Monetary Board’s latest statement on ‘bond fiascos’: A step backward and waking-up from a demonic dream

Monday, 6 June 2016-Implicit admission of guilt

The Monetary Board of the Central Bank has at last chosen to break its stoic silence over allegations against two main Treasury bond fiascos supposed to have taken place in the Treasury bill and bond market in Sri Lanka over the last 15 months or so by issuing a statement on the policy it recommends for adoption by the public debt management in the future (available at: http://www.cbsl.gov.lk/pics_n_docs/latest_news/press_20160602e.pdf ).

The statement is brief and does not address the issues raised by civil society activists and market participants. Yet, in a world where disclosure and transparency are valued high, even such a small gesture by the Monetary Board, as the statutory authority responsible for raising funds for the Government and for maintaining good governance principles in the market, is welcome. The Board has taken a step backward in its present statement by implicitly admitting that the systems in practice had not been ideal and need improvement.

First bond fiasco: Black mark on good governance government

The first bond fiasco took place in February 2015, less than two months after the new good governance government was voted into power. In that fiasco, it was alleged that inside information relating to the issue of a 30-year bond had been leaked to a primary dealer company owned by the son-in-law of the incumbent Governor enabling that company to make a killing in the Treasury bond market.

The Governor dismissed the charges flatly and the Monetary Board stood firmly by him. But civil society and the Opposition were not convinced of a clean deal as claimed by the Governor and the Monetary Board. They pressurised the Government to conduct an impartial investigation and deal with the culprits promptly.

Civil society had fought hard to bring the new good governance government to power and, therefore, in its eyes, the alleged incident was a black mark with which the less than two-month-old Government had been indelibly stigmatised.

Irrelevant TOR of the lawyers’ committee

Two inquiries were made; one by a committee of lawyers appointed by the Prime Minister and the other by the Parliamentary watchdog, the Committee on Public Enterprises or COPE. This writer’s services were obtained by both committees on an honorary basis to get clarifications on the complexities involved in the issue of Treasury bonds and the operations of the bond markets.

The Lawyers’ Committee (Full report available here: https://www.colombotelegraph.com/wp-content/uploads/2015/05/Bond-Report.pdf) did not have as its terms of reference the mandate to investigate the particular bond issue in question. Instead, it was required to investigate three unrelated issues and report back to the Prime Minister.

The first was to report on the reasons for the Public Debt Department to offer Rs. 1 billion to the public in the bond issue in question. The second was to document the sequence of events and key statistics associated with the said bond issue with respect to each primary dealer. The last was to report on the results of bond auctions and the private placements made from 1 January 2012 to the auction in question.

Read More