• Mind your Business
• WB to fund more regulatory bodies
• Dealing with the dirty money
• BOI infrastructure firms may enter stock market
• James Finlay to spell out PIMC deal
• Alliance confined to tyre business
• IMF team here ahead of Paris aid meeting
• Postal disruption: time for review
• ADB: from finance to social issues
• Way out of bad banking

Mind your Business

by Business Bug

Offer and suffer

There's nothing called a free lunch, they say.

So when the State telecom chaps offered free calls on New Year Day, many suspected, there was more to come, simply because it was too good to be true.

And come it did in the form of an additional four and a half percent defence levy which, of course, received much less publicity than the free call offer.

And, to really rub it in, the levy will be calculated not on the call charges alone, but at four and a half percent of the call charge plus the twelve and a half percent GST !

Go-slow good

The State banks were on a "go-slow" this week, but there were others who made a fortune on that protest campaign.

All major private banks reported a rise in turnover and call money rates rose slightly as a result, bankers say.

As far as these banks are concerned, they wouldn't mind another "Work-to-rule campaign" !

Kotte boom

The controversial "Palace Project" in Kotte has raised many eyebrows, already.

But it may have its positive features too.

No one yet knows exactly where the "Palace" will be located or whether the project will be implemented at all, but land values in the vicinity have spiralled three to four- fold over the past two months, real estate brokers say....

WB to fund more regulatory bodies

By Asantha Sirimanne

The World Bank is likely to provide more funding to support regulatory agencies for the newly-reformed sectors in Sri Lanka.

The government has already approached the World Bank for funds to strengthen the aviation regulator, a WB spokesman said.

With many industries which have substantial market power being privatised, the government and its privatisation agency PERC are making special attempts to strengthen the regulators, though the efforts have proved less than successful in gas.

World Bank Resident Representative Roberto Bentjerodt said a recent World Bank conference had also focused on the problem.

"The need is to improve and strengthen the regulatory capacity of the government," Mr. Bentjerodt said.

"Regulating areas are required where there are market imperfections, natural monopolies, or where there are due to circumstance, monopolies exist in private sector hands."

In an environment of overall economic liberalisation and de-regulation, the emphasis on more regulation may seem contradictory.

"But both trends are necessary to improve conditions for economic development, to sharpen the focus on the role of the state," Mr Bentjerodt said.

The World Bank had earlier funded the strengthening of the Telecommunications Regulatory Authority, helping it to be transformed from a government department to an independent commission.

The World Development Report this year dealt with the diminishing role of government or state in economies.

One of the strongest forms of regulation was price cap regulation, which is successfully practised in the UK for utility regulation.

"But if you want to go all the way to price cap regulation you need to have effective institutions and skills," says Harald Fuhr one of the key authors behind the 1997 World Development Report who was in Colombo last week. "Otherwise it will not be credible."

Other options included using formulae pricing or going for offshore enforcement, by getting outside agencies to regulate domestic agencies.

In Shell Gas privatisation, though a formula was specified, the government had not been able to properly enforce it. To prevent further price increases in gas, the government was forced to forego revenue from turnover taxes it used to earn earlier.

The World Development Report also cautions that unless properly enforced, regulatory framework may scare away some investors.

"With regard to utilities, the trick will be to convince potential investors that regulators will not engage in arbitrary and expensive rule changes," the report said.

In March, Sri Lanka's independent telecom regulator, the TRC, rejected certain price increases requested by the recently privatised Sri Lanka Telecom. It also rejected a request for lower connection charges in built-up areas and introduced penalties for poor service. But the SLT was still able to achieve its overall goal of 'tariff rebalancing' by bringing down international call charges by some 15 per cent and shifting that cost to domestic subscribers.

SLT Chief Executive Hideaki Kamitsuma told the media last week that SLT was not able to get all the changes it wanted. "We will ask again, perhaps next year," Mr Kamitsuma said.

Dealing with the dirty money

With the New Year coming and bonuses being paid, the Central Bank has to issue more notes and coins to the public.

"April usually has the highest amount of notes and coins in circulation," Central Bank's Superintendent of Currency R. S. Jayaratne said.

November and December see the next highest demand.

Every year the Central Bank destroys millions of rupees worth of notes because they are not fit to be re-circulated.

Large numbers of dirty money come back to the Central Bank in May and June after the festivities have ended. The dirty money from the Christmas period comes back to the Central Bank in January and February.

Commercial banks hand over the so-called dirty money to the Central Bank every day and get fresh notes.

The Rs. 10 and Rs. 100 notes are the most circulated notes in the country today. On average these two denominations survive for a mere 6 months.

The Rs. 20, Rs. 50 can be circulated for a year, while the Rs. 500 and Rs. 1000 notes survive between 18-22 months.

"We are able to re-issue only 20-25 per cent of the notes we receive," Mr. Jayaratne said.

Only 15 per cent of the popular Rs.10 and Rs. 100 can be re-issued, while 65-75 per cent of Rs. 500 and Rs. 1000 can be re-issued.

One of the major problems in Sri Lanka is that people do not take proper care of notes, but fold them into very small shapes. One of the worst offenders are private bus conductors who fold them lengthways and grip them between their fingers. Still others write on the notes usually making calculations. Some even put their signature in the notes hoping they will get it back some day. Others like to jot down their addresses and telephone numbers on notes, thinking that some one will call them. All such notes cannot be re-issued to the public for circulation. The Central Bank is forced to destroy all these notes.

"It is an offence to deface currency notes," says Mr. Jayaratne.

But there are other factors that contribute to the short lifespan of currency notes.

Being a tropical isle, the humid conditions make the notes dirtier quickly. The fishmongers, butchers, vegetable sellers also make the notes dirty. The vendors touch the notes with wet hands whilst going about their business, so the notes come into contact with sweat and dirty water and blood.

Once the notes are in the Central Bank's possession, they are manually or machine sorted to select the good notes.

The Bank uses two sorting machines for this purpose. The machines recognise the notes, count them, check for quality and reject the ones they cannot recognise. Notes are rejected if sections are torn and on the basis of the thickness of a note. Forged notes are also detected based on the thickness. Each denomination is sorted, one at a time.

A representative from commercial banks, an internal auditor together with officials from the currency department are at hand when the notes are being sorted.

Before counting begins, an audit is done to test the fitness level of the note. Rejected notes are shredded and burnt later, also under Central Bank supervision.

Coins last around 15-20 years. Rs. 1, Rs. 2 and Rs.5 are the most circulated ones. Demand for the lesser 50 cents and 25 cents depends on the demand for goods with that denomination. Some coins go to the hands of the public but do not come back to circulation.

"We find people are keeping coins at home, in drawers and other containers," he said.

About 10-12 years ago, 30-35 per cent of the coins were re-issued into circulation. Now only 5 per cent of all newly issued coins come back into circulation.

The Central Bank however gets back large stocks of money from places of worship who want to exchange coins given by devotees for notes.

More Business * BOI infrastructure firms may enter stock market * James Finlay to spell out PIMC deal * Alliance confined to tyre business * IMF team here ahead of Paris aid meeting * Postal disruption: time for review