• Accreditation Board to be set up soon
• Diamonds are a girl's best friend
• Largest housing project takes off
• New policy for domain names
• No nuts for us say millers
• Massive trade deficit threatens essential economic stability
• Be fast and focused- Dr. Gerlad Sentell
• How clever is the International Monetary Fund?
• Privatisation of state owned banks
• Business News

Accreditation Board to be set up soon

By Dinali Goonewardena

A draft Act establishing a National Accreditation Board (NAB) is due to be presented in Parliament soon. The NAB will accredit certification bodies, testing laboratories and inspection and training organisations. Cabinet approval has been received and the bill is now being gazetted. The new board will ensure a national conformity assessment system which guarantees the quality of products which have been certified, to end users, Director General, Sri Lanka Standards Institution, CDRA Jayawardene said, explaining the rationale behind certifying the certification bodies.

The NAB's objectives include certifying accreditation bodies according to international and national standards and promoting accreditation activities according to the National Quality Policy. It will also co-operate with international accreditation bodies, train assessors, conduct seminars and disseminate information. Initiating agreements on mutual recognition with similar foreign and international bodies will be an important function of the NAB. Business dealings with India will increase after the Free Trade Agreement and peer assessments are essential to make our products acceptable to other markets, Jayawardene said. Indians will not take Sri Lankan products seriously unless a national quality policy is in place, he added.

The NAB is expected to be self financing in three years but will be funded by the Swedish International Development Corporation (SIDC) and the Sri Lankan government until then. This new institution will be governed by a Board of Directors consisting less than ten members but will hire experts to conduct technical assessments. All accreditation boards are members of The International Federation of Accreditation (IFA) although not contractually bound to this organisation. Membership facilitates the exchange of information. Although SIDC started work on the NAB legislation in 1997 its approval by the legal draftsman took nearly two years.

Diamonds are a girl's best friend

Diamonds magnified the growth in Sri Lanka's jewellery, diamond and gemstone exports in 1999. A 39.2 per cent increase to Rs 11.3 mn in 1999 of diamond exports led the recovery which followed the pall cast by the East Asian crisis. Sri Lanka's total exports of jewellery, diamonds and gemstones picked up 37.5 per cent to Rs.16.7 mn in 1999.

Global trends in this niche market appear to be changing with a demand for baguettes (long rectangular shape) in the US and coloured diamonds in Japan. While Sri Lanka to has a tiny stake in the baguette market with Diamond Cutters Ltd from Panadura exporting them, coloured diamond exports are mainly from Australia.

The East Asian crisis in 1997 saw this market loose its lustre as the order books of importers from Thailand, Malaysia, Indonesia and Hong Kong were hastily shut. Japan could only follow suit although America continued to sustain its demand for the girl's best friend. But cloudy skies have passed over and all is now well in the industry that boasts its own intriguing tale of smuggling in Angolan mines and a monopoly named De Beers.

Largest housing project takes off

By Chanakya Dissanayake

Sri Lanka's largest privte sector housing project will take off in September. The Rs. 2.2 billion project, which aims to build 2216 houses in four years is initiated by the Citi National Investment Bank ( CNIB). This was following a Expression Of Interest for a 144 acre block of land in Ekala by the BOI. The project is aimed to fill the void for housing facilities for middle income earners.

The project will be handled by Nivasie Developers (pvt) Ltd which was specially incorporated for this purpose. International Construction Consortium Ltd (ICC) will take the role of developer cum constructor for the project. ICC will be offering four basic designs priced between Rs. 750,000 to Rs. 1.2 million. This was following a extensive market research which disclosed the high demand for housing by the middle income earners who earn between Rs. 18000 to Rs. 30000 per month. Mortgage facilities will be provided for potential buyers from a consortium of banks.

The proposed project will take the form of a fully equipped, self contained satellite town. This will include 24 hour security, supermarket, and "Green belts" to contain an eco friendly lifestyle within the city. The proposed Colombo -Katunayake highway is also expected to add value to the project because of the convenience of reaching Colombo quickly.

Financing for the project will be raised through debt , quasi-equity and equity funding by both Citi National and ICC. Since the project is proposed to be completed in four phases, internal cash flows generated at the completion of one phase is expected to fund the next. The National Development Bank will be the lead banker to the project.

New policy for domain names

Sri Lanka's domain name registry is working on a new registration policy. We are also considering adopting dispute resolution mechanisms which are evolving internationally, a member of a committee to study domain name issues, told The Sunday Times Business.

The dispute resolution framework under consideration has been established by the World Intellectual Property Organisation (WIPO) and recognised by Internet Corporation for Assigned Names and Numbers (ICANN).

However in Sri Lanka, the committee has guarded against the speculative purchase of domain names to sell at a profit (cyber squatting) by regulation of domain name applications.

"Names should not include trademarks of other parties or words not permitted as business names unless the applicant is legally entitled to use such words," the

Sri Lanka domain name registry web site states. The proposed new domain name registration policy involves liberalising name allocations to entertain second level domains such as www.name.com.lk (commercial entities) or www.name.net.lk (network service providers). Previously domain names allocated were restricted to top level domains such as www.name.lk.

ICANN is a technical co- ordination body for the internet which is also responsible for assigning domain names. While ICANN administers domain names such as www.name.org, the registration of country domains has been dispersed globally. In Sri Lanka the internet domain name lk is administered by the Council for Information Technology (CINTEC) and registration of this domain is carried out by the University of Moratuwa on behalf of CINTEC.

Reservation of a domain name costs Rs.5000 and entitles the holder to an exclusive domain for two years. A domain name can be registered within three working days but applicants must furnish reasons for selecting a domain name "to guard against future disputes".

Organisations outside the country can reserve domains in Sri Lanka but cannot activate them unless they have a presence in the country. The website hosting the Sri Lanka domain name registry is www.nic.lk.

No nuts for us say millers

Desiccated coconut millers have appealed for government policy changes to benefit the industry and claim the traditionally-Sri Lankan dominated Middle Eastern market is in jeopardy.

Government duties on imported oils have reached an all time high to foster the local coconut industry and this has affected the flow of coconuts to the desiccated coconut industry, President, Sri Lanka Desiccated Millers Association, Mr. S Watawala told The Sunday Times Business. Duties on imported oils should be decreased to prevent an unfair advantage to the local coconut oil industry and encourage the free flow of coconuts to the desiccated coconut industry, he said. Watawala also stressed the need to protect export-oriented industries in preference to local industries.

A glut in coconut crops worldwide has left prices depressed. Desiccated coconuts fetch an average of $575- $600 per metric ton at present compared to $1132 per metric ton last year.

A resultant fall in prices paid to coconut growers has also been seen. A thousand nuts typically sell at approximately Rs 3500 at present, compared to Rs. 6500 for the same quantity last year.

While desiccated coconut mills usually remain closed during the first quarter of the year a bumper harvest in the first half of the year resulted in mills operating at full capacity. But now millers are faced with go slows as growers are keeping their stocks on their estates in preference to selling at the prevailing low prices, Watawala said. However the President of the Coconut Growers Association, Harin Abeysekera pointed out that the time frame which you could keep coconuts in the expectation of better prices was limited. The maximum period was two months after which the nuts would get germinated, he said.

Abeysekera stressed the need for incentives to the coconut oil industry which would give coconut growers a choice of industries to sell their nuts.

The government recently shifted its policy towards the local coconut oil industry by introducing a 25 per cent surcharge on imported oils. It had previously restricted duties on this industry in order to encourage oil imports to Sri Lanka. This measure was intended to foster the desiccated coconut industry as an attractive alternative industry for growers to sell coconuts. However prevailing low prices in the desiccated coconut industry has seen a policy shift.

Massive trade deficit threatens essential economic stability

The massive trade deficit in the first half of this year could de- stabilise the economy and erode confidence among investors. Compared to a trade deficit of US $ 1299 million for last year, the trade deficit for only the first half of this year has reached a mammoth US$ 1139 million.

The trade gap in the first half of this year has more than doubled the deficit of last year. The trade gap has increased from US$ 549 million to US$ 1139 million an increase of 107 per cent, compared to our trade balance in the first half of last year. While the trade gap may not double for the entire year, it may come close to that.

It may be reasonable to project a trade deficit of around US$ 1800 million, much larger than the trade deficit the country has ever had in any previous year. This large trade deficit is entirely due to increased imports by over 38 per cent. The deficit in fact reflects the increase in the volume of imports of crude oil, the increased price of crude oil, and the massive increase in armaments imports.

The increase in consumer imports has been a somewhat modest US$ 84 million. Investment goods imports have increased by US$ 420 million and intermediate goods imports have increased by US$460 million over the comparable six months of last year.

While the trade gap would make a serious dent in the balance of payments, its blow would be partly off-set by an increase in private remittances, which have been a source of continuing strength to the balance of payments.

In the first five months these inflows increased by about 89 million US dollars leading to an expectation of an increase of around US$ 200 million for the year. This is a significant contribution, but may be partly offset by increased outflows from portfolio investments and reduced tourist earnings. The severity of the trade deficit can be gauged by the fact that it is as much as one half (49 per cent to be exact) of the foreign reserves held by the country at the end of June this year.

Another way to comprehend the seriousness of the problem is that the six month import bill was 46 per cent higher than our export earnings. It is true that this state of affairs in our trade balance has been brought about by factors which are mostly beyond our control. Increased oil imports necessitated by the loss of hydro-generating capacity at a time when international crude oil prices rose accounts for a significant part of this deterioration in the trade balance.

The cost of the war is the other. External and internal shocks have combined to bring about this bleak picture in our trade account.

But the question to ask is whether there has been an adequate response to mitigate these blows? Has there been adequate efforts to reduce petrol consumption? Has there been adequate voluntary efforts backed up by policy measures to conserve electricity and thereby reduce crude oil imports? Has there been adequate policy measures to curtail other imports and attempt to at least maintain other imports to last year's levels?

One of the important reasons why there is an inadequate response in the face of difficulties is that people are unaware of the severity of the problem. The government prefers to paint a rosy picture for fear of being blamed for the economic conditions. The opposition invariably blames the government for the problems. The unenlightened political culture in which we operate is not conducive to either the correct responses from the people themselves or for the needed policy responses from the government.

The danger in this is that our economic problems would tend to get worse owing to the incapacity of our democratic governments to act in the interests of the economy and the people's welfare in the long run. Unfortunately the correct economic policies are often not politically palatable. The balance of trade issue we have raised is only one of a large number of such situations..

Be fast and focused- Dr. Gerlad Sentell

By Chanakya Dissanayake

STB: How do you define Human Resource Management ?

GS:The traditional answer would be the personal function. But there is a clear distinction between the personal function and the HR function. Personal management deals with how many holidays, attendance of staff etc. But HR management is clearly a different science. It is about the career path of people. Recognising their talents, skills and developing them to their full potential.

STB: IT savvyness is considered to be the key to high efficiency. Bearing in mind the severe capital limitations a country like Sri Lanka has, how can we make our executives IT savvy ?

GS:The key point is that IT need not be expensive. We need not have the most expensive, exotic , state of the art IT solutions. What we need to do is to train them in basic software solutions. 30 years ago when I got my PhD, we had to choose our universities according to the standard of the computer systems they had and they were so expensive. But today the basic system I have cost little more than $ 1000 and I do all my work with it. My suggestion to Sri Lanka is to make internet widely available to workers in the organisations. We need to stop been penny wise and pound foolish and make information widely available to our employees. It can be hugely beneficial in the long run.

STB: In this era of globalisation, how can a third world country like Sri Lanka change its organisational mindset to compete in an ever-changing world?

GS: First of all organisations compete and countries do not. What the governments can do is provide a business environment with reasonable laws and reasonable regulations to enable the organisations to compete with their counterparts abroad. For example if infra structure facilities such as telephone systems are expensive to use, it will limit the number of local organisations benefiting from IT and deter their chances of competing. Many governments in this part of the world have outdated policies which make it hard for organisations to compete, a good example is the high cost of international calls in Sri Lanka.

Tax policies should be amended to give a higher reward for the risk taking and promote entrepreneur initiatives.

STB: Any suggestion to solve the high level of under employment in the country.

GS: Globalisation has removed the barriers between countries. People are no longer limited to jobs within the country. You should move out to where the suitable opportunities are and specialise in certain skills. All of a sudden even though we are a country of 18 million people, we'll find having access to a market of five billion people.

STB: Sri Lankan mindset is not yet accustomed to accept mergers and consolidations even though it is a trend in the modern business world.

How do you see this situation?

GS: Changing the mindset of people will be difficult. But going by global competition, the local firms will not have the freedom of not choosing to merge or consolidate in the future. Whether you like it or not it will be a question of survival.

STB: Through your experience in working with the top local blue chips, what is your frank assessment of local management talent ?

GS: To be very candid we have lots of talent in Sri Lanka. But we also have lots of outdated management systems that belong to the 1960's. Some of the very senior managers have difficulties in relating to lower level employees. They should realise that the old class structures need to go away and stay away for good.

Those tall hierachical systems prevent information being passed around quickly. Communication within people in a organisation needs to be made fast and easy, tall organisational structures prevent this.

STB: Finally, where do you see Sri Lanka heading?

GS: This was one of the most developed countries in the region 40 years ago. A regional business centre. However we must admit that many government policies have been counter productive towards fast economic growth.

Assuming a speedy resolution of the insurgency and a rational set of business policies, I oversee a rapid development of Sri Lanka's economy.

I have seen Taiwan developing into a true industrialised country from scratch.

First time I went to Taiwan it was a much poorer country, and now it makes more than half of the world's personal computers.

The Harley Davidson turnaround 1983.

Harley Davidson was the last of US motorcycle building firms and it was clearly up against the ropes in 1982-83. When its mere existence was in question the workers and management decided that the only way to save the firm is by completely reinventing it. Dr. Gerlad Sentell was hired to build a suitable management model and train the workers. Subsequently all the functions within the organisation was reinvented and eventually it became one of the most productive firms in US. Harley Davidson was even able to ask the Ronald Reagan's government to relinquish the temporary protection it gave against the Japanese imports six months ahead of time.

How clever is the International Monetary Fund?

In an article entitled 'IMF must find a new faith' appearing in the Guardian Weekly, Mr. Larry Elliott states that market volatility has exposed flaws in the international finance system.

Elliott says that for someone who has long argued that the United States has been dangerously gripped by a stock market mania there was something utterly compelling about watching the US TV channels trying to explain what had gone wrong. Actually, he says, it was quite simple. The technology sector (and to a lesser extent the whole of the US stock market) was ludicrously over valued and was destined to fall, which it did.

The author goes on to say that "Wall Street's tumble highlighted some of the vulnerabilities of the international financial system and forced those running it to explain exactly what they are doing".

The IMF and the Bank, says Elliott, need to re-think how to manage the global economy; for years, they have operated rather like the Vatican, insisting on the one true faith. They are now faced, says Elliott, with unruly heretics who not only refuse to believe but are prepared to resist.

Elliott points out that "the most wounding attack on the IMF came from Joseph Stiglitz, until recently the chief economist of the World Bank". He had pointed out in an article in the New Republic magazine that the IMF had woefully mishandled the crises of 1997-98.

Elliott says, that Stiglitz had gone on to attack its secrecy, its arrogance and its policies.

"When the IMF decides to assist a country, it dispatches a 'mission of economists' says Stiglitz, "and these economists frequently lack experience in the country; they are more likely to have knowledge of its five-star hotels than the villages that dot its country-side."

The second most compelling read of the week came from the IMF itself, says Stiglitz. In an overview of the world economy's development in the 20th century, the IMF said that the past 100 years had seen a stupendous increase in economic output, but at the same time, inequality between the world's rich and poor regions, measured by output per capita, has also increased dramatically.

The IMF divides the 20th century into four distinct periods - the Gold Standard era, the two world wars and the great depression, 1950-73 boom, and the period of globalisation.

The IMF figures show that the most successful period of the past 100 years was 1950-73 "characterised by exceptionally rapid output per capita growth (2.9% per year on average) and the recovery of world trade under the Bretton Woods system of fixed exchange rates and widespread capital controls". The IMF goes on to say that during the Bretton Woods period, the stablility of the real economy and of exchange rates reinforced each other. Wage pressures were moderate, and capital controls remained in place limiting the instability from disruptive international financial flows.

The IMF fully accepts that a pegged exchange rate, independent national monetary policy, and unrestricted international capital mobility cannot be achieved simultaneously.

Elliott asks if one of the three has to be sacrificed, which should it be. The argument in favour of liberalising capital flows is that more efficient markets enable money to flow where it is needed, and to countries without sufficient domestic savings to fund investment. But says Elliott the tendency has been for removal of controls to be followed by a surge of capital inflows, much of which has been for speculation rather than long-term investment.

The counterpart to a surplus on the capital account has been a deficit on the current account, which has precipitated a crisis, leading to capital flight and austerity programmes.

The IMF and the World Bank agree that the priority is to tackle poverty and global inequality. But governments find it hard to pursue growth and redistribution when in thrall to capricious global markets.

The solution, says Elliott, should be to maximise domestic opportunity and provide an environment for countries to develop their own domestic financial institutions and create a flourishing market economy.

But the IMF has not proposed this. Elliott says that may be Stiglitz is right and they are not so clever after all.

Privatisation of state owned banks

BY Ranjit Fernando

The expression "insider's view" immediately implicates that the perspective of the insider will be different. In the internationally famous book "The 7 Habits of Highly Effective People" by Stephen R. Covey, there is a hand-drawn sketch, in black and white, of a face of a woman. At the first glance, everybody sees in that sketch the face of an old woman. But when you look intently, straining a different set of eye muscles, you gradually discover in that sketch, the face of a beautiful young girl. The mind's eye, can construct two different images from the same drawing.

The picture a person wants to create about privatization depends on the ideology that person subscribes to. To justify the ideology, the person can Marshall selected data and construct a picture. Those subscribing to a different ideology can marshall a different set of data and create a different picture.

The ideology of privatisation is an accompaniment to the ideology of the free market, individualism and consumerism imported to Sri Lanka, particularly through the agency of the World Bank and the International Monetary Fund. The post-colonial era of Sri Lanka and other third world countries saw an upsurge of nationalism resulting in nationalization of key economic activities as preferred ideology which was popular for about 3 decades from the 1950s.

After the 1980s, pushed by the highly developed countries in the west, liberalisation of economies with the free market as the goal was being gradually accepted by almost all third world countries albeit with various degrees of resistance. What is foremost in the minds of these many poor countries is the protection of the poor who are the majority. No country can abandon its poor to the vagaries of free markets or to the free play of the laws of supply and demand. Protections of certain key areas of economic activity become necessary for the economic protection of the people.

The World Bank and the International Monetary Fund which financed, in their own interests, a diagnostic study of the People's Bank and the Bank of Ceylon, reported that they are "inefficient, loss making, corrupt and unproductive." Despite this, and the competition offered by 26 other Commercial Banks operating in the country for the last 10 years the People's Bank and the Bank of Ceylon still continue to play dominating roles in the banking sector of the country.

There is a large amount of truth in the statement of the two international credit agencies that state-owned enterprises and these two state owned banks are "inefficient, corrupt and technically bankrupt." However, this is not due to state ownership but mismanagement through politicisation of the administration. This managerial problem can only be rectified by the state itself by making the two banks fully autonomous and the Corporate management made accountable to the state.

The genesis of the Bank of Ceylon and the People's Bank was conditioned by the social need publicly expressed by the people, for the supply of credit on reasonable terms to the business community for business development and to individuals for their domestic development.

In the 1930s, the 7 foreign-owned commercial banks operating at the time, failed to meet the credit needs of Ceylonese entrepreneurs. The alternate money lenders at the time, the Natucottai Chettiars began to take possession of vast acres of land when the owners failed to redeem their mortgaged property. There was a national outcry for setting up of an indigenous bank to cater to the Ceylonese business community.

The Bank of Ceylon was established in 1939 with British managers and catered mainly to the mercantile and plantation community. This was the respectable upper and middle income segments of society which was a class by itself. The medium of transaction of the Bank was English. For three decades, the Bank of Ceylon continued to expand to become the largest bank in the country establishing many branches in the outstations.

The People's Bank was established in 1961, in keeping with the ideology of the United Front government, to cater to the co-operative movement in the country and to serve the "small man." It services small time businessmen, the professionals, and low income groups in rural and urban sectors. The depositors were the Sinhala speaking class not proficient in English. The medium of business transactions was in Sinhala and Tamil and the internal administrative matters were conducted in the Sinhala medium. In 4 years the People's Bank had 50 branches whereas the older Bank of Ceylon had only 28 branches. The People's Bank could afford this network as their branches were housed in small premises and were manned by lower grade officers as managers, quite in contrast to Bank of Ceylon. One important business line which acted as a catalyst for growth was the business of pawn broking, a readily available short term credit line for low income groups. There was no stopping the People's Bank.

Bank of Ceylon was fully nationalised in 1961 and the two banks became virtual monopolies while about 8 other banks conducted restricted business in Colombo.

In 1970, the ideology of the United Front government in which Dr.N.M.Perera was the Minister of Finance brought forth transformations in the two state owned banks. The Banks went developmental and subsidised loans came to be pumped into the weaker sections of the economy and society. The Bank of Ceylon now has 14 subsidised credit lines and the People's Bank 18. For several years Janasaviya/Samurdi grants were financed by the two banks. These massive injections of money into the lower strata of society for 40 years have raised the living standard of large sections of the population and made economic activities at the lower levels possible. If the contribution the state banks have made to raise the living standards of the people and for developmental activities of the country could be quantified, it would be an impressive figure. However, succeeding governments have failed to reimburse to these two banks even the cost of such subsidised lending.

On the negative side, it was the United Front government which commenced the politicization of the state owned banks with political recruitment and interference in the administration. This was continued by the United National Party government after 1977.

Since the two Banks are structured on British banking models, they have been unable to operate at the real grassroot level like the Grameen Bank of Bangladesh which is driven by the vision of generating economic activity of the populace at subsistence level, which in Sri Lanka is about 40 percent of the people. Grameen Bank is a superb developmental model, and has a unique credit delivery system suitable for grassroot level financing. Short of the lowest levels, the Bank of Ceylon and People's Bank have ensured to a wide spectrum of the people the right to have access to credit on reasonable terms. In that, the prime objective for which these two banks were created, has been fulfilled, much more than what was envisaged at the beginning.

The two state owned banks developed their international trade finance services to such a level, both in efficiency and expertise, that upto date this field is being dominated by the two banks inspite of the 22 trans-national banks operating in Colombo. International Banking is not only the main source of incomes for the two banks but also losses in other spheres are being covered up with these enormous profits. Despite the fact that the profits from the banking industry are shared by about 28 banks operating in the country, for the last several years, both People's Bank and Bank of Ceylon recorded a gross profit of over Rs.5000 million each, as income over all expenditure.

The tariff charged by the two state banks, from the customers, for services rendered is very low compared to the charges levied by the private sector banks. This is one reason why customers remain with the state-banks apart from the fact that, the wide network of branches of the two banks are also a facility which businessmen with country-wide trading interests, value very much. Privatisation, will no doubt, raise the tariff, in the manner of Shell Gas, Telecom etc. Opinions have already been expressed by top bureaucrats of the government that if privatised, the Bank of Ceylon and People's Bank will have to close down all the loss making branches and services. Such an eventuality will be a disaster from the customer's point of view.

There is a strong effort made through certain re-organisation processes, funded and directed by the World Bank and the International Monetary Fund and through recommendations of certain specialised management consultants to downsize the two banks and to shrink or emasculate their branch networks. But independent surveys made for example by the Economist Intelligence Unit Limited, reveals that Sri Lanka is greatly under banked and is far behind the national bench-mark in USA of 3 bank branches for every 10,000 population. The ratio for Sri Lanka today is less than one branch per 10,000 population. There is no justification for any closure of branches of the two banks, especially in the context of permission being granted to the 4 indigenous banks to open new branches in rural and suburban areas with no restrictions.

The network of branches throughout the country numbering about 650 for both banks situated in all parts of the island enables the government to draw the money in circulation into the banking system for capital formation. In an economy where the highest source of income for the country is the remittances by repatriates, countrywide outlets to draw the money by various recipients is also important. This network helps to promote the banking habit among the people and for the trading community, it is a facility which helps in their business activities. Therefore any reduction in the number of branches is undesirable from many angles, eventhough some of the branches as a unit could be could be running at a loss. As it is happening now these losses can be absorbed by the profits earned in other branches.

Neither the multi-national banks nor the private indigenous banks can deliver credit on a mass scale to all sections of the populace. They can deliver only to selected segments.

The new multi-national banks which entered the banking arena in Sri Lanka around 1988 brought with them new technology, new products and they indulged in aggressive marketing. The state banks responded in equal measure and presently as far as technology and new products are concerned, there is nothing lacking in the state owned banks and greater sophistication in technology is on the cards.

What ails the state-owned banks.

The most alarming feature in the accounts of the People's Bank and the Bank of Ceylon is that the non-performing advances in each bank now amounts to around Rs.15,000 million each. The Rs.5000 million profit that each bank earns get dissolved into nothing by the provisions and write-offs that have to be made against these non-performing advances in keeping with international accounting norms.

Seventy-five percent of these non performing loans are corporate borrowings. About 300 persons and the companies in which they are involved are responsible for borrowings from both banks, which they have defaulted. These corporate borrowers live in society in great affluence and none of them have been declared bankrupt. A former Finance Minister, Mr.D.B.Wijetunga told parliament once that, these borrowings are nothing but "outright robbery". These loans are passed through political and social influence and the lending officers are never made to account for their responsibilities in lending. This perhaps is the prime problem facing the state-owned banks today.

Contrary to popular belief, agricultural loans to farmers are no longer an unbearable burden to the state owned banks. In 1998, Bank of Ceylon registered that 73 percent of agro-loans were repaid by the farmers.

The second problem facing the state owned banks is a more complex one, in regard to the management of the two banks. The most serious disadvantage the state banks have been having is the government interference in the administration. These interferences relate to recruitment and remuneration of staff, granting of and recovery of debts, location of branches, rental of premises and even day-to-day administration relating to promotions, transfers and disciplinary actions on the 20,000 strong workforce in these two banks.

Beginning from 1972, under the direction of Dr.N.M.Perera the then Finance Minister, the managements of the two state-banks have undergone such massive erosion of standards in the last 28 years that today, the administrations have reached a state of paralysis, like the pre-de-nationalisation days of the Central Transport Board. There is an urgent need for the re-establishment of discipline in the two banks and regulation of staff conduct using the standard regulating mechanisms relating to personnel management.

The above two problems are largely managerial problems aggravated by political interference.

The remedy for all this is not the selling of the ownership of these banks to private organisations with profit making ideologies. If the human rights of the large mass of people to obtain credit on reasonable terms is to be upheld, so that the banks can continue to cater to the entire spectrum of social classes in society, with the ideology of socially developing the weaker and lower segments of society, the ownership of these two banks should be retained by the government.

The principal remedy that needs to be administered immediately is the severance by the government of all political channels controlling the administration of the two banks.

The government must introduce total autonomy in the administration of these two banks and eliminate all political interferences enumerated above.

The view expressed that a government owned enterprise will always be politically interfered with administratively, may not be true. The living example is the Bank of Ceylon itself, which was fully nationalised in 1961 but continued to operate as an autonomous body until 1970. Those 10 glorious years of the Bank of Ceylon where the Bank reached 90 percent efficiency in most branches and 100 percent efficiency in some, is living testimony that it is possible for a state owned enterprise to be well managed if the politicians keep their virtue and keep aloof. The government must, by political command prevent politicians from interfering in the administration of the two banks.

The contribution made by the Bank of Ceylon and People's Bank to the development of the economy in Sri Lanka is immense. Large sections of the common people have benefited by the services of these banks. Their privatisation will have disastrous consequences to the country and those who will suffer will be the ordinary people.

The writer of this article,is a former General Secretary of the Ceylon Bank Employees' Union. He counts 36 years service in the Bank of Ceylon and is presently the Manager of Organisation & Methods Department of the Bank of Ceylon, Head Office.

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