Arjuna M. accused of lying under oath; claims he didn't act alone
Former Governor of the Central Bank of Sri Lanka ( CBSL) Arjuna Mahendran defended this week that, the decisive 30- year Treasury Bond auction on Feb. 27, 2015 was a collective decision taken after consulting all relevant authorities within the CBSL, including approval from the Monetary Board and the Public Debt Dept (PDD), in the wake of Govt's urgent request to raise Rs 172 billion in March.
He was testifying before the Commission of Inquiry ( CoI) comprising Supreme Court Justices K. T. Chitrasiri and Prasanna Jayawardena and retired Deputy Auditor General V. Kandasamy, probing the CBSL’s TB issues from Feb. 1, 2015 to Mar. 31, 2016.
“There was a huge funding requirement coming for March because of the Budget and other reasons. That requirement was not going to be adequately funded at the rate we were going, considering the private placements in January and February,” he said during cross examination by Senior Additional Solicitor General ( SASG) Dappula De Livera.
“The Treasury Secretary was concerned we were under funding the Treasury. In that context, we decided to have an auction. Let's see what the level of interest rates should be in the economy. What's the market telling us? We didn't know at that time, we were driving blind. That's why we urgently wanted to go for the auction," Mr Mahendran said.
Mr Mahendran continuing with his submission said, he was told by senior PDD officials they were going to advertise for Rs 1 billion only, as rates will shoot up if the targeted amount is known. "They told me they can raise that amount through private placements. Then senior Cabinet ministers requested Rs 15 billion, and then another Rs 75 billion urgently for development work."
“As it was a 30- year Bond, the largest issued to the market at that time, the con- cern was, if we had an auction, as the public and the market knew the Govt's need for a huge sum of money, interest rates would rise sharply. So we decided to have a 30- year Bond that will cap the interest rates, while subsequent small Bonds won't exceed that yield. That was the rationale," he said.
Alleging Mr Mahendran interfered with the due procedure of the TB auction on Feb. 27, 2015, SASG De Livera informed the CoI that, during the Feb. 27, 2015 TB auction, Perpetual Treasuries Ltd (PTL) had bid Rs 13 billion through Bank of Ceylon as fronts, while bidding Rs 2 billion directly. Totally Rs 15 billion, at a high rate of 11.73% was bid, which is 15 times the amount offered initially by the CBSL, as advertised in the newspapers earlier.
“Wouldn’t you agree that PTL which bid at this rate, would certainly have had price sensitive information?” Mr Livera asked, to which Mr Mahendran responded, “They were aggressive in bidding and borrowed enormous amounts, which is not a norm in practice.”
Denying allegations of arbitrary moves in the bidding process, Mr Mahendran said that bids were accepted with the consent of CBSL Deputy Governors (DG) and senior PDD officials.
SASG de Livera also alleged that Mr Mahendran had visited the PDD twice, and in one instance he dragged along two DGs, Dr. Nandalal Weerasinghe and Ananda Silva. He supported his claim saying that the aforementioned two DGs testified under oath before the CoI, they didn't know where they were being taken by Mr Mahendran.
When asked, as Governor of the CBSL, wasn't this an unusual TB auction where a Primary Dealer bid this high amount, Mr Mahendran replied it was certainly unusual bidding and was not sure if PTL had adequate funds for such massive bidding.
SASG de Livera further questioned Mr Mahendran on his rationale to meet Govt's request to urgently raise Rs 75 billion for the Road Development Authority, while none of the three DGs mentioned this requirement in their evidence to the CoI.
SASG de Livera further noted that, while there was no documentation at the Treasury for such a requirement, only Mr Mahendran and former Finance Minister Ravi Karunanayake spoke of it, but not any senior officials at the CBSL or the Treasury.
Pointing out a contradiction with a statement made by Pre m i e r R a n i l Wickremesinghe in Parliament, shortly after TB auction, where he spoke of an urgent fund requirement of Rs 15 billion, ASG accused Mr Mahendran of being an “absolute smiling liar”, for lying under oath. “I totally disagree,” responded Mr Mahendran.
SASG de Livera stressed that the total bid of Rs 15 billion is similar to the PM’s statement in Parliament, and asked Mr Mahendran whether he doesn't find it ‘ironical’? Mr Mahdenran replied “I don’t’.
The CoI will resume sittings on October 2.