Sri Lanka dollar bond transparency queried

Sept 13, 2007 (LBO) – An international anti-corruption body has raised questions over a controversial sovereign bond issue by Sri Lanka as well as the role of the country’s central bank in it and has called for more transparency in the deal. Transparency International, releasing a discussion paper on the issue, also slammed the main opposition United National Party for targeting one of the lead managers of the bond, HSBC Bank and making public calls to ‘surround’ the bank.

Transparency

The anti-corruption body said there was lack of clarity about the deal, on how the banks were selected, financial terms of the sovereign bond itself, how the funds would be used and called for the full facts to be place before parliament.

“There are no guarantees whether the funds raised would be utilised for infrastructure
projects as presently indicated,” Transparency International said.

“There is a possibility that it may even go towards funding consumption or to fund the war related costs or financing the budget deficit.”

The document said details about the bond were sketchy with different government officials making different claims about its tenure and terms.

Transparency International asked whether the money would be repaid immediately as the actual funding is received for the projects that are listed, how and why three international banks were selected and why others were rejected, and under which provision of law the central bank has been authorized to raise the money.

The body said the parliament should have an effective ‘finance committee’ which can ensure that foreign loans are used for their intended purpose.

“As the full control over public finance is vested with the Parliament, details of such a borrowing of this nature, needs to be informed to the Parliament,” the anti-corruption organization said.

“The best practice of governance demands, in the absence of a Finance Committee, full facts be placed before Parliament and approved.”

Central Bank Independence

The body also asked how the Central Bank was involved in the deal.

Critics have earlier said that the Central Bank has been loaded with various tasks which are in conflict with its core responsibility of price and economic stability, such as running the debt office of the government and a private sector pension fund.

The bank sometimes prints money for the finance ministry, a process economists identify as ‘fiscal dominance of monetary policy’, and lends its foreign reserves to the government causing high inflation, currency depreciation and economic instability and reducing the reserve backing of the national currency.

“The desirability of having a totally independent Central Bank, independent of direct or indirect control of the Finance Ministry or the Executive becomes evident in this case,” Transparency International said.