Central Bank chief job tests Sri Lanka’s dual leadership

ECONOMYNEXT – Sri Lanka’s dual leadership between the President and the Prime Minister will be tested over the fate of controversial central Bank of Sri Lanka governor Arjuna Mahendran whose term ends on Thursday.

Sources close to President Maithripala Sirisena have made it clear that he was opposed to renewing Mahendran’s term and had at least three other people in mind to lead the Central Bank.

However, Prime Minister Ranil Wickremesinghe is equally keen to retain Mahendran, a former student of Royal College, Colombo, and the son of a UNP stalwart Charlie Mahendran.

Mahendran had become the 13th governor of the central bank. He is the second non-Sri Lankan to hold the office after John Exter, a US citizen who was the founding governor.

Wickremesinghe bought time following the first bond scandal early last year by appointing UNP lawyers to investigate conflict of interests between Mahendran and his son-in-law’s primary dealership which secured large parcels of bonds.

Instead of completely white-washing the questionable transactions, the three-member UNP panel called for further inquiries and noted unusual patterns of buying by the son-in-law’s firm.

The panel also wanted the role of the bank of Ceylon investigated in lending money to the son-in-law to make purchases which were several times larger compared to what he bought before Mahendran became the bank chief.

"The question is who will blink first," a political source close to both the President and the PM told Economynext. "What ever the outcome, it will leave one of them unhappy and bitter."

The uneasy relationship within the majority UNP and its junior coalition partner, the Sirisena-faction of the SLFP, will further exacerbate after Thursday.

The SLFP’s parliamentary group has already decided they will not support the re-appointment of Mahendran.





The names of Institute of Policy Studies chief Saman Kelagama, former treasury official and international economist Indrajith Coomaraswamy have been mentioned as possible successors.

It is reliably leant that neither is interested in the job which has become a political post since former president Chandrika Kumaratunga appointed Sunil Mendis, a non-central banker, to the post on July 1, 2004.

Mendis quit in two years to be replaced by UNP defector Nivard Cabraal who dragged the Central Bank into Rajapaksa politics. His passport has been impounded by courts pending investigations into allegations of corruption.

Although the post of Governor is expected to be an apolitical office, Cabraal has set a new precedent.

The fate of incumbent Mahendran becomes even more crucial given the opposition to him from civil society groups which supported Sirisena’s election in January 2015.

A way out of the catch-22 for the Sirisena-Wickremesinghe dual leadership would be either a stepping down by Mahendran himself or courts declaring him unfit to hold office by virtue of being a foreign national.

The Anti-Corruption Front has already filed a case in the Court of Appeal on the basis that Mahendran cannot hold the office because he is a Singapore national. The case is yet to be heard.

Another manoeuvre said to be considered by the UNP is to get deputy governor P. Samarasiri promoted and get him to step down in exchange for a diplomatic post and bring back Mahendran once the dust has settled.

A source close to the president said Mahendran was offered the post of High Commissioner to Britain if he agreed to leave the central bank avoiding a confrontation within the unity government. (COLOMBO, June 28, 2016)

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