Arjuna Mahendran | Pic by Ravindra Dharmathilake

As a result of the petition filed by Deputy Minister Sujeewa Senasinghe, requesting an order preventing the publication or circulation of the Committee on Public Enterprises (COPE) sub-committee report on the Central Bank Bond issue, all the evidence have becomes public documents and may be reported freely.

UPFA had filed answers last Thursday including all the evidence to show why it was necessary for the public to know the real situation.

Colombo Telegraph has managed to obtain one document filed amongst other papers incorporate much direct evidence of the bond scam. We publish below the document in full:

The effort by the Hon Sujeeva Senasinghe to block publication of the report on the Central Bank Bond issue proved a blessing in disguise. It prompted renewed study of the actual proceedings, discussion of which had not been prevented by the Court.

The proceedings in themselves provided ample evidence that irregularities had occurred. They also make it clear that the Prime Minister was directly involved in the decision. The Governor admitted (21/6 p 1) that ‘This is the policy decision that was taken by the Hon Prime Minister’. But when he was asked whether the Prime Minister was allowed to take such decisions, he dodged the question and simply said, ‘It was in the interests of the transparency of the system’.

The Monetary Board, which should take such decisions, did nothing of the sort. It was simply informed by the Governor that the Bank (i.e. he himself, though in accordance with the Prime Minister’s policy decision) had temporarily suspended the system of direct placements. There was no Board Paper recommending this, in contrast to what happened in 2008 when it was decided to make greater use of direct placements on the strength of a Board Paper.

The matter is the more serious in that an earlier report commissioned by the Prime Minister had claimed that ‘there is no evidence at this stage to the effect that the Governor had direct participation with regard to the activities of the DD and the Tender Board Committee as aforesaid other than to issue certain directives based on the decision of the Monetary Board and the Operational Manual of the PDD’.

This borders on active deceit.

1. The Governor admitted (18/6 p 60) ‘I just walked into the office of the Superintendent of Public Debt’. He tried to insinuate that it was his management style to visit various departments, but it was clear that he spent a long time there. When asked whether the Governor was there at 10.45 am, the official who had to prepare the recommendation for bids said (9/6 p 70) ‘It was at 10.45 am, 11 am, and 11.05 am’, i.e. he was there up to the time the auction closed’. He then came back and was shown the document recording bids. This was described by the Deputy Governor in charge of this area as ‘Internal controls kadimak’ (5/6 p 81)

2. Far from not having any direct involvement, he made it clear that he wanted Rs 10 billion raised through the auction. Dr Azim noted (9/6 p 80 that he ‘mentioned to the Superintendent of the Public Dept Department, to me and also to the others, ‘We should be accepting from the auction itself the full requirement of the Treasury and I would be happy that you all are taking this to the Tender Board’. When asked if the adverse consequences of this were not explained, the Superintendent said 96 p 27) ‘Especially Dr Azim, our Additional Superintendent explained him more than four times’.

3. The PDD recommendation to the Tender Board was to take Rs.2.608 billion but underneath that there is a Minute from the Superintendent saying ‘G instructed to raise funds bu to Rs.10 billion taking into consideration of additional fund need of the Govt. pl’.

4. A telephone call indicated that a member of the Department succinctly expressed the view that the Governor had imposed himself – (17/6 p 128) ‘man walked into the Department and said, “No. What rubbish are you’ll doing? Increase it. Give it at this level.” You won’t believe he wanted us to take all the bids.’
5. The Governor’s evidence contradicts itself as well as the evidence of his officials. He claims (18/6 p 29) ‘I just wanted to inform the Public Debt Department officials that there was a change in the thinking of the management which had been discussed at that Monetary Board. Also, I was new to the Bank.

So, I was walking around everyday to different Departments. That day, I happened to go to the Public Debt Department.’

But the Governor also gave another reason for insisting on taking the amount by auction, and said he went to the Public Debt Department (p 27) to convey ‘to the Department officials – because the Monetary Board met on the 23rd, as I told you, and we had decided to go for an auction and that was the auction that was happening that day – the view that we should accept as much as possible from the auctions because the private placement method was not working. We had not been able to raise enough money. For this Rs 13.5 billion we only raised 3.5 so far for the first four days of the week.’

The inherent deceit in his position is obvious from the fact that he makes a claim about the Monetary Board that is supposed to be based on something that was known after the Monetary Board met. And his claim that the Monetary Board had decided to go entirely for auction cannot be accepted since there is no such decision recorded in the Monetary Board minutes.

His recognition that this was not true is borne out by the fact that he made a very different claim to the Monetary Board at its next meeting, on March 6th, which records ‘The Chairman informed the Board that the Central Bank temporarily suspended the method of direct placements of Treasury bills and bonds used to raise funds for the Government with a view to move towards a greater market mechanism based on standard auction system followed alternatively at present.

Accordingly the Central Bank at the 30 year Treasury bond auction held on 27th February, 2015 decided to accept Rs.10 billion out of Rs.20 billion worth bonds received for Rs.1 billion announced to the market for bids in order to meet the Government’s funding requirements only from the open market bids’.

It should be noted that the decision was simply conveyed to the Monetary Board, not ratified. In other words, the man who claimed he was interpreting a decision of the Monetary Board to the Public Debt Department now informs the Monetary Board that the Bank had made a unilateral decision. That he had misled the PDD about what the Board had decided at its previous meeting was not conveyed, nor that that PDD had urged him not to act in this fashion.

PDD knew well that the Governor’s unilateral decision would cost the country dear. Though there are different estimates of what the loss might be, the simple fact is that the country is paying more interest on loans than it would otherwise have done, had the previous system continued. It should not be forgotten that, in addition to the extra interest on this 10 billion, the Governor’s action led to interest rates going up in subsequent auctions.

Whereas at the February 27th auction there were several bids at a premium – i.e. investors willing to pay more than the face value for bonds – after Perpetual Treasures got Rs.100 face value bonds at Rs.90, all bids were at a discount.

The attached table suggests the extent of the loss, by looking at the extra interest that has to be paid on government debt subsequent to February 27th 2015. And it should not be forgotten that Perpetual Treasuries, who previously had bid in the millions, bid for billions worth of bonds from February 27th onward and got most of what they bid for. They got bonds worth 12.6 billion between February 27th and March 10th, whereas previously, having bid 15 times, never more than Rs.250 million on any occasion, they had only received Rs.27 million worth of bonds.

(Colombo Telegraph)