After months of uncertainty Monetary Board dismisses former Chairman after investigation 

By Charumini de Silva

After a prolonged battle to retain his office, controversial Lankaputhra Development Bank (LDB) former Chairman Lasantha Goonewardena has been removed from his post by the Monetary Board of the Central Bank. 

The Monetary Board made the decision at a meeting held on 3 October and had released a letter notifying stakeholders that they upheld the decision made by the Director Bank Supervision (DBS) of the Central Bank to remove Goonewardena as he was seen to be unfit to hold the position of Chairman at LDB.  

“I wish to bring to your notice that the Monetary Board at its meeting held on 03.10.2016 decided to confirm the refusal made by the DBS as contained in the aforesaid notification dated 24.03.2016,” stated the letter issued by the Monetary Board seen by Daily FT. 

“This has reference to the notification of the Director of Bank Supervision (DBS) addressed to General Manager/CEO of Lankaputhra Development Bank Limited (LDB), dated 24.03.2016 of his refusal of appointment of K .H. Lasantha Goonewardena as Chairman of LDB under the relevant provisions of the Banking Act and the written appeals made by K .H. Lasantha Goonewardena dated 05.06.2016 and 12.09.2016 addressed to the Governor and the Monetary Board, respectively,” the letter said. 

DBS determined on 24 March 2016 that Goonewardena “cannot hold office as Chairman of LDB.” At the time good governance activists accused former Central Bank Governor Arjuna Mahendran of undermining the decision of the Monetary Board. Subsequently, Goonewardena was allowed to appeal the dismissal but after the legal timeframe of two weeks had lapsed. 

On 2 June 2016 the Central Bank had requested Goonewardena to make further submissions on his appeal and it has been noted that he had made an appeal to the banking regulator on 5 June 2016, which is two months after the CBSL order for him to step down was issued.

Following the appointment of new Central Bank Governor Dr. Indrajit Coomraswamy the matter was taken up again by the Monetary Board. The Monetary Board Secretariat, in a letter dated 2 September 2016, directed the Company Secretary to bring it to the immediate notice of the Board of Directors of LDB that as per the Attorney General, in the terms of Section 42 (7) of the Banking Act, Lasantha Goonewardena cannot hold the office of Chairman of LDB from the date he was originally notified. 

The Anti-Corruption Front (AFC), employees and Ceylon Bank Employees Union (CBEU) vehemently opposed the reappointment of Goonawardena insisting that he has continued to violate the Banking Act and the directives of the Central Bank. 

Further justifying why Goonawardena’s appeal should not be considered, they alleged that he has operated two LDB branches in Thambuthegama and Akuressa without the CBSL’s approval, ignoring the regulator’s directive to close down those branches. He also continued to be involved in the administration of LDB, even going so far as to participate in Board of Director meetings, employees charged. 

Stakeholders also contend LDB has continued to pay the salary of Goonawardena from March to August 2016, and also enjoyed all the other benefits from the bank, which they alleged is misappropriation of public funds/assets.

Central Bank sources confirmed to Daily FT that the Monetary Board had reached a decision on the Lankaputhra Development Bank issue and was in the process of notifying all stakeholders.  

Debt reduction priority: CB 

Governor calls on Govt. to use dollars from Hambantota port deal to strengthen reserves and pay down debt 

Putting economics before politics, Central Bank Governor Dr. Indrajit Coomaraswamy called on the Government to channel an estimated $ 1.3b of revenue expected to be generated through the public-private partnerships of the Hambantota and Mattala airport to debt repayment, warning that it was essential to create space to ease debt repayment pressure.

Central Bank Governor Dr. Indrajit Coomaraswamy

Last week Finance Minister Ravi Karunanayake announced that the Government was close to finalising a deal with a State-run Chinese company to hand over the Hambantota port with the agreement slated to be signed before the end of October. 

The significant infusion of foreign currency is expected to strengthen Sri Lanka’s reserves and ease balance of payment pressure. 

“This is an opportunity for the Government, of course the Government may think there are other priorities but I really hope that this money will be used to pay down the debt,” Dr. Coomaraswamy said at the Sri Lanka Economic Association’s Annual Sessions on Friday. 

“I think we are about to get some relief, some space for liability management. Hopefully what the Government might be able to do is gain a little bit of space, because there is no sovereign bond due for repayment this year or next. So what we want to do is try to use this money to do some liability management to push out the tenor of some of the sovereign bonds which are coming due in successive years from 2019 onwards. For five years, except for one year, I think we have to pay at least $ 1 billion in sovereign bonds which are becoming due,” he said. 

The Governor also termed the Hambantota port agreement a “sale” insisting it was positive for Sri Lanka as it was not a debt-equity swap and could significantly reduce debt. Prime Minister Ranil Wickremesinghe last month said that the Government would enter into a partnership with a second Chinese company for the Mattala airport. 

“Our debt is 76% of the GDP. We are a complete outlier when it comes to debt. Debt servicing is almost 100% of the GDP. We are basically borrowing for all our expenditure. That is not a very resilient situation to be in. What that really means is you have no cushion.” 

Dr. Coomaraswamy was also optimistic about Budget 2017 taking the first tentative steps to increasing direct taxes by simplifying the system and drawing more taxpayers into the net. Once public revenue increases the Governor was optimistic his job would become easier as policies could be made more consistent through stronger links between the Central Bank and the Finance Ministry. 

“It is a lot easier to deliver low and stable nominal interest rates and a competitive and stable exchange rate if the fiscal outcomes are not part of the excess demand pumped by debt to the system. Hopefully as fiscal consolidation takes place monetary policy and fiscal policy can deliver those outcomes,” he said, adding that the Government was striving to set stable interest rates in the medium term.