ECONOMYNEXT – Sri Lanka’s Central Bank was a ‘mess’ after ex-governor Arjuna Mahendran had de-stabilized the decision-making system for bond sales with unprecedented staff transfers, a commission inquiring into allegations of securities fraud in 2015 and 2016 was told.
State attorneys told a Presidential Commission of inquiry that an ‘innocent officer’ had been made the head of the Public Debt Department that sold government bonds ahead of Mahendran’s interference in the decision-making process of its tender board.
De-stabilize the system
Additional Solicitor General Yasantha Kodagoda said heads of department had been changed to interfere in the decision making process in the issuance of bonds.
Several heads of departments had been changed to de-stabilize and weaken the system, Deputy Solicitor General Dappula de Livera told the commission.
The commission is inquiring into a series of so-called ‘bondscams’, where auctions were allegedly rigged to benefit Perpetual Treasuries, a firm connected to Mahendran’s son-in-law.
The bonds were alleged to have been dumped at high prices on the Employees Provident Fund, a central bank managed retirement fund of private sector workers in the country. Mahendran has denied the allegations.
Soon after assuming duties, in January 2015, Mahendran had wanted a number of senior staff transferred, the then head of human resources at the central bank, Kalyani Gunatilake said.
Early in February 2015, shortly before giving final approval for the list, Mahendran had asked Deepa Seneviratne, the then head of the Currency Department who had no experience in bond markets, to be made head the Department of Public Debt, she said.
In an original list, J Karunaratne, who had previous experience in public debt management was to have run the department, she said.
Portfolios of deputy and assistant governors had also been re-allocated, she said.
Though she was a good officer and manager, as well as a personal friend, Gunatilake objected to the transfer as Seneviratne had no experience in dealing with public debt. But Mahendran had said ‘Dr Assim’ another senior officer in the Department, can help her.
She had then asked Deputy Governor Nandalal Weerasinghe to speak to Mahendran but the decision was not changed, she said.
Misfit
Weerasinghe also said Seneviratne was a ‘misfit’, the commission heard.
C Karunathilake, retired Assistant Governor said he had been put in charge of a number of key departments including the domestic operations which manages liquidity in the money markets in 2015.
Since he had no experience in the highly technical area, he had asked Deputy Governor Weerasinghe to chair the daily Market Operations Committee, Karunathilake said.
He had taken over new functions only a few months after he was made an Assistant Governor and was just learning how to manage work, he said.
February 27, was a key day where Perpetual Treasury got billions of rupees of 30-year bonds at high yields (low prices) in a controversial auction after Governor Mahendran interfered, he had also come to the market operations committee to issue instructions, which was not within its powers to carry out, he said.
Later in 2015 more staff changes had been made, the commission was told.
Gunatilleke said senior officers were discussing at lunch tables, and in private about the ‘drastic changes’ being made at the central bank.
Mess
Incompetent officers with no experience were being appointed and they were complaining to her, she said.
The transfers were unprecedented, she said.
"We felt like it is a mess," Gunatilleke said.
On one occasion, she tried to get the three Deputy Governors to meet the Governor and explain.
Two Deputy Governors she met at the lunch table but P Samarasiri, who was made Deputy Governor in charge of bond auctions, she met separately since he ate lunch alone. Samarasiri did not agree, she said.
Karunathilleke said senior officers, including himself gathered at a conference room during lunch time to discuss what to do, when they learned that outside consultants were to be brought in.
There was general agreement that that industrial peace would be hurt if outsiders were brought into areas where competent officers were found within the bank, he said.
While they were drafting a letter to be sent to the Governor, Mahendran had burst into the room with security officers and a photographer and started taking pictures.
The arguments that followed was ‘unpleasant’, he said, though they explained that a letter outlining their concerns was being drafted.
Later, a junior officer had come to him, with a plan to repair relations.
A group of officers had then met Mahendran at his official residence and received an assurance that future transfers will be done after consultations.
Gunatilleke said she herself was later transferred.
Karunathileke said he retired prematurely in early 2016 as he was ‘uncomfortable’ with the workings of the central bank under Mahendran. (Colombo/Apr25/2017)