Necessity for members of COPE to be made conversant with legal provisions applicable to matters per

Parliament of Sri Lanka

By Legal Eye

Good governance activist Chandra Jayaratne published an open letter to the Members of the United National Party serving on the Committee on Public Enterprises (COPE), which is examining certain allegations relating to two Treasury bond issues by the CBSL on behalf of the Government. 

A letter was published in the 12 July Daily Financial Times by a reader expressing critical views regarding the letter written by Jayaratne. The reader has expressed the view that the members of the committee were aware of the duties and responsibilities in relation to the scope of the subject entrusted to them.

However, it is doubtful whether any person other than members of Tender Board relating to issue of Treasury bonds and Treasury bills and senior officials who have served in the Public Debt Department of the CBSL would be fully conversant with the laws applicable to the issue of Treasury bonds and the role of a Primary Dealer in relation to the sale of Treasury bonds and Treasury bills, as well as about the prevailing and expected interest rate policy or yield curve in bond language (optimum level of interest rate) on Treasury bills and bonds with different maturity periods by the Central Bank.

Whether the actions of the Central Bank in its role as an agent of the Government to borrow funds from the public for the needs of the Government has resulted in a loss to the Government in relation to a 30-year bond is a very complex and intricate matter. Furthermore, the perception relating to the computation of the loss would vary from person to person depending on various factors such as quantum of loss of interest rate from the particular bond and loss from subsequent bond issues in view of upward change of interest rate considered (yield curve) by such person.

The functions of the Central bank through the Public Debt Department in the management of the public debt of the country is described in the website of the Central Bank as follows:

Public Debt Management

In terms of Section 113 of the Monetary Law Act, the Central Bank of Sri Lanka (CBSL) is responsible for the management of the public debt as the Agent of the Government. Accordingly, the Public Debt Department (PDD) of the CBSL on behalf of the Government issues debt instruments and handles all matters relating to servicing the domestic and foreign debt of the Government .The Ministry of Finance handles the matters relating to obtaining loans from the foreign sources.

The objective of debt management is to ensure that the government’s financing needs are met at the lowest possible cost consistent with a prudent degree of risk, and developing and strengthening the government securities market, while enhancing efficiency and maintaining stability. Although the strategic objective to be pursued in government debt management has not been made explicit by any law in Sri Lanka, it is implicitly understood that debt management should be carried out in such a way as to:

• Minimise the direct and indirect cost of public debt on a long-term perspective 
• Avoid volatility in debt service cost and guarantee a balanced distribution
• Prevent an excessive concentration on redemption payments
• Minimise any type of rollover risk/refinancing risk
• Promote the efficient functioning of the government securities market
• Service government debt on time with 100% accuracy

Copies of the Registered Stocks and Securities Ordinance and the background and the objective regarding the amendment introduced by the Registered Stock and Securities (Amendment) Act, No. 32 of 1995 as well as Local Treasury Bills (Amendment) Act, No. 31 of 1995 for the purpose of appointing primary dealers with a view to deal with the Debt Security Market should be made available to the members of the COPE. 

The members of the Parliament would normally not be well acquainted with the procedures laid down by the Central Bank in relation to the calling of bids for the sale of Treasury Bills and Treasury Bonds by the Public Debt Department and the role played by the Tender Board Committee of Treasury Bonds and Bills comprising of the Deputy Governor and the Assistant Governor in charge of the Public Debt Department and other four or five senior Heads of Department including the Superintendent of the Public Debt and the Director of Economic Research and the Director of Domestic Operations Department and the type and the mode of recommendation they are required to make to the Governor in the acceptance of bid calling for a tender. 

Furthermore the Members of the Parliament should be apprised of the role of the State banks when they function in the capacity of a Primary Dealer and the expected code of conduct among Primary Dealers in submitting bids and extending financial accommodation to enable another Primary Dealer to submit a bid for a particular tender. This is of paramount importance because in the process of inquiry entrusted to the members of the committee, they should take steps to seek clarification from all the relevant officials of the Bank of Ceylon (BC) regarding the following issues:

• Normal procedure (such as process of loan application with levels of recommendations, assessing securities) being followed by them in granting Overdraft facility to the clients and whether such procedure was followed by them in granting a huge Overdraft facility of Rs. 3 b to the questionable Primary Dealer, Perpetual Treasuries, within a matter of a few hours.
• If the normal procedure hitherto was not followed by this particular facility, who recommended such deviation and who approved it and why?
• Whether BC granted such facility/facilities to the primary dealer/dealers in the past and if so the procedure followed in approving such facilities and time taken to approve such facilities. 

nIf any officer of the Dealing Room of BC inquired from the questionable Primary Dealer as to why they wanted to submit bid for Rs. 3 b which is equal to three times of the advertised amount at the closing time and as to why being a primary dealer they themselves could not submit the bid

Additionally in this particular subject matter of the investigation should cover a full knowledge of the procedures in relation to the mode in which monies of the Employees Provident Fund (EPF) are invested in the primary and secondary markets and the role played by the Investment Committee of the EPF as well as the activities of the Fund Managers of the EPF Department should be made known to the members of the COPE who are required to discharge an onerous duty to the public. 

In this endeavour the committee would be required to ascertain whether the EPF had decided to buy Bonds from the Secondary market without buying them primary market to pave the way for any particular Primary Dealer to benefit immensely by such a transaction.

Very few Central Bank officers have spoken out about the so-called ‘Bond Scam’ which has brought disrepute to the esteemed institution namely, the Central Bank and to the Monetary Board.

Therefore, it would be salutary if one or more of the following officers of the Central Bank who are now in retirement after serving a long period of service as the Superintendent of the Public Debt Department and thereafter in other senior posts discharging their duties honourably with commitment be invited to apprise the members of the aforementioned committee of the COPE about the applicable laws, rules and procedures relating to the issue of Treasury bonds and the investment of EPF monies in Government securities as well as the rules and the guidelines applicable to Primary Dealers.

• Dr. S.T.G. Fernando
• T.S.N. Fernando
• T.H.D. Peiris 
• Susil Fernando
• J.M.T.B. Jayasunadara
• K.G.D.D. Dheerasinghe
• Chandra Premaratne

Since this Committee is appointed by the Speaker of the Parliament, the Chairman of the Committee with the concurrence of Speaker can work out the modalities of ascertaining technical details relating to the implementation of the above suggestion. 

A thorough knowledge of complex matter to be decided upon by persons would result in a just, fair and equitable determination by them.