By Legal Eye
I was extremely surprised and disappointed by the serious allegations made by the Minister of Finance on 24 January during the debate relating to the purported bond scam, against the Deputy Governor and Secretary to the Monetary Board and a few other officers of the Central Bank. DFT-12-13-9
The Minister alleged that these officers are henchman of former Governor Ajith Nivard Cabraal and went to the extent ofmaking the grave accusation that one such officer issues emails to the persons who are not entitled to receive such emails from the Central Bank.
As children, we were taught the principle that issues inside should not be made public i.e. ‘athulginipitathatanodew’.I am at a lost to understand why the Minister of Finance under cover of the Parliament (Powers and Privileges) Actmakes abusive and derogatory comments without taking any initiative to remedy an unacceptable situation if such a situation really exists within his authority.
In terms of the Gazette Order made under Article 44 of the Constitution of the Democratic Socialist Republic of Sri Lanka and published in the Gazette Extraordinary No. 1897/15 –18 January 2015, relating to the Assignment of powers and functions of Ministries, the Central Bank of Sri Lanka comes under the purview of the Minister of Policy Planning, Economic Affairs, Child, Youth and Cultural Affairs.
Therefore, the Minister of Finance has no authority over the Central Bank. Hence, an erudite Minister of Finance who had genuine and valid concerns about the conduct of Central Bank officers should have intimated to the relevant Authority that is, Minister of Policy Planning, Economic Affairs, Child, Youth and Cultural Affairs (Prime Minister)that he should initiate action through the Monetary Board under the Classification, Control and Appeal rules of the Central Bank to take necessary disciplinary action against any officer of the Central Bank who acts in contravention of the accepted and expected norms of conduct as Central Bank officers.
It appears that the Finance Minister had been misinformed by some interested parties or the Minister himself had been angry with those Central Bank officials for revealing the actual facts relating to the Bond Scam at the COPE hearings in spite of threats and abuses by some members by exposing the real culprits of the bond scam and estimating the actual financial loss to the public a result of this scam.The Central Bank officials concerned are not in a position to challenge the Minster’s accusation in the absence of non-revelation of their names by the Minister.
There are presently three Deputy Governors and all three Deputy Governors would not be motivated to contribute their best to the Central Bank without being aware of these allegations and whether the accusations are directed towards them.
The following matters are set out for the purpose of making known to the general public the background relating to the workings of the Central Bank in relation to some of the allegations made by the Minister of Finance.
Accusation regarding depreciation of rupee
W.A. Wijewardena, the former DG, has already explained the theory as well as the determination of value of rupee in international markets; I will give below the Central Bank’s role in determining the external value of the rupee.
A committee namely Market Operation Committee (MOC) comprising of more than ten senior officials of the CBSL meets at 9 a.m. every day to determine the rupee value for the day.
The Committee carefully considers the following variables before making a recommendation for approval of the Governor on the desired level of the rupee value for the day.
I. Global money market movements, (International demand and supply of foreign exchange)
ii. Domestic foreign exchange movement or forex movement (i.e. domestic demand for foreign exchange required for imports, loan repayment, and other capital outflows, etc. and supply of foreign exchange earnings from exports and loans received, and other capital inflows, etc.)
iii. Domestic money market (domestic credit and interest rates) and
iv. Growth rate in the country
The MOC decides whether to allow the market or the Central Bank to decide the rupee value or to intervene in the market to keep the rupee value within a manageable level. Since the demand for foreign exchange exceeds supply of foreign exchange mostly due to current account deficit (imports minus exports), the value of rupee is vulnerable to depreciation unless the Central Bank intervenes by releasing foreign exchange from its reserves to bridge the gap between the demand and supply of foreign exchange.
Once the committee has agreed on the level of rupee value for the day, it is submitted to the Governor for his approval. Therefore decision with regard to the value of the rupee on any day is a collective decision of the MOC and the Governor of CBSL and not of the three officers.
Therefore, it is clear that if the rupee value is to be stable, current account as well as (exports minus imports), the Balance of payment of the country should improve or the Central Bank should have sufficient reserves to meet the gap between demand and supply of foreign exchange. Therefore given the present supply/demand situation in the forex market it will be difficult to stop the rupee depreciation particularly due to the critical level of foreign reserves.
However it is evident that at present none of these variables is conducive for the rupee to be stable without being depreciated and the Central Bank cannot stop the rupeefrom depreciating in view of the critical level of foreign reserves.) Therefore it is highly unethical for the FM to accuse three officers of MOC of the Central Bank for responsibility of depreciation of rupee in spite of his being awareof the real facts behind the issue.
Having a relationship with former Governor Ajith Nivard Cabraal and giving information to Opposition members
The officers referred to by the MF are well reputed and respectable professional officers with integrity. They have revealed nothing but the truth to the COPE regarding the bond scams even under strong pressure and humiliation from some members of the COPE.
It was no secret that the COPE was able to identify the culprits due to revelations by these brave officers in addition to the report by the Auditor General. Since this information is in the public domain, the Opposition members did not require information from anybody to participate at the debate.
The FM seems to be angry with these senior officers of the Central Bank as their evidence at the COPE meeting did not exonerate the culprits. Even if any information relating to the bond scam had been passed on by any officer of the Central Bank to members of the Parliament to identify those responsible for the scam, they could not be faulted.
If the authorities decide to hold an inquiry in regardto any matter relating to the past bond issues by the Central Bank, the FM can be assured that these officials would come forward to give evidence and that they will not cover up for anybody.
The Central Bank has a well-prepared Manual, akin to the Establishment Code which governs Government servants, and the chapter containing the Classification, Control and Appeal Rules setting out the disciplinary procedure applicable to the Central Bank staff defines an “act of misconduct” as follows:
(ii) ‘Act of misconduct’ includes any act which is detrimental or prejudicial to or is against the interests of the Bank, and or is, in the opinion of the Head of Department or the Relevant Authority under Part C of these Rules (as the case may be), an act not becoming of an employee in the Central Bank service; and includes drunkenness or being under the influence of liquor or in a state of intoxication.
The Relevant Authority in relation to very senior officers of the bank is the Monetary Board and it is the duty of the Minister of Finance, if he is of the view that any Central Bank officer is acting in a manner not becoming or acting against the best interest of the country, to inform or direct, through the Prime Minister (under whose purview the Central Bank falls) to initiate action against such officers without making comments which would bring down the prestige and the image of the Central Bank.
Undesirable comments against Central Bank officers would adversely affect the image of the Central Bank in the eyes of the institution such as the International Monetary Fund and other international lending institutions.
It has to be reiterated that what was and what is expected from Yahapalana Government is not hurling vituperative abuse/disparaging remarks at persons who attempt to do an honest job to the best of their ability in demanding circumstances, but to take corrective action without making excuses for lapses or actions of their own making wittingly or unwittingly.
It is objectionable that the Monetary Board which comprises of five senior professionals has not made any statement to protect the Central Bank and the good name of its officers. Indifference and apathy towards the protection of the Central Bank by the Monetary Board could adversely affect the morale and the productivity.
The citizensare concerned with the profound inability to arrest the systematic erosion of faith in good governance. Hence, it would be salutary if the Ministers who make uncomplimentary comments about senior Central Bank officers as well as the Auditor General which are unjustified, to pause, take stock and correct course.
Incidentally, the Sunday Times of 5 February carried a news item that the Finance Minister has suggested to the Monetary Board the appointment of ‘an outsider’, i.e. a person other than a Central Bank officer as the new Deputy Governor. The Minister of Finance gets the authority to give concurrence to the appointment of a Deputy Governor of the Central Bank, despite the fact that the Central bank falls under the purview of the Prime Minister, because of Section 22 of the Monetary law Act quoted below for easy reference.
22. Appointment of Deputy Governor
The Monetary Board shall, with the concurrence of the Minister in charge of the subject of Finance appoint one or more Deputy Governors who shall perform such duties and exercise such powers as may be assigned to them by the board.
If the President is advised that a Gazette Order has to be made under the Assignment of Ministers’ Functions (Consequential Provisions) Act No. 29 of 1953 to the effect that wherever the words ‘Minister of Finance’ appears in the Monetary law Act such phrase be replaced with the words‘the Minister to whom the Central Bank of Sri Lanka is assigned under the Assignment of powers and functions under Article 44 of the Constitution’ the inconsistency or the conflict that is presently applicable in relation to the affairs of the Central Bank could be obviated.
Due consideration has to be given to this matter early to arrest further deteriorations of the morale of the Central Bank officers to discharge of their functions and duties.