Sri Lanka: Bond scam — Prosecute the real culprits

Government leaders must curtail its expenditure by eliminating waste and adopt austerity measures without trying to lead western life styles which the country cannot afford.

by Dr. Janaka Ratnasiri

( January 8, 2018, Colombo, Sri Lanka Guardian) President Maithripala Sirisena, in his recent statement on the findings of the Bond Commission, last week said that “Perpetual Treasuries Ltd (PTL) had made an undue profit of Rs 11,145 millions in the secondary market. In this, EPF and other government institutions had lost more than Rs 8,524 million or Rs 8.5 billion” and further said “It (Commission Report) also recommends that activities of the EPF must be looked into, and in order to bring the EPF into a proper order, steps must be taken to restructure the EPF”.

The PTL did not rob the money from the EPF and other government institutions at gunpoint or by breaking their safes. These institutions willingly handed over funds from their kitties to PTL for whatever benefits the decision makers received from PTL. In such a case, aren’t they the real culprits who caused losses to the government? I believe the existing laws are adequate to prosecute them if the government has the will.

As government institutions, shouldn’t they have followed the standard procurement procedures applicable to all purchases whether material goods or money market? If the rates offered had been high, there would have been no compulsion for any of the government institutions to purchase the bonds at high rates and make PTL richer. It was also revealed during the investigations that PTL was able to make this enormous profits only because of the help it got from insiders in these government institutions who probably were well compensated. It was a game played by PTL together with some insiders in these government institutions to siphon off public funds within the existing legal framework.

Therefore, without pointing the finger at PTL alone, authorities should immediately prosecute the relevant officials in these institutions for aiding and abetting PTL for robbing them. They should also be made liable to pay back the money they earned through these transactions. Restructuring of these institutions alone will not help. (Like changing the pillow for headache, as a saying goes!)

President has also said that a code of conduct for the officials of the Central Bank must be introduced and that the of conduct for Primary Dealers must be revised and updated. Shouldn’t he first introduce a code of conduct for ministers and ensure its strict enforcement? If the management of government institutions default causing heavy losses, the line ministers should take the full responsibility because the practice today is for the ministers to hand pick persons for appointment as chairpersons and members to the management body.

PTL only took advantage of the opportunities available within the present system of bond transactions to make quick money which it could do because of the advance information it received from the Central Bank and the support it received from some state institutions with public funds which had accumulated for decades.

In the long-term, government must endeavor to manage its finances in a more sensible manner than the way it is being done now, enabling it to balance the budget without resorting to treasury bonds and foreign grants. The system of treasury bonds commenced only in 1997 and only a few companies designated as primary dealers are allowed to participate, unlike in the case of treasury bills which could be purchased by the general public through commercial banks. It is not known how these companies were selected to provide loans to the government or how they acquired enormous amounts of money for this purpose.

The liberalization of the economy after 1977 and paying less attention to government regulations on procurements finally led to a situation where loans had to be raised at high interestrates through treasury bonds to balance the budget. With no control over spending foreign money which was spent freely (unlike in the pre-1977 era), government soon got into a situation where it had to raise more loans to pay back previous loans.

Government’s income could be increased substantially if it could stop corruption prevalent at income-earning departments like Inland Revenue, Customs and Excise. It is a well-known secret that currently, officials at these departments siphon out a good fraction of the revenue due to the government to their pockets. As suggested by the writer in a series of articles published in the Island some time back, government should widen the net for capturing more direct tax payers.

Government leaders must curtail its expenditure by eliminating waste and adopt austerity measures without trying to lead western life styles which the country cannot afford. It makes little sense to lead an affluent lifestyle on borrowed money. It is essential for those at the top to set an example.

Carrying out massive infrastructural projects on loans which the country cannot pay back is not development. Is it necessary for the ministers to travel only in super-luxury vehicles worth? Once the government stops waste, the need for treasury bonds will decline automatically and the primary dealers will vanish from the scene.

Author: Sri Lanka Guardian

Sri Lanka Guardian has been providing breaking news & views for the progressive community since 2007. We are independent and non-profit.

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