By Hema Senanayake –
Ranil Wickeramesinghe’s unstudious instruction did cost Arjuna Mahendran his career, cost the government to bear losses exceeding Rs.1.6 billion and it cost the UNP its integrity. In regard to the sale of government bonds, Prime Minister Ranil Wickremesinghe told the parliament that, “I insisted on a public auction because private placements have led to corruption and lack of transparency” (March 17, 2015). But Sunil Handunnetthi, the Chairman of the COPE says that there is no such thing call “public auction” in regard to the sale of bonds by the Central Bank.
It is true that there are auctions but they are not public auctions. You and I cannot buy government bonds from the auction held by the Central Bank. It is because auctions are held among the 16 Primary Dealers registered at the Central Bank. Private placements too are done among the same Primary Dealers. Whether it is auction or private placement the bidders are the same Primary Dealers. In auctions and in private placements the necessary transparency is established. Hence the lack of transparency is not a problem in the issuance of bonds. However, this is a system where corruption could exist while having transparency if the top officials are corrupt. Hence, rather than the lack of transparency or corruption, there is one important rule that applies in the issuance of bonds. It is this rule that Arjuna Mahendran had violated taking Prime Minister’s unstudious advise seriously.
Arjuna Mahendran [Photo via his Facebook]
Sunil Handunneththi explained that rule nicely. The first rule in administering the government debt is to have the least cost to the government. It is a commonsense rule but that should be used with an understanding of the future behavior of yield curve. Accordingly the Domestic Debt Management Committee (DDMC) of the Central Bank decided that only 2.6 billion should be accepted from the auction held on that fateful day of February 27, 2015 in order to have the least cost to the government. The balance requirement of money should be borrowed subsequently from a private placement. The balance cash requirement could have been raised from a subsequent private placement immediately with decimal point change of the average yield (interest) rate. DDMC’s decision has duly been conveyed to the Tender Board. It was not heeded. Sunil Handunneththi now explains that the DDMC’s decision has set the basis for the calculation of loss by the Auditor General. It is very logical and excellent basis.
However, it has now been proved that Arjuna Mahendran did not abide by the DDMC’s decision. By doing that he violated the rule of having least cost to the government. Taking the mere opinion of the Prime Minister which is mentioned above, he instructed the officials to jettison private placement mechanism and had instructed to raise money only though auctions. He said that it was the wish and was the instruction of the Prime Minister. This instruction was wrong and improper. To find this out the best thing Arjuna Mahendran could have done was to read the Monetary Law Act. Then he would have found out that the Central Bank is governed by the country’s Monetary Board and not by the Prime Minister or even by the President. Or at least, he should have read the board paper through which the private placement mechanism was established.
The mechanism of private placement was duly established in 2008 by a decision made by the Monetary Board. If Arjuna Mahendran had wanted to revoke the private placement mechanism then he had to submit a board paper and must have obtained the approval of the Monetary Board to do it. He did not do it until he left the Central Bank. Why? It is because the mechanism of private placement did not come into existence to support the crooks of the Rajapaksa regime. Any crook did not and do not want a private placement system. They can perform better under the so called “public auctions” as has been proved by Perpetual Treasuries. In fact private placement mechanism in conjunction with auctions is truly used to ensure in having the least cost to the government in borrowing through the issuance of bonds. That is why Arjuna could not put a board paper to revoke the private placement mechanism until he left. The mechanism of private placement still exists.
COPE Chairman now submits an open challenge. He demands to submit or present any board decision if there is any, made by the Monetary Board to revoke the private placements after the mechanism was introduced in 2008. As the COPE Chairman he decisively says that there is no such decision made by the country’s Monetary Board.
In view of above what do you think? Did Arjuna Mahendran exercise due professional care in executing his duties as the Governor? No! This is what the Auditor General has written in his report. After reviewing a lot of evidences COPE has upheld the Auditor General’s view. Yet the game is not over for the UNP. It is true that this COPE report itself could have been projected as a major victory for the UNP. The “gang of foot notes” destroyed it.
I feel Deputy Minister Ajith P. Perera hinted the logical end of this episode that would possibly bring another camouflaged victory for the UNP. They would make the Perpetual Treasuries to pay the alleged loss to the government estimated by the Auditor General. They can pay it easily. Attorney General could mediate the settlement through a court procedure or outside the court. But this process would be torpedoed if the President appoints a committee of professionals to estimate the total loss to the government. Let us wait and see what will happen next.
Yet I hope, one simple apology from Prime Minister could fix the problem honorably and would provide a necessary space for the country to move forward. This cannot be a big deal for a Prime Minister who nominated his buddy Arjuna Mahendran to the governorship of the Central Bank and who instrumental in appointing Sunil Handunneththi as the Chairman of the COPE which appointment was hailed by everybody.