Mixed response to ADB proposals for EPF investments in stock market

Asian Development Bank's proposals for the Employees Provident Fund (EPF) to resume investments in Colombo’s once- tainted stock market have met with a mixed response, officials said yesterday.

At a recent Labour Ministry meeting between three ADB consultants and National Labour Advisory Council ( NLAC) members, a white paper on a legal and operational framework for the EPF was presented by the ADB. The doc- ument was aimed at EPF investments in equity markets but it was frowned on by unions.

“Our position was that this is the most inappropriate time for EPF to invest in the stock market,” said Palitha Athukorala, President of the National Union of Seafarers Sri Lanka. He was present at the discussions. The NLAC is a tripartite body under the aegis of the Labour Ministry which represents the interests of the government, workers and employers.

Employers’ Federation of Ceylon ( EFC) Officials said they also agreed with the view of unions that this was not the best time for the EPF to invest in the stock market, owing to previous issues.

“While we are in agreement that the ADB proposal is a good one, it has to first have proper safeguards and governance systems (to ensure investments are safe and protected on behalf of the workers),” one EFC official told the Sunday Times.

He said the EPF needed to have an oversight committee like in the

case of the Employees Trust Fund (ETF) with workers and employers being represented on this committee.

Anton Marcus, Joint Secretary of the Free Trade Zone & General Services Employees Union, said they had presented a three-point response largely stating that while the intention of the ADB proposal was to maximise returns, “we need a more active role in the decision-making process of the EPF.”

He said investments should be mandated under a tripartite committee representing Government, workers and employers in the management of these funds.

The EPF mostly invests its funds in government securities (more than 90 percent) but in 2010-2013, the Fund drew widespread criticism after investments in many loss-making companies in the stock market during the infa- mous pump-and-dump trades.

Then Auditor General H.A.S. Smaraweera was reported in local media on October 10, 2013, as stating that the EPF’s 2011 annual report showed the fund had lost nearly Rs. 11.7 billion through investments in 58 private companies, an issue raised aggressively in Parliament by the then opposition parliamentarian Dr. Harsha de Silva.

Unions have been vociferously seeking a greater role in the management of the funds of the EPF, which also drew flak during the proceedings of the Treasury Bond Commission where it was revealed that suspect bond trader Perpetual Treasuries Ltd (PTL) had paid millions of rupees to informants for ‘inside’ information on EPF and ETF. It was also revealed in a Central Bank probe on PTL that the EPF had bought securities in the secondary market at a loss rather than directly in the primary market, which it was legally authorised to do so as a licensed primary dealer.

Since around 2015, the EPF has stopped investing in the stock market owing to these tainted investments during the tenure of the former Rajapaksa regime. Brokers and market players in the stock market have been urging the Government to permit the EPF investments to resume and prop up the market.

The ADB exercise is part of a process of reviewing and restructuring EPF’s investment strategy and framework with the technical assistance of World Bank (WB) under the Financial Sector Modernisation Project, according to the Central Bank.

A Business Process Review (BPR) is being conducted with the technical assistance of ADB under the Capital Market Development Programme.