By Ruwan de Silva Courtesy The Island

Did the WB conduct an investigation to find out whether authorized primary dealers were trying to push interest rates up, causing a financial loss to the country?

A Sunday newspaper reported on its front page on Jan. 29, 2017 that the World Bank (WB) had written to the Prime Minister in response to his letter seeking its input, that, “the World Bank was of opinion that that the government had not suffered any loss as a result of the bond issue.” The World Bank by this reported statement has catapulted itself into the very middle of a very controversial and politically highly charged set of publicly disputed issues. Since the above statement may persuade the reader to reach the wrong conclusions regarding the WB, a highly respected and globally reputable financing agency, in the event this news report is inaccurate or a misinterpretation of the facts, a complete and outright public denial by the WB’s Country Program Manager/s, where ever they are located, may be very advisable, and highly appropriate in the current circumstances.

However, if the above news report is factual, this supposedly expert opinion by an impartial international agency, whose statutory mandate is really the alleviation of poverty in poor countries like Sri Lanka, which is indeed a far cry from evaluations of suspected financial delinquency, then the following issues arise for the early reaction of the WB:

1. Did the concerned WB managers and staff carefully examine every side and facet of this complex and long-running set of events, both pros and cons, from early-2015 through early-2016?

2. In doing so, did they examine the different outcomes under an earlier direct bond issue placement system, applied under a different top Central Bank management?

3. Did the WB conduct an investigation to find out whether authorized primary dealers were trying to push interest rates up causing financial loss to the country before and as a reason why direct bond placements were earlier made the practice, with no resulting complaints?

4. Was a different system of limited auctions to authorized dealers later put in vogue prior to, and during the questionable events of 2015 and 2016, by a different top manmagement at CBSL?

5. Did the WB examine whether or not this later top management of CBSL had obtained necessary Monetary Board approval to discontinue the less abusive and safer direct bond placement system, before introducing the new auction procedure in 2015?

6. Does WB agree that under the unapproved bond auction procedure put into practice in 2015 and 2016, any one (or more) primary dealers made unconscionably excessive profits in excess of billions of rupees in double digits, to the exclusion of all other primary dealers? What circumstances permitted this irregularity?

7. Was not the reported loss of 14 billion rupees incurred by the Employees Provident Fund (EPF), the social security fund of employees in Sri Lanka, through being forced into purchasing bonds in the secondary market at much higher interest rates, also an outright financial loss?

8. Is the WB aware that in denying that State financial losses occurred from the two alleged bond scams, its managers who authorized the WB reply in question, have disagreed with the Parliamentary Committee on Public Enterprises (COPE), the Auditor General of Sri Lanka who is responsible only to Parliament, and thereby reached a uniquely biased judgment without examining all sides of this very complex and complicated set of pending issues, which the President of Sri Lanka has sought fit and appropriate to refer to a high-level Commission of Inquiry to report within three months, given the widespread public agitation in the country? (For an international agency to openly contest deep-seated public conviction is a big risk for its future country role, after its partner the IMF has become very unpopular insisting on higher VAT, doubled cell phone charges, austerity through fiscal discipline and a free exchange regime, which is resulting in the rupee losing its value, resulting in higher cost of living increases).

9. Haven’t concerned WB managers seen fit to apply the well known basic rule of audi alteram partem, a pillar of universal equitable justice, presumably applied everyday in WB’s program and project appraisals and evaluations?

10. WB managers and concerned staff may do well to read the thoughtful commentary of Dr W.A. Wijewardena, former Deputy Governor of the Central Bank, reported in Daily FT of 30 January 2017, from whose helpful analysis the above issues are mainly extracted, before jumping head first into a raucous and ongoing political fray in a deeply divided polity, which they must be cautioned by WB senior management to scrupulously and studiously avoid?

Lastly, and much more substantively relevant to WB’s lending, have managers and staff concerned reviewed and evaluated Sri Lanka’s current and very recent unique development strategy, never tried elsewhere with any success, based on politicians with different agendas, micro-managing the entire development process? The WB is actively assisting this process in the absence of an impartial, competitively chosen, highly competent bureaucracy which ceased to exist circa1963, nearly 50 years ago with the abolition of an independent nucleus of top public servants, about which “attenuation”, former members of the public service have been recently lamenting in these very Opinion columns.

A review of the undrawn component of ongoing WB loans to Sri Lanka will be sufficient evidence that this novel, untried development strategy is not working. It is further complicated by a sub-divided sector dispensation of 50-plus political and administrative compartments into which the entire governmental machinery has been divided very many times, for political expediency and this has made practical coordination at the working level almost impossible. These are very fitting areas for WB investigation if rocking the client’s boat is still permitted in Washington D.C.