Sri Lankan foreign minister resigns over 2015 central bank bond scam

Sri Lankan Foreign Minister Ravi Karunanayake resigned on Thursday before facing a no-confidence notion against him submitted by the Joint Opposition Group for his alleged involvement in the 2015 central bank bond scam.

Karunanayake made a special statement in parliament and then resigned from his post. In the statement, he said he was quitting in the interest of his party -- United National Party -- and the government led by President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe.

There had been an across-the-board demand for his resignation on the issue of being a financial beneficiary of Arjun Aloysius, the stock broker who is the principal figure in the bond scam. Karunanayake was finance minister when the scam took place.

The no-confidence motion moved by 32 members of the joint opposition led by former President Mahinda Rajapaksa had said that Karunanayake had no right to represent Sri Lanka as its foreign minister in the context of the scam and sought his resignation.

Leaders, including Sirisena and Wickremesinghe, put pressure on Karunanayake to resign.

The week-long effort finally bore fruit on Thursday.    

Though many in the ruling coalition were in favour of Karunanayake’s quitting, the Sri Lanka Freedom Party or SLFP of President Sirisena and the United National Party of Prime Minister Wickremesinghe did not wish him to be voted out, worried of looking weak and divided in the face of the Joint Opposition led by Mahinda Rajapaksa.

A vote for the motion by UNP and SLFP members would have hurt the image of the government and the ruling coalition partners.

The government feared Rajapaksa gaining majority support on the floor of the House and moving to call for the government’s resignation.

Karunanayake had told the probe into the bond scam that he was not aware his wife had leased, and then bought, a posh penthouse for LKR 165 million with money advanced by Arjun Aloysius. 

During his defence, Karunanayake said he came to know about the payment only after an opposition MP, Mahindananda Aluthgamage, raised the issue in parliament. The borrowed money was then repaid, he had said.

Bond scam

In 2015, Arjuna Mahendran was appointed central bank governor by the newly elected Sirisena-Wickremesinghe government. Mahendran’s son-in-law, Arjun Aloysius, a leading stock broker running Perpetual Treasuries, made a killing by purchasing central bank bonds through his influence on the bank.

In February 2015, the central bank advertised the sale of LKR 1 billion in 30-year government bonds at 12.5 percent. The sale was oversubscribed with 36 bids totalling LKR 20 billion. The majority of bidders (26), bid for LKR 100 million or less at a rate of 9.5 percent to 10.5 percent. However, a few bidders, including Perpetual Treasuries, sought interest rates of 11 percent to 12 percent.

On Feb 27, 2015, the central bank accepted LKR 10 billion in bids at rates of 9.5 percent to 12.5 percent. Perpetual Treasuries was issued, directly and indirectly, LKR 5 billion in bonds at 12.5 percent.

The issuing of ten times the advertised bonds at higher than the expected rate allegedly cost the government an additional LKR 1.6 billion ($10.6 million).

Sirisena appointed a presidential commission to probe the situation in January 2017 amid growing criticism and repeated failures by inquiries to shed light on the matter.