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• We are going to do major reforms in the financial sector after the Elections
• There is a mafia both in the stock market and the bond market

In an interview with , the Deputy Minister of Minister of Economic Development and Policy Implementation, Dr. Harsha De Silva responded to former President Mahinda Rajapaksa’s claim that even standard practice followed by the previous regime is portrayed as abuse now. The Deputy Minister also revealed that there was a mafia in both the stock market and the bond market which was by and large active even now while stressing that the Government was acting to fight against the mafia. 

Q : Recently, former President MahindaRajapaksa, referring to road construction projects, alleged that now, even standard practice was being portrayed as abuse by the previous regime. This is not the first time that he has said that the current regime is on a witch hunt. Is this allegation true to any extent? 

Standard practice is not to over-decide so that large amounts can be spent on projects. The fact remains that we are able to get a Rs. 30 billion reduction on the last part of the Outer Circular Highway (OCH) which amounts to about a 40 percent reduction in the cost. If Mahinda Rajapaksa says it is standard practice to over-decide by 40 percent, then it goes to show what standard practice has been right throughout during his regime. I don’t think it is the business of the Chinese Embassy to get involved in this matter because it is a negotiation between the Government of Sri Lanka and a Chinese contractor. Immaterial of what the Chinese Embassy or the former President has to say, we are going get a Rs. 30 billion rededuction on this component of the road construction and that is the reality. I would like to ask the former President whether it was standard practice that the Northern railway line cost 2.5 million dollars per kilometre while a similar railway line, from Matara to Beliatta cost 10 million dollars per kilometre. Certainly that cannot be standard practice. Furthermore, I have documentation which show Basil Rajapaksa spent Rs. 500,000 each to repair bathing wells. If you look at Weliamuna’s report of SriLankan Airlines, there are so many fraudulent transactions that have been identified from releasing air hostesses to work on political campaigns to purchasing of aircraft which the BOI has found to be inappropriate. Is that standard practice? Most of the procurements have been violating standard practice. 

Another good example of blatant violation of standard practice is the Port City project which has gone on without the necessary permits or the Environment Impact Assessments (EIA). In fact, the EIA done is to assess how the surrounding environment would impact the project and not how the project would affect the environment. That is the kind of arrogance with which the previous government seems to have carried on this project. The owning company CCC was banned by the World Bank and the ADB for corrupt practices in foreign countries and it is pertinent to note that earlier this month, the Chinese Government has initiated corruption investigations on a director of this company. It seems that the Ports Authority was bending over backwards to make sure that this project was very profitable for the Chinese company. When the size of the project increased by twice, the cost increased by four times. It could be that the cost was overstated so that the Chinese company could ask for a greater extent of land. 

Then there is the Greek Bond case for which the loss is around 20 million euros. Proper authority for this was not obtained from the CB. All these matters were thrown out of by the Courts. 

These are only a few of so many examples. So don’t tell us we are going on a witch hunt because standard practice has been completely abused during Mahinda Rajapaksa’s regime. 

Q :  The new Government claims that those in the previous regime made vast sums of money out of these projects by abusing standard practice. Have you found evidence or traced these billions of rupees? 

We are digging up the money trails now. We are looking at how money has been moved out and there are both local and foreign experts looking into this. We are looking at how money went through Seychelles to various other places. Let us prove it in time. 

Q : Let’s switch topics here and discuss another matter. When you were in the Opposition you were very critical of the previous Government appointing members to the Board of Directorsof banks. But since coming to power, we see the new Government engaging in this practice as well. Why is that? 

There are two issues here. One is the mere transaction of trading shares of banks by the Central Bank is incest and is completely wrong because the Central Bank is the regulator of other banks. It has all the information about private banks on a daily basis. Therefore, CB cannot decide buy or sell shares of those banks. It was bad for the EPF for the CB to use EPF funds to trade in shares of banks. It was Nivad Cabraal who arrogantly wrote all the rules and started buying shares of banks and started appointing Directors to those banks. 

On one hand it was pure insider dealing because they had inside information in those deals and on the other hand it was taking control of private banks by appointing various people to those boards. In some instances regulators left the Regulator and joined the bank that was being regulated. It is known as regulatory capture. It is very disappointing that three deputy governors used revolving door policies – left the Regulator (Central Bank) and joined regulated banks. The most unpalatable one was when one of the deputy governors joined the Board of Directors of a company, which was found guilty of a securities fraud in the NSB – The Finance Company transaction. Then there is Lakshman Hulugalle who was appointed to Board of a bank. Such people were appointed to Boards of banks. These are totally unsuitable and improper appointments. 

I am not saying all directors should be removed and new directors should be appointed. But there are bad apples and that is what we are trying to change. How do we change that? We got into the well so we have to come out of the well also the same way. There is no other way we can do it. We will have to use the same instrument to clean up the system but at the same time I want to reiterate that this is not going to be our practice. This is a one-time thing to remove the bad apples and thereafter standard practice will be adopted in appointing Directors to Boards of banks. 

I also want to stress that there is a conflict in EPF buying shares of banks  because the EPF is a part of the CB. If it is not a part of the CB, they can buy any shares any time. So we are going to do major reforms in the financial sector after the Elections. Those will include changes to the Banking Act, changes to the Monetary Act and so on because what we want to do is to remove the conflict of interest. What I am saying is the current relationship between the EPF and the CB is unhealthy in the context of trading in bank shares. The CB must be independent and the EPF must be independent; we want to end this current relationship between the EPF and the CB. 

Q : You mentioned that you were cleaning up the process and removing bad apples. But there is a criticism that in fact what the Government is doing in removing the old bad apples and replacing them with new ones apples. 

I think in today’s context, with Yahapalanaya that will not be possible. 

Q : But already there is at least one questionable appointment – namely the appointment of Arjuna Mahendran as the Governor of the CB. 

How many questions did we raise when we were in the Opposition? What happened? Nothing! This case is different because a committee has been appointed to look into the Treasury bond issue and that report will be presented to Parliament. We are a minority government. Once the report is presented to Parliament, the Parliament can act on it. 

Q : But you yourself have stated that you were critical of Mahendran’s son in law, Arjun Aloysius’ conduct. Then why appoint Mahendran in the first place? 

There is a mafia in both the stock market and the bond market. This mafia has been active over the last five years and they seem to think that governments don’t matter and they will do as they please. Now that is going to change. 

Q : Are you saying Mahendran and/or his son-in-law is part of the mafia? 

No, I am not saying that. I am saying that there is a mafia and they have been playing a dirty game. That is going to stop and there is going to be large collateral damage. So let us see what the collateral damage is going to be. But we are determined to clean up both the stock market and the bond market so that the country will benefit. There will be a transparent market mechanism at play so the mafia cannot continue to hold governments to ransom. The previous government was not held to ransom because the people who were supposed to be keeping watch also became part of the mafia. But I will not be held to ransom by anyone. As long as we are there we will ensure that we will not be subject to the dictates of powerful people who seem to be working on the notion that rules and laws don’t apply to them.  What the country must understand is that in this hundred days we are trying to deal with a legacy of the last 10 years. It is like an octopus and they are trying to sabotage what we are doing because even some of the officials still in the system are being directed by the avatars of the past. They seem to be taking orders from people outside the Government. On the other hand there seem to be many who have benefitted from the fraudulent game that was being played and they too are now resisting the cleanup process.  But our Government will fight these so called powerful people who seem to have been running this country. But breaking through these opponents we are faced with is not easy. However we are determined to do it. We have the mandate of the people and that is what we are exercising. We are doing the seemingly impossible, trying to deliver on the 100-day promises.