Finance Minister Ravi Karunanayake and Central Bank Governor Dr. Indrajit Coomaraswamy yesterday joined forces to assure investors that bonds issued by the Government remained “sacrosanct” and would be honoured even as they admitted the procedures of gazetting them remained problematic.
Convening a press conference at the Finance Ministry, Karunanayake soothed market concerns pledging legality and issuance procedures of bonds would be resolved speedily by the Government with cooperation from the Central Bank but assured payments would not be hindered.
He also questioned as to why the Committee on Public Enterprises (COPE), which complied a hefty report on bond sales and presented it to Parliament, had not unearthed the procedural problems linked to bond issuance.
Central Bank Governor Dr. Indrajit Coomaraswamy, speaking in his turn, gave an extensive explanation about how the post-gazetting of bonds had evolved in Sri Lanka and said the practice had begun in 1997. Given the present controversy both officials guaranteed that details of the next bond action, scheduled for 15 March, would be publicly announced the next day. He also backed the legality of the bonds, insisting that even though the gazetting may have been irregular, the amounts were as per the Appropriation Bills passed by Parliament and broken down by the Treasury Operations Department of the Finance Ministry.
“All securities issued by the Government of Sri Lanka are absolutely safe, they continue to be risk-free and the Government will honour them. So nobody should have any concerns of the validity of any of the Government securities that are being issued. The Government stands by every cent,” he stated, backing the Finance Minister.
Explaining the gazette notification under scrutiny, Dr. Coomaraswamy recalled that the Registered Stocks and Securities Ordinance under which the Government securities are issued goes back to the 1930s.
“In the 1930s all Government instruments were issued on an administered basis and by that I mean there was no market dimension to the issuing of Government Securities. The Government administratively decided the amount, interest rates and other details, which meant at the beginning of the year it was able to fulfill the requirements of Article 4.1 of the Ordinance, which calls upon the Government to issue a gazette notification prior to the issuing of the bonds. In those days when everything was done administratively and there was no market it was possible to set out in a gazette Government borrowing for the year.”
Then in 1997 the system had a market dimension included, an auction system. Once the operations in the issuing of Government securities had a market dimension it becomes impractical to have advanced notification of how much is going to be accepted, what the interest rates was, because once market forces are introduced into the system there is more uncertainty and variability, noted Dr. Coomaraswamy.
“So the Central Bank at the beginning to the year got a gazette number from the Government printer, then, at the end of the year, after all the bond issuances were completed, that gazette notification was issued. It is what you would call a post-operation.”
“The spirit of provision 4.1 of the ordinance is for the public to be informed of the Government’s borrowing plans. That is why the gazette notification was required to be issued regardless of the operations. Once it became impractical for the Central Bank to issue the gazette notification at the beginning of the year giving details of all the transactions, the Central Bank put out the details of each bond auction in a different way. This was by advertising the details in national newspapers and once the technology became available it also put it on its website. One could argue that the Central Bank was in substantial compliance with the regulations.”
Dr. Coomaraswamy also clarified that former President Rajapaksa did not personally sign the gazette notification as a gazette carries a seal with the signature and acknowledged delays of the gazette had happened in previous years.
“The year in question, that is 2015, the number was taken out on 1 January by the printer for the gazette notification, at that time former President Mahinda Rajapaksa was the Finance Minister so a seal of his signature is in the gazette notification. Then all the transactions were completed but in that year the actual gazette was issued only in November 2016. I don’t know the reason as I was not at the Central Bank at the time. The actual issuing of the gazette notification, which is normally issued in December, was delayed to November the following year. But that has happened in the past. I can’t tell you off the top of my head when but there have been years when this had been delayed. Once the gazette is released the process is completed. “
Responding to questions, Dr. Coomaraswamy vigorously defended the legality of the bonds, contending that since they are based on the Appropriation Bill and approved by the Treasury the transaction remained on the right side of the law. However, acknowledging the situation is “not perfect” the Governor said the Central Bank had already started work on finding a new procedure for bonds but warned it would take time given its complicated nature.
Finance Minister Karunanayake renewed his censure of former President Mahinda Rajapaksa, encouraging him to go before courts so the extent of private placements under his administration could be known to the public. He also slammed officials of the Central Bank whom he insisted were still loyal to the previous regime and also took a dig at the Auditor General.
“The next question I would like to ask is to the high-flying Auditor General, why has he not caught this? He went, he made subjective decisions, he made calculations and all. But his job is to audit. See this is the problem. He only has to look at whether the law has been complied with.”
Finance Minister Karunanayake was emphatic the 2016 Gazette in question did not come to the Finance Minister and was gazetted under the seal of Rajapaksa. The acting head of the Government Printers Department G. Liyanage, testifying before the Presidential Commission on Monday, said the error had been spotted and notified to the Central Bank but they had been told to proceed with the seal of Rajapaksa instead of Karunanayake by the Central Bank official.
Dr. Coomaraswamy defended the official but conceded action would be taken against Central Bank employees if evidence was unearthed by the Presidential Commission.