The Central Bank’s former Deputy Governor W.A.Wijewardena has said an organised system needs to be maintained in appointing members to the Monetary Board as some of its members are being appointed because of party political connections. Testifying on Thursday before the Commission of Inquiry (COI) looking into the issue of treasury bonds from February 1, [...]


Bond issue: Expert regrets CBSL’s Tender Board was made a rubber stamp


The Central Bank’s former Deputy Governor W.A.Wijewardena has said an organised system needs to be maintained in appointing members to the Monetary Board as some of its members are being appointed because of party political connections.

Testifying on Thursday before the Commission of Inquiry (COI) looking into the issue of treasury bonds from February 1, 2015 to March 31, 2016, Dr. Wijewardena said he believed there should be no political interference in the Monetary Board, because it took crucial decisions affecting the nation. The Commission comprises Supreme Court Justices K.T. Chitrasiri and Prasanna Jayawardena and retired Deputy Auditor General V. Kandasamy.

The former deputy governor said that although he had mentioned about the losses suffered due to the irregularities in the sale of treasury bonds, the actual loss had not been properly calculated so far.

Dr Wijewardena said the bond issue had brought the Central Bank into disrepute and that was another reason why he believed that only those with suitable qualifications should be appointed to the Monetary Board. He said in countries such as the United States, Australia, Canada, and France, an advisory committee recommended the appointments.

Senior State Counsel Shaida Bhari led the evidence of Dr Wijewardena for the second day on Thursday.

He said at the auction on March 29, 2016 the requirement was Rs 10.5 billion but the Bank  had accepted bids for Rs 77 billion.

Dr Wijewardena said the Auditor General’s report mentioned that one of the primary dealers had a monopoly of 55 per cent of the bonds and in such situations the CBSL’s Public Debt Department could not obtain loans at the best rates.

In response to a question about the losses suffered due to the bond transactions of March 29, 2016 he said the figures had not been calculated by him.

On a question about Perpetual Treasuries defaulting on liquidity debt, Dr Wijewardena said that usually if a primary dealer defaulte the CBSL issued a letter of warning and imposed fines. Further defaults could lead to the suspension of the granting of liquidity debt. He said the licences were not suspended immediately.

Dr. Wijewardena explaining the conflict of interest arising from former Governor Arjuna Mahendran’s son-in-law Arjun Aloysius serving as a director of Perpetual Treasuries, said the ex-Governor’s conflict of interest manifested itself in two ways: One was his influence over the Monetary Board and the other was his not consulting officials or organisations which had decision-making powers.

He said he believed it was not enough for Mr. Aloysius to resign from his director’s post at Perpetual Treasuries.

Responding to a question about the unusual profits made by Perpetual Treasuries in 2015 and 2016, the former deputy governor said that through PT’s networks attractive interest rates could be gained.

The Commission was told that Dr. Wijewardena was called to give evidence as he was an expert.

Dr. Wijewardena said the Tender Board to issue treasury bonds was usually appointed by the Monetary Board which comprised highly qualified officials.

Additional Solicitor General Dappula de Livera, who was leading evidence, drew Dr. Wijewardena’s attention to a report that Mr. Mahendaran had visited the Tender Board operations room on two occasions. The ASG asked whether it was a usual occurrence. Dr. Wijewardena said usually the Governor did not get involved and during his tenure of service such visits did not take place.

By his calculations, the long term loss to the country in this issuance of 30-year bonds would be Rs.10 billion, Dr. Wijewardena told the commission.

He said Mr. Mahendran should not have given instructions to accept bids amounting to Rs.10 billion during the February 2015 bond auction. The bond auction should have been allowed to proceed according to normal procedure. There was no need to interfere with a decision taken by the Public Debt Department, he added.

Dr. Wijewardena said both the Monetary Board and the Governor should be held responsible for what happened.

He stressed that the Tender Board chairman should have accepted the decision of the Public Debt Department.

Dr. Wijewardena was questioned about statements made by several witnesses previously. They had said decisions made by the Governor were taken as final and no one challenged them. He replied this was the culture at the Central Bank. The Governor wielded enormous power.

Given this situation at the Central Bank, Dr. Wijewardena acknowledged that this meant the Tender Board was no more than a rubber stamp for decisions taken by the Governor.

Giving evidence on Tuesday, the Central Bank’s Human Resources Department Director, Kalyani Gunathilake said she had initially felt as if Governor Mahendran was like an elder brother and that the Central Bank was entering a new era. However, she said she was taken completely by surprise when Mr Mahendran informed her of the transfer of 14 heads of departments at the bank. She said she had never seen so many senior officials transferred at the same time.

Ms Gunathilake said she had met the Governor and appealed to him to stop the transfers, but he was adamant.

The CBSL’s former Assistant Governor, C.P.A. Karunathilake, giving evidence, said at the Tender Board meeting on February 27, 2015, objections were raised regarding the instructions given by Mr Mahendran to accept bids up to Rs.10 billion at the bond auction. He said Tender Board member Sepala Rathnayake had objected strongly to the former Governor’s instructions and the opinion of the majority of the Tender Board was to only accept bids up to Rs. 2.6 billion. Pointing out that this was the decision of the Public Debt Department, Mr Rathnayake had suggested meeting Mr Mahendran about the matter.

However, Tender Board Chairman P. Samarasiri was not in favour of going to meet the former Governor and had instead spoken to him over the phone. After speaking with Mr Mahendran, he had told the other members that had to approve the former Governor’s decision. Mr Rathnayake had replied that they might as well strip off their clothes and walk out after having approved the decision.

Giving evidence on Monday, DEW Gunasekera, former chairman of the parliamentary Committee on Public Enterprises (COPE), said although the committee under him had prepared an interim report regarding the 30-year bond issue, it could not be sent to the Speaker as Parliament was dissolved before that.

He said that both Arjuna Mahendran and Arjun Aloysius gave evidence before COPE under oath during the committee’s investigations.

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