In defence of Arjuna Mahendran

• ‘No one should abandon duties because he sees defects in them. Every action, every activity, is surrounded by defects as a fire is surrounded by smoke’ – The Bhagavad Gita

The Gita was meant for the saintly and not the demonic. The 100 days Government has both the saintly and the demonic. This is written in the hope that the President of the Republic would heed the advice of Krishna and resolve the riddle of the two Arjunas. The furious bond issue is not about good governance or bad governance. It is about ugly governance. Money markets need laws, rules and regulations. The integrity, competence and judgment of the Monetary Authority is what is at stake today. The likes of Harsha, Eran and Sujeeva exuberant in Opposition seem to be exculpatory experts in Government. They seem to have forgotten the lessons of Singapore that they quoted with such enthusiastic élan when in Opposition. The allegation is that the primary dealer connected to the son-in-law of the Governor has put in a bid for Rs. 5 billion directly and through the Bank of Ceylon. It is alleged that it was based on information that was not available to others. The Bank of Ceylon is now headed by Ronald Perera P.C. and high profile member of the UNP Working Committee. Obviously the impugned insider information would have been available to the Bank of Ceylon as well. Lee Kwan Yew in his memoirs describes how he set up the capital market in Singapore and dismissed critics who complained of overregulation. ‘In Hong Kong what is not expressly forbidden is permitted; in Singapore what is not expressly not permitted is forbidden’. Ronald Perera being the astute lawyer would not have permitted his Bank to participate in an exercise prohibited under the law. Lee Kwan Yew himself to his chagrin found that the law and morality are in two separate containers when British Courts refused to allow the extradition of the Asset Striper Jim Slater on the famous Haw Par scandal. To take up the assignment, Arjuna Mahendran gave up a lucrative career in international banking and his Singapore citizenship. When he sought more time, he was persuaded to take over immediately and his nationality issue was resolved by fast-tracking the process. Had he waited till April to take over, the bond fiasco would have been under the watch of someone else or there would have been no fiasco at all. Even if he was not the Governor of the Central Bank, the Bank of Ceylon would have been associated with the transaction that is now under the spot light.   Rocket science of bond trading The rocket science of bond trading is explained by a central banker in a paper presented in 2008. The Additional Superintendent of Public Debt Department Central Bank of Sri Lanka C.P.J. Siriwardene explains the growth of the bond market: “Treasury bonds are traded through competitive auctions conducted by the Central Bank on a regular basis. Primary dealers who have been involved in the government debt market since 1992 have direct access to the primary auctions. According to the present regulatory framework, primary dealers should subscribe the entire sale and single primary dealer minimum investment level is set at 10% of the volume of sale to avoid any possibility of under subscription. The present auction system is on multiple price basis. Since 2000, all auctions are conducted electronically using an on - line system. Before each auction, the debt authority accesses the potential investors via primary dealers to make sure the availability of funds for the full subscriptions. Private placements of Treasury bonds also take place as a contingency to accommodate unexpected borrowings to avoid market shocks by offering large volumes to the auctions and cancellation of planned bond auctions. Successful bidders are informed on the same day of the auction and the settlement is two days after the auction (T+2 system). Since the establishment of the primary dealer system, the Central Bank continued its role as a debt manager to develop the primary dealer system. They include streamlining of dealers (removing non active dealers, appointing new dealers, etc.), introducing necessary regulatory framework for dealers and building up close relationship between primary dealers and the Central Bank.”   The committee of three lawyers The Deputy Minister of Planning Dr. Harsha De Silva has announced that a committee of three lawyers will examine all issues and trace irregularities up to 2012. The three names according to another news report have been determined by Daya Pelpola, another legal eagle in the UNP Working Committee. Dr. Harsha de Silva’s erudite posturing sounds hollow. The dispatch of three mediocre lawyers on a voyage of discovery tracing misdeeds up to 2012 amounts to not just fishing for red herrings but of bottom trawling for herrings of colours except green! On learning of the appointment of a gentleman by the name of Gamini Pitipana as the chairman of the probe committee this writer was curious. These days Google does much more than Dunn & Bradstreet. So the name was Googled. What appeared was mind-boggling. Royal College Class of ’72. Attorney-at-Law. Apollo Foods Ltd. In the absence of any further information from the usually expansive Dr. Harsha, what should we make of the meagre information? That Pitipana is learned in the law and can cook? Is that what is expected of an old Royalist buddy? Cook a report? It would be grossly unfair to accuse Governor Mahendran of withholding any information pertaining to his son-in-law. The world knew about it. Ranil Wickremesinghe exercising his omni-competence decided that it would be Arjuna Senior and no other. On 26 January this writer in the columns of the Daily FT said: ‘It is difficult to comprehend the urgency in appointing a Governor of the Central Bank for a term that extends beyond 100 days when the more transparent option would have been to appoint the most senior Deputy Governor for a short-term pending the implementation of good governance parameters which would include the selection of the Governor of the Central Bank.” Sri Lanka is a small country. The incestuous world of the money market knew about the two Arjunas. Ranil Wickremesinghe decided to play Sri Krishna and persuaded the elder Arjuna to battle in the harsh world of greed. Arjun Mahendran is only a man. Power is not of a man. Wright Mills, the author of ‘Sociological Imagination,’ the seminal study of 20th century society, identifies five problems we face today in a free market economy; alienation, moral insensibility, threat to the spirit of democracy, disregard to human freedom and most significantly the conflict between bureaucratic rationality and human reason.   The world of bond trading Let us get back to the world of bond trading. A basis point is a hundredth of a percentage point. To make it simpler, if a yield moves from 5.5% to 5%, it has moved 50 basis points. Obviously Prime Minister Ranil Wickremesinghe thinks that the average quantum of grey matter which serves to process information in the brain of the average ‘Gamarala’ in Sri Lanka is far less than one basis point! But ‘Gamaralas’ are beginning to run out of patience. Moving from bad governance to good governance the ‘Gamaralas’ are now experiencing a spell of ugly governance. Indeed very ugly governance at that. The problems such the one that is discussed are commonplace. It happens in all free market economies. “Wealth does not centre in the person of the wealthy. Celebrity is not inherent in any personality. To be celebrated, to be wealthy, and to have power requires access to major institutions.” What is nauseating with the governance style of the Prime Minister is his Lichchavi system of governance by a select brand of Brahmins. He reminds this writer of the commandant of Auschwitz who insisted, “I never got complaints!” (Sarath De Alwis is a former journalist and a retired professional in leisure and aviation industries.)