Sri Lanka ex-CB Governor defends deal with Strauss-Kahn

COLOMBO (EconomyNext) – A deal with ousted International Monetary Fund chief Dominique Strauss-Kahn was made get advice on making Sri Lanka a financial centre, former Central Bank Governor Nivard Cabraal said.

He said the Central Bank’s monetary board was "unanimous" in hiring Strauss-Kahn and Sri Lanka and to advice on the "required laws, practices, procedures and conditions" as well as safeguard necessary to draw global investors.

Cabraal was responding to comments that 750,000 dollar consultancy fee would have helped Strass-Khan meet his legal bills. Strauss Kahn who was once charged with raping a hotel maid in the US, later faced allegations of sexual misconduct in France.

This month French prosecutors withdrew charges of procuring prostitutes or ‘pimping’ saying that while he had attended sex parties, there was no enough evidence to say that he had procured.

Cabraal rejected implications that consultancy fees paid to Strauss-Kahn helped him meet legal bills.

The full statement is reproduced below:

An outrageous and blatantly inaccurate statement was made in the media yesterday by a deputy minister that a contract was signed by the former Managing Director of the IMF, Mr. Dominique Strauss-Kahn (DSK) and myself (during the time I served as the Governor of the Central Bank),to pay the funds belonging to the Central Bank and the people of Sri Lanka for the legal expenses pertaining to a personal case that DSK was involved in. It is sad and pathetic that such a statement was made, when the documents and evidence available at the Central Bank which the deputy minister would have probably examined himself, indicates a completely different picture.

In response to a question posed by a newspaper recently, I have already explained the background to the consultancy assignment that was awarded by the Central Bank to Mr. Dominique Strauss-Kahn’s firm. However, in the light of this fresh accusation, I would like to once again set out some salient features regarding this assignment for the information of all concerned.

As is well known, the previous administration had an ambitious vision of taking Sri Lanka to a US 7,500 per capita income, and creating an economy with a GDP of over USD 150 billion, by the year 2020. In order to do so, a 5 + 1 hubs concept was actively pursued, and that included promoting Sri Lanka as a global commercial destination. In that regard, gradually positioning Sri Lanka as an "International Financial Centre" within the region and the world was considered to be of vital importance. In order to make that a reality, it was considered necessary for Sri Lanka to have the required laws, practices, procedures and conditions in place, at an international standard, so that Sri Lanka would be attractive to global investors who seek international safeguards when conducting their business.

In that context, it was considered essential for Sri Lanka to obtain the required advice, guidance and assistance from knowledgeable and experienced sources, and DSK and his consultancy firm was considered to be an outstanding resource to provide such services, considering the fact that DSK was a former Minister of Finance of France, and a highly recognized and competent former Managing Director of the IMF who was internationally known for his wide knowledge and ability. The total professional fees that were negotiated for the comprehensive services to be rendered by his firm with an extensive list of deliverables was a total of USD 750,000, with the assignment spanning a period of one year, and several other top professionals also due to contribute their services.

Hence, the deputy minister’s statement to the effect that DSK was being paid fees by the Central Bank to fund his own legal fees is obviously a deliberate and pitiable effort to discredit both the members of the former Monetary Board as well as DSK.

In this regard, it must also be stated that the initial fee quoted by DSK’s firm was significantly higher than USD 750,000. However, due to the relationship that the Central Bank had built up with DSK since 2009 when Sri Lanka first negotiated the USD 2.6 billion Standby Arrangement with the IMF, the Central Bank was able to persuade his firm to accept a fee which was significantly lower than the initially quoted fee.

Let me also add that the Monetary Board at that time was of the unanimous view that the Sri Lankan economy would benefit immensely from this consultancy assignment. Nevertheless, the new administration, for whatever reason, seems to have now decided not to continue with such assignment. In that regard, I could relate to that decision, since it is the prerogative of the new Monetary Board to assess all existing contracts, assignments and initiatives in the light of their own economic agenda and new priorities, and take decisions, in much the same way that previous Monetary Boards had taken decisions, based on their collective vision and the priorities prevailing at that time.