Cabraal says low US Treasury returns prompted Greek bond investments

Former Central Bank Governor Ajith Nivard Cabraal told the Colombo High Court Trial-at-Bar this week that the decision to invest in high-risk Greek sovereign bonds was taken partly because US Treasuries were offering negligible returns of around 0.25 per cent.

Cabraal was giving evidence in the case in which he is accused of causing a loss of about Rs. 1.8 billion to the Government through investments in Greek bonds.

During cross-examination, he said the management of foreign reserves required a balance between safety, liquidity and return, and argued that calculated risk-taking in other markets, including Ireland, Pakistan and China, had generated substantial net profits for Sri Lanka.

Cabraal was responding to questions from Commission to Investigate Allegations of Bribery or Corruption Deputy Director Anusha Sambandaperuma, who is leading the prosecution. She questioned why reserves had been invested in non-investment-grade Greek and Irish sovereign debt instead of safer US Treasuries.

Giving evidence before the bench comprising Judges Manoj Thalgodapitiya, Udesh Ranatunga and Buddhika Sri Ragala, Cabraal said he was aware of the Central Bank’s Financial Risk Management Guidelines, loss-limit thresholds and reporting requirements relating to the European debt crisis.

He maintained that risk parameters and portfolio adjustments had been continuously monitored and reported through established institutional channels.

A substantial part of the cross-examination focused on the status of the so-called “03/16” meeting involving senior Central Bank officials. Prosecuting counsel questioned whether the meeting had formal legal standing under the Bank’s internal rules.

Cabraal rejected suggestions of procedural irregularity, saying it was standard practice for senior officials to meet the Governor to discuss major financial strategies.

He said the meeting was attended by the Assistant Governor, the Deputy Governor supervising the International Operations Department and the Director of that department.

Cabraal also said major policy and investment decisions during his tenure were taken after consultations with relevant technical officials and department heads, and that decisions of the Monetary Board during his tenure were unanimous.

With the conclusion of evidence, the court ordered both sides to make their final submissions on November 30.

President’s Counsel Dilan Ratnayake appeared for Cabraal.