Janashakthi: early windfall

Janashakthi Life Insurance Company Ltd. has declared a bonus to its Shanthi, Lakshimi and Gitanjali policyholders for the year 1997. It is probably the only insurance company in Sri Lanka to pay bonuses in its third year, a company release says.

In its first year of operations, the company had the highest annualised premium.

The company recorded a profit in its second year of operations. The third year of operations saw the company transferring a surplus from the Life Assurance fund to the profit & loss account, and also increase its profitability, the release adds.

The company declared the following rates of bonus in respect of its "with - profit" policies that were in force as at end of December 1997:

Rs. 15 per 1,000 basic sum insured in respect of policies under the plan Lakshimi.

Rs. 20 per 1,000 basic sum insured in respect of policies under the plan Shanthi.

Rs. 25 per 1,000 basic sum insured in respect of policies under the plan Gitanjali.

'All time high' from NIC

National Insurance Corporation Ltd., is paying an 'all time high' bonus to all its Life Policyholders.

Rs. 70/- per each Rs. 1000 sum assured will be paid in respect of all "with profit" Life Policies, a release said.

He said 90 per cent of the profits realised through the investment of Life Assurance Funds will be distributed among the "With Profit" policyholders.

The bonus payments will be made according to the following rates:

* Whole Life Policy: Rs. 70 per Rs. 1000 sum assured for each year;

*Endowment Policy: Rs. 70 per Rs. 1000 sum assured per each year;

* Joint Life Policy: Rs. 70 per Rs. 1000 sum assured for each year;

* Jathika Surathura Policy (Anticipated Endorsement): Rs. 60 per Rs. 1000 sum assured for each year before first stage payment, Rs. 45 per Rs. 1000 sum assured for each year after the first stage payment but before the second stage payment and Rs. 35 per Rs. 1000 sum assured for each year after the second stage payment.

* Jathika Asiri Life Policy (Multi Benefit Endorsement): Rs. 43 per Rs. 1000 sum assured for each year.

* Jathika Sathuta Yuvathipathi Policy: Rs. 37 per Rs. 1000 sum assured for each year.

Arrangements have been made to issue a Bonus Certificate to each policyholder entitled for this bonus payment, the release added.

New branch offices are due to be opened in Moratuwa, Mahara-gama, Negombo, Avissawella, Ratna-pura, Embilipitiya, Matale and Welimada within this year.

The present Board of Directors of the Corporation: Ashley T. Herat (Chairman), Kamal Ratwatte (Executive Director), G.C.S. de Silva (Director), S.B. Divaratne (Director) and M.V.P. Silva (Director).

Under a new brand name SG

Starting in may 1998, the international commercial and investment banking, asset management and private banking businesses of Societe Generale Group will be marketed under a new brand name, SG.

The new SG logo, set in its red and black square, will be shared by all international activities and reflects Societe Generale's ambition to become a reference bank offering its customers a co-ordinated range of international capabilities across different banking and investment activities.

The adoption of this new commercial brand reflects the Group's wish to consolidate its international brands. Years of international development have resulted in a proliferation of different names (Societe Generale Securities, SGST, SocGen Crosby, SocGen Asia, Societe Generale Frankel Pollak, SGAM, etc.) The adoption of SG as a single brand will enable the Group to focus its marketing and to raise its international profile.

The Societe Generale Group will then operate several commercial brand names. In the French market these are Societe Generale, Sogenal and Credit du Nard and internationally SG, SG Asset Management and SG Private Banking. The Group will be identified by the Societe Generale logo, underlined by the world Group.

Birthday gift from Mobitel

Mobitel has introduced a range of services and discounts to customers, to celebrate five years in business.

Following in the footsteps of another mobile phone company, incoming calls of any duration are now free to all within the Mobitel network, a company release says.

Following the first one-stop-shop opened recently at W. A. D. Ramanayake Mawa-tha, four more shops of this kind will be opened this month in Kandy, Kurunegala, Matara and Ratnapura. The concept called the Big M has proved highly successful, the release says.

Equipped with a first ever state-of-the-art on-line service, the Big M's in these four major towns now bring customers the added convenience of bill inquiries and payments, it adds.

Mobitel's free itemised billing detailing time of call, duration, number called (including IDD) allow customers to have an accurate statement.

This facility enjoyed by Mobitel customers and Mobitel's free first minute incoming call irrespective of duration are exclusively enjoyed by Mobitel users the release adds.

ABB opens office in Sri Lanka

ABB, in order that they may have closer ties with their customer-base in Sri Lanka, have set up their liaison office in Colombo headed by Nitin R. Desai. The ABB local office will work in close co-operation with their agents Samuel Sons & Co. Ltd., a company release said.

The first event to be organised by both Samuel's and ABB Calor Emag Schaltanlagen AG of Mannheim, Germany a leading company of the ABB Group was a symposium for the Ceylon Electricity Board (CEB) and Lanka Electricity Co. (Pte) Ltd. (LECO) recently.

Present in Sri Lanka for the symposium from ABB Germany were Dr. Schnettler, Dr. Kunz, Mr. Brandt, Mr. Bins and Mr. Illerhaus.

The objective of the symposium was to highlight the latest development in the areas of Innovative Substations with sophisticated Control and Protection Systems. The presentation also covered the Compact Substations using Gas Insulated Switchgear, while great emphasis was given to enhancing the life of existing Substation equipment by implementing Retrofit Solutions which will be based on effective modern diagnosis undertaken while grid supplies are on, thus ensuring uniterrupted power supply.

THE COUNTDOWN

o May 2nd

The Euro as a single currency was finalised. The central bank was established and as its first governor Germany was agreed on. France and Germany however, will head the ECB in turns of four years during its first eight year period.The bilateral exchange rates were decided.

o Before January 1999

The final preparations of the ECB and the ESCB:

council to adopt legislation on the key for capital subscription, collection of statistical information, minimum consultation of the ECB, and fines and penalties which can be imposed on undertakings.

ECB and ESCB to become operational:

setting up the ECB, adopting the regulatory framework, testing monetary policy framework, etc.

o January 1, 1999

Irrevocably fixing of conversion rate Euro/national currencies;

entry into force of legislation on the Euro: legal status, continuity of contracts.

Changeover of the money market and the foreign exchange market.

o From January 1999

ECB begins to function: foreign exchange intervention in Euro, monetary policy in Euro new government bonds issued exclusively in Euro

changeover of financial markets in the private sector probable internal changeover by banks.

Enterprise follow on a voluntary basis

Member states to issue new public debt securities in Euro.

o January 1 2002

Entry in circulation of notes and coins as legal tender.

Gradual withdrawal of national currency coins and notes.

Bank accounts in Euro.

Salaries, social services , retail trade in Euro.

o July 1 2002

Completion of changeover in public administration.

National currency ceases to exist.

Euro - how does it affect us?

By Chamintha Thilakaratha.

What are the necessary economic conditions for membership to the EMU or single currency?

. In order for a country to join the Euro, states must bring their economies closer, which is known as achieving the convergence. Four convergence criteria have been established for that purpose. They are that member states must avoid excessive deficits. Their performance is measured against two reference ratios : 3% of GDP for the annual deficit and 60 % of GDP for the stock of government debt; inflation should not exceed more than 1.5% points that of the three best performing member states in terms of price stability in the previous year; the country's currency must have remained within the normal fluctuation margins of the European monetary system for at least two years; long term interest rates should not exceed more than 2% points the average of the three states with the lowest inflation rates in the Union.

When will the Euro arrive?

For most people it will become part of their everyday lives from January 1st 2002 at the latest when the Euro notes and coins will become available. However, the Euro will be legal currency from January 1, 1999, enabling it to be used in financial markets and for a range of company activities. The same rules apply to Sri Lanka as well. However, the coins and notes denominated in Euro will begin to circulate alongside national currencies of the member states.

What will happen to the existing national currencies, once Euro is introduced?

The existing currencies such as the Deutsche Mark and Franc,etc., will continue to function till January 1, 2002. There is a six months transaction period during which the use of existing currencies will gradually come to a stop. Therefore, by 1 July 2002 at the latest, the national currencies of the participating countries will be completely replaced by the Euro. After that it will still be possible to exchange national denominations free of charge at the national central banks. And the existing currencies will become collectors items.

How will counter values be fixed?

A. Counter values must be rated with the fixed conversion rates. For example, the price of GBP 1.00 product would be displayed in advance of 2002 as Euro 1.14, assuming a conversion rate of Euro1=GBP 0.87654. After 1 January, 2002 when Euro notes and coins circulate , it is unlikely that the retailer would keep an inconvenient Euro price of 1.14, the retailer would change the price to a convenient level of say Euro 1.10, and display a counter value of GBP 0.98

How will the consumer know if the retailer is not playing them out?

A. There will be dual pricing on many items until the public get used to the new single currency. Whether retail companies would agree to this due to the large cost that it would require is a question. Both prices, in Euros and the national currency, will be stated side by side till consumers get used to the new single currency.

How will the Euro be rated with other European currencies and also other international currencies like the dollar, yen etc.?

The irrevocable conversion rates for the Euro will be adopted by the Council on 1st January 1999. Only bilateral rates can be announced as yet. Euro will be rated with the other currencies taking into consideration the existing ECU rate. Why is it that only bilateral rates can be announced?

The ECU shall be replaced by a reference to the Euro at a rate of one Euro to one ECU. Therefore, the irrevocable conversion rates for the Euro have to be identical to the value of the official ECU expressed in units of the participating currencies on 31 December 98. Since the ECU is a currency basket, which includes Danish krone, Greek drachma,and the sterling pound it is not possible to announce the bilateral rates of the irrevocable conversion of the currencies participating in the Euro area, which will be used on 31 December 98.

How will the exchange rate be fixed?

. The exchange rate will be fixed taking into consideration existing ECU rate. The conversion rate of 1:1 between ECU and Euro. At present, the exchange rate between the euro and the rupee is Rs.66=1 Euro and 1.11$ = 1 Euro.

How much is being spent on the Euro at the preliminary stage?

Budget of ECU 50 million has been agreed of which ECU 24 million is for the Euro, this is expected to grow in coming years as EMU approaches.

According to Mr. Illka Usitalo, Head of the delegation of the European Commission, a statement made by the 'Benz' company officials, on the expense that they would have to make in converting and in preparing for the Euro, DM 200 million will be the cost of the change. But they believe that they will earn DM100 million annually once Euro gets off ground and that their cost could be recovered in two years time.

What about the conversion of all computers, coin operators and other equipment using existing currencies?

All computers in banks, coin operated machines and other equipment will have to be upgraded with Euro compatibility. All programs, files, databases, and screens, reports containing references to financial information will need to be modified. Provisional results suggests that the scale of the problem could be comparable to the year 2000 problem and that the impact depend upon :

The application in question are third party packages or developed in house. While it is certainly costly to modify tailor made products, it is essential for users of third party software to verify whether their suppliers are planning to release Euro-compatible versions of their packages and whether their maintenance contracts already cover related costs.

If the programs have multi currency capabilities, it would facilitate the use of two denominations during the transitional period. For older systems, key information and manuals may be no longer available. Therefore, countries who intend to make transactions in Euros will have to start thinking about packages to upgrade their systems to accept the new single currency.

What is the role of the European Central Bank?

The key role of the ECB will be the administrative monetary policy. This policy will be decided by the ECB whose primary objective will be to maintain price stability. The ECB will become operational only on January 1st 1999 when the exchange rates of the existing currencies of the participating are irrevocably fixed. It will replace the Frankfurt based European Monetary Institute, set up 1994 to pave the way for the new single currency.

Along with the ECB, the European System of Central Banks will also come into operation in 1999. The tasks of the ESCB will be to define and implement the single monetary union, to conduct foreign exchange operations in accordance with instructions given by the council of ministers, to hold and manage the official foreign reserves of the member states belonging to the Euro area.

Although the national central banks will act in accordance with the instructions of the ECB, they will retain powers and continue to be active in their own areas. It is the EU's council members who will be responsible for the Euro general exchange rate policy. However, interventions of the foreign exchange markets and day to day management will be carried out by the ECB, which will ensure that it is compatible with its primary objective of price stability.

What are the advantages of a single currency?

The advantages of a single currency are numerous. For one, it means that travellers across no longer have to change money, while losing money on every transaction, as is the case now. Exchange margins paid to banks will simply disappear. Small business in particular will benefit as payments and transfers in member sates will be quicker, more reliable and cheaper.

For business and consumers, a single currency will also take away the uncertainty about the price for which goods are sold. As has been seen sudden exchange rate movements can wipe out profit margins in a matter of hours. All this will make it easier for businessmen big or small to operate throughout the Euro zone.

Furthermore, if goods and services are priced in one and the same currency the competitive effect of the single currency will turn out to be beneficial for the consumer in terms of prices

How will the Euro affect Sri Lanka?

A.It will have a very positive effect on Sri Lanka. Except having to worry about the changing of machines Euro compatibility to accommodate any transaction of this new currency, Sri Lanka is not likely to face many problems.

There are a number of advantages in dealing with a single currency. It is stated that trading with Europe will be easier after the single currency , because it will eliminate exchange rate risks. By eliminating exchange rate fluctuations it will provide a common unit of account for commercial activities. This will improve the functioning of the single market also.

Cross border trade and investment will be stimulated and as such many markets will witness an increase in competitive pressures. The impact will vary from sector to sector. However, non-financial activities will also be impacted for a variety of reasons. But out of these price transparency will be an advantage for Sri Lanka. This is because companies will find it difficult to maintain high price differentials between countries the pressure will be greatest in border regions and high value goods which are easily transportable. Ordinary consumers stand to benefit from improved price transparency.

All in all, competition and transparency within the member states will open up better trading opportunities to Sri Lanka. There will also be a reduction in transaction costs. Yet, member states are entitled to go by their own economic policies, taxation, etc.,

What are the benefits to the ordinary consumer?

Apart from the other benefits mentioned, ordinary consumers stand to benefit from improved price transparency. Soon, as a result of the introduction of the new currency, the prices of similar items in the member states and in Europe as a whole is likely to come to a standard price due to the competition the Euro will undoubtedly create in the region. This means, that the ordinary citizen will be able to compare prices easier and make a choice when purchasing the same item elsewhere in Europe.

What challenges will small and medium scale enterprises face?

Small and Medium size enterprises may face specific challenges with the changeover on the account of their limited technical and financial resources. Such enterprises may face a challenge in dual pricing and in conversion of machines for Euro compatibility. Therefore, in determining a changeover plan for their company, managers need to weigh up carefully the advantages and costs of using the Euro during the transitional period. The balance of advantages of cost will vary from company to company, depending upon factors such as sectional activities and the degree of international exposure.

What is the 'no prohibition and no compulsion' principle relating to the Euro?

The Euro prohibition principle is one which requires that there should be no legal interdiction to the use of the Euro unit when all parties to an agreement so decide. No compulsion principle implies that one party to an agreement cannot unilaterally insist on the Euro unit. In practice this means that there is a distinction between existing and new contracts. This also means that one is not forced to use the Euro in contracts.

What will the effect of this be on contracts?

A. Existing contracts will remain in national denominations until January 2002, unless there is mutual agreement to use the Euro unit or where exceptions are provided in the legal framework for the single currency. For new contracts, however, the choice of denomination is a matter for bargaining among the parties concerned at the time when the contract is concluded.

In the case of contracts among enterprises, outstanding contracts will continue in national denominations unless both parties mutually agree to use the Euro unit. For new contracts, however, parties will have to decide which denomination to use at the time when the contract is drawn up. In practice this could imply that the strongest bargaining power could insist on the use of the Euro unit. However, smaller companies should not have difficulties in coping with some of the transactions in Euro units given that banks will be able to undertake the conversions.

As for wages for existing contracts, these will continue in national denomination until till January 2002, unless staff agrees to use the Euro unit beforehand. In general, it would be possible for companies to require that new employment contracts be specified in Euro units, although national legislation on this matter may have specific rules on the payment of wages.

In daily transactions where outstanding contracts exist , these will continue in national denominations. New contracts should be drawn up in Euro units given that both parties agree. But the situation in shops is different given that buying in a shop involves no initial contract and requires mutual consent. Neither party could insist on using Euro till 2002.

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