Finances critical, reforms necessary
With government finances in bad shape and economic growth virtually static,
urgent reforms are required to obtain fresh loans from the International
Monetary Fund (IMF), the lending agency's senior resident representative
Dr. Nadeem Ul Haq said.
"We know the end-December position is not going to be that good," he
said in an interview. "The budget deficit is going to be bigger, losses
in the public sector are going to be bigger; growth has slowed down - so
obviously the money is needed."
The IMF's position was "lead with reforms - then we'll talk about financing,"
he said. "You don't need the money right now. There's no sense of extreme
urgency. Foreign exchange reserves are not falling. But you need the money
to make reforms."
The IMF helped the island when it faced a severe foreign exchange crisis
earlier this year by arranging the standby loan and was ready to help again
if the country was serious about pursuing economic reforms, he said.
"We helped you in the crisis," he said. "We helped avert the crisis.
We'll help you in any way we can to support reforms."
Pointing out that Sri Lanka has to repay any money borrowed from the
IMF, he said: "So you should borrow only if you're serious about making
reforms."
He described as a myth the public perception that IMF prescriptions
on economic reforms were bad for the country and hurt the poor and added
that there was usually too much emphasis on the political difficulties
of implementing the reforms.
"Too much is made of political difficulties in this country," Dr. Ul
Haq said. "Sri Lanka is not unique in having political difficulties - all
countries do. As an international agency we recognise the political difficulties.
"But the government has to make the effort to explain to the people
about the need for reforms, to make them understand, to get over the political
difficulties," he said.
"All the reforms are in the interests of the people," he said, adding
that IMF policy now was to be transparent and to win public support for
its reform agenda. "I'm trying to explain it over time."
The budget deficit needed to be pruned. The previous government had
pledged to limit the deficit to 8.5 per cent of Gross Domestic Product
(GDP) but now it is estimated to be over 10 per cent of GDP, he said.
"The government promised no public sector wage hikes - they have been
given," he added. "It agreed to limit the losses in the public sector corporations
but these losses are now bigger than envisaged. The civil service still
has a large number of people - in fact the government has added to it.
"The labour market restrictions remain, the two state banks are still
state-owned, education is still closed and inefficient - so many areas
are in need of reform," he added.
"Nobody would recommend reforms that are not in the interests of the
people," he stressed. "That's bad reform. All reform is in the interests
of the people - the very poorest will benefit the most."
Dr. Ul Haq said it was a "big misperception" that labour market reforms
would lead to unemployment. If the regulations were made more flexible
it would create investment that would increase employment, he said.
The IMF also did not advocate privatising state universities, he said.
"We say 'keep education subsidised' but allow the private sector to
build universities," he said.
"That will create investment and lead to growth. It will offer people
a choice - Sri Lankan students paying fees to study abroad would be able
to study here and save foreign exchange. Greater competition would improve
the quality of education in the state universities."
De-regulating the economy would speed up investment approvals, he said.
"If investments take too long to be approved it means it takes longer to
create employment opportunities."
Trade seeks special place for cinnamon
Demand for Sri Lankan cinnamon is bound to increase if lobbying by exporters
for separate recognition of the spice in a global trade classification
code is successful, an industry spokesman said.
Sri Lanka is the largest producer of what is known as 'true' cinnamon,
Cinnamon Zylancium, which has a distinct flavour and taste, according to
Sarada de Silva, chairman of the Spices and Allied Products Producers'
and Traders' Association (SAPPTA).
Exporters are lobbying the government to get Sri Lankan cinnamon listed
separately in the global customs classification known as the HS (Harmonisation
System) code. "We're lobbying for the bifurcation of cinnamon and cassia
in the HS classification," said de Silva. "If they are separated it would
be the single biggest incentive for our spices industry - demand will go
up immediately from industry users."
Cinnamon is also produced in the Seychelles and Madagascar. A cheaper
derivative called cassia was developed from one of the cinnamon tree families
because of the huge demand for cinnamon. Cassia is grown in Indonesia,
China and India, and is notable for its thick bark.
Both cinnamon and cassia are categorised in the same HS code and buyers
do not make a distinction between the two. This allows cinnamon to be blended
and sold with cheap, lower quality cassia. Some end-users, particularly
in the United States, do not know cinnamon from cassia, he said.
The difference in price is notable. While cinnamon fetches about five
dollars a kilo, cassia can be bought for less than two dollars, de Silva
said. Demand for the spice comes from the bakery and confectionery industry
and from home users.
Production of cassia is more than double that of cinnamon.
SAPPTA has begun a policy dialogue with the government through the Ceylon
Chamber of Commerce in an effort to get the HS classification changed.
"We've been able to get the issue on the agenda and it has been discussed,"
de Silva said. Sri Lanka's cinnamon output is about 12,000 tonnes a year
with about 10,000 tonnes being exported mainly to the former Spanish colonies
of South America.
"Our biggest market is Mexico which takes half of our cinnamon exports,"
de Silva said. Peru is the second biggest market with the US third, Chile
and Guatemala being the other main destinations.
Cinnamon accounts for more than half of the volume and value of all
spice exports. It is grown mainly in the southern province - in the coastal
belt from Kalutara to Matara - and is a profitable crop for smallholders
and medium-sized landowners. Production of spices, grown mainly by smallholders,
has been a sector long neglected by the government, de Silva said.
"It is mainly in cinnamon that export volumes and foreign exchange earnings
have gone up," he said. "So there's potential to develop the industry.
Prices have been fairly stable in the past decade."
Sri Lanka earns about six billion rupees a year by exporting these products.
Last year, export volumes fell by 19 percent to 18,957 tonnes, according
to Customs data.
Tourism upbeat as Indian arrivals rise
By Hiran Senewiratne
Sri Lankan tourism, in the dumps after local and external uncertainty over
global travel, has something to cheer about after a new and generous promotion
package to attract Indian tourists richly paid off.
Tourist arrivals from India rose by more than 40 percent last month
due to an aggressive campaign by SriLankan Airlines together with the Ceylon
Tourist Board (CTB) and other tourist industry related organisations, to
woo visitors from the country's closest neighbour.
"This campaign has provided a huge boost to the industry which has been
struggling for months," noted the marketing director at a leading hotel
in Colombo.
The November 1 to December 20 package is not being extended by CTB officials,
despite the success of the package that has led to full flights arriving
from India but now plans to expand this programme to the Far East and the
Middle East shortly.
Under the Indian holiday scheme known as the one-to-one package, a passenger
purchasing a SriLankan Airlines ticket on the Colombo-Mumbai-Delhi sector
is entitled to another free ticket. India is Sri Lanka's third largest
tourism market.
Ticket prices range from Indian Rs. 21,000 to Rs. 24,500, aimed at the
middle and upper class segments.
Chamari Maelge, marketing director at the CTB, said the package includes
a four-day bed and breakfast stay in a star class hotel. "This is a real
stimulus for the tourist industry after the recent dip in arrivals," she
said.
Tourism, already reeling from an 18-year long war with the LTTE, took
a dive when Tamil Tigers attacked the Colombo airport in July. That scared
off tourists who, if they were interested in visiting Sri Lanka, had to
pay more due to an escalation in war risk insurance rates. The industry's
woes worsened after the September 11 terrorist attacks in the US, which
deterred airline travel.
The CTB marketing director said the Indian promotional campaign has
become a springboard for the revival of the industry. She said there are
currently 1,400 booking from Indian tourists seeking to visit Sri Lanka.
Many had to be turned away due to a shortage of seats.
G.T. Jayaseelan, head of SriLankan Airlines' commercial division, said
setbacks arising from the Katunayake airport and US World Trade Centre
terrorist attacks prompted the introduction of a generous tour package
for Indians.
He said local authorities were planning bilateral discussions with Indian
authorities to increase tourist arrivals from there. "We want to promote
Sri Lanka as a value-added destination, not essentially a cheap one," he
said.
A spokesman for Taj Samudra Hotel, which along with other two hotels
in the Sri Lankan Taj chain included in the programme, said bookings have
risen by 90 percent since last month.
TQB's reverses CBK's decision
The Textiles Quota Board (TQB) has reversed an order by President Chandrika
Kumaratunga cancelling decisions taken at an earlier meeting of the board,
official sources said.
They said the TQB at an emergency meeting last week decided to go ahead
with providing advance quotas to garment exporters for 2002, contrary to
an earlier presidential decision.
At a TQB meeting two weeks ago, it was disclosed that the president
had cancelled the decisions taken at the previous TQB meeting in which
advance quotas had been allocated to the trade, plagued by controversy
in recent months.
The 50 percent quota allocation is routine followed by the balance allocations
made to exporters after January based on their previous performance. Kumaratunga's
decision to halt the TQB move was based on proposed changes in the quota
allocation system.
"The existing quota system is now likely to continue," one source said.
Nakiadeniya resumes work, political thugs vanish
Work at the Nakiadeniya estate of Watalawa Plantations Ltd resumed last
week after local political elements who threatened estate managers disappeared
following the People's Alliance's disastrous showing at the parliamentary
polls.
"Things are back to normal. The thugs have vanished," said Vish Govindasamy,
managing director at Watawala Plantations.
He said new planting had begun on Monday, a few days after the United
National Party secured a clear victory over the PA. It was the first time
the company was planting new oil palms since October.
Goons backed by local PA politicians attacked Nakiadeniya's oil palms
and assaulted a Malaysian oil palms consultant who had to be hospitalised.
The 62-year-old retired Malaysian planter, Hasan Bin Aziz Mohamed, returned
home after a few days in hospital following the October incidents.
For months the company has been grappling with complaints from villagers
that the oil palms have drained water resources and were responsible for
a drought.
Company and government officials have rejected this claim and said the
palms don't affect water resources but the crisis culminated with the attacks
in October.
Tata Tea, which has a sizable stake in the company, expressed concern
over the attacks and put on hold future investments in the company but
is now reconsidering its position. "Things are improving so the position
is being reviewed," said Govindasamy.
Despite appeals by the company and the Planters' Association to former
Prime Minister Ratnasiri Wickremanayake, also plantations minister, and
the Plantations Ministry, little or no action had been taken by police
on the issue.
"The police have not arrested anyone. Nor has a statement been recorded
from the watcher at the bungalow where the Malaysian consultant was attacked,"
a spokesman for the Planters' Association said.
Govindasamy said their repeated appeals for police intervention were
acknowledged with a "lets wait till the elections are over" response from
the authorities.
No action was even taken despite the Treasury Secretary, Dr. P.B. Jayasundara
and President's secretary, K. Balapatabendi urging the police to take steps
to stop the harassment at Nakiadeniya estate and ensure the safety of its
staff.
Mind your Business
Red-faced elephant
Eyebrows were raised when the legal eagle was given the purse strings,
but the boys in the Treasury are said to be happy over the choice because
they feel a man more experienced in the sector would have assumed a 'know-all'
attitude.
But there are unhappy persons too within the green ranks, especially
those who were not accorded cabinet rank.
And the man who surprisingly won many preferences is the most embarrassed
of them all because he had promised important jobs in the financial sector
for prominent private sector people and in the end, he himself didn't get
the job he wanted.
Loansome ledgers
There won't be a witch-hunt we were promised when the greens rode to power,
but there certainly will be some long hard looks at the ledgers of the
state banks.
Loans given to blue cronies are being investigated already and some
interesting details are likely to come to light.
And when that happens, many heads are likely to roll in the big banks
- even if these people are friends of the greens as well. The idea is to
replace them with professionals in the sector, we hear.
Tactless tax
The economic pundits have been asked by their new political masters to
review the much despised GST, they say.
The levy should either be done away with or modified drastically, they
have been told.
Now the pundits are busy looking for ways and means of bridging the
deficits in revenue that would arise if the tax is done away with. |
