.

If it loses international monopoly
Telecom threatens tariff hike

COLOMBO, (AFP) - Japanese-managed Sri Lanka Telecom Tuesday escalated a battle with rival private firms and warned of a tariff increase if its monopoly on international calls was taken away.

Sri Lanka Telecom (SLT), which is 35 percent owned and fully managed by Nippon Telegraph and Telephone Corp (NTT), said the local operation of Telia of Sweden was "misrepresenting facts" in their bitter interconnecting row.

The ruling by the telecommunications regulator here in November has failed to end feuding between SLT, Telia's Suntel and another telephone company here, Lanka Bell, which is owned by Transasia Telecom of Singapore.

Suntel in a statement last week accused SLT of levelling "misleading, baseless and misconstrued allegations" against it and SLT hit back Tuesday.

Both Sunttel and SLT have said they were unhappy over the inter-connecting ruling but are bound by it and have no recourse to appeal the decision of the regulator known as Director General of Telecommunications (DGT).

SLT spokesman Christie Alwis said NTT had been granted a monopoly on international voice calls till 2002 as part of Sri Lankan government policy during privatising the SLT in August 1997.

Alwis said the revenue generated from the lucrative international calls sector was being used to develop rural areas where there were no communication facilities.

Any cutback in the ,international monopoly will force SLT to raise its domestic call rates, Alwis said.

Sri Lanka sold a 35 percent stake in SLT to NTT for 225 million dollars and granted total management of the local phone company to the Japanese firm for a five-year period.

The government is currently planning to sell another 10.5 percent stake in SLT.

Telecom analysts said the row between SLT and two other private operators who have a duopoly in providing fixed phones using wireless local loop (WLL) technology will drive down the price of SLT stocks.

In line with the November ruling of the DGT, SLT must share its international phone revenues with the two WLL operators. The WLL operators say the amount they must get is too little and SLT says they are being asked to pay too much.

Another Indian hospital looks for Lankan market share

A delegation from the Sri Ramachandra Hospital in Madras will be here next week for what a spokesman described as an "interaction meeting with Lankan counterparts".

With a large number of Lankan patients going to the Appollo Hospital in Madras for treatment, more Indian hospitals are looking for a market share of such patients. Also, hospitals here are linking with Indian medical centres of excellence such as the recent tie-up between Durdans in Colombo and Escorts in New Delhi.

"The purpose of this meeting (from the Ramachandra Hospital) is to introduce the services and facilities available to Sri Lankan patients being referred abroad for treatment/surgery for major illnesses", Justin C. Saparamadu of Zodiac Enterprises, the agent here for the hospital said.

The delegation will include a cardiologist, nephrologist, plastic surgeon and a professor of neuro surgery as well as hospital administrators.

Sri Ramachandra Hospital is a part of the Sri Ramachandra Medical College and Research Institute (Deemed University) also known as the Sri Ramachandra Harvard Medical International affiliated to Harvard University, USA.

The Sri Ramachandra Medical Centre which was established 10 years ago now has 1,050 beds with a full spectrum of clinical activities providing standard hi-tech comprehensive medical care, a hospital spokesman said.

A hospital brochure said that the one million square foot building has been planned to include all the services to patients under one roof and serve a cross section of the community.

In addition paying patients, the hospital claims "a good distribution" of free patients and heavily subsidised ones.

Foreigners net sellers on CSE last month

Foreigners became net sellers on the Colombo Stock Exchange in January with foreign sales accounting for 51% of total turnover, the CSE said in its monthly market report for January.

CSE said that foreign purchases during the month accounted for only 19% of the total turnover while foreign sales accounted for 51%. During the month, net sales by foreigners totalled Rs.307.2 million, the report said.

January saw stock markets around the world experiencing volatility with most markets that recorded highs during the first week tumbling later.

This was largely attributed to fears that the economic crisis in Brazil would become contagious. CSE noted that the slump in prices was more pronounced across the Asian markets.

In Colombo, the all share index which opened for January at 597.3 points shrank 4.1% to close the month at 572.7 points. Similarly, the Milanka Price Index (MPI) set up on Jan. 4 shed 5.9% from its opening base of 1000 units to close the month at 940.3 points.

The CSE market report attributed the downturn to uncertainty associated in the run up to the Wayamba Provincial Council election.

Although there was a downturn pricewise, the turnover on the CSE improved to Rs.976.3 million during the month with the average daily turnover rising to Rs.51.3 million from Rs.33.1 million recorded in December.

The report said that most foreign stock markets reported impressive gains during the first week of January with New York's Dow Jones Index reporting the seventh biggest gain in its history on January 6. In London, the FTSE Index reached its highest mark ever on January 8 while the Paris Index also reported a record high in the first week of January.

But this was short lived with most stock markets suffering major declines on January 13. This was triggered by the escalation of the Brazilian economic crisis when the real (Brazilian currency) was devalued more than 25% despite the efforts of the Central Bank to defend it.

Brazil had seen a massive outflow of capital due to its budget deficit currently running at 8% of GDP and high interest rates. This forced the devaluation.

While most markets bounced back during the latter part of January with the Dow Jones moving up by 2% for the month and the Nikkei in Tokyo appreciating 5%, the FTSE Index in London remained largely unchanged during the month.

In South East Asia, the Hang Seng in Hong Kong shed 5% while Kuala Lumpur reported a 1% gain during the month. In South Asia, Bombay appreciated by 8% while Karachi shed 5%. In comparison, Colombo's All Share Index declined 4%.

Rs. 300 mn. released on Treasury guarantee
Hotel Developers seek approval for repair loan

Hotel Developers (Lanka) Limited, owners of the Colombo Hilton, have summoned an extraordinary general meeting to enhance the borrowing powers of the directors to utilise government backed credit facilities for repairing and refurbishing the bomb damage suffered in October 1997.

Shareholders have been told that the Bank of Ceylon has released Rs.350 million to the company on a government request to enable these repairs. These funds have been released under the strikes, riots, civil commotion and terrorism fund exclusive of interest and other general charges on the security of a treasury guarantee.

The company secretaries have said that the articles of association precluded the directors from borrowing over Rs.75 million without the previous sanction of an ordinary resolution by members of the company.

The EGM has been called to confirm and ratify the borrowing of the Rs.350 million under exceptional circumstances.

Iridium's regional marketing office headquartered in Sri Lanka

Iridium LLC, will open their South Asian Regional Marketing office in a few weeks time, announced Buddhi Athauda, Iridium's Regional Marketing Manager who is currently visiting Sri Lanka.

The office will be responsible for all marketing activities covering Sri Lanka, the Maldives, Bangladesh, Nepal, Bhutan and India, said Mr. Athauda.

Iridium who hope to launch their Satellite telephones in Sri Lanka shortly [subject to obtaining Defence Ministry approval], said that the locating of their Regional

Marketing office in Sri Lanka came about as a result of an official visit made to HE the President and Minister of Posts, Telecommunications & Media Mangala Samaraweera, some time ago. This delegation which comprised the former Head of the International Telecommunications Union (ITU) Graham Davey, the Vice President Business Development Iridium LLC - Craig Bond, Mr. Jay Raja - CEO Iridium India Telecom Ltd., and Mr. Athauda, pledged to commit themselves to the development of the Sri Lankan telecommunications industry, which resulted in the location of their Regional Marketing arm in Sri Lanka.

Mr. Athauda went on to say that as a result of the opening of this office several job opportunities would be created . " We are looking at recruiting Sri Lankans at high income, key positions" said Mr. Athauda, who is confident of commencing the local operation in a matter of weeks.

Iridium's partners in Sri Lanka will be Sri Lanka Telecom [ SLT ], Brown & Co. and GSM Dialog.

Athauda went on to say that SLT's role will be that of Iridium's Service Provider, under which agreement they would offer Satellite services to local subscribers, while Browns would handle the Global Paging as well as the

Equipment Dealership and all equipment warranties etc., and Dialog GSM would provide foreign visitors to Sri Lanka with international Roaming facilities via their network .

"We look forward to the commencement of our local operations" said Athauda, who went on to say that with Sri Lanka becoming an increasingly important player in the international business arena, coupled with the Government's emphasis on the development of the local telecommunication industry, the advent of satellite telecommunications was a must.

Tokyo Cement executive makes the charge
ASEAN cement producers dumping here

One of Sri Lanka's biggest cement manufacturers, Tokyo Cement, alleges that ASEAN manufacturers are dumping their cement here below cost of production.

"The main importers of the region are Sri Lanka and Bangladesh and we have now been the victims of this dumping exercise", Tokyo Cement's General Manager Christopher Fernando said.

A company news release said that Fernando believes that Lankan consumers "are the guinea pigs" of the dumping experiment.

Tokyo recently launched its second brand, Atlas, which will be marketed along with its popular Mitsui brand of cement at a dealer convention in Colombo with over 150 dealers present.

Speaking of the new product, Tokyo's Joint Managing Director , K. Yanagihara, said that the main feature of the new product is that it would be well above Sri Lankan quality standards requirement.

He said that the cement will be attractively priced ex factory to dealers and will be factory fresh when it reaches them. Superior Japanese technology has been used in the manufacture and the Mitsui logo will be used in the packaging of this cement.

Company sources said that Atlas cement would be priced at Rs.230 against the price of Rs.260 per bag of Mitsui cement.

General Manager Fernando told the launch that they were introducing a second brand to compete effectively with all imported brands as well as the other local manufacturers.

Turnaround of a company - the human element

The Merchant Bank of Sri Lanka Limited (MBSL) will hold a seminar titled "Turnaround of a Company - The Human element" on the 17 February 1999 at 'Galadari Hotel - Salon Orchid' from 1700 h to 1900 h. This is the second seminar in the series of management seminars organised by MBSL.

The seminar will be conducted by Mr. Prasanna de Silva General Manager of Ansell Lanka (Pvt) Ltd, and former CEO of Lanka Walltiles Ltd. He counts 15 years of experience in manufacturing in the capacity of General Manager and has wide experience in resolving employee related issues and was instrumental in turnaround of several manufacturing organizations.

This Seminar is expected to address many issues relating to problem diagnosis, planning, motivation, labour relations, productivity and quality relevant to the day to day operations of the business which are critical to effective management of the companies. The specific issues to be addressed at the seminar will include diagnosis of root causes of disputes and resolving same, building of trust and confidence, strengthening employee relationship, motivation to achieve, reliance on modern management systems to enhance productivity and quality.

A series of seminars have been planned by MBSL with a view to enhancing the business performance and productivity in companies where MBSL has significant investments and interest. These seminars are expected to add value to MBSL's investments, whilst benefiting their clients, by facilitation of more effective management of operations.

These Seminars are expected to cover a wide range of topics from labour relations to new techniques of corporate strategy, new methods of employee involvement and the latest Japanese Management Techniques.

The first Seminar under this series titled "Common Mistakes in Managing Industrial Relations" was held on 14 December 1998 with the participation of client companies of MBSL.

This seminar will be open to the public as well. Any company Interested in nominating an officer could contact Shyama or Dayani at 074 711 770 / 074 711 711 for an Invitation. The number of participants will be limited based on first come first serve basis.

Buyer interest in Tri Star factories up for sale

There has been considerable buyer interest in the sixteen Tri Star garment factories up for sale in the wake of the group's financial problems, a company spokesman said.

"There is a lot of interest in the factories and several prospective buyers," the spokesman said.

Tri Star had been under pressure from a consortium of lending banks to sell off some of its factories and make good its borrowings. Although the company had reduced its debts to about US $ 5.5 million from the $ 7 million originally owed, it had not been able to break free of the debt trap.

Tri Star Chairman Kumar Dewapura attributed the group's problem to losing government determined quotas at factories set up in the countryside in a public service effort to generate jobs in rural areas. He said these factories faced teething problems owning to the need to train new workers, some of whom have never seen a sewing machine.

Although Dewapura urged that the workers were now trained and able to perform, he was not able to win back quotas lost to non-performance. The authorities indicated that the buyers of the factories will be entitled to the lost quotas.

Well informed business sources indicated that the Tri Star chief, who finally caved in to pressure to sell some of his 30 factories and concentrate on the core business of supplying Marks and Spencer, the British retail giant through SR Gent plc. with which it has close ties, had been nursing the hope of a last minute reprieve.

These sources said that there had been some contacts with influential government personalities. Tri Star had also hoped that an Australia based NGO would assist the company with a large loan on concessional terms on the basis of its efforts to alleviate poverty by creating jobs for the rural poor. But these expectations too have not come to pass in the last four months.

SR Gent too had its own problems. But these have been overcome according to a recent article in a clothing manufacturers' journal which reported that early last year the company had returned to profit, "manufacturing 50% of its garments in the UK and dividing the rest of production between Texmaco in Indonesia and Tri Star in Sri Lanka."

Texmaco was hit by last year's crisis in South East Asia. The article reported that "Texmaco, under pressure at home, wanted to pull out of the UK operation. But Texmaco is still there....."

Marks and Spencer had been strongly encouraging its suppliers to source overseas and this places outfits like Tri Star at a considerable advantage.

Asian recession continues in 1999

by Kanes
Is the worst of the economic crisis in East Asia over? Falling interest rates, rising stock markets, slowing capital outflows, growing current account surpluses and strengthening currencies in recent months seem to indicate that East Asia is on the road to recovery. Professor Jeffrey Sachs of Harvard states: "we are past the point of endless collapse" and Hubert Neiss of the IMF believes that most crisis-stricken countries would bottom out in the first half of 1999.

It is true that interest rates are lower now than 12 months ago. The prime lending rates of East and South East Asian countries except Indonesia, Taiwan and South Korea have declined: in Thailand from 18.00 per cent to 11.50 per cent, Malaysia from 10.30 per cent to 8.05 per cent and Singapore from 7.00 per cent to 5.50 per cent. In Indonesia, however, the prime lending rate now is 65.00 per cent as compared to 28.50 per cent a year ago while in South Korea and Taiwan it is only slightly higher. There was a rise in stock prices last year only in three countries: South Korea, the Philippines and Thailand; in South Korea the upward movement of 56 per cent was significant while in the Philippines it was only 6.1 per cent and in Thailand 1.6 per cent. In the majority of countries the decline in stock prices continued in 1998 - Hong Kong, Singapore, Malaysia, Indonesia and Taiwan and in South Asia. The currencies, on the other hand, strengthened in all countries except Indonesia (and South Asia) in 1998 - the South Korean won rising by 41 per cent and the Thai baht by 30 per cent.

The currencies have become stronger mainly on account of current account surpluses but these surpluses have arisen because of a drastic fall in imports, not because of increasing exports. It was believed by the IMF and the US that the current account surpluses would strengthen the foreign reserves to enable Asian countries to repay foreign creditors and resume foreign borrowing, but it has not materialized. It was further assumed that the currency depreciation would expand exports and stimulate recovery, but exports have not increased on account of recession in the region. Some foreign firms have been purchasing domestic assets in East Asian countries, and this has led to a small inflow of capital but this is a fraction of what these countries received before the crisis. Despite the recovery of stock prices in 1998 in Korea and marginally in Philippines and Thailand, the average prices now are still lower than two years ago. The current average stock prices are about 50 per cent lower in Thailand and Malaysia, 30 to 40 per cent lower in Singapore, Indonesia, Hong Kong and the Philippines; in spite of the recovery South Korean prices are 7 per cent less than two years ago. In South Asia, they are 34 per cent lower in Pakistan but marginally lower in India and Sri Lanka. In the case of currencies, although they become stronger in 1998, they are all lower in value than in 1996 - Indonesia lower by 71 per cent, Malaysia, Philippines, Thailand and South Korea lower by 30 to 35 per cent and Singapore and Taiwan lower by about 15 per cent. These factors have made many analyst to be more pessimistic than the IMF and Professor Sachs.

Slow Reforms
Many analysts believe that the East Asian countries have not yet put their houses in order to resume economic growth. Banks for instance, still suffer from bad loans, capital inadequacy and lack of effective supervision. Non-performing loans of banks constitute about 15 per cent of total loans in the Philippines, 30 per cent in Malaysia, 35 per cent in South Korea, 50 per cent in Thailand and 75 per cent in Indonesia. Banks saddled with such a high proportion of bad debts will be reluctant to lend and without adequate credit, business will find it virtually impossible to operate. There has been some progress in South Korea where banks have written off their bad debts, recapitalized to achieve an adequate capital assets ratio, reduced their workforce by nearly a third and invited foreign participation. Thailand has also sold some of the bad loans of banks to foreigners and banks have accepted government's assistance and intervention. Malaysia has taken some measure to recapitalize banks on the one hand but cut banks' reserve requirements and, loosened the definition of non- performing loans from three months default to six months to stimulate bank lending on the other. The bad loans problem has also not been satisfactorily solved. In Indonesia, although the number of banks has been reduced from 230 to 120, many are weak and only about six have assets in excess of their liabilities. It is estimated that about $33 billion is required to recapitalize banks and restore confidence. In Japan bad loans amount to $495 billion and the government has announced a $520 billion bailout plan which has not taken effect yet.

Apart from banks other reforms like company restructuring and removing restrictions on foreign investment also show slow progress. In South Korea, the chaebols are resisting corporate renovation and opposing cutting excess capacity and over-indebtedness. In fact, the merger of L.G. and Hyundai semi-conductor units was forced by the government and the banks. In Thailand bankruptcy and foreign ownership bills which are needed for financial and corporate restructuring are stuck in the Senate, and Indonesia's corporate restructuring is likely to be postponed in view of the presidential election in June 1999. Malaysia has turned its back on the IMF's stereotype policies and adopted expansionary measures to revive the economy- increase in pubic spending imposition of exchange control and restriction capital movements, boosting house buying and lowering interest.

Negative Economic Growth
The IMF forecasts the economic recession in Asia to continue in 1999 but on a lower scale then in 1998. The ASEAN Four for instance, are estimated to decline by 1.4 per cent in 1999 compared to a decline of 10.6 per cent in 1998. South Korea, Hong Kong and Singapore are expected to fall by about 1 per cent compared to the fall of about 4 per cent last year. Only the Philippines and Taiwan will have positive growth in 1999 as in 1998 while Thailand is estimated to change from negative to positive growth. There is little likelihood of an upsurge in South Asia; in fact, the IMF estimates India to have more or less the same growth as in 1998 - 4.8 per cent.

Some analysts consider the estimates of growth for 1999 as too optimistic. The key to East Asia's recovery, they argue, lies in Japan which purchases a large share of its exports and provides direct investment and bank loans. Japan shows no evidence of recovery and in fact will have negative growth in 1999: consumer' spending is dropping and domestic prices are falling.

Thus, Japan in recession will not provide a stimulus to Asian recovery; in fact, deflation has made Japanese goods cheaper than some of the imports from Asia. In addition, economic growth in the US is estimated to decline from 3.6 per cent in 1998 to 1.8 per cent or by half in 1999. In fact, the major factor determining world market prices is the demand in US; this has been rising recently on account of higher consumption which may come to a halt if the stocks fall in Wall Street. The US companies have already experienced losses on account of the reduced demand for their goods in East Asia and there can be more losses with the crisis in Brazil. If there is also a flood of cheap Asian exports to US, the situation will undoubtedly become very grave.

A major factor which has contributed to the Asian low growth is the decline in the price of its exports. Prices have fallen in the last three years in oil by 47 per cent, tin by 18 per cent, rubber by 55 per cent, rice by 10 per cent and sugar by 31 per cent. Oil is a major export of Indonesia and Malaysia; tin of Malaysia, rubber of Malaysia, Thailand and Indonesia and rice and sugar of Thailand. Prices of industrial exports too have been adversely affected by the lack of effective demand for them, e.g. electronics and motor cars. There is little sign that there will be a recovery in export prices in the near future. Domestic prices are also declining, particularly of apartments, telephone services, television sets and even food bearing testimony to deflation in the countries concerned. Consumer prices are falling at the rate of 1.2 per cent in China, 0.7 per cent in Hong Kong, 1.5 per cent in Singapore and 0.2 per cent in Japan. Deflation, an index of shrinking of demand for goods, has invariably led to lower profits or losses, closure of firms and unemployment. Unemployment has risen to 20 million in Indonesia, 3 million in Thailand and 2 million in South Korea.

Economics of public choice and the public interest in politics

by Analyst
Judging by the public outcry against the violence in the N.W.P. election, there seems to be still hope for democracy in Sri Lanka. The people know instinctively that violence does not go with democracy , a point which Winston Churchill made in 1944 during a House of Commons debate over whether Britain should support the socialist Greek premier Papandreo rather than the Communist Guerrilla force in the Greek civil war. He said ''Democracy, I say is not based on violence or terrorism, but on respecting other peoples' rights as well as their ambitions. Democracy is no harlot to be picked up in the street by a man with a tommy gun.''

Liberal democratic values
Western democracy which we have inherited, involves the liberal democratic value system. Though highly political, it is essentially non-partisan, a point missed by our politicians and those who blame the two-party system. Democracy is based on the assumption that state power is to be exercised only in terms of the public interest rather than the interests of political parties, special interest groups social classes etc. But in a democracy the public interest, the interest of the majority of the people, cannot be equated with the interest of a ruling class, and elite or a wealthy class in society.

Money counts in a free enterprise or capitalist economy. Social class counts, influence counts. But people generally agree that it is the interest of the people that must be pursued by state action.

This doctrine or theory of democratic action as the pursuit of the public interest, has a long history going back to Athens. Burke called it ''the common good'' in his famous ''speech to the electors of Bristol.'' The government is not supposed to promote the interests of its own supporters or friends but of the people, although in practice they may off and on do so and if admitted or exposed will be branded as improper.

So to safeguard the public interest, there is the need for a politically neutral public service or bureaucracy. The tradition is based on the theory of checks and balances with the bureaucracy acting as a check on the Ministers and the politicians in turn being a check on the bureaucracy.

This theory is based on the realistic view of all human beings are fallible and prone to pursue their own interests when they assume power. Alexander Hamilton, a founding father of the American constitution said that if men are angels, no government would be necessary; if men are governed by angels, no checks and balances would be necessary. But men are not angels and so need checks and balances.

Theory of public choice
The theory of Public Choice was launched by James Buchanan, who was awarded the Noble prize for Economics in 1986. Several other economists and political scientists have contributed to the economics of public choice. The economics of public choice have revolutionised the tools for analysing government behaviour. Public choice economics is based on a simple idea - that people in charge in governments are rational, self-interested, individuals whose actions can be understood by examining the incentives they face in public office.

Government officials whether elected politicians or permanent officials are self-interested people, just like the rest of us. They view issues from their own personal perspective and act in the light of their own personal incentives. The desire to reflect ''the public interest is only one of the incentives among many and it is likely to be outweighed by more powerful incentives.''

This way of looking at people is the normal way Economists look at people in the market place. They maximize their satisfaction. But then if they want something they must give up something else they like, like their money or their property or assets or their labour, in return. If they make a bad purchase they make a loss they will regret. So they have the incentive to act prudently.

But the position is not so in the case of the public sector where the bureaucrats, although rational and equally self-interested, don't face the same incentives. In our own public sector the bureaucrats and the ministers act with impunity. They can err and can commit the most serious blunders but are not held to account.

It is alleged that the President's handling of the Evans contract has led to a claim for US $ 250 million. Politicians spend other people's money and so have little incentive to make sure that the government expenditure they sponsor or incur is efficient or wise. So the public choice theorists say, the government tends to grow too large and become too costly to operate. The interests of the people as a whole are rejected in favour of ''the special interests like say, striking workers who are well organised and whose support is necessary in the election campaign.''

Similarly, expenditure is expanded without increasing taxation to match. The taxation will then be cast on the future generation to pay not only for the expenditure but for the interest on the resulting debt as well.

It is the arguments of public choice theorists that have strengthened the case for privatisation since civil servants and politicians will put their own interests before that of the community and it is best therefore to leave decisions to the private sector. Not only privatisation, the theory has also led to the introduction of market disciplines into nationalised services like the National Health Service in Britain. And the issue of vouchers to give parents the choice of school where education is free.

Meanwhile politicians operate in an extremely competitive environment. To win re-election they need finance for their election campaign. The money involved in election campaigns has increased enormously over the years. Only those special interests that will stand to benefit from government expenditure have an incentive to supply funds for political campaigns. The voters have to be bribed with promises of subsidies and hand-outs to win them over. The electorate being ignorant and uncritical, does not ask how such election promises can be implemented. No serious answers need be given even if they are queried as a former Prime Minister did when she promised to bring rice even from the moon when asked how she was going to fulfil the promise of free rice.

Traditional economics and political science looked upon the government as a benign agency, tempering the ''rugged individualism'' of free market capitalism, to make life more humane. The PA government promised to deliver capitalism with a human face and the people believed them, not realising the limitations of state power and of a state depending on foreign aid to fund its development expenditure.

The earlier economists did not foresee the flaws and evils of the government sector when they expected the state to correct and make up for the evils of the private enterprise economy and the so-called market failures. They didn't realise that the government could worsen conditions.

Government failure was as likely as market failure and government interventionism to correct market failure would not necessarily succeed. Regulatory agencies of the state could be easily 'captured' by the clintele they are expected to regulate George Stigler the economist had been awarded the noble prize for his theory of ''capture'' of regulatory agencies by the regulated groups.

The close association of the public servants with those who benefit from the agency's decisions tends to thwart their willingness to serve the broader interests of the public as a whole. Most students of politics would agree with these theories particularly in relation to developing countries like ours.

Our own experience over the last fifty years has proved that our democratically elected governments do not reflect the enlightened interest of the society. It is the politicians who set the agenda for debate. Politics is about solving the problems of the people, about food clothing and shelter. Politics cannot be confined to words and speeches. What politicians think important or unimportant, are not necessarily what is relevant for the economy or society.

Politicians have brainwashed the people with the concept of a paternalist state, which can look after the needs and desires of the people. The people are too ignorant to realise that this is an illusion.

Comparing modern U.S. govenment to the government and attitudes to government prevailing in the time of President Kennedy, James Buchanan said that the US has come a long way from President Kennedy's ''Camelot'' and the dream like delusion that all might be made beautiful through the beneficence of the Federal government.''

Unfortunately Sri Lankans still believe that the government is benign inspite of all the evidence to the contrary. They still think a popularly elected government will act in the public interest. Hence the people are shocked when a popularly elected government resorts to widespread violence to win an election. Public choice theorists would say it is behaviour to be naturally expected unless there is counter-vailing power in civil society to make them realise that the consequences would damage their prospects of retaining or regaining power.

To correct major governmental problems such as the ballooning budget deficit, public choice theorists look for changes that will put constraints on politicians' ability to spend money to further their political interests.

Buchanan himself hoped reform will occur through constitutional rules, like for example a constituional amendment forbidding a government from running a budget deficit. He said 'the whole point of constitutional inquiry is to see that the constraints rules and institutions reduce the importance of self-interested political behaviour.''

In UK the Conservative government removed many functions from the political sphere to the market. They also distrusted political accountability as a control over the performance of the services in the public sector and sought to impose market discipline on them. Consumers of public services have been given enhanced control through the Citizens Charter.

Control of abuse of power
Accountability of public servants to ministers is open to be abused by ministers for partisan purposes - to protect their own position or that of the government, unless there are effective checks in place to prevent such abuse. Under our system of government there are no such checks. In UK checks operate as ''conventions'' which are as legally binding as laws. They form part of the constitution and are politically enforceable.

But even in U.K. there has been much abuse of power in local authorities and constitutional conventions were not being followed. The conseverative govenments of the 1980's thought that labour controlled Local Authorities in particular were undermining their macro-economic policy.

Local government expenditure accounted for about 30% of total public expenditure. Political conflict between the two main parties had intensified. The principal restraints on the abuse of power came from constitutional conventions as in the case of the central government in U.K.

But the politicisation of local government had eroded some of these unwritten non-partisan conventions about the conduct of local government. There were widespread allegations that the majority party in the local councils were using their position to promote the interests of the political party and party members and to discriminate against their opponents in the other party. Public funds were used to disseminate political propaganda; politically committed officers were given employment and preference was given in local government contracts to majority party supporters.

Discrimination was practised against political parties and pressure groups who were opposing. Some of these allegations were proved in the courts and the judges upheld the principle that local authority councillors owe their duties to all their electors and should act only in the public interest.

The conservative government was no longer willing to leave it to 'conventions' to enforce the public interest. They introduced legislation in 1988-89 to deal with the problem. The use of patronage for political purposes is now stopped by the provision in the Local Government and Housing Act 1989 section 7 that all appointments are to be made on merit implying that it will be unlawful to take account of a person's political activities or affiliation in deciding on appointments. This is a good example for us to follow by enacting a similar law to cover all public bodies. Since 1956 political patronage in appointments is the order of the day and enormous costs have been placed on the public by such appointments. Samurdhi animators have been recruited on political affilation. Enormous costs have been incurred by the Port Authority and the Petroleum Corporation by taking on excessive staff on political patronage. When will this practice stop?

It all began after S. W. R. D. Bandaranaike forsook the public interest tradition in governance with his Anti Establishment populism. Since then each government has outdone its predecessor in the exercise of political patronage extending it from appointments to promotions and discipline in the public service.

Political patronage or rank corruption in the guise of patronage has been and continues to be used in awarding government contracts. What the public and civil society should do is to ask the leader of the U.N.P. whether he will bring in legislation against the use of political patronage and hold those who misuse or abuse the powers of office, accountable under the law.

Abuse of office should be made a statutory offence punishable (with imprisonment) under the law, as recommended by the Nolan committee in U.K., whether such abuse is by a Minister or bureaucrat. Constitutional conventions are still followed in UK as evidenced by the resignations of ministers faulted by the press and U.K. may still prefer to rely on political accountability and constitutional conventions.

But we have no such conventions and there is no political enforceability as we see from a Deputy Minister continuing to hold public office after being found guilty of violating the fundamental rights of a citizen by the Supreme Court. Similar incidents ofcourse took place under previous regimes. But do we continue to ignore them in the future as well? We have to enact laws to ensure compliance with the liberal democratic political tradition.

The Local Government law in UK also enables the Secretary of State to issue a national code of Local Government Practice.

Setting up independent commissions for the police or for elections will not by itself ensure complaince with the public interest. We need independent minded men who will not sell their souls for a mess of pottage. These institutions must be de-politicised. We need laws to put into legal form the liberal democratic values which have been so flagrantly violated since 1956.

Even that will not ensure success. Politicians are well known for their deceitfulness and hypocrisy. They may follow the letter of the law and not its spirit. Mussolini who personally arranged the assassination of a Serbian Statesman in the late 1930's wept profusely at his funeral. The President who was personally involved in the Wayamba election campaign is surprised at the hue and cry made by society.

It is the Police that has obviously failed to maintain law and order. But Superintendents of Police who were in charge have qualified for promotion over several others. Robert Knox commented on the duplicity and deceitfulness of Sinhala courtiers. The spin doctors of political parties know how to extol one's own party and throw the blame on the other.

The differences between regimes in the amount of lying, deceit, fraud and elusion are not due to political variations but to the moral character of the regime. The U.N.P. leader has still to disown and dissociate himself from the deceit and tyranny of his predecessors, J. R. Jayewardene and Premadasa. Those in his party who have not tarnished themselves must be got rid of.

Democracy requires certain moral and religious under-pinnings which do not exist at present in our society.

Lopping Amsterdam off route map pays Air Lanka

by Harini Dias Bandaranayake
Air Lanka has seen a 90% passenger load increase in its Paris flights and 40% on the Frankfurt route since unprofitable Amsterdam was struck off its route map last year, said Peter Hill, Chief Commercial Officer of Air Lanka.

In an interview with the Sunday Island , Hill said that the decision to discontinue Amsterdam was both well thought out and far sighted. It was influenced by the airline being stretched with five flights to six European destinations that made a smooth schedule impracticable.

Depending on future profitability, Air Lanka may return to Amsterdam in about two years, he said. But taking that city off its flight map had helped boost profits elsewhere in Western Europe - Paris, Frankfurt and London.

Although there are no Air Lanka passenger flights to Amsterdam, a 747 air cargo freighter continues to fly carnations and other Lanka grown flowers to Amsterdam once a week as part of the airline's commitment to help the floriculture industry here.

With six new A330 aircraft in the pipeline, Air Lanka was looking for possible new destinations as well as frequency increase to current destinations. The first new Airbus is expected in October this year while a A340 which will be leased in June will make it possible to provide London flights on a daily basis, Hill said.

He also said that Air Lanka's Tristar flights will be discontinued in about a year. These aircraft cost twice as much to maintain as the A330s and spares were also a problem. Tristars were no longer in use in this region and Air Lanka too had to change along with the rest of the world in terms of technology and service, he added.

"Also, the new Airbuses had the added advantage of being environment friendly because of their sound pollution control feature'', added Marketing Commercial Manager Rienzie Pereira. Air Lanka expects to launch a weekly frequency of four flights to Sydney by November, Hill confirmed. Other destinations like Johannesberg will only be feasible in a year or two.

"There are various factors like flight connections, timings, tour operators etc. that must be sorted out quite apart from the question of profitability'', Hill said explaining that flights to South Africa launched in 1996 lasted only 9 months because these matters had not been seen to.

"When we resume our South African flights in the near future, we would have to examine all aspects of the move'', Hill said. These included the depreciation of the rand, political instability and other factors that have placed these flights on hold.

Discussing staff welfare in the airline, Hill said that they were committed to honouring the agreement reached with the Colombo government when Emirates acquired 40% of the Air Lanka last April. An important factor in this agreement was that the new managers will not retrench staff.

Hill said that Air Lanka had about 4,500 employees and it was important to find a package that would both benefit the employees and help the business to grow. While it was important to absorb the present work force into the growing airline operation, Hill stressed that they had to ensure that no employee suffered wage loss.

He said that early retirement packages are also being offered to employees after the privatisation.

Air Lanka was developing information technology throughout the airline with the existing systems being modernised at a cost of nearly US$ 10 million. The year 2000 compliance (Y2K) is being ensured.

Hill also said that a flight to Beirut via a Gulf destination could be expected from November with the likelihood of this being made a direct flight from the summer season of the year 2000.

Chandana de Silva, Air Lanka's Manager for Sri Lanka and the Maldives expressed confidence that the airline would receive several awards at least after the year 2000.

Tokyo Cement sharply boosts 9-month profit

Tokyo Cement Co. (Lanka) Ltd. has seen a slight drop in turnover but substantially boosted trading profit during the first 9 months of the current financial year ending December 31, 1998, shareholders have been told in a statement incorporating the draft accounts.

Turnover during the period at Rs.1.278 billion was down from Rs.1.3 billion a year earlier. But the trading profit of Rs.239.2 million was up substantially from Rs.158 million earned during the comparative period the previous year.

Although there was a reduction in other income to Rs.12.8 million from Rs.29.4 million a year earlier, the pre tax profit of Rs.252 million was up from Rs.187.4 million a year earlier.

While provision for taxation had gone up to Rs.43.4 million during this period from Rs.33.8 million a year earlier on account of the higher profit, provision for deferred taxation at Rs.17.1 million was down from Rs.22.2 million in the first 9 months of the last financial year.

The bottom line for the period under review at Rs.191.6 million was up substantially from Rs.131.4 million a year earlier. The company has said that its share was valued at Rs.65.50 as at December 31, 1998. The highest and lowest values recorded during the 9-month period under review were Rs.74 and Rs.40.

The company had paid dividends totalling 20% in May and September last year. Over a million of its shares had been traded in 144 transactions valued at Rs.56.1 million.

Shareholders have also been told that Tokyo Cement's fully owned subsidiary, Fuji Cement Co. (Lanka) Ltd., a BOI approved business entitled to a 10-year tax holiday, had commenced commercial operations last November. The consolidated accounts have incorporated the results of Fuji Cement.

Tokyo Cement has an issued capital of Rs.150 million, capital reserves of Rs.440 million and revenue reserves of Rs.349.6 million.

Its long term liabilities had been stated at Rs.450.5 million and deferred liabilities at Rs.138.2 million.

Samuels boosts income but losses mount

Samuel, Sons & Co. Ltd., the 75-year old engineering firm, has succeeded in boosting turnover during the 9 months ending December 31, 1998 but has seen a marked drop in operational profit, shareholders have been told.

Turnover during this period was up to Rs.273.2 million from Rs.262.6 million a year earlier. But the operating profit was down to just Rs.0.5 million from Rs.7.8 million during the comparative period the previous year.

Interest also had gone up to Rs.14.4 million from Rs.13.1 million. But this has been amply compensated by a substantial growth in other income to Rs.8 million from Rs.2.8 million a year earlier.

The company has posted a loss of Rs.6 million for the period under review, up from a loss of Rs.2.8 million a year earlier. With unappropriated losses brought forward, Samuels were carrying losses of Rs.59.2 million in its books as at December 31, 1998 according to provisional figures subject to audit.

The company has an issued share capital of Rs.46 million and reserves of Rs.303.9 million. Long term liabilities were stated as Rs.55.2 million.

Samuels is a long established company providing civil engineering services. They are also agents here for principals manufacturing several well known engineering products and offering engineering services.

Successful SL promotion in Bangkok

Cathay Pacific Air-ways and Dilmah tea recently sponsored a Lankan Food and Dance Festival organised by the Ceylon Tourist Board and Aitken Spence Hotel Managements in Bangkok.

A spokeswoman for the Sri Lanka Embassy in Bankok described the launch of the promotion as "magnificent'' and attended by high profile Thai figures including Deputy Prime Minister Bhichai Rattakul and other notables.

An embassy news release said that the promotion was held in the wake of positive publicity the country had obtained in Thailand following the performance of our athletes at the Asian Games in December and the team which did very well at the FESPIC Games for the disabled.

The festival was held at the Dusit Thani Hotel in Bangkok from January 18 to 28. A typical Sri Lankan atmosphere had been created with handicrafts, masks, Kandyan dancers, Lankan music and video programs and hotel staff in Sri Lankan attire including the sari.

The news release said that Sri Lanka's Independence Day reception by Ambas-sador Karunatilake Amunugama was also held at the Dusit Thani Hotel during this promotion.

Sri Lanka's Hono-rary Counsel General and Ceylon Tourist Board representative in Thailand, Mr. Soji Robert, was the initiator and behind the scenes promoter of the festival.

Cathay Pacific provided free tickets to fly in the Rajangana Dance Troupe and Lankan chefs for the promotion while Dilmah Tea served free tea and gave away hundreds of gift packs to invitees.

The news release said that the promotion at the Dusit Thani Hotel was followed by an one week's promotion at the Sofitel Hotel in Khon Kaen.

LTU ups winter season flights, provides new business class

LTU International Airways which has increased its weekly flights from Germany to Sri Lanka to five to accommodate growing winter season demand, is also offering a new business class on selected long haul routes.

A LTU news release said that this new business class, called "first comfort class'', is available to popular business and trade fair destinations like Dusseldorf, Munich and Frankfurt with morning and early afternoon departures from Colombo on Mondays, Wednesdays, Thursdays, Saturdays and Sundays.

Four of LTUs five weekly Colombo flights operate Boeing 767-300 aircraft fitted with first comfort class. Each of these four flights provide 18 first comfort class and 244 economy seats while the fifth flight to Berlin on Thursdays has 207 economy seats.

LTU said they have laid on four non-stop flights fly to Dusseldorf on Mondays and Saturdays, Frankfurt on Wednesdays and to Munich on Sundays.

According to Walkers Tours, the General Sales Agents for LTU in Sri Lanka, the first comfort class concept includes enhanced service, even more comfort and a greater seat pitch that completely redefines the term "leg room''.

Passengers travelling first comfort class will enjoy special facilities such as special check-in counters, airport lounges, extensive choice of beverages, spacious ergonomically contoured comfort leather seats, a five course meal from a choice of three main courses and selected red and white wines. The cuisine will be served on fine china and the premium wines in elegant glasses, the LTU news release said.

In addition, the in-flight entertainment provides each first comfort class passenger with a portable video watchman. Describing these facilities a spokesperson for Walkers Tours said the video film library offers a wide range of titles ranging from the hit movies of today to the well-known classics. Varied programmes of audio entertainment and an exclusive selection of newspapers and magazines are also available on board.

Cricketers join in SL economic Promotion in Australia

The members of the Sri Lankan Cricket Team led by Arjuna Ranatunga, visited the 'Focus Lanka' Promotion exhibition held at the Sydney and Melbourne Hilton last week. This comprehensive economic promotional drive, the first of its kind to be held in Australia was aimed at attracting greater Australian investment, finding wider markets for Sri Lankan products and promoting Sri Lanka as a travel destination. The week-long event in each city included an investment promotion seminar, a trade exhibition, food festival and a cultural show. Industrial Development Minister, C.V. Gooneratne lead the Sri Lanka delegation to this event, which was organised by the Ministry of Foreign Affairs in collaboration with the Ministry of Trade, the EDB, BOI, Tea Board, Air Lanka, Hilton and the Sri Lanka Australia Business Council.

Malabe site secured, Rs. 500 m. from Mahapola
Institute of Information Technology on fast track

The Maha Pola Trust Fund has allocated Rs.500 million for the setting up of an Institute of Information Technology for which 25 acres of land has been secured in Malabe about ten minutes drive from the parliament building, the Commerce Ministry said.

The ministry said in a news release that Rs.95 million for the priority establishment of this institute has been provided in the 1999 budget.

Commerce and Food Minister Kingsley T. Wickramaratne chaired the first meeting of the board of the institute following which activities relating to its establishment and academic programmes are to be implemented with immediate effect.

The board of the institute comprises the Secretaries to the Ministries of Higher Education, Commerce and Food, Finance and Planning the Chairman of the University Grants Commission, the Vice Chancellor, Dean of Engineering and Director of Computing Services at the Moratuwa University, the Head of the Maha Pola Trust Fund, and the Chairman/Director General of the Sri Lanka Export Development Board.

A Commerce Ministry spokesman explained that although there are several institutions here offering information technology related courses, they mainly concentrate on systems analysis and design and programming. Areas such as data communications and computer networking, digital electronics and VLSI design, robotics, computer architecture, artificial intelligence, and image processing and computer vision are not covered in most of these courses.

Other areas that are not covered in most of the current programs are systems administration and engineering, network management, web-based application development, UNIX programming and JAVA programming.

Some of these areas are covered at the Moratuwa University's Computer Science and Engineering degree course. However, there are a number of IT jobs available at levels that do not require graduates.

"Lack of such professionals has been a major bottleneck in the development of IT related industries here. Therefore, it is necessary to train/retrain large numbers of personnel to cater for this market'', the spokesman said.

Although there have been several discussions on setting up consultancy centres, industry liaison programs etc., to date these have not been successful. This is why high priority has been accorded to setting up a development and research facility to work closely with the industry so that academics and students learn from their experience while industry itself benefits from the institute's expertise.

The proposed institute's objectives are : 1) To conduct courses in information technology leading to Masters degrees, Diplomas, and Certificates. In particular, the following courses are initially proposed - * Master of Science Information Technology. * Postgraduate Diploma in Information Technology. * Continuing Professional Development Courses. * Associate Diploma in Information Technology. * Associate Diploma in Information Technology Marketing. * Certificate Level short courses.

2) To provide high-tech infrastructure facilities for well known IT companies to set up their local offices. Companies such as IBM, Motorola, Hewlett Packard, SUN will be invited to set up their Research and Development (R & D) labs. Microsoft has already agreed to set up an Advanced Technology Lab. These companies will not only be able to use the proposed institute's state-of-the-art facilities including modern networking infrastructure with satellite links but also will have access to a rich pool of IT expertise and well trained students to carry out the research.

3) To train high quality IT specialists for the ever increasing IT job market locally as well as internationally. It was very evident, during recent trade and investment promotional activities, that there is a huge demand for IT specialists in Sri Lanka. A large number of potential IT investors were not attracted to invest in Sri Lanka due to the non-availability of adequate numbers of quality IT personnel. A recent Asian Development Bank study shows that it is necessary for Sri Lanka to immediately increase the current IT student numbers by at least four times.

4) To set up a Software Development Centre to undertake software development work for local and international organisatons.

The spokesman said that the academic activities of the institute will commence at a separate location immediately while construction work on the buildings, access roads, landscaping and work on electrical power installations and computer network development commences at the Malabe site.

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