Gov. Ma­hen­dran gave ar­bi­trary in­struc­tions to raise in­ter­est rate while auc­tion was on, says wit­ness

Sunday Times (Sri Lanka) - - NEWS - By Manopriya Gu­nasekara and Ran­jan Katugam­pola

The Cen­tral Bank's former Gov­er­nor Ar­juna Ma­hen­dran gave in­struc­tions to change the Bank’s de­posit in­ter­est rate from 5 per­cent to 6.5 per­cent while the con­tro­ver­sial bond auc­tion was go­ing on, the Cen­tral Bank's Mone­tary Board Sec­re­tary H.A. Karunaratn­e said.

He was tes­ti­fy­ing be­fore the Com­mis­sion of In­quiry (COI) look­ing into the is­sue of trea­sury bonds from Fe­bru­ary 1, 2015 to March 31, 2016. The Com­mis­sion com­prises Supreme Court Jus­tices K.T. Chi­trasiri, Prasanna Jayawar­dena and re­tired Deputy Au­di­tor Gen­eral V. Kan­dasamy.

In his ev­i­dence on Mon­day (20), Mr. Karunaratn­e said the Mone­tary Board at a meet­ing on Fe­bru­ary 23, 2015, de­cided to main­tain the de­posit in­ter­est rate at 5 per cent for one month. How­ever, at the sales op­er­a­tions meet­ing on Fe­bru­ary 27, 2015, the then Gov­er­nor had ar­bi­trar­ily in­structed the Head of the CBSL’s Op­er­a­tions Depart­ment to draft a cir­cu­lar rais­ing the rate to 6.5 per­cent. The in­struc­tions were given while a bond auc­tion was tak­ing place at the Pub­lic Dept Depart­ment.

Mr. Karunaratn­e, whose ev­i­dence was led by Se­nior State Coun­sel Sha­heeda Bar­rie, also said CBSL Gov­er­nors did not usu­ally at­tend meet­ings of the Op­er­a­tions Depart­ment.

In re­ply­ing to a question raised by the Com­mis­sion, the Mone­tary Board Sec­re­tary said that if a pri­mary dealer had found out that the in­ter­est rate had been raised while the bond auc­tion was on­go­ing, that par­tic­u­lar dealer would have stood to profit far more sig­nif­i­cantly than oth­ers who were not privy to the in­for­ma­tion.

At the Com­mis­sion’s hear­ing on Tues­day, Pres­i­dent’s Coun­sel (PC) Romesh De Silva, rep­re­sent­ing former Gov­er­nor Ma­hen­dran, made a re­quest ac­cord­ing to Clause 16 (1) of the Spe­cial Pres­i­den­tial Com­mis­sion of In­quiry Law for his client to be present at the Com­mis­sion to ob­serve its pro­ceed­ings. He also re­quested that Mr. Ma­hen­dran be given ac­cess to doc­u­ments re­lated to the Com­mis­sion’s pro­ceed­ings.

Ad­di­tional Solic­i­tor Gen­eral Dap­pula de Livera strongly ob­jected to the re­quest and this re­sulted in a heated ex­change of words be­tween the two sides. At one point, Mr. de Silva, told the Ad­di­tional Solic­i­tor Gen­eral, “Don’t bark like a dog,” elic­it­ing the re­tort “I can also bite.”

At this junc­ture, both coun­sel were re­buked by Justice Prasanna Jayawar­dena, who told them they were “be­hav­ing like chil­dren.”

The three mem­ber com­mis­sion, after con­sul­ta­tions re­gard­ing the re­quest made by Mr. de Silva, then de­cided to per­mit Mr. Ma­hen­dran to ob­serve the pro­ceed­ings of the com- mis­sion. He was also per­mit­ted to ob­tain copies of doc­u­ments re­lated to the in­quiry on the un­der­stand­ing that con­fi­den­tial­ity of those doc­u­ments would be pro­tected.

On Wed­nes­day, Mr. Karunaratn­e con­tin­ued to give ev­i­dence. He said Mr. Ma­hen­dran had re­moved him from his post as Sec­re­tary to the Mone­tary Board on June 20, 2016 and that this sud­den re­moval had shocked and dis­ap­pointed him.

Dur­ing cross ex­am­i­na­tion by Pres­i­dent’s Coun­sel Ni­hal Pra­bath, ap­pear­ing on be­half of Per­pet­ual Trea­suries, Mr. Karunaratn­e said he was aware that dur­ing the term of former Cen­tral Bank Gov­er­nor Ajith Ni­vard Cabraal, the Cen­tral Bank had pur­chased Greek bonds worth 30 mil­lion euros with­out ob­tain­ing ap­proval from the Mone­tary Board and caus­ing losses amount­ing to bil­lions of ru­pees.

Dur­ing cross ex­am­i­na­tion by At­tor­ney-at-Law Chanaka de Silva, ap­pear­ing on be­half of Mr. Ma­hen­dran, Mr. Karunaratn­e ac­knowl­edged that dur­ing the ten­ure of Mr. Ma­hen­dran, sev­eral new de­part­ments were cre­ated within the Cen­tral Bank and of­fi­cers were also trans­ferred to serve in th­ese de­part­ments. Th­ese in­cluded the Depart­ment of Risk Man­age­ment, the Depart­ment of Su­per­vi­sion of Mi­cro­fi­nance In­sti­tu­tions and the Depart­ment of Le­gal and Com­pli­ance.

At this point, Mr. de Silva raised con­cerns whether the ear­lier state­ment made by Mr. Karunaratn­e that Mr. Ma­hen­dran trans­ferred some 500 of­fi­cers in 2015, was cor­rect. How­ever, Mr. Karunaratn­e said he was quot­ing from fig­ures given by the Hu­man Re­sources Depart­ment and he made no men­tion of the cre­ation of new de­part­ments as he was only re­spond­ing to ques­tions raised by of­fi­cers from the At­tor­ney Gen­eral’s Depart­ment.

On Thurs­day, former Deputy Gov­er­nor Ananda Silva giv­ing ev­i­dence said that on the day of the bond auc­tion, Fe­bru­ary 27, 2015, Gov­er­nor Ma­hen­dran had vis­ited the Pub­lic Debt Depart­ment and after ex­am­in­ing the list of bids, in­structed of­fi­cials to ac­cept the Rs.10 bil­lion bid.

Mr. Silva, whose ev­i­dence was led by Se­nior State Coun­sel Avan­thi Per­era, said the day be­fore the auc­tion, a spe­cial meet­ing was held in the cafe­te­ria of the bank’s ex­ec­u­tive of­fi­cers with the par­tic­i­pa­tion of sev­eral Gov­ern­ment Min­is­ters. Ravi Karunanaya­ke, Kabir Hashim and Ma­lik Sa­ma­rawick­rama were present at the meet­ing, which had been con­vened to dis­cuss ob­tain­ing money for sev­eral road de­vel­op­ment projects.

Mr. Silva said the meet­ing was un­usual as nor­mally, Cen­tral Bank of­fi­cials would go to meet the min­is­ters, rather than have min­is­ters come to them.

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