by FS
That may by the law of the land many centuries ago. Nevertheless frustration, anger, apathy and indifference at enforcement of the law has led to many calls from the public to lynch the culprits in the plethora of irregular deals that’s happening with alarming frequency in paradise land.
It was once said that the stock market has hit the bottom, and the next flow of media reports called it a ‘bottomless pit’. Now Sri Lanka is going down the abyss owing to lack of governance, transparency and confidence faster than anyone can think, with no bottom to hit! Unfortunately for the people that matter in the country, the voting population – rural populace – these issues are not as serious as it is to an urban audience.
Yet the 390 million-rupee scam in the stock market in a deal between some directors and investors of The Finance Co (TFC) and the National Savings Bank (NSB) should bell the cat this time because it involves the country’s premier savings bank where members of the public of all walks of life have put their money in.
Newspapers have been filled with the developments relating to this deal like the President ordering its cancellation; the Securities & Exchange Commission (SEC) launching an investigation; settlement bank Sampath settling the seller but awaiting payment from the NSB which is unlikely to come if the government has cancelled the deal, etc. However among other issues that need to be vigorously addressed is restoring the confidence, integrity and sanctity of the market place.
The Chamber of Commerce (CCC), the country’s premier chamber, has slammed the deal and said ensuring the integrity and transparency of the market place is paramount. Laudable statement indeed if not for the fact that the chamber itself is guilty of not practicing what it preaches, given its conduct of an investigation of a member firm which had been reprimanded by the Supreme Court. The less said about that inquiry tainted with conflicts of interests, the better. But it simply goes to show that society has degenerated to such a low level that even those supposedly, highly respectable individuals have skeletons in their cupboards.
Last week’s editorial on the ‘fit and proper’ rules for directors issued by the SEC explains in detail the dilemma of assessing the ‘honesty and integrity’ of a director merely from an affidavit or referees (who themselves are questionable). In recent times, the number of dubious deals and irregular transactions have increased so much that it’s hard to keep up with the numbers.
In addition to the NSB fiasco, another issue that has surfaced is the funds used for the recent mega EXPO exhibition and fair. The Government and the Export Development Bank (NDB) say the event was well received but questions are now being raised by directors about the cost of staging the event. When this was raised at a board meeting, EDB Chairman Janaka Ratnayake walked out of the meeting saying he is not ‘answerable to the board but only to the President’.
What kind of nonsensical statement is this? It’s not only the chairman but the entire board that is responsible to – in this case – the Minister in charge (not the President). Taking the argument further, the ultimate authority is the people, because state institutions are run with public funds, and directors are mere representatives of the public. Such high-handed conduct should not be tolerated by anyone including the Minister or the President. By law, by statute, those working for state institutions are servants of the people.
In the case of a private company, the board is responsible to its shareholders, and cannot run on the whims and fancies of a bunch of directors. Irregularities abound in Sri Lanka. Here are some reported examples: contaminated petroleum; EDB, NSB, the manipulation of the stock market that led to the fall of its respected chairperson Indrani Sugathadasa (despite her high connections); goings-on at Watawala Plantations; the Sheraton Hotel issue which is reported extensively on the previous page; Hilton, the CATIC (Chinese investor) deal, etc, etc.
These are just the reported ones; what about the others that are yet to come into the public domain because the paper trail has been skillfully hidden from the media by the perpetrators?
On the NSB transaction, while various options have been discussed, the only possible course available to ensure the credibility of the Colombo bourse is for the transaction to be reversed through the stock market. This means that the NSB should sell back the shares at the same price to the original buyers, who also need to take this option for the sake of preserving the integrity of the market mechanism. By doing so, nothing is lost or gained while the markets restore back its credibility.
It is also incredible for the NSB to publicly state that it was cancelling the deal (whatever the Treasury Secretary or the President would say) as a deal done must be honoured. If the decision to cancel the deal is effected and settlement bank Sampath Bank takes the loss, it erodes confidence in the market for which both the Treasury and the President must take responsibility. Sampath on the other hand is answerable to its shareholders. The Central Bank must also take responsibility as to whether these directors are ‘fit and proper’.For NSB Chairman Pradeepa Kariyawasam, the NSB issue comes a full circle after the problems he had at the Sri Lanka Insurance which he chaired after the Supreme Court reversed the privatization of that institution.
“History repeating itself’, quipped one analyst, referring to our report on November 15, 2009 headlined “Crisis at SLIC board settled by PBJ”. That report said that Treasury Secretary Dr P.B. Jayasundera intervened to settle a dispute between Kariyawasam and the rest of the board of directors.
It said Kariyawasam was asked to adhere to his function as a non-executive chairman in the face of clashes and disagreements between the directors and the chairman over decisions allegedly taken by Mr Kariyawasam without consulting the board.
A similar drama has taken place at the EDB where the board says it was not fully consulted on the budget for the EXPO fair. Whether or not NSB directors were involved in a corrupt deal, this issue must be dealt separately without tampering with the market, struggling to recover from a long period of uncertainty.
Through these external measures, including influential brokers seeking favours and other needs with the intervention of the President (as Ministry of Finance) without allowing market forces and regulation to take its course, the Colombo bourse from its exalted position of being ‘among the best performing in the world’, has turned into the laughing stock (market) in the world.
For sanctity to prevail, the buck must stop somewhere and that is the President as the Ministry of Finance. Wrongdoers must be punished, whoever they may be; otherwise the law of the jungle (which is happening in the market) will spread to the streets, a situation Sri Lanka can ill afford.
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