Amidst allegations of yet another bond scam at the Central Bank, former chairman of the Committee on Public Enterprises (COPE) and leader of the Communist Party DEW Gunasekera has demanded as to why the Central Bank did not utilize the EPF Fund, or state banks such as People’s Bank or the National Savings Bank to obtain a short term loan facility instead of selling treasury bonds to ‘private capital owners’ at a high interest of 14%.
Gunasekera charged that even though the Central Bank had initially announced that it was going to issue treasury bonds to the tune of Rs. 40 billion in March 2016, the bank had instead issued bonds to the tune of Rs. 80 billion.
“This is the second biggest financial scam within a year,” he told a news conference on Monday.
Gunasekera also demanded Central Bank governor Arjuna Mahendran to reveal the names of the dealers to whom the treasury bonds were issued.
“This is suspicious because of the manner in which the treasury bonds were doubled even though the original announcement said that bonds will be issued to the value of Rs. 40 billion,” Gunasekera added.
Meanwhile former Deputy Governor of the Central Bank Dr. W. A. Wijewardena has also levelled allegations of the same in a column that was published recently. In his column under the subheading “Another Bond scandal?” Dr Wijewardena wrote; “In the recent past, the central bank, presumably with the approval of the Monetary Board, tried to suppress the interest rates in the market by rejecting all the bids at successive Treasury bill and bond auctions. But this is not a strategy which the bank can follow continuously since it requires the bank to compromise its monetary policy by financing the government through newly printed money. Hence, on occasions, it has to allow the auctions to determine the rates as well as the quantum of funds to be raised.
“In those auctions, rates invariably go up forcing the bank to sell bonds below their face value causing a loss to the government. In a recent such auction, as reported by the financial website ‘EconomyNext’, a 15-year bond carrying a fixed rate of 11% and maturing in 2030 has been sold at a rate of 14.23% or below its face value. Within three days, the yield rates pertaining to these bonds, according to the web, have plunged by about 2%, increasing their market prices significantly.
“It has allowed the original bond investors to earn a massive capital gain which could have been earned by the Treasury had the bonds in question been issued at the prevailing secondary market yields.”
“According to the Web under reference, the decline in the rates in this manner would facilitate the original investors to cash in Rs. 78 million by way of capital gains for each Rs. 1 billion worth of bonds they hold. This transaction with sudden declines in rates, it appears, is suggestive of another Treasury bond scam now rubbing on the face of the Monetary Board. The experiences in other countries show that, even after many years, such scandalous transactions can be reopened for public scrutiny. This makes it necessary for Board members to exercise utmost due diligence when assessing such transactions.” Wijewardena said in his column.
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