Remove EPF from Central Bank control: UNP

Saturday, 21 December 2013 00:00 -     - {{hitsCtrl.values.hits}}

  •  EPF has registered Rs. 8.9 billion loss from bad investments by CBSL says UNP
  • Harsha cites major conflicts of interest with CBSL being both administrator and lender from the fund
  • Claims Central Bank is violating investment policy for EPF on stock market
Opposition Parlia-mentarian Dr. Harsha de Silva has proposed the Government establish the Employees Provident Fund (EPF) as a detached institution from the Central Bank of Sri Lanka (CBSL) to eliminate the conflicts of interest and to make prudent investment decisions. “The CBSL has been borrowing EPF money at uncompetitive rates. The fund has also made losses by investing in the stock market. Specifically by investing in Browns PLC, Ceylon Grain Elevators PLC, Galadari Hotel, Laugfs Holdings, and LOLC incurred a loss of Rs. 8,902 million during the past 14 months,” Dr. de Silva told Parliament recently. Digging into the history of the EPF Dr. de Silva said: “It is true that MP T.B. Ilangaratne started the EPF in 1958. But the first person to suggest starting an EPF was the UNP member for Thalawakele H.E.P. de Mel in 1953. He wanted to protect the workers in their old age. He suggested giving 2.5% in return as the benefit. Today the fund stands at Rs. 1.25 trillion,” the UNP MP explained. De Silva said the Government had still failed to present accounts for 2011. “This money belongs to the 2.5 million workers in the private sector. We have been following up and exposing the flaws in this fund. The Commissioner of Labour administers this fund and the Superintendent of the EPF Department along with the Monetary Board is given the trust of this fund. These are the two parties responsible for the EPF fund. Ever since there was a conflict of interest in this,” he said. According to De Silva on the one hand the Department of Public Debt of the Central Bank of Sri Lanka wants obtain the loans for the Government and each week the Government borrows money presenting Treasury Bills under the management of the Public Debt Department. “On the other hand the Central Bank has the EPF Department, which loans money on most occasions to the Department of Public Debt. Generally, the borrower always looks at borrowing for low rates and the lender looks at lending at high rates. When the borrower and the lender is the same, justice is not served by the EPF,” De Silva explained. He said this was why there was a major conflict of interest in the Central Bank continuing to administer the fund. “As a result of this 90% of the EPF money is invested in Treasury Bonds and Bills,” he said. The UNP MP explained that during the early stages there was no issue between the borrowing and the lending. “But over 55 years ago in the absence of a suitable organisation to manage this fund, the CBSL was given the task. It was the single institution with the knowledge and ability. But things have changed and there are now many alternatives,” he said. De Silva said the Employees Trust Fund (ETF) for instance was not administered by the Central Bank but an independent organisation. “The only way to correct the conflict of interest is to establish the EPF as a separate body but with 100% ownership kept with the Government. The proposed institution can be administered by the Minister of Finance or Minister of Labour. But maximum returns due for EPF funds are not reachable by keeping it under CBSL.” De Silva went on to say that when a decision was made to invest the EPF monies in the stock market in order to bridge the deficit from inflation by investing only in Treasury Bills, based on advice by the Attorney General the Central Bank had published an investment policy. “This policy was to make strict decisions about which stocks to invest in. According to clause the fund cannot be invested in stocks related to banking and finance to prevent the use of inside information to conduct transactions. Another policy regulation was that investment in the stock exchange must be limited to blue chip companies,” De Silva said.