through bad decisions just like the fate of the national carrier. Sri Lanka should not go down that road again.

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