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War
is over but problems remain The crisis
caused by the war highlighted our dependence on the Middle East
for much of our foreign exchange earnings. So closely
is our economy tied to the Middle East that the shock of the war,
and the dislocation caused by the uncertainty even before the actual
fighting started, was immediate. The most visible
impact was on the Ceylon tea trade. The Middle East is one of the
two biggest markets for our low grown teas, which now make up more
than half the crop and are produced by thousands of smallholders
mainly in the south. This is too important a vote base for any government
to ignore. In the run-up
to and during the war, tea prices fell sharply and significant quantities
remained unsold because of reduced demand from buyers who are uncertain
about the timely arrival of shipments and the ability to move the
tea across Middle Eastern borders, many of which remain closed. Much of our
tea is also transshipped or smuggled across the borders to the southern
states of the former Soviet Union, our other big market. Had the
war dragged on or expanded in scope these markets too could have
been affected. Fortunately,
none of this happened and the tea industry can look forward to a
recovery in demand and prices. Likewise, our
migrant workers are safe and can continue to send back the dollars
that help to keep the economy afloat. Despite all the talk about
the growth of domestic industry and services the sad fact is that
it is our migrant workers in the Middle East, mainly female housemaids,
who are our biggest foreign exchange earners. About a million
migrant workers are employed in the Gulf and they sent back about
$1.2 billion last year. Exporters of
desiccated coconut are also heavily dependent on demand from the
Gulf. They had been suffering even before the war owing to an inability
to meet orders because of the shortage of raw material caused by
the effect of drought on coconut production. DC millers are now
hoping for a recovery in demand and are gearing up to restart the
mills that they were forced to close. The stock market
too can breathe more freely. Brokers had warned that a long war
could result in the downward revision of corporate earnings, which
have seen healthy growth in the last few quarters. But we are
far from being out of the woods yet. The unexpected
crisis may have passed without causing too much economic dislocation
but the problems that were affecting the economy remain. Our debt burden
keeps rising while conspicuous consumption continues unabated. It is certainly
commendable that the government has managed to cushion some of the
more severe impacts of the external shocks to the economy, as Finance
Minister K.N. Choksy has said elsewhere on this page. But it is also
clear that the government is not making enough effort to rein in
expenditure and set an example to the rest of the nation. The Cabinet
remains bloated. Ministers and MPs continue gallivanting around
the globe at state expense, and to enjoy a subsidised lifestyle
while the government slashes the subsidies of the really poor under
foreign donor pressure. Perhaps the government is too embarrassed by its own extravagance to make too vigorous a call on the people to tighten their belts and suffer more hardships until the economy is put back on the rails and we can be assured of solid growth. Year-end
pay hike for public servants In the privatisation
of six cluster bus companies, in which control is being given to
the British Ibis consortium, President Chandrika Kumaratunga herself
has said that the government has violated Cabinet procedures and
her spokesman has called it a plunder of national assets. The government
is being accused of favouring Ibis and giving them privileges not
given to other potential candidates. Could you explain what happened
in this transaction? The privatisation
of state-owned institutions is done by the Ministry of Economic
Reforms through PERC (Public Enterprises Reform Commission). The
recommendation of PERC is placed before the Cabinet of Ministers
for a final decision. The privatisation
of the six cluster bus companies has come before the Cabinet for
consideration on more than one occasion. The privatisation
transaction commenced as far back as July 2002 with PERC publishing
the particulars of the six cluster bus companies, 39 percent of
whose shares were being offered to the public. At that stage five
or six foreign bidders collected the requisite information from
PERC but at the end of three months, when the bids were due to be
closed, no bids were received. Thereafter,
PERC re-advertised the offer last September and kept it open till
December when the 39 percent was put up for sale on the stock exchange.
The sale of
shares openly on the stock exchange is possibly the most transparent
method of privatisation. Furthermore, the offer was kept alive on
the trading floor for the maximum number of days allowed under the
stock exchange rules. Ibis was the
only bidder and therefore PERC recommended the sale to Ibis. Subsequently,
negotiations did take place between PERC and Ibis in regard to certain
terms of the transaction. These negotiations
were also handled by the Ministry of Economic Reforms in conjunction
with PERC. I'm aware that the Attorney General was consulted at
certain points by the PERC and then the transaction was placed before
the Cabinet. One issue that
has arisen is in regard to the guarantee to be given by the government
to enable Ibis to raise the initial capital funds required to refurbish
the transport fleet. This itself
was considered in detail by the Cabinet in conjunction with the
Attorney General and has not yet been finalised. (According to the
request for proposals issued last year by PERC the government guarantee
will be subject to a maximum of 30 percent of the value of the equity
purchased by the investor who has to make suitable arrangements
for mortgaging the assets of the company and the shares purchased
by the investor.) The final agreement
has not yet been signed because the outstanding matters, particularly
the granting of the government guarantee, are being examined closely
by the Prime Minister himself. The Treasury
has not given any guarantee up to-date. In order to ensure transparency
and integrity in the award of public tenders the Prime Minister,
immediately after assuming office appointed a Cabinet sub-committee
on tenders. This sub-committee is chaired by myself as Finance Minister.
The other members are Ministers Tilak Marapana and Rukman Senanayake.
Every recommendation
of the Cabinet appointed tender board is closely screened by this
committee, which makes an independent evaluation and reports to
the Cabinet. It is only then that the Cabinet awards the tender.
However, privatisation transactions go directly from PERC to the
Cabinet for scrutiny. Due to mismanagement
over the past several years the CTB has incurred heavy liabilities
to the People's Bank, Bank of Ceylon and the Treasury. In fact, every
month for several years the Treasury has had to subsidise the CTB
to the extent of Rs. 70 million a month. Last month alone the Treasury
paid out on behalf of the CTB Rs. 120 million. It is not possible
to continue in this fashion any longer and privatisation is both
essential and inevitable. However, it does not follow that the Treasury
will necessarily grant a guarantee. This will be decided on its
merits. Cabinet ministers
have a collective responsibility in the transactions of government.
There's a lot of talk that this deal stinks. What is your opinion
about this transaction? I don't agree
that the deal stinks. Its terms have not yet been finalised. No
Treasury guarantee has yet been given. The queries
raised by President Chandrika Kumaratunga are being examined. The
Minister of Transport is due to meet the President on the matters
raised by her. The management
has not yet been handed over to Ibis. Every aspect will be considered
on its merits before the Treasury makes any commitment in the transaction. Can you
describe the way in which the measures taken to ensure there's no
corruption in defence contracts are working in practice? All defence
contracts are examined by a defence procurement committee appointed
by the Prime Minister and chaired by the secretary to the Prime
Minister. The committee,
after scrutiny, makes its report to the Ministry of Policy Development
and Plan Implementation. There is accordingly
complete verification under the control of the Prime Minister himself.
Thereafter the tender comes to the Cabinet for a final decision.
Certain procurements
made by the police are handled by Cabinet appointed tender boards
whose decisions are scrutinised by the committee I chair. So far there
has been no complaint about the award of any such tender. But recently
a local company making body armour alleged that the army has given
a contract to an Indian company through the Indian High Commission
for 30,000 sets of body armour without calling for tenders. I'm aware that
body armour has been ordered under the Indian line of credit. Manufacturers
of body armour in India had been asked to make bids. These bids
were evaluated in collaboration with the Indian High Commission
and thereafter the contract was awarded. The Indian
High Commission has recommended the quality of the product of the
successful bidder. The Indian
line of credit is made available by the Indian government only to
Indian made products. The line of credit is favourable because no
up-front payment is made and the payment period is 20 years. Siemens, the
German electronics and electrical engineering company, has written
to you alleging irregularities in the $50 million tender awarded
by Mobitel to upgrade its network and saying that theirs was the
best bid? What can you say about this? Siemens did complain that
Sri Lanka Telecom had not acted correctly in the award of a tender.
However, there was no Cabinet appointed tender board in as much
as SLT is a company registered under the Companies Act and follows
its own procurement procedures. However, since the government holds
shares in SLT, Siemens has been asked to make their complaint to
SLT after which the government representative on SLT will take the
matter up at Board level. The Finance
Ministry has no legal authority to interfere in procurements by
registered companies but the government representative on such Boards
has the responsibility of reporting on such complaints. Is the government
seriously considering a wage hike for the public sector? The government
has adopted several measures, both financial and market measures,
to keep down the cost of living despite the increase in oil prices
caused by the Gulf war. Commodity prices during this new year period
have not increased. However, the increase in costs of state provided
services such as electricity has contributed to an increase in the
cost of living. The government
is therefore considering an increase of wages in the public sector
during the latter part of this year, provided the international
economic conditions remain stable. Parallel increases in the private
sector will of course have to be discussed with the trade unions.
Probably the increase will be announced with the budget in November. The government
made a lot of noise about the peace dividend when it came to power
and started peace talks with the Tigers. But the peace dividend
is not apparent to ordinary people. They don't feel their living
conditions have improved despite the absence of fighting for over
a year and the consequent savings on defence spending. Why? The peace dividend
is there in the sense that people can today move about freely without
fear of attack and explosions. In monetary terms it may be that
savings made in defence spending are not being made available in
the form of wage hikes, etc. This has not
been immediately possible because the Treasury has been compelled
to advance most of the savings on defence expenditure to bail out
institutions such as the CEB, the CPC and the CTB. Electricity
charges today would be very much higher but for the financial assistance
given by the Treasury to the CEB. The increase
in oil prices caused by the Gulf war has not been passed onto consumers
for diesel and kerosene. The Treasury
has subsidised this up to an extent of Rs. 700 million to-date.
In this way there has been a peace dividend given to the people,
albeit indirectly. The insider
dealing scandal at the Securities and Exchange Commission has generated
a lot of concern among the investing public about the lack of transparency
and the conflict of interest among the gentlemen heading these organisations.
As Finance Minister it is you who appoint some of these people.
What can you say about these concerns? Why can't you appoint people
with no conflict of interest? The SEC has
to be an institution which is business oriented. It controls the
stock exchange. The stock exchange has done remarkably well because
it is manned by people in the trade. The issue of
whether institutions such as the SEC should be manned by businessmen
or by bureaucrats has to be dealt with in a balanced form so that
the institution can function effectively. In making the choice of
the former chairman Mr. Michael Mack I chose a private sector leader
who had retired from active business. There are other
professionals such as chartered accountants also on the SEC Board.
I therefore endeavoured to maintain a balance of talents in the
Board. When the issue
of the transactions of the former chairman arose I insisted that
the SEC should act on the opinion of the Attorney General and none
else. Mr. Mack has
resigned. The matter
is presently in court. General Denis Perera, who himself is no longer
active in the private sector, has been appointed chairman. There is
some concern about foreign aid that has been pledged being channelled
through the LTTE? All foreign
aid received is given to the government of Sri Lanka and to no other
institution. Disbursements are made under the control of the Treasury.
Aid pledged
for north-east reconstruction also comes into the hands of the government. Its mobilisation
in the north-east is being handled jointly by the World Bank and
the Peace Secretariat of the government. Money to be pledged in June will also be channeled in the same manner. |
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