Impasse over Governor appointment continues 

President Maithripala Sirisena, Prime Minister Ranil Wickremesinghe and Central Bank Governor Arjuna Mahendran on Wednesday at the Central Bank- File photo

By Dharisha Bastians

A political impasse over the appointment of a new Governor for the Central Bank continued for a third day, even as analysts began to warn the crisis could bring the 8 January coalition to the brink of fracture and create instability in financial markets.

The coalition Government remained deadlocked on the appointment by the end of day yesterday, 24 hours after the term of controversial Governor Arjuna Mahendran’s term officially ended on Thursday (30).

President Maithripala Sirisena and his Prime Minister Ranil Wickremesinghe prefer different outcomes in this battle over who will lead the country’s banking regulator, and both leaders have adopted intransigent positions, Government sources said.

Mahendran who concluded his term in office on Thursday (30) left for Singapore yesterday on an Emirates flight. Arjuna Mahendran is a Singaporean citizen. 

Highly placed Government sources said yesterday that Prime Minister Ranil Wickremesinghe had convinced President Sirisena to hold off making a decision until Finance Minister Ravi Karunanayake, who is overseas at the moment, returns to the island. Minister Karunanayake was expected to return over the weekend, the sources said. The move was widely seen as an exercise in damage control and an effort to buy time for the two leaders to take some time and arrive at a compromise.

Adding to the confusion, a Government Information Department media release announcing that a decision on the Governor appointment would be made after Minister Karunanayake returns to the country was withdrawn a few hours later.

Meanwhile a meeting was held yesterday between President Sirisena and his Prime Minister who was accompanied by Strategic Development Minister Malik Samarawickrema, sources said.

Prime Minister Wickremesinghe favours the appointment of a placeholder candidate to serve as Governor of Central Bank for an interim period, until the Committee on Public Enterprises concludes its investigation into the alleged bond scams of 2015 and 2016.  Governor Mahendran in his memo to the Monetary Board last week said he would not seek reappointment until COPE concluded its findings and cleared his name. Mahendran suggested the Monetary Board appoint Central Bank Deputy Governor P. Samarasiri as senior deputy governor to serve as CEO “in the interim.”

Economists warned that the political crisis over the Governor appointment was an ‘amateur move’ at a time when Sri Lanka is far more exposed to international capital markets than before, is seeking good investments and going in for a sovereign bond. “It’s important to play like professionals – or to at least give the appearance of doing so – because Sri Lanka is not playing in the baby pool anymore,” one economist who did not wish to be named told Daily FT.

The crisis, now in the public domain, also has implications on broader economic management strategies and lays bare the tussle within the coalition, the economist said. “The crisis makes it clear that economic reform the administration has promised, whether we can abide by IMF conditions, etc., is not going to be plain sailing,” the economist added.

Meanwhile, the Monetary Board, the governing authority for the Central Bank, will oversee decision-making in the institution until a Governor is announced to lead the regulator. The Bank’s senior most Deputy Governor Dr. Nandalal Weerasinghe, who was widely tipped to be President Sirisena’s choice for Governor, told the Reuters news agency that when there was no Governor, the responsibility automatically falls on the Monetary Board. “It will have to play the role of CEO according to the Monetary Board Act,” Dr. Weerasinghe told the international news agency in an interview.

The Monetary Board met in an emergency session on Thursday evening, as Governor Mahendran’s term was set to expire.

Experts said that the Central Bank had experienced a similar situation over three days last year when it functioned without a Governor appointee between 9 and 12 January 2015 after former Governor Ajith Nivaard Cabraal submitted his resignation. Three days later, the Monetary Board appointed Dr. Weerasinghe as Senior Deputy Governor to function as CEO until a Governor was formally appointed.