islbsnss.htm

Despite there is much talk going on about resuscitating the country’s economy nothing seems to have been done in 1998. Many things have been found to have gone wrong. All the talk of developing industries have so far not materialised.

What happened and what is going to happen in the year that is started is what concerns everyone. Most people say the politicians have taken up the economy and are driving it the wrong way.

Ravi Karunanayake, the stormy petrel parliamentarian says the year 1999 is going to be a very tough and decisive year.

He says it is the economic system that helps the political system and that politicians should be told they should not colorise the economy. Instead a national economic policy instituted.

Recently the business Editor The Island had a chat with Karunanayake where he spelt out what is wrong and what should be done.

THE YEAR 1998
So after you come out of the Asian crisis and they are able to stand up our exports will become uncompetitive. You’d see how we faced 1998. You’d see how productivity fell and how much we are priced out of the international market — the ceramic industry, the rubber industry the mineral industry, the entrepot trading industry, the coconut industry and all of them.

Then the manufacturing base in itself electronics items and also textiles to a certain extent. In the case of the latter even though there was a substantial increase in rupee terms SDRs and US dollars grew at a lesser pace.

1999-portents
How is Sri Lanka going to face in 1999? My feeling is that it is going to be a very tough and decisive year because you are having amidst a very poor economy in Europe and the American economy having, I would say sand in the gear type of approach look slowing down and producer nations such as ours will have lesser orders coming in. And we will naturally have a tough time. Besides the European Community will begin to trade amongst itself.

In no way am I saying devaluation is the panacea for all this but certainly it has to be looked at as other nations. When you have India as a monster giving export incentives to any and everything that is exported we are going to be outpriced in those areas. We have got to place ourselves very steadily in those scenarios.

In the same way the infrastructure in this country should be considered. Are we on a level playing field? Now we are talking of liberalising trade with India. We have our country which through 1997 rapidly been on an export led growth. But now we have an import and trade rather than a manufacturing and export one. So these are the cross-roads we are faced with.

When there is a contraction in demand in the US, India and others our production loses automatically. We are not the total supplier of everything.

This has now come to be a matter between the haves and have nots. Take for example Indonesia. See what has happened. We must walk away from this. How are we going to muster that. Merely to say ‘this is what we are doing’ does not mean anything. It must be shown that this is what we are doing.

So when you create an artificial crisis and if you don’t give a necessary answer to that you cause that to be the state of mind.

First ensure our laws are much more pro-active and in line with the international world.

We must have productivity coming in. Our labour is not cheap. Our social order helps us to bring in some stability but our productivity at the end of the day is so low when we compare our country with another we have outpriced ourselves. We must lure the foreign investor into our country. That is the most important thing when we attempt to appease the mind of the youth and if that is not done we are going to have an anti-administration problem.

When one says foreign investors come into earn a fast buck and rush away it is a common problem faced by all because those who come to invest here are not all philanthropists. They are coming to have a return.

If you look at the countries have put in and taken out you will have social equity as we go along. They put in a certain amount to take out. In the same way they have also helped to generate the economy. If that is not the case how has Japan developed? How has Korea developed? There is of course an element of risk. It is better than saying we don’t want anybody to exploit us and do nothing, but say you come and invest. At the end of the day you achieve nothing.

We have to join the bandwagon. We have to fight the system. We are already too late. We must show the world we have a different cutting edge. That is why the worker’s charter should be done away with. Only Spain can have that which has 24 per cent unemployment.

How can you say if you wish to downsize an industry in order to fight the world, you cannot do it. The Labour Charter says you cannot do it. So the Company has to close the business. In that case you have to have a much quicker legal system. If someone wishes to rob a company they basically plan it down and you can’t take any act on.

You must go for much more rapid joint ventures with the world. You can’t say if I go with "X" country "Y" will get angry. You can’t say that if you want to develop the economy. You must basically look ten years ahead. You must attract ventures both long and short term.

Politicians first of all should be told clearly they should not colorise the economy. They should have national policies when it comes to the economy, because it is the economic system that helps the political system. Either it is an open economy, a closed economy or mixed economy. You have to pursue one of these.

In respect of political systems you get the communist oriented one a Socialist oriented or a Capitalist system. When you have your economic system laid out you will have the political system falling in line. That is why you should not politicize your economic system. If it is an open economy it should just be that. Don’t bring Socialistic ideas and close down the economy. That is what should be corrected here. We are talking of an open economy, while we are doing closed economy things and in short you give mixed signals.

That is what should be corrected. So the first thing is create national policies in the areas of the economy. Irrespective of the political party that comes in periodically, you should proceed with a particular economic system.

Both with the previous government and in the present there is a course of action that goes on. Then there is the privatisation. At the moment everybody thinks privatisation is the panacea. The fact is we should take it in the national perspectives. You do need to privatise something when your earning capacity is X amount. You don’t give it over just for your cash flow purposes. You should ensure that you get a strategic partner. That is what is required. That is what is required not privatise to bridge the budget deficit, when you have an earning that is coming in. If you just sell it today, what is happening tomorrow. That is where we should have the correct atmosphere, correct direction when you come to it.

The quicker we get our act together, the quicker we will pull the country out. So let us collectively see that we win the economic war and then you will find we have won all wars.

I still think the political system is too flared up for anything like that. We are very politicised. Each one is looking at it from their point of view. The climate is not conducive to a change. The political situation is very confrontational.

In a population of 18 million with 100,000 tax files we get only 8 to 9 billion in direct taxation. This is the biggest stigma. You must say ‘yes’ your direct taxation is 10 per cent but if you get caught to fudging your accounts and defrauding the tax man then woe be unto you. Nobody will risk that and will begin to pay taxes without trouble. In this case you will not be taxing the untaxable. You can’t tax beyond a certain point. When you have an equitable tax structure you are going to have higher compliance.

The GST is another thing where I would suggest that it be made into a three tier system because right now it is an unfair one. For instance, you take 12.5 per cent from a man who comes to pawn an item while the man who goes to buy a Mercedes is also made to pay the same amount. Keeping the tax structure in a three tier one may become administratively difficult. But that is the administrators problem.

In the case of privatisation get it much quicker and more effectively on a national perspective.

There has to be a very effective vibrant marketing campaign of the country. Right now we are fire-fighting.

We talk about how good the investments are. It means nothing. The best ambassadors are the existing investors. If they could say the climate and the infrastructure is good then others would come in. At the moment we are running after certain people. We are country oriented instead of being industry oriented. If we want to get the rubber industry going we don’t go to Korea or Japan alone. We must go to the world so that anybody in rubber can come in. Or take gems for instance. You don’t have to go to Belgium alone. You can go to others as well.

Tea is a super thing. We can go to Coca Cola or Pepsi of some other and invite them to start a factory here, perhaps a instant tea. Those are classic examples.

If we are in SAPTA the main area is the service industry. Shipping skills are there in abundance. You have Dubai Salallah and Singapore competing. But we are the best in geographical location. We are infighting. We have our services industry, but our rates are high and we are watching our neighbours taking the share from us. We must have the sea Air hub out of Colombo. Mere privatisation is not the answer.

The financial area which we have to look at may include a common currency among SAARC countries. SAPTA is a worrisome thing because we are fighting against a mighty country without having a level playing field. So to overcome that deficiency we can have a common currency within the SAARC.

Convert your foreign policy into an economic policy. You can link up with others and say let us develop economically. Diplomatic saying Hai and Bye is useless if we cannot get our economic development going. If we can get hold of the rich countries and say let’s join hands and work on this, we have then got going.

Agreement with India
I am not sure what the terms are. It is important in the context of developing our exports if exports don’t fall into their negative list. If it does the agreement is useless. We must be ready for such an eventuality.

You must have a clear policy. You are getting into the globalised world and you must get ready to face the competition from India, as well.

What can happen in India comes into Sri Lanka and walk into Pakistan. Here it is not an even playing field within the SAARC. Classic example is that we rushed to sign the Royalties and Patents laws in 1980. What happened? Indonesia developed a very lucrative cassette and film industry. Of course there was some piorating. We signed it and had nothing coming out of it. We must not rush to sign treaties unless it benefits us. We should not be the first to rush after such unless it particularly benefits us. If it does by all means, we are in the centre of the cross wings and are forced to sign then we are in a suicidal state.

+ Exchange Rates

The Central Bank's Spot Rates for transactions with Commercial Banks announced on the morning of January 05th, 1999 were as follows:

	Buying	Selling
100 US Dollars	Rs. 6704.28	Rs. 6839.72

The approximate middle exchange rates of following currencies calculated on the basis of cross rates quoted by Gulf International Bank, Bahrain as it appeared in Reuters Financial Information System on January 05th, 1999 were as follows:

Saudi Arabia Riyal	Rs. 18.06
Bahrain Dinar	Rs. 179.64
Kuwait Dinar	Rs. 224.65
Qatar Riyal	Rs. 18.61
UAE Dirham	Rs. 18.44
Oman Riyal	Rs. 175.91

Average rates at which the following currencies were quoted by Commercial Banks in Colombo for Telegraphic Transfers at mid-day on January 05, 1999 were as follows:

	Buying	Selling
100 US Dollars	Rs. 6810.40	Rs.6846.00
100 Sterling Pounds	Rs. 11261.52	Rs. 11380.22
100 Deutsche Marks	Rs. 4091.64	Rs.4159.02
100 French Francs	Rs. 1218.08	Rs.1239.71
100 Japanese Yen	Rs.60.61	Rs. 61.59

Average Weighted Prime Lending Rate (AWRP) and Lowest Prime Rate (LPR)
The Average Weighted Prime Lending Rate (AWPR) during the week ended December 31st, 1998 was 14.9 per cent for all banks. The Lowest Prime Rate among banks during this week was 12.0 per cent.

Average Weighted Deposit Rate of Commercial Banks (AWDR)
The Average Weighted Deposit Rate (AWDR) of Commercial Banks for the month ended November 30th 1998 was 9.2 percent.

* Unit Trust Prices

National Equity Fund

Manager's Selling Price	Rs. 8.07 (per unit)
Managers Buying Price	Rs. 7.57 (per unit)

Namal Growth Fund

Manager's Selling Price	Rs. 9.38 (per unit)
Managers Buying Price	Rs. 8.77 (per unit)

Namal Income Fund

Manager's Selling Price	Rs. 10.65 (per unit)
Managers Buying Price	Rs. 10.53* (per unit)
	Rs. 10.64* (per unit)

* After deducting exit fees

Ceybank Unit Trust

Manager's Selling Price	Rs. 6.03 (per unit)
Managers Buying Price	Rs. 5.64 (per unit)

Ceybank Century Growth Fund

Manager's Selling Price	Rs. 8.54 (per unit)
Managers Buying Price	Rs. 8.37 (per unit)

Pyramid Unit Trust

Manager's Selling Price	Rs. 6.00 (per unit)
Managers Buying Price	Rs. 5.59 (per unit)

* Ex Dividend Price