Yahapalana Govt. must uphold the trust placed in good faith by the people
When the United National Party (UNP), the United People’s Freedom Alliance (UPFA) and a coterie of small parties formed a formidable alliance which met with success when Maithripala Sirisena won the January 2015 presidential poll, many Sri Lankans were elated. A few problems arose thereafter – problems that one would expect in an uneasy parliamentary co-habitation of this magnitude. However, the UNP and the Maithripala-led UPFA faction secured enough seats at the August 2015 general elections to form a government. Many voters who backed this regime placed their trust in this government in the hope that they would see an end to the earlier era of threats, intimidation, mismanagement and corruption.
Yahapalanaya or good governance was the flag-bearer of the new regime or so the people thought. Everything would be transparent. Now good governance is being dragged through the mud, transparency is being throttled by the day and even ‘reasonable and right-thinking’ political and non-political architects of the wave that transformed this country in January 2015 are fast becoming disillusioned. Key appointments have gone wrong, new subjects allocated to Ministries (such as Finance, Public Enterprises Development and National Policies and Economic Affairs) have created confusion. An element of chaos and interference has crept into the public service.
Disenchantment is growing. One group of senior officials who have been making regular trips to the Financial Crimes Investigation Division to give statements over decisions made by political appointees (chairmen of state organisations and ministers under the previous regime) fear they would have to take the entire blame for those bad decisions. Frustrated, some are considering retirement without seeking extensions. An example of the chaos:
The re-allocation of subjects from the Ministry of Finance to the Ministry of Public Enterprises Development (subject of Sri Lanka Insurance) led to a tussle over positions as T.M.R. Bangsa Jayah, Managing Director and brother-in-law of Ravi Karunanayake refused to quit, when Public Enterprises Development Minister Kabir Hashim brought in changes. In a more recent fiasco, the Central Bank – CB (Director of Bank Supervision) rejected the April 2015 appointment of the Chairman of Lankaputra Bank under ‘fit and proper’ rules of the Banking Act.
The Central Bank
Lankaputra Bank and CB
That decision, however, was only conveyed in a letter dated 24th March 2016 (a year later – when the Chairman should have gone ‘home’ in April 2015). In another curious development, the same letter rejecting the appointment accuses the Chairman of irregularities during the past few months. Why the CB should in the first place even examine irregularities by the chairman and comment on them, when it has rejected his appointment, is puzzling.
Affairs at the CB after the tainted Treasury bond transaction in February 2015, just as Arjuna Mahendran was appointed Governor have also been very dismal to say the least. As our lead story overleaf suggests, CB officials have been accused of withholding information from the Auditor General, the country’s chief accounting officer. That is only the tip of the iceberg. The conduct and behaviour of the CB Governor are under intense scrutiny by the public, in many forums.
Much of these frustrations against the decisions of the Governor are reflected in this week’s Business Times Poll on the re-appointment of the Governor. A high-ranking law officer with close links to the government had this to say: “The Governor should have resigned soon after the bond scam occurred. Even one element of doubt, a question mark or suspicion is enough to erode public confidence. These are important positions that need public confidence which has been lost, clearly.”
One of the respondents in the poll said: “He (Mr. Mahendran) will always be operating under a dark cloud as long as his son-in-law’s business is involved. He should get out for the sake of the credibility of the government as well as for the sake of his own name. The issue of whether or not he is innocent does not play any part in this. It is an obvious conflict of interest and this should have been foreseen by those who appointed him in the FIRST place. They only TALK of good governance; they have no clue as to how to set about achieving it.”
Only the good resign
Unfortunately in Sri Lanka, only the good people resign, and the bad remain. Take the case of this week’s sudden departure of Wildlife Conservation Department Director-General, Sumith Pilapitiya, a respected professional. He resigned on a matter of principle, serving as a rare lesson to all those who aspire to high office in government. Dr. Pilapitiya, an environmental scientist, agreed to take up the position on condition that he is allowed to work by the “book”. He went on record in a newspaper interview that if asked to bend the law or rules, he would quit. And that’s what he did. It takes courage to take such a stand in an environment of still-corrupt politics and bootlickers.
Bringing the CB under the purview of the Prime Minister’s Office from the Ministry of Finance (apparently since the Finance Minister had some foreign exchange issues earlier and that could have been a perceived conflict of interest) has worsened the situation. For example Minister Karunanayake has told the media that he has nothing to do with the CB. However, his signature appeared on a new currency note, alongside Mr. Mahendran, in May 2015, when at that time too, the CB was under the Prime Minister (PM). What if, in a hypothetical case, a new currency note is issued tomorrow? Whose signatures would it or should carry as per Monetary Law Section 53 (2) which states that “every currency note shall bear the signatures in facsimile of the Minister in charge of the subject of Finance and of the Governor of the Central Bank …”?
These ambiguities need to be corrected since many provisions in the Monetary Law constantly refer to “… in consultation with the Minister handling the subject of finance (which for all purposes is Mr. Karunanayake)….” Appointments to the Monetary Board also need to be examined objectively. For instance, the Monetary Law only bars a person who is a member of Parliament, provincial councillor, public officer or director or shareholder of any (other) banking institution from being appointed by the President as the Governor. (See box for details) Clear guidelines on appointments in other countries Such appointments in other jurisdictions (countries) have clear standout clauses where the head of that central bank must be of good moral conduct, among other values and disciplines, which are missing in local laws.
The head of the Singapore Monetary Authority, for example, can be removed if “he is mentally disordered and incapable of managing himself; becomes bankrupt; is convicted of an offence involving dishonesty or moral turpitude; and or guilty of misconduct”. In the Maldives, the Governor should have at least 10 years combined experiences in business, economic affairs and finance; work ethics, not be a criminal and not be a member of a political party. It also has better rules in appointing members to its version of Sri Lanka’s Monetary Board. For example, “two appointees from the private sector who shall be capable persons of recognized standing and experience in the economic sector…” shall be appointed. Such guidelines are missing in the appointments to the Monetary Board here.
This means that anyone can be appointed – and that is how in recent times the three members of this board (drawn from outside) come from backgrounds like garments, tea, media and law but without any economic acumen. (See box) Ironically, while the appointment of directors to commercial and specialised banks must be approved by the CB under strict “fit and proper” criteria, the same rigid process doesn’t apply in the selection of the Governor and members of the board. (See box for rules) In the conduct of monetary affairs, the decisions of the Monetary Board under the current Governorship have come in for both praise and criticism. The report card so far is mixed with views and comments expressed by economists of the calibre of retired central bankers like Nimal Sanderatne, W.A. Wijewardene and Sirimavan Colombage.
Monetary Board admits
However, last week’s acknowledgement by the Monetary Board (after being silent for so long on bond issues) that there may have been a lack of good practices in the conduct of money market auctions, is perceived by the public as an admission of guilt that something appeared to be amiss earlier. “It was a ‘better late than never’ statement,” said one economist. Now Mr. Mahendran’s term of office ends on June 30 and the President has to decide on the next appointment.
President’s consideration
In this act, the President needs to ask himself, among other matters: Is there public confidence in the Governor?Have his actions over the past 15 months brought disrepute to the position and the institution?Is he an exemplary officer, of good conduct?What bearing would his (President’s) public call for Mr. Mahendran to resign (soon after the February 2015 bond fiasco) have on the impending decision? In the absence of guidelines that other jurisdictions have (as pointed out earlier), the President and the PM need to dig deep into their conscience, amidst growing public anger, in taking a decision on the appointment of the Governor.
As stated earlier, present rules relating to appointments and dismissals are irrational. The Monetary Board can sack a director of a bank for misconduct while its own actions (members of the board) cannot be challenged by the appointing authority if there are serious allegations.
Furthermore, a director of a bank can be dismissed at any time, while the Governor cannot be easily dismissed for misconduct or any other offence (see box) as the law stands. The holder of this office can choose to resign or stay on till full completion of the six-year term of office.
The law states that “a person shall be disqualified for appointment as the Governor of the Central Bank if …” . In the meantime, there hasn’t been any impartial investigation into allegations surrounding the February 2015 bond issue. While a committee of UNP-affiliated lawyers issued a tame report (in fairness to them, their mandate was limited), a petition to the Supreme Court seeking leave to proceed was dismissed, a move which the Governor says has cleared him. That is not correct.
The Court refused ‘leave’ on the grounds that the petitioners failed to prove that their fundamental rights had been violated by the bond issue and related matters. It was not a case of exonerating the Governor. Thus an impartial investigation needs to be held by the Commission to Investigate Allegations of Bribery or Corruption where a complaint has been filed and also the Committee on Public Enterprises (COPE) which was recently told the shocking news that the Auditor General had been refused access to CB documents pertaining to bond transactions.
Still not in the clear
The Governor is still not in the clear. Only a proper examination of the bond issues and related matters by an independent tribunal (in this case COPE) can clear the air. Until then, the Governor lives under a cloud of suspicion, and as long as his son-in-law’s family firm is involved in the money markets, uncertainty and suspicion will continue to trail him. Those who argue that the Governor of the Central Bank is not a public figure and unnecessary fuss has been made over various aspects of his ‘lifestyle’, need to read the section (below) on the website of the Reserve Bank of India (RBI). It says:
“Few personalities are so close yet so distant to India’s populace as the Governor of the Reserve Bank and few evocative of his awe and mystique. Close, because virtually every individual, be he ever so poor or so rich, carries on his person the promise and signature of the Governor. Distant, because central bankers are traditionally conservative and publicity shy. Awe, they command as the custodian of the country’s reserves and defenders of the external value of the currency. And, mystique they possess as purveyors of money, the commodity all desire but so few understand.”
It further said: “Behind the mist, and shorn of the public perception, the personality of the Governor assumes importance in a specific context, the Governor, more than any public or private functionary in the country, has the mandate of securing the monetary stability of the country. This impinges on the day to day life of ordinary citizens.” The Right to Information Act also covers the RBI providing citizens of India access to information under the control of public authorities to promote transparency and accountability in these organisations.
More transparency needed
That kind of transparency is needed at the CB and today, even more so under the government’s own principles of good governance, as the Governor and the decisions he makes impact on the lives of every Sri Lankan. The President now has to decide on the re-appointment or appointment of a new individual to the post, a decision that would have a significant bearing on the lives of everyone, given that divisions in the government have emerged with SLFP Ministers publicly demanding the Governor’s removal.
A huge responsibility is cast on the President – a mere stroke of a pen, a signature — as it may seem, but an act that must be exercised with great care, caution and dignity, and on his part also heeding the advice of the Prime Minister, who wants Mr. Mahendran to continue. Napoléon Bonaparte once said: “The world suffers a lot. Not because of the violence of bad people. But because of the silence of the good people.”
The President and all organs of government are repositories of trust placed in good faith by the people.
They must not let down that trust and good faith, whatever the odds. It is not all dark clouds for the government. If not for the President and the PM the freedom to criticise and hold leaders including the President and the PM accountable, would be missing. In that, there is some comfort and hope that the right decision would be made in the affairs at the Central Bank.
| Monetary Law provisions pertaining to appointments | |
| Disqualification for appointment as Governor, or as member of the Monetary Board 11. (1) A person shall be disqualified for appointment as the Governor of the Central Bank if– (a) he is a Member of Parliament, or a member of any Provincial Council or any local authority; or (b) he is a public officer or judicial officer within the meaning of the Constitution of the Democratic Socialist Republic of Sri Lanka, or holds any office or position (other than an academic position) either by election or appointment, for which salary or other remuneration is payable out of public funds or the funds of any local authority; or (c) he is a director, officer, employee or shareholder of any banking institution (other than the Central Bank). (2) A person shall be disqualified for appointment as a member of the Monetary Board under paragraph (c) of subsection (2) of Section 8 if – (a) he is a Member of Parliament, or a member of any Provincial Council or any local authority; or (b) he is a public officer or judicial officer within the meaning of the Constitution of the Democratic Socialist Republic of Sri Lanka, or holds any office or position (other than an academic position) either by election or appointment, for which salary or other remuneration is payable out of public funds or the funds of any local authority; or (c) he is a director, officer, employee or shareholder of any banking institution (other than the Central Bank) or any other institution supervised or regulated by the Central Bank. 12. (1) The Governor of the Central Bank shall be appointed by the President on the recommendation of the Minister in charge of the subject of Finance; Removal from office of Governor or appointed member: 16. The President may, on the recommendation of the Minister in charge of the subject of Finance, remove the Governor or an appointed member from office– (a) if he becomes subject to any disqualification mentioned in section 11; or (b) if he becomes permanently incapable of performing his duties; or (c) if he has done any act or thing which, in the opinion of the President is of a fraudulent or illegal character or is manifestly opposed to the objects and interests of the Central Bank; or (d) in the case of the Governor, if he acts in contravention of subsection (2) of section 12. |
| Banking Act of 1988 – Part VI | |
| This refers to disqualification for appointment as director, secretary of licensed commercial banks: 42. (1) No person shall be appointed, elected or nominated as a director of a licensed commercial bank or continue as a director of such bank unless that person is a fit and proper person to hold office as a director of such bank and if he is not prevented from doing so by any provision of this Act or of any other written law. (2) In determining whether a person would, for the purposes of sub-section(1) be considered to be a fit and proper person, the following matters shall be taken into consideration:— (a) that such person possesses academic or professional qualifications or effective experience in banking, finance, business or administration or of any other relevant discipline; (b) that there is no finding of any regulatory or supervisory authority, professional association, any Commission of Inquiry, tribunal or other body established by law in Sri Lanka or abroad, to the effect that such person has committed or has been connected with the commission of, any act which involves fraud, deceit, dishonesty or any other improper conduct; (c) that such person is not subject to an investigation or inquiry consequent upon being served with notice of a charge involving fraud, deceit, dishonesty or other similar criminal activity, by any regulatory authority, supervisory authority, professional association, Commission of Inquiry, tribunal or other body established by law, in Sri Lanka or abroad; (d) that such person has not been convicted by any Court in Sri Lanka or abroad in respect of a crime committed in connection with financial management or of any offence involving moral turpitude; (e) that such person is not an undischarged insolvent nor has he been declared bankrupt in Sri Lanka or abroad; (f) that such person has not failed, to satisfy any judgement or order of any court whether in Sri Lanka or abroad, or to repay a debt; (g) that such person has not been declared by a court of competent jurisdiction in Sri Lanka or abroad, to be of unsound mind; (h) that such person has not been removed or suspended by an order of a regulatory or supervisory authority from serving as a director, Chief Executive Officer or other officer in any bank or financial institution or corporate body, in Sri Lanka or abroad; (i) that such person has not been a director, Chief Executive Officer or held any other position of authority in any bank or financial institution — i. whose license has been suspended or cancelled;or ii. which has been wound up or is being wound up, or which is being compulsorily liquidated, whether in Sri Lanka or abroad. |