PM at the Commission: Questions that may or may never be answered
Posted on November 25th, 2017

Rajan Philips

The reactions to the Prime Ministers testimony and answers last week at the Commission of Inquiry have been as mixed as the varying opinions about the man himself and his politics. “Ranil resolute before Bond Commission” exulted one admiring headline in a financial daily. Being resolute means: admirably purposeful; determined; unwavering. The senior Ministers of his Party were all at the Commission to show solidarity. The Commission put the PM in his place as a witness but with all due dignity to the person and his position. His detractors outside were not impressed, though. They thought the PM got favoured treatment. The full serial fans missed out on the drama of the cross-examination of a prime witness. His inveterate critics took seemingly gender turns to throw left and right punches. From the left, they said they saw the PM’s Yankee hoofs when he fawningly talked about a US Treasury expert flying in to help Sri Lanka book keep its debts and bandy its bonds. From the right, they audited what they claimed were the PM’s half-answers and inconsistencies. In this never ending battle, the UNP seems to be having the last word – for now – through posters insisting about the fearlessness of their Prime Minister.

The bond scam is not so much about fearlessness as it is about foolishness. As for crimes that may or may not have been committed, it is for the courts to determine once the findings of the Commission of Inquiry are released. But there are questions arising from the answers the Prime Minister gave before the Commission, which may not rise to the threshold of criminality but which are not conducive to the goals and objectives of good governance. The questions start with the very process of hiring Arjuna Mahendran as the new Governor in January 2015, almost as soon as the new cabinet was sworn in by the newly elected President Maithripala Sirisena.

The nationality, rather the citizenship, of Mr. Mahendran has become a convenient distraction to what should be the obvious question: why was not a competitive selection process undertaken if the cabinet of ministers wanted an outsider to head the Central Bank. It would have been a different matter if an insider was selected in keeping with tradition and based on seniority. The name of Mark Carney, the Canadian Governor of the Bank of England, is often mentioned as an example of a foreign national heading a national central bank. What is conveniently left out is the fact that Mr. Carney was selected through an international competition, and he was easily the best candidate in the world to head perhaps the world’s oldest central bank. He had to be simply that good to pass muster in a highly skeptical British Parliament. As it turned out, he has proved himself to be even better by his professional excellence and independence both before and after Brexit.

No comparison

There is no comparison between the selection of Mark Carney in England and that of Arjuna Mahendran in Colombo. Nor is there any comparison between the way Mark Carney handled himself both before and after a momentous event like Brexit, and the way Arjuna Mahendran handled a rather routine matter like issuing bonds. Mr. Carney expressed his professional opinion fearlessly before and after Brexit. He did not become a mouthpiece or his master’s servant to his Finance Minister or the Prime Minister. In contrast, Mr. Mahendran’s first line of defence – when questioned about changing course from the private placement of bonds to public auctioning, was that he was acting on the instructions of the Prime Minister. This was getting it backwards.

It is the duty of professionals to make technical recommendations to elected officials, not the other way around. Soon after the bond fiasco, there were dozens of articles written by technical experts on the pros and cons of the two methods of bond issuance and the circumstances when one method could be more appropriate than the other. An experienced banker should be able to make that judgement call and does not have to wait for internal studies to know what decision to make. Equally, the same banker should be able defend that decision and explain it persuasively. Unfortunately, no such explanation was forthcoming at the inquiry.

It was somewhat puzzling to note the application of the term ‘due process’ to institutional decision making. At one point during the inquiry, Mr. Mahendran said he had never heard it before and rightly so. Due process is a rule of law term – indicating the requisite balance in applying the law and protecting the rights of individual citizens. As human rights activists in the late 1970s, in the good company of Paul Caspersz, Suriya Wickremasinghe, UpaliCooray and others, we used to complain about ‘due process violation’ in instances of arbitrary arrest and detention of people. Institutional procedures for decision making are a different matter. Whether these decisions are right or wrong, they are not by themselves criminal. And is what is right and what is wrong depends on the benefits and costs as outcomes. A very costly wrong decision might necessarily lead to being fired from the job, but not necessarily to a jail term. In the matter of issuing bonds in February 2015 and March 2016, plenty of other factors were at play in addition to or even overriding technical considerations. That is something for the Commission to determine. Be that as it may.

It would seem that Mr. Mahendran’s difficulties partly arose from the manner of his appointment, as well as his divided reporting structure to the Minister of Finance who was responsible for the Monetary Board, on the hand, and the Prime Minister, who had brought the Central Bank under his wing, on the other. We do not know if the appointment of Mr. Mahendran as Governor and the relocation of the Central Bank under the Prime Minister were connected or not. It would be interesting to see if these matters would be addressed by the Commissioners in their report. But as I wrote last week, the government doesn’t have to wait for the Commission’s report to start undoing some of its unnecessary misdoings. First on the list should be to send the Central Bank back to Finance.

Hidden accounts, hidden understandings

One matter that the Prime Minister alluded to before the Commission and was conveniently overlooked by his detractors was his reference to the practice that apparently started under the previous government – the practice of having two accounts for project expenditures. One was included in the government’s budgetary allocations and the other was not. The apparent reason was to circumvent the agreement with the IMF to keep project investments under a certain limit. Most of the projects under the hidden account were highway projects. The present government’s claim has been that a large scale bond auction was necessary to make good on payments due to contractors carrying out projects under the hidden account. But what is inexplicable is that why the government has not been able to make a clear statement on the state of the finances it inherited from its predecessor – including both the budgeted and the hidden accounts and outlining the path that the government has been taking for the last two years.

All that the public is being told comes in dribs and drabs and the absence of a comprehensive statement can only lead to all manner of speculations. Is it because both finance and highways portfolios were under the former President, Mahinda Rajapaksa, and the UNP leadership is sparing Mr. Rajapaksa from the embarrassment of public disclosure of financial mismanagement, if not potential corruption? Is it because the government does not want to make too much noise about past projects as that would scupper its own plans to keep undertaking questionable new mega projects, like the Central Expressway? Or, is it simply because the government is not overly keen about putting government business in any reasonable order?

The Prime Minister’s sweeping assurance that parliament is going to wrest control over the Central Bank and public finances is neither here nor there. Parliament is already in control of everything that it needs to be in control of under the constitution. What has gone out of control is the ability of parliamentarians, government and the cabinet of ministers to exercise that control diligently and systematically. Restoration of that control was what was promised in the elections of 2015. What we have got instead is a full blown bond scandal right in the Central Bank and a Commission of Inquiry to decipher the wrongdoings.

More speculations

The Commission has now retired from public view to write its report. But there is no retiring of political speculations in the public domain. And the speculations are as divided as the opinions about the Prime Minister. At one extreme, the question is whether the Prime Minister can politically survive the bond scam. That leads to a range of scenarios involving the survival of the government. Political infighting is all over the place. A government minister has lashed out at the President for launching the inquiry into the bond scam, and has suggested that the President is out to destroy not only the UNP leadership but also the Rajapaksas to enable a presidential rerun in 2020. The official SLFP lost no time in rushing to defend their President.

And the President is not pulling punches either. Addressing a meeting in Nikaweratiya on Friday, President Sirisena warned that if MPs were to criticise him for exposing corruption, he is prepared to reach out to the people and involve them directly in the fight against corruption. He has reminded the UNP that the passage of the 19th Amendment, the government’s only achievement in two years, would not have been possible if he had not corralled 142 SLFP MPs into supporting 19A. The UNP had only 47 MPs at that time. Good for the President to show signs of some latent maverick flair.

The JO groupings are palpably divided in their likes and dislikes of the President and the Prime Minister. The non-SLFP elements are hard on the PM and soft on the President. Vasudeva Nanayakara has his own line – fixated on neither man but the woman who is now a former President. He will not give up picking on old motes even as he sits among crossbeams of corruption. On the other hand, President Sirisena is anathema to the Rajapaksas and their fledgling SLPP. Personal feelings are mutually and implacably hostile as neither Maithripala Sirisena nor Mahinda Rajapakasa would countenance the futile efforts of SLFP kapuwas to rejoin the two. Feelings continue to be mutually cordial, however, between bond-smacked UNPers and the down-but-not-out Rajapaksas.

The TNA and the JVP are the only two parties that have their identities and integrities intact, and their boundaries unviolated. The JVP is selective in its alliances while the TNA is hoping for at least a one-off grand alliance of all the parties in parliament to give the new constitutional proposals a lot more consensus than the minimum requirement of a two-thirds majority. The 19th Amendment had only one vote cast against it. But that was ages ago on the political timescale.

The latest and the looming battleground is over Local Government elections. And the courts are again dragged into the maelstrom of Sri Lankan politics, to recall one of AJ Wilson’s many criticisms of the 1978 Constitution. Political circles are reportedly confused over the interim order of the Court of Appeal against a gazette notification, issued in February 2017, even though the courts could justifiably think and perhaps come out and say that it is the parliament and the political leaders who are confusing everybody including the Courts.

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