Central Bank Governor Arjuna Mahendran has become a controversial figure in the recent past. Many Opposition parties made several allegations against him and demanded that he should be replaced. The following is a translation of an interview given by Mr. Mahendran to our sister newspaper the Sunday Lankadeepa. Excerpts.
QWho are you, a paratrooper to the country?
I am not a paratrooper. My father is Charley Mahendran, who served in the Sri Lanka Foreign Service from 1957 to 1998. I was born in1959 when my father was serving at the Sri Lanka Embassy in Washington and I studied at Royal College in Colombo.
The amount should be less than that. When you go abroad on official trips you have to spend for food, lodging, travelling and to treat the people whom you are meeting. But I am surprised that people who spent Rs. 25 and Rs. 30 million are making these allegations.
I passed my Advanced Level Examination in 1977. I got a scholarship to Oxford University in England based on my performance. There I read Economics and Philosophy and was awarded a First Class. Many opportunities were available to me for good jobs in foreign countries. But I returned to Sri Lanka with the hope of serving my country. In 1983 I joined the Central Bank of Sri Lanka as an official in a higher grade. In 1984 I married a Sri Lankan woman – the daughter of Mr. Nadesan, who was the Secretary of the then Prime Minister, Sir John Kothalawala. My father-in-law was a senior official at the Sri Lanka Civil Service. I served for 10 years in Central Bank from 1983 to 1993.
QAre you a Sri Lankan citizen at present?
No. But I was a Sri Lankan citizen by birth and continued to be so till 2006. Even today I consider Sri Lanka as my country despite the documentary citizenship. However, I was compelled to leave Sri Lanka for Singapore as we had to face many difficulties as members of a minority community during the Rajapaksa Government. During this period Tamil Parliamentarians, journalists, intellectuals and many others were killed.
I have some of the best blazers in the world with me. I am not so bankrupt as to buy blazers from the Central Bank money. There is an allowance for Governors’ dressing, but I don’t take it. I challenge anyone to prove all this mudslinging
Security and a good employment were what I sought in leaving Sri Lanka. In 2005 Jeyaraj Fernandopulle criticised me in Parliament alleging that I was supporting the Liberation Tigers of Tamil Eelam (LTTE) through Malaysia. I don’t know whether it was said to create a background to harm me.
QIs Ranil Wickremesinghe your friend? Is that why you were offered the post of Governor of the Central Bank?
I was introduced to Ranil Wickremesinghe by A.S. Jayawardene in 1991, when he was the Minister of Industries, Science and Technology. Being satisfied with my qualifications and experience, he offered me a high post in his Ministry and I did a lot of work. I was there till 1994. From then onwards I worked in executive positions in several Sri Lankan companies. I was appointed as the Chairman of the Board of Investment (BOI) in 2001 by the then UNP Government.
I worked there to bring in investment and also to invest billions of dollars in other countries. I explained the economic situation of the country to Ranil Wickremesinghe from time to time during the period when he was the leader of the Opposition
As the Chairman of the BOI I was able to bring a large number of investors to Sri Lanka.
Since he is aware of my qualifications, knowledge, experience and global network, which he had seen during my 25 years of service, he probably would have invited me this time to the Central Bank. Another reason would have been the fact that he knew that I was aware of his economic vision and future development strategies.
Q After leaving the country and getting citizenship of Singapore in 2006 what did you do there?
First I worked as the Chief Economic Specialist of the Credit Suisse. I was very happy as I was the first Sri Lankan to hold that post. After four years of service I was made the Director of Asia region at HSBC, Hongkong. I chose to work with the HSBC although there were many demands for my services from many banks and companies. There also I worked for four years.
In 2013, I started working as the Chief Investment Executive at Dubai Emirates NBD Bank. This bank is considered to be the success behind the development of Dubai. I worked there to bring in investment and also to invest billions of dollars in other countries. I explained the economic situation of the country to Ranil Wickremesinghe from time to time during the period when he was the leader of the Opposition. This background also might have been one of the reasons for him to make me the CB Governor.
Some even sued me. But I was acquitted. Today there are no political interferences on legal matters. Perpetual Treasuries was floated in 2011 and how could they have foreseen I would be the future Governor of the Central Bank of Sri Lanka.
QThe Opposition charged that the loss incurred due to the issuance of bonds last year was Rs. 30 billion and again they said this amount was Rs. 500 billion. Do you agree that this is a serious allegation?
The contradictions in their statements made from time to time alone prove that their allegations are baseless. The Government wanted Rs.13.5 billion per week for its expenses in February 2015 as the previous Government had emptied the Treasury, when it was voted out.
There was an obligation on the Central Bank to find money for pensions and Samurdhi within five days. This was the reason behind the issuance of bond on February 27, 2015. We gave money to the Treasury after carrying out these transactions according to the rules and regulations of the CB. They were transparent transactions as well. During the period of the former government bonds were issued as private bonds. Then there were only two parties. But we followed the auction procedure accepted by many Central Banks in the world. The money needed for the Treasury was obtained through the Treasury bond issue. Otherwise credit facilities have to be obtained on bank drafts locally or from foreign countries. The most trusted method is through issuing bonds and it’s a state certification. During a bond auction many people can compete in it. The auction process is very competitive.
But the earlier method adopted was not transparent. During the past, funds from the Employee’s Provident Fund (EPF), State banks and insurance companies were extracted arbitrarily at lower rates than the market price. When market prices were at 14% the ETF was obtained at 7% and was used for the bonds.
Anyone can argue but I have told the facts. There were 15 dealers contended for that bond issue. But their demands were for short-term issues. But the Perpetual Treasuries offered for 30 years and the company was so strong it could make that offer. My son-in-law is now only 33.
This loss had to be borne by the people entitled to the ETF. We were able to change this system and go into a transparent system and this is what we did on February 27, 2015. We could get only 3.5 billion on private bond issues. But we needed another Rs.10 billion in addition. We also had to repay a short-term debt obtained at Rs. 50 billion by the former Governor. The former Governer has left without even implementing a system to pay back these loans.
Foreign countries would have lost their confidence in our country if these loans were not settled on time. We therefore had to use foreign reserves to settle these loans. After these transactions were completed, there was a weekly need for Rs.13.5 billion for the maintenance of the country’s economy.We were short of Rs. 10 billion but we only said that we needed Rs. 1 billion. If we tried to get this Rs. 10 billion at once then people would have thought that the country was short of money. As a result bidders would have raised their interest rates. Therefore for Rs. 1 billion dealers agreed to give back Rs. 20 billion.
This is also mud-slinging. The Government was in need of Rs.100 billion in April this year. Knowing the country’s economic conditions, companies raised their interest rates. But this issue is not for 30 years. It is only for terms of 5-10 and 14 years. When it is 14 years the interest rate is 12.4 percent.
Q But the charge against you is about the interest rate of 12.5 percent, instead of the 9.5 percent.
For our first issue of bonds, we got an offer of Rs.3.5 billion due to the low interest rate of 9.5 percent. But when we raised the rate to12.5 percent we received an offer for Rs.10 billion. We did it for the sake of the country. But if we remained at 9.5 percent we could not have raised the money the country needed, as Bandula Gunawardena says.
Q What would you have to say about the allegations that your son-in-law Arjun Alosius who was attached to a company called Perpetual Treasury has indirectly used facilities of the Bank of Ceylon at the first issuance and EPF Fund at the second issue?
As soon as I became the Governor of the Central Bank, my son-in-law resigned from that company. Now, he has no connection whatsoever with that company.
Q But his presence behind the curtain is still possible?
Anyone can argue but I have told the facts. There were 15 dealers contended for the first bond issue. But their demands were for short- term issues. But the Perpetual Treasuries offered for 30 years and the company was in a strong position to make that offer. My son-in-law is now only 33 years of age. Some organised groups want to attack me and him and sling mud on us. We are marooned in a political game. It is unfair.
At the first issue the BoC might have given a loan for 2-3 days. This might have been settled by now. And on this transaction the bank also would have gained profit. But some are confusing the situation. Any company making bids for bond issues gets loan facilities from banks.
Some even sued me. But I was acquitted. Today there are no political interferences on legal matters. Perpetual Treasuries was floated in 2011 and how could they have foreseen I would be the future Governor of the Central Bank of Sri Lanka.
Q What about charges on the second issue?
This is also mud-slinging. The Government was in need of Rs.100 billion in April this year. Knowing the country’s economic conditions, companies raised their interest rates. But this issue is not for 30 years. It is only for terms of 5-10 and 14 years. When it is 14 years the interest rate is 12.4 percent. The Opposition criticises this rate, but it is 10.5 for shorter terms and they are silent on the low rate.
There is a large EPF fund collection per day. Instead of saving those funds in banks, they have bought bonds and have collected bigger interest and the benefit is given to the members. Is that wrong? Even the EPF acted as a competitor. Those who are criticising us are questioning as to why the fund was not given all the bonds. This is a competition and my son-in-law is not involved in this. I have said that he was not involved with this company. It was only another mudslinging. Politicians with different agendas -both within and outside the Government-are spreading these lies.
Q There is an allegation that the money from the first bond case was sent to the UNP.
It is terrible mudslinging. I don’t know whether the companies which are bidding for bonds are supporting various political parties. It is not relevant to the Central Bank. Anyway, I’m not a member of the UNP.
Q There is also an allegation that instead of using the official bungalow you are residing at JAIC Hilton at the expense of the Central Bank?
I have not stayed at JAIC Hilton a single night. I am more comfortable at my father’s house, where I grew up, than at the CB official bungalow. This house, where you are meeting me is that.
Q What is your response to the allegation that on your trips to other countries you have bought 21 blazers and paid for only one of them using you personal monies? And also that you are spending Rs. 450,000 for a meal?
The Central Bank works with other countries and their Central Banks. To bring investments to Sri Lanka we hold discussions. There are times, where you have to host meals for around ten people. The Prime Minister, the Finance Minister and other officials too participated at these discussions. Just think, whether I can eat a meal around Rs. 450,000 alone?
I have some of the best blazers in the world with me. I am not so bankrupt as to buy blazers from the Central Bank money. There is an allowance for Governors’ dressing, but I don’t take it. I challenge anyone to prove all this mudslinging.
Q For what purposes you spent around Rs. 14.5 million using your official credit card?
The amount should be less than that. When you go abroad on official trips you have to spend for food, lodging, travelling and to treat the people whom you are meeting. But I am surprised that people who spent Rs. 25 and Rs. 30 million are making these allegations.
