Friday, 20 March 2015 00:00
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The Central Bank bond issue can be analysed from a legal, national defence, economic, or political perspective. In an economic analysis, the fundamentals do not change from time to time or country to country.
Perpetual cannot be faulted. They have clients. They must do the utmost (within the law) to keep their clients happy and in profit. Otherwise, clients would drift to some other more profitable primary dealer. In this case, Perpetual quoted a higher interest income rate that would then be passed on to their clients.
Perpetual might have bought insider information. But this is what all fund managers do. It is seeking of private profit that makes the bond market and the stock market “efficient”. That is, all price sensitive information is immediately reflected in the bond or stock price. Millions of investors seeking private profits make the markets efficient. Market economies are driven by private profits and “survival of the fittest” drives market economies. Nobody can “outlaw” these basic instincts.
What is against the law (or should be against the law) is the selling of price sensitive information for a profit.
Therefore, if Perpetual had made an open bid, which was accepted by the Central Bank, all investigations should be targeted at the Central Bank.
Have such (increased) acceptances been made before? Yes, as I understand.
Does the CB Governor get involved in such run of the mill decisions? I hope not. I (we the public) am not paying him a fat salary to take such day to day decisions. He has also said that he was not involved. Whether involved or not, I do not want “my Central Bank Acceptance Committee” to give such lame excuses. Similar excuses were given for the “stretched” economic data published under the previous governor.
Has the current CB Governor been on the job long enough to reduce (prevent) the selling of insider information. I don’t think so. Calling for his resignation, pending an investigation, is pure politics.
As mentioned above, this issue can be analysed on many perspectives. But first, the unchanging economic perspective. Other considerations follow the economic lead. Otherwise, we will be left with all laws and no money.
Unfortunately, political considerations have taken the lead. It is now reported that the Governor was made a Lankan national in one day to qualify for this job. This, of course, is a serious national issue. The PM should explain why Arjuna was so absolutely necessary.
While on the subject of insider information, I believe Rajaratnam was wrongly convicted in the USA. For the same reasons discussed above, were I a unit trust investor, I would much rather invest with Rajaratnam, than with another (mediocre) fund manager, who would patiently wait for all information to be publicly available. But the US securities industry wanted a scape-goat to cover up all their shortcomings. Here, in Sri Lanka too, Arjuna may need to be sacrificed.
The point is, if Arjuna has done wrong, by all means, he should go. But first, there has to be an independent investigation. Calling for his resignation, pending an investigation, is pure politics.
SelvaratnamColombo
