Sri Lanka's fundamentals are improving, says Mark Mobius

Top stock picker, Mark Mobius says he would like to get into smaller markets like Sri Lanka where fundamentals are improving, a recent Asiaweek magazine reports.

The President of Templeton Emerging Markets, Mark Mob-ius is a legend in Asia for his early championing of region's equities.

At the height of the last Asian bull run in 1993, Templeton had several billions dollars invested in Asia.

With the recovery of the Asian markets, he 'plans to be picky' on the stocks, he chooses.

He does not think Asian markets are overvalued. "Individual stocks might be expensive but there is still a lot of value out there".

Stock markets have always recovered six or eight months before the real economies. "We are definitely in the first phase of the next bull run in Asia", he said.

He sees real value in countries like Korea and Thailand whose economies are turning around after the crisis.

Korea and Thailand have undergone painful structural changes and extensive corporate restructuring is underway.

They have opened up their markets to foreign competition. Some stocks are still fairly cheap and there is still time to get into these markets and pick the good stocks, he tells Asiaweek.

"We also like smaller markets like Sri Lanka where fundamentals are improving," he said.

According to Asiaweek, Mobius talks loudly about the need for public companies to give proper consideration to minority shareholders - corporate governance.

And says, he won't hesitate to sell his share in companies that don't agree.

Nahil picks up 2.2 million ceramics stocks

East West Properties purchased 2.2 mn shares of Lanka ceramics Ltd (LCL) at Rs. 23 per share last Wednesday causing turnover at the Colombo Stock Exchange to top the Rs. 100 mn mark.

"I was shopping around for a strategic block of shares and purchased an 8 per cent stake in Lanka Ceramics, which came in to the market," Chairman East West Properties, Nahil Wijesuriya told The Sunday Times Business.

Earlier this year, Noritake Company Ltd., of Japan sold out their 16.3 per cent stake in LCL amidst rumours of a controversial management services agreement with Uniwalker Management Services Ltd (UNMS). The agreement entitled UNMS to 1 per cent of LCL's turnover and 5 per cent of net profit. LCL later abandoned the management services agreement.

A Lanka Ceramics director too resigned in the process.

The controversial management agreement may have been withdrawn due to shareholder pressure, sources said.

There have been several behind the scene discussions with the some shareholders including the two DFI to make a general offer to the rest shareholders in order to strengthen its stake in the company, sources said.

The DFI were also pressurising the company officials to try and enter into an agreement with an Indian ceramic company.

The company was also subjected to a hostile takeover bid by the Ceylon Theatres Group last year.

At present LCL major shareholders include Uni Walker Group, the Comeni Group, and Lehman Brothers Securities Ltd.

The principal activities of LCL are manufacture of tableware, sanitaryware, hotel and ornamentalware and low tension insulators for export and local distribution.

Revised tariffs reduce call-card prices

Sri Lanka Telecom's decision to charge payphone companies at the low user rate (Rs.1.10) has brought down the price of the Lanka Payphone card.

Lanka Payphones Ltd. in an advertisement in the daily newspapers said that the prices of payphone cards were reduced by the amount of the GST, passing on the benefit of SLT's tariff concession on to the customers.

The call charges of the payphone companies will not see any changes though.

The company increased the price of payphone card by 12.5% last April with the introduction of the GST and SLT's upward tariff revision instead of increasing the call charges.

The revised prices of the cards are Rs. 100 for a Rs. 112.50, Rs. 200 for a Rs. 225, Rs. 300 for a Rs. 337.5, Rs. 500 for a 562.50 and Rs. 600 for a Rs 675 card

With the acquisition of Metro card Lanka Payphones at present has over 2500 payphone booths island wide.

The company also continues to issues two different cards for Metro and Lanka Payphone cards.

The other payphone provider, Tritel has not revised its call and card prices, since they did not revise their charges last year.

Tritel officials welcomed the tariff revision and said that that they planned to expand further especially into rural areas in the near future.

An error says Lanka Walltile

Lanka Walltile Ltd., has wrongly classified the profits from the sale of Horana Plantations under trading profits, the company's provisional accounts have revealed.

The profit and loss account for the year ending March 31 1999, shows a trading profit of Rs. 247,168 mn which includes Rs. 33.6 mn earned as profits from the sale of Horana Plantations.

Instead, the figure of Rs. 33.6 mn should have been added to other income.

Lanka Walltile Director, Mahinda Perera said the oversight was a misunderstanding.

The CSE has requested further clarification of the company's figures for last year. They will be amended and sent to the CSE shortly, he said.

Rubber production - has it lost its bounce ?

RSS1 Auction Prices

                                       Jan 99        Feb 99        Mar 99        Apr 99

- New York - US$/kg        0.86            0.85            0.80             0.77
- Singapore - SG$ / kg       0.68            0.67            0.61             0.58
- Malaysia - US$ / kg        0.71            0.68            0.63              0.59

Futures Contract Prices for RSS1
(Singapore Commodity Exchange)

June '99    July '99    Aug. '99    Sept. '99     Oct. '99    Nov. '99    Dec. '99     Jan. 2000
102.50    104.25       106.00        109.0        113.50        113.50    113.50        118.25
* - Singapore Cents per kg.

By Ruwanthi Fernando NDBS Stock Brokers

Rubber production is erratic year on year, but over the long term it has showed a decline with production down 30% from its peak in the early seventies. This decline seems to have been arrested in early 1980's but still lags far behind the increases in output achieved by other global producers.

Sri Lanka's rubber production declined by approx. 28% between '80 -'98 due to the reduction in cultivated areas, despite yield increases of 4.5kg/ha at RPC levels. It is likely that increases in production will come from gradual yield increases, at least in the RPC's. As rubber trees take approximately five years to reach maturity, and longer to reach peak production, it will take some time for replanting and new planting to impact on production. Increases in rubber production therefore need considerable long-term investment. Output from government estates and private holdings fell at an average of 2% p.a. between '80-'92. The output in the RPC's have increased by an average of 8.3% p.a. from '92 - '98, whereas a decline of 2.4% p.a. has been recorded in the private holdings for the same period.

Production in 1998 shows a decline of 9% YOY, largely because tapping has become unviable given unattractive prices (which caused COP's to exceed the sales prices), a decline in yields per hectare and a loss of tapping days due to heavy rain. In 1996 the reverse occurred, with production increasing to 112,00 MT due to the drought that enabled large scale tapping tapping.

Improving yields............... a slow and gradual process

The rubber industry suffered a steady decline in overall yields in 1998 (down by 6% YOY) due to poor agricultural practices (especially by the smallholders), sub-optimal tapping, low density of planting and the abandoning of fertiliser application. However, in recent years, under private management the trend has been reversed by innovative extraction methods, planting highbrid rubber with shorter life cycles with the intentions of raising yields, and supplying of rubber wood and more favourable worker incentive schemes.

The composition of rubber production in Sri Lanka has changed over the years, and the country is now stronger in certain areas as latex crepe. The decline in RSS grade prices (as to-date the dominant component) has led the producers of sheet rubber to shift to liquid latex and centrifuged latest crepe production. Share of sheet rubber decreased 21% YOY (down by 14% in '97) whilst production of crepe rubber increased to 47% of total production (as against 39% in '97).

Latex and high-grade crepe rubber is used for many products ranging from surgical gloves and hot water bottles. High growth in latex production was mainly driven by domestic demand, which absorbed almost 95% of output in 1998. Sole crepe, which commands a premium price, accounts for less than 4% of production.

Domestic consumption and value addition

Domestic consumption of rubber has risen considerably over the last two decades. Most of this consumption is by exporters, as the country has developed a number of rubber based industries whose output has been increasing rapidly due to a concerted effort by the government and the industry to increase the value added component of rubber exports from Sri Lanka.

Sri Lanka manufactures a wide range of rubber products ranging from condoms to mats and is now a major producer of a number of rubber products including surgical rubber gloves, rubber tyre products and moulded rubber articles. Domestic consumption in 1998 was 272% higher than in 1980 and we expect domestic manufacturers to continue to increase their usage of rubber. It is possible that Sri Lanka will be looking to import some types of rubber in the future. Synthetic rubber is already being imported for blending with natural rubber in order to produce rubber with particular qualities. The last two budgets included significant tax concessions for rubber based manufacturing and this will have a significant effect on the profitability of those doing value addition on rubber, and will be an added incentive to further expanding rubber based manufacturing.

Global Supply

The major sources of rubber is South East Asia, namely, Thailand, Malaysia and Indonesia, which between them account for approximately 3/4 of the world's production.

Malaysian production is in declined over the '80s as rising incomes made it less viable as a rubber producer and the country has been orienting itself more towards crops such as Oil Palms. Indonesian and Thai production continues to rise and these two countries overtook Malaysia (formerly the largest producer) in the early 1990s.

The future direction of SE Asian production has become less clear as a result of the economic crisis. They will become more competitive in the short term and may be so in the long term if slower economic growth suppresses wage increases. There may however be problems, as a high proportion of plantation owners have faced cash flow problems as a result of currency weakness and high levels of foreign currency debt. A shortage of cash is likely to have a negative effect on the operations of these companies but this should be short-lived. Rubber plantations can suffer short periods of neglect without serious damage, and therefore once the worst of the crisis is past, the effect of current problems on production will be minimal.

Thai production has increased nearly nine-fold over the last three decades and Indonesian production nearly doubled, while Malaysian production rose a mere 18%. We expect these countries to move increasingly towards value addition, both through the development of rubber based industries and through the production of rubber in forms that command high prices, such as technically specified rubber.

Changes to the supply available are likely to be slow as rubber trees take approximately seven years to mature and more to reach peak yield. There is potential for more low labour cost countries to enter the market, especially if Malaysia reduces production as labour costs rise.

Demand

Demand for rubber is strongly linked to global economic growth. The largest single use of rubber is for tyres, and this accounts for 60% of consumption. Rubber is therefore strongly linked to sales of motor vehicles.

Historically, the demand for natural rubber has been strongly correlated with the supply of synthetic rubber, and this was the most significant explanatory factor of movements in natural rubber consumption and prices, but this may be slightly overstated due to a very strong supply side effect during the break-up of the Soviet Union.

In the long term, demand for rubber will move with both the strength of the global economy and technological changes. Sales of cars, and hence tyres, is very sensitive to economic conditions, as are many (but far from all!) other uses for rubber.

International prices.....................

International prices of natural rubber have been declining because of the currency devaluation in major rubber-producing countries such as Indonesia, Thailand, and Malaysia (which together account for 72% of world production), and the release of a large quantity of buffer stocks held by the U.S.A. Also, the release of natural rubber stocks by Thailand, and the drop in prices of synthetic rubber owing to the drop in petroleum prices, further aggravated the already gloomy situation.

International prices peaked in '95, and are now on a record downward trend, the slide more profound with the Asian currency devaluation in 1997. 1998 seems to have absorbed the worst of the shock from the Asian currency crisis and prices seems to have stabilised during latter part of the year (even though a slow decline is still being experienced, and prices are moving back to '90-'94 levels).

The fate of International Rubber Pact hangs in the balance........

The International Natural Rubber Organisation (INRO), set up in 1980 to stabilise world rubber prices, includes 6 rubber producing (including Sri Lanka) and 16 consuming countries. In a view to resolving problems confronting the global rubber industry and the need to ensure benefits for both producers and consumers, the International Natural Rubber Agreement (INRA) was established in 1979, to stabilise rubber prices within a level acceptable to producers and fair to consumers. INRO has a buffer stock mechanism to buy and sell rubber in the market. But the level at which it is authorised to intervene to buy rubber has been too low to boost prices during the year long Financial crisis.Several attempts to were made by INRO to adjust the daily market indicator price range to reflect Asian economic conditions, but no consensus has yet been reached. Both Malaysia and Thailand (accounting for 50% of global output) will leave the INRO as it has failed to shore up rubber prices, now deemed at historic lows. Today, prices have fallen to US$ 0.70/kg from US$ 1.05/kg a year ago.

Local Prices.... Still a downward trend

Colombo has remained a volatile market for rubber, and stages wildly variable prices at times. The last time the bubble burst in 1995, rubber was sold at US$. 1.54/kg (please refer graph of world prices of rubber). It is unlikely that these prices could be reached in the near future.

With the crash in rubber prices in '95 when the total average of all rubber sold was Rs.85.00/kg, the average dropped to Rs.67.92 in 1998. Latex crepe grades suffered the most, with a startling drop of 40%, where as RSS grades maintained a 10% increase in prices in rupee terms.The cess levied on raw rubber exports was abolished in 1998, and the depreciation of the rupee (12% in '98 and 7.4% in '97) has helped smallholders to withstand the sharply declining in prices to some extent.

Demand

Sri Lanka's rubber exports in raw and manufactured form totalled US$ 224mn in '98, equivalent to 4.6% of total export earnings. Finished rubber products made up 80% of earnings from rubber, the balance exported in raw form. Products such as dipped rubber products, tyre products and moulded articles account for 89% of value of manufactured rubber exports.

Sri Lankan exports of rubber and rubber based products are primarily to industrialised countries, with the EU taking over 20% and being the largest export destination. A further 8% goes to North America. Pakistan imports 9% of Sri Lankan production and is by far the largest non-industrialised buyer. There will be changes to the types of rubber which are exported as the RPC's will match their output to suit market requirements, and this is likely to mean a reduction in the output of sheet rubber and an increase in latex and technically specified rubber.

Although an increasing proportion of Sri Lankan rubber exports are in value added form, the RPC's benefit little from this. Not only do the RPC's rarely do any value addition, but it is not uncommon for value addition to be done by group companies of the management companies, thus raising the same questions over transfer prices as with tea.

Futures prices

Futures prices show a gradual upward trend over the remainder of the year, and we expect this to continue over the long term as prices seem to have recovered from the Asian currency crisis. This will be a long and slow recovery rather than a fast bounce back. The INRO is likely to defend rubber prices in the short term, but in the long run the funds available can only stabilise the market, not sustain it, as global supply trend forecasts show increased world supply which might put a damper on prices in '99 and 2000.

Futures Prices for the Singapore RSS1 (Ribbed Smoked Sheet, grade 1) contract show a slow recovery into next year, which is a positive sign as sheet rubber accounts for over one third of Sri Lanka's exports of rubber (excluding exports in value added forms). We expect this gradual recovery to continue as South East Asian economies stabilise.

Role of private sector in preventing and resolving financial crises

Finding ways to better involve the private sector in forestalling financial crises and, when preventive measures fail, helping to limit their damage and duration are among the more complex challenges in strengthening the international financial system.

At a press briefing on April 15, Jack Boorman, Director of the IMF's Policy Development and Review Department, highlighted the main findings of an IMF staff paper, Involving the Private Sector in Forestalling and Resolving Financial Crises..

Along with the staff paper, the summing up of the IMF Executive Board discussion on this topic was also released. Boorman stressed that the staff paper and the summing up should be viewed as progress reports rather than final products. These documents provide an interim assessment of the framework for involving the private sector in crisis prevention and management and identify practical approaches that are already proving to be workable, as well as concrete actions that could be taken by member countries, creditors, the IMF, and the international community as a whole.

It is clear, said Boorman, that there is no magic solution and that the final product is not going to be a set of rules, but rather a set of principles that will guide the activities of all affected parties in working with individual cases.

It is also evident that there will never be a single or clear-cut way to resolve crises. This, said Boorman, implies two things: First, a very high premium needs to be put on preventive measures that can be put in place to keep stress on a country's external situation from unwinding into a crisis. Second, in a crisis, every thing possible needs to be done to find a cooperative and voluntary resolution that takes account of the interests of both debtors and creditors.

Involving the private sector

Much of the analysis in the staff paper was motivated by an attempt to address the concern of many players in the official sector that providing large official financing to a country in crisis opened the door for the private sector to exit the country without loss.

The possibility of a "bailout" of the private sector from poor lending or bad investment decisions can be damaging for the operation of markets, in the sense that it could lead creditors to assume that whatever happened, they were likely to be repaid.

Such an assumption, Boorman noted, is indeed harmful to markets if it weakens the incentives of private players to assess risk more diligently, or if it leads to overlending — which has occurred in a number of the crisis countries — or lending on inappropriate terms.

Boorman emphasized that in no case in the recent crises has there been a wholesale bailout of the private sector. Citing estimates released by the Institute of lnternational Finance, Boorman said private investors, banks, bondholders, and others have lost some $350 billion in the three Asian crisis countries and in Russia.

Yet, there is, indeed, a bailout problem, he insisted, and in a number of recent crises, it has been concentrated at the short end of the market, including the interbank market where creditors can exit — and have done so — in crisis situations.

Accordingly, IMF staff have concentrated on issues related to short-term debt but in the context of assessing the vulnerabilities in a country's overall debt structures.

Prevention

If there is a single message to come from the IMF staff's work and the Executive Board's discussion, Boorman suggested, it is that borrowers and creditors alike must do more to prevent crises. He cited several conclusions reached by the Board:

• National authorities should intensify their efforts to maintain an appropriate debt structure — in particular, a structure that is not too heavily weighted toward short-term credit. The authorities also need to improve early warning systems to detect signs of market and economic instability.

• Measures should be considered to eliminate the market bias that may exist in favour of short-term interbank credit lines.

• IMF staff should continue to assist countries in establishing systems for frequent monitoring of private sector indebtedness, and the IMF should intensify its surveillance of countries' debt structures, the use of derivatives in those debt structures, off-the-books liabilities, and other items that can increase a country's vulnerability.

• Countries should maintain effective communication with private capital markets.

• Finally, Boorman said, the IMF is exploring better ways of dealing with the private markets. There is also a need, he said, to improve the environment for private risk assessment and decision making to ensure efficient and realistic pricing of debt.

Resolution

Even a strengthened system will be subject to occasional crises. In extreme situations, if preventive mechanisms put in place fail to deliver enough support or if efforts to reach agreement on a voluntary debt restructuring fail and pressures in the external accounts do not abate, countries may need to consider additional measures.

Creditors and the international financial community may also need to take action. The IMF Executive Board's discussion, Boorman said, included several conclusions in the area of crisis resolution:

• Governments should modify certain standard provisions in international bond contracts, for example, by introducing provisions for the modification of terms by qualified majorities of bondholders and steps intended to reduce the likelihood of litigation by dissident bondholders in the event of a default.

• Governments should consider establishing contingent credit lines with commercial banks.

• Governments should explore with their creditors the possibility of creating debt instruments that can be designed to shift risk in a crisis. The private sector has already done a lot in this area, Boorman said, and governments could learn much from this experience.

• IMF staff should continue to study instruments that might be introduced to reduce the threat of destabilizing capital outflows from a member country.

• The IMF should continue to examine its own policies on lending to countries that are in arrears on their debt to private creditors, so that the IMF, in appropriate circumstances, could assist a country that has been unable to avoid default.

Collaborative approach

The IMF staff paper presents a number of proposals, Boorman said, but he emphasized that while the report provided input to the Executive Board's discussion, it does not necessarily represent the position of the IMF.

Rather, these proposals are to be regarded as part of a work in progress calling for the participation of all interested parties. In response to a question about objections from some elements of the private sector to ideas put forward in the staff report — such as amending bond contracts — Boorman said everyone is basically searching for the same thing: ways to reduce the prospect of crises and to foster a cooperative resolution of debt problems when crises do occur.

One way to do that would be to introduce mechanisms, such as majority voting, into bond contracts that provide for a country in financial distress to approach its creditors as a group for resolution and debt restructuring in some mutually agreeable way.

Without such mechanism in place, a country that is frozen out of the bond markets and cannot make good on its debt may be sued by its creditors. Even the threat of litigation can inhibit a country's prospects for adjustment and implementation of policy reform.

What we are looking for, Boorman said, is a collaborative way of getting a debtor and its creditors together under a system that would allow the bondholders as a group to assess the situation of the country in distress and come to conclusions about what is necessary to see the country through the situation.

This may involve a stretching out of maturities, a lengthening of payment periods, and other measures. The IMF staff's view is that if this process can be done in a nondisruptive way, it is better both for the bondholders and for the country.

The bondholders will be better off if the country is not forced through an extended period of distress. The country is obviously better off if it can get on with adjustment and reform rather than facing protracted litigation from a variety of bondholders.

Responding to a question about the apparent failure of the private sector to respond to similar initiatives introduced in the wake of the Mexican financial crisis in 1994-95, Boorman acknowledged that progress has been slow. However, he said, in the last two years, the world has gone through a quite different and more severe shock than was the case in the Mexican experience.

For one thing, the markets recovered relatively quickly from the events of 1994-95, and the official community was perhaps not forceful enough about pushing necessary reforms.

The Asian crisis, in contrast, its spread to many parts of the rest of the world, and what has happened in Russia and Brazil — all these have convinced people who may earlier have been undecided that it would be preferable to have mechanisms in place to help smooth the situation when a crisis strikes.

There has been a sea change in attitude about getting on with these efforts, Boorman observed. The international community is far more seized with these issues than it was in the aftermath of the Mexican crisis, and it will have staying power on them.

There is also a considerable amount of common ground between the official community and the private sector. This is not to say it is going to be easy, because there are different views on many issues.

However, he concluded, it is possible to focus on these perceptions of difference and talk them through. Progress is possible, because we are searching for the same thing — ways to deal collaboratively with crisis and stress situations.

(IMF Survey)

Financial powers indifferent to crisis

In an article contributed to the London Financial Times, Martin Wolf discusses the financial crisis in which developing countries found themselves recently.

He observes that the world's financial powers will neither prevent crisis nor be able to cure them painlessly.

They lack, he says, the interest, the will and given the politics, the means to do so. He says that ultimately each country must realise it needs to protect itself "though with some modest help from the world outside".

Referring to the IMF's role to reduce the damage caused by financial crises he asks whether greater IMF resources would help, observing at the same time that the IMF today is not the same size relative to the output of its members as it was in 1945.

Anyway, he says, more money might not help that much; it could encourage the private sector to generate still bigger current account deficits and net foreign currency indebtedness.

What then, he asks, can the fragile emerging market countries do to reduce their vulnerability to crisis that will prove devastating once they hit?

He outlines what he calls "three pillars of wisdom". The first pillar, he says, is better understanding. Governments need to appreciate the risks they run when opening up capital markets. The bigger the net transfer of resources to emerging market economies via the current account, the bigger the risks. Wolf says these economies must resist pressure to open the capital account to these inflows "by the IMF, the US or anyone else - before they are in a position to manage the risks".

Avoidance of harm, he says, is the second pillar.

This is particularly important, according to Wolf, in three areas - the exchange rate; encouragement of foreign currency borrowing; and regulation of the financial system.

On exchange rates he says, the important requirement is the need for full consistency between the exchange rate regime and domestic fiscal, monetary and financial policies.

Attempts to combine pegged exchange rates with monetary autonomy have proved devastatingly expensive. He approves the increasing shift on the part of developing countries to flexible exchange rates.

He advocates the rejection by governments of incentives to short-term borrowing which, he says, has proved so costly to South Korea and Thailand, the latter with its tax incentives to offshore foreign currency borrowing.

He refers to the lethal consequences of opening up to global capital markets a financial system that is not only poorly regulated, but is underpinned by open-ended government guarantees.

Wolf refers to the costs of combining private decisions with government guarantees which may be manageable in the domestic context but is disastrous when foreigners are involved.

The third pillar is actively reducing risks and limiting costs. Wolf mentions four priorities, standards, bankruptcy, sequencing of reform and taxing capital inflows.

On standards, the shift from a closed domestic relationship-based financial system to one with a strong foreign pressure is, he says a huge one and a "gamut of new standards have to be introduced and implemented".

These need to cover accounts, risk assessment, transparency, corporate governance and financial structures. On bankruptcy, the writer says there has to be an efficient way of dealing with private sector insolvency, particularly mass bankruptcy. In the future corporate and banking insolvency will assume greater importance.

He makes the point that standards for financial soundness, for banking regulation, for clarification of implicit guarantees, and for accounting are needed before an economy can be opened up to foreign capital.

Lastly, he says short-term capital inflows impose costs that the parties to the transaction often fail to recognise. Among the costs is the need to accumulate large foreign exchange reserves.

Wolf asks if the emerging market economies act in these ways to limit the risks they run, what can the world do to help? It can give advice, and refrain from pressuring countries to open up prematurely. It can set up institutional arrangements that make it easier to deal with crises as and when they arise.

Wolf's conclusions are three. The new world of capital market openness is extremely vulnerable to crisis; the world community as a whole can do little to limit the pain of the afflicted; and it is up to emerging market economies to understand the risks they run and decide how best to deal with them.

The world can do something to help reduce the chances of crises. But it is the people of the emerging market economies who experience the pain and their governments that bear the chief responsibility for minimising it.

Deficits will rise and exports pick up in 99' for Lanka

Sri Lanka looks set to overshoot its 1999 fiscal deficit target and a slowing world economy will squeeze its growth prospects, Central Bank Governor A.S. Jayawardena told Reuters in an interview on Wednesday.

But export earnings should pick up and a delayed $200 million international bond issue could go ahead as early as September or October if market conditions were right.

"A lot of evils emanate from the budget deficit...We are concerned," Jayawardena told Reuters in an interview.

"We would like to get back to 6.5 percent (of gross domestic product).

That's the government target but I don't think they will keep it."

Sri Lanka's fiscal deficit rose sharply to 9.2 percent of GDP last year, from 7.9 percent in 1997, owing to lower tax collection and the high cost of the war against Tamil Tiger separatists in the north of the island.

Jayawardena, in London for a symposium on liberalising financial services, said there were encouraging signs that Sri Lanka's defence establishment was trimming costs, while collection of a new goods and services tax (GST) was improving.

But he said the government's 1999 target of 6.5 percent, though laudable, could prove too challenging.

He said GDP growth was likely to be around 4.0 percent this year, compared with the Central Bank's previous forecast of 4.0 to 5.0 percent and a 1998 figure of 4.7 percent, because of a slowdown in the world economy.

"We should be nearer 4.0 percent this year," he said. "On the other hand, there's the prospect of recovery in the Far East which might surprise everyone...Asian markets are really important for us so we may do better than this."

He was concerned about Sri Lanka's trade deficit, which plunged in the first quarter to a provisional $262 million from $458 million in the same 1998 period.

Official figures showed imports shrank around 19 percent year-on-year but exports dropped nearly 10 percent.

Jayawardena put the fall down to a tumble in world prices for Sri Lankan products such as garments, tea, coconut oil and rubber but said some recovery was likely in the second quarter.

Exports this year were likely to improve on the 1998 performance, he added, although it was too soon to forecast full-year figures.

The Central Bank chief said Sri Lanka was talking informally with rating agencies Moody's Investors Service and Standard & Poor's on obtaining a sovereign credit rating, with a view to launching a $200 million international bond, postponed last year amid emerging market turmoil. Once we have got the rating we'll keep our options open to go at the best time to the market," he said. "That could be somewhere in September-October but that could change."

He said Sri Lanka, which abolished current account controls five years ago, was likely to move ahead in due course with easing capital controls.

"Small capital flows we might be willing to consider, but not immediately — a little down the road." (Reuters)

Cey. Life keeps top spot

Ceylinco Insurance's Life Division has reported the highest first quarter premium income among private sector insurers in Sri Lanka retaining its position as the leading life insurer in the private sector, say a company release.

According to the latest figures released by the company, premium income during this period exceeded Rs 283 million, and Ceylinco's share of the private sector life insurance market increased to 41 per cent. The premium growth is more than double of what has been achieved by the life insurance industry.

The Life Division sold over 12,730 individual life policies during the first quarter of 1999. This figure represents a growth of 39 per cent over the corresponding period in 1998 which is the highest in the industry.

"Our performance in the first quarter has been most encouraging," says R. Renganathan, Ceylinco Insurance's Director/General Manager (Life). "It is heartening to note that we continue to lead the private sector insurance industry, which has become very competitive."

Among the popular life policies sold by Ceylinco are Supreme Life, Advance Payment Policy, the Sipsetha Education Policy, Randaru Child Protection Policy, Digasiri Critical Illness Policy and Family Hospital Cash, a hospitalization policy. Many of the policies are combined with the Yugadivi benefit providing cover for the spouse of the policy-holder.

HSBC Trade Services awarded ISO 9002

HSBC Trade Services in Colombo has been awarded the ISO 9002 certificate which endorses its commitment to high quality service standards, says a company release.

HSBC Trade Services have been in operation in Sri Lanka for over 100 years providing a quality service to importers and exporters. To bear testimony to the commitment to high service standards by HSBC Trade Services staff across the group, it was voted the "Best Trade Documentation Bank" by readers of Project & Trade Finance for three consecutive years (1996, 1997 and 1998). In 1998, Euro Money voted HSBC Trade Services the Best Trade Finance Bank in the Asian region.

HSBC Trade Services' Global Service network is an asset to any exporter or importer engaged in international trade around the world. Their services include Import documentary credits, post import finance, shipping guarantees, import bills for collection, pre shipment finance, export documentary credit advising and confirming, bills negotiation, post-shipment finance bill discount/purchase facility, export bills for collection, in-house marine insurance etc.

With Hexagon, the Bank's Global Electronic financial service, customers have access to high quality information on trade related matters and a full range of traditional trade services without having to leave the comfort of their office.

Rs. 1.6 million Barter at Office 2000

Exhibitors at the recently concluded Office 2000, Sri Lanka's premier office supplies and services exhibition, transacted Rs 1.6 million in barter via Bartercard Lanka, the country's only cashless trade exchange, says a news release.

The transactions involved the exhibition secretariat, CDC Conventions and six other members of Bartercard Lanka, who exhibited goods and services at the event.

Co-sponsors of the event Gestetner of Ceylon Ltd., and Design Interiors, bought all their stalls on barter while CDC Conventions also provided to other Bartercard members additional stalls on barter.

"Bartercard can be used in many ways to save cash for businesses," said the company's Managing Director Johnny De Saram. "By using Bartercard for cash outflows such as this, a business can increase its liquidity," he said.

"Bartercard's diverse membership now exceeds 600 businesses ranging from small proprietorships to medium and large corporates.

The company averages a trading volume of Rs. 6 & 7 million a month.

Popular items traded on Bartercard include, office automation products, printing, advertising, catering, motor engineering, hotel accommodation, interior decor services, security services, wall tiles, construction materials, air freight, cosmetics, jewellery and perfumes, adds the release.

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