Limits to power
The NSB/TFC deal and the General
Recent events in Sri Lanka have reconfirmed that though seemingly power may be unlimited, there are in reality constraints which limit the options those in power have.
As proof of this fundamental reality, the first event is the purchase by the National Savings Bank (NSB), a State-owned entity, whose depositors have a guarantee by Government, of shares of The Finance Company (TFC), a failed finance company of the Ceylinco Group taken over by the Central Bank of Sri Lanka (CBSL) and managed by a CBSL appointed Board of Directors, at a highly inflated price, paying Rs.390 million in late April 2012. There are also allegations of insider trading involving the beneficiaries of the deal.
The public reaction to the news of the purchase was vitriolic. Business interests including the Ceylon Chamber of Commerce came out strongly critical of the deal. Opposition parliamentarians demanded that the deal be reversed. Trade unions of the National Savings Bank demanded the Chairman’s head and vowed to continue to demonstrate in front of the bank until he was removed.
Initially the powers that be thought they could resist the criticism. Justification of a strategic investment by the NSB, to enable it to get into profitable areas of financial services which the NSB Act does not allow the bank itself to get into were trotted out. The NSB would be able to move into areas like finance leasing and real estate, using TFC as a subsidiary to circumvent the restrictions imposed by the NSB act.
Whether such an admitted subterfuge is legal, begs the question. Approvals of investments committees, boards of directors, ministries, regulators, etc. had all been correctly and properly been obtained.
Every attempt was made to bluff themselves out the predicament they had got themselves into. Until finally the General Jacksonian stonewalling defence strategy fell apart, a statement was made that the President of the country was going to cancel the deal.
How the President, even though he may be thought to be unassailable and all powerful in terms of the current interpretation of the Constitution and beyond questioning, can intervene in a simple transaction of a sale on the stock market, of a deal between a buyer and seller, the old and hackneyed principle of ‘offer and acceptance’ of the law of contracts, that all first year law students are taught, which is the basis of a binding contract, beggars belief.
Then it was the Secretary to the Ministry of Finance, who was going to reverse the deal, after he had got a report from the Treasury representative on the NSB Board, who in a classic bureaucratic ping-pong shot, had called for a report on the transaction from the NSB.
Now, that worthy, the Treasury representative on the NSB Board, should have, in the first place, been present at the board meeting at which this purchase was said to be approved.
If so he should have had cognisance of it. What was the need for him to call for a report from the NSB, after the fact?
CB’s stony silence
The CBSL was in a stony silence mode, like the proverbial Egyptian Sphinx, with its broken nose! It was reported that the Securities and Exchange Commission (SEC) had sent two letters to the CBSL pointing out certain irregularities in this deal.
The first letter pointed out that the NSB paid a premium price, Rs. 50 per share, when the market price at that time was around Rs. 30-31 per share. The CBSL was requested to investigate the deal. The second letter mentioned that fact that NSB had not paid the Sampath Bank, the settlement bank, and requesting the CBSL to take action to expedite payment.
Belatedly, the CBSL issued a statement implying that TFC was bordering on a blue chip investment! The NSB Board took out paid advertisements in news papers giving a complete white wash to the deal. The Board of Directors of NSB was standing united, until one member, an astrologer, supposedly of some repute, had second thoughts, may be after consulting the stars, cracked and submitted his resignation, as according to him, it had just dawned on him that the purchase did not follow proper procedures.
The newspapers kept up the barrage. A survey by one newspaper found that the vast majority of readers (91.9%) felt that the Chairman and the Board of Directors should be removed forthwith. 75.7% expressed the view that deal had to be reversed. 89.8% condemned the silence by the responsible authorities. 100% condemned the failure to inform the public of the status of the bank after the deal. Others expressed the opinion that the deal ‘stinks’.
NSB stated that they would not be paying the purchase to the Sampath Bank which had intermediated the deal and paid the sellers out of their own funds. The depositors of Sampath Bank raised their collective eyebrows! NSB quickly backtracked.
The General Treasury declared that the deal should not go through. Opposition demanded that the there should be a mirror deal reversal. Finally the Chairman of the NSB, saw the ‘coming colours’ were not good and wrote to the President offering his resignation.
The NSB had written to Taprobane Securities (broker for both the buyer and the seller in this transaction) requesting them to reverse the transaction. Taprobane Securities took out a paper advertisement saying that NSB, the buyer and its selling clients, whom include Dinal Wijemanne CEO of Taprobane Securities and Raynor Silva of ABC Radio, had agreed to buy back the shares and reverse the transaction, since they do recognise the value of the shares.
Finally the SEC stated that, using its discretionary power to approve transfers outside the trading procedure of the Colombo Stock Exchange, had granted approval to allow the NSB to transfer the TFC shares purchased on 27 April, in its entirety to the person identified by Taprobane Securities Ltd. outside the trading follow of the Colombo Stock Exchange.
TFC’s shameful financial state
In a letter to the Editor of the Daily FT, Sunil Mendis, a former Governor of the CBSL, has pointed out the shameful financial state of TFC. In the financial year 2010/11, for every rupee that depositors placed with the company, it lost 18 cents! The value of a share is negative to the extent of -Rs.23.66! If the NSB investment in TFC, which Mendis describes as “a part of the Golden Key Group, which was largely a Ponzi scheme,” was allowed to stand, the liability would have ended up with the Sri Lankan tax payer.
It is also not known yet who specifically has bought back the shares from the NSB – is it the original sellers? The Secretary to the Treasury had the last word. He told the press that he would soon send out instructions to banks setting up credit committees that would ‘reduce hiccups’ in future investments. Some hiccup!
When Hitler declared, during the Battle of Britain, that “he would wring Britain by the neck, like a chicken,” Churchill taunted back, “some chicken, some neck!”
So the NSB/TFC deal is a classic example of those in power having to succumb to the power of public outrage at a deal involving people’s deposits in the NSB, buying shares in a discredited finance company at an inflated price without due process, including allegations of insider trading.
Initial pathetic attempts to bluff it out, echoing the “we will hang him” rhetoric expressed in the next example failed miserably and the deal had to be reversed with the heads of the Chairman of the NSB and one Director sacrificed so far, and ‘hiccup’ prevention antidotes in the offing.
Case of General Fonseka
The case of General Fonseka is the other example. To quote the General, “People were saying I would be in jail until I die or for 30 years. Some people said they would hang me. But none of these things happened, in a way the truth prevails.”
The attitude of those in power to the General was succinctly put, in a comment made to the BBC’s Hard Talk programme some years ago, in response to a question from Stephen Sackur, the interviewer. The person being interviewed, reacted, “We will hang him.” A gobsmacked Sackur asked incredulously, “You are going to assassinate him?”
That very same General about whom the comment was made is today the beneficiary of a Presidential pardon, a free man, although he cannot enter Parliament and vote for a number of years. But certainly judging by the comments made by the General after his release, there seem to be no constraints whatever as to his freedom of speech.
The General was virtually written out of the military history of Sri Lanka. His name erased from all references of Sri Lanka’s history. He was a virtual non person. After the war was won, first he was kicked upstairs from commanding the Army to the post of Chief of Defence Staff, then, it is said, and he was offered the post of Secretary, Ministry of Sports!
Then, humiliatingly taken into custody by his own erstwhile ex-subordinates and incarcerated in a jail, the authorities would have hoped that he would have vanished from the world memory. But he is now pardoned. Why? Another example of the limit to absolute power? Whatever the reason, it just cannot be international pressure.
A spokesman for the Government was tripping over himself in pathetic fashion to keep reiterating that the President would not ever, succumb to international pressure, whenever, whatever, wherever, whichever! The small matter, of the timing of the pardon/release, just happening to coincide with our Minister for External Affairs meeting with the Secretary of State of the United States of America Hilary Clinton at the State Department in Washington DC, US of A, was just a happenstance, a mere coincidence, certainly not by design, by any stretch of imagination.
A proud sovereign government would not demean itself by such petty minded machinations such as the timing of the release of a mere prisoner, to coincide with a meeting a representative of the country, just happened to have with the person handling the foreign affairs of the most powerful country in the world! Surely not?
It also mattered little that the Americans had declared that the General was a political prisoner. The General is also the holder of an American Green Card, like some others in government. The sovereign Government of Sri Lanka is not concerned about such mundane facts or pronouncements, surely?
Can it be due to pressure from within Sri Lanka? Or out of respect for the following the General has among Sri Lankan voters? Analysts were quick to show the potential of a political party led by the General being used to split the anti-Government Sinhala vote.
But on a deeper analysis, such a party would not draw moderate Sinhala votes, but in all probability only split the extreme Sinhala nationalist vote. Seeing the crowds which thronged to the Nawaloka Hospital, the Supreme Court premises and the Welikada Prison and the cavalcade which followed the release of the General, readers can judge for themselves the extent of the General’s popularity.
The other ostensible reason propounded by some is the General’s medical condition. He seemed in robust health at the release events and also that day coincided with the day his doctors had declared that he could be discharged from hospital.
The magnanimity of the Government is another possible factor. When one considers the vindictiveness with which the Government treated the General from the time feelings between the General and the Government became hostile, the manner of his arrest, the way he is treated during his incarceration, frankly, this would seem improbable. But one can never say, magnanimity in victory is also a phenomenon which has occurred in past history. One is reminded of the Churchillian phrase, “In war: resolution, in defeat: defiance, in victory: magnanimity and in peace: goodwill.”
Fear is another factor, but whether the release alone would dissipate the anger the General should harbour against the Government for the way he was treated is questionable. If he was feared he would be still inside Welikada, goes the logic of some.
Then is the General a spent force? That assumption could be a plausible reason. But it might be great mistake. A Phoenix has arisen from the ashes before and the people who matter know this well. Another reason being given is that the General may have been vindicated in the cases he had before the Appeal Courts, which he had to withdraw before he could leave jail. After all a country like ours which has an independent judiciary, that is a real possibility.
But the fact remains, the General is a free man, maybe under some restrictions, whether this is due to international pressure, local political machinations, ill health, magnanimity, fear, judicial independence or whatever- the General could not be hung!
Power is limited
What is the golden thread that can be drawn for the NSB/TFC scenario and the General’s release? It is that power, in reality, is limited. In a column some weeks ago, on ‘Power – the opium of the political class,’ the saga of Bo Xi Lai, the aristocrat Princeling of China’s Communist Party, member of the Politburo, destined to be elected to the Standing Committee of the Politburo, the nine men who rule China, suddenly purged and incarcerated, was described.
If there were such limitations on Bo’s power, in a one party state with no rule of law, of that nature, surely there would be many more limitations on absolute power in a multi-party democracy, with independent institutions of governance?
(The writer is a lawyer, who has over 30 years experience as a CEO in both government and private sectors. He retired from the office of Secretary, Ministry of Finance and currently is the Managing Director of the Sri Lanka Business Development Centre.)