The current dispute over the use of the Employees Provident Fund (EPF) and Employees Trust Fund (ETF) to invest in the Colombo stock market would never have been taken place if a proposal on EPF investments was approved in the mid-1980s.
According to retired Treasury officials, when Ronnie de Mel was Finance Minister and Dr. W.M. Tillekeratne, Treasury Secretary, there was a proposal by the Treasury to allocate 5 % of the EPF funds into stocks to get better returns for its members and infuse liquidity in a then, nascent stock market
Two safeguards were proposed under the plan, to avoid conflict of interests as the Central Bank was managing the fund and also regulating some of the institutions that were in the market. It was decided to establish an independent investing capacity fund mechanism and create a set of managers independent of the Central Bank, to manage this mechanism.
“Because the EPF would have enormous firepower in the market, it was also decided that the fund would be a passive investor and not seek any board positions, as it was felt that this could erode investor confidence, if the fund was seen controlling these institutions,” one former official recalled.
However the proposal fell through as the Treasury decided that all resources (including that of the EPF) were needed as a captive source to manage the budget deficit.
If this became a reality, there won’t be any issue of the use of EPF funds as decisions would have been independent of the Central Bank, he said.
Criticism being leveled at the Central Bank is that through the EPF, it is controlling some of the commercials banks and influencing appointments on boards – seen recently in Commercial Bank, Sampath Bank and HNB.
Meanwhile K.G. Dheerasinghe, who retired as Deputy Governor of the Central Bank on December 15, has been appointed a non-executive director of the Commercial Bank and is tipped to take over as chairman from Mr Amarasuriya.
EPF guidelines changed:Former CB official
During a discussion on the global financial crisis at this week’s monthly meeting of the Sunday Times Business Club in Colombo, parliamentarian and economist Dr Harsha de Silva raised the issue of the Employees Provident Fund (EPF) – controlled by the Central Bank (CB) – investing in banks and financial institutions regulated by the CB. “There is a major conflict of interest,” he said. In response retired CB Deputy Governor K.G. Dheerasinghe said the guidelines have been changed (in an internal circular) with the EPF now authorised to invest in other securities. “Furthermore the banks consist a major component of the stock market and to give a better return to its members, the EPF needs to invest here,” he said.
Dr de Silva, quickly grabbing the microphone from the moderator, then said: “If the guidelines have been changed, please make it public. The public has a right to know.”
Earlier in parliament (on the same day), Dr de Silva said by law the EPF cannot invest in banks and financial institutions. He said Mr Dheerasinghe was said to be appointed as the chairman of a private bank when his wife,was until recently a director of the EPF department. “That is a conflict of interests.” |
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