Bond issue blown out of proportion
A recent bond issue of the Central Bank (CB) has been in the news during last two few weeks or so, through views expressed by many politicians, lawyers to retired central bankers blaming the Governor Arjuna Mahendran and accusing him on handling the whole bond issue to get certain monetary benefits for himself or his close family members. Their main demand is to remove Mr. Mahendran from the post of Governor with immediate effect. Usually, it has been the norm to see that there is another camp emerging to defend the critiques, but this – in this particular case – we have not seen so far, thus creating a lot of damage to the credibility of the Governor.
We have no intention of commenting on this bond issue because it is inappropriate as there is a formal inquiry which has been initiated to find the truth. However we would give here relevant background information which could be useful for any rational thinker to judge as to why the issue has been blown out of proportion within a short period of time here and abroad.
With the change of the government after the presidential election, the then Governor, an accountant by profession, whose term was due to expire on July 2017, announced on January 9 in the media that he had resigned from the bank, paving the way for the new government to appoint a new Governor for the Bank. The resignation of a governor, whose main job is to ensure the price and financial system stability of the country (devoid of any politics) is something not heard earlier in the CB history of the country, and not warranted for at a hour of political change for any central bank governor of the world who does his job impartially.
In fact, a person who has any iota of common sense could imagine that the real reasons of his immediate resignation which forced him to keep away from the Bank sooner than later, was related to his political affiliation beyond limits to the then political leaders, politicisation of the central bank activities to an unimaginable level, colossal amount of expenditure made for unaccounted and unnecessary projects, and misdirection of the line of principle operations of the CB.
Market participants were urging a reorientation of the central bank with the first step being in finding a suitable head with necessary academic qualifications and experience and exposure in current international issues on finance to lead the Bank. Such a leadership would help the CB to give relevant advice to the Government when deemed necessary, as its agent, based on concrete facts, research findings and professional judgments. This was considered necessary the then Governor had resorted to giving advice to the Government subjectively based on individual opinions making blunders, even on issues of national importance (hedging deal, bidding for the Commonwealth Games, to data cooking to satisfy his political masters, financing of CB funds for PR firms for unsuccessful political projects). We believe that the Government on this count did the right thing in choosing Mr. Mahendran as the Governor.
The new appointee assumed duties after having a simple ceremony and has since then run the bank by example (no large fleet of vehicles, surrounded by special security people and adopting open door policy to reach him anytime for market participants). It is also learnt that the internal structure of the Bank including the reshuffle of duties from top to bottom was effected by the Governor after assuming duties to meet current needs in line with international standards.
Our understanding is that the people involved in the chorus of criticisms are the one who have got least informed about the process of an auction to the pricing of a bond.
The decision to go for an auction, to the price at which the bond is sold, is solely bestowed on the Monetary Board which is responsible in setting monetary policy/targets in the best interest of the economy.
Consider the events that were taking place at the time this bond issue came. A lot of criticism had been levelled against politicos of the previous regime for abuse of power and amassing so much of money illegally. At the same time, the former governor and some staff members who were closely associated with him have been under scrutiny for misuse of authority and manipulation of interest rates, etc.
The channel of inside information that would have come to primary dealers who are accustomed to cut-throat competition has changed. The authority of the Governor is so powerful that he could command the country’s economic destiny more than any other single person could do. His expenditure is not subjected to audit. Some retired central bankers might be having other agendas up their sleeve, i.e. to get Mr. Mahendran’s post.
In such an environment, it was required to find a big scapegoat. So the ‘tale of the bond’ was a blessing in disguise for them.
Prof. Sam Samarasinghe, a teacher of applied economics and who rarely referred to the CB annual reports during his good old days, has written an article with one of colleagues in a newspaper using information which is privy only to the CB and not in the public domain. This is a clear case of passing information by an insider to third parties or third parties lending their reputation at prices to insiders for some common agenda – i.e. to oust Mr. Mahendran and bring somebody loyal to them as governor. Similarly, the historical dealings of retired central bankers have proved to the market that they preach the opposite to what they had practically done during their days in the bank.
The bond issue has been blown out of proportion merely because of a coup hatched by interested outside parties with inside help to dislodge the governor and carry on with their ulterior motives which cannot be for the best interest of our people.
A group of independent
analysts