Central Bank responds to W.A. Wijewardena on bond fiasco, confronting the AG and the Monetary Board’

Following is the Central Bank’s response to the article titled ‘Bond fiasco and confronting the Auditor General: Monetary Board should be more mindful of its obligations’ by W.A. Wijewardena, published in the Daily FT on 13 June

The Central Bank of Sri Lanka (CBSL) wishes to correct factual inaccuracies which appeared in above article.

Reference the instance referred to about Governor A.S. Jayawardena’s time, the documentary evidence the CBSL has now is an agreement between the CBSL and the Auditor General to exclude market sensitive information relating to policy matters and third parties.

The CBSL has never disputed the legal rights of the Auditor General to access and examine all books, records, documents, stores and other property and such information and explanations applicable to the audit of accounts of the CBSL.

The Attorney General has provided a legal opinion as to how such sensitive information be sought for audit and confidentiality to be maintained. This is the policy that has been consistently followed hereto. Wijewardena also held same view when he communicated in 2005 to the Secretary, Finance and Planning, on the instruction of the Monetary Board, with regard to a request of the Auditor General for certain information relating to third parties.

The Monetary Board or the CBSL has never refused to provide the Auditor General access to information on the current subject of bond issuance under reference when information was sought.

While the access to all information was open from day one for audit, the Monetary Board communicated to the Auditor General only on the appropriate mode of access to information in view of the sensitivity of information sought for audit. The Deputy Governor under reference in the news item communicated with the Auditor General in this regard on the instruction of the Monetary Board.

Wijewardena, during his tenure as Deputy Governor, introduced the so called private/direct placement window for issuance of government securities in 2008 by justifying it to the Monetary Board in view of circumstances of unwarranted increase in interest rates on government securities prevailing at that time.

Despite the instruction of the Monetary Board due to its view that that the system did not seem to raise funds from the market in an efficient manner, he never reviewed the system even after those circumstances had altered significantly. If he had done so, the country would now have a developed government securities market where his criticism no longer applies.

With reference to the financial loss reported in financial statements of the CBSL, and the comparison of the CBSL with the bankrupt SriLankan Airlines, Professor S.S. Colombage, a career Central Banker and Economics Scholar, replied to this view highlighting in plain language the fundamentals of central banks as monetary policy-making authorities which cannot be compared with profit-seeking enterprises.

In fact, it is Wijewardena who led in introducing the International Financial Reporting Standards (IFRS) to the CBSL in 2001 following the advice given by the IMF’s Safeguard Assessment Mission during the Central Bank Modernisation project headed by him. It is the profit determination formula that Wijewardena recommended to the Monetary Board that has been followed for distribution of profit since the year 2001.

The pre-existing methodology in the Monetary Law Act for calculating profits would reveal a totally different set of results. According to the pre-existing methodology, the Central Bank of Sri Lanka actually made profits in 2013 and 2014 while its loss in 2015 would be a much lesser magnitude.