Central Bank violated the law on past issuances of treasury bonds: Fin Min-Updated

(Updated with comments from press conference)

Feb 27, 2017 (LBO) – Finance Minister Ravi Karunanayake has accused former president Mahinda Rajapaksa and the Central Bank over the failure of the Central Bank to gazette treasury bond issues and comply with proper procedure.

In a statement the ministry said that the procedure had been abused during the last regime to give legal effect to private placements made outside the auctions, and it was a ‘hidden attempt’ to comply with the law.

It also reveals a lack of coordination between the Public Debt Department at the Central Bank and the Finance Ministry.

At a joint press conference with the Central Bank Governor Indrajit Coomaraswamy, Karunanayake said there was no issue with honoring of government obligations despite these procedural errors.

“When issuing this gazette, the required protocol has not been followed. With regard to issuance of a gazette by any Minister, the relevant institution should send the draft to the Secretary of the line Ministry.”

“The Secretary then obtains the legal and technical clearance from the relevant officials in the Ministry and submits the gazette for the signature of the Minister. Only after the Minister’s signature, the gazette is sent to the Government Printer to publish.”

“The Central Bank has not followed this procedure on this gazette in the recent past. Instead, the Superintendent of the Public Debt Department has directly sent it to the Government Printer after getting the legal clearance from the Central Bank lawyers.”

Rajapaksa in reply has blamed the incumbent government of attempting to shift the blame for the Central Bank bond scam on him and has threatened legal action against Karunanayake.

The statement states:

The Honorable Minister of Finance is in the receipt of Extraordinary Gazette Notification No. 1895/19 dated 01 January 2015 issued by Mahinda Rajapaksha, Minister of Finance and Planning at that time.

This Gazette was revealed during evidence given by the Secretary to Ministry of Finance on 23 February 2017 to the Presidential Commission of Inquiry on Treasury bond issuances.

This gazette is a unique example of relevance of fraudulent management of public debt by Mahinda Rajapaksha, Ajith Nivard Cabraal and his fellows in the Central Bank in violation of laws.

The following interim clarifications are made to the public while awaiting a full scale investigation.

1. This gazette contains authorization given under section 4 of the Registered Stock and Securities Ordinance to raise loans during the year 2015 through issuance of 31 Treasury bonds of different redemption periods at different interest rates at auctions as notified by the Registrar of Public Debt through newspapers.

2. The bonds stipulated in the gazette include many bonds issued in the past at various interest rates since 2011 as well as new bonds. There is no indication as to how bonds already issued in the past are issued again in 2015. It appears that the Gazette authorizes the past bonds also.

3. As per the gazette, loans will be raised through those bonds within the sum of Rupees one thousand seven hundred and eighty billion authorized in the Appropriation Act, No. 41 of 2014.

4. The practice that has been followed in the past by the Central Bank is to issue this gazette back-dated as January 1 each year after issuing all bonds during the year in a hidden attempt to comply with the requirement of the Section 4 of the Registered Stock and Securities Ordinance while mismanaging bond issuances.

5. When issuing this gazette, the required protocol has not been followed. With regard to issuance of a gazette by any Minister, the relevant institution should send the draft to the Secretary of the line Ministry. The Secretary then obtains the legal and technical clearance from the relevant officials in the Ministry and submits the gazette for the signature of the Minister. Only after the Minister’s signature, the gazette is sent to the Government Printer to publish. The Central Bank has not followed this procedure on this gazette in the recent past. Instead, the Superintendent of the Public Debt Department has directly sent it to the Government Printer after getting the legal clearance from the Central Bank lawyers.

6. Information is available that the gazette dated 1 January 2016 to be published by the name of Ravi Karunanayake, Minister of Finance, for the year 2016 also has already been sent to the Government Printer same way in 2017. The publication of this gazette was immediately withheld.

7. As such, all Treasury bonds have been issued in violation of the provisions of the Registered Stock and Securities Ordinance. This is how the Central Bank officers, so called experts and professionals, mismanaged public debt to facilitate Mahinda Rajapaksa Government and Ajith Nivaard Cabral through questionable private placements of bonds. In such gazettes issued in the past, all private placements were also legalized as issuance at auctions announced by the Registrar of Pubic Debt.

8. Full report will be issued to the media after investigations and corrective actions will be taken immediately. Appropriate legal actions will be taken against those errant officers under the provisions of the Registered Stock and Securities Ordinance.