Financial Times

New govt. body for key assets
The new Freedom Alliance government will not privatise strategic state enterprises while moving fast to pass legislation to set up a new body to run these organisations more efficiently to compete effectively with the private sector, a senior presidential aide said.

Public utilities including the Water Board and the Katunayake international airport will not be privatised, Mano Tittawela, senior advisor to President Chandrika Kumaratunga, told The Sunday Times FT.

The People's Alliance-Janatha Vimukthi Peramuna government has said it would follow a mixed economic policy and would not be privatising key state enterprises. It has also promised to protect and support domestic industry.

Tittawela said the government will introduce legislation in parliament soon to set up an organization to supervise key government enterprises such as state banks and ports and airports. "This will be done by a special act of parliament very soon. We believe we can muster the required majority to pass it," he added. "None of the strategic enterprises will be privatised."

These include state banks, the Ceylon Electricity Board, Water Board, the Katunayake international airport, terminals in Colombo port, railways and government bus services.

"This was declared in our election manifesto and was also our policy since the 1994 government. There's no change from then," said Tittawela. "These institutions will be brought under a Strategic Enterprise Management Authority and will be given full autonomy to ensure they are run free of political interference. They will be run even better than private companies in competition with the private sector as viable institutions on the Singapore model where ownership will remain with the government. We don't believe an ownership change should take place."

There will be no further privatisation of port terminals and airport services. Joint Business Forum (J-Biz) chairman Mahendra Amarasuriya said the new government's policy of not privatising key state enterprises had been declared in the party's election manifesto and was therefore well known to the business community.

However, he noted that the government might be forced to depend on privatization to fund the subsidies promised in its election manifesto. "It is very difficult for the government to deliver on its promises and at the same time to curtail privatization," he said.

"Although the government has signaled that it is not interested in further privatization, they might do so if required because they are committed to reintroduce the fertilizer subsidy and give Samurdhi benefits to the needy for which they need huge funding.

"I'm not saying subsidies are not correct, but given our huge debt burden, the government might have to depend on privatization proceeds to fund these programmes."

Meanwhile, the International Monetary Fund said last week the Freedom Alliance government would need to re-negotiate the IMF aid package if it changes the policies and programmes agreed upon by the previous UNF regime.

IMF Senior Resident Representative Jeremy Carter said fresh aid under the $567 million Poverty Reduction and Growth Facility (PRGF) and Extended Fund Facility would depend on the outcome of talks with the new government.

The release of the second tranche of $80 million has been held up since last year owing the delay in presenting the budget and subsequent announcement of a snap general election. The first tranche of $81 million was released last April.

Carter said the release of the latest tranche depends on the completion of the review of the economy by the IMF which will be based on the commitments made by the previous government and the strategies and actions of the new government. "To complete the review we need an understanding with the new government. Until then we can't say where we are. There will be no tranche released until we come to an agreement with the new government," Carter declared.

"We look forward to talking to the new government on how the process can continue - to review what they want to do, how they want to proceed and see whether they can continue the arrangement based on their economic programme."

Asked whether the whole aid programme would have to be renegotiated, Carter said: "It is up to them. We have an agreement with conditions and policies to be followed. If the same policies are continued, there's nothing to renegotiate. If they are changed, then we will have to re-negotiate it."

Corporate leaders, meanwhile, said investors should get on with business now that the uncertainty associated with the election was over but called for an enabling environment and policy consistency for the private sector to perform as the declared engine of growth.

Tittawela dismissed reports that investments had been put on hold and fears that investment had been affected owing to perceived uncertainty ahead of the polls and concern about the leftist tendencies of the Freedom Alliance government.

"There's no uncertainty about investments - it's all on track. We have been talking to people - all major investors have indicated they will go ahead with their investments."

J-Biz chairman Mahendra Amarasuriya said the corporate sector should get on with business now that the election and the uncertainty associated with it was over. "Investors should get on with business. They can't go on holding forever. They might wait for the new government to appoint ministers and articulate its policies better. But business should go ahead." Sunil Mendis, chairman of the Hayleys conglomerate, said it was important to revive the agriculture sector, increase value added exports and also modernise infrastructure.

"We must focus on agriculture and value added exports and the development of infrastructure. "The Hayleys culture and focus is different (to that of other firms) - we focus on pioneering enterprises, on starting something new, and expanding through organic growth and not so much through acquisitions. We continue to expand as and when opportunities arise."

Hayleys was focussing heavily on agriculture and has an extensive out-grower network of farmers who supply the fresh vegetables and fruit for processing and export by subsidiary firms. Sarath Uyanhewa, vice president of the Sri Lanka Foundation for Development of Small and Medium Industries - Colombo District, said they welcomed the new government's stated policy of supporting SMEs.

"As industrialists we hope the policy to uplift domestic industry as promised in the manifesto will be implemented." Small industrialists have been particularly pleased with the JVP's emphasis on domestic industry and have emerged as key supporters of the party.

The Foundation called on the new government to reintroduce the 40 percent surcharge on import duty that had prevailed during the time of the People's Alliance government and for speedy action to bring down the cost of power for domestic industries.

It said in a statement that it was important to allow duty free imports of most essential consumer products, industrial raw material not produced locally, and production machinery.

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