Features

Of Budgets and the black box

Until about two decades ago, Sri Lanka's budget was the talking point during the month of November or for that matter during the year. Not anymore.

Ever since governments began "pre-budget" exercises and the tax by gazette regime – made infamous by Finance Minister Dr N.M. Perera during the 1970s -, the consumer has no faith in budgets, anticipating revenue measures sought by the government through taxes to come before or after budgets.

Cigarettes and alcohol taxes, the favourite revenue segments for governments, have often been raised outside budgets while price revisions on diesel and other essential commodities are also no more during Budget day. Some economists argue that budgets should reflect the economic policies of government and not merely to raise or reduce consumer prices.

The People's Alliance (PA) government – probably due to unavoidable circumstances - has devalued the budget by presenting two budgets annually for two consecutive years since 1999. A Vote on Account or mini-budget was presented in November 1999 and the main presentation postponed to February 2000 due to presidential elections in December 1999. The same scenario followed with a mini budget last November, due to elections in October, with the actual Budget now being presented on March 8.

While industry and commerce will reflect the usual wants and needs as the following report shows, the consumer viewpoint – according to our report – suggests that people don't have faith in budget exercises and are not excited anymore.

The people's mood is so unlike that of parliament on budget day when legislators and journalists wait with bated breath for the minister or deputy minister of finance to deliver his or her "goods" from the "black box" that contains the budget proposals.

There is further confusion this time with two deputy ministers of finance (Prof. G.L. Peiris and S.B. Dissanayake) and speculation as to who would present the budget this week.

Or would it be President Chandrika Kumaratunga?

-Business Editor

We would like to see…

Dr. Bandula Perera, Chairman, Ceylon National Chamber of Industries said:

"Firstly, the recent 5% - 7% tariff on raw materials should be completely removed. The imports surcharge of 25% to 30% on finished goods should continue.

"We would also like to see some steps taken to boost local industry. One of the steps should be to provide tax relief on R&D. The government needs to look into helping the local industry with some sort of support in capital spending like the current environment-friendly industry credit line interest of 8.3%. Further we would like to see the purchase of machinery to be made duty free for manufacturers and their allies. We request the government to level the playing field for suppliers to BOI companies by providing local companies the same benefits as foreign suppliers."

"As for personal taxes don't pin down the ones who are paying, but act on those who are not paying like lawyers and doctors. Also give some benefit to those who are really earning, those who have to pay 35%."

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Patrick Amarasinghe, president of the National Chamber of Exporters said:

"We would like the import of raw materials at zero duty levels. Currently we have to qualify for a duty rebate. The procedure in qualifying for the rebate is bureaucratic. We have to first apply and establish the rate. During the import period, the companies have to furnish a bank guarantee. Only after the finished goods are produced can we apply for a refund. This means that our monies are blocked and our pricing gets out of gear."

"The government needs to lend more support in terms of funding to the small and medium sector to participate at international trade fairs. This has slackened in recent years."

"We also need a proper international exhibition centre like the ones in Singapore. I hope the government could allocate some funds for this."

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Dr. Dushni Weerakoon, senior fellow at the Institute of Policy Studies (IPS) says:

"The budget deficit needed to be narrowed down. This should start with reducing the government expenditure and public sector reforms. But we still don't see any genuine steps taken in this direction."

"The government is still not taking any measures to reduce public sector employment. However, it should be understood that, given the present volatile political situation it will be extremely difficult to initiate public sector reforms."

"The government may attempt to increase the tax base to raise revenue. But it will not be an easy task given the prevailing economic situation."

"If the expenditure is not curtailed in this budget, once again capital expenditure will suffer. This has been the trend for the past few years."

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A socio economist said:

"Most probably the budget deficit will be higher due to the escalating defence expenditure."

"The government is left with only two options; reduce the government expenditure or increase domestic borrowings."

"If the government increases domestic borrowing the interest rates could end up at exorbitantly high levels. If risk free government bonds offer higher rates of interest than bank deposits, it could ultimately result in a run on the deposits."

"The stock market and other domestic investments are already faced with a huge fund outflow due to the high interest rates offered by gilt-edged securities."

"The only way out is to curtail government spending. Already, I see a trend towards a reduction in social welfare. Recently a news report said that 2,000 families are voluntarily giving up the Samurdhi benefits. The budget may compel some involuntarily 'giving ups' like a reduction in social spending."

"Direct taxation is at an optimum level. If these are raised any more, the results will be negative. GST may be increased since the government is left with limited options."

"Urgent steps are needed to contain the cost push inflation below the rupee depreciation. Otherwise the benefits to exporters through the free float would be eroded."

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Milinda Moragoda, UNP parliamentarian and member of the party's economic thinktank says:

"Managing a country's economy is unlike running a business or a household. When you live beyond your means it catches up. There is no magic. Economics is not rocket science. It is very basic. You have income and you have expenditure. If you do not have enough income you should cut your expenditure."

"In Sri Lanka the entire revenue of the government is consumed by four recurrent expenses; the defence expenditure, debt servicing, government salaries and pension costs."

"If Sri Lanka wants to reduce its budget deficit, drastic reforms will have to be implemented. There will be pain in the short term but the country will prosper in the medium to long term. There are no shortcuts in economics!"

"The government's cost cutting exercise is important at this stage for a programme of this nature and in my view cost cutting has to start at the top. I was in Singapore last week and was told that the Deputy Prime Minister of Singapore drives a Honda Accord which is a simple car compared to other posh ones available there. Well, I do not think we are following that example here. We need to look at cutting costs at the top."

"We cannot expect the people to make sacrifices if we are not willing to do so ourselves."

"Malaysian Prime Minister Mahathir Mohamed was faced with a similar crisis once. He placed a complete freeze on salaries. He cut the size of the cabinet. He cut the perks given to his own immediate ministers and then he told the people of Malaysia - all of you must make sacrifices for two years so that we can turn this country around. Today the economic statistics show that Malaysia is turning around."

"An IMF programme should be worked out to avert a serious Balance of Payments crisis. At the same time the IMF will demand certain sacrifices. The paths are clear. Either you go the IMF way or you follow Mahathir's path. I frankly do not think that we have the political will and strength to follow Mahathir's path."

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A top venture capitalist said:

"To me the budget has lost its significance over the years. I have lost the confidence and faith of governments to put out a budget of national interest."

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Amal Sandaratne, Head of Research, Jardine Fleming-HNB Securities said:

"The government has to look towards containing the budget deficit, which has escalated due to defence expenditure, in an economy which has slowed down."

"The business and financial community is waiting to see whether any new initiatives are coming out of the budget."

Interviews by Chanakya Dissanayake, Akhry Ameer and Hiran Seneviratne

People say

R. Sirisena, a lottery-ticket seller:

"What budget? I don't know what a budget means. All I know is that my living costs are rising daily."

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Sarath Mallawaarachi, Secretary of the United Three-wheel Drivers Association:

"The cost of living has skyrocketed and we cannot live with our earnings. I got less hires even before, therefore it is difficult to live with my current income given the ever increasing cost of living.

"People use trishaws only for important occasions unlike those days. If the government can reduce fuel prices as well as spare parts it will be some consolation for me."

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P. Jayasundera, a grocer:

"Budgets don't serve any purpose but it is incumbent upon the government to control the prices of essential goods such as gas and essential foodstuff."

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M. Muttu, who runs a fruit stall at the Pettah:

"Our sales have dropped drastically in the past few weeks. Apple prices have risen to Rs 15 from Rs 7 and this has curbed sales. Many people don't buy fruits as they don't have enough money to spend."

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S. Baladev, a pavement hawker at Pettah:

''Today doing business is highly unpredictable and risky. It is no use having a budget if the government cannot control the cost of living. The government should give some relief to the people as quickly as possible to salvage them from mounting burdens."

Universities: should they be privatised?

By Chanakya Dissanayake

The last bastions of government control in the Sri Lankan education sector are the restrictions placed on the establishment of private universities in Sri Lanka.

The private sector and international donors feel this should be opened out while student groups and sections of the population believe otherwise.

With growing reports about proposed tertiary education reforms coming via last December's Paris Development Forum meeting, the usual hype has begun about the negative aspect of these reforms.

The Inter University Students Federation, the students' movement of the JVP, has launched a string of protests against what it calls a treacherous move to allow private involvement in Sri Lankan universities.

Poster wars began, police water canons were fired and an awareness campaign to inform the public about the grave danger in allowing private sector run universities was launched by the student

However the actual reason for the urgent need for university reforms has once again got buried under the din of protests. The glaring weaknesses of the state university system is again covered in layers of posters protesting against the reforms.

Sri Lanka during the late 1950's and 1960's was able to boast of two of the best universities in Asia. Started by the British in Colombo and in the picturesque Hanthane valley in Peradeniya, the University of Colombo and the University of Peradeniya had an internationally acclaimed faculty that included many foreign academics of repute.

However as time passed, Sri Lanka lost its competitive advantage in university education to almost all the countries in the region. While India, Pakistan, Malaysia and most of East Asia, deregulated their tertiary education and increased private sector participation, Sri Lanka maintained strict government control in this field.

The consequences were almost immediately evident. The universities of Colombo and Peradeniya, slid from their positions in the top 20 in Asia during the 1960's to being among the top 100 in 1980's. In the same period world class universities came up in India and Singapore, giving them the vital edge in the knowledge economy.

Many half hearted attempts to reverse the steady decline of universities by allowing private sector participation and foreign collaboration, met their untimely death due to massive protest campaigns organised by the students, leftist parties and in extreme cases, university lecturers themselves. The most notable incident was the closure of the private medical school in 1989, mainly caused by the JVP-led student agitation.

Many international funding agencies operating in Sri Lanka have being promoting the case for a private sector-driven, internationally compatible, tertiary education system in Sri Lanka. In a knowledge-driven global economy, Sri Lanka's state universities have become underdeveloped bureaucracies that dole out unmarketable degrees.

Dr Nadim Ul Haq, Resident representative of the IMF places the underdeveloped university sector as a major cause for Sri Lanka's uncompetitiveness. According to Ul Haq, Sri Lanka should concentrate on developing human capital through reforming the outdated state universities and attracting the best educationists from abroad.

"Great universities need to be free of government control and strict commanding style management. Individual professors need to be given the freedom to drive their own research agendas and implement advance, globally compatible curricula."

Commenting on the widespread protests that erupt whenever university reforms are suggested, he said that underprivileged students think that they will lose the access to universities if the private sector gets involved.

He said that this is a wrong assumption since government expenditure on universities would be reduced under a state-cum-private sector system where these funds could be channelled to scholarships for needy students. "In fact this will benefit the underprivileged students since they will have the access to a world class degree," Ul Haq added.

Ul Haq views the current free-for-all university system as a tax on underprivileged students. Affluent students go abroad for internationally reputed degrees and when they return, the private sector attracts them with much higher salaries due to the marketability of their degree and the international exposure.

Local graduates at the entry level settle for less pay and remain at lower salaries due to the unmarketebilty of their qualification. Also the average age of a local university graduate is 27 years compared to the international average of 22 years. This also puts the local graduate at a disadvantage, Ul Haq said.

Funding agencies have also being advocating universities as a new sector for investment in Sri Lanka. Many international universities have expressed interest in investing in Sri Lanka if tertiary education opens up for the private sector.

"Sri Lanka could not only save foreign exchange used by thousands of students who leave the country for universities, but also earn foreign exchange through international students who will come here for university studies," he said.

Educationists say Sri Lanka could also attract a sizeable portion of the regional student population who seek American, British and Australian degrees if it could offer quality education.

Awards/Appointments/Seminars/Aviation & Shipping

Chirs Maloy heads Mobitel

Mobitel has appointed Chris Maloy as its new Chief Executive and Managing Director from March 1.

He succeeds Ms Cathy Aston who will be leaving Sri Lanka to take up a senior position at the Telstra head office in Australia after a three year successful stint.

Mr. Maloy who joined Telstra Australia, in 1974 has held several senior positions in a number of countries and has extensive experience in sales, marketing in the Asian region.

His recent off shore posting was in Kuala Lumpur, Malaysia where he served in the capacity of General Manager for Asia Pacific responsible for Telstra's global wholesale division. Other postings included six months in New Zealand, Taiwan and Cambodia as country Manager responsible the business cooperation and contract with the ministry of posts and telecommunications

Appointed

Mano Alles heads LB

Mrs. Mano Alles, the former Senior Deputy General Manager of (International and Corporate Banking), Bank of Ceylon has been appointed Managing Director of LB Finance Ltd.

Mrs. Alles has had an illustrious career, at the Bank of Ceylon spanning a period of 36 years.

Having held many Senior Managerial positions in the bank she spearheaded the bank's overseas expansion programme when she set up the first Representative Office in Singapore in 1982 and the 2nd in Moscow in 1997 and established Bank of Ceylon branches in Chennai in India and in Karachi in Pakistan and a joint venture bank in Nepal.

She is presently a Director on Boards of Vanik Incorporation Ltd., Pan Asia Bank Ltd., Samuel & Sons Ltd., and St. Regis Packaging Ltd.

ICCIT meeting : tipped to be another grand event

"We are expecting this year's International Council Meeting in Sri Lanka to be one of the best in the recent past. I am specially excited about the Earl's Regency, particularly the inspirational design of the hotel set in the hills.

The CIT in Sri Lanka has also laid out an excellent programme for the spouses as well for the evenings. I am sure the participants will remember this event for a long time," said Mr. Cyril Bleasdale, Director General of the Institute of Logistics and Transport.

Mr. Cyril Bleasdale was speaking in connection with the meeting of the International Council of the Chartered Institute of Transport to be held in Colombo from March 26, to 28, 2001.

The activities will begin in Colombo with an international conference on transportation at the Trans-Asia Hotel and the Transport & Logistics 2001 Exhibition to be held at the BMICH.

The National Transport Day organized by the Ministry of Transport also will be held in conjunction with this event.

Thereafter, the international delegates will travel in the Viceroy Special Steam train to Kandy for the Internationaal Council Meeting which will be held at the Earl's Regency.

"We have got confirmed bookings already for over 75 delegates from the sub-continent and over 50 delegates from the rest of the world.

They are coming from Europe, Africa, Far East and Noth America," said Mr. Priyal de Silva Chairman of the Chartered Institute of Transport in Sri Lanka. "We are grateful to the SriLankan Airlines who have come in as a main sponsor and their contribution has made it easy to organize this event successfully," he said.

"We will also have an Annual General Meeting and an Emergency General Meeting of the CIT (International) this time in Sri Lanka to approve major changes to the CIT such as re-naming the Institute as The Chartered Institiute of Logistics and Transport together with a modern new logo.

We will also be considering in detail the new forward plan, The Vision and Mission of the CIT in a Global Perspective during this meeting Mr. Bleasdale further said.

The CIT International also will hold a workshop to enhance the skills to organize and deliver work-shadowing and monitoring projects for transport professionals on March 26, 2001 in Kandy.

Aviation & Shipping

Uncompetitive bunker prices: is Colombo losing hub status?

By Gunapala Ranasinghe

It is a known fact that the Colombo Bunker Prices are very high compared to the regional ports and since late the vessels calling Colombo for bunkers had declined considerably. Having seen the trend then minister Mr. Nanda Mathaw decided to liberalise the Bunkering in Colombo which was the sole monopoly of CPC.

As this has not been implemented there is a tendency that the feeders calling Colombo may go elsewhere for obvious reasons.

A comparative study is made to compare bunker prices in the region.

The current fuel prices are as follows:

70% of the throughput of the Colombo port is carried on common carrier vessels which are hubbing in and out of the port of Colombo. None of these services do touch way ports for bunkering since India/Pakistan/Bangladesh do not provide quality bunkers and hence the only option is Sri Lanka.

In view of the high cost, majority of the feeder operators are now considering pulling away transshipment volumes to competing ports like Salalah/Aden/Dubai/Singapore and Malaysia.

For example, freight rates between Singapore and Karachi for 10 day transit is US$ 170/- whereas Colombo to Karachi (transit 4 days) demands US$ 220/- per TEU.

As a result of the monopoly by CPC the overall impact on Sri Lanka economy is much greater.

Maersk Logistics

Six new offices in Central America, Mexico and Caribbean

With the opening of 6 new offices, Maersk Logistics extends its growing presence. The company already has 2 offices in Guatemala and Panama

Maersk Logistics announces the opening of six new offices in Central America, Caribbean and Mexico, in addition to the existing presence in Guatemala and Panama. With the opening of the new offices Maersk Logistics has a total of eight offices in the region, covering Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Mexico, Nicaragua and Panama.

Timothy J. Nolan, Maersk Logistics' Director of Central America, Mexico & Caribbean with headquarters in Miami, Florida, stated, "Maersk Logistics is confident about the future development of the Central America region. The recent passing of the Caribbean Basin Initiative (CBI) will entice more apparel manufacturers to source from these countries as their goods, if in accordance with the CBI, will be imported to the U.S. duty free. Due to the brief transit time from the Central America region to the U.S, all EDI and documentation must be expedited. This being the case, Maersk Logistics has established six new offices in the region bringing with them experienced logistics personnel, extensive information systems, and unparalleled customer service."

Services offered

* Supply Chain Management
* Airfreight Services
* Warehousing & Distribution
* Pick & Pack
* Storage
* Consolidation
* De-consolidation
* Tally Management
* Vendor Management
* Quality Assurance Centres
* Documentation Preparation
* Customs Clearance
* P.O. Monitoring
* Forwarding & Groupage
* Milk Runs/Bus Stop
* Local Pick-up/Delivery

About Maersk Logistics

Maersk Logistics is a recognised leader in the international logistics market, providing customised solutions for integrated supply chain management, warehousing and distribution, and sea - and airfreight transport.

The company is part of the A.P. Moller Group, which has more than 50,000 employees, offices in 325 cities in some 100 countries around the world. Besides shipping and logistics, the A.P. Moller Group is engaged in the exploration and production of oil and gas, shipbuilding, aviation, industry, supermarkets, and IT services.

EC piles on Cho Yan's financial misery

By Janet Porter

Cash-strapped Cho Yang Shipping could be forced to provide a hefty bank guarantee to the European Commission after losing a vital court case, Lloyd's List reported today.

The European Court of Justice rejected Cho Yang's pleadings on all four counts and also ordered the Korean line to pay costs.

Cho Yang had been appealing against an earlier order to cover the cost of a fine imposed by Brussels on members of the Trans-Atlantic Conference Agreement (TACA).

This latest setback for Cho Yang coincides with reports of mounting debts and financial difficulties. Just last week, Cho Yang returned four ships to their owner after failing to secure lower charter rates.

Cho Yang was one of 15 TACA line fined by Brussels in 1998. All members were required to furnish the commission with financial securities during the appeal process, but Cho Yang, along with Senator Lines, aruged that it could not afford to. The judgement dismissing Cho Yang's appeal, issued just before Christmas, ends all legal avenues with the European Union, according to lawyers.

The next step is upto the European Commission, which may now make efforts to recover the money owed by seizing assets, or may decide to continue negotiations with Cho Yang.

the European Commission's budget directorate, responsible for debts collection, was unavailable for comment yesterday, but lawyers said officials are probably still deciding how to proceed. In a related case involving Senator Lines which also has said it cannot meet its financial obligation to the commission, Brussels is thought to have been unable to obtain the necessary enforcement orders from Germany.

Senator Lines has taken the unprecedented step of appealing to the Court of Human Right on the grounds that the judicature was wrong to take into account the financial strength of its parent company, Hanjin Shipping.

Cho Yang was fined Euro 13.75m by the commission for alleged anti-competitve practices as a member of TACA. Those carriers sanctioned do not have to pay the fine but are required to lodge bank guarantees covering both the principal sum and interest until the court case is finally concluded. The commisssion had nevertheless said it would be prepared to accept a guarantee limited in time or some sort of installment scheme to help out Cho Yang, an offer that was turned down.

In an appeal to the Court of first instance last year, Cho Yang said that it risked being wound up if it was forced to provide a bank guarantee, a claim rejected by the court.

Although the president of the court acknowledged that the sale of the appellant's vessels and real property would not generate sufficient liquid assets to enable the fine to be paid, the court nevertheless ruled that Cho Yang's shares in Dong Seoul and Dong Yang Shipping, which had been earmarked for sale, had a value far in excess of the amount owed to the commission.

In its appeal to he higher Court of Justice against the Court of First Instance ruling last summer, Cho Yang said that even though its financial position had improved, this was because of asset sales rather than operating profit.

The commission responded that audited accounts for 1999 showed a "drastic" improvement in Cho Yang's financial position,with the company in profit in the second half of the year.

All the finding of the lower court were upheld by the Court of Justice.

Lawyers representing other TACA lines points out that even providing a bank guarantee rather than paying the actual fine is an expensive process, and NYK Line has taken the unusual step of suing the commission to recover this cost.

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