Check ‘digital footprint’ of top Sri Lanka central bank officials: bond probe report

COLOMBO (EconomyNext) – The ‘digital footprint’ of top central bankers should be checked, a three member committee that went in to an alleged Treasury bond scam has said, pointing out that its terms of reference was limited.

Prime Minister Ranil Wickremasinghe appointed the three member committee following an outcry over alleged insider dealing in gilts by Perpetual Treasuries, a company connected to the son-in-law of Central Bank Governor Arjuna Mahendran.

Perpetual Treasuries was alleged to have sold bonds ahead of the Central Bank tightening monetary policy in February 27, by closing a discount window. The discount window was closed several days after an announcement outside the standard monetary policy announcement.

The company was also the main beneficiary in a controversial 30-year Treasury bond auction where the sale volumes was increased 10 times and half the issue given to it at a high interest rate. The Central Bank, sells debt on behalf of the Treasury.

Perpetual had bid for 2.0 billion rupees of the auction through its own account and another 13 billion rupees through Bank of Ceylon.

The report, which was tabled in parliament Tuesday said Perpetual Treasuries had denied insider knowledge saying it was public knowledge that the government needed unusually large amounts of money to pay for projects.

The committee said "at this stage" there was no evidence to say the Governor had "direct participation" in the activities on the Public Debt Department and the Tender Board Committee other than to issue certain directives.

The report did not specify what the directives were.

The report called for further investigation saying the general public had a right to expect a high level of integrity in the conduct of officials of the Central Bank of Sri Lanka (CBSL) including Deputy Governors and the Governor.

"Therefore the monitoring of digital footprints of the officials of the CBSL will espouse the cause in maintaining public trust."

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The sale of 30-year bonds at rates over 200 basis points above recent placements, brought a shell-shocked gilt market to a standstill as the entire yield curve shifted upwards pushing up interest costs across maturities.

The Committee said officials of the Central Bank’s public debt department and Acting Governor Samarasiri did not agree that there was a loss to the state from the controversial bond sale, giving in defence a Supreme Court judgment over investments in Greek Bonds.

But the Committee said the parliament or any other organization with public interest could try to find the loss to the government if any.

It also asked for a forensic audit on Bank of Ceylon, who had helped Perpetual Treasuries submit bids which the committee thought ‘unusual’.

The report also slammed the practice of making private placement without going through auctions and primary dealers.

The auction mechanism was set up in the 1990s by then Governor A S Jayewardene as part of measures to end financial repression and high inflation.

The committee also came down hard on a whistle blower that had leaked a document bearing the 30-year bond allocations and saying no effort had been made to find the person.

The Committee said its terms of reference was limited. It was only asked to find;

1) The reason for the Department of Public Debt of the Central Bank of Sri Lanka to make an announcement to issue a total of LKR 1 Billion; .

2) The sequence of events and key statistics associated with the said Bond Issue with respect to each Primary Dealer;

3) The bids received and allocations made by the Public Debt Department of the Central Bank in every Bond issue beginning from January 1st 2012 by Auctions and Private Placements.

 

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