Finance Minister & The Central Bank Treasury Bond Scam
Rusiripala Tennakoon
In a TV appearance by the Minister of Finance Ravi Karunanayake (Face the Nation Programme TV1 Sirasa TV, 0n 13th June) the subject of theCBSL Treasury Bond issue came up for discussion. The FM in his opinion expressed several concerns in defending the Governor Arjuna Mahendran, and inter-alia, asked has any body calculated any loss arising out of this allegation. In fact, he categorically asked “what was the loss to the government as a result of the Bond deal of February 2015?
By now, all concerned are aware of the calculated loss not only to the Government but even to some of the Primary Dealers as consequential losses on their operations because the matter has been discussed widely in different forums publicly. However, it appears that either the Minister has not been presented with true facts or has been mis-informed. As the Minister of Finance he was the biggest loser resultantly extending the same to the people of this country vis –a- vis the huge unprecedented gain of one primary dealer, who in this instance happens to be a Company having a direct relationship with Arjuna Mahandran, Governor of the Central Bank.
In the context, it will be appropriate to revisit the issue and examine the statistical data to clarify matters.
The 30 year Bond carrying a Fixed interest rate of 12.5% was advertised by the CB for a value of Rs.1 Billion( 12.50%-2045A) for the Auction to be held on27th February 2015. As a practice, with every such advertisement, the Public Debt Department (PDD) of CBSL used to indicate a rate to the Primary Dealers to submit their bids. This rate is based on the prevailing market rates for similar bonds and this was intended to dissuade primary dealers from bidding at rates pretty much above or or far below the prevailing rates. In this manner the Public Debt Department attempts to keep the auction rates as close as possible to the going market rates or, in other words, the prevailing yield curve.
