23rd February, 1997

An exposure to public scrutiny

Japan's central bank, the Bank of Japan (BOJ) is expected to be given more autonomy from the finance ministry, according to plans set out by a Japanese government panel. This is stated in a report by William Dawkins and Richard Lambert in the London 'Financial Times.'

Under the draft plan, states the report, the finance ministry will lose its power to order the BOJ to delay interest rate change and other important policy decisions. The new proposals follow the announcement by the government last November that it wanted to deregulate the Tokyo financial markets by 2001.

The authors of the report say that, according to the plan, monetary policy would be decided by a new policy board chaired by the governor with two BOJ officials, in contrast to the present arrangements whereby monetary policy changes are proposed by a BOJ executive committee which must consult the finance ministry. The panel's report, say the authors, envisages the BOJ making, for the first time, collateral-free low interest loans to private sector banks in trouble without consulting the finance ministry.

A further proposal would be that the appointment of the governor and the deputy governor would be approved by parliament, (currently only cabinet approval is required). Also the governor would have to go before parliament twice a year rather than once a year as now and face questions on a wide range of subjects. In addition, the finance ministry's control over the BOJ's budget, which, the authors say, is unique among advanced industrial countries is to be limited, the finance ministry controlling the budget only in respect of functions unrelated to monetary policy such as salaries.

The report concludes: "In return for this increase in freedom the BOJ would expose itself to substantially more public scrutiny than in the past. The policy board would for the first time be required to publish its proceedings just as the Bank of England publishes its discussions with the UK Treasury."

Commenting on the new proposals in the same issue of the Financial Times Lex says that they signify that "Tokyo is taking financial deregulation seriously". Lex goes on to say that giving BOJ freedom to set interest rates should produce a more objective monetary policy and, in turn, a more rational fiscal policy.

In 1992 and 1993, says Lex, interest rates were kept too high too long because government officials relied on repeated fiscal stimulus packages to revive demand; but the strategy failed and drove the economy to the brink of deflation. An autonomous BOJ might have cut interest rates earlier.

On the proposals to give the BOJ powers to decide whether to rescue troubled financial institutions, Lex says that the power at present with the ministry of finance has been arguably abused to protect the lucrative private sector jobs for its retiring officials. Lex concludes that "the thought that even the ministry of finance - the home of the country's most powerful bureaucrats - can lose a fight bodes well for Japan's efforts at reform."

Vanik seeking approval for Forbes deal amid Asia protests

Vanik Incorporation has called an Extraordinary General Meeting seeking shareholder approval to gain control of Forbes Ceylon, while Asia Capital continued to protest that it could not do so without making a mandatory offer to all shareholders.

Vanik told shareholders in a circular that it was negotiating with Global Equity Corporation of Canada to acquire Forbes and Walker Ltd of Sri Lanka and Forbes and Walker International Ltd, of Bermuda.

The total value of assets under the control of these companies were believed to be Rs 2.59 bn.

"Asia Capital Ltd (ACL) has filed court action seeking to prevent Vanik from proceeding with the acquisition on the basis that ACL has made an offer to acquire Vanik and whilst that offer is pending that Vanik should not enter into any agreement to sell or buy assets of material value without the authority of a resolution of Vanik shareholders," the circular said.

"Your Board has decided to go before the yourselves as shareholders and obtain your agreement to proceed with the negotiations with a view to concluding a definitive agreement for the acquisition of the two companies."

Vanik said it believed that a mandatory offer need not be made to all shareholders in terms of the present Take-overs Code as they were not directly purchasing shares in a listed company.

The circular said the SEC has advised that the transaction would give rise to a mandatory offer to be made for all shareholders.

Meanwhile Asia Capital in a statement said they believed that Vanik should make a general offer. ACL says Vanik's statement is contrary to its previous position where it had said in court documents that the application and interpretation of rules can only be referred to and enforced by the SEC.

Asia said most of the assets of the two Forbes companies represented shares in Forbes Ceylon. The only asset of one company F & W International Ltd was a holding of 70 mn shares in Forbes Ceylon amounting to 29 per cent of the equity.

Forbes and Walker Ltd held 21 per cent of Forbes Ceylon in addition to other operating assets.

Meanwhile former Director General of the SEC Arittha Wickramanayake said he personally believed that a mandatory offer should be triggered when control was changing as in the case of the proposed Forbes transaction but the Attorney General had ruled in a similar occasion that the Code in its present state did not apply.

New player boosts market research

Though there is increasing awareness of market research among the larger companies in the country, others were still reluctant to commit resources to research, a marketing expert said.

''There is a reluctance to allocate market research budgets due to a low benefit perception'', Chartered Institute of Marketing - Sri Lanka President, Eardley Perera said.

Marketers themselves however were convinced of its value. ''There is a lack of knowledge among corporate heads of the need for market research'', Mr. Perera said.

The situation was far better than it was two decades ago when only foreign multi-nationals used market research, he added.

Market research in the country had been boosted after the economy opened up in 1977, increasing the scope for industry. He said two surveys conducted in 1989 and 1994 among 27 companies had shown that there was an increase in the use of market research among the respondents in the intervening period.

For too long market research had been viewed as a process of data supply, says Titoo Ahluwalia, Chairman of ORG-MARG in India.

ORG-MARG is said to be the largest market research firm in India. It recently tied up with a fledgling local market research firm to form ORG-MARG Smart.

''We like to see ourselves in the role of problem solving,'' Mr. Ahluwalia said.

He had also been involved in the setting up of Sri Lanka's pioneer market research firm, Lanka Market Research Bureau, when he was at the Indian Market Research Bureau.

He had left IMRB in 1983 and founded MARG, which later acquired the 36-year-old research firm ORG.

ORG-MARG Joint Managing Director Dr. Harsha de Silva said the company would provide data in a user friendly way which could be analysed with the use of specialised software which would be available for the first time in Sri Lanka.

It has already commenced the country's first retail store audit on fast moving consumer goods (FCMG) in the country.

''This audit would monitor the performance of specific brands against competing brands for each product category covered,'' Dr. de Silva said. This information could be used to monitor each brands market share, width and depth of distribution.

Dr. de Silva who was previously the treasurer of DFCC said the company would also track retail and corporate banking products. The banks had also helped create a market for research in other sectors. "The banks today demand market data to support expansion plans or project proposals,'' Mr. Perera said.

Seylan Bank files action

Seylan Bank Ltd has filed action against its former chief executive Rohan Perera claiming Rs 100 mn in damages, with interest.

The bank pleaded that the defendant had failed to properly discharge his duties and has acted negligently in his duty of care of the bank.

The action is related to the granting of one million US dollars to D & A Import & Export Inc, of California, USA.

It was pleaded that the defendant had been allotted 50 per cent of the shares of the company and had been appointed its Chief Operating officers in January 1992 on a salary of US $ 3000 a month.

The plaint stated that the defendant has caused the President of D & A Import & Export, Deepal Wannakkuwatte to incorporate a company in Sri Lanka to obtain a concessionary Asian Development Bank loan via Seylan Bank.

"The defendant caused the said US $ one million to be remitted to the said "D & A International Import and Export Inc.' Where he is a director, though the said company is not the applicant of the said loan and no approval has been obtained to grant such loan from Asian Development Bank," the plaint said.

The bank said it had discovered that such a loan had been granted in 1994 and the chief executive officer had pleaded his innocence through a memo to the Board of Seylan Bank.

However, with the one million dollars not being paid back, legal action had been filed in the USA and agreement reached to repay the sum without interest within five years.

The defendant has ceased to be chief executive from September 1996.

Following investigations, the bank stated it found the version presented by the chief executive regarding the loan to be incorrect and that he had acted in breach of his fiduciary duties, causing the bank to suffer damages.

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