Legality of Sri Lanka SOE bailout bond issues in question
ECONOMYNEXT – Bailout bonds issued to recapitalize state owned enterprises (SOEs) including SriLankan Airlines may not have been issued in terms of laws on government securities, raising questions about the legality of the process, a commission of inquiry was told.
Bonds to recapitalize state-owned enterprises were not issued under an auction system where they are listed in a gazette but through an ‘administrative’ process, Central Bank Governor IndrajitCoomaraswamy told a Presidential Commission probing irregularities at SriLankan Airlines and Mihin Lanka.
The central bank issues government securities as an agent to the Treasury.
Questioned by Senior Deputy Solicitor General Neil Unamboowe, Coomaraswamy said that under the Monetary Law Act governing the central bank, debt instruments can only be issued as per the Registered Stocks and Securities Ordinance (RSSO), Treasury Bills Act and the Foreign Loans Act.
Unamboowe questioned Coomaraswamy whether any law allows for the issuance of ‘administrative’ bonds.
"I’m personally not aware. I’m saying that from a position of considerable ignorance on the area of public debt, which is not my area of expertise," Coomaraswamy said.
However, Coomaraswamy received consultation from an official from the Public Debt Department during his testimony.
The governor said that normal Treasury Bonds issued for government cash flow requirements are covered under RSSO.
However, administrative bonds issued to SOEs are not covered under RSSO, he testified.
"It is not reflected in RSSO. My point is whether fiscal measures (administrative bonds) are covered by RSSO," Coomaraswamy said.
"There needs to be a legal interpretation."
Coomaraswamy said that he has not seen an interpretation of the law from the Attorney General.
Unamboowe questioned whether administrative bonds are illegal.
"As I understand, they are issued through cabinet approved and parliament approved budgetary allocations," Coomaraswamy said.
"I’m not fully versed in the law to say whether fiscal administered bond procedures are different from bonds issued for government cash flow purposes."
Under further questioning, he admitted that budgets only set the borrowing limits and not the method of raising the funds.
Central bank manuals for bond issuances do not specify how to issue administrative bonds, Coomaraswamy said.
"I don’t have sufficient knowledge to determine whether administrative bonds issued to state enterprises are under different manuals," he said.
The issue rose after the commission was informed that 14.2 billion rupees in ‘administrative’ bonds were issued to SriLankan Airlines in 2012 without a gazette notification, or notices in newspapers as required by law.
Coomaraswamy said that Deputy Treasury Secretary S. R. Attygalle had directed the Director General of Treasury Operations to have the Central Bank’s Public Debt Department raise the funds through a 5-year bond at 10.2 percent interest rate.
However, according to RSSO, a Finance Minister can only delegate powers to the Treasury Secretary, Unamboowe said.
He questioned Coomaraswamy how Attygalle had the authority to issue such a directive.
"I am not sure under which authority. This was before my time."
Coomaraswamy said this was a matter which should be questioned from Treasury officials.
He said this was not the first instance that administrative loans were issued.
He said he was not sure whether the Superintendent of the Public Debt Department had received consent from an Assistant Governor and the Governor within the lawfully required time to go ahead with the 2012 bond issuance, as well as the 2013 issuance of 12.6 billion rupees and the 2014 issuance of 19.2 billion rupees to SriLankan.
"I’m not aware. I will check and get back to you," he said.
He said if there was a violation of the laws, whoever was responsible should be held accountable.
However, he said that all bonds issued are honoured and any buyer who is currently holding the instruments should not be worried.(Colombo/Nov29/2018)