The Island business

Interest skims some of the cream
Hayleys operational profit crosses billion-rupee barrier

Hayleys Ltd., the diversified blue chip quoted on the Colombo Stock Exchange, has for the first time crossed the billion rupee mark in operating profitability for the financial year ended March 31, 1998, shareholders have been told.

"Almost all areas of activity contributed to the bottom line,'' Hayleys Chairman Sunil Mendis said. ``Rubber, activated carbon, fibre, transportation, textile and plantations, with profits from our associates written into our accounts on an equity basis, all contributed. Also, we exited from three small loss-making textile companies and that too helped overall profitability.''

Interest, however, skimmed some of the cream. The company which has posted an operating profit of Rs. 1.16 billion, up from Rs. 0.9 billion the previous year, had an interest charge of Rs. 288.6 million during the year under review, reducing its profit after interest Rs. 871.9 million.

However, other income (Rs. 30 million) and share of associate companies' profits before tax (Rs. 58.6 million) and amortisation of a surplus on acquisition (Rs. 7.2 million) had boosted the group's pre-tax profit close to the billion-rupee mark with earnings of Rs. 960.5 million.

Among the big league conglomerates quoted on the CSE, the John Keells Holdings (JKH) Group is expected to post profits of over a billion rupees for the last financial year. As JKH is cash rich and does not have to carry heavy interest cost, it's bottom line is expected to be better than Hayleys'.

"JKH did well with a GDR (global depositary receipts) issue at a time the CSE had peaked. The result is that their interest cost is low or they may even have an interest income,'' one analyst said.

The National Development Bank (NDB) which is a December company has already posted a pre-tax profit of slightly over a billion rupees. However the after-tax profit of Rs. 738.2 million enabled it to declare its highest ever dividend of 65%.

Hayleys' Group profit after tax for the last financial year was a tidy Rs. 804.1 million, up 52% from the previous year's Rs. 530 million. After discounting a minority interest of Rs. 385.3 million, the profit attributable to the shareholders of Hayleys was Rs. 418.9 million, up 48% from Rs. 283.2 million a year earlier.

The directors have recommended a final divided of 15% on top of a 15% interim already paid giving members a total 30% return. 6.6% of this dividend will be tax-free as it is being paid from tax-exempt dividends received by the company. The 30% dividend remained the same as last year but on a higher issued capital.

Earlier this year Hayleys increased its issued share capital to Rs. 264 million from Rs. 220 million the previous year by the creation of new shares issued to an Employees Share Trust (EST) to which the company made an interest-free loan to pay for the shares.

The directors have announced that the annual general meeting will be held at the end of June. Whether the company will maintain its bonus share track record following the creation of the EST, and if so what the bonus will be, will be keenly watched by investors and punters on the Colombo bourse.

Sampath chairman bids farewell to super banking profits

The days of big banking profits are gone at least for the time being, the chairman of the Sampath Bank has told his shareholders.

Reviewing 1997, Mr. Dunstan de Alwis, P.C., has reported that the interest rate reductions ensured by the Central Bank from January 1997, "though not without its benign influence on the economy,'' had placed bankers under pressure to maintain the year-on-year profit growth they had become used to.

"At least for now, it would appear that the days of broad margins are long gone,'' he has said. Bankers have to now look for ways other than traditional interest income to boost their profits and this is "bound to tax their ingenuity in the coming years as competition gets more fierce.''

de Alwis said that Sri Lanka was fortunate that some of the factors that led to the South East Asian economic crisis did not prevail here. Our foreign debt is not too big, the rupee was not pegged to any single currency and a regulatory framework was in place. Nevertheless, there must be effective supervision and regulation of the licenced specialised banks.

The chairman reported that 1997 was a good year for Sampath with its assets up 23.6% from the previous year. Profits before taxation and loan loss provisions was Rs. 514.1 million, up 11.7% from a year earlier.

"These achievements were against a backdrop of shrinking margins, increasing overhead costs and fierce competition,'' de Alwis said.

Sampath has maintained its prudent loan loss provisioning with Rs. 24 million provided last year against specific loans and Rs. 26 million as a general provision. This compared to a total of Rs. 54 million provided on this account in 1997.

"The year 1997 has not seen our bad and doubtful debts increase; on the contrary, it has shown a gratifying decrease which makes me more than comfortable,'' the chairman said.

He was particularly pleased with the deposit growth of 26.4% as the bank had not actively canvassed deposits during the year. The natural growth pattern was attributed to "superior service and value addition by which we place great store at Sampath.''

The year had seen shareholders funds grow 23% to Rs. 1.44 billion, and advances go up 34.8% in ``quality loans''. The bank had opened three new branches and moved into its new headquarters building at Sir. James Pieris Mawatha which is expected to improve productivity.

The directors have recommended a 15% first and final dividend which de Alwis saw as "reasonable'' in the context of falling interest rates. That would cost the bank Rs. 53.1 million, the same as the year before.

de Alwis said that the Sampath share hit a "flattering Rs. 90'' during the year under review but had come down to Rs. 60 at the end of the year in the wake of the South East Asian misfortunes. He considered this price "very robust'' in the context of market conditions and noted that the share was one of the most actively traded on the CSE with buy recommendations from all sharebrokers.

The directors of the Sampath Bank in 1977 were Messrs. Dunstan de Alwis, (chairman), L. Piyadasa (deputy chairman), Edgar Gunatunga, Stanley William, Dr. Sivali Ratwatte, I.W. Senanayake, M.A. Abeynaike, S.G. Wijesinha, D.J. Gunaratne, R.M.S. Fernando and M.R. Prelis.

Messrs. Gunaratne and Prelis resigned last year while Dr. Ratwatte resigned this year. Mr. Gunaratne returned to the board while Dr. Saman Kelegama was also appointed a director.

Richard Pieris to grant senior executives stock options

The Securities and Exchange Commission (SEC) has approved an employees stock option plan (ESOP) that Richard Pieris and Co. Ltd. for its employees and those of its subsidiaries, shareholders have been told.

An extraordinary general meeting of the company summoned for June 10 to consider a resolution enabling the issue of bonus shares in the proportion of one new share for seven existing shares will also consider a special resolution to set up the ESOP.

The directors have said that a number of companies operate ESOPs to give their employees, on whom the success of a company depends, a direct interest in their growth. They said they want to encourage and motivate employees which will result in the enhancement of group productivity.

Under the proposed plan senior executives of the group, including directors who are full time executives, will be given the share options. Those eligible will be selected by the board at their sole discretion on the recommendations of a specially appointed committee on the consideration of individual performance and contributions to profitability.

Under this ESOP 5% of the present issued capital of the company (slightly under a million ten-rupee shares) will be made available with the maximum entitlement of any beneficiary to be limited to just under 200,000 ordinary shares (1% of the company's present issued capital).

Those entitled to the option may buy their shares in three stages, one third of the total from the date of each anniversary of the grant, with the total to be taken within five years of such anniversary date. The share option price will be determined by the committee. It should not be less than the last traded price of the share on the Colombo bourse or the 3-month weighted average prior to the date of the option.

If there is any change in the company's capital structure, the options may be adjusted at the board's discretion after consulting and agreeing with the auditors to prevent the dilution or enlargement of the potential benefits.

Cheap competition hurts Lanka's tourist arrivals

Sri Lanka has not been able to maintain the growth in tourism arrivals early this year with April arrivals down 4.9% to 25,578 following the March decline of 5.4%, Ceylon Tourist Board figures reveal.

This means that cumulative growth in arrivals during the first four months of this year is up only 1.3% from the comparative period the previous year.

One reason for the downturn, analysts said, was increased competition from regional destinations like Thailand, Indonesia, Malaysia and the Philippines. In Thailand, for example, twin accommodation in a four star hotel with full board can be had for as little as ten dollars - about Rs. 650 a person.

So much so, richer Lankans are now picking regional bargains. Said one holidaymaker back after a recent trip to Bangkok: "It was like being in a resort hotel here. If you go down for a meal, you meet as many Lankans as you would at Kandalama.''

The difference being that you can't get a room and all meals for Rs. 650 in the better resorts here.

Sri Lanka has generated most of its tourism traffic from the lower end of the market and as an analyst at Asia Securities said, "the current heightened security situation in the country and the lower room rates at the alternative destinations seem to have taken their toll on the domestic tourism sector.''

Arrivals grew nicely in January and February. This is attributed in part to prior bookings for the peak winter season that ended in March. Asia has projected a continued slowdown in arrivals growth within a narrow band of 0 to 3% in the next quarter. But if the security situation is favourable in the next six months, an 8 - 9% growth in the second half of the year is estimated.

Alongside the slowing of arrival growth, there has also been an increase in the supply of resort hotel rooms. This is expected to depress average occupancy to about 40% and also affect rates which are not expected to rise by more than 2 -0 3% in rupee terms.

But the city five stars are likely to thrive in the context of the loss of 17% of the rooms in the Galadari bomb last October. Asia said they expected the five-stars, with their exposure to business travelers, to maintain their 70% average occupancy and increase room rates 8% in rupee terms. That would enable them to protect their operating margins in the current financial year.

Indonesia and the IMF

The first programme of IMF's $40 billion aid package to Indonesia in mid-November 1977 was never disclosed to the public. It was, however, reported that it contained the stereotyped prescriptions of reducing government expenditure, government subsidies and budget deficits, privatization and deregulation and break-up of State monopolies in wheat, garlic and soyabeans.

By Kanes
Indonesia is one of the few developing countries, if not the only one, which has refused to genuflect before the IMF. It needed IMF's assistance badly, but it was not prepared to accept it on IMF's harsh terms. It had to pay a high price for its hubris, but it was reconciled to pay it. Its economic crisis deepened with the Rupaih losing its value and the stock market collapsing; foreign credits dried up, firms bankrupted, unemployed rose and civil unrest erupted into violence in some cities. Yet it refused to take the bitter medicine prescribed by the IMF fearing that it would kill rather than cure the patient. It refused to yield to the pressure brought on it by the US and Europe to comply with the IMF programme. In the end it called the IMF's bluff for it knew that it was too important a country for the US and IMF to allow it to implode.

The first Two IMF Programmes
The first programme of IMF's $40 billion aid package to Indonesia in mid-November 1977 was never disclosed to the public. It was, however, reported that it contained the stereotyped prescriptions of reducing government expenditure, government subsidies and budget deficits, privatization and deregulation and break-up of State monopolies in wheat, garlic and soyabeans. It also made some concessions to Indonesia,; for example, it spared the "national car" project of Suharto's son Hutomo Mandala Putra (which was later disapproved by the WTO) and a project to build aeroplanes; wheat import monopoly was given sufficient time to wind up. Indonesia, however, never intended to implement the programme and backtracked on cancelling certain infrastructure projects. It closed 16 banks but the one controlled by Suharto's son Bambang Trihatmodjo was in business a few weeks later but under a different name. Suharto also introduced a budget with no cuts in food subsidies projecting a fictitious budget surplus. The first programme thus failed to arrest the fall in the Rupiah and stock prices and to restore confidence.

The second package was signed in January 1998; it contained 50 points and all were made public unlike the first. From the time it was signed, President Suharto expressed his disapproval of its conditions and backtracked on promises including the ending of the clove monopoly controlled by his son Tommy and the plywood monopoly controlled by his friend Mohammed Bob Hasan. In addition, a new water supply contract was given to Suharto's grandson. The US was unhapy and sent former Vice President Mondale to pursuade Suharto to implement the agreement with the IMF, Germany followed by sending its Finance minister Theo Waigel for the same purpose; but Suharto remained defiant. The IMF then delayed its $3 billion in loans to Indonesia.

There is little doubt that the IMF's prescription to stabilize the Indonesian economy were harsh and deflationary. The reforms would have resulted in high unemployment and bankruptcies as they attempted to rid the country of economic dead-weight to make it more efficient. Suharto stated at one stage that the reforms were contrary to Indonesia's Constitution and he was not the only one who was critical of IMF's package. The former Prime Minister of Australia Malcolm Frazer at a recent meeting in Rio stated as follows: "There is no doubt in Indonesia some of the International Monetary Fund prescriptions deepened concern and made the crisis worse. This may lead some to question the management and direction of the International Monetary Fund".

The Currency Board
Suharto's main concern was the stabilizing of the currency to prevent it plunging downard day after day, but the IMF's priorities were different. He searched for alternatives and in desperation began to study the question of establishing a Currency Board in Indonesia to peg the Rupiah to the dollar in a stable relationship. Under the Currency Board system, every Rupiah has to be backed by a dollar and consequently the currency supply fluctuates with the balance of payments surpluses and deficits: a surplus increases the currency circulation while a deficit decreases it in order to keep the externaly value of the Rupiah stable.

The IMF was totally opposed to the Currency Board; it pointed out that the Currency Board would not operate effectively in Indonesia because of its low foreign reserves, high foreign debt and weak commercial banking; further, the high increases in interest rates that would be required to defend the peg would have a crippling effect on business. High reserves were needed to back the peg but high foreign debt would drain off these reserves. Indonesia's reserves are only $19 billion compared to $30-40 billion that would be needed to back the Currency Board. In addition, about $59 billion of private foreign debt falls due this year and this will reduce the reserves drastically. Further, interest rates may have to be raised to such high levels as 200 per cent if people shift money en masse from Rupiah to dollars. In Hong Kong, for instance, inter-bank rates had to be raised to 300 per cent in October 1977 when such a movement took place. Banks need to be strong to withstand such high interest rates.

Deepening Crisis
Suharto took another step to change the composition of the Cabinet by bringing in loyalists of anti-IMF persons such as his daughter – Tut Tut Rukmana-the prime mover to establish the Currency Board — and his friend Mohamed Bob Hasan, both controlling business monopolies, in order to charter an independent economic policy and to ensure his won survival. He also fired the central bank governor whom he thought was pro-IMF. These moves on the part of the President and the IMF's threat to cut all assistance to Indonesia if the Currency Board was established, further destabilized the market and depreciated the Rupiah. Average stock prices at the end of March 1998 were 21 per cent below the level 12 months earlier while the Rupiah was 75 per cent lower in value than in April 1997. The exchange rate at the end of March 1998 was 9750 Rupiah to the dollar as compared to 2604 in August 1997.

Indonesia was clearly in a deep crisis. Business firms unable to repay their loans were closing down, banks saddled with bad debts were restricting credit. One survey revealed that 80 per cent of the country's business firms were technically bankrupt. Exports were not moving as foreign banks refused to recognize letters of credit issued by Indonesian banks. About 8.5 million Indonesians are unemployed and it is estimated to rise to 20 million by the end of this year. Per capital incomes have fallen by 75 per cent since 1997 and the economy is expected to contract by 4 per cent this year. There were riots against higher food prices and traders (mainly Chinese) in some parts of the country and university students have begun protest campaigns. The UN recently announced that 7.5 million Indonesians would face starvation in the foreseeable future. In addition, lack of employment and food in Indonesia would result in an unwelcome influx of economic refugees to Malaysia and Singapore which are already repatriating the migrant workers who had come there earlier. Collapse of Indonesia would also hit the Japanese and Singapore banks which have lent it substantial sums and thereby destabilize the entire Asian economy.

IMF's Third Programme
As the Indonesian crisis would affect the whole of Asia, the US and the IMF could not allow Indonesia to collapse. The IMF under US pressure, therefore changed its tactics and adopted a more flexible approach towards Indonesia. It negotiated a third package in mid-April 1998 more palatable than the first two, easing up on some its harsh conditions and accommodating Indonesia's concerns. The IMF conceded that the Currency Board could be considered as a future possibility; and that subsidies could continue on rice, soyabeans and fuel in order to provide relief to the poor. It also agreed to scale up the budget deficit target from 1.0 per cent of GDP in the earlier programme to 3.2 per cent. Indonesia, on the other hand, agreed to support restructuring and repayment of corporate offshore debts, to accelerate privatization of State enterprises and to continue with closing down or changing the management of insolvent banks in return for IMF's assistance of $40 billion.

Little is known about Indonesia's banking reforms. The Bank of Indonesia (the central bank) has raised the threshold of local banks' paid up capital to one trillion rupiah or $105 million with the objective of eliminating all but 10 of Indonesia's 240 banks unless they merge. The rule and incentives for mergers have not been announced. It has further injected $7.2 million in capital to keep private banks afloat. About 52 banks were put under the Indonesian Bank restructuring Agency to restructure and consolidate the unwieldy banking sector, but the banks have not been suspended from trading unlike in Thailand. The Agency has guaranteed every deposit in Indonesian banks for two years; but how the guarantee will work has not been clarified; nor has the agency receive any funding. It is reported that several foreign fund managers have dumped all Indonesian banks shares they held.

A high-level committee is negotiating the rescheduling of Indonesia's corporate debt of $74 billion of which $59 billion is due this year. Indonesia's exports in 1997 were $58 billion and imports $42 billion; its foreign reserves, as mentioned earlier, are very low — only $19 billion. In order to provide relief in this precarious situation, Singapore, Japan and the US have promised credit guarantees and export financing to stimulate exports.

The tough measures to stabilize the economy, in particular, the increase in prices, have led to violent protests, mob-riots, pillage and arsonin Jakarta and other cities causing about 500 deaths and exodus of foreigners. President Suharto's decision to cut the price hikes in fuel and electricity to pacify the disenchanted public seems to sound the death knell of the third reform package. In fact, Suharto may withdraw further reforms if mob violence escalates. The rejection of the third IMF reform package will no doubt result in loss of international confidence in Indonesia, but then it is the only way Suharto can hope to survive.

Make education subject to market forces

By Analyst
Education may not exactly be a commodity but there are good reasons why an educational service driven by market forces will do better than an education planned and implemented by bureaucrats. When Milton Friedmann first came up with the idea in 1962 politicians and policy-makers did not pay much attention. Since then it has had many converts. In Britain, New Zealand and Sweden policy makers have given parents more freedom to those schools and financed those schools according to pupil numbers. In Australia, Denmark and Holland, governments have strengthened their long standing policy of using public money to pay for private schools. In its publication "school: A matter of choice" OECD reported that most rich countries have ben invoking the power of competition to invigorate schools and empower consumers.

School Admissions
In our country the monopoly of providing education has been vested in the state. With the take-over of private denominational schools, the Ministry of Education alone can open new schools. Although the school going population increased over the years the number of schools were not increased sufficiently to cope with such increase.

The only dent in the state monopoly over education is the establishment of the so-called "International Schools" under the Companies Act. The wealthy and privileged have thus obtained the freedom to choose the schools they want for their children. Earlier they obtained access to the best schools in Colombo either by living within the so-called 2-mile radius or falsifying documents to prove that they did so. School admissions have been a stinking mess. A market oriented approach would be to scrap the rule of residence close to the school altogether. The demand for admissions to these schools exceeds the supply of vacancies and a market is automatically created when admission will fetch a price. When it is legally prohibited to accept a capitation fee it goes underground. Isn't it better to remove the illegality and permit the schools to levy a capitation fee which could go into the capital funds of the school and be used for the development of the school. Perhaps the government itself should collect the capitation fee and if it wants to reduce the inequality in education disburse such money to rural schools to upgrade their facilities. If the government wishes to provide admission for the economically disadvantaged, it could set apart say 25% of the vacancies for them and draw a lottery. This is not such a crazy idea as it appears. In Holland if you want to do higher studies in medicine, at a Dutch university you must enter a national raffle — in which good results in your final school examinations buy you multiple tickets.

The demand for entry into prestigious schools cannot be satisfied except in the long term. Each school must build up its own ethos. We need a first rate education system to cope with globalisation. Our schools must aspire to compete with the best in the world. But it is equally important to remove the segregation of children according to their ethnicity and religion. This matter has not been given any thought in the projected educational reforms. Tamil students study in Tamil schools, Buddhist children in Buddhist schools or state schools. This is primarily due to the different media of instruction. But it need not necessarily be so. There can be a Sinhala stream and a Tamil stream in the same school where there are mixed communities. As for the segregation according to religion it is due to government policy. Christian schools have always been willing to admit children of other religions. But there arose the fear of proselytisation and agitation by Buddhist to confine Christian schools only to Christian religion. Would it not be desirable to permit some percentage of children of other religions too rather than try to make Christian or Muslim schools exclusive. It would be in the interest of promoting understanding in a plural society.

Although the wealthy have the freedom to choose a private school, there is no such opportunity for the lower middle class, working class and farmers. Such schools will develop at least for the middle classes if their pupils too have access to the government examinations and the universities. If such access is provided wont the 'international schools' teach Sinhala and Tamil? It is essential that all students acquire a good knowledge of Sinhala and Sinhala literature. Education in English alone is not sufficient. Academic knowledge gets translated into social knowledge only if it is expressed in the local languages. Then only will knowledge be disseminated in society and raise the level in society as a whole. There must be an interface between education and society if academic knowledge is to penetrate. Assigning a place for the mother tongue in 'International Schools' is necessary.

Other countries have allowed for diverse suppliers of education without confining it to government. America's magnet schools and England's grant maintained schools are examples of this approach. We have a surfeit of the same type of schools. Schools should be there which will offer different types of education.

Private schools
Private schools can exist only as long as parents want to send their children to them therefore they have to cater to the needs of the parents unlike in the case of government schools. Adam Smith had a poor opinion of state schools. He thought money thrown at non-fee paying education just disappears down the sink. He thought state education was "in general contrived, not for the benefit of the students, but for the interest or more properly speaking for the ease of the masters." He even thought the Oxford University was a hopeless place because it was financed by endowments which "diminished the application of teachers." He wanted endowment to be replaced by fees.

Although there are many scholarships most top Japanese senior schools are private and fee levying. Although schools are free the poor have little or no chance of entry into the prestigious schools in Colombo. A recent World Bank study of India showed, that there is an amazing degree of inequality in its educational system with 10% of the best educated receiving 61% of the resources as against 36% across Asia. The situation in Sri Lanka could be even worse.

Market Forces under Free Education
It is possible to make schools more responsible to the consumer even under free education with state monopoly. Economists have suggested the introduction of free vouchers which can be used to pay for education. Each child will get vouchers upto the cost of education. Parents could spend them by paying the state school which his children attend or pay a private school. Such voucher schemes have been tried out in states in Canada and USA. Such a scheme is workable with middle classes in urban areas, although it may be difficult for ignorant and poor parents to understand. The rationale behind it is to promote competition among the schools even though the schools will continue to be free.

The Conservative Party in Britain under Margaret Thatcher put out a policy document called "Save Our Schools" 1986. The main features of it were that schools should be run not by local authorities (central government would be unthinkable) but by school boards composed mainly of parents of pupils currently there; finance should be allocated to these schools according to the number of pupils they attract (with the schools being able to choose how much salary to offer to attract any particular teacher); open involvement so that a parent-can send a child to any school that will accept him or her. This "capitation fee" model was put into practice on a pilot basis.

The educational reforms proposed have dealt mainly with reform of the curriculum. School management and school finance are issues inadequately addressed. Dr. Premadasa Udagama quoting John Galtung pointed out that there is no need for a Ministry of Eating to motivate people to eat. Why is there lack of trust in people's desire to be educated he asks. Why are there compulsory laws and carrots. In the British television series "Yes Prime Minister" permanent secretary says there must be a ministry of education because the people should not be allowed to decide on education never mind democracy.

There are two important principles — giving parents more choice and schools more independence. The surest way to improve schools is to increase parental choice through open enrolment and a funding system which gives schools more money if they attract more pupils. Funds for education must be distributed equitably. Presently a disproportionate share of funds goes to the big Colombo schools and the urban schools. A per capita amount should be fixed and all schools given the funds according to the number of pupils in the school. The basis of funding must be examined and made equitable.

The best way to make schools effective is to give them a distinctive ethos. In choosing a school, parents are choosing the society that their child will have. This means that they will always try to avoid schools where they consider are "undesirables". Inevitably the "good" schools are in short supply. In the educational market there is no matching of supply and demand. Since education is free and schools are debarred from accepting money to admit children to schools, there is no price constraint. Nor can the supply of places in schools be increased since there are unnecessary bureaucratic restrictions on opening new schools or expanding the existing schools.

Schools should be allowed to be managed by the parents, teachers and the local people. This is essential. It is sufficient if the central control by the Ministry of Education is confined to laying down national curriculac and a national scheme of assessment. Hiring of teachers and fixing their salaries should be left to the local school management. The schools should draw up their own budgets and follow them. Allowing schools to establish their own character means giving them wide autonomy. The finances of schools should be run like those of any small business. The head teacher should be free to recruit the staff needed provided the general qualification are satisfied. The headteacher should be free to recruit the staff needed to offer the full range of subjects — which would mean paying less in rural areas and more in urban areas. English teachers and mathematics teachers would have to be paid more. Market forces can then operate to solve the problems of shortage in the supply of such teachers. The tendency for the government to take-over schools presently under the provincial councils, calling them national schools, runs counter to the tendency for de-centralisation. The government can upgrade these schools without bringing them under central control. To obtain a more equalising effort, what is required is to spend more money on the backward schools. Educational planning should be based on some measure of expenditure per pupil for current expenditure in schools.

Wastage of Resources
The quality of education depends ultimately on having a staff of dedicated and trained teachers. Appointing GCE Ordinary Level or Advanced Level youth will not improve education although it will alleviate the pressing problem of youth unemployment. Until recruitment of teachers is left to the schools themselves, there will be little chance of improving the quality of teachers. More pay for teachers should be concentrated in subjects and places where the shortage is worst. That is how market forces can be tapped to promote supply. But bureaucrats or politicians don't appreciate market forces. Most of the money is centrally raised by way of government revenue. But this shouldn't preclude paying more for teachers who are qualified to serve in distant and remote places. The poor physical state of rural schools means mismanagement of resources more than lack of cash for the uneven provision of books, chairs, and repairs to classrooms.

Professor Ruberu, a well-known educationist has recently suggested that English should be made compulsory for entry into universities. He has given good reasons why it should be so. Politicians have been dragging their feet on this issue. Its a chicken and egg situation should English be taught widely first before making English compulsory for entry into universities. On the other hand if it is made compulsory the students aspiring to enter universities will take the trouble to learnt it. Now that one subject is to be reduced from the Advanced Level examination, English may be added instead of the aptitude test perhaps the level may be kept low in the beginning and raised gradually.

It is also time to allow private universities to be set up. Public universities should start new courses from fee income. Courses which have market demand could be introduced on payment of fees. Presently the private sector is allowed only to set up International Schools. Why not allow say a group of teachers to start a new school of their own and prepare students for the same government examinations. After all, the tutories are doing the same without any recognition. Three things help to a school to succeed. The sense of involvement which comes from parents and pupils having chosen it, a sense of direction which goes with a clearly stated philosophy and a sense of community that comes from smallness.

A person's educational qualifications determine his job opportunities for life. So there is a keen struggle to get the best education.

Values
It is very necessary to impart to the younger generation the value system which sustains the society. Some doubt whether there is any value system at all today. But we cannot afford to neglect this aspect of education. It is education that sets the tone and temper of society, as well as its needs and aspirations. Apart from the core religious values which are a sine qua non, there are other values required to sustain a democracy. Disciplined behaviour and respect for authority and the rule of law are essential. Modernisation and economic development requires rationality in decision-making and behaviour. Rationality is mainly a modern value although elements of it can be traced to our ancient culture as well. Mass education is a feature of modern society and is not more than a century or so in time. There is a certain core of moral and ethical values which are essential to maintain civilised life. Values have to be taught by example.

Another weakness in our educational system is the empathise on memorising or rote bearing. What is needed is to stimulate thinking and critical attitudes. Education is in a broad sense nurturing the young in ways of living considered good. It is more than an effort to impart knowledge. The young want to change things. Such desire of change must be channelled into healthy lines. Education should help students to understand the issues facing the country. Schools should teach pupils to become socially responsible.

Few of these issues can be tackled in an over-centralised system of education as we have the ministry of education is like a tyrant laying down everything. Any reform in education must create enthusiasm among the parents. The proposed reform have failed to generate such enthusiasm. Reforms should motivate teachers and students and this cannot be done by dictating from above how to run the schools. The reformers should try to market this reforms to teachers and parents rather than impose them. The government or the ministry of education in their excessive concern for equality should not become afraid of differences. Only a decentralised system will provide for innovations.

Failure of Kotagala prosecution reveals lacuna in SEC law

The Securities and Exchange Commission (SEC), the watchdog organisation policing the operation of listed companies, has been found lacking the necessary legal powers for the carrying out of some of its functions according to a recent court ruling.

The SEC however will be appealing against the judgement of the Colombo Fort Magistrate who has held that the continuous listing rules of the Securities Council gazetted in August 1990 had ceased to be valid following an amendment to the law in July 1991. New regulations had thereafter not been framed under the SEC Act No 26 of 1991.

Mr. Kumar Paul, Director-General of the SEC confirmed this position as set out in the judgement but said the Colombo Stock Exchange (CSE) has listing rules and continuous listing requirements that continue to be in force. He conceded however that the CSE lacks the extensive punitive powers vested in the SEC.

The SEC, however, continues to have the necessary legal powers to deal with serious infringements like insider trading.

The present situation of the lacuna in the law came to light following the prosecution by the SEC of Kotagala Plantations Ltd. and its directors for their failure to promptly notify the CSE that Agrapatana Plantations Ltd. had ceased to be a subsidiary of Kotagala in March 1997 when it became a subsidiary of Lankem Plantation Holdings.

Kotagala and Lankem Plantation Holdings are themselves subsidiaries of Lankem Ceylon Ltd. All three companies, Kotagala, Agrapatana and Lankem Plantations have a common directorate.

Following the detection of what the company claims was a technical failure on its part, quickly put right once it was discovered, the Kotagala directors had discussions with the SEC with a view to getting the legal action it had initiated (which has now failed) withdrawn. The SEC agreed to compound the matter by the imposition of a Rs. 5 lakh fine on the company and each of its seven directors totaling Rs. 4 million.

Kotagala rejected this proposal which it regarded as "unduly punitive'' in relation to the nature of the offence. The company said that the delayed disclosure on its part did not have any adverse impact on the Kotagala shares nor hurt investors and others concerned.

It also claimed that the imposition of an "exorbitant compounding fee'' was both inequitable and discriminatory given relatively innocuous sanctions recently imposed on other companies.

The legal defence adopted in the case, that no new continuous listing requirements had been framed after the SEC Act of 1991 was passed, revealed the lacuna in the law which some senior businessmen claim reduces the SEC's ability to properly regulate quoted companies and adequately protect investors.

New Internet Pay Phone introduced in Sri Lanka

By Azhara Raban
The Pay Phone Company ( PPC) introduced the world’s first ever Internet Pay Phone System, in the presence of Mangala Samara-weera, Minister of Posts, Telecommunications and Media, at the Trans Asia Hotel last Tuesday.

The Pay Phone company is a joint venture between the US company World-Quest Networks (Fax Internet), the Thai Conglomerate Lox-ley and the local partner Fentons.

Klaus Scholz, CEO/Chairman of PPC said the system is the first pay phone network in the world to be based on Wireless Local Loop (WLL) with a pre-paid pin card that is validated by an Intelligent Network Platform (INP). These PPC phones (with pre-paid access) are installed at offices. institutions, factories etc., with connection to a PABX system, thus enabling employees to place phone calls from their desk phones via the pre-paid pin card.

Speaking at the presentation he said,this new breakthrough technology of " voice over the Internet" enables the "voice messages" to be compressed in to data, and provides a significant tariff reduction. The call will be placed via SLT to the world wide Internet Network and is then routed to it’s desired destination, making it a normal international call through SLT and then voice- over-Internet on to the World Wide Web. The caller will have the choice of placing the call over the Internet system or through the traditional telephone network.

The system has been especially targeted at the rural folk, as it provides easy access to friends and relatives living overseas both conveniently and relatively cheaply, a convenience that was until now limited to a privileged few with IDD connections and costly IDD- deposit fees.

"We are the only telephone company who reduced our rates by up to 27% despite 12.5% GST and the new defense levy," said Mr. Scholz. The new technology will result in a significant cost reduction amounting to as much as an 18% saving of the cost of a current IDD call.

Telephone and communication should not be a luxury item in a country where more than 1.5 million work overseas, he said.

The new data networks not only allow to reduce the price dramatically but also offer a lot of these possibilities computers offer today, he added.

PPC which started it’s operations in Sri Lanka in April 1994, currently has over 400 pay phones installed in the country. In December 96’ PPC issued Super-card, which allows access from all networks in Sri Lanka to place IDD calls based on a pre-paid account/pin card, and has grown from a small pay phone operator to one of the biggest IDD call providers in Sri Lanka with an estimated revenue of more than US $ 1.5 million in 1998, Mr. Scholz said.

Dispute between CTC Eagle and insurance broker escalates

CTC Eagle Insurance Co. Ltd. Friday announced that it had initiated legal action against an unnamed insurance broker to recover premiums allegedly collected from several clients and not settled with the company.

In an unusual news release, the company said the failure of the broker or his attorney to appear in court on the due date despite service of summons had resulted in the case being fixed for ex parte trial.

The release quoted a company spokesman saying: "Notwithstanding a directive by the Controller of Insurance in October last year instructing the broker to make payment, the broker had failed and neglected to do so.''

There has been reference in the last annual report of CTC Eagle to a dispute with an insurance broker resulting in the broker claiming Rs. 150 million from the company and the company counter suing for Rs. 500 million.

The dispute has clearly escalated for the company, which would like an investigator appointed to probe this dispute, to go public saying: "The Controller of Insurance is under advisement (sic) from the Attorney General's department on the course of action to be taken against this broker, who is alleged to have operated without the supervision of a declared specified officer for many months and even operated without a valid licence during January 1998.''

CTC Eagle also said that the broker "whose current registered shareholders and directors are persons noted as residents in Jaffna has changed the company name.''

There is reference to this same matter in the company's interim statement covering the first quarter of the current financial year when its chairman, Gottfried Thoma says: "To prevent such failures in the future and safeguard policyholders' interests, the authorities need to punish offenders and ensure that proper checks are introduced to regulate insurance brokers.''

Coconut producer co-ops oppose importing Thai nuts for DC industry

Eight major coconut producers' co-operative societies have protested to Plantation Industries Minister Ratnasiri Wickramanayake about the proposal to import fresh coconuts from Thailand for use in the local desiccated coconut (DC) industry.

In a letter to the minister, the president of the Sri Lanka Coconut Producer's C-operative Societies Union Ltd., Mr. George Perera, has argued the case for not importing coconuts, even temporarily, as ``alternative remedies'' for meeting the problems confronting the local DC industry are available.

The union represents producer co-ops in 8 coconut growing areas - Dunagaha, Marawila, Nattandiya, Kammalapattu, Sandalankawa, Kurunegala, Wijekatupotha and Minuwangoda..

Presenting their case, Mr. Perera has said that fears of El Nino hurting coconut growers are now over with adequate rain in the coconut triangle at present.

He has said that Sri Lanka DC enjoys a special place in the international market due to its quality, flavour and nutritients. The quality of the DC that may be produced with Thai nuts was an unknown factor and may hurt the excellent reputation that Sri Lankan DC enjoys in the global market place.

Also, the cost of importing fresh nuts will have to be set off from the price DC processed from such raw material and the real earnings by the country by resorting to this strategy will be small.

The increase of the nut supply locally by imports will depress producer prices here and neutralise the various measures taken by agencies like the Coconut Research Institute, Coconut Cultivation Board and the Coconut Development Authority to better the producers' lot.

The producer co-ops argue that the best solution is to do what government did in the face of the inadequacy of nuts for processing into DC on previous occasions - restrict export of copra, coconut oil and fresh nuts.

The co-ops have also pointed out that there is massive wastage in the domestic use of coconuts with about 30% of the kernel discarded as pol kudu. They estimate that a nut equivalent of 540 million coconuts are thus thrown away - enough to produce 77,000 tonnes of DC.

They had imported a coconut milk extracting machine which ensures 90% utilisation of the grated kernel some years ago but the project did not take off due to lack of publicity and funds to import more machines. The unions have requested government assistance to popularise this method of coconut milk extraction to enable more nuts to be made available for industrial processing.

Businessmen's revels

The 159-year old Ceylon Chamber of Commerce is breaking new ground by organising a dinner dance at the Colombo Hilton next Friday (May 29) with funds raised to be paid to a trust created to assist education and career development of young people.

A chamber news release said this is the first time "in our 159 years of service to the Lankan business community that such an event is being organised.''

It said that tickets may be had from the chamber secretariat.

Pure Beverages return to profitability

Pure Beverages Ltd. has begun turning around from its recent heavy loss making situation by recording an operating profit of Rs. 5 million during the half-year ended March 31, 1998, up from a loss of Rs. 156.6 million a year earlier.

Added to the operating profit was other income of Rs. 58.8 million mostly made of a Rs. 56 million profit made on the sale of the company's prime Union Place property to Mr. Earl Gunasekera, a businessman with gem, jewelry and property interests.

Pure Beverages had incurred retrenchment expenses of Rs. 11.2 million during the period under review as part of the measures now in place to downsize the workforce and close its Kaduwela factory. A year earlier the company incurred Rs. 51.8 million in retrenchment costs.

The company is seeking to sell off the Kaduwela factory which is no longer operational and confine its operations to its Biyagama facility. All these measures were reported to shareholders in the company's recently published annual report.

According to the provisional figures for the current half-year, the company has increased its turnover nearly 200% to Rs. 810.5 million from Rs. 276.1 million a year earlier and posted a profit of Rs. 52.7 million compared to the loss of Rs. 202.3 million in the first half of the previous financial year.

The net profit of Rs. 52.6 million earned during this period had enabled retained losses of Rs. 391.6 million to be reduced to Rs. 339 million as at March 31, 1998. In view of these losses, the company is not liable for tax in the short term.

F & N (Coca Cola) Private Ltd. of Singapore is the controlling shareholder of Pure Beverages, the local bottler of Coke and other brands in its range.

PDL to invest in private hospital business

Property Development Ltd. (PDL), owner of the Bank of Ceylon headquarters building, is planning to enter the hospital business, shareholders have been told.

An extraordinary meeting of the company has been called on June 3 to consider a resolution amending the company's memorandum of association "in order to facilitate investment by the company in hospital development projects.''

The amendment will enable PDL "to invest in companies carrying on the business of building, operating and managing private hospitals in Sri Lanka,'' a circular to members said.

A new primary object to be added to the articles will enable PDL to invest in companies "which carry on businesses solely or in collaboration with local or foreign companies in building and operating and/or managing private hospitals in Sri Lanka.''

The Bank of Ceylon has controlling interest in PDL and is the sole tenant of its Echelon Square highrise.

The PDL tower was affected by both the Central Bank and Galadari bombs and expensive reinstatement measures are currently under way.

First quarter decline at Glaxo

Despite a 22.5% turnover growth during the first quarter of the current financial year, Glaxo Wellcome Ceylon Ltd. has seen a sharp downturn in profitability with the net profit down to Rs. 2.6 million from Rs. 7.9 million a year earlier, according to an interim financial statement now with shareholders.

The pre-tax profit for the quarter under review at Rs. 4.8 million was down from Rs. 13. 1 million a year earlier. Taxation for this period was down to Rs. 2.2 million from Rs. 5.2 million in the first quarter of the previous financial year.

The company has an issued share capital of Rs. 36.45 million.

Sampath ups stake in Sampath Centre

The Sampath Bank has increased its stake in Sampath Centre Ltd., the owning company of its headquarters building at Sir. James Pieris Mawatha, Colombo, from 60% to 62.85% by the investment of a further Rs. 10 million last year.

The original Rs. 210 million investment has been increased to Rs. 220 million. Sampath Centre has an issued capital of Rs. 350 million.

No dividends on this investment had been received by the bank last year.