Despite past administrative faults Direct Placements Method shouldn`t be removed without alternative - AG

- Administrative irregularities evident in use of DPM for years

- PM insisted ‘auction system’ only due to corruptions in DPM

- There was no legal decision to remove DPM

- Current losses incurred due to no Hybrid System

By Shehan Chamika Silva

Despite there were considerable irregularities reported on the use of Direct Placements Method over the years, Auditor General during the Cross examination at the Bond Commission said today that it should not be removed without an alternative.

He was of the view that the interest rate should be at the appropriate level when issuing bonds through Direct Placement Method (DPM), because in the past it was evident that the bonds had been issued via DPM were largely noncompliance to the market rate, therefore huge losses could be found even in DPM as well.

The losses deemed ‘avoidable’ in his report was due to not continuing the ‘Hybrid System’ practiced previously in bonds issuing, where both auction and Direct Placement Method should be used to raise funds properly by the Central Bank officials.

When commission questioned it was explained that there were huge administrative faults visible in issuing bonds through DPM over the years, since there was huge deviation on interest rates comparing to the market prevailed rates at the time of the issuances of bonds through DPM.

The Auditor General however emphasized that irrespective to the misdeeds occurred previously in using DPM, the decision to raise funds solely through auctions cannot be justified because it had incurred huge losses to state unnecessarily during the period of February 27, 2015 to May, 2016.

He said CBSL should have stopped accepting bids, where value of the bids offered meets at the auction and thereby balance fund requirement could have been acquired through Direct Placement Method based on appropriate interest rate.

Meanwhile, during the cross examination conducted by Senior Counsel Shanaka de Silva who appeared for former Governor Arjun Mahendran, it was explained that according to what was stated in Parliament Hanzard report on March 17, 2015, Prime Minister Ranil Wickramasinghe had said that he insisted on public auction because private placements have led to corruption and lack of transparency for years.

Showing the Hanzard report to the witness, Mr. de Silva asked the witness whether there was a government decision already in practice before February 27, 2015 regarding the removal of using the Direct Placements Method in the process of Treasury Bonds issuance.

In reply, Auditor General ascertained that no such legal decision had been taken by the Monetary Board, which has the power to do so. And if the Government was to suspend DPM because of irregularities, then the decision should have come through a proper legal mechanism.

Merely a statement of the Prime Minister in Parliament would not turn into laws; thereby the officials of CBSL should not have used auctions solely to raise funds suspending the Direct Placement Method without a proper alteration to it, he said.