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Treasury Bond issue : Mahendran questioned on alleged Central Bank losses in 2015

The Treasury Bond Commission yesterday questioned former Central Bank Governor Arjun Mahendran on alleged losses incurred by the Central Bank, when he took office as the Governor in 2015.

At the outset, the Commissioner, Supreme Court Judge P.S.Jayawardena said it is important for the Commission to have an understanding of these losses since the Central Bank cannot incur losses of any sort.

“I find it extraordinary for a Central Bank to incur losses,” Justice Jayawardena said.

At a previous proceeding, it was mentioned that a Central Bank cannot incur losses as it has the option to print money.

Justifying his decision to transfer several officers of the Central Bank to different departments, Mahendran said, the Central Bank was at a “mess” when he took office.

He pointed out that there were crisis regarding 15 finance companies with relation to the Central Bank, including the ‘Golden Key’ issue.

He also pointed out that there was a shortage in coins in the country at the time as well.

According to former Governor Mahendran, the Central Bank had made some imprudent investments in managing foreign reserves which eventually resulted in losses.

“Of course there was the Greek Bond issue. But, the bigger issue was Gold. I couldn’t get to the bottom of this. But allegedly, there had been huge window dressing exercises where the CBSL hadsold from its Gold Reserves in the end of December and repurchased it in January at a much higher price, so that they could show profit for the preceding year,” Mahendran said.

“The cost of gold that the CBSL held was 1600 dollars an ounce. However, the market price had fallen to 1100 dollars an ounce. We were already sitting on a 500 dollar loss on each ounce. That was a big loss to the Central Bank. The gold prices started to fall somewhere at the end of 2013. Through that period, we had recorded massive losses in the foreign exchange devaluation account.” Mahendran explained.

“Then the second loss is that the Central Bank took a big position on Australian dollar, Mahendran further explained. The Australian dollar then collapsed all the way to seventy five US cents causing much looses to the Central Bank,” he said.

“The third one was the biggest issue. In 2013, three Sri Lanka banks, the NSB, DFCC and BOC went to the international market and issued dollar bonds to the extent of 1.35 billion dollars.In the budget of that year, the President at that time, made a statement that the CBSL would guarantee the foreign exchange losses at that time to these banks who issued these dollar bonds in case the rupee depreciated during the period of those bonds. The CBSL gave a zero cost option to buy back the foreign exchange to repay the bonds at the cost of the Central Bank.” Mahendran further said.

According to Mahendran, these three major reasons including others caused the Central Bank to incur losses in the years 2012 and 2013.

Mahendran then explained that it was his decision to place qualified people in the departments who were able to handle these issues. To remedy the issues earlier pointed out, Mahendran said he as the Governor at that time, took decisions to sold the Australian dollars.

He pointed out that Sri Lanka is still stuck with the said gold. “However, by 2016 we gained Rs.22 billion profit,” Mahendran pointed out.

Senior Additional Solicitor General Dappula de Livera extensively questioned Mahendran on 14 transfers he had done when he was the Governor. De Livera asked Mahendran if he remembered several CBSL officers including Trade Union representatives, came to the Bank House (the official residence of a CBSL Governor) to express their distaste regarding some transfers.

Mahendran in reply said he would like to know when these meetings were held. De Lievra said the participants of the meetings do not remember the exact dates when they discussed with Mahendran. Mahendran said according to his recollection, these discussions were held at a later stage regarding several other matters.

De Livera went on to say that Mahendran was not telling the truth and it is very easy to say when he is lying. Mahendran’s Legal Counsel Chanaka de Silva pointed out to the Commission that it was a “cheap question.”

De Livera questioned on several transfers done by Mahendran including former Superintendent of Public Debt Deepa Seneviratne, CBSL officer Saman Kumara, former SPD of the PDD Dhammika Nanayakkara, Dr.Z.Azim, then DG P.Samarasiri Naveen Anuradha and few other persons.

SASG De Livera suggested that Mahendran purposefully transferred these persons to different departments in order to support his son-in-law in the February 27,2015 auction.

SASG De Livera, speaking on former SPD Deepa Seneviratne asked Mahendran whether he “wanted to place a green horn in the Public Debt. Department?.”

Mahendran refuted the suggestion that former SPD Seneviratne was inexperienced and added, that Seneviratne “was managing the EPF which holds the largest bond portfolio of the country when she was the EPF head prior to the transfer.”

SASG De Lievra then asked if Mahendran “wanted to weaken the Public Debt Department” by assigning its work to Seneviratne to which Mahendran replied that “She had tremendous experience in the Bond market, and would be tarnishing her image if one call her inexperienced.”

SASG de Livera suggested that most of the transferred persons lacked expertise in the new areas they were assigned ito and Mahendran vehemently refuted the allegation that the said Central Bankers were inexperienced persons.

He also expressed his dissatisfaction on De Livera repeatedly suggesting that the said officers were inexperienced and observed that it was a “travesty” and “a shame.”

At this juncture, Legal Counsel Chanaka de Silva rose to comment that “According to this line of questioning, it seems that 50% of the Central Bank higher officials are incompetent!”

De Livera then asked Mahendran as to why, if he valued the services of experienced officers, did he transferred former SPD Dhammika Nanayakkara. “Well Mr. Nanayakkara was a good officer. A good Central Banker. But, it was apparent that he spent very long time periods abroad. And then he was running some media campaigns for the previous government. These campaigns were Central Bank funded. Then, he argued much against the public auction system. So I thought such a person is not suitable for the job.” Mahendran explained.

Mahendran also said he was not involved in transferring Saman Kumara to EPF or Naveen Anuradha to the NSB. Evidence was led before the Commission suggesting above mentioned persons gave inside information to Arjun Aloysius, who was the owner of the Perpetual Treasuries Limited. Mahendran said the Human Resources Department transferred Saman Kumara to the EPF where as Naveen Anuradha was sent to the NSB as recommended by Deputy Governor Dr. Nandalaal Weerasinghe.

The Commission will today examine Chairmen of Bank of Ceylon, National Savings Bank and the General Manager of the People’s Bank. Mahendran will again testify on Friday.