FR case against investment in Greek bonds: SC orders CB to file foreign reserve guidelines

By S.S. Selvanayagam

The Supreme Court yesterday (6) ordered the Central Bank to file the Foreign Reserve Management Rules (Guidelines) to Court sequent to the Fundamental Rights violation petition challenging the investment on the controversial Greek bonds, which resulted in a loss of Rs. 2.14 billion of public funds to the State.

The Deputy Solicitor General moved for time to file it and the Bench comprising Chief Justice Shirani A. Bandaranayake and Justices K. Sripavan and P.A. Ratnayake granted three weeks’ time to file the same and fixed the matter to be resumed on 15 September before the same Bench.

Main Opposition UNP Parliamentarian Sujeewa Senasinghe in this petition cited Central Bank Governor Ajith Nivard Cabraal, Monetary Board of the Central Bank and Finance Ministry Secretary P.B. Jayasundera as well as Members of the Monetary Board, International Monetary Cooperation Minister Sarath Amunugama, Auditor General H.A.S. Samaraweera and the Attorney General as Respondents.

Upul Jayasooriya instructed by Paul Ratnayake Associates appeared for the Petitioner. Deputy Solicitor General Sanjay Rajaratnam with Senior State Counsel Sahida Barrie appeared for the Respondents. The Petitioner states that the Central Bank on 5 April 2011 invested in Greek Government bonds which had a face value of EUR 30,000,000 for EUR 22,163,500 (Rs. 3,472,576,045), purchased from secondary market through intermediaries namely Morgan Stantley, Jefferies & Com. Inc, Royal Bank of Scotland, Commerzbank AG.

The bonds were trading below the face value, entailed a realisable value far below the market value of the secondary market due to the debt crisis the government of Greece was saddled in, he states.

The said bonds were purchased through the intermediaries paying a high price when the actual value was far below the price that was paid for the purchase, he alleges.

At the time of the investment, Greece was entrapped in a debt crisis and international financial rating agencies had downgraded its economic outlook and its ability to maintain financial obligations, he points out.

The high risk involved and volatility in investing in Greek government bonds is common knowledge and does not require careful scrutiny or consideration of market conditions by professional researchers, he states.

The Greek economy has been in dire straits since early 2008 and has continued to further deteriorate and despite the alarming risk factor, the Central Bank did not pay any heed to take into consideration of the market trends and the projections based on the research papers and instead chose to obtain the prior approval of the Monetary Board despite the clear risk in a surreptitious manner with no transparency, he alleges.

He complains the sale of bonds with a face value amounting to EUR 5,000,000 which had been purchased by the Central Bank at EUR 4,103,500 had been sold at EUR 3,300,000 on 13 July 2011, merely three months subsequent to the purchase, acting in conflict with all accepted principles and practices, incurring a loss of EUR 803,000.

The Monetary Board had taken a decision to accept the Greece Debt Swap Programme and the loss incurred as a result of the wipe out only arising out of the Greece Debt Swap Programme is a colossal sum of Rs. 1.2573 billion, he points out.

The Petitioner alleges the investment has been carried out at the behest of Central Bank Governor and the Finance Ministry Secretary in an arbitrary manner with callous regard to the citizenry of the country with corrupt and malicious intent of personal gain.

He is seeking an order from the court that the fundament rights to equality and equal protection of the law of him and the citizens of the country have been infringed by the 1st to 6th Respondents in violation of the Doctrine of Public Trust.

He is asking the Court to make order on the Commission to Investigate Bribery and Corruption to inquire and report to Court within three months on the purchase of the Greek bonds and continue to take action as provided for in the law and keep the Court informed.