The Nation Sunday Print Edition - page 5

Sunday, March 22, 2015
Prime Minister Ranil Wickremesing-
he has come out with a lengthy speech
on the vexed matter of Treasury Bonds.
He has defended Central Bank Gover-
nor Arjuna Mahendran, pledged an in-
vestigation in the interest of affirming
that therewas nowrongdoing, defended
the composition of the panel appointed
to investigate and cast aspersion on
several individuals and groups.
It is good that Wickremesinghe has
broken his silence on this issue. It is
good that he has decided that an inves-
tigation is a good idea. It is good that
he has sought to explain what he claims
really happened. It is extremely good
that he has flagged certain questionable
practices of the previous regime and
Mahendran’s predecessor Ajith Nivard
Cabraal. It is good that he has named
names, even under cover of Parliamen-
tary. There are things unsaid, however.
There are measures that ought to have
been taken but have not. And there’s a
lot of dodging that does not cover him
in glory.
Let’s get the easy stuff out of the
way. Since he has named names Wick-
remesinghe is now honor bound to
initiate proper and criminal investiga-
tions into the activities of the named.
Since he has been an ardent opponent
of shoving tough questions under a
carpet called ‘commissions of inquiry,’
he should not take that easy path to
save friends who betrayed trust (let’s
assume) by indulging in wrongdoing.
In the rush to name names, he has
confused wrongdoer with people who
may be tough to work with but whose
integrity is nevertheless unquestioned.
That’s wrong. Now he has to investi-
gate such individuals as well and if he
does this he is likely to come off as a
reckless accuser, a man with an axe to
grind and one of very little substance.
Let’s get to the composition of the
inquirers. Wickremesinghe has not ob-
jected to the charge that they are mem-
bers of his party. When the Leader
of the UNP gets UNPers to investigate
charges leveled against a Governor he
appointed, there is obviously a con-
flict of interest. It is scandalous that
a senior politician and a lawyer missed
this. Instead of addressing the issue
Wickremesinghe chooses to shoot the
messenger. It is shocking that Wick-
remesinghe accuses the accusers of
having vested interest, in this context.
Let’s get to the bonds. A point that
has been largely missed by those com-
menting on the issue is the fact that
there was a Rs 80-85 billion maturity
which came up or is coming up. The
Governor either didn’t know about it or
knew about it very late. We don’t know
if Mahendran held his head in his
hands and if he did it was due to being
‘shocked’ by this piece of information.
But he done exactly that, he has no one
to blame but himself. It may have been
due to the fact that many seniors in the
Bank were sidelined because they were
thought to have been close to his prede-
cessor. All based on stories, obviously.
If they had been unprofessional they
should be appropriately charged and
investigated. That didn’t happen. The
lack of information may have resulted
in Mahendran being hit between the
eyes. That’s what happens when poli-
tics overrides professionalism.
Indeed, one wonders if there’s any
professionalism at all here. The pre-
vious regime followed an erroneous
methodology where small amounts
were issued to the market while the
majority were private issues, as Wick-
remesinghe correctly observed in his
speech. He claims that they were is-
sued at favorable terms in the private
placement, but this contradicts the
general understanding that they were
issued at the weighted average. What
is important is that the majority were
to state funds and foreign investors.
A significant amount went to the EPF.
There was no benefit to private dealers
whose constant appeal had been and is
‘let the entire demand and supply be
sorted out in the market’ so that the
Bank cannot decide arbitrarily. Howev-
er if they were, as he claims, issued at
a high rate it means the primary deal-
ers were conned. Another issue that
warrants investigation, please note Mr
There have been instances where
the Bank mentioned 1 billion and sold
2. They did accept more that what was
on offer but the rate remained close to
the previous week’s weighted average
rate. Primary dealers had, however,
information about tenure and yield. In
other countries cut off rates are pub-
lished. The Bank hasn’t done this, per-
haps to keep the rates down which of
course does not favor primary dealers.
If there was any ulterior motive, part
of it would have been, to put it crude-
ly, to screw the market and benefit the
state. In this instance the yield actual-
ly rose 300 basis points from what was
expected. The Bank compromised the
state, therefore.
Previously, the Bank would maintain
a dialog with investors, nurture inves-
tor confidence and exert moral pres-
sure to bid low. The primary dealers
typically bid a little above the market.
To insinuate that primary dealers are a
cartel or a mafia is wrong. However, if
they indeed are a mafia or a cartel then
it is now incumbent on Wickremesing-
he to investigate them. If he cannot
prove it then of course there’s more egg
coming on to his face.
Mahendran has expressed the po-
sition that the market should deter-
mine the interest rate. This is correct
on principle. However there is this
‘thorny’ reality that the EPF makes up
60-70% of the market. So the EPF can
be used by the Bank to fix the market
rate. However a low interest rate thus
obtained wouldmean lowmarket activ-
ity, which does not help. The Bank has
to take the EPF out of bidding so that
the market is not distorted (as long as
EPF funds are managed by the Bank).
Right or wrong, the bottom line is that
there should be a) policy clarity, and b)
information should be released in ad-
vance. It is clearly out of order when
you get people to put in bids based on
operating procedures and practices
and then change the rules once the bids
are in based on changes in ‘want’.
Wickremesinghe admits that this is
what happened. He says that it was
discovered that a vast sum of money
was required to pay off contracts.
Well, if he (or the relevant minister)
didn’t know this and didn’t inform him
or the Governor in advance, that’s un-
pardonable incompetence. It is indeed
strange that Mahendran, when the goo-
ey stuff hit the fan, chose to talk about
his son-in-law’s resignation as a direc-
tor of the company under scrutiny and
not about this sudden money-need of
the Government. Wickremesinghe
himself or Eran Wickramaratne, the
minister concerned, could have men-
tioned this three weeks ago. They did
not. Why not?
It goes without saying that bonds are
not the only way to find money. The
bulk anyway goes to state institutions.
Perhaps Wickremesinghe didn’t know
how to deal with the problem. How-
ever, now that he has mentioned it, it
is clear that he has implicated himself
as being party to whatever wrongdo-
ing that took place even if he doesn’t
benefit personally. Since it is highway
contracts that are at issue here, two
things need to be said. Such contracts
are rarely if ever honored on time.
Secondly, there are low cost ways of
dealing with the issue. The Bank’s job
is to find money for the Government at
the lowest possible yield and at an ac-
ceptable risk profile. A prudent debt
manager would not lock in 30 year bor-
rowing at a high yield. Wickremesing-
he would be hard pressed to name a
single corporate entity that will bor-
row 30 year money on 12%.
The Prime Minister points to an
instance when there was a bond auc-
tion in 2013 where Rs 16 billion was
raised though 5 year bonds at 11.42%.
Again he mentions the matter of ‘pri-
vate placements’ ignoring the reality
of who the relevant entities were. He
also forgets that while in the Opposi-
tion his party members bemoaned
high interest borrowings of the pre-
vious regime. He says nothing of
the ‘logic’ of long term borrowing on
high interest. In any case that was a
different time, a different context and
different market realities. Using it as
a justification for what the Bank did is
The Government (and the President
is complicit here courtesy his silence)
has to do better than the previous re-
gime. The Governor has to do better
than take leave and let friends of his
appointer bail him out.
As things stand, there won’t be bet-
ting on the outcome of this investiga-
tion. Wickremesinghe has made sure
that a friendly determination will be
yielded. To say the least, it is a poor
show on his part.
By Dayan Jayatilleka
Sri Lankan civil society intellectuals
and commentators who support the new
dispensation are making the same mis-
take as Francis Fukuyama did, but in a
far more facile and therefore far less for-
givable form. When the Cold War ended,
Fukuyama famously posited the End of
History. It was crudely misunderstood
to mean that history as a narrative had
arrived at a terminus, which is not at all
what he meant. Fukuyama had used a
Hegelian flourish to indicate the liberal
democratic capitalism has triumphed
over all other competing ideologies as a
paradigm of how society should be or-
While there was much more to what
he said than what his ignorant critics
thought, Fukuyama was wrong in his
general prognosis, in his own terms
too. Dr. Henry Kissinger’s latest book
on World Order is precisely about the
competing (regional) visions of how the
world should be ordered, and how those
competing visions stem from different
historical, civilizational, cultural and
ideological matrices, or what Dr. Kiss-
inger calls in the volume’s subtitle, “The
Character of Nations”.
In Sri Lanka today, cosmopolitan
civil society is on a delusional high. Not
for the first time it is going against the
grain of ‘the character of the nation’. Its
neoliberal ideologues and opinion mak-
ers are certain that the End of History
has arrived and ‘liberal democratic plu-
ralism’ has triumphed. The Sinhalese
have reached a stage of enlightenment
that has seen the back of the old Statism
and is conducive to reaching out to the
Northern Tamil nationalists in refash-
ioning the Sri Lanka political order.
The Southern nationalist-populists have
been marginalized and their hero Ma-
hinda Rajapaksa is strictly a has-been
with a minor band of malcontents. The
SLFP is safely in the hands of Chandrika
and her proxies. The decades-old order of
the strong Presidential state is about to
end. A new liberal democratic capitalist
order, with a quasi-Westminster model
is about to be born. Accountability shall
be achieved according to international
standards. The UNP and the SLFP shall
move hand in hand, under the joint aus-
pices of Ranil and Chandrika, beyond the
13th amendment and towards federal-
ism. China will be shown the door as we
reincorporate ourselves as subordinate,
peripheral unit in the Western-dominat-
ed world order and in an Indo-US domi-
nated regional one.
In fairness it must be said though that
Fukuyama was rather regretful about
the defeat of the Communist challenge
and the victory of liberal capitalism.
Sri Lankan civil society intelligentsia
is suffering from a classic case of false
consciousness, in which, as Marx said,
“men and their circumstances appear
upside down as in a camera obscura”. Its
Fukuyama-ist fantasy has begun to come
unstuck with the Northern Provincial
Council’s political stridency beginning
with the landmark Genocide resolution.
Three battles are looming over: (A) the
19th amendment and the hypertrophy of
the Prime Ministership at the expense
of the elected Presidency (B) the call to
move beyond the 13th amendment to-
wards federalism and (C) the Geneva
OHCHR inquiry on Sri Lanka’s internal
These are but expressions and reflec-
tions of contradictions over basics: (I)
which political order for Sri Lanka, (II)
which center-periphery relationship
and Social Contract within the island
nation (III) which placement within the
world order. The coming parliamentary
election is the crucial, but perhaps only
the most visible battleground.
Judging by their silence, most neolib-
eral pluralist commentators think that
the political discourse behavior of the
Northern Provincial Council and its
Chief Minister constitute no big deal; it
all amounts to a molehill out of which
a mountain shouldn’t be made. Let us,
however, get things in perspective. A
moderate mainstream Northern Chief
Minister successfully moves an 11 page
resolution alleging ‘historical and re-
cent genocide’ against the Tamils, com-
mitted since 1948 by successive Lankan
administrations, and continuing to
date. He moves the resolution precisely
on the watch of a new, more moderate
Sri Lankan government, having stud-
iedly refrained from doing so under its
hawkish predecessor.
Thus a moderate Tamil leader moves
an outrageously immoderate resolution
under a moderate Government, alleg-
ing genocide under all previous govern-
ments including moderate ones– and
Sri Lankan moderate commentators,
here and overseas, do not think it means
that something is seriously amiss about
mainstream Tamil politics.
The sad truth is that the Sri Lankan
moderate intelligentsia does not stand
up against political immoderation when
it comes from the North; from the Tamil
nationalist side.
My liberal critics cannot understand
where I am coming from. I belong to a
very old theoretical tradition or more
accurately a confluence of two old tradi-
tions, one, the Realist-Statist, the other,
the Heroic-Messianic-Romantics.
To my mind both traditions are predi-
cated on or yield as a composite, the as-
sumptions that the world is a dangerous
place, that communities and countries
have threats based on geography and
deducible from the long sweep of his-
tory; that there is such a thing as Evil;
that existence is a struggle, battle, a war
even; that there are causes worth fight-
ing for.
These two great traditions are in-
formed by the categories of ‘friends’ and
‘enemies’. These are not incidental or
accidental but quite basic to the frame-
work. It has nothing to do with conspir-
acy theory. In his World Order, Dr. Hen-
ry Kissinger condenses the perspective
of Kautilya, the Asian founding father
of one of the two traditions I belong to.
When Sun Tzu says “know yourself,
know your enemy; a thousand battles, a
thousand victories”, that is where he is
coming from.
Sri Lanka has real enemies. The core
and majority of this island nation, the
Sinhalese—let me say it again, the Sin-
halese – have real enemies, and they
aren’t the Tamils or the Muslims. (In
fact had I been Muslim I would definite-
ly have voted against Mahinda Rajapak-
sa.) But there is a (Pan) Tamil secession-
ist project and a Western geopolitical
hegemonic project which are inimical
to Sri Lanka and to the Sinhalese.
Given the geography and history of
this island, there are three fundamental
challenges and one fundamental vulner-
ability from which the country has to be
protected. The three fundamental chal-
lenges are:
To protect the island from ex-
pansionist impulses from South India.
To prevent the breakup of the
country through the breakaway of its
North-Eastern periphery.
To safeguard the distinctive
political identity and destiny, indepen-
dence and sovereignty, of this island
vis-a-vis its giant neighbor as well as
from the global North, the source of
three colonial incursions.
These three challenges must be seen
against the backdrop of the basic vul-
nerability of this country, namely the
combination of its island nature and its
size, which makes for lack of defense in
The Sinhalese are the core and main
force of resistance to the breakup of the
island state as well as hegemony over it.
It cannot be accidental that there wasn’t
a single sword raised or shot fired in
anger against the British colonialists in
the North for one and a half centuries.
The utter absence of Tamil rebellion
against British colonialism is a point
that Emeritus Professor KM de Silva
has made more than once in his schol-
arly writings. It is also not accidental
that liberal-pluralists do not mention
that fact in their potted revisionist his-
It is the duty of the intellectual, most
especially the political thinker, to man
the watchtower, or less martially, the
lighthouse. My perspective is not a
search for enemies.
Plato’s allegory of the cave has the fig-
ure of the individual who escapes from
the cave, sees the reality of the world
outside, but returns to the cave to in-
form the other prisoners in the cave of
the way things really are. We may ob-
serve a distinction between those who
never leave, never escape, and those
who do but never return. The true intel-
lectual is one who escapes and returns,
even (as Plato points out) at the cost of a
risk to one’s life.
Ranil rants,
and knots himself up
Duty and tasks of the
national intelligentsia
It is clearly out of order when you get people
to put in bids based on operating procedures
and practices and then change the rules once
the bids are in based on changes in ‘want’
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