World Bank Distances Itself From Arjuna Mahendran’s Bond Scam

January 29, 2017

The World Bank has officially distanced itself from the controversial Central Bank bond scam committed by ex-Governor Arjuna Mahendran citing that they are not aware of the international best practices to accurately calculate the potential loss in the case of the past bond auction.

In a letter addressed to M. S. B Ekanayake, Secretary to Prime Minister Ranil Wickremesinghe on December 7, 2016, the World Bank Country Director to Sri Lanka Idah Pswarayi-Riddihough referring to the letter sent by Ekanayake dated November 18, 2016 said, “Regarding your request for comments in the above mentioned letter, we are not aware of international best practices to accurately calculate the potential loss in the case of the past bond auction. Accurately quantifying the loss would require knowledge of the actual cost of the bond placement under non-competitive allocations (a necessary counterfactual). In our view that counterfactual cannot be accurately calculated on an ex post basis as it depends on the marker conditions on the auction date.”

Despite the World Bank officially distancing itself from the controversial treasury bond scam which reportedly resulted in the country losing Rs. 1.6 billion, several State-owned publications including the Sunday Leader newspaper which is now run by Finance Minister Ravi Karunanayake and Arjuna Mahendran’s Son-in-law Arjun Aloysius wrongfully reported the story saying that the World Bank had claimed the government had not suffered any losses as a result of the bond issue. “The World Bank was of the opinion that the government has not suffered any losses as a result of the bond issue. Wickremesinghe had submitted to the World Bank all details pertaining to Treasury bond transactions in Sri Lanka. The World Bank had praised the government on the actions taken to control debt and its tax reforms proposals,” the Sunday Leader story published today (January 29, 2017) said.

The two page letter by the World Bank country director also said that with the GOSL’s efforts and collaborative support from the World Bank, the IMF, will no doubt held enhance transparency and competition in the government and corporate bond markers, improve public debt management and bring Sri Lanka in line with international good practice.

Meanwhile, an economic expert said that the World Bank artfully got away from being a supporter of the scandalous bond transaction; under the conditions which it has laid down in the last sentence of paragraph 2 of the letter which says, one can easily calculate the potential loss; on the day of the first bond transaction, the market price of 30 year bonds was available which is a non-competitive bond price and except Perpetual Treasuries, all other dealers including NSB bid at that price.

“Even the Bank of Ceylon (BOC) bid at that price (that is, Rs 120 per Rs 100 bond) when it had submitted bids for Janashakthi Insurance (Rs 500 million) and Kalutara Bodhi Society (Rs 8 million). But the very same BOC after 10.57 am had bid at Rs 90 per Rs 100 bond on behalf of PTL in three bids: one Rs 3 billion, and the other two Rs 5 billion each. Harsha de Silva read this letter in Parliament and the government has shamelessly prostituted World Bank into this issue. If the government is interested, it can ask itself why it sold a bond that could have been sold at Rs 120 per Rs 100 bond for Rs 90 and incurred an opportunity loss of Rs 1500 million (that is: [(5000)/100]30 )in a single transaction. It is not World Bank at error but the government which has used an explanatory letter from World Bank for its own petty political gains,” he said.

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