The initial indications that the Central Bank was moving away from a high interest rate regime to control inflation, have been confirmed in the bank's Annual Report for 1995. It is a crucial change in policy perspective having important implications for the country's economy.
In recent years the government and the Central Bank, which is primarily responsible for monetary policy, have stressed the need to control inflation by the use of such instruments as high interest rates, not resorting to Central Bank borrowings, a high reserve requirement, etc. This policy stance is characterised as a monetarist approach. Critics of this policy suggested that the cure for inflation was inappropriate and harmful to growth. The Central Bank strongly resisted this criticism. Now that the Bank has changed its stance the critics of the Central Bank policy might say better late than never.
There is a notable move in policy from a monetarist approach towards a structuralist approach. The latest Annual Report states that inflation is caused by structural imbalances such as shortage in supply, higher import prices and structural rigidities. In contrast the 1994 Report stressed inflationary expectations, a large budget deficit, low productivity and sustained increases in money supply as the main causes of inflation. The difference in perspective is clear.
The 1994 Annual Report said that "Price stability is a prime objective of macro economic policy". The latest report states that "Reducing inflation to very low levels may not be feasible or desirable, as such an attempt could perhaps drive the economy into a recession". The differences in perspective are not difficult to perceive.
The Central Bank has argued that this change in policy is due to changed circumstances. The 1995 environment the Bank argues, "was significantly different from the environment that prevailed in the last five years". The monetary expansion fueled by foreign capital inflows had ceased. Yet the Bank had to pursue a tight money policy owing to a need to contain domestic credit expansion.
We have ourselves argued that the tight monetary policy had begun to hurt industrialists. Any one who has had a dialogue with businessmen would know fully well that high interest rates have deterred real investment, reduced profits and diminished savings for investment. Company performance in 1994 made it clear that even those firms which had increased turnover had diminished profits. Some were hardly able to survive.
Of course there were other factors too which affected business performance, notably reduced tourist traffic and demand, lesser foreign investment, a depressed stock market and continued uncertainties of the war and terrorist attacks. But high interest rates did matter.
Now that there has been a change in policy we would wish for three things. First that the Central Bank which has signalled the change in policy will continue to ease the tight monetary policy and be consistent in its approach in the foreseeable future. Second, that the commercial banks would respond quickly and bring down rates of interest without trying to capitalise on higher interest margins. Third, that business enterprises will respond to these signals and take steps to plan higher levels of investment activity.
The Merchant Bank of Sri Lanka has shown a 25% increase of net income for the 12 months ended December 31, 1995 from Rs. 703 million to Rs. 878 million. However, its profit attributable to shareholders has dropped to Rs. 33.4 million during this period compared to Rs. 200 million in 1994.
According to Chairman, R.N. Asiriwathan, the performance of the bank under review has been severely affected by the depression, lack of activity in the equity markets and high interest rate regime prevalent almost throughout the year.
"However, the bank has been successful in significantly strengthening its balance sheet by securing medium term funding and thereby reducing its exposure to short term interest rates; he added.
The Ceylinco Housing & Real Estate Co. Ltd. has shown favourable performance during the nine months ended December 31, 1995 in terms of turnover, pre-tax profit and post-tax profit.
The company's turnover was up by 22% from Rs. 40,934, 262 to Rs. 50,058,600. Pre-tax profit increased by 40% from Rs. 4,748,493 to Rs. 6,672,147 while post-tax profit increased by 44% from Rs. 4,199,411 to Rs. 6,072,147.
Union Assurance Ltd. has shown a marginal increase of 2.6% post-tax profit and 12% decrease of pre-tax profit during the year ended December 31, 1995.
However gross premiums written both general and life were up by 22% from Rs. 734 million to Rs. 896 million. The shareholders' funds also went up by 92% from Rs. 220 million to Rs. 423 million, according to the consolidated balance sheet.
Singer Industries (Ceylon) Ltd. has shown favourable financial results for the year ended December 31, 1995.
The company's turnover was up by 22% from Rs. 590 mn. to Rs. 719 mn. profits before tax and after tax were Rs. 40mn. and Rs. 20mn. respectively. This shows an increase of 29% in profit before tax and 26% increase of after tax profit. During the same period, the Company's shareholders' funds went up by 30% from Rs. 66mn. to Rs. 86mn.
Three consortia have been short listed for submitting financial proposals to restructure Lanka Electricity Company (LECO), a PERC news release said.
The consortia are: AES Transpower (Pvt) Ltd. of USA and Meralco Industrial Engineering Services Corp of the Philippines; Norwegian Power Distribution A.S. (NPD) of Norway and DIMO Ltd. of Sri Lanka; SMEC International (Pty) Ltd. and Integral Energy both of Australia.
Britain will grant Rs. 675,000 (about £8500) through the British Partnership Scheme (BPS) to the 'Kandy Education Fund' for an Entrepreneur Development Project in the Central Province, a British High Commission report said.
The project will provide limited financial assistance to 21 rural entrepreneurs to buy items of machinery and raw materials. This will not only help the small business community to increase its production and quality control, but should also create employment at the rural level. The project is being implemented in collaboration with the Industrial Development Board of the Central Province and is co-ordinated by Derrick Nugawela.
This project is a follow-up to the successfully concluded Entrepreneur Development Training Project last year with help from a British grant of Rs. 150,000 (about £1800).
Is the plantation sector doomed?
The privatisation of the remaining regional plantation companies was halted earlier as everyone thought market conditions were not satisfactory.
Now, just when the process was to resume, doubts have been cast over the sale of one company, stalling the entire programme once again.
All this, with Mr. T's antics thrown in we may be heading for a disastrous year in Estates.
Dairy producers are a worried lot these days.
They say they have to raise prices due to rising costs and the state reduces the price of their rivals.
Some of them unofficial representations to the former advertising man now dabbling in trade, but he wouldn't buy their story. "It's an unfair world" seemed to be his opinion.
Wholesale importers of the spirited stuff are frowning, after taking a look at sales statistics which are unusually low this year.
What's the reason, they want to know. Is it the new love for the low-priced beer among the locals or is it due to the decline in the Tourist Industry?
The real reasons will be known only after Christmas time, they say. Now, here's a puzzle for the market researchers....
CTC Eagle Management (CTCEFM) a subsidiary of CTC Eagle Insurance whose activities were mainly confined to managing its parent's funds is now offering fund management services to a wider market.
Set up in 1991, the company now manages total funds of Rs. 2.5bn. It manages the funds of CTC Eagle Insurance Company as well as 'outside clients'. They invest in both equities and fixed income instruments.
At present, however, the equity markets are in a depressed state.
"It is not only when markets are booming that you need a fund manager", says Senior Fund Manager Channa de Silva. "It is more difficult to make money in depressed conditions. So professional expertise is needed to maximise returns."
The company has also been actively involved in the fixed income securities market, investing in a number of medium term intruments issued by leading corporates. In addition, some blue-chip corporates had been provided longer term funding extending over eight years.
The company uses computerised investment management systems, and will provide specially designed investment reports for filing income tax returns. All investments are made in the client's own name through a limited power of attorney which can be revoked by the client, if necessary. Cash balances and securities are held with custodian banks, the company said.
The company says it had been able to exceed the bench mark yields that have been set for the life and general insurance funds managed by CTCEFM each year.
The company claims that high yields achieved by CTCEFM had enabled CTC Eagle Insurance to declare higher dividends to policyholders and shareholders.
Mr. de Silva says the company has invested heavily in human resources. Eagle Star (technical collaborators of CTC Eagle Insurance) and British American Tobacco (owners of CTC) continue to support CTCEFM with training and development, the company said.
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