17th Septmeber 2000
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New coin

The Astamangala is a collection of eight auspicious symbols with miraculous powers. 

It gives long life, prosperity to the country and protection from enemies. 

Naturally, when the Central Bank issued a commemorative coin on its 50 th anniversary, it had to include the Astamangala.

Ancient kings wore the eight symbols on their crown and sometimes on their forehead or waistbelt. 

The Central Bank's coin, with a face value of Rs. 1000 depicts the Central Bank building on one side and on the other- the Astamangala. Only 10,000 coins were minted in this limited edition issue which is on sale at Rs. 1200 per coin.

The eight auspicious coins in the Astamangala are the conch, a poorna kumbha, goddess Lakshmi, camara (a flywhisk), elephant goad, a pair of fish, nandyavarta (a curvilinear swastika) and bhadrapitha (an auspicious seat).

Buddhist tradition speaks of 108 auspicious signs but Sri Lanka and India have traditionally accepted eight signs. 

In the fifteenth century the Astamangala was influenced by other auspicious signs related to "bali" and "thovil" ceremonies. 

After the fifteenth century it was linked with the eight planets of traditional astrology. The Astamangalas were the symbol and weapon of the eight planetary deities found in astrology.

Whatever changes that took place in the Astamangala over time, it was always considered a powerful instrument that gives happiness and protection to all people.

MMC steps into the IT park

By Dinali Goonewardene
The World Trade Centre's IT park has attracted its first investor with the Mobile Media Company setting up office in the tower. This global company with headquarters in the United Kingdom and operations in Norway, Sweden and Romania intends making Sri Lanka one of its main regional development centres. 

The Sri Lankan arm which is in the process of being incorporated is due to be launched in November. 

"The objective of establishing an organization in Sri Lanka is to have an application development unit in the Asian market," Vice President, Corporate Planning, Mobile Media Company, J T Klepp told The Sunday Times Business.

The company will develop multimedia applications for the current and next generation of cellular networks. Its target market includes Europe, East Asia and South Asia. Currently on a recruitment drive to employ sixty personnel Klepp believes it is important to get access to skilled labour.

"Sri Lanka is known for having excellent engineers. High literacy rates and English proficiency makes it easier for us to establish operations and integrate the Sri Lankan office to the company as a whole," he said. The company's future investment in the country will be largely directed towards recruitment and training.

The Mobile Media Company (MMC) currently employs 160 people in Norway, UK and Romania. In the process of a global expansion programme, the company raised US $ 28 mn through a private placement in April. The funds were raised from institutional investors in the UK and Norway. Possible new development centres for the company include China and India.

The company is currently working with network operators, content providers and equipment manufacturers in the international playing field. MMC has developed enabling technology for providing synchronized and interactive multimedia applications on wireless devices. It has also patented its own 3D technology.

The Board of Investment (BOI) which opened its IT park to investors recently provides a plethora of concessions to lure investors. Subsidised rentals for locating in the World Trade Centre building and a high speed internet connection were among the incentives offered by the BOI to MMC.
Mind Your Business

On the other hand.....
Both blue and green camps briefed the business community last week but well before that an independent survey was done in the commercial sector to try and find out which way the wind was blowing. The question posed was which party the business community would prefer to have in charge of the economy.

The overwhelming response was that the greens were better economic managers. But on the other hand, a similar poll before the presidential elections late last year drew the same response...

More the merrier
The monopoly on gas distribution is due to end in about two months time and there are several overseas companies eyeing the date. They have already commenced negotiations to set up distribution but the process has been somewhat hampered because of the election. All in all, four more distributors are likely to be in the market by the end of next year. Of course, it will be more the merrier because consumers were shell-shocked by the price hikes all these years..
Trick or treat
One mobile phone company had a problem with non-payment of bills, even with strongly worded reminders and prompt disconnections. 

Advice was sought and it resorted to offering a twenty per cent discount to settlement of bills within a fortnight to selected subscribers who had a habit of defaulting, without mentioning anything about interest being charged for delayed payment. 

That seems to have done the trick and payments are prompt now. So, the network is contemplating the cost-effectiveness of introducing the scheme to all subscribers...

"We need more trade negotiators"

The urgent need to hire Professional Trade Negotiators to clinch deals in Washington, Brussels and Delhi, was highlighted by the Board of Investment Chief recently. Speaking at a meeting organised by the Sri Lanka Garment Buying Offices Association, Director General, BOI Thilan Wijesinghe said, the need for hired Professionals came in the aftermath of the Sub- Saharan Africa Trade Bill. 

The Trade Bill which is effective from 1st October 2000 will let 12 African countries enter the US garment market quota and duty free. Apparel from Kenya and Mauritius is also allowed to enter US without quota restrictions but duty is payable. 

The qualifying criteria for this agreement has been on the basis that these countries are less developed countries with GDP per capita less than US $ 1500.

Since Sri Lanka's per capita GDP is much less than the qualifying amount, serious doubts are raised about the capability of our trade negotiators in clinching the best deal for the country.

Mr. Wijesinghe said that Sri Lanka should concentrate more on the European Union Apparels market. 

"I have felt that Sri Lanka has been neglecting Brussels for some time. Europe can be the answer for the Quota shortages we experience from US. We have been depending on US, but in the face of US agreements with Sub Saharan Africa, we need to look for alternatives, he said.

"Traditionally trade negotiations are done by government officials. 

"But now, the time has come for us to hire professionals to win a better deal for the country. 

"The high cost of hiring will be justified by the favourable terms in trade agreements," Mr. Wijesinghe said.

The business community had been pointing out the lack of strong negotiating skills among local trade negotiators for some time. 

This was evident in the recent privatisation agreements which had some unfavourable terms from a Sri Lankan perspective, analyst said.

A day to register

By Chanakya Dissanayake
Company Registrar's Office (CRO) will be fully automated under a program initiated by The Legal and Judicial Reforms Project funded by the World Bank. As a result CRO will be able to incorporate a company within a working day. 

It will also be possible to reduce the time required to obtain a certified copy of registration to half an hour. 

This project is fully funded by the World Bank with the objective of making CRO a market oriented and self financing service provider. A detailed survey was carried out by the University of Moratuwa to asses the hardware and software requirement for the proposed automation. 

The main objective was to reduce or eliminate the delays caused by paper based activities in the CRO. 

University of Moratuwa proposed a computerised system for, name search for approval, incorporation of companies and post incorporation activities. It was also proposed to create two data bases. The Image database will contain scanned images of all documents. 

The key information database will contain the company name, address of the registered office and total assets. 

In December 1998, a team including the Registrar Of Companies and consultants visited the Company Registrar's office in Singapore and studied its layout which provides company registration services with a staff of only 80. Company Registrar's office was established in 1861, following the Joint Stock Companies Ordinance. 

Today in the fast moving business environment, CRO's operations are handicapped by cumbersome, inadequate and outdated procedures. 

In addition the CRO also suffers from the lack of staff to monitor the compliance with financial reporting requirements and legal requirements. - CD

Lanka on slippery ground

Spiralling oil prices have left a dent in the balance of payments and is expected to affect the economy, economists said. Oil prices have tripled since the end of 1998 and the current wave may widen the trade gap in Sri Lanka further. 

The trade deficit from January to July 2000 was Rs. 82,882.2 mn compared to Rs 41,909.5 mn during the same period last year- a 97.8 percent drop.

The rising fuel bill may put pressure on reserves and even affect exchange rates, economists said. Global fuel prices will also have an impact on domestic fuel prices causing the cost of production to rise. Resultant wage increases would also see inflation increasing. 

Although three big oil price shocks since the early 1970's have triggered inflation which left the world economy reeling, OPEC countries view the current wave as a price restoration. 

The recent tripling of prices followed a sharp drop which saw a barrel of oil selling at below US $ 10 in January 1999. Eighteen months later prices have over stepped the US $ 30 mark and are heading towards US $ 40 a barrel.

The continued rise in oil prices have caused the Ceylon Petroleum Corporation to increase diesel prices to Rs. 19.50 per litre in the last year, from, Rs. 13.20 per litre. Kerosene prices increased to Rs.15.40 per litre from Rs. 10.40 per litre in the same period. However, low prices during 1998 and early 1999 cushioned the CPC when prices rose subsequently.

A recent OPEC meeting resulted in a promise to increase production by 800,000 barrels from October 1. However this was merely in keeping with OPEC's policies to boost output by 3 per cent in the fourth quarter. Analysts expect prices to start declining or stabilising by January or February.

In a country which depends on thermal power for 50 percent of its electricity generation the stark reality of spiralling world market prices appears too hot to handle.

Profligacy in public expenditure

The irresponsible practice of incum bent governments attempting to muster votes by increasing wages, pensions, welfare measures, subsidies and other similar extravagant expenditures has been gaining ground in recent years. Governments of both main parties have acted in this manner. This act of attempting to buy votes has serious implications for both the practice of democracy as well as for the public finances of the country.

It is one of the worst manifestations of "truckling to the masses". Let us dwell mainly on the economic implications of this practice. It is indeed a serious breach of public accountability. Funds which were not budgeted are being expended. Consequently the figures presented in Parliament are being distorted. Besides the issue of public accountability of funds, there are several financial distortions and waste. First, funds allocated for other expenditures may be used for the new political expenditures. Second, since these expenditures are current expenditures, there tends to be a curtailment of capital expenditures to accommodate the new current expenditures. Third, the increased current expenditures would increase the current account budget surplus and generate new inflationary pressures. Fourth, the kind of initial expenditures of this sort can lead to further demands for additional expenditures before the elections, which would be very difficult to resist. This would compound the problems already noted. 

Fifth, such expenditures tend to be wasteful of public resources. This is a brief statement of the adverse financial impacts of hasty political public expenditures at election times. There are two areas of public expenditure which illustrate the above weaknesses. The first is the expenditures on Samurdhi, which in any case absorbs a very sizable amount of the country's public expenditure. The current increases in the Samurdhi payments as well as the salaries paid to the officials disbursing these funds are well known disguised political expenditures. The very fact that over one half of households in the country get Samurdhi benefits, whereas poverty is estimated at around 19 per cent of the population is clear evidence of extremely poor targeting. There are further evidence of this in studies conducted to evaluate the scheme. In the pork barrel kind of democratic politics we indulge in, it is most unlikely that we can reform the system to reach the really needy.In fact the chances are that there would be an expansion of benefits to many others as well as corrupt disbursements of funds. Expansion of expenditures at election times become a built in permanent wasteful expenditures. The increase of wages among public servants may lead to demands for higher wages among other sections of employees. In fact several trade unions have asked for increases in wages during this government's regime and been denied such increases. It would indeed be difficult to not grant their demands at this juncture when the government is attempting to capture votes by whatever means.

If these sections, notably the bank employees, who were not given a wage hike happen to be given their demands, one has to ask what is the new justification. Is it a change in economic situation or a pure political motive? All these increases in public expenditures are occurring at a time when the country is facing severe pressures on its public finances owing to substantial increases in military expenditures and a shortfall in revenues. The irresponsibility is much worse owing to these financial circumstances of the country. The opposition is hardly in a position to point a finger as their own record when in power can hardly be described as exemplary. Besides this any opposition to some of the expenditures may result in courting political unpopularity for themselves. In mature democracies like Britain this sort of irresponsible behaviour does not occur for two main reasons. First, there are conventions which ensure that governments do not indulge in new expenditures once parliament is dissolved. Second, the voters would themselves condemn such action and far from becoming popular a government may in fact lose votes. Unfortunately we do not have either of these safeguards. Consequently the economy would continue to suffer from irresponsible acts of public expenditures on the eve of elections. Profligacy for short term political gains by the party in power are a strain on our public finances and a burden the economy can ill afford. Yet, such are the costs of our democracy. 

Milinda Moragoda Vs Ronnie De Mel

As the cross-fire between the two main parties grows in intensity and the election draws near, the Sunday Times Business spoke to the Financial wizards of the two main parties. We posed a common set of questions to Milinda Moragoda of the UNP and to Minister Ronnie De Mel of the PA. These are their solutions to the burning issues of the business community. By Chanakya Dissanayake
Milinda Moragoda.
STB: The Business community is complaining that prevailing high interest rates are killing the industry. What are your plans to bring interest rates down?.

MM: Interest Rate reduction will be a part of our overall economic goal. We hope to achieve a growth rate of 8 to 9% of GDP per annum. There by we can increase the per capita income to $3200 in 2020 from the present $800.

As you know interest rates depend on budget deficit. Our Fiscal Policy will attempt to reduce the budget deficit to 4% from the current 9% within the next 4 years. The business community can expect a similar reduction in interest rates.

We have to look back and try to identify where Sri Lanka went wrong. There is no need to point fingers at different governments because the economy we have today is a product of both governments. In 1950 both Sri Lanka and Korea were in the same level of economic development and today Korea is a developed nation. In my opinion Sri Lanka missed out two important opportunities, we missed the opportunity of creating a regional commercial hub to Singapore and later in the 1990's we lost out to Dubai in creating a commercial hub. 

Our economic policy is based on a fresh look. In today's new economy the place of raw material has been taken over by knowledge and human capital. Whatever said and done we know that we have it. We will be working towards building the investor confidence towards the highest levels. The Private Sector will be consulted in each policy making process, and the Parliament will meet without recess for the first 8 months to pass the necessary legislation to lay a foundation for our Economic reforms.

International Economists say that the lack of decisiveness in the present government and the failure to implement economic reforms is costing the country 2% of GDP per annum. Even with the war we can increase the GDP by 2% by implementing proper policies.

STB: Foreign investment in both Stock Market and Local industry has been low for some time. What are your plans to revive it?

MM: Our "Partnership 2000" with the private sector is all about building investor confidence. It will be based on mutual trust ; we will be doing what we say and there will not be any shocks or surprises in policy making. Each and every decision about economic policy will be arrived at in consultation with the private sector and their inputs will be included. Once we establish confidence in the Sri Lanka's economy, investments will follow. It's all in the mind. Investors should feel that the economy is in the hands of competent people with a sound strategy.

STB: World Petroleum prices are on the upswing. What are your plans to mitigate the impact on both the industry and consumer.

MM: It is a very complicated problem. As you know there is cross subsidy between Petrol and Diesel. That is for social reasons - fair enough. Our opinion is that we should be as market driven as possible, we should reduce the cost of intermediation and not overly subsidise anything. As with any commodity , petroleum prices also fluctuates in a cycle. The advantage of being market driven is that when the prices are low we can pass the benefit to the consumer. When the petroleum prices were low a few years back, was the benefit passed to the consumer? No. They kept the margin to finance other expenses. If the government was able to pass the benefit to the consumer the problem will not be this acute. Our plan is to educate the consumer on a market driven approach.

STB: In the wake of the election both parties have promised salary hikes to public servants. How will you finance this?

MM: Basically what we have to do is look at the budget from the point of viewof growth. What we hope to achieve is a small , efficient highly paid government.

It does not mean that we will be creating redundancies overnight, but long run trimming down is possible.

STB: A number of large companies are still not listed on the Colombo stock market. How do you plan to attract them and expand the Stock Market.

MM: That is a vary important question . I think our stock market is over regulated. Look at America's high tech industry, it was built on the so called junk bond market. The fact is, there was high risk capital available for them. In Sri Lanka we are trying to run the New York Stock Exchange without having the base or depth for it. My view is that we should reach out to these companies and tell them listing is not difficult and we should remove all obstacles that prevent companies from listing. Our Analysts should also be more oriented towards taking risks. Stock Market today is very risk aversive and backward. We should deregulate and open up the market.

STB: Independent Analysts say that the present government has linked the war to the economy. Earlier the war and economy were seperated. How do you see this?

MM: War should not be a excuse. Between 1992 to 1994, we had a war, but the economic growth was also sustained. Private sector confidence was maintained and some of the best Privatisation's took place at that time. A good example is that, the Malaysian tycoon who purchased the Oberoi block went ahead with the investment two days after President Premadasa was assassinated. Our strategy is to create growth by unleashing the private sector and opening up the economy, regardless of the war. We have to move on.

STB: Sri Lanka Telecom's current bandwidth monopoly is seen as detrimental to the growth of the telecom industry. Any plans to create a level playing field?

MM: We have to remove the monopoly and create a level playing field. We will be encouraging new firms to join the industry as much as possible. In Sri Lanka we cannot retain value by maintaining a monopoly. 

The nature of the high tech industry is such that what is new today can be obsolete tomorrow. The cost of not creating a level playing field is too much.

STB: If you were the Finance minister, how would you solve the HNB- Sampath issue?

MM: First of all I am not the Finance Minister and I have no intention of becoming the Finance Minister. In the new economy what is important is getting the job done and not the title. It is a difficult issue. On a global scale, banks are consolidating. But it should be within a set of rules. Frankly, since there is also a court case involved , I do not wish to comment about the matter. We will be having a fresh look at the banking regulations , considering the international banking arena as well.

STB: The Quota system will be abolished in 2004. What are your plans to make our garment industry ready to face this situation?

MM: We have to go towards consolidations in the garment industry. My feeling is that there will be about 20 world class players in the industry. We have to become a niche market player in order to survive in the new economy. Look at the MAS group, today they are a top player in the foundation garment market. 

We will be also looking after the small players who get left out in the consolidation process. We will be setting up a new development bank with a window to assist these companies that get affected in the restructuring process.

STB: Sri Lanka's economic growth peaked in the early 1990's. What was the reason for this?

MM: We had a sound strategy and capable management to carry it out. Investor confidence peaked during that time. We had two IMF programs running at that time. The moment we go to the international community and say we have a IMF program in Sri Lanka that confidence helps a lot.

STB: In the early 1990's, the government took many steps to introduce commercial agriculture to the Mahaweli areas with the help of international Agencies. Today the situation has changed. Any plans to commercialise agriculture?

MM: Agriculture will be our back bone of the economy. With the help of advance agritechnology we will be turbocharging our agriproductivity. We will be encouraging the private sector to invest in agriculture. We have lots of plans to work very closely with India and benefit from their agri technology. We shall continue the initiatives we took in Mahaweli system B.

STB: In your opinion what is the realistic value for the SL Rupee?

MM: My opinion is that the current band is realistic. But we will be fully floating the exchange rate, in order to gain maximum investor confidence.

Ronnie De Mel.

STB: The business community is complaining that the prevailing high interest rates are killing the industry. Any plans to bring interest rates down?

RDM: The interest rates even today are much lower than the interest rates that prevailed during some of the period the UNP was in charge of the economy.

There were times when interest rates went above 20%. Interest rates that were between 1012% , have now gone up slightly due to the war and the high oil prices. 

The budgeted expenditure for the war was Rs 40 Billion but the actual expenditure this year has reached Rs. 80 Billion. In the same way due to high oil prices Sri Lanka had to incur a cost of Rs 20 Billion. 

As a result of these factors the budget deficit has gone over the projected 6% GDP. It might even reach 9%. As result interest rates have gone up not due to any fault of this government but due to factors beyond our control.

When the war expenditure and the expenditure on oil comes down, Interest rates will also come down.

STB: Foreign investment in both the stockmarket and local industry has been low for some time. What are your plans to revive it? 

RDM: There too the main constraint is the war. If we have peace stock market will immediately revive. It was a wonder in these circumstances we were able to attract more than 200 Million Sterling worth of investments in 1999. This year it has gone down some what also due to the election. These are all beyond the control of the government.

STB: World Petroleum Prices are on the upswing. What are your plans to mitigate the impact on both industry and the consumer.

RDM: There is no way of mitigating international prices. International prices are beyond our control. If we didn't have to incur this massive cost of war we could have subsidised the petroleum prices. But with this war it is not possible to subsidised petroleum as we did in the past.

STB: In the wake of the election parties have promised salary hikes to public servants. How will you finance this?

RDM: We have promised increases in salaries which are reasonable and within the limits of our revenue projections. What the UNP has promised is totally outside the realm of possibility. The UNP will have to print notes. The inflation will rise to over 20%. People will have to carry Rupee notes in wheel barrows to buy their daily requirements.

STB: A number of large companies are still not listed on the Colombo stock market. What are your plans to attract them and expand the stockmarket?

RDM: We cannot force anyone to list on the stock a free market economy it is upto them to make the decision whether to list on the stock market. 

But if there is peace, the stock market will pick up again and there will be a large number of companies listing.

STB: Independent analysts say that the present government has linked the war to the economy. Earlier war and the economy was separated . How do you see this?

RDM: As the war becomes more a fact of life in this country we have to accept the reality. In the early days of war it was possible to keep the two separated . Now it is hardly possible to do so. The only thing we can do is to bring an early resolution to the war.

STB: The Sri Lanka Telecom's current bandwidth monopoly is seen as detrimental to the growth of the telecom industry. Any plans to create a level playing field?

RDM: We had not made any decisions pertaining to the future of Sri Lanka Telecom. We will do so once we form the new government. Creating a level playing field requires a government policy decision.

STB: If you were the Finance Minister, how would you solve the HNB- Sampath bank issue?

RDM: As I am not the Finance minister I do not venture to answer questions which are not under my preview. I have not studied the issue in detail. 

STB: In the early 1990's the government took many steps to introduce commercial agriculture to the Mahaweli area with the help of many international agencies. Today the situation has changed. Any plans to commercialise agriculture?

RDM: I do not agree that the system has collapsed. We still have some large agricultural ventures in the dry zone. Here too the war has become a great deferent. 

Many areas in the Maduru, which were reserved for agriculture such as Madder Ova has become front-line areas. If peace prevails we can promote large scale commercial agriculture in these areas.

STB: The quota system will be abolished in 2004. What are your plans to make our garment industry ready to face this situation? 

RDM: We have taken many steps to increase the productive growth in the garment sector. Some of the large companies such as Bodyline , and Slimline are particularly well equipped to face this competition after 2004. I have no fears about meeting the challenges after 2004.

STB: Sri Lanka's economic growth peaked in the early 1990's. What was the reason for this?

RDM: I do not entirely agree with that. With due humility , Sri Lanka's economy peaked between 1977 and 1983 when I was the Minister of Finance. We even achieved 8% growth. 

Such growth has never been seen in Sri Lanka and it was never repeated due to the war. I must also say that despite all the adversities, the growth in the second quarter was 7%. 

The average for the first half is 6.5%. If the war was not there the growth would have reached even 9%. No one can say that growth this year is unsatisfactory.

STB: What is your realistic value for the Sri Lankan Rupee?

RDM: I may desist from answering that question. If I do I might cause speculations in the forex market! 


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