Controversial Treasury Bond issue:

Credibility of market at stake

By Lalin Fernandopulle

The controversial Treasury Bond issued by Central Bank Governor Arjuna Mahendran has caused a major scandal and tarnished the image of the Government which came into power to bring about good governance, according to public opinion.

The blatant act of the Governor has sparked widespread criticism across the country for setting a bad precedent under good governance while holding a noble position in an institution held in esteem for decades. Banking experts said that the crux of the matter is not whether the act was committed intentionally or not but rather the embarrassment it has caused to the prestigious institution and the ill-fame it has brought on the Government which is on a hunt to nab fraudsters of the former regime.

Former Chairman, Hatton National Bank and present Chairman, Osara Lanka Destinations, Rienzie Wijetilleke said that while Raj Rajaratnam is serving a 15-year jail term in the USA for insider trading which is apparently a lesser offence than someone within an organisation aiding and abetting people close to him with information to commit the same offence.

He said the investigation should have been handed over to qualified people. It should be carried out by independent people with a sound knowledge of insider trading.

"There are quite a few of retired people from the Central Bank and commercial banks who can investigate. The credibility of the whole market is at stake from an outside point of view,” Wijetilleke said.

He said the after-effects will be felt in the weeks and months to come and it will affect medium-term economic issues which the Government is tackling due to the wasteful and corrupt practices and misuse of power by the former administration.

The previous Head of State developed arrogance during the last couple of years and showed sheer indifference to public opinion and the numerous wrong doings and malpractices by those close to him.

"We saw how Ministers and MPs at that time showed arrogance and stubbornness when the Opposition criticised them in Parliament.

It is unfortunate that today those who have got into governing positions through the mandate received by President Maithripala Sirisena are displaying utter arrogance," he said. “It was heartening to see prominent leaders of the present Opposition demonstrating outside the Central Bank on the bond issue.

After many years we have experienced a lively Opposition to the Government's acts which we rarely witnessed when the previous government was in power mainly due to the weak and inactive opposition leadership during that time,” Wijetilleke said.

He said it was amusing to see the very same politicians who were in power at that time and were mere spectators when the monitoring authorities at that time ruined this institution, demonstrating outside the Central Bank.

Their silence and failure to control these unhealthy policies and actions of the then Government was inexcusable. The Central Bank at that time was run by a ‘one man decision maker’ who blindly followed orders and requests of his boss.

“This is why I say the recent show of the Opposition against the Governor of the Central Bank was a ‘big bluff’, Wijetilleke said.

Nithya Partners Precedent Partner Aritha Wikramanayake said that as a result of the controversial transaction, good governance promoted by the Government has drowned out. “People want good governance and that's the reason why they elected this government to power. There is something really wrong when one looks at the whole bond issue. The Governor has to step down if he has committed a grave mistake," he said." He must relinquish his post for embarrassing the Government. This is not a matter of taking disciplinary action but rather he should bow out,” Wikramanayake said. Wikramanayake said that the public does not accept the credentials of the three-member committee appointed by the Prime Minister Ranil Wickremesinghe to investigate the transaction and as a result the outcome of the investigation will not be recognised. The public will question the credibility of the investigation.

“The committee should be composed of people with stature and financial expertise. If not it will undermine the credibility of the findings. No amount of investigation by this committee will be of any help.

All the good things the Government does in the future will be clouded. The bond issue will surface over and again,” he said. The Opposition vehemently criticised the committee comprising lawyers who are loyal to the United National Party.

The JVP also called for the resignation of the Governor until the probe on the alleged deal is completed.

“Mahendran put himself into trouble by not following proper procedures. He allowed his son-in law to have an upper hand in the transaction. He should accept the mistake and quit,” Wikramanayake said. The Governor came under fire for allowing his son-in-law to dominate the bids and gain large profits. Mahendran said he takes responsibility for not informing primary dealers regarding the latest treasury bond issue of the Central Bank. He agreed that there was a communication gap between the Central Bank and primary dealers on the bond issue and denied any insider trading. “A code of conduct for the Central Bank should be brought in and a proper course of action must be ensured to avert the recurrence of such incidents,” Wikramanayake said.

Mahendran was accused of blatant abuse of power when the rates of Treasury Bonds that opened on February 27 through which Rs. 1 billion was offered, was jacked up.

The allegation was that although the rates of the Bonds were expected to be in the range of 9.5 percent it had been escalated up to 12.5 percent under the instructions of Mahendran.

Media reports claim his son-in-law was fully aware of this step and as a result, managed to gain a huge profit by bidding at the renewed rates.