PM’s responses to AG Dept. queries – ‘I inisited Mahendran should ensure Aloysius’ resignation as director of PTL’
November 21st, 2017Courtesy The Island
I, Ranil Wickremesinghe, the Prime Minister and Minister of National Policies & Economic Affairs of “Temple Trees”, Colombo 3 being a Buddhist do hereby solemnly, sincerely and truly declare and affirm as follows,
1. I am the affirmant above named.
2. The PRESIDENTIAL COMMISSION OF INQUIRY TO INVESTIGATE, INQUIRE AND REPORT THE ISSUANCE OF TREASURY BONDS DURING THE PERIOD 01ST FEBRUARY 2015 TO 31ST MARCH 2016, by letter dated 10th October 2017 has sought my replies to the questions set out in the document annexed thereto marked “A”. Accordingly, in response to the said questions I have set out hereunder my answers from my personal knowledge and upon a perusal of the relevant documents.
3. The said questions and my replies thereto are as follows;
[1] Question number 1 is as follows-
“Mr Arjuna Mahendran, former Governor of the Central Bank of Sri Lanka (CBSL) has testified before this Commission of Inquiry that, sometime in early January 2015, you invited him to accept appointment as the Governor of the CBSL.
Is Mr Mahendran’s claim correct?”
My reply is as follows-
Yes. It is correct that sometime in January 2015, 1 Invited Mr Arjuna Mahendran to serve as the Governor of the CBSL of Sri Lanka (CBSL)
[2] Question number 2 is as follows-
“In terms of Section 12 of the Monetary Law Act No. 58 of 1949, as amended, the Governor of the CBSL is to be appointed by His Excellency, the President on the recommendation of the Minister in charge of the subject of Finance.
Was Mr Mahendran appointed to the post of the Governor of the CBSL on a recommendation made by the then Hon. Minister of Finance and/or on a recommendation made by you as the Hon. Minister of National Policies and Economic Affairs (which is the Ministry under which the CBSL has been placed)?”
My reply is as follows-
Upon the formation of the new Government in January 2015 there was a general consensus within the Government that Mr Mahendran should be appointed to the post of Governor of CBSL. I discussed the proposed appointment with the then Minister of Finance who agreed that Mr Mahendran was the most suitable candidate. Accordingly, the then Minister of Finance with my concurrence recommended to His Excellency the President that Mr. Mahendran should be appointed. His Excellency the President acting upon the said recommendation appointed Mr Arjuna Mahendran as the Governor of the CBSL.
[3] Question number 3 is as follows-
“If the answer to Question [1] above is in the affirmative and/or the answer to Question – [2] above is that a recommendation was made by you, please briefly state the reasons why you considered Mr Mahendran to be a fit and proper person to be appointed the Governor of the CBSL?”
My reply is as follows-
Mr Mahendran was selected for appointment in view of his professional qualifications and experience in the field of banking and investments. He had functioned as the Chairman of the BOI during the period 2002 to 2004. He had also held senior positions in the banking industry in Middle East and Singapore. The previous incumbent lacked comparable qualifications and experience and the administration of the CBSL during his tenure of his office had been the subject of severe criticism. Hence, prior to the General Election of 2015 there was a general demand from our political allies that a competent person versatile in banking and International finance should be appointed to the post of Governor of the CBSL.
[4] Question number 4 is as follows-
“At the time of Mr Mahendran’s appointment as the Governor of the CBSL, he was not a citizen of Sri Lanka.
Please briefly state your views on the suitability of a person who is not a citizen of Sri Lanka, performing the duties of the Governor of the CBSL.”
My reply is as follows-
Although at the time of his appointment Mr Mahendran had ceased to be a citizen of Sri Lanka, he was nevertheless, of Sri Lankan origin. He used to regularly visit his parents who were resident in Colombo and as such he had an abiding interest in, and connection with Sri Lanka. Many Sri Lankans had left the country for positions abroad due to the unsettled conditions prevalent in the country at various times.
The fact that Mr Mahendran was not a citizen of Sri Lanka did not affect his suitability or eligibility and was not a legal impediment to his appointment as the Governor of CBSL. In this context, it is to be noted that the very first Governor of the Central Bank, namely, Mr. John Exeter had been an American national. Likewise, Mr. Mark Joseph Carney who is not a British subject but a Canadian national is the current Governor of the Bank of England.
[5] Question number 5 is as follows-
“The evidence before this Commission of Inquiry suggests that, Mr Mahendran’s son-in-law Mr Arjuna Aloysius, was the Chief Executive and a Director of the Primary Dealer named Perpetual Treasuries (Pvt) Ltd, in the year 2014 and up to sometime in January 2015, when he is said to have resigned from both posts. The evidence also suggests that, even after the aforesaid resignations in January 2015, Mr Arjuna Aloysius continued to be a Shareholder and Director of Perpetual Capital Holdings (Pvt) Ltd., Perpetual Capital (Pvt) Ltd, which was the ultimate owner of Perpetual Treasuries (Pvt) Ltd.
(i) In 2015 and 2016, were you aware of the matters referred to above?
(ii) If the answer to Question [5](i) is in the affirmative, did you consider that, the aforesaid matters raised a potential conflict of interests which could confront Mr Mahendran in the performance of his duties as the Governor of the CBSL?”
My reply to 5(i) is as follows-
I was aware that Mr. Mahendran’s son-in law Mr. Aloysius was the Chief Executive and Director of the primary dealer Perpetual Treasuries (Pvt) Ltd.
My reply to 5(ii) is as follows-
When Mr. Mahendran was offered the post of the Governor of the CBSL, I insisted that he should ensure that Mr Aloysius would resign as a Director of Perpetual Treasuries (Pvt) Ltd, and not involve himself in the business activities of that company in anyway. I also strongly recommended that the best course would be for Mr Aloysius to divest himself of his shares in the company. This was conveyed by me both to Mr Mahendran as well as to Mr Aloysius. Subsequently, I became aware that Mr Aloysius had in the month of January itself resigned from the post of Chief Executive Officer and Director of Perpetual Treasuries (Pvt) Ltd. I also became aware that however he remained a Shareholder of that company and he initimated that he would divest himself of the shareholdings as soon as possible. On expressing my concerns on this account, Mr Mahendran reassured me that Mr Aloysius would not under any circumstances play any role in the business activities of the company. I had every confidence in the assurances given by Mr Mahendran and as such I had no reason to apprehend that any conflict of interest would be faced by Mr Mahendran in functioning as the Governor of the CBSL.
[6] Question number 6 is as follows-
“In any event, did you inquire from Mr Mahendran with regard to any potential conflict of interest arising from the fact that Mr Mahendran’s son-in-law, Mr Arjuna Aloysius was known to be closely connected to a Primary Dealer?
If so, what did Mr Mahendran tell you?”
My reply is as follows-
I did on several occasions convey to Mr Mahendran my concerns about a possible conflict of interest arising from his son-in-law Mr Aloysius having a connection with a, Primary Dealer. Mr Mahendran as set out above reassured me that Mr Aloysius would not engage in the activities of the company as indicated above. In view of the circumstances, I was confident as set out above that a situation of a conflict of interest would not arise.
[7] Question number 7 is as follows-
“The evidence before this Commission of Inquiry suggests that, although Mr Arjuna Aloysius is said to have resigned from the posts of Chief Executive and Director of Perpetual Treasuries (Pvt) Ltd sometime in January 2015, he continued to play an active role in the day to day operations of that Company from then on during 2015 and 2016?
Were you aware that, Mr Arjuna Aloysius continued to play an active role in the day to day operations of that Company even after he is said to have resigned from the posts of Chief Executive and Director of Perpetual Treasuries (Pvt) Ltd. sometime in January 2015?”
My reply is as follows-
I was aware that Mr Aloysius had resigned from the post of Chief Executive and Director of Perpetual Treasuries (Pvt) Ltd, in January itself. But, I was totally unaware of any role that he may have played in that company after his resignation. I was confident that in view of the assurances given to me by Mr Mahendran that Mr Aloysius would not participate in the conduct or affairs of the company.
[8] Question number 8 is as follows-
“Mr Mahendran has testified before this Commission of Inquiry that, in January 2015 and February 2015, he had conveyed to you alleged unsatisfactory features in the then prevailing practice of the CBSL raising funds by way of “Private Placements” [also sometime termed “Direct Placements”] of Treasury Bonds.
Is Mr Mahendran’s aforesaid statement correct?”
My reply is as follows-
The unsatisfactory features in the practice of CBSL raising funds by way of private placements was a matter of grave concern and severe criticism during the tenure of office of the previous Government. This issue had been raised in the public domain by civil society and had been the subject of discussion in Parliament. It was alleged that the favourites of the then Government had been given an opportunity by reason of the acceptance of private placements of making unconscionable profits as there was no transparent selection of the beneficiaries. With the formation of the new Government in January 2015, this subject was discussed at several Ministerial meetings at which relevant officials were present. Mr Mahendran was also present at some of these meetings and he too agreed that the system of resorting to private placements was unsatisfactory.
[9] Question number 9 is as follows-
“Mr Mahendran testified before this Commission of Inquiry that, sometime in early February 2015, you instructed him that, all procurements made by the CBSL should be carried out “in a transparent manner”.
(i) Is Mr Mahendran’s aforesaid statement correct?
(ii) If the answer to Question [9](i) is in the affirmative, did such instructions given by you also apply to the raising of Public Debt by the Public Debt Department?
(iii) If the answer to Question [9](ii) is in the affirmative, what did you intend to convey when you instructed that, the raising of Public Debt by the Public Debt Department should be carried out “in a transparent manner”?”
My reply is as follows-
(i) Yes. This was applicable not only to CBSL but also to all Departments and Institutions under the purview of my Ministry.
(ii) Yes. As I stated above, the raising of funds by way of private placements of Treasury Bonds had been subject to severe criticism as it was completely devoid of any transparency. The Monetary Board had authorized the issuance of Treasury Bonds either by way of private placements or by way of public auctions. It was the view of all concerned in the new Government that in order to achieve more transparency the raising of funds by way of Public Auction was preferable to the private placement method. This view was conveyed to Mr Mahendran.
[10] Question number 10 is as follows-
Mr Mahendran has subsequently claimed before this Commission of Inquiry that, on 24th February 2015, you instructed him that, the practice of accepting Private Placements of Treasury Bonds should be stopped. Mr Mahendran went on to suggest that, he interpreted that alleged instruction to mean he should immediately stop the practice of accepting Private Placements of Treasury Bonds.
Did you, in fact, instruct Mr Mahendran, on 24th February 2015, to immediately stop the practice of accepting Private Placements of Treasury Bonds?’
My reply is as follows-
As I stated earlier, the acceptance of private placements of Treasury Bonds was regarded as unsatisfactory primarily due to lack of transparency. In addition, the policy of the new Government was that the rates of exchange and of interest should be determined by market forces, and not be pegged down artificially. It was for these reasons that we advocated that Treasury Bonds be accepted mainly through Public Auction. Mr Mahendran as the Governor of CBSL was aware of this. At that time the practice was for majority of the bonds to be issued by recourse to private placements and the balance by Public Auction. Therefore, in February 2015 when I was informed that the CBSL was to issue bonds to raise funds, I insisted that Mr. Mahendran should consider the issuance of Bonds by way of Public Auction in accordance with the economic policy of the Government and I expected that he would comply with due procedure.
[11] Question number 11 is as follows-
“The evidence before this Commission of Inquiry suggests that, any sudden stoppage of the practice of accepting Private Placements of Treasury Bonds was likely to significantly impact the Government Securities Markets, the Treasury Bond Yield Curve and Interest Rates paid and offered by Bank, especially since, by February 2015, the practice of the CBSL accepting Private Placements of Treasury Bonds had become entrenched in the Government Securities Market and Private Placements accounted for over 80% Public Debt raised by way of Treasury Bonds during a period of two years or so. Further, the evidence before this Commission of Inquiry suggests that, in terms of the Monetary Law Act and the procedures which then prevailed in the CBSL, any proposal to stop the entrenched practice of accepting Private Placements of Treasury Bonds, should be considered by the Monetary Board and decided upon by the Monetary Board, before it was implemented.
If your answer to Question [10] above is in the affirmative, in the light of the aforesaid considerations, what did you expect Mr Mahendran to do in pursuance’ of any instruction you may have given to him, on 24th February 2015, with regard to Private Placements?”
My reply is as follows-
During the tenure of the office of the previous Government, the determination of interest rate in the Government securities market had been distorted by moving away from a market based mechanism. This had led to a loss of investor confidence.
To the best of my knowledge, private placements were not entrenched in the securities market.
Furthermore, as private placements invariably took funds from captive sources such as the EPF, the beneficiaries of such funds received diminished returns on their savings. Our policy has always been to encourage market mechanisms and to further macro economic liberalization including the rates of interest and exchange to be determined by the market. Therefore, traders and other relevant stakeholders would have reasonably expected a return or revival of the public auction system as much as possible as envisaged in the CBSL manual in determining interest rates. Consequently, any adverse impact on the market would have been minimal in the short term and off set by long-term investor confidence.
In the circumstances, it was expected that Mr Mahendran would take appropriate steps in accordance with due procedures to give effect to the objectives of the Government as expeditiously as possible in the light of concerns expressed by me.
If any further clarification is required from a legal perspective, the Attorney General would assist the Commission.
[12] Question number 12 is as follows-
“The evidence before this Commission of Inquiry suggests that, the Ministry of Finance had identified that a substantial sum of money was required to fund payments which were then due to Contractors on account of road works and other projects and that these fund requirements may not have been previously accounted for and/or provided for by the Ministry of Finance in 2014.
The evidence before this Commission of Inquiry suggests that, the Monthly Cash Flows forwarded by the Treasury to the Department of Public Debt in the Months of February 2015 and March 2015 do not call for any funds to be raised for the above purpose in February 2015 or March 2015.
The evidence before this Commission of Inquiry suggest that, a meeting was held at the CBSL on 26th February 2015 to discuss how to raise the funds required to make these payments and that, the then Hon. Minister of Finance and several others attended this meeting. The evidence suggest that, at this meeting, it was decided -that a Deputy Governor of the CBSL will prepare a report identifying the payments that were due and submit that report to the Ministry of Finance. The evidence also suggests that, it was decided that another meeting was to be held later for the purpose of considering the report to be prepared by the Deputy Governor of the CBSL and to then decide on the payments that had to be made in the short term. Further, the evidence suggests that, the proposed second meeting was held at the Ministry of Finance sometime in early March 2015 and that the Contractors to whom payments were immediately due attended this meeting and decisions were taken with regard to payments to be made to Contractors in the short term.
Thus, at present, the evidence before this Commission of Inquiry suggests that, the funds required for these payments were to be raised only in the months of April or May 2015 and that, there was no requirement for any funds for this purpose to be raised at the Treasury Bond Auction held on 27th February 2015 or at Treasury Bond Auctions to be held during the month of March 2015.
In this background, did you instruct Mr Mahendran to raise funds for the aforesaid payments at the Treasury Bond Auction held on 27th February 2015?”
My reply is as follows-
It is incorrect to state that funds for the payment of contractors for road works and other development work were required to be raised only in the months of April or May and that the monthly cash flows forwarded by the Treasury to the Department of Public Debt in the months of February 2015 and March 2015 did not call for any funds to be raised for the above in February or March 2015. Towards the end of February 2015 at the Cabinet Sub Committee on the Economic Management, Budget proposals for which funds were needed and development projects for which payments were due, were discussed. The Minister of Highways stated that there was an urgent need of funds for road development projects, which were undertaken by the previous Government for which the Treasury was unable to provide funds. The Interim Budget also involved additional expenditure including an increase in recurrent and capital expenditure in March. I requested that the concerned Ministers and officials of the Treasury and CBSL meet as soon as possible. Subsequently, they including the Governor CBSL had met on 26th February 2015 and they determined that Rupees Fifteen billion was urgently required. By this time, CBSL has already decided on a bond issue on 27 February, 2015. Mr Mahendran informed me that evening he may be able to raise money far in excess of Rupees One billion in the Bond Auction fixed for 27th February 2015. Any further details of cash flow and fiscal affairs for those months could be obtained from the Secretary to the Ministry of Finance.
(13) Question number 13 is as follows-
“Did Mr Mahendran have any discussions or conversations with you prior to 27th February 2015 and/or 27th February 2015, with regard to the Treasury Bond Auction held on 27th February 2015?”
My reply is as follows-
Mr. Mahendran did inform me that the Monetary Board had fixed a Treasury Bond Auction for the 27th of February 2015.
In the evening of 26th February he informed me that since it transpired at the meeting held with the Minister of Highways and others, that there was an urgent requirement of Rupees Fifteen billion to pay for the ongoing road works, it may be possible to raise at least a part of it at the Auction fixed for the 27th of February. After the Auction held on the 27th of February 2015, he informed me that in fact Rupees Ten billion had been raised.
[14] Question number 14 is as follows-
“Mr Mahendran has stated to this’ Commission of Inquiry that, subsequent to the Treasury Bond Auction held on 27th February 2015, Hon. Dr. Harsha de Silva telephoned him a d conveyed that you had requested Mr Mahendran to submit a “Briefing Note” with regard to the events relevant to that Treasury Bond Auction.
Is Mr Mahendran’s statement correct?”
My reply is as follows-
I recall instructing Dr. Harsha De Silva the then Deputy Minister of Policy Planning and Economic Affairs to request Mr Mahendran to provide a note pertaining to the procedure followed at the Auction held on 27th February 2015.
[15] Question number 15 is as follows-
“Did Mr Mahendran submit a “Briefing Note” to you, with regard to the events relevant to the Treasury Bond Auction held on 27th February 2015?”
My reply is as follows-
Upon receipt of the questionaire forwarded by the Commission I directed my officials to cause a search to be made in my office for briefing notes submitted by Mr Mahendran. Consequently my officials have traced in my Secretary’s computer a briefing note titled “Factual Information on the Issue of 30 year Treasury Bond by the Central Bank on 27/2/2015 – the Procedure Followed” forwarded by Deputy Governor Mr Samarasiri. I have been advised by my officials that there are no other briefing notes traceable at my office. A copy of the said briefing note is annexed hereto marked X1.
[16] and [17] – Question numbers 16 and 17 are as follows-
“[16] If the answer to Question [15] above is in the affirmative, did Mr Mahendran state in his “Briefing Note” that:
(i) He had visited the Public Debt Department on two occasions on 27th February 2015 — i.e. in the morning (alone) and shortly after noon (together with Deputy Governor Weerasinghe and Deputy Governor Silva)?
(ii) During the second visit together with the two Deputy Governors, Mr Mahendran had stated to the officers of the Public Debt Department that Bids up to approximately Rs. 10 billion should be accepted?
(iii) If the answer to Question [16](ii) is in the affirmative, did Mr Mahendran describe such a statement made by him to the officers of the Public Debt Department to be in the nature of a specific instruction issued to the officers of the Public Debt Department on what amount was to be recommended by the Public Debt Department to the Tender Board or to be in the nature of a suggestion for evaluation and consideration by the officers of the Public Debt Department when they were deciding on the amount to be recommended by the Public Debt Department to the Tender Board?”
[17] If the answer to Question [15] above is in the affirmative, did Mr Mahendran state in his “Briefing Note”
(i) Subsequently, in the afternoon of 27th February 2015, during the course of the meeting of the Tender Board held to consider the recommendations of the Public Debt Department and decide on the amount of Bids to be accepted, Mr Mahendran had spoken, on the telephone, with Deputy Governor Samarasiri who was chairing that meeting of the Tender Board?
(ii) During this telephone conversation, Mr Mahendran stated to Deputy Governor Samarasiri that the Tender Board should approve the acceptance of Bids up to approximately Rs. 10 billion?
(iii) if the answer to Question [17](ii) is in the affirmative, did Mr Mahendran describe such a statement made by him to Deputy Governor Samarasiri to be in the nature of a specific instruction issued to the Tender Board on what amount should be accepted or to be in the nature of a suggestion for evaluation and consideration by the Tender Board when the Tender Board was deciding the amount to be accepted?”
My reply to 16 and 17 is as follows-
By way of answer to questions 16 and 17 1 state that the available briefing note marked X 1, relates only to the procedure followed at the Auction held on 27th February 2015. 1 do recollect however that Mr Mahendran did in the course of conversations with me, refer to other attendant circumstances pertaining to the Auction held on 27th February 2015. In this context I have referred to these circumstances in the speech made by me in Parliament on 17 March 2015, to which reference has been made in Question Nos. 18, 19 and 20.
[18] Question number 18 is as follows-
“On 17th March 2015, you made a statement in Parliament with regard to the ‘ISSUE OF TREASURY BONDS’. During the course of that statement, you have said “I insisted on a public auction because private placements have led to corruption and lack of transparency. Previously, parcels of Government Bonds were handed out to selected individuals on a favoured basis through a system of private placement. It took place outside the normal auctions of Government Bonds. These are what the Primary Dealers are saying. You must look at the facts …. Private placements were usually as large as ten times bigger than the amount of Government Bonds sold through the auctions …. This led to an unhealthy link between some of the officers of the Central Bank’s Public Debt Department, Primary Dealers and large corporations who benefitted from such private placements. This practice only enriched a handful of cronies of the previous Government …. Records confirm that private placements had become a norm rather than an exception.”
What were the sources of information you relied on when you made those observations?”
My reply is as follows-
The Commission would no doubt appreciate that this relates to a statement made by me in Parliament which is vested with the control of Public Finance. I have already referred to the criticism that had been levelled against “Private Placements” and the reasons for the policy decision in favour of Public Auction. The then Government was unable to give requisite answers to the questions in Parliament as to what exactly had taken place through Private Placements. The unhealthy links referred to in question No. 18 were gathered by a group of MPs which included, Eran Wickramaratne, Dr. Harsha De Silva, Sujeewa Senasinghe and several others, and also from comments made by other Parliamentarians and News Paper Reports.
[19] and [20] Question numbers 19 and 20 are as follows-
“[19] During the course of your aforesaid statement to Parliament on 17th March 2015, you have also stated that, on 27th February 2015, Mr Mahendran advised [Wmfoia ÿkakd] the Public Debt Department, in the presence of two Deputy Governors [i.e. Dr Weerasinghe and Mr Silva] that, Bids up to Rs. 10 billion should be accepted. You have then gone on to say that, the allegation Mr Mahendran interfered in the decision of the Public Debt Department with regard to its recommendation on the amount of Bids to be accepted, was factually incorrect. [uy nexl=fõ wêm;sjrhd fïlg iïnkaO jQKdh lsh,d lreKq keye’ th i;Hfhka f;drhs
What were the sources of information you relied on when you made this statement?
“[20]. During the course of your statement to Parliament on 17th March 2015, you have also stated that, the allegation that Mr Mahendran interfered in the decision of the Tender Board was factually incorrect. uy nexl= wêm;sjrhd fgkav¾ uKav,fha lghq;=j,g ueÈy;a jQjdh lshk fpdaokdj mokfuka f;drhs’
What were the sources of information you relied on when you made this statement?”
My reply is as follows-
The statement made by me in Parliament on 17th March 2015 was based on information relating to attendant events pertaining to the said auction provided by Mr Mahendran and Mr Samarasiri -Deputy Governor of the CBSL and Chairman of the Tender Board and in the course of conversations with me.
I stated that neither the Monetary Board nor I was the proper authority to inquire into the issue. I also informed Parliament that the Pitipana Committee appointed by me was required to inquire into the matter impartially and I undertook to table their Report in Parliament on receipt of same. I also stated that it was open to Parliament to take appropriate steps including the setting up of a Select Committee in the event that the Parliament was not satisfied with the Report.
[21] Question number 21 is as follows-
“The Report of the “Three Person Committee” chaired by Mr Gamin! Pitipana, Attorney-at-Law inter alia states, with regard to the Treasury Bond Auction held on 27th February 2015, “The Committee at this stage can only make an observation that the bidding pattern of Perpetual Treasuries and securing nearly 50% of the accepted bids as unusual.” The Committee goes on to observe that “… a full-scale investigation by a proper Government Authority is warranted.”
The Report also states, “The Committee also observes, from the information placed before the Committee, that there is a serious lack of transparency pertaining to the activities of the PDD of the CBSL. There is no proper supervision of the activities of the Primary Dealers and the PDD. There is no recording of calls, there is no log of documents received, no supervision of electronic footprint; such as text messages and emails between officials of the PDD and the Primary Dealers.”
The Report recommends, inter alia, that, a proper supervisory and monitoring mechanism should be implemented with regard to the activities of the Public Debt Department and the Primary Dealers.
The Report also recommends that, a full-scale investigation by a proper Government Authority is warranted upon the activities of the PDD and its officials and any other Department of CBSL and its officers, to ascertain whether there is any truth in the assumptions pertaining to sensitive information of the CBSL being compromised.”
Are you aware of any action taken by the CBSL and/or by the Ministry of National Policies and Economic Affairs, with regard to the aforesaid observations and recommendations?
My reply is as follows-
At that time, the Pitipana Committee of inquiry had not submitted its Report. I apprised Parliament that the Report of the Committee was awaited and that upon receipt it will be placed before Parliament to enable Parliament to take such action as it deemed appropriate. Subsequently, the Pitipana Report was tabled by me in Parliament and a debate ensued in Parliament. It was decided that COPE should go into this matter in full. The COPE Report was received and forwarded to the Attorney General for necessary action at my instance. I am aware that a team of members from the Attorney General’s Department have been appointed to consider the Report. I have instructed the Attorney General to take steps according to law against any persons who are culpable, irrespective of their status or party affiliations.
A new Monetary Law is being prepared which will also address some of the matters referred to in the Pitipana Report. We have also strengthened Parliament’s oversight of the CBSL by establishing the Public Finance Committee and making the Economic Oversight Committee responsible for reporting on the CBSL.
I decided to look into the transactions prior to 2015 once the COPE Report was tabled. This has been postponed until the conclusion of the sittings of the Presidential Commission.
[22] Question number 22 is as follows-
“Did you consider that, it was fit and proper for Mr Mahendran to continue to serve as Governor of the CBSL after the events of the Treasury Bond Auction held on 27th February 2015?
If so, please briefly state the reasons for that view?
My reply is as follows-
As stated above I had already tabled the Pitipana Report in Parliament and a debate ensued. Parliament decided to refer this issue to COPE and was awaiting a report in order to take appropriate action in this regard in the event that Mr Mahendran was found to be culpable. In the interim, Mr Mahendran went on leave and his tenure of office ended prior to the submission of the COPE Report. As stated above, I have forwarded the COPE Report to the Attorney General to take appropraite action if there has been any transgression of the law by Mr Mahendran or any other person.
[23] Question number 23 is as follows-
“In 2015 and 2016, was the Ministry of National Policies and Economic Affairs (which is the Ministry under which the CBSL is placed), regularly informed by the CBSL [for example, on a daily, weekly, monthly, quarterly, half yearly or annual basis] of the results of Primary Auctions of Treasury Bonds?
If so, what was the information that was provided and how often was such information provided?”
My reply is as follows-
There were weekly meetings of officials evaluating the progress made by the Ministries and the financial situation in the country, as well, as weekly meetings of the Cabinet Committee on Economic Management at which meetings, the Governor of the CBSL was one of the persons in attendance. At these meetings the overall situation of the economy is evaluated. Even though details of Primary Auctions of Treasury Bonds are not discussed or revealed the amount of monies raised through Treasury Bonds and amounts required to be raised in the future inevitably surface at these meetings.
[24] Question Number 24 is as follows-
“In 2015 and 2016, was the Ministry of National Policies and Economic Affairs (which is the Ministry under which the CBSL is placed), regularly informed by the CBSL [for example, on a daily, weekly, monthly, quarterly, half yearly or annual basis] of the transactions done by Primary Dealers on the Secondary Market of Treasury Bonds?
If so, what was the information that was provided and how often was such information provided?”
My reply is as follows:
Transactions done by Primary Dealers on the Secondary Market of Treasury Bonds was not dealt by the Ministry of National Policies and Economic Affairs. The Minister only focuses on the overall economic performance. As such information pertaining to these are not called for or made available to the Minister.
[25] Question Number 25 is as follows-
“In 2015 and 2016, were the Minutes of Meetings of the Monetary Board, Board Papers and Reports considered by the Monetary Board and other Reports of the CBSL, submitted to the Ministry of National Policies and Economic Affairs (which is the Ministry under which the CBSL is placed), on a daily, weekly, monthly, quarterly, half yearly or annual basis?
If so, what was the information that was provided and how often was such information provided?”
My reply is as follows-
The Minutes of meetings of the Monetary Board, Board Papers and Reports considered by the Monetary Board and other Reports of the CBSL are not submitted to the Ministry’ of National Policies and Economic Affairs. The Governor of the CBSL would keep me informed of important decisions and matters relevant to the Monetary Board and CBSL at weekly meetings.
[26] Question Number 26 is as follows-
“A copy of a text message said to have been sent to Mr Arjuna Aloysius by his Personal Assistant [Mr Steve Samuel] on 28th November 2016 and which states ‘Reminder – to request Hon. PM & RK to get a copy of Monetary Board meeting/papers need to be submitted today 28.11.16″, has been produced in evidence before this Commission of Inquiry.
Have you ever provided or agreed to provide copies of Minutes of Meetings of the Monetary Board or any other documents or reports of the CBSL, to Mr Arjuna Aloysius or to any representative of Perpetual Treasuries (Pvt) Ltd.?”
My reply is as follows-
I deny that I had agreed to provide or provided copies of Minutes of meetings of the Monetary Board meetings/papers to Mr Aloysius or any other person. I resent the insinuation.
[27] Question Number 27 is as follows-
“There is evidence before this Commission of Inquiry which suggests that, on 28th March 2016 and 30th March 2016, the then Hon. Minister of Finance met senior officers of the Bank of Ceylon, the People’s Bank and the National Savings Bank and instructed that these three Banks submit Bids at specified Rates at the Treasury Bond Auctions to be held on 29th March 2016 and 31st March 2016. The evidence also suggests that, at these two meetings, the then Hon. Minister of Finance indicated to the officers of these Banks that, the CBSL would not accept Bids at Rates which were higher than the Rates specified by him and that, accordingly, the three Banks submitted Bids at the specified Rates. However, the evidence suggests that, in fact, when these two Treasury Bond Auctions were held, the CBSL had accepted Bids at Rates which were considerably higher than the Rates at which these Banks had placed Bids based on the instructions given by the then Hon. Minister of Finance.
Were you aware, in March or April 2016, of the aforesaid meetings and events?”
My reply is as follows-
I am unaware of the meetings referred to in paragraph 27.
[28] Question Number 28 is as follows-
“Are there any observations, comments or information which you consider will be relevant or useful to this Commission of Inquiry in carrying out its Mandate.
If so please state such observations, comments or information.”
My reply thereto is as follows-
i. The Commission may recommend measures to ensure further transparency in transactions in the Primary and Secondary Government Securities markets.
ii. It may also recommend measures to address the conflict of interest that currently exists in the CBSL due to the Public Debt Department acting as Agent of the Government for its borrowing requirements while the EPF Department of the CBSL being the largest lender to the Government.
iii. The Commission may determine whether the prevalence of insider trading in securities markets is wide spread and if so, suggest remedial measures.
Affirmed to on this 20th
day of October 2017, at
Colombo.
AFFIDAVIT
I, Ranil Wickremesinghe, the Prime Minister and Minister of National Policies & Economic Affairs, of “Temple Trees”, Colombo 3, being a Buddhist do hereby solemnly, sincerely and truly, declare and affirm as follws.
1. I am the affirmant above-named.
2. The Presidential Commission of Inquiry to Investigate, Inquire and Report on the Issuance of Treasury Bonds during the period I” February 2015 to 31st March 2016, by letter dated 10th November 2017 has sought my replies to the questions 2, 7, 11, 14, 16, 17, 18, 19, 21, 24, 25, 26, 27, 28, 29, 30, 32, 33, 34 and 35 contained in the annexure thereto. Accordingly, in response to the said questions, I have set out herein my answers, from my personal knowledge and a perusal of the relevant documents.
3. The said questions and my replies thereto are as follows.
4. Question number [21 is as follows:
“[2] Why didn’t you take steps to fill the two Monetary Board vacancies no sooner you filled the Governor’s post? Wasn’t it important and critical to make these appointments without delay?”
My reply is as follows-
There was a general consensus in the new Government, that the several vacancies in statutory boards and corporations should be filled to the extent required to ensure a quorum, and that further appointments be made after an even more thorough vetting process, which would ensure the appointment of the most suited individuals.
In addition to the ex officio office bearers of the Monetary Board, the other Members are appointed by His Excellency the President on the recommendation of the Minister of Finance, with the concurrence of the Constitutional Council. However, with regard to these appointments the Minister of Finance acted on my advise in making his recommendations.
5. Question numbers [7], [27] and [30] are as follows-
“[7] Please see Cabinet Sub-Committee on Economic Affairs Meeting Minutes of 24.02.2015 & 03.03.2015.
(a) In terms of RDA Projects the decision was that all road projects to be prioritized and implemented with available funds? A list to be prepared and finalised next week. (Vide Minutes of Meeting 24.02.2015).
(b) At the next meeting as far as RDA Projects were concerned it had been decided only to evaluate and re-negotiate with the funding agents (Vide Minutes of Meeting on 03.03.2015).
Therefore, having regard to the above there was no urgent funding requirement which was discussed or agreed upon?”
“[27] In response to question No.12, you have stated that it is incorrect to state that funds for payment of contractors for roadworks was not required to be raised in February or March 2015. However, documents in evidence before this Commission, including the relevant monthly cash flows and the minutes of the meeting of the Cabinet Sub Committee on Economic Management in February 2015 indicate that there was no such requirement. The said Cabinet Sub Committee has in fact decided that these payments should be met with available funds. So, on what basis do you substantiate your position?”
“[30] The briefing note you have produced at X1 does not refer to an urgent funding requirement of Rs.15 billion for payment of contractors for roadworks nor the breakfast meeting held on 26.02.2015. It only refers to the Rs.13.5 billion which was already in the cash flow for the week ending 02.03.2015. In this background, can you explain why you have in your response to question No.12 and in your Statement in Parliament on 17.03.2015 linked the Rs.15 billion for payment of contractors for roadworks and the breakfast meeting held on 26.02.2015 with the funds raised via the treasury bond auction of 27.02.2015?”
My reply is as follows-
Although at the meeting of the Cabinet Sub Committee on Economic Affairs held on 24th February 2015 it is recorded that “All road projects to be prioritized and implemented with available funds”, I was subsequently informed by the Minister of Highways that only about Rupees One Billion was in fact available to make payments for these projects.
I requested the concerned Ministers and officials of the Treasury and CBSL to give priority to sorting out how the funds could be obtained.
Therefore when the meeting of 26th February 2015 was held they had decided that Rs. 15 Billion was urgently required.
By the next meeting of the Cabinet Sub Committee on Economic Affairs of 3rd March 2015, the money raised at the Auction of 27th February 2015 was available. It was decided to “expedite and finish the ongoing rural road projects in order to uplift the rural economy” and also that the “cost of highways to be evaluated in a scientific manner and renegotiated with the funding agencies”.
At the Cabinet Sub Committee on Economic Affairs Meeting on 10th March 2015 it was noted that “A list of outstanding payments on road projects has already been prepared. It was advised to obtain the outstanding lump sum to be paid from Line Ministries. A committee has been appointed to look in to this and approve the payments. Payments related to ongoing work on multilateral, Bilateral Projects and rural roads to be released with immediate effect.”
The Minutes of the Cabinet Sub Committee on Economic Affairs Meeting on 10th March 2015 states that “It was explained that Highway Review Committee is finalizing the evaluations and negotiations to make the Contract Price of these contracts to the lowest possible sums by optimizing engineering designs and reducing excessive costs from other areas. Considerable amount have been reduced by the negotiations made so far with OCH III contractor. Possible areas of reduction of costs are explored and negotiations has commenced with the Southern Expressway extension Contractor. Minister of Highways to make an announcement in the Parliament once the cost benefit calculations are completed in these two expressways.
It was also explained that both JICA and ADB has shown their interest to fund the Central Expressway (Formally known as Northern Expressway) on concessional terms. Possibilities were explored to obtain funding on concessional terms from other multi-lateral and bi–lateral donor agencies.”
The Ministry of Highways, Higher Education and Investment Promotion confirmed that the cash imprest requirement for February 2015 was Rs.18,445,700,000, and that the allocation available was only Rs.3,000,000. Thus a sum in excess of Rs. 15 billion was required in respect of pending payments due to contractors in respect of highway constructions.
I annex a copy of letter dated 16th February 2015 sent by the Secretary, Ministry of Highways, Higher Education and Investment Promotion (including the annexure thereto) as X1.
Additionally there were numerous other urgent funding requirements of the Republic of Sri Lanka, some of which I adverted to in my speech in Parliament reported at column 73 of the Hansard of 17th March 2015, the relevant portion of which I annex hereto as X2.
The entirety of the sums due to various other contractors for work done prior to January 2015 was not immediately known by February 2015. Cabinet Papers are presented from time to time with regard to monies due in respect of contractual dues arising from work done during the period 1St January 2011 to 31st December 2014. In early November this year a Cabinet Paper was presented with regard to the debts of SriLankan Airlines.
I also annex as X3 a copy of the projected Govt. Daily Cash Flow Statement for the period 16th February 2015 – 27th February 2015 issued by the Cash Management Division, Department of Treasury Operations. In the last column thereof demonstrates the deficit at the end of 27th February 2015.
I annex as X4(a)-X4(c) the Minutes of the Meetings of the Cabinet Sub Committee on Economic Affairs of 24th February 2015, 3rd March 2015 and 10th March 2015.
I also annex as X5 letter dated 13th February 2015 sent by the National Water Supply and Drainage Board with regard to its funding requirements, as an example of some of the other liabilities which were known to us at the time.
6. Question number [11] is as follows-
“[11] Were you aware that Finance Minister Mr. Ravi Karunanayaka and his family were occupying and living a penthouse apartment at Monarch residencies which was paid for by Arjun Aloysius?
(a) This issue was brought up in Parliament by Mr. Mahindanada Aluthgamage, MP who made a statement in this regard?
(b) Do you acknowledge any wrong doing (the Minister of Finance being the Issuer of Government Securities and Arjuna Aloysius being the owner of a Primary Dealer Company trading in Government Securities) on the part of the minister in this regard?
(c) What action did you take in this regard?”
My reply to questions 11 (a) and (c) is as follows:
I was aware that Mr. Ravi Karunanayake, MP was occupying an apartment at Monarch Residences, as he had informed me that he had shifted pending renovations to his residence.
It is correct that allegations were made by Mr. Mahindananda Aluthgamage, MP.
Mr. Ravi Karunanayake, MP countered by denial and there was no material furnished to substantiate the allegation at that point of time.
However, I inquired from Mr. Ravi Karunanayake, MP whether there was any truth in the allegation made that he was occupying an apartment at Monarch Residences which was paid for by Mr. Aloysius. He informed me that the apartment he was occupying was not paid for by Mr. Aloysius.
My reply to questions 11 (b) is as follows:
I am not privy to all the evidence led in this regard. This matter is now pending before the Commission. Therefore, it would not be appropriate for me to express an opinion in this regard.
7. Question number [14] is as follows-
“[14] Did Mr. C.P.R. Perera meet you with Mr. Arjuna Mahendran on 01.04.2016 to inform you of concerns relating to treasury bond dealings by EPF?
(a) If the answer to the above is in the affirmative, did Mr. C.P.R. Perera specifically inform you that EPF was buying treasury bonds in the secondary market from Perpetual Treasuries Ltd. instead of buying directly in the primary market?
(b) What was your response?”
My reply is as follows-
The meeting on the 01st of April 2016 was not a meeting I had with only Mr C P R Perera and Mr Arjuna Mahendran. It was a meeting to discuss Government Securities the request of which came from Mr C P R Perera. The meeting had a number of officials together with other Ministers.
At that meeting concerns were expressed as to how we can improve the system of marketing of government securities. In the course of the meeting reference was also made to the fact that EPF was purchasing excessive securities from the secondary market and not in the primary transactions. I requested them to go into the matters raised at the meeting.
8. Question number [16] is as follows-
“[16] Did you or the United National Party or any member of your party receive any donation or contributions from Arjun Aloysius or any Company of the Perpetual Group of Companies or from Free Lanka Trading Company or W.M. Mendis and Company in the years 2014,2015 & 2016 directly or indirectly?”
My reply is as follows –
Neither I nor the Party received any donations or contributions from Arjun Aloysius or any other entity mentioned therein.
I am unaware whether any other individuals received donations or contributions from the said Aloysius or the specified entities.
9. Question numbers [17], [18] and [19] are as follows –
“[17] A text message sent on 14.01.2017 by Mr. Aloysius’s Personal Assistant Steve Samuel appears to be reminding Mr. Aloysius of a meeting with you regarding the US Treasury. Was there a meeting scheduled between you and Mr. Aloysius on that date?”
“[18] If the answer to the above is in the affirmative, did you in fact meet Mr. Aloysius on 14.01.2017 regarding the US Treasury or any other matter?”
“[19] Have you and, if so, how many times have you, met Mr. Aloysius regarding PTL business-related matters?”
My reply is as follows-
There was no meeting scheduled between Mr. Aloysius and myself, nor did I meet Mr Aloysius, on 14 January 2017, regarding the US Treasury or any other matter.
I have met Mr Aloysius regarding PTL business related matters only in connection with what I have previously stated in answer to Question 5 in my Affidavit dated 20th October 2017 and in answer to Question 35 herein.
10. Question number [21] is as follows-
“[21] There is undisputed evidence before the Commission, including that of several witnesses from Perpetual Treasuries Ltd., that Mr. Aloysius continued to run the business activities of this company throughout the tenure of Mr. Mahendran’s Governorship. In this context –
(a) Do you consider the assurance given to you Mr. Mahendran as having been false?
(b) What action would you recommend against misleading and false statements made to the Prime Minister of the country?”
My reply is as follows-
I believed that Mr Mahendran acted in good faith.
I am not privy to the evidence led before the Commission, and am unable to comment thereon.
The Commission will have to take and / or recommend action according to the evidence placed before it, and the conclusions it reaches thereon.
11. Question number [24] is as follows-
“[24] In response to question No. 10, you have stated that you advocated a system where Treasury Bonds were ‘mainly’ accepted through Public Auctions. You have also state that that you insisted that Mr. Arjuna Mahendran should ‘consider’ issuance of bonds through Public Auctions in accordance with the economic policy of the Government and that you expected him to comply with due procedure. In this context –
(a) When you said ‘mainly’, did you in fact have in mind a hybrid system?
(b) If so, did you satisfy yourself that this was implemented?”
My reply is as follows-
My primary concern was to ensure that Treasury Bonds are raised mainly on public auctions.
The proportion of public auctions and private placements with captive funds was a matter for the Governor to decide as it involves technical issues which, in my opinion, is a matter to be decided by experts.
12. Question number [25] is as follows-
“[25] In response to questions Nos. 10 and 11, you have stated that you expected Mr. Mahendran to follow due procedure to comply with your direction to issue treasury bonds via auctions. In this context –
(a) In your opinion, particularly as lawyer yourself, what should have been that ‘due procedure’?
(b) Shouldn’t that ‘due procedure’ have included approval of the Monetary Board and a considered analysis backed by data and discussion with all relevant stakeholders?
(c) As you were aware of the conflict of interest that Mr. Arjuna Mahendran had, did you not consider it prudent to verify and satisfy yourself that the ‘due procedure’ has been followed?
(d) In light of the procedure that was adopted by the present Monetary Board in moving to a new system of issuing treasury bonds, do you not consider the abrupt stopping of Direct Placements by Mr. Arjuna Mahendran to have been irresponsible and reckless, to say the least?”
My reply is as follows-
25 (a) and (b): As stated previously, my expectation was that the bonds should be raised mainly through public auctions. In my previous response to questions 10 and 11 (in the first set of questions) what I stated was that ‘I insisted that Mr Mahendran should consider the issuance of Bonds by way of Public Auction in accordance with the economic policy of the government.’
In this regard the due procedure I expected Mr Mahendran to follow was to work within the rules and guidelines set by the Monetary Board and follow best practices relating to the running of a Central Bank. Beyond this, I was not expecting to give any instructions or exercise any supervisory role.
(c): As stated earlier, I had no reason to believe that Mr Arjuna Mahendran would face a conflict of interest, and there was no special reason to satisfy myself that due procedure had been followed.
(d): Initially the primary concerns conveyed to Mr Mahendran were the lack of transparency and the failure to take into account the market forces, which arose with regard to private placements. It would appear that Mr Mahendran had secured the stoppage of direct placements to address this issue.
I subsequently became aware that, applying the experience of the Sri Lankan money market, and based on expert advice obtained from experts including the US Treasury, the Monetary Board has reviewed the system and adopted a modified system with regard to the issuance of bonds.
The process is periodically reviewed and thus I do not think that Mr Arjuna Mahendran’s abrupt stopping of Direct Placements could be considered irresponsible or reckless, as it was intended to address the lack of transparency associated with the private placement system, and also as the private placement system was not premised on market forces.
13. Question number [26] is as follows-
“[26] In Response to question No.11, you have stated that the previous government had moved away from a market based system in determining the interest rates in government securities, thereby distorting the market. You also say that there was a loss of investor confidence. In this context–
(a) Why have you now permitted a reversal of the fully auction-based system to a hybrid system, notwithstanding those concerns?
(b) Don’t you agree that the present system permits control of the interest rates in phase one of the system?
(c) Even during the fully auction-based system, wasn’t the Central Bank attempting to control interest rates by issuing treasury bills to itself?
(d) Is your reference to investor confidence accurate, as the outflow of foreign funds continued to take place during the pendency of the fully auction-based system?
(e) Is your reference to market confidence accurate, as the evidence shows that the EPF and other State-owned funds have simply shifted large volumes of purchases from the primary market to the secondary market?
(f) When you refer to the market, did you occasion any study with regard to the nature and structure of Sri Lanka’s Government Securities market?”
My reply is as follows-
26 (a) There has not been a reversal of the auction system.
The CBSL presented to the Cabinet Committee on Economic Management:
i. a short to medium Debt Management strategy to address issues of the Public Debt
ii. Recommendations with regard to liability management of the Public Debt portfolio including a proposal with regard to the enactment of a Liability Management Bill
iii. Proposals for ensuring Low Inflation in Sri Lanka
iv. Proposals with regard to a primary issuance system for Treasury Bonds
Following past experience, and expert advise, the current modified auction system was devised by the Monetary Board after reviewing the working of the ongoing Auction based system. I had no role in devising the said system.
In fact the first phase of the current system also involves a pure auction.
On 19th July 2017 the Cabinet Committee on Economic Management decided that the new system will also be reviewed in March 2018 and improved if necessary.
26 (b) and (c)
Phase I of the present system is purely auction based and therefore provides the best safeguards against fraudulent manipulation of interest rates by third parties. I am informed that since the introduction of the new system for Bond issuance, each of the three issues raised all the money required, solely through auction as envisaged in the first phase.
However the Central Bank has control over interest rates, to the extent that it decided the volume of bids that should be accepted, and the rates upto which bids should be accepted.
The Central Bank can also control rates by issuing bills to itself.
It is correct that CBSL did absorb the Treasury Bills to contain upward pressure on interest rates when they were not aligned with market fundamentals.
However, I am informed that as the Government’s fiscal performance improved, the CBSL has significantly reduced its holding of Treasury Bills.
I am advised that this experience has also been taken into consideration in devising the current bond issuance system.
26 (d) International Capital Flows are influenced by a number of factors such as international trends which are beyond our control.
For instance the United States has embarked on a cycle of raising interest rates. As a result there have been periods when there were large-scale capital outflows from emerging markets as a whole, not only Sri Lanka.
26 (e) For many years investment decisions of the EPF and state owned funds were distorted, as considerations other than commercial logic drove the allocation of their investment funds. The investment behaviour of these entities cannot therefore be considered an effective barometer of market sentiment.
26 (f) This is a matter for the Monetary Board and the management of the CBSL as well as my Advisors.
14. Question number [28] is as follows-
“[28] In response to question No.12 you have also stated that Mr. Mahendran informed you on the evening of 26.02.2015 that he may be able to raise money far in excess of Rs.1 billion through the 27.02.2015 bond auction. in this context
(a) In the history of treasury bond auctions conducted up to that time, generally only 2-3 times more than the advertised amount had ever been raised at previous treasury bond auctions. So, do you know on what basis he gave you this assurance with such confidence?
(b) Did you not raise any concerns about raising volumes far in excess of the amount advertised?
(c) Did you not consider the implications on the interest rates?
(d) Did you not consider it to be a transparency and due process concern, if an amount far in excess of the advertised amount was to be accepted?
(e) Did you question Mr. Mahendran on the tenure of the bond and whether raising large volumes on a long tenor bond was in fact in the best interest of the economy?
(f) Did you satisfy yourself whether the Treasury in fact required such large volumes to be raised through this auction or whether some other funding mechanism would be availed of in respect of the RDA’s request for funds?
(g) There is undisputed evidence that Rs.15 Billion of the Rs.20 Billion worth of bids received at the auction of 27th February 2015 had been submitted by Perpetual Treasuries Ltd. (directly and through Bank of Ceylon). In hindsight, do you consider this as a strange coincidence or a deliberate manipulation?”
My reply is as follows-
28(a) The offer of only Rs. 1 Billion through the 27th February 2015 Bond Issue was in my view, and some of the market participants, an extremely low figure.
The CBSL’s rationale for offering such a small amount was based on their concerns regarding uncertain market conditions in the wake of the formation of a minority coalition government during the previous months. In this context it was considered prudent to offer a small amount to the market as a means of containing the interest rates borne by the bids. Notwithstanding the Central Bank’s opinion, the private sector sentiment (which the Governor and many of us became aware of) was that there was potential for raising a far higher amount.
Furthermore, as can be seen from the Bond issuances since 2010 (which is evident from the document issued by the Central Bank and annexed hereto as X6) the market is capable of raising well in excess of Rs. 1 billion.
Hence, it was not an unreasonable expectation that an amount much in excess of Rs. 1 billion could be raised from the market.
In addition, by the time of the Bond Issuance of 27th February 2015, there was a very strong case for raising a sum far in excess of Rs.1 billion. It was becoming increasingly apparent that large amounts of money would be necessary to meet the Government’s obligations (as I have explained previously) including an extremely large amount of unsettled bills from the period of the previous regime, for which no provisions had been made.
28. (b), (c), (d), (e), (f) – Since I did not concern myself with the day-to-day operations of the CBSL including Bond issuances, these were not matters for me.
28. (g) I am not privy to the evidence before the Commission, or the attendant circumstances. As such I am unable to comment.
15. Question number [29] is as follows-
“[29] In response to question No.15, you have stated that your officials have traced in your Secretary’s computer, a briefing note forwarded by former Deputy Governor of the Central Bank, Mr. P. Samarasiri and you have produced same annexed to your Affidavit dated 20.10.2017 as X1. In this context –
a) On what date did you receive this briefing note?
b) Since the briefing note does not contain a date, author or addressee, was it sent to you with a covering letter?
c) Since it appears that what is available in your possession is a soft copy of this briefing note, was such document sent to your office via email by former Deputy Governor Mr. P. Samarasiri?
d) If the answer to the above is in the affirmative, are you able to produce that email?
e) Did you satisfy yourself of the accuracy of the contents of the briefing note?
f) In paragraph 3 of the briefing note, referring to the past practice of the Public Debt Department, it is stated that the ‘underlying assumption was to prevent high yields in the market due to pressure from high government borrowing’. Did you consider prevention of high yields/cost implications to GOSL as a reasonable policy concern?
g) Paragraph 5 of the briefing note refers to ‘internal senior management concerns” and that ‘at the time of the auction, the senior management was considering to impose an interim suspension on direct placements’. Did you satisfy yourself of the accuracy of this statement?
h) Are you aware that a member of the Monetary Board at the time has denied any such discussion having taken place?
i) Paragraph 6 of the briefing note states that ‘it was an opportune time to stop direct placements… without affecting the long term interest rate structure that prevailed for at the time of the last 30 year bond issue in June 2014’. But, are you not aware that, after the bond auction, the short term interest rates in fact went up abruptly?
j) Did you not call for an explanation on causing such volatility in the market?
k) Did you consider policy justification for considering the interest rates that prevailed for 30 year bonds as far back as June 2014, when the market rates do not remain static and may well have moved downwards?
l) The briefing note refers to the removal of the 3rd layer of the policy rates. Are you aware that once again the briefing note is misleading, as the Governor had in fact removed the so called penal interest rate in the morning of the 27th February 2015, prior to the auction?
m) In light of the evidence that 75% of the bids received at the 27th February 2015 bond auction were submitted by or on behalf of Perpetual Treasuries Ltd., would you consider the statement in the briefing note that the auction was in the interest of the majority of the market to be misleading and false?
n) There is undisputed evidence before this Commission that many of the primary dealers had placed dummy bids at the 27th February 2015 bond auction, as that they did not in fact wish to invest in 30 year bonds. Therefore, isn’t the above statement in the briefing note misleading and false?
0) For the same reasons, isn’t the reference to ‘market information gathered from this auction’ also misleading and false?
p) What action would you recommend in respect of submitting a misleading, inaccurate and false briefing note to the Prime Minister?”
My reply is as follows-
In response to the questions contained in paragraphs 29(a)-(d), I state that, the briefing note was sent to, and received by, the official email of the Secretary to the Prime Minister (secpm@pmoffice.gov.lk) from Mr. P. Samarasiri, then Deputy Governor of the Central Bank (psamara@cbsl.lk) on 11th March 2015. There was no covering letter, and the note was attached to the email, a copy of which is annexed hereto as X7.
In replying to the questions raised at paragraph 29 (e) to (m) at the very outset I wish to state that I am only answerable to Parliament in respect of Ministerial statements made in Parliament.
Without prejudice to this position, I wish to state that whenever I am due to make a statement in a Parliamentary debate I obtain material and briefing notes from the official(s) responsible for the particular subject(s).
However, I do not use the entirety of the matters set out in these material and briefing notes. I only use what I feel is relevant, and which can be dealt with due to constraints of time.
With regard to this briefing note provided by the Chairman of the Tender Board, the only matter that was relevant to what was raised in Parliament was the reference to the events of 27th of February 2015 and that the interest rate was 11.73% compared to 11.75% in June 2014. The briefing note was used by me to that limited extent, and only to assist me in my speech in Parliament.
As far as the query in paragraph 29 (n) and (o), I wish to state that I am not aware of the evidence placed before the Commission.
In view of the matters set out above, the query in paragraph 29(p) does not arise.
16. Question number (32] is as follows-
“[32] In response to question No.20 and the reference in your statement to Parliament on 17th March 2015 that ‘the allegation that Mr. Mahendran interfered in the decision of the Tender Board was factually incorrect”, you have stated that you relied on the information provided by Mr. Mahendran and Mr. Samarasiri. In this context-
(a) In the context of the evidence given before this Commission by Mr. P. Samarasiri that the decision to accept Rs. 10 Billion at the 27th February 2015 was made subsequent to instructions received from Governor Mahendran by telephone, would you now consider the above Statement to Parliament as incorrect or misleading, or a partial rendition of the truth?
(b) As you have stated that neither you nor the Monetary Board were the proper authority to inquire into the issue, and given that you were aware of the lurking potential for conflict of interest, did you not consider it imprudent to deny interference on the part of Mr. Mahendran without first calling for a comprehensive study?”
My reply is as follows-
I note that the question concerns a statement made by me in Parliament, for which I am solely accountable to Parliament.
Without prejudice to this position, I reiterate that I relied on information provided to me by Mr Mahendran and Mr Samarasiri, and that the statement was made by me bona fide and in a responsible manner.
According to the information provided to me, I was informed that the Governor advised that in view of the requirements of the country, bids upto Rs. 10 Billion could be accepted, but had not interfered in the process of the award of bids.
I have already explained that there was no reason for me to suspect that any conflict of interest would arise.
I further state that as I am not privy to the evidence given before the Commission, I am unable to further comment.
17. Question number [33] is as follows-
“[33] In response to question No. 21, you have stated that you have instructed the Attorney General to take steps according to law against any persons who are culpable, irrespective of their status of party affiliation. Can you furnish a copy of these instructions?”
My reply is as follows-
I am producing herewith the following letters:
X8 Letter dated 31st October 2016 written by the Secretary to the Leader of the House of Parliament to the Hon. Attorney General as directed by me.
X9 Letter dated 2nd November 2016 written by my Secretary to the Hon. Attorney General
X10 Letter dated 7th November 2016 sent by the Attorney General’s Department, to my Secretary
In addition, the instructions given to the Attorney General, (who is the chief legal officer of the State, and its primary lawyer) to take steps according to law against any persons who are culpable were given by me orally, as was the established practise.
18. Question number [34] is as follows-
“[34] In response to question No.26, you have denied that you have provided any Minutes of Monetary Board meetings/papers to Mr. Aloysius and that you resent the insinuation. The text message is self-explanatory in that Mr. Aloysius’s Personal Assistant Steve Samuel appears to be reminding Mr. Aloysius to request you or a person named “RV to get a copy of the said documents. Therefore, why do you think Mr. Aloysius expected that he could make a such a request from you?”
My reply is as follows-
I reiterate that I did not agree to provide, or provide, copies of minutes of meetings of the Monetary Board / papers to Mr. Aloysius.
I further note that in terms of the question 26 in the first set of questions sent to me, the authenticity of the alleged text message appear to be doubted.
Thus, while I am unaware as to the authenticity of the alleged text message, even assuming same to be genuine, I am unaware and cannot comment as to the state of mind of the sender of the text message, or of Mr. Aloysius.
19. Question number [35] is as follows-
“[35] Are you aware that the Central Bank has taken regulatory measures against Perpetual Treasuries Ltd. prior to culminating in the suspension of the license?
(a) If so, did Mr. Arjun Aloysius speak to you about these measures?
(b) If so, when and where did Mr. Aloysius speak to you on this matter?
(c) If you had in fact discussed the matter with Mr. Aloysius, do you consider such action as having been appropriate in hindsight?”
My reply is as follows-
Yes, The Governor of the Central Bank informed that they were inquiring into Perpetual Treasuries and they had enough evidence to proceed against them. I therefore advised him to seek and obtain the advise of the Attorney General.
The Hon. Attorney General had appointed Mr. Milinda Gunetilleke, DSG and Mrs. Shaheeda Barrie, SSC to advise on same. In this regard I annex a copy of letter dated 8th November 2016 sent by Secretary, Ministry of National Policies and Economic Affairs to the present Governor of the Central Bank (and copied to inter alia the Hon. Attorney General) as X11.
(a) Mr. Aloysius sought an appointment from me in November 2016. Although he did not mention the purpose for which he sought the appointment, I granted the appointment.
(b) I spoke to Mr. Aloysius in November 2016, at my office at Temple Trees. He informed me that he wished to discuss the Central Bank inquiry into his Company. I told him that I had no powers with regard to same, and that he should make representations in writing. He subsequently forwarded written representations to me, which I forwarded to the present Governor of the Central Bank, since he is the authority on the matter.
(c) My discussions were limited to the matters set out in (b), which I do not consider inappropriate.
Affirmed to at Colombo on this 18th day of November 2017]
Concluded
Where the craziness comes in is that nobody talks of similarly strengthening or even accommodating the moderates in the Sinhala nationalist mainstream. These moderates would obviously be the JO and its leaders, Mahinda, Dinesh et al. Who else could it be? The JVP with five seats? Then why not strengthen Douglas and the EPDP instead of Sampanthan, Sumanthiran and the TNA? If the logic is that Sampanthan heads the TNA which has the votes in the North, then the obvious counterpart would be Mahinda. Instead, Mahinda is deprived of the leadership of the Opposition and it is given to the TNA, while he, his family and supporters are legally targeted.
Article 9 of the Constitution has become the subject of much discussion. Could or should it be removed from the Constitution?
QYou seem to be only focusing on the times that they were in contact which is during the period when the committee conducted hearings. These are times during which there is actual evidence of the contacts going above and beyond the times of COPE hearings. For instance, Sujeewa Senasinghe had been in touch 227 times out of which he was in touch only 63 times during the COPE hearings. Dayasiri Jayasekara was in touch 18 times out of which two were related to COPE hearings. Did these people explain their relationship with Arjun Aloysius to you at any point? 
