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 Spotlight

The price of media freedom is death


Playing Russian roulette with 'People's' money


M. Wickremasinghe, Sarath Silva
and Nivard Cabraal

By Ranjith Jayasundera

Investigations stemming from a Central Bank probe have revealed a circus of brazen violations of banking regulations by the state-owned People's Bank in entering into its hedging contracts with the Ceylon Petroleum Corporation.

The Sunday Leader's own investigations have found that atop the scathing seven point sheet of charges levelled by the Central Bank against People's Bank, the state-owned institution has been hiring consultants at salaries of over Rs. 1 million per month plus perks, dipping into its employees' pension funds to solve its financial woes and sending officials to Dubai on Business Class on the account of Standard Chartered Bank.

The Central Bank's probe into the faults of People's Bank goes on the basis of the Financial Derivative Products Direction issued by the regulatory authority on December 21, 2005, which became operative on January 1, 2006.

This newspaper acquired a copy of the letter sent by Bank Supervision Director, B.D.W.A. Silva to People's Bank (PB) General Manager M. Wickremasinghe on December 4, 2008 wherein he outlined the irregularities in the bank's deal with the CPC.

PB chastised

The Central Bank chastised PB for failing to carry out "an adequate credit risk, market risk and operational risk assessment in the case of CPC in line with" its own "internal policies and procedures."

"Had such a review been carried out, it would have been clearly known by you as to whether the CPC had put in place transparent and adequate controls which were necessary to identify, understand and assess the substantial risks" that the CPC was undertaking, Silva wrote.

He also pointed out that PB "failed to assess the creditworthiness of the CPC to fulfil its obligation arising from the downside risk" of the hedging contract, and that it "failed to set an appropriate policy limit before entering into a contract as required" by Section 6 of the Central Bank's December 2005 direction.

People's Bank had further exposed itself to grave operational risk the Central Bank's Bank Supervision Director revealed in his letter, by not having signed the International SWAP Dealers Association (ISDA) Agreement with the CPC, which is a standard risk mitigating procedure for entering into hedging transactions.

The Central Bank examination also revealed that the CPC Chairman "had been keen to realise short term and relatively small speculative profits from the increasing oil prices," and that it is "highly unlikely" that PB officials were unaware that the CPC had entered into several hedging contracts for such reasons.

Mandatory

The importance of this fact is that Section 5 (b) of the Central Bank Direction on Derivatives such as hedging is clear that transactions should be made "only in respect of the risk exposures arising from permitted underlying transactions or genuine balance sheet exposures," adding that this requirement is "mandatory for customer transactions."

Thus People's Bank had no right to aid and abet in Asantha de Mel's apparent urge to gamble with world crude oil prices. Hedging and dabbling with complex financial derivatives is not a trip to the casino, and it is incumbent on the bank as a regulated institution to take responsibility for the transactions it enters into and to educate its customers of the procedures and risks involved.

The casino strategy of getting players drunk on the house before they place their bets has no place in the world of financial derivatives, and that this is what People's Bank did to the CPC is the message that B.D.W.A Silva has hit home in his scathing letter to that bank.

The Central Bank also showed that napkin math alone could prove the CPC's inability to honour the obligations of a hedging contract should the deal have gone sour. The debt ridden public company which profited by US$98 million in 2005 made a US$18 million loss in 2006 followed by a weak profit of US$ 36 million in 2007.

Questionable

"In view of such weak earnings, it is questionable as to how your bank could have concluded that the CPC would have been in a position to absorb losses with magnitudes of over US$ 300 million - 400 million in the event of a downturn of oil prices," Silva wrote to the People's Bank General Manager.

The bank had also failed to "apprise the board of directors of CPC of the conditions and inherent risks associated with hedging contracts adequately, and obtain an undertaking that they have clearly understood" these, the Central Bank also found.

Crucially, the regulator accused People's Bank of not ensuring a "high level of transparency" in the deal. "Banks are expected to ensure the highest level of transparency to avert any reputational risk to banks due to the information asymmetry on the part of their customers."

In plain speak: the bank's job is not to play smiley salesman, but instead to soberly explain all the pros and cons of derivatives to customers before signing them on.

Where People's Bank went over the top here is the now infamous clause in the hedging agreements that protected banks from absorbing too much loss should oil prices have skyrocketed, without similar protection being applied to the CPC should oil prices plummet as they have done.

Revelation

The most damning revelation of the Central Bank's investigation however was that People's Bank was not in a position to have legally entered into any hedging agreements at all. In order to trade in financial derivatives, the Central Bank requires licensed commercial banks to have a capital adequacy ratio (proportion of its assets against its risks) of at least 11%.

The Central Bank found that People's Bank's Capital Adequacy Ratio to be below even the normal requirement for commercial banks of 10% highlighting that the institution is in dire straits. Our own investigation looks at how the bank got there, outlines desperate attempts by the government and donor agencies to rescue the bank, and exposes how brazenly extravagantly bank officials have behaved through the institution's trying times.

To begin with, People's Bank was a sinking ship in 1993 and its many holes were only plugged by an unprecedented Rs 10.541 billion given to the bank by the government in the form of treasury bonds.

After sailing through most of the People's Alliance government's tenure in relative mediocrity People's Bank between 2001 and 2007 hired a group of "consultants," a.k.a. politically appointed crony bankers from all walks of life with a mandate to set the bank's activities straight.

Sinking ship

Despite the efforts of these nine individuals People's Bank has remained a slowly sinking ship with its capital adequacy still well below accepted norms for a commercial bank. This would be forgivable if the nine individuals concerned did not draw a total of Rs 5.59 million per month (Rs 67 million per year) in salaries alone from People's Bank.

In 2004, the newly formed Strategic Enterprises Management Agency (SEMA) formulated an action plan to revive People's Bank and get it back on track, as further action was needed atop the Rs 10.5 billion given to the bank by the government 11 years prior.

The SEMA plan gave People's Bank a letter of undertaking from the General Treasury, agreeing to underwrite all the bank's liabilities should the proverbial faeces hit the fan and the bank be unable to honour its obligations.

Apart from this blank confidence building cheque, SEMA also oversaw an agreement between the government, Asian Development Bank (ADB) and People's Bank which saw the ADB provide Rs 4.5 billion to date in the form of tranches.

People's Bank was also allowed a revaluation of its assets, which added a further Rs 1.9 billion to its balance sheet. Despite all of these handouts - amounting to over Rs 16.9 billion - the bank was still Rs. 4.7 billion short of its 10% capital adequacy requirement as at end 2007 despite being supposed to achieve this target by June that year.

Poor performer

With such poor performance it is unconscionable that the management of People's Bank could justify paying well over half a million dollars per year in salaries to consultants who were mandated to steer the bank back onto a profitable course.

The highest paid as of December 2007 was one Kapila Ariyaratne, who drew a monthly salary of Rs 906,500 and a Provident Fund contribution of Rs 181,300 a month. Ariyaratne today serves as the bank's Senior Deputy General Manager (Corporate and Institutional Banking, Domestic and Development Credit.)

Kapila Ariyaratne joined the bank in March 2001 along with N. Vasantha Kumar and six other highly paid "consultants." In December 2007, Kumar was on a salary including Provident Fund of Rs 868,000 per month. He is now Senior Deputy General Manager (Treasury and International Business,) and the two worked hand in glove to put the hedging deal through with the CPC.

In fact, The Sunday Leader has uncovered damning evidence that these two People's Bank employees were flown to Dubai on Business Class on a junket to learn more about oil hedging. Readers, before you let your blood boil at the thought that your tax rupees footed the bill for their comfy seats, relax, for this was not the case.

These two Senior Deputy General Managers of People's Bank were flown to Dubai and the bill was footed by none other than Standard Chartered Bank (SCB), the institution in the spotlight of the hedging scandal. We have published on this page invoices to SCB from Hemas Travels for the flights of Ariyaratne and Kumar to Dubai.

Attempts to contact both bank officials - to ascertain who authorised their junket to Dubai sponsored by Standard Chartered Bank - failed. Neither returned repeated calls to their offices seeking comment on this matter.

In a pickle

When the Supreme Court scuttled the hedging deal and barred the CPC from honouring further payments on November 28, People's Bank was placed in a mighty pickle as it was liable to pay Commercial Bank around US$ 1.5 million on December 5 and Commerzbank of Germany an additional US$ 577,950 on December 18.

At the eleventh hour on December 4, People's Bank General Manager/CEO M. Wickremasinghe wrote to the Treasury and Central Bank for advise on whether it was required to honour these enormous payments to the banks it was doing business with or if there was a way it could weasel out of its mess.

The Central Bank replied on the same day instructing People's Bank to seek the advice of the Attorney General's Department, and so the bank's chief law officer wrote to the AG seeking his department's advice on whether they were required to honour these payments after the Supreme Court order.

Wickremasinghe waited until the next day, December 5, to write to Commercial Bank and inform them that they have sought the Attorney General's opinion on the Supreme Court decision, promising to revert to Commercial Bank with the AG's advice.

Commercial Bank responded within hours insisting that they be paid in full on the same date, and threatening to serve a letter of demand on People's Bank on Monday, December 8, should the payment not have been made on December 5.

People's Bank received a response from Deputy Solicitor General Sanjay Rajaratnam advising the bank that should payment be demanded by Commercial Bank (as indeed turned out to be the case) that the bank should honour the commitment with the concurrence of its board of directors.

Stalling time

Having informed Commercial Bank of the AG's opinion and bought some stalling time, People's Bank rushed to the Supreme Court and obtained an order allowing them to not pay Sri Lanka's Commercial Bank and Commerzbank Germany. By doing so, People's Bank has now put in jeopardy a US$ 6.5 million deposit kept at Commerzbank as security for the hedging deal.

A move by People's Bank that has slipped under the radar of the Central Bank was its dabbling with its own employees' pension trust funds. Moneys that were previously allocated to high yield treasury bills and bonds were diverted to People's Bank debentures purely in order to help bolster the bank's own balance sheet.

Whether the bank will be able to survive the heat from its brazen mismanagement and the Supreme Court torpedo into the hedging deal is a question that may affect the entirety of the country's financial system.

The Central Bank too has some explaining to do on why it remained in complete slumber to the entire madness of the hedging deal until the Supreme Court ruffled its feathers months after the damage was done.

Unless every regulatory authority takes all necessary steps to brace Sri Lanka's financial system for the sure shocks to come this year, the folly of People's Bank may be just the beginning of a nation-wide financial meltdown.

 


The price of media freedom is death


Lasantha — paid the supreme price fighting
for the right for people to know the truth

Everyone's worried about stopping terrorism. Well, there's a really easy way. Stop participating in it. - Chomsky 

By Dilrukshi Handunnetti

The year 2009 was doomed from the beginning. The shadows of 2008 in which the media practitioners of this country suffered immense hardships under the jackboots of the present day administration and its military apparatus cast its ugly dark shadow on this year as well.

Just on to the 8th day of the new year, Sri Lanka scored a dubious first. The internationally renowned editor of The Sunday Leader was gunned down in broad daylight. Needless to say what the plight of the average journalist of this country would be, as the reward for choosing a pen or a camera in this land of barbarians is now to have either the institution set on fire - or worse till, have a bullet pierce one's head.

The year 2008 dawned with the assassination of a minority parliamentarian, T. Maheswaran on January 1. This year dawned with an act of vandalism that destroyed the Main Control Room (MCR) and the MBC/MTV station complex in Pannipitiya setting the trend.

Ugly scenario

It was followed by the assassination of The Sunday Leader Founder Editor and Director Editorial, Lasantha Wickrematunge.

The parallels are ugly. And the words that emanate from government quarters appear uglier. For example, in his address to the nation on Friday, President Mahinda Rajapakse declared not just the capture of Elephant Pass yet again, but he also had the audacity to state that there was a conspiracy behind the recent media attacks to discredit the government with pledges to reveal all soon.

An unbiased Sri Lankan would surely know that such a day would never dawn and all these barbaric acts of violence and mayhem would remain unresolved crimes. There need not be any doubt as to why Sri Lanka was rated the fifth deadliest place for journalists to live in just last January. Wickrematunge's assassination is proof enough of this factor.

Dictatorships

Elsewhere in this newspaper, the chronology of events to highlight the number of occasions when Leader Publications Pvt Ltd, its editor and journalists have come under severe threat have been listed.

In 2008, there had been frivolous litigation, threats and intimidation. It is an understatement to declare that if any single organisation and its head had come under repeated attacks, it was no other but Leader Publications.

As Sri Lanka continued to slide in every international index on media status, in October 2008, Reporters Sans Frontiers (RSF) stated that Asia had the biggest representation in the 10 countries at the boomeranging.  Most of them were described as dictatorships, but they also included - please note - for the first time, Sri Lanka (165). That's an awful record when the list includes only 173 nations.

Issuing a statement of International Press Freedom Mission to Sri Lanka in late October, five international media organisations expressed shock that Sri Lanka has indeed fallen to the lowest ever press freedom rating that year.

It recorded the alarming trend of using anti terror laws for the first time in the democratic world, to punish journalists purely for what they have written in the case of J. Tissainayagam and others. They have been in custody for over 300 days now.

The mission also recorded how the media in the northeast were threatened by all parties to the conflict in an effort to curtail independent and critical reporting.  The mission condemned the murder of P. Devakumar in Jaffna last May as well as over a dozen other murders documented since 2005.

Strong exception

It noted that the LTTE controlled areas lacked freedom of expression and freedom of movement preventing diverse opinions and access to plural sources of information.

The mission took strong exception to the gazetting of rules in October listing out contingencies under which broadcasting licenses could be cancelled, including seven different grounds relating to broadcast content.

Significantly, it noted with shock elected representatives and government ministers using violent and inflammatory language against media workers and institutions.  It noted further the Defence Ministry website contributing to the vilification of independent media and journalists.

It is in this backdrop that 2009 dawned, on a completely negative note. Beginning with the MTV/MBC station attack, the culmination was the assassination of The Sunday Leader Editor, Lasantha Wickrematunge, described onetime by a racial website as one of many 'traitors,' or "Jathiye Drohiyo."

Post Wickrematunge, already the fear psychosis has set in. Shutting down its website Friday, Lankadissent.com editorial panel posted the following:

"In this land of the most compassionate Lord Buddha...

Sinhala Buddhists who believe this land belongs to the most compassionate Lord Buddha and constitutionally calls it the Democratic Socialist Republic of Sri Lanka, sing with pride 'In wisdom and strength renewed / Ill-will, hatred, strife all ended / In love enfolded, a mighty nation / Marching onward, all as one / Lead us, Mother, to fullest freedom' as their National Anthem.

And... in this compassionate, democratic Buddhist land enfolded with love, in wisdom and fullest freedom, media is forbidden to raise a dissenting voice. Media is forbidden to criticize the 'law' of the ruling regime. The media is forbidden to speak for the people.

Many who thought they as the media have a right to freedom of expression, they have a right to information, that the people also have the same right and that it is a fundamental right in a modern civilised society, have been told very bluntly and at times most brutally, that it isn't so in this land of the compassionate, democratic republic, run by a 'patriotic' regime.

The Tamil media in the north were the first to have been told this bluntly and ruthlessly while the Colombo media did not want those dissenting voices in the north, heard elsewhere. They had to learn that lesson, first hand.

And..that was a lesson learnt by some, who are not with us to tell their story. That is a lesson learnt by some, who don't have the right to say it, because they have a right to live some time more. For a lot, it was their station Sirasa that went ablaze with that lesson. It was their station that was smashed and set on fire to teach a lesson.

For Lasantha Wickrematunge, an editor with a passion for uncompromising media professionalism, it was a challenge to face. A challenge he never minced words, in meeting. He had his own aggressive style in meeting the challenge. Admired and respected but left alone without political backing.

And... he, therefore, could not surmount this challenge, all by himself.

A lesson learnt, that needs no repeats to learn. This compassionate Sinhala Buddhist land does not tolerate 'dissent.' Those who would not want to learn that living, would have to learn that in death. We who live, would come back when 'dissent' comes back as a democratic right, accepted and enjoyed in a modern land of compassion.

Till then, good bye!"

And so begins 2009 on a note of fear and intimidation. It is a year in which more journalists are doomed to smell their own blood. One in which Sri Lanka would slide further in the international ranking and a worse report card is likely to emerge..

Killing Lasantha the worst example of media suppression

An interview with media activist Sunanda Deshapriya.

Q: How do you view the assassination of Lasantha Wickrematunge? Is it an isolated attack on a prominent journalist for his brand of journalism or one in a series of attacks to suppress the media?

A: This is very much a part of a series of calculated attempts to stifle the media. Any one who decided to kill Lasantha must have carefully considered the consequences of his killing.

Killing Lasantha is not killing some journalist in Jaffna or Batticaloa where there is a strong culture of violence still prevailing together with war conditions.

Lasantha is an internationally reputed journalist, an award winning journalist and also the symbol of dissenting voices in Sri Lankan media. Whoever who decided to kill Lasantha wished to silence the dissenting voices in this country.

This is therefore is a symbolic killing, not an individual's killing alone. They want to kill the campaign, it is a movement suppress the media. I don't think some lunatic group carried it out but this is part and parcel of the ongoing media suppression in this country.

Q: Sri Lanka according to the IFJ ranking is the fifth most dangerous place for journalists.

A: Very much so. Some 17 journalists and media workers have been killed and already Tissainayagam and others are in custody under the PTA for over 300 days while others too are threatened and intimidated in many ways.

During the past three years, we have recorded at least 100 incidents per annum. That is a terrible record. Dozens of journalists have been assaulted and media institutions have been brought under control through various measures. Media outlets have been shut down. It is undoubtedly a very dangerous place for journalists.

Q: After Lasantha's assassination, how do you view the threat perception to other journalists?

A: There is a saying that you kill a journalist and silence a hundred. By killing someone like Lasantha, you kill many thousands. Everyone who wants to be critical, dig deep into a story, practice investigative journalism would now think twice whether they could do this or not.

Threats would naturally increase and the fear psychosis will multiply.

In this violent backdrop, one can't sit back and relax either. Killing Lasantha is probably the most dangerous development we witnessed in the recent past. This trend must be arrested.

Q: Many a journalist here highlights issues of good governance, media freedom and human rights in Sri Lanka. Despite all that, very few journalists tread the crucial ground of calling for negotiated peace, creation of a pluralistic society and a policy of non-racial administration perhaps where Lasantha really stood apart. Does this mean that the media is becoming racially segregated as well?

A: Certainly. We are truly an ethnically polarized country. Among those who stood for non-discriminatory treatment of all ethnic communities, Lasantha was a pioneer. He always stood for a political solution. That was a difficult stance to adopt and defend. But he did it. He also looked critically at any military solution and did not lose sight of the ravages of war that impacts on civilians.

Whether we agree with him or not, he had the courage to criticise the most powerful people in this country and to name them and dig deep into those issues. He embarrassed, ridiculed and exposed the mighty forces.

While being a very courageous investigative journalist, the leading figure in investigative journalism, he was also a great advocator of a pluralistic society. He stood fearlessly for non-discriminatory treatment of all communities and a political solution. He abhorred a military solution. That perhaps was one of the reasons that caused sinister forces to kill him.

Q: Lasantha made strong statements regarding the attack on the MTV/MBC stations. He predicted attacks would not cease and many others would be victimised. He became the next victim. Do you see any connection between the MBC attack and his killing?

A: I do. In fact I see them as two parts of a single series of events. They are not two separate incidents from a layman's view. Both groups were wearing black and they could be the same group. They appeared to be comfortable with weapon handling.

I am personally aware that Lasantha realised how much he was under threat. That's where he stands alone again. He was previously followed, shot at, his house was attacked and his printing press was burnt down. He never self censored whereas the majority of others are practicing self-censorship for survival.

He knew he was being followed and that he would be killed. They were on a mission to kill him and silence that powerful voice. But Lasantha too was on a mission and his mission was his passion. This was his way of fulfilling his duty to his country. He was not doing it for personal gain. It was a cause he felt deeply committed to.

Q: In a situation like this, naturally journalists are going to be fearful of discharging their duties. But what can be done to mobilize the civil society to fight for media freedom?

A: I think it is very important that as a journalists, we stand together. First, we must shed all our differences. We do the same job. That alone should be a binding force.

We should protest against the killing of Lasantha, a beacon of light in Sri Lanka journalism. We should stand together and fight for the freedoms that are now being denied.

We also need people's organisations and to say 'enough is enough.' Our silence is going to breed more criminality, so we must act fast.

All political parties, both in government and opposition should come out in defence of media freedom. We should together try to arrest this dangerous trend of killing journalists. If we remain divided, there won't be a civilised country left. We should not go back and sit back after a single protest. We should do our duty to the people as journalists and create and maintain the space that is rightfully ours.


Final interview by Lasantha

In what was his last interview to the print media, Editor of The Sunday Leader, Lasantha Wickrematunge on December 12, 2008 commented on the status of the Sri Lankan media as one that was no longer reflecting dissenting voices. 

He said there was space for the media despite emergency being invoked, but it came at a price - such as white vans, death threats, loss of advertising, frivolous litigation and sometimes, death itself. But those who wished to take the difficult path did so, though few and far between, he noted.

In a brief interview in which he commented on the island's status of the media to form a South Asian media assessment initiative, he added that if prepared to take the risk, it was possible to be read and heard, as there was no official censorship prevailing -  a fact that the media should make maximum use of.

He identified the real problem to be self censorship, not so much due to the above-mentioned threats but more as a survival tool.

He believed self-censorship to be more harmful than state oppression for it destroyed the spirit within the media community than due to forces from outside.

Among the key problems he identified in the media was the fostering of polarized concepts -  and the recent two years saw racism being built into the media with the vernacular mainstream media often taking extreme lines.

Commenting on recent comments by the Sri Lanka Army Commander declaring Sri Lanka to be the land of the Sinhalese and that others lived at the majority community's pleasure, he said such comments would influence many others to adopt a hardline.

He noted that there were restrictions on the coverage of war,  non-disclosure of the battle casualties of late, concealment of human rights violations and a reduction in the reflection of the suffering of the IDPs.

Besides, he noted that new perceptions were being created that every Tamil was a LTTE sympathizer, that in the prosecution of war, there appeared to be rejoicing of aerial bombardment to the extent of overlooking collateral damage to civilians.

"That's a horrible mindset to reach. It is also important to note that when the southern insurrection was crushed, there was no hoisting of flags etc., unlike in this instance when Tamils were made to feel separated. The media has been creating this perception," he noted.

Wickrematunge noted that there was  social obligation to journalism that cannot be ignored - but was being overlooked because it is assumed to be not very popular.

"One must state the truth and create spaces for diversity and democracy. That may not be a popular choice. But it is a must," he added.

He noted that the prevailing situation was not confined to Sri Lanka but the international community paid less attention perhaps because they had little stakes in Sri Lanka as they would in Serbia or Bosnia.

 


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