ICASL President Nishan Fernando speaking at the seminar |
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Business leaders in key local exporting industries such as apparel and tea said they are facing severe difficulties in the wake of the global economic crisis with high production costs and unreasonable exchange rates.
Former Chairman of the Ceylon Chambr of Commerce (CCC) and a former partner at PricewaterhouseCoopers, Deva Rodrigo said the global collapse was triggered by high inflation compounded by increasing oil and commodity prices.
Speaking at a seminar on the impact of the global crisis on Sri Lanka organized by the Institute of Chartered Accountants of Sri Lanka (ICASL), Mr. Rodrigo said the reason the rupee has not depreciated is due to a borrowing spree by the government from commercial banks as opposed to the World Bank (WB) or the International Monetary Fund (IMF). He said the government cannot replenish short term commercial loans when they come for repayment, adding that this was bad for exporters and manufacturers.
Mr. Rodrigo also said exchange rates should be allowed to properly float. He pointed out that the problem is not having proper advisors on problems and implementing solutions that are necessary but may not be good politically.
The former CCC chief said the crisis would prevail in Sri Lanka if it affects the construction industry which is evident by the halt in construction all over Colombo and the fact that people have stopped purchasing property. He added that property companies are facing difficulties and have had to borrow money from group companies to survive.
Mr. Rodrigo said the Golden Key Credit Card Company took deposits without any oversight by the Central Bank (CB) even though regulations for finance companies are adequate to stop these unregistered deposit taking institutions. He likened it to a pyramid scheme with incoming cash being used to cover losses. Further, he said Golden Key has not maintained accounts.
Intervention by the CB and the government in bringing in a new board at Seylan Bank was a good move, according to Mr. Rodrigo because it stopped a run on the bank and averted a financial system crisis in Sri Lanka.
He said the financial system has to be stable to internal and external shocks. He urged the CB to conduct investigations into finance companies as well as conducting financial investigations critical for inter-company lending.
For the future, Mr. Rodrigo said he expects a balance of payment problem because military procurements have not been paid for. In addition, Iran is owed US$1 billion. He added that exchange rates have to be set at a realistic level, inflation has to be contained and there should be greater regulation of financial institutions. He also said improving infrastructure may stimulate growth.
Former CCC Chairman Mr. Mahen Dayananda, also the Chairman of B.P. De Silva Investment Pvt Ltd and a Director at Tea Tang Ltd., said despite declining world oil prices, there hasn't been any commensurate reduction. The higher cost of production in Sri Lanka is leading to the erosion of working capital in the tea industry.
The Stabilization Fund has been diverted entirely for non-tea related purposes.
Despite a dip in tea prices, Mr. Dayananda said the industry is on an upward trend now. He added that the government has said there would be a gradual adjustment of the exchange rates but Mr. Dayananda feels it should be adjusted more.
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