Prime Minister Ranil Wickremesinghe made history yesterday by testifying before the Bond Commission where he exposed the secret accounting practices of the former regime which had mislead even the International Monetary Fund.
The Presidential Commission of Inquiry to Investigate and Inquire into the Issuance of Treasury Bonds made it clear at the outset of its packed final hearing that Prime Minister Wickremesinghe had not been compelled to appear before it.
The Commission’s Chairman, Supreme Court Justice K.T.Chitrasiri, noted that the Prime Minister had “readily agreed” and “therefore the question of a need to compel the Honourable Prime Minister to appear before us did not arise.”
Justice Chitrasiri started off the day’s proceedings by asking the Prime Minister about the new government’s financial requirements just before the contentious Bond auction was held on February 27, 2015, less than two months after coming to power. The February 2015 auction raised 10.5 billion rupees.
The Chairman sought clarifications on the Treasury’s projection of 13.5 billion rupees required by March 2, 2015 and an additional requirement of 15 billion rupees determined at a meeting held a few days before the auction.
The Prime Minister said these were two separate requirements and disclosed to the commission that the previous administration had left out large amounts payable to contractors outside the budget. He said that the previous regime had not made provision to pay some of the contractors it had hired. Claim by such companies continue to come in.
 Prime Minister Ranil Wickremesinghe is seen leaving the Commission yesterday. Picture by Rukmal Gamage |
The Prime Minister cited the example of a Singapore company that had made a claim last week for work they had done in 2013 - 2014. The debt was not included in the appropriation bill and authorities were unaware of it till the foreign company asked for its money last week.
“What had happened in the previous years was that there had been many projects approved which were not shown in the Appropriation Bill, simply because of the IMF limitations. So you got around these IMF limits by not including them in the books.
“We actually had two streams of payments to make. One is what is in the Appropriation Bill and one is outside that,” he said.
He said for 2015 alone, about 75 to 100 billion rupees had to be paid in respect of highways alone. “In fact last week, I received a letter from a Singaporean company which had to be paid for doing a part of the Northern Expressway in 2013/2014.
“No one knew about this until we got this letter last week, “ he said, adding that the payments not included in the budget had been parked in the balance sheets of banks and should there be defaults, the banks would be in trouble.”
He said the government still had a liability of 500 to 600 million dollars to meet, thanks to the creative accounting of the former regime. “We are just going through a forensic examination on this issue at present,” he said.
Attorney General Jayantha Jayasuriya asked the Prime Minister about Joint Opposition member Mahindananda Aluthgamage’s allegations in Parliament against the then finance minister Ravi Karunanayake.
The Prime Minister said he raised the matter with Karunanayake who had dismissed the allegations. He raised laughs from the packed commission room when he shot back at the Attorney-General reminding him that an investigation against MP Aluthgamage had been completed and the file sent to the AG’s department to decide whether to prosecute or not, but there had been no response yet.
Yesterday’s evidence on the final day of the commission, which is expected to prepare its report by December 8, was led by Attorney-General Jayasuriya and the three-member Commission.
Almost all Senior Ministers were present yesterday.
The Commission sought clarifications from the Prime Minister based on the answers provided by him in the two affidavits in response to questions put forward by the commissioners.
Chairman Chitrasiri asked the Prime Minister if he was aware that Arjun Aloysius was a director and shareholder of Perpetual Treasuries Limited (PTL) in 2014 and up to sometime in January 2015 and that Aloysius resigned from the office of Director in January 2015. He was also asked if he knew that the holding companies of PTL were Perpetual Capital Holding Limited and Perpetual Capital Private Limited.
Prime Minister Wickremesinghe (PM): “No your honour. I was not aware of the shareholding structure except that we knew Arjun Aloysius had shares in it.”
Justice Chitrasiri (JC): “Were you aware that Mr. Aloysius continued to be a director and a shareholder of these two holding companies even after 2015?”
PM: “No, I am not aware. Mr. Aloysius did say he needed sometime to dispose of his shares at a good price.”
Justice Prasanna Jayawardena (JJ): “In your answers you have said that Mr.Aloysius told you that he will dispose of his shares. Were you referring to Perpetual Treasuries Limited? “
PM: “His shares with PTL. But whether he held them himself or through another entity I do not know. “
JC: “Question No: 10 inquired whether you instructed Mr. Mahendran on 24 February 2015 to immediately stop the practice of the Central Bank of accepting private placements of treasury bonds. Then, in reply you have said that you were aware that the practice of the Central Bank was to issue the majority of treasury bonds by way of private placements and that you were of the view that the system was unsatisfactory because it lacked transparency… market forces should ideally determine interest rates and exchange rates. You have gone on to state that these are the reasons you advocated public auctions. Then you have stated that you directed Mr. Mahendran to consider issuing Treasury Bonds by way of public auctions in accordance with the economic policy of the government and that you expected that he would comply with the due procedure. Further you have stated that in the circumstances it was expected that Mr. Mahendran would take appropriate steps in accordance with due procedure to give effect to the objectives of the government as expeditiously as possible. Were you aware that the Monetary Law Act clearly specifies that it is the Monetary Board which is vested with the sole authority to determine policies and measures of the CBSL taken under the Monetary Law Act and that it is the Monetary Board which is the sole authority vested with the powers, duties and functions of the CBSL under the Monetary Law Act? “
PM: “I am aware of it. But we have also gone on the basis that in the constitution, the government, the cabinet of ministers can determine policies which apply to all institutions under the government and the right of the secretary to give instructions on general policies. So that applied to all and the decisions on transparency had to be implemented by all. Most of these decisions went with the constitution that the control of public funds should be with the Parliament which was a big issue because the Central Bank and Treasury were acting without answering to Parliament and. therefore. all these bodies had to become answerable to Parliament and the Auditor General’s powers had to be strengthened.”
JJ: “Certainly the policies are to be decided by the government. But once you give an order, the direction to remove a particular auction method in this case, would you expect the execution of such an order to be made out in due procedure followed by that institution? “
PM: Yes, you have to consult. But the second official member of the Monetary Board, the Secretary to the Treasury, was aware of it. How they proceed inside the Monetary Board, I am not aware. But certainly, of the three MB members, two were aware of this matter. They were attending our meetings with us and discussing. What happened beyond that I am not aware of.”
JJ: “Did you expect whatever the normal procedure followed by the Central Bank when making major policy changes to be followed?”
PM: “I would expect. I was in the 1977 Cabinet where we decided to liberalize. And then, the Treasury, the Central Bank, every one fell in line. So those were major decisions on which we had already made a commitment that there will be further macro-economic changes.
JC: “Were you aware that the Monetary Law Act clearly specifies that the function of the Governor of the Central Bank is primarily to execute the policies and measures determined by the MB and when performing other duties when MB may confer upon him?”
PM: “Yes, I am aware of it and we wanted that to be restored, because in the previous era the Governor only informed the MB only what happens (after the event). So we were committed to ensure that there should be a way in which the MB should act subject to overall government policies. We were not going to interfere with exchange rates and all that, which are separate matters to be done according to policies.”
JC: “Were you aware as at February 2015 the policy of the MB had been to issue the overwhelming majority of the treasury bonds by way of private placements?”
PM: “Yes, I was aware. When we were in Parliament, we were informed of it that this was the practice. We were also informed that there was no specific authority of these private placements. In 2008, there were some captive funds (making) private placements. I did ask Mr. Mahendran for all copies of private placements and they were produced up to 2008. Subsequently, Governor Coomaraswamy also provided only up to 2008. There was a grey area as to how those proceeded. Virtually billions of rupees had been taken without authority, which was the core of the problem.”
JC: “Were you aware that the established practice followed by the MB over a long period of time is that when major decisions are to be taken with regards to policies and measures which can affect the monetary, financial and payment systems of Sri Lanka and or economic and price stability, financial system stability, the Monetary Board will first direct the departments of the Central Bank which deal with the relevant areas, study the issue and submit a detailed board paper and then the MB will consider the paper, discuss the relevant issues. And only thereafter a decision is taken on such policy changes?”
PM: “This was the procedure they have followed earlier.”
JC: “In those circumstances, when you directed Mr. Mahendran to consider issuing treasury bonds by way of public auctions, in accordance with the economic policy of the government and you expected that he would comply with due procedure and take appropriate steps, did you expect him to first advise the MB of your direction and discuss it at the MB and proceed with regards to that?”
PM: “Well, I advised him about it. I thought he will follow whatever the procedure which was followed at that time. But there was also an issue. If we were going for private placements again we would have had to pass a resolution getting specific authority. There was a big vacuum which had to be filled one way or the other. But some procedure had to be followed.”
JC: “If so, did you expect Mr. Mahendran to discuss the issue at the MB on how to proceed with a possible shift from overwhelming dependence on private placements to a public auction system for the issuance of treasury bonds?”
PM: “No I did not give such directions.”
JC: “Of the money which was needed for February 2015 for payments to contractors on account of road development and other projects which may not have been previously accounted for by the previous Minister of Finance in 2014, would you agree that the requirement of 13.5 billion rupees on 02 March 2015 which had been computed by the Treasury Operations Department was not connected with the additional requirement of 15 billion rupees which was urgently required as determined at the meetings on 24 and 26 February 2015, as mentioned in your answers?”
PM: “They were two separate requirements. Generally, all expenditures are noted in the Budget. What had happened in the previous years was that there had been many projects approved which were not shown in the Appropriation Bill, simply because of the IMF limitations. So you got around by these IMF limits by not including them in the books. They have paid off when necessary. We had actually two streams of payments to make. One is what is in the Appropriation Bill and one is outside that. And for highways, only for that year including land compensations, there was about 75-100 billion rupees to be paid off. In fact, last week, I received a letter from a Singaporean company which had to be paid for doing a part of the Northern Expressway in 2013/2014. No one knew about this until we got this letter last week. Even now we have various claims coming in, and in the case of Sri Lanka these payments are not in the books but the liabilities are on the banks and if this goes bad we will still have to fund the banks to about five to six hundred million US dollars. We are just going through a forensic examination on this issue at present.
Telephone calls
Justice Chitrasiri sought clarifications from the Prime Minister about telephone calls from Mahendran, which transpired as evidence in the previous week’s proceedings.
The Prime Minister pointed out that he could be contacted through the telephone number recorded in evidence, but he was not able to answer all the calls. Justice Chitrasiri asked if the Premier could recall the content of the four calls which had transpired in evidence.
“I can remember… He did tell me not to worry and that there is enough money raised. Then in the afternoon he gave me a call to give me details as to what had happened at the auction and that they had taken 10.5 billion rupees at the auction. However, I cannot remember all the four conversations,” Wickremesinghe said.
Auction vs Placement
Attorney-General Jayasuriya sought clarifications on the auction system.
RW: “First we went over to the public auction system. We still did not know what the extent of the debt was or what we had to pay. We had long-term and short-term debts which had to be funded. If we did not fund them, we would have become an indebted country like Greece. Subsequently, Governor Coomaraswamy took over. We had a big discussion from the beginning, and then we got down a specialist from the US Treasury. The specialist finally gave us this system.”
The Prime Minister submitted three documents on liability management, low inflation and also the IMF agreements on macro-economic liberalization integrated in the local economic policies.
AG: “Are you aware that in 2015 when a similar change took place, a similar procedure was followed?”
PM: “We could not conduct any exercise in the Treasury or in the Central Bank because the figures were not there. It took us the whole of 2015 and a part of 2016 to dig up all these figures. And then this was done as a result of what we did from 2015. It was not possible to have done it in 2015.”
The Attorney General then questioned the Prime Minister on the issue of conflict of interest between former governor Mahendran and his son-in-law Arjun Aloysius.
AG: “Following the uproar on 27 February 2015 auction, the continuation of this conflict of interest between former Governor Mahendran and his son-in-law was raised. In that context, did you have any opportunity to verify whether assurances given to you by Mr. Mahendran have been kept?”
PM: “Well, this happened at the end of February. I did speak to him earlier in January and they told me he is resigning from the PTL director post, which he did. I was also told that he (Aloysius) was going to develop his Mendis Distillery Company. In fact he (Aloysius) showed me two of his products at a party (laughter). Other than that I had no idea about his affairs. Earlier, the former governor (Cabraal’s) sister was in the director board of Perpetual Treasuries -- which we pointed out -- and asked Aloysius to resign. Then I appointed the Gamini Pitipana Committee. If anything was found by the Pitipana Committee against him, he had to resign. But they found nothing against him. There were various issues that came up. With regards to an issue raised by Mr. Mahindananda Aluthgamage it was about the Minister of Finance. I did ask the minister and he said no such issue is there. However there was an inquiry going on with regards to Aluthgamage, and I believe the file has come to your department to decide whether to prosecute or not to prosecute. (loud laughter)”
AG: “So there was no specific information that Mr. Mahendran did keep his word?”
PM: “I had no information that Mr. Mahendran had deliberately misled me. The Pitipana Committee also did not have any information to that effect. And I do not think even the COPE had any findings in that matter. After the Pitipana Committee, the matter was handed over to parliament. The first COPE committee brought Arjun Aloysius down and examined him. The second COPE committee brought Mr. Mahendran and questioned him extensively. So once the matter reached Parliament, I did not interfere. I also wanted it to be done by parliament because the parliament has the power over public finances and for it to establish the principles; the parliament has to be in control. We established the Parliamentary Finance Committee with the Chairman and now we are passing legislation to give it a budget office, so that they will be in complete control. There will be a provision for them to take information from the Central Bank so what happened earlier will not take place in the future.”
The Attorney-General asked the Prime Minister what action he had taken to ensure the integrity of the Treasury Bond issuance following the Pitipana report?
PM: ”As I told you earlier, Mr. Mahendran’s continuation depended on the findings of the Pitipana Committee. I asked them if it is necessary to ask Mahendran to resign, they said no. But they asked to go into the relationship between the PTL and the Bank of Ceylon. Presently, we are in the process of drafting a new monetary law. I have asked the Central Bank for its input. Once we receive that, we will have foreign consultants’ opinions into consideration as well. I could not run a parallel inquiry while the COPE was sitting. They would have accused me of bad faith.”
When asked by the AG, the Prime Minister said he was not aware of a policy decision imposed upon state banks to coordinate and bid lower at bond auctions in March 2016. “There was no policy decision. It was only said not to go for speculative bids. Only speculative bidding was discouraged.” The Premier said.
He also outlined the crisis situation with regard to debt management and other financial demands that the new government had to deal with when it took office in January 2015.