By Rajiva Wijesinha –

[Part 3 of this series was published on December 2, 2017]

Question number [26] is as follows-

“[26] In Response to question No. 11, you have stated that the previous government had moved away from a market based system in determining the interest rates in government securities, thereby distorting the market. You also say that there was a loss of investor confidence.

(a) Why have you now permitted a reversal of the fully auction-based system to a hybrid system, notwithstanding those concerns?

(d) Is your reference to investor confidence accurate, as the outflow of foreign funds continued to take place during the pendency of the fully auction-based system?

(e) Is your reference to market confidence accurate, as the evidence shows that the EPF and other State-owned funds have simply shifted large volumes of purchases from the primary market to the secondary market?

(f) When you refer to the market, did you occasion any study with regard to the nature and structure of Sri Lanka’s Government Securities market?”

My reply is as follows-

26 (a) There has not been a reversal of the auction system.

Following past experience, and expert advise, the current modified auction system was devised by the Monetary Board after reviewing the working of the ongoing Auction based system. I had no role in devising the said system.

In fact the first phase of the current system also involves a pure auction.

This is precisely what happened previously, when an auction set a rate, around which the Bank offered direct placements. Mr Mahendran’s so-called pure auction system, in reality a system designed to erode confidence since the figure advertised was increased dramatically when hardly anyone bid except one company believed to be in the know, has been abolished but obviously I cannot admit that we went back to the old system. That system was put in place after a decision by the Monetary Board whereas Mr Mahendran’s sudden change was entirely his own, though he lied about it – and it was never approved by the Board, the Minutes simply record that he said he had made the change.

26 (d) International Capital Flows are influenced by a number of factors such as international trends which are beyond our control. So if my claim that investor confidence was restored is not in accordance with the facts, that is because such matters are beyond my control and you must accept that my blithe generalizations are not really meant to be tested against facts.

Question number [28] is as follows-

“[28] In response to question No. 12 you have also stated that Mr. Mahendran informed you on the evening of 26.02.2015 that he may be able to raise money far in excess of Rs.1 billion through the 27.02.2015 bond auction. in this context

(a) In the history of treasury bond auctions conducted up to that time, generally only 2-3 times more than the advertised amount had ever been raised at previous treasury bond auctions. So, do you know on what basis he gave you this assurance with such confidence?

(b) Did you not raise any concerns about raising volumes far in excess of the amount advertised?

(c) Did you not consider the implications on the interest rates?

(d) Did you not consider it to be a transparency and due process concern, if an amount far in excess of the advertised amount was to be accepted?

(e) Did you question Mr. Mahendran on the tenure of the bond and whether raising large volumes on a long tenor bond was in fact in the best interest of the economy?

(f) Did you satisfy yourself whether the Treasury in fact required such large volumes to be raised through this auction or whether some other funding mechanism would be availed of in respect of the RDA’s request for funds?

(g) There is undisputed evidence that Rs.15 Billion of the Rs.20 Billion worth of bids received at the auction of 27th February 2015 had been submitted by Perpetual Treasuries Ltd. (directly and through Bank of Ceylon). In hindsight, do you consider this as a strange coincidence or a deliberate manipulation?”

My reply is as follows-

28(a) The offer of only Rs. 1 Billion through the 27th February 2015 Bond Issue was in my view, and some of the market participants (I will not name names, but you can assume that Mr Aloysius was amongst them), an extremely low figure.

Notwithstanding the Central Bank’s opinion, the private sector sentiment (which the Governor and many of us became aware of) was that there was potential for raising a far higher amount. Actually I know that the Central Bank knew more could be raised through direct placements, but their anxiety to keep the interest rate low was not something we could share, given that we wanted to keep at least one element in the market happy.

Furthermore, as can be seen from the Bond issuances since 2010 (which is evident from the document issued by the Central Bank and annexed hereto as X6) the market is capable of raising well in excess of Rs. 1 billion. This is precisely what the Public Debt Department knew, and they knew they cold get more at low interest, but Mr Mahendran knew better, and insisted on taking the 10 billion offered at whatever the interest rates bid.

Hence, it was not an unreasonable expectation that an amount much in excess of Rs. 1 billion could be raised from the market. And the proof of this is that we did indeed have bids of 20 million, the fact that most of these came from Perpetual Treasuries should not worry us.

28. (b), (c), (d), (e), (f) – Since I did not concern myself with the day-to-day operations of the CBSL including Bond issuances, these were not matters for me. Though I brought the Bank under my purview, and though with my profound knowledge of economics and markets I issued instructions to Mr Mahendran about going for auctions, I must obviously wash my hands of the matter and its consequences since sadly he was caught out so badly.

28. (g) I am not privy to the evidence before the Commission, or the attendant circumstances. As such I am unable to comment. As the Prime Minister of this country, I have every right to adopt an ostrich approach to disaster and bury my head in the sand.

Question number [29] is as follows-

“[29] In response to question No.15, you have stated that your officials have traced in your Secretary’s computer, a briefing note forwarded by former Deputy Governor of the Central Bank, Mr. P. Samarasiri and you have produced same annexed to your Affidavit dated 20.10.2017 as X1. In this context (16 questions)–

My reply is as follows-

You have asked me several questions which I am not prepared to answer, because I am your Prime Minister and I am only answerable to Parliament in respect of Ministerial statements made in Parliament. All I will say is that  the note was received on March 11^th, and I could not care less that it took nearly two weeks to come.

And of course I will not answer the last four quite damning questions since, unlike all others concerned with the plundering that my underlings engaged in, I am not aware of the evidence placed before the Commission….the query in paragraph 29(p) (What action would you recommend in respect of submitting a misleading, inaccurate and false briefing note to the Prime Minister?”) does not arise, and you must be mad to think I could take any action given that these are people in whom I continue to have the utmost confidence.

Question number (32] is as follows-

“[32] In response to question No.20 and the reference in your statement to Parliament on 17th March 2015 that ‘the allegation that Mr. Mahendran interfered in the decision of the Tender Board was factually incorrect”, you have stated that you relied on the information provided by Mr. Mahendran and Mr. Samarasiri. In this context-

(a) In the context of the evidence given before this Commission by Mr. P. Samarasiri that the decision to accept Rs. 10 Billion at the 27th February 2015 was made subsequent to instructions received from Governor Mahendran by telephone, would you now consider the above Statement to Parliament as incorrect or misleading, or a partial rendition of the truth?

(b) As you have stated that neither you nor the Monetary Board were the proper authority to inquire into the issue, and given that you were aware of the lurking potential for conflict of interest, did you not consider it imprudent to deny interference on the part of Mr. Mahendran without first calling for a comprehensive study?”

My reply is as follows-

I note that the question concerns a statement made by me in Parliament, for which I am solely accountable to Parliament.

Without prejudice to this position, I reiterate that I relied on information provided to me by Mr Mahendran and Mr Samarasiri, and that the statement was made by me bona fide and in a responsible manner, and you have no business to suggest that I was imprudent, surely you can see that I am very prudent indeed, which is why no inquiry as to all this took place for over two years. So let me reiterate that I had no reason to suspect any conflict of interest, I had utmost faith in the Governor as I do now, since I see no reason to change in that I am not privy to the evidence given before the Commission. When I was young there were collections at home of the three monkeys who see no evil, hear no evil and speak no evil. I am delighted to speak evil of those I do not like, such as Mr Cabraal, on the flimsiest of grounds, but I will close my ears and eyes to any hint of impropriety to those who do my bidding.

Question number [34] is as follows-

“[34] In response to question No.26, you have denied that you have provided any Minutes of Monetary Board meetings/papers to Mr. Aloysius and that you resent the insinuation. The text message is self-explanatory in that Mr. Aloysius’s Personal Assistant Steve Samuel appears to be reminding Mr. Aloysius to request you or a person named “RK to get a copy of the said documents. Therefore, why do you think Mr. Aloysius expected that he could make a such a request from you?”

My reply is as follows-

I reiterate that I did not agree to provide, or provide, copies of minutes of meetings of the Monetary Board / papers to Mr. Aloysius and the text may not be authentic, and if it were I know nothing about it. Mr Aloysius is a friend of mine and my friends do strange things, like Sujeewa did in his desperate efforts to stop publication of any incriminating report, but why should you suppose I have anything to do with all this? My efforts to defend these people are for very different reasons, which as your Prime Minister I certainly cannot reveal.

But I am not ashamed of having met Mr Aloysius and of having forwarded his representations to the Governor of the Central Bank, just as there is nothing wrong with my creatures on COPE talking to him repeatedly and lying about the reasons for this. All these are my good and loyal servants in whom I am well pleased.