Sri Lanka to honour $12 bn debt despite dispute: FM

Sri Lanka Monday vowed to honour government bonds of up to 1,780 billion rupees ($11.86 billion) even as the central bank admitted "procedural shortcomings" in state-issued securities. Finance Minister Ravi Karunanayake hastily summoned reporters to announce that Sri Lanka will meet its domestic debt repayment commitments despite legal issues uncovered during a recent insider trading investigation. "Sri Lanka will accept responsibility for the bonds," the minister said. "No one should have any concern about the validity of the securities issued by the government of Sri Lanka." A 1937 law requires that the finance minister announce bond auctions at the beginning of each year. But a presidential inquiry last week into an alleged insider trading allegation against the former central bank governor Arjuna Mahendran said the mandatory announcement for 2015 was made almost two years later. It was backdated and issued under the authority of Mahinda Rajapakse, the former president and finance minister. Rajapakse, who was voted out in January 2015, has denied authorising the sale of bonds, raising doubts about their legality. Governor Indrajith Coomaraswamy admitted that the public debt department -- which comes under the Central Bank of Sri Lanka -- had issued the notice without the authority of Rajapakse. However Coomaraswamy said the bonds were "not illegal" despite the procedural violations and that the state would honour its debt. "There are shortcomings in the procedure... but the bottom line is that the government of Sri Lanka is going to honour the piece of paper the people of Sri Lanka hold as promissary notes," Coomaraswamy told reporters in Colombo.