Central Bank Blues (greens?)

Financial irregularity was one of the many charges leveled at the Mahinda Rajapaksa regime.  The ‘rot’ so to speak began at the top, according to critics.  It was and still is argued that this state of affairs is a direct or indirect product of a system of governance marked by centralization of power following the dictum ‘power corrupts, absolute power corrupts absolutely’. 

Maithripala Sirisena’s campaign theme, naturally, was good governance.  Promises were made to correct institutional flaws, bring to book miscreants and ensure things like transparency and accountability.  Professionalism would replace political patronage, the people were told. 

Today, with President Sirisena in effect having transferred his mandate to Ranil Wickremesinghe and conceded (in effect) executive powers to a party with minority representation in Parliament, the political equation is marked by instability.  The Sri Lanka Freedom Party has more MPs than the United National Party. The reform project is at odds with the prerogatives of political expedience with the two major parties engaged in intense brinkmanship. 

It is in this context that stability, professionalism and squeaky clean operations at the high temples of financial management are imperative.  Politicians will quibble; that’s a given.  The economy must be on a strong footing with robust rules and regulations to eliminate irregularities of the kind the current dispensation accused its predecessors of indulging and indulging in. 

It was hoped that the ‘bad’ were not only swept out, the ‘good’ replaced them.  Today, there are questions about ‘the good’. 

The Governor of the Central Bank Arjuna Mahendran made a promise.  He said that the Government would offer a detailed response to allegations that a firm connected to him through his son-in-law Arjun Aloysius may have used ‘advanced knowledge’ to profit from the bond issue.  The Government, however, did not respond. 

The Deputy Minister of Policy Planning and Economic Development offered an elaborate ‘explanation’ drawing from theories regarding interest rates, but studiously avoided the issue of insider trading, an issue which his party had routinely charged the previous government of encouraging. 

The issue here is that controversial deals were made over the past week by Perpetual Treasuries, a firm connected Aloysius.  Perpetual Treasuries is a fully owned subsidiary of Perpetual Asset Management whose parent company is Perpetual Capital Pvt Ltd, a family run company with Arjun Aloysius functioning as its Chief Executive Office/Director.  

Mahendran claimed that Aloysius had resigned from Perpetual before he, Mahendran, took up the post.  But why speak of resignation and appointment in the same breath? After all, Perpetual is a legal entity and there’s no legal requirement for Aloysius to give up a lucrative business just because a relative got a job, surely? 

Mahendran, had information which in the hands of a ‘dealer’ would be extremely valuable and moreover ‘convertible’ into billions of rupees.  That conversion was made.  Among the beneficiaries was a company that stands accused of involvement in controversial stock market deals with the Employees Provident Fund (EPF) during the previous regime, deals which were heavily criticized by several individuals who are now ministers and deputy ministers. 

The question that arises then is not whether Aloysius should have resigned but whether Mahendran should have been appointed in the first place.  The Government ought to have known that appointing as Governor the father-in-law of a man involved in what was deemed ‘irregular’ was bound to stir controversy.  Well, it has certainly hit the fan, as they say. 

The new Government doesn’t have it easy what with deadlines set and lots of things on its to-do list yet to be done.  It cannot afford this kind of distraction.  It can score in terms of commitment if swift action is taken in this matter. 

Harsha De Silva has promised an investigation.  This is a welcome move.  Mahendran can help in giving credence to such an investigation by stepping down. 

 That will not only clear all doubt about the Government’s good intentions, it will considerably boost the UNP’s stocks among the voters.  Ranil Wickremesinghe doesn’t hold all the political aces, but that does not stop him from sorting this issue.  In fact it might get him the extra trumps he desperately needs at this point. 

As things stand, inaction, pooh-poohing and/or artfully dodging the issue will only give credence to the view that wrongdoing continues to thrive even after the ‘wrongdoers’ were ‘sent home’.