The controversy over Arjuna Mahendran

Monday, 27 June 2016 00:00 - - {{hitsCtrl.values.hits}}

Untitled-13 I do not know Arjuna Mahendran personally but as he is a central banker and a fellow economist, I have no doubt that Mahendran is eminently qualified to hold the post of Governor.

But it is not his suitability that should be the issue. No specific charges have been made against him and from what I can gather. If he is to be faulted, it is because he seems to have been unduly influenced by the Prime Minister.

When any person in authority appoints a Tender Board, should he interfere or even influence its decision? I don’t think so, for he is then not taking the responsibility for the decision but merely using the Tender Board as a cover for his own decision.

I don’t know what happened on the matter of the bond issue. If a tender is called for fixed amount then unduly increasing the amount accepted would not be fair by the market. It undermines the market.

Tenders can be called at short notice as have been done in the past since the tender is confined to the few primary dealers only. So it was possible to do so if the need for funds was urgent. The Treasury in the past was quite competent in estimating the need for cash flows. So there was no reason to limit the tender to Rs. 1 million if Rs. 10 million was urgently needed.

I remember when John Exter and N.U. Jayawardene set up the Central Bank, they decided to make the post of governor a fixed term office instead of a career appointment since the post required the confidence of the Government in office and since governments change in our democracy, the incoming government should have the power to appoint the Governor although his fixed term could not be tampered with.

It was realised that since the appointment had to be made by the political authority and that the political authority should have confidence in the holder of the post, there should be a fixed term of office rather than a career office. This is the practice in most central banks in the world.

Although Mahendran is eminently suited to be given an extension, yet on the basis of the rationale for a fixed term office instead of a career office it would be better not to re-appoint any person not even Mahendran for a second term; although Mahendran is eminently qualified to be so re-appointed. The Prime Minister should take into account the rationale for appointment to fixed term offices.

R.M.B. Senanayake