Dispute could trigger unrest
As the constitutional crisis between President Chandrika Kumaratunga and Prime Minister Ranil Wickremesinghe grew over the status of the Development Lotteries Board (DLB), the business community warned of dangers ahead including negative signals to the peace process.

"We consider this event as an unnecessary confrontation which detracts from national priorities. Furthermore this has potential to lead to a dangerous precedent resulting in uncertainty in the minds not only of the cabinet ministers but also of all institutions and people working within such ministries," a statement issued by Nihal Abeysekera, chairman of the Joint Business Forum (J-Biz), said on Friday.

It said these institutions will then work with limited effectiveness and will not be motivated to take a long-term development view, vital for nation building. "This will destroy the very fabric of mutual trust and respect, a fundamental ingredient necessary to implement the many plans regarding the process of peace and economic restructuring," noted the statement issued on behalf of nine chambers and associations.

Last week J-Biz tried without any success to meet the president and the prime minister. "There was no response to our letters (to the two leaders). This worries us as the business community has a important role to play in this country," Abeysekera, who is also chairman of the Federation of Chambers of Commerce and Industry of Sri Lanka (FCCSL), told The Sunday Times FT.

On top of the DLB crisis, the scheduled donor meeting in Tokyo on June 9 and 10 increasingly appeared unlikely to take place with the LTTE insisting that its participation would depend on the government setting up the northeast reconstruction fund among other issues.

A World Bank spokesman said a preparatory meeting in Colombo - as part of the run-up to the donor meeting - scheduled for the second week of May was postponed due to the developments connected to the LTTE’s suspension of peace talks.

Foreign investors too were concerned over the dispute. A Maldivian investor, part of the trade delegation that accompanied President Maumoon Abdul Gayoom to Colombo, is believed to have postponed plans for a $250 million investment in a Sri Lankan hotel project owing to the political crisis.

"If the two sides are fighting over a minor issue, I wonder what would happen if the president carries out her threat to take over the Media Ministry," said a stockbroker, reflecting general concern that the current dispute would lead to bigger problems in the cohabitation process.

J-Biz comprises the Ceylon Chamber of Commerce, National Chamber of Commerce of Sri Lanka, Ceylon National Chamber of Industries, Federation of Chambers of Commerce and Industry of Sri Lanka, National Chamber of Exporters of Sri Lanka, International Chamber of Commerce of Sri Lanka, Employers' Federation of Ceylon, Exporters' Association of Sri Lanka and the Sri Lanka Bankers' Association.

It is expected to meet tomorrow or on Tuesday to review a crisis which has been blamed on both the president and the ruling party. Business analysts said while Kumaratunga, in the spirit of cohabitation, should have consulted the prime minister before deciding to take over the DLB, the unrest at the Government Printers' office in which UNP goons were responsible should never have happened.

Analysts said that the president's action may have been triggered by fears that proceeds from the DLB to the president's fund could shrink or get delayed.

The DLB, whose revenues soared last year as reported in a government advertisement, has spent heavily on various projects while its advertising budget has more than doubled, according to informed sources. The DLB for the first time began paying a 20 percent VAT from this year.

J-Biz urged all politicians of all political parties to proactively help resolve this conflict and forge a new platform of consultation, compromise and consensus.

"We are hopeful that better sense will prevail in the larger interest of the nation," it said.


Depositors continue fight to save Pramuka
Pramuka Bank depositors and stakeholders said last week that the Janashakthi group and KPMG Ford Rhodes were assisting them in preparing a restructure proposal to the Central Bank to reopen Pramuka Bank, in a continuing battle to save the failed institution.

A joint statement said the restructuring proposal would be supported by a MoU representing various interest groups and includes raising operational funds of about Rs. 300 million. "Reputed financial experts will scrutinize the restructure proposal before submission to the Central Bank. The depositors and stakeholders are confident that this would be accepted by the authorities," the Pramuka Depositors' Association and Pramuka Stakeholders' Association said.

Central Bank governor A.S. Jayawardene, in an interview with The Sunday Times FT last week, dismissed efforts by Janashakthi Insurance Company to revive the bank saying that the company had not indicated how much money they were willing to spend on the effort.

"We don't think it is a serious offer," Jayawardena said.

The joint statement said the proposal would be supported by the reconstituted Board of Directors of Pramuka Savings and Development Bank. Depositors said they were able to convince Pramuka's current board to accept seven more nominees from depositors to the board.

"The seven new directors are high calibre personalities who are interested in reviving the bank in the public interest," said Ranjan Arambewela, president of the Depositors' Association.


Top official to head ICT Agency
By Akhry Ameer
A leading official in the private sector IT industry has been approached to head the proposed Information Communications Technology (ICT) Agency, according to informed sources. The ICT Agency will be the apex coordinating body providing leadership in the establishment of public-private sector partnerships in the field of ICT. The agency will also spearhead the implementation of the ICT development roadmap.

The official who is part of an IT company that has made a mark in the international arena, is being targeted notably for his project management skills, the sources said. This will be a key factor in the implementation of the five-year strategic action plan that is already behind schedule. The Ministry for Economic Reforms, Science and Technology earlier this year posted a newspaper advertisement calling for applications for the top posts in the agency. The agency was scheduled to be established by March 2003 according to the roadmap.

Meanwhile, a draft national ICT policy has been posted on the eSri Lanka website for public review and comments.


Tough laws to fight credit card fraud
The government is drafting tough new laws that provide for enhanced punishment to fight credit card fraud, Central Bank Governor A.S. Jayawardena said in a recent interview.

"Commercial banks must be vigilant about the people to whom they issue credit cards," he said.

Banks must be cautious about evaluating the creditworthiness of their customers.

"If a bank loosely issues credit cards because it is in a competitive market and people who don't deserve it get credit cards, then of course the bank is opening itself up to various risks from which banks should guard themselves against," Jayawardena said.

"We're helping draft some tough laws which will bring in serious punishment for people who engage in credit card fraud."

He said the Central Bank is also examining the use of overdraft facilities by commercial banks in an effort to consider restricting the practice, which has helped boost bank profits.

"Temporary overdrafts have to be temporary," the governor added. "It cannot be a permanent facility continuously extended."

Giving overdraft facilities to customers was also contributing to the high cost of borrowing by entrepreneurs. Overdrafts are given at the highest lending rates - usually 30-35 percent.

"In Sri Lanka there is an unfortunate custom that when somebody goes to a bank without security but with a good project banks generally put him on a temporary overdraft without even examining his project. It shows weakness in credit evaluation and administration," Jayawardena said.

"A large number of people who are on temporary overdrafts are paying very high interest rates.

That also tends to increase the profits of commercial banks," he added.

Commercial banks have come in for criticism for not doing enough to lower lending rates and for maintaining high spreads between borrowing and lending rates which have helped fatten their profits.

"So that is another thing we are looking into - to see how much of commercial bank lending is in the form of temporary overdrafts," Jayawardena said.

One option was to impose ceilings or restrictions on such practices but these could be circumvented easily, he said.

"Central banks have strong powers of regulation but the problem is that ceilings cannot be enforced. Most countries have given up ceilings because they can be circumvented so easily," he said.


Garment orders surge on SARS
Garment factories here have seen a surge in orders recently as foreign buyers cancel orders from East Asian countries affected by the SARS virus and transfer them to local manufacturers.

Exports have also increased in the first quarter of this year with more orders coming from the European Union, industry officials said.

"We're getting cancelled orders from East Asian countries to our factories," said Board of Investment chairman and director general Arjunna Mahendran.

"Most of our factories are seeing a surge in volumes. But the downside is that prices are still extremely competitive - the piece rate is coming down all the time mainly because China entered the market after getting membership of the World Trade Organization."

Asked about reports that garment manufacturers in East Asia were thinking of shifting their factories to the island because of the threat from the Severe Acute Respiratory Syndrome, Mahendran said there was potential for factories to relocate here but added:

"It's still early days. People are waiting to see if SARS becomes a massive pandemic in China, in which case factories might be relocated."

SARS has killed more than 260 people in China and infected more than 5,000. Virtually all of China's 31 provinces and municipalities have reported SARS cases, and the World Health Organisation has issued warnings against non-essential travel to several provinces as well as Hong Kong and Taipei, capital of Taiwan.

Ashraff Omar of Mast Lanka said garments exports had increased by 10 percent in the first quarter of this year compared with the same 2002 period.

He attributed the increase to the access into the EU market.

"We're seen the effects of our being non-quota to the EU," he said. "Now our factories seem to be full - it is very difficult to get sub-contractors."

He added: "We have seen a surge of orders but no one told us it was because of SARS."

Orders undertaken now would have been confirmed in December and January before the SARS epidemic spread.

Lyn Fernando of Creations said some factories had been unable to get their requirements of accessories from China because of the SARS crisis.

"We depend on accessories from China and Hong Kong but people are unable to travel there," he said.

Sri Lankan exporters had also got more orders because the uncertainty in the Gulf caused by the US-led war against Iraq prompted buyers to shift orders to local manufacturers.

"We have had a bit of business from the Middle East coming in with those factories not functioning," Fernando said.


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