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 24th May 1998 |
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Tougher standards to police accountingBy Mel GunasekeraMore stringent standards in line with international accounting and auditing are expected to bring errant institutions to book, financial sources said. Two committees for accounting and auditing have been working on bringing these standards in line with international standards, the sources said. Standards are being drawn up for each sector, i.e. banking, insurance, development. savings banks etc. amounting to about 50-60 in total, sources said. These new standards will also give the Sri Lanka Accounting and Auditing Monitoring Board the much needed muscle to crack down on errant institutions. There have been widespread public concern at the lack of regulation of merchant banks, which have proliferated in recent years. At least two merchant banks have had serious problems and had been helped by their respective companies. Recently, a leading merchant bank ran into financial difficulty and the public was left groping in the dark, as true facts and figures were not available. However, the Central Bank has introduced new laws to bring development finance institutions and savings banks under regulation. The IMF is also calling for stringent regulations of the banking sector to prevent an East Asian style weakness in Sri Lanka. Financial sources say, since the crisis erupted last year, the Central Bank has stepped up its efforts for off-site, and on-site supervision of commercial banks. The Central Bank conducts off-site supervision on the basis of monthly returns and on-site inspection at least once every two years. Banks are required to prepare their financial statements in line with Central Bank guidelines for interest suspension, loan classification and provisioning, and must meet a risk-weighted capital adequacy ratio of 8 per cent, defined in line with the Basle standards. The prudential guidelines are less stringent than accepted international norms: loans must be classified as non-performing and interest suspended, when they are 90 days past due, but provisioning is required only if the loans are past due more than 180 days and then at only 20 per cent. "Sri Lankan banks lack prudential regulation and supervision, and more needs to be done to strengthen the regulation," IMF Resident Representative, Anton Op de Beke told The Sunday Times Business. IMF's recent code of conduct too is urging the governments to adopt private sector accounting policies. Several Asian countries that are now experiencing serious banking problems had relatively stringent banking rules. "This is proof that although important, we cannot rely on regulation. What is just as important is supervisory monitoring of asset quality account and provisioning regulations," he said addressing a seminar recently.
Stretch rubber for better pricesBy Feizal SamathSri Lanka produces the world's best rubber - latex crepe - and commands premium prices for it but sadly this is a little known fact to many, including the country's top-notch trade commissioners serving abroad, a senior rubber industry official said. "We need a good marketing strategy to promote our latex crepe rubber. I was surprised to learn during recent overseas visits that even our own trade commissioners were unaware that Sri Lanka produces the best rubber in the world," said Dr. L.M.K. Tillekeratne, Director of the Rubber Research Institute of Sri Lanka (RRI). He said the lack of a proper marketing strategy was retarding the growth potential of latex crepe rubber - the cleanest rubber produced in the world and ideal for food-related and pharmaceutical items - and ensure far better prices than now as well as a bigger clientele. In addition to producing the best rubber, Sri Lanka is the only producer of latex crepe rubber in the world for a variety of reasons. Tillekeratne said Sri Lanka needs more rubber based industries but it was unfortunate that two such foreign investments using latex crepe were called off at the eleventh hour due to Tamil rebel bomb blasts in Colombo. He said that the two investors, one a Malaysian national, were about to finalise deals relating to the setting up of factories to produce finished goods when bomb blasts at the Galadari Hotel and Maradana railway station, stalled their plans "They were here - at different times - unfortunately when the blasts went off they went back, never to return. As long as the war is on I don't think we can attract foreign investments in the rubber industry," the RRI director told a small group at the SLAAS auditorium. He was speaking on the state of the rubber industry in Sri Lanka. He said that one of the issues confronting the industry today is whether we should continue to produce rubber or shift to other products in view of the low prices prevailing and lack of other support. "Despite the problems it is facing, there is no doubt that rubber is a vital industry for many reasons, one of which is that the trees provide a thick rainforest cover. "We may have enough tea or potatoes in this country but if we get rid of rubber, we may not have drinking water," Dr. Tillekeratne warned.
Quicker E-mailing with new local central switchSending e -mails will be less time consuming when the local central switching system is set up in the coming months, industry sources say. At present all local e-mail messages are routed through a US exchange called the global Internet backbone. If an e-mail is sent from one local address to another, say from Colombo to Kandy, the message first goes to the US backbone (system) and comes to Kandy, causing considerable delay in sending e-mails. Now the Internet Service Providers (ISPs) have banded together to set up their own local switch with the technical assistance from the Computer and Information Technology Council of Sri Lanka (CINTEC). The local switch to be set up at a cost nearly Rs. one million, will reduce e-mailing costs, which however will not be passed onto the consumer, sources said. The service providers have been running on very low margins and will pocket the benefit, sources said. The US Internet backbone is a common platform on which all e-mails can be transmitted. All local service providers use their American collaborator to send and receive e-mail from other service providers. This is a time consuming process and may take from 15 minutes to sometimes three hours, depending on how frequently your local ISP downloads from their US collaborators, sources said. "The establishment of the common data interchange would route all data through a switch, which would identify all local e-mails and route them to their respective local address," CINTEC Consultant, Dr. Gihan Dias said. Sri Lanka Telecom (SLT) has indicated its willingness to bear the cost of the switch, as it is logical that the switch is installed at their premises, since all local calls are routed through SLT's system, an ISP source said. The number of ISPs that can be accommodated in the local market is subject to intense discussions in the local Internet industry. While the authorities have clamped down on issuing any new licences in the telecom/datacom sector, some insiders say that even more could be accommodated in the local Internet sector. The number of Internet users in the country is still very low. The Internet which was launched in Sri Lanka as early as 1991 with only 56 subscribers, has attracted only 7,614 customers as at the end of March 1998, Telecom Regulatory Commission data states. Though the number of subscribers are relatively small, industry sources estimates around 25,000 people have access to the Internet, making it a popular tool of communication in Sri Lanka today. Presently, ISPs cater primarily to subscribers in and around the Colombo metropolitan area. "There is a lot of interest generating among rural people," Marketing Manager CeyCom Global Communications, Romesh de Silva said. However, the lack of telephone facilities, cost of computers and using Internet, have deterred many people from acquiring the Internet, he said. The steady growth of Internet has made it an extremely lucrative future business sector. To promote the use of Internet, most computer vendors now include Internet subscription when they sell new PC's. Questions are being raised as to how the ISPs are going to manage crowding in the future. Surfers are already complaining about busy lines, slow speeds, and inadequate bandwidths. ISPs have to upgrade their modem pool to 33.6Kbps or more and provide more out-lines, if they are to face the projected customer increases. Most surfers are very mobile. "However if we are to retain them we have to deliver quality service, and the establishment of a local switch would be an added advantage," an ISP source said. (MG)
Treasury Bonds - a liquid assetTreasury bonds with maturities of 2,3 and 4 years are to be considered as a liquid asset of commercial banks and licenced specialized banks a Central Bank release said. Treasury Bonds can also be traded at the secondary window of the Central Bank. Treasury Bonds are issued fortnightly through primary dealers.Issues from January to April 1998 amounted to Rs 8 billion in 2 year Bonds.In May Rs 2.25 billion of 3 year Bonds of varying maturities are scheduled to be issued during the rest of the year, the release said.
Ensure quality in 'rush' crop teaSri Lanka's newest tea broking firm has urged local producers to ensure that quality is maintained during this season's "rush" crop (April to June) as a lowering of quality would result in disastrous consequences. "There should be a concentrated effort from all plantations to produce teas of reasonable standard," says Ravi Kumararatne, tea broker and senior vice-president at Asia Siyaka Commodities (Pvt) Ltd. The "rush" crop is tea industry jargon for a period when cropping is at full swing and the tea bush is full of leaves. In the past - except for last year - the "rush" crop season has seen a lowering of standards as the need to produce more outweighs other considerations like maintaining quality. A "rush" crop occurs when the rains start soon after a period of dry weather, like this year, for instance when long-overdue rains fell in late April after a dry spell since January . Asia Siyaka experts, are concerned that a lowering of the quality of teas during this season may have an adverse impact in Colombo adding to a surfeit of poor quality teas circulating in other tea markets, at prices much lower than the cheapest available in Colombo. On top of this is the less buying pressure in Colombo mostly due to the absence of Russian buyers in the market who have always led the way in setting high price levels. The M.J. Fernando group, the biggest buyer of tea for the Russian market, has been out of the Colombo auction or buys very small parcels since last December resulting in little buying pressure that Colombo often sees when Russian buyers swamp the market. Hence the warning from Asia Siyaka, which has written "an urgent note of caution" to senior management in the tea industry, on the need to ensure that certain steps are taken to protect against a sharp decline in the market.
Mind your businessby Business Bug GST blessingWith the introduction of the GST, prices in the local car market have crashed, so much so the leading local agents had to restructure the prices of vehicles they imported. Last week, the market leader in imports offered a substantial discount on that company's imports. Now, other competitors who were resisting such a move are likely to follow suit, shortly, we hear, though they are not a united lot! Back to baseThe local telecom people thought they would get better service by employing a courier service to deliver directories during the postal strike. But the service didn't do their job properly. Many directories have been misplaced and subscribers' complaints are mounting by the day. So, its back to the good old government postal service, to literally deliver the goods. Who said the private sector is more efficient than the state sector? Watched overAfter an unexpected bull-run Colombo's market is down in the dumps again. But the watchdogs who watch over the deals in the market have reported very heavy foreign buying of plantation stock and of one company in particular. Initial inquiries have revealed nothing untoward but eternal vigilance will be maintained, the watchdog barks......
Ageing population and dismal predictionsWhy are economists so dismal? Economists are now repeatedly telling us that the demographic changes which are occurring would pose serious problems. For several decades in the past economists pointed out that many of Sri Lanka's economic and social problems arose due to the rapid population increases in the 1950s and 1960s. Now they tell us that the reduced population growth is a problem as we have to face the problems associated with an ageing population. Are there no benefits from the declining population growth which we looked forward to for so many decades? Sri Lanka's population is currently growing at about 1.3 per cent per year. This is about half the rate of annual growth in population of the 1950s. Population projections indicated that the country would stabilise its population at around one and a half times the present level around the year 2040. The most recent UNDP estimates state that the population would stablise at 21 million in 2005. These seem positive developments as the country already very densely populated, has a serious problem of unemployment and has had to incur considerable expenditures on social welfare measures. The social tensions we have witnessed since the 1970s can also be attributed to a large extent to the high population growth. Therefore the reduction in population growth and its stabilisation must be viewed as positive developments. We need no longer increase our investments in building schools and hospitals to cope with huge increases in numbers. The physical infrastructure for education and health would require very little expansion. In due course the low population growth implies a lower rate of increase in those entering the labour force. Therefore the pressure on the economy to provide larger number of jobs would be abated to some extent.Further, our population to land resources is extremely high, in fact, one of the highest in the world If the population continues to grow at the rates we have witnessed in past years, it would create considerable environmental problems and inadequate land for agricultural development. Therefore the fact that population will not grow beyond one and a half times the present size or less is a welcome relief The reduced expenditure on expansion of educational and health infrastructure as well as housing would give an opportunity for expenditures in these areas to be channelled towards qualitative improvements. In fact the population growth of the past led to increased expansion of the same or lesser quality services. The new demographic developments could provide us an opportunity of concentrating on improvements in quality. All these factors imply that we would be better off owing to the demographic developments. It is true that the reduced population growth creates some new problems. One of the most noted problems is the ageing of Sri Lanka's population structure. The reduced population growth coupled with increased life expectancy implies that we would have a larger population of persons beyond the economically active age group. This in turn implies the need to provide for institutional means of caring for the aged. Also health facilities would have to cope with increases in the illnesses of ageing rather than the problems of child health. The problems of caring for the aged has become more difficult owing to social developments. The extended family is fast becoming a thing of the past. Caring for aged dependants is far more difficult in urban areas than in the villages. Children are often either unable to be where the parents are or not in a position to assist their parents. All these cast a heavy burden on the state to provide such facilities. The ageing of the population also implies that pension costs to the community would rise and the working population would have to bear a higher burden in generating incomes for the aged. However some of the analysis is based on assuming that those over 60 are economically not active. In fact it is a common observation that people do continue to be actively employed for much beyond that, perhaps till 70 years and in many instances beyond that. Therefore the problem of ageing may not be as acute as the statisticians and economists make it out to be.We must look at the demographic developments positively. Certainly they pose new issues which have to be addressed. Being conscious of these problems is indeed commendable. Forward planning to meet with the problems of ageing must be put in place straightaway. Yet we must emphasise that the demographic changes that are occurring are to the advantage of Sri Lanka's economy and the society.
More Business * Privatization proceeds for revenue or financing * Problems of people getting too old * Heart to heart with Arittha
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