.

Over-subscription on first day?
Nations Trust Bank expects heavy run on its IPO

The Nations Trust Bank which will take over the business of the Overseas Trust Bank very shortly expect a run on the shares it will offer to the public in early March at a modest two rupee premium on the ten rupee parity.

But Mr. K. Balendra, who will be the chairman of the new bank added a vital proviso: "That is if we can get our act together and ensure that all the regulatory clearances are obtained and listing requirements completed so that the investors in our shares can claim investment relief."

To do that, the shares must be allotted before a March 31 deadline when the investment relief facility offered for purchase of new shares by quoted companies in the 1998 budget is due to expire.

Balendra was hopeful about meeting the deadline and said that in that event the offer will be over-subscribed in the first day itself. He expected that the money will be in within the required seven days between the newspaper notice of the initial public offer (IPO) and the formal opening of the share list.

"That would mean that the issue will close on the first day itself," he said.

NTB is promoted by John Keells Holdings (JKH) and Central Finance (CF) who have taken 45% of the company's Rs. 500 million issued capital. The third big subscriber is the International Finance Corporation (IFC), the World Bank's soft loan window which has taken substantial equity in what it regards as high potential companies here.

The equity split of the major investors in NTB is JKH 25%, CF 20% and IFC 15% with the public being offered the remaining 40% at twelve rupees a share.

Balendra pointed out that if the March 31 target can be met, investors in the upper tax bracket will be getting their shares cheaper than the ten rupee price the promoters paid if tax savings are taken into account.

OTB had not been particularly aggressive in chasing business in the last two years or so after the decision to close shop in Colombo had been taken. According to well informed financial circles, it has been making a profit of around Rs. 20 - 30 million a year.

OTB's serving CEO, Mr. Anura Gunasekera will continue to be NTB's chief executive. He has already been given a seat on the NTB board. Additionally, two experienced bankers from Deutsch Bank in Colombo which has downsized have been recruited and the bank has advertised for a couple more.

"The Deutsch Bank people got a very golden handshake and were glad to come into NTB," banking sources said.

Balendra said that in the first year, NTB hopes to open two or three new branches in strategic locations in Colombo. OTB had only a single branch in Fort in its own premises which the new owners take over for the total price of Rs. 79 million paid for the business.

JKH has four of its main board directors on the NTB board - Messrs. Balendra, V. Lin-totawela, C.J. Fernando, A.D. Gunawardene and Miss Anushya Coomaraswamy. CF's nominees are Messrs. Chandra Wijenaike, E.H. Wijenaike, and Mrs. C. Kiriella while Mr. G.C.B. Wijesinghe is the IFC nominee.

PDL closes 1998 with enhanced profit

Property Development Limited (PDL), the owners of the Bank of Ceylon headquarters building, has had a good year ending December 31, 1998, with both profits and other income rising significantly according to an interim statement now with shareholders.

The company's turnover during the year at Rs.287.2 million was up from Rs.200.4 million a year earlier and its trading profit grew to Rs.175.2 million from Rs.129.7 million.

Other income too was up to Rs.62.1 million from Rs.41.5 million. PDL has provided Rs.2.9 million last year for a decrease in the value of its investments. This compared with Rs.2.8 million credit taken the previous year for the increase in investment value.

The company's pre-tax profit of Rs.234.5 million was up from Rs.174 million a year earlier and the profit after tax had grown to Rs.153.1 million from Rs.103.5 million a year earlier.

With unappropriated profits of Rs.119.2 million brought forward, PDL had a profit of Rs.272.2 million available for appropriation as at March 31, 1998.

The company which paid a dividend absorbing Rs.99 million on a bottom line of Rs.218.2 million in 1997 has not yet decided on a dividend for 1998.

PDL has an issued share capital of Rs.660 million and net current assets of Rs.434.1 million.

The Bank of Ceylon is the major shareholder of the company.

Rs. 17.4 mn windfall for J. L. Morison

A windfall of Rs.17.4 million refunded on account of overpaid government levies consequent to an erroneous HSN classification has enabled J. L. Morison Son & Jones (Ceylon) Limited to post a profit of Rs.20.4 million attributable to shareholders during the 9 months ended December 31, 1998, nearly double the Rs.10.3 million earned a year earlier.

Morisons turnover at Rs.350.3 million during the period under review was down from Rs.357.1 million a year earlier while its other income of Rs.16 million was slightly down from Rs.17.7 million earned during the comparable period the previous year.

The pre-tax profit has been stated at Rs.34.6 million in a provisional financial statement now with shareholders, up from Rs.19 million a year earlier. This was largely on account of the refund of overpaid government levies written into the accounts as other income.

While depreciation has grown to Rs.14.2 million from Rs.8.7 million a year earlier, the profit attributable to shareholders was stated at Rs.20.4 million, up from Rs.10.3 million in the first 9 months of fiscal 1997/98.

With retained profits of Rs.20.4 million brought forward, Morisons had Rs.40.2 million available for appropriation as at December 31, 1998.

The company has a modest issued capital of Rs.5.8 million and net current assets of Rs.112.7 million.

Strong 9-month showing by Royal Ceramics

Despite a downturn in the ceramic sector due to low-priced competition from South East Asia, Royal Ceramics Lanka Ltd. (RCL) has boosted both turnover and trading profits during the 9 months ended December 31, 1998, an interim financial statement now with shareholders said.

RCL which has been aggressively marketing its products here in Sri Lanka to make good export losses, reported a turnover of Rs.481 million during the period under review, up from Rs.470.4 million a year earlier. The trading profit of Rs.74.7 million was up from Rs.59.6 million during the comparable period the previous year.

Other income of Rs.5.1 million (Rs.2 million the previous year) boosted the pre-tax profit to Rs.79.8 million, up from Rs.61.6 million a year earlier. As the company is still within its tax holiday and taxation was a marginal Rs.1.3 million, the after-tax profit of Rs.78.4 million was up from Rs.61 million in the comparable 9 months the previous year.

With brought forward profits of Rs.134.8 million, RCL had Rs.213.3 million available for appropriation as at December 31, 1998. An interim dividend of 10% absorbing Rs.30.8 million has already been paid from this sum and a profit of Rs.182.5 million carried forward.

Royal Ceramics has an issued capital of Rs.307.7 million and net current assets of Rs.211.4 million.

Coco Lanka feels bite of competition

Coco Lanka Limited, manufacturers of liquid coconut milk principally for export markets has seen a sharp downturn in operating profits during the first 9 months of the current financial year despite maintaining turnover.

Coconut prices have been rising sharply in recent weeks. Coco Lanka must also contend with competition from the Philippines where liquid coconut milk manufacturers have benefitted from currency devaluation following the South East Asian economic crisis.

The company's operating profit of Rs.8.1 million was half the Rs.17.9 million earned during the comparative period a year earlier. With other income of Rs.1.2 million, it had a pre-tax profit of Rs.9.3 million during the period under review, down from Rs.19.1 million a year earlier.

As the company was only marginally liable for tax, the after-tax profit of Rs.9.3 million compared with Rs.19 million earned the previous year.

With retained profits of Rs.41.3 million brought forward, Coco Lanka which has an issued capital of Rs.42 million had Rs.50.6 million available for appropriation as at December 31, 1998.

Elephant House still on profit growth mode

Ceylon Cold Stores Limited (CCS), better known as Elephant House, has continued spectacular growth in recent years with substantial increases in both turnover and profitability during the first 9 months of the current financial year according to provisional figures now with shareholders.

CCS, which leads the food and beverage companies under the JKH umbrella, saw turnover rise to Rs.1.4 billion during the period under review, up from Rs.1.2 billion a year earlier, and the pre-tax profit grow to Rs.181.8 million from Rs.156.7 million during the comparable period the previous year.

With taxation down to Rs.18 million from Rs.28.4 million a year earlier, the company had an after-tax profit of Rs.163.9 million during the 9 months under review, up from Rs.128.3 million a year earlier.

With retained profits brought forward, CCS had Rs.298.9 million available for appropriation as at December 31, 1998. The company has already paid an interim dividend absorbing Rs.45.1 million.

CCS has an issued share capital of Rs.163 million and a net asset base of nearly Rs.1.3 billion.

Thai factory keeps Haycarb profits buoyant

Haycarb Limited, the Hayleys activated carbon making subsidiary has succeeded in improving profitability in the teeth of smaller margins forced by competition from South East Asian manufacturers and rising coconut shell charcoal prices.

Haycarb Chairman Sunil Mendis attributed the performance of the company to the profitability of their Thai associate, Carbokarn Co. Ltd., manufacturing near Bangkok. Carbokarn, a joint venture between Haycarb and a Thai partner, enjoys many advantages flowing from the depreciation of the bhatt.

Although a large slice of Haycarb's 9-month profit is attributable to the Thai partner as minority interest, Haycarb itself has improved on the previous 9-month performance during the period ending Dec. 31, 1998, with the profit attributable to its shareholders increasing to Rs.94.4 million from Rs.85.6 million a year earlier.

The period under review showed a group turnover of Rs.1.1 billion, up from Rs.973.3 million a year earlier while operating profit before interest had grown to Rs.159.8 million from Rs.122.2 million during the comparable period the previous year.

Although there was a marginal increase in interest cost, this was compensated by improvements in other income. Haycarb's pre-tax profit for the period under review at Rs.146.3 million was up from Rs.104.4 million a year earlier while its after-tax result of Rs.117.8 million compared to Rs.83.9 million earned during the first 9 months of the previous financial year.

Minority interest jumped to Rs.23.3 million from Rs.1.7 million a year earlier to leave a profit of Rs.94.4 million attributable to Haycarb, up from Rs.85.6 million a year earlier.

Although Haycarb's kiln capacity in Sri Lanka is much higher than in Thailand, the current economics of activated carbon production has made it much more profitable to produce in Thailand rather than in Sri Lanka. The capacity of the Thai factory is therefore being increased, company sources said.

Sharp drop in associate company profit share
Richard Pieris Group ups profit despite flat turnover

Richard Pieris & Co. Ltd., has significantly improved profitability despite flat turnover growth during the 9 months ending December 31, 1998 with the operating profit rising to Rs.235.1 million from Rs.186.3 million a year earlier.

The group which has entered into a strategic alliance with Asia Capital maintained turnover during the period under review at Rs.1.8 billion, the same as a year earlier, and also saw a slight reduction in interest cost to Rs.80 million from Rs.85.4 million.

A drop in the share of associate companies profit to Rs.108.8 million from Rs.152.3 million a year earlier absorbed the operating profit gains, and the pre-tax profit of Rs.267.7 million compared with Rs.265.3 million a year earlier.

There was reduced provision for taxation of Rs.27.4 million, down from Rs.34.6 million a year earlier.

After discounting minority interest and an extraordinary expenditure of Rs.10.4 million incurred as the continuing cost of compensation paid under a voluntary separation scheme to scale down excess labour, a profit of Rs.201.6 million, up from Rs.190.1 million appeared on the bottom line.

With unappropriated profits of Rs.373 million carried forward, the company which has an issued capital of Rs.199.1 million had Rs.574.7 million available for appropriation as at December 31, 1998.

Two Asia Capital directors N.D.C. Austin and D. Flamer-Caldera now sit on Richard Pieris 12-member board.

The company's directors are: Messrs. H. A. Pieris (Chairman), P. I. Pieris (Deputy Chairman/Managing Director), G. C. B. Wijeyasinghe, M. F. Sproule, R. M. S. Fernando, N. J. Palihakkara, A. S. Jayatilleke, S. E. Captain, L. N. de S. Wijeyeratne, R. Pieris, N. D. C. Austin and D. Flamer-Caldera.

Recent economic reforms in China

By Kanes
China has weathered the East Asian economic crisis better than all the countries in the region. When Singapore, Malaysia, Indo-nesia, Thailand, Philippines, South Korea, Hong Kong and Japan had negative growth in 1998 and are expected to experience it again in 1999, China achieved 7.6 per cent economic growth in 1998 and is estimated to grow at 6.6 per cent this year. The currency - renminbi - has remained constant in value at 8.28 to the dollar for the last year and its foreign reserves have risen from $138 billion a year ago to $144 billion at present.

China has escaped from the contagion effects of the East Asian currency crisis because it has not opened its doors too widely to integrate with the global market. It is protected from currency speculators by its closed capital account and inconvertible currency. Its large foreign exchange reserves are equal to 12 months imports. It is not overly dependent on export growth as other East Asian economies for it has a vast domestic market and its exports are about 17 per cent of its GDP. Foreign capital inflows have been largely direct investment and not short-term portfolio investment and bank loans; foreign debt of $131 billion is only 14 per cent of its GDP and 85 per cent of it is long-term debts. The fiscal deficit is 2 per cent of GDP and its price level is declining at 1.2 per cent; it can therefore reflate the economy without fear of inflation. Strangely enough China's controlled economy has not discouraged direct foreign investment which amounted to $43 billion in 1997 - the highest of all developing countries.

Weaknesses

China's relative economic strength does not mean that it is without shortcomings. First, although it has escaped from the full blast of the East Asian crisis it is under some strain. Competitiveness of its exports has been reduced by the depreciated currencies of other East Asian countries: the average wage in China is about $56; the Indonesian average wage for instance which was twice as high as China's before the crisis, is about one-third of China's now. The economic recession in East Asia has further reduced the demand for its exports and the rate of export growth has slowed. The recession has also reduced the inflow of foreign capital investment by about 30 per cent. The speculative attacks on the Hong Kong currency and the depreciation of the Japanese yen threaten to pull down all Asian currencies including China's. In spite of these strains however, China has pledged not to devalue the renminbi at least until the end of 1999 as it realizes that if it is devalued it would result in another round of Asian currency depreciation.

Second, like most countries in East Asia, China's banks and other financial institutions have lent and invested unwisely and excessively. Non-performing bank loans of about $200 have lent billion are about 25 per cent of all loans and the capital/assets ratio is officially at 5.6 per cent (but actually reported to be less) which is much below the international standard requirement of 8 per cent.

The main cause of the trouble is that state-owned enterprises constitute the bank's biggest customers accounting for about 30 per cent of bank loans and many of them are operating at a loss unable to repay their loans. In addition the 2400 local branches of the People's Bank of China have formed undesirable close links with local Party officials and lent much to undeserving purposes. Apart from commercial banks, many other non-bank financial institutions are in difficulty, for instance the 243 international trust and investment corporations and credit co-operatives.

Third, there are over 100,000 state-owned enterprises in China of which abut 40 per cent are operating with chronic losses. There are about 100 million workers in these enterprises of which about 30 per cent are considered surplus. Subsidies on state enterprises form about 2 per cent of the GDP. The state sector nevertheless is of crucial significance to the economy: it accounts for 15-20 per cent of the output and generates more than 65 per cent of the nation's tax revenue; besides, it provides low cost electricity, fuel and basic materials needed for industrial development. State enterprises are also important because they provide a social safety net to the workers in the form of housing, schools, grocery stores, day-care centres and hospitals; they use about 20 per cent of their budget on such social benefits.

Fourth, while the market-oriented reforms initiated by Deng Xiaoping galvanized the business community and led to rapid economic development, they also created greedy and unscrupulous businessmen and bureaucrats whose sole concern was to make money by hook or by crook refusing to be restrained by laws and social customs. The result is widespread bribery and corruption, illegal operations such as smuggling and foreign exchange rackets, diversion of bank credit for undesirable purposes, theft and use of state property for private gain and abuse of official position to accumulate wealth. Privatization was manoeuvered by corrupt officials to grab state assets for themselves or their family members and friends at low prices. Some estimate that about $3,700 billion worth of state assets or four times the GDP has moved from state to private hands. Top cadres have allocated houses for their children, diverted business loans to their private accounts, defaulted on bank loans and accumulated foreign exchange abroad on the pretext of payment for phantom imports. As large a sum as $25.8 billion is reported to have disappeared from the official funds set aside for state grain purchases in the past six years; it was discovered that $10 billion of this had been used to build hotels, luxury houses and for speculation. It is estimated that about 100 billion yuan worth of goods are smuggled into China each year inflicting tremendous losses on government revenue and national industries. For instance, illegal imports of fuel resulted in the closure of 700 oil wells in 1997. It is reported that foreign businessmen also resort to bribery on a large scale to win favours from corrupt officials; gifts of luxury cars, foreign holidays and foreign schooling for children are some of the forms of bribery practised.

While many Party officials, the police and the customs officials are corrupt and embezzle state funds, the People's Liberation army openly engages in commercial operations. The Army's business empire is large and it comprises 15,000 entities contributing about 3 per cent of GDP. They include 1,500 hotels, 400 pharmaceutical factories, which produce one-tenth of the national output of drugs, four of the nation's largest ten garments factories, real estate firms, travel agencies and Karaoke lounges. These entities, like state-owned enterprises, are sometimes used for private gain; besides, some army officers are reported to be involved in smuggling and other illegal activities in collaboration with Party officials.

Economic Reforms

The government, particularly Premier Zhu Rongji, launched an ambitious three-year programme of reforms in March 1998:

(i) reform of state enterprises to make them profitable;:
(ii) restructuring of banks;
(iii) privatization of the housing market from July 1998;
(iv) reducing the number of ministries and the number of government workers by half;
(v) divesting the People's Liberation Army of its commercial operations;

Progress was made on some reforms in the last few months. In the rural sector, the "household contract responsibility system" established in 1978 to replace collective farming was extended for 30 years. Under this system the individual household managed the land as his private property, gave a fixed quantity of the produce to the state and sold the rest in the free market. As to the reduction of the bureaucracy, 40 ministries and state commissions were eliminated or combined into 29 entitles and thousands of officials were retired. Limited progress was made in other planned reforms but the government has been forced by external and internal circumstances to put on hold or reverse most of the reforms. The East Asian crisis as mentioned earlier, has reduced to some extent the country's export growth, inflow of foreign capital, and economic growth while rising unemployment is causing social unrest.

The new situation of deflation, lower economic growth and unemployment has made it necessary for the government to embark on a Keynesian public works or pump priming programme to stimulate the economy. About $12 billion has been allocated to improve the infrastructure - roads, railways, telecommunications, and irrigation facilities - and grain prices have been raised to increase rural income. This stimulus programme is supported by a liberal bank lending policy to expand investment. Such a expansionary programme is considered necessary because China must maintain around 8 per cent annual economic growth if the economy is to generate the jobs necessary to absorb the millions who will be retrenched by the proposed privatization and restructuring of state- owned enterprises. It is estimated that every 1 percentage point of economic growth may provide jobs for more than 800,000 people.

Reform of State Enterprises and Unemployment

The original plan was to privatize most of the small and medium sized state-owned enterprises leaving out about 1000 largest units - which yield about 70 per cent of state revenue - in the hands of the state to be developed into giant global firms like the South Korean chaebols. Already about 30 per cent of the enterprises have been privatized and about 12 million workers have been removed from state payrolls. Privatization of all the planned enterprises is estimated to result in loss of employment to about 35 million workers within three years while new investment is estimated to generate only about 7 million replacement jobs. The consequences of such massive unemployment will be disastrous as there is no national social safety net as in developed countries; the survival pay of less than $20 a month in some instances is hardly adequate. The unemployed have also to compete with about 100 million rural folk who float about looking or jobs in the cities and coastal areas. The job situation is so serious that Beijing has banned migrants from 32 job categories and directed employees to fill 50 per cent of their jobs with laid-off workers. The loss of employment to migrants is a severe blow to the rural sector as about 30 per cent of the rural residents' income in poor provinces come from money earned in the cities. It is reported that over 100,000 workers in Mianyang demonstrated against unemployment demanding state assistance. Privatization and reform of state enterprises has been delayed because of the unemployment threat. An important policy measures taken and September 1998 was to impose floor prices on a wide range of goods - steel, cotton, sugar and motor cars - to prevent state factories from dumping their excess inventory below cost.

Banking Reforms

The government had earlier warned that any banker who failed to recover loans would be punished and began to close those banks and financial institutions that were overextended. The Hainan Development Bank was the first Chinese bank to be closed down after the revolution in 1949; this was followed with the closure of Guangdong International Trust and Investment Corporation which was saddled with $2 billion of foreign debts, China Venturetech Investment and 42 urban credit cooperatives.

Further, several brokerage houses and investment funds were closed or merged; the first securities law was passed in December to curb fraud on the stock exchanges in Shanghai and Shenzen; controls were also tightened over foreign exchange trading and regional currency swap centres were threatened with closure if they continued to encourage capital flight Commercial banks were strengthened with an allocation of $33 billion for recapitalization and the People's Bank of China (the central bank) is undergoing changes to streamline credit supervision at the provincial level to reduce the influence of provincial leaders.

These banking reforms, however, have been interrupted by the need to stimulate the economy and prevent rising unemployment. Banks have now been directed to continue lending even to loss-making enterprises to keep the workers at work and to counteract deflationary tendencies, and the central bank has cut interest rates five times since May 1997 to reduce the interest burden of enterprises.

Housing and Army's Business Empire

In China a family pays only about 4 per cent of its income on rent which is about $12 a month - one of the lowest in the world. The authorities planned to raise this to equal 15 per cent of household income in July 1998 and stop subsidies to housing to new employees; old flats were to be offered to tenants and citizens were to be allowed to buy and sell housing property for the first time in 50 years. These reforms were designed to ease the burden of state-owned enterprises which provided the subsidized housing, on the one hand, and to start a private market in housing, on the other. These proposals have now been shelved presumably because of the unfavourable situation with increasing unemployment. Further, consumers still consider housing as a part of the welfare system, there is no secondary housing market and house prices are exceedingly high due to high land prices and taxes. It appears that the local authorities in the 32 municipalities, provinces and autonomous regions have now been entrusted with this housing problem.

Legally the Liberation Army's businesses have been handed over to the newly set up State Economic and Trade Commission for closure, merger or sale but in actual fact the problem has not yet been solved. As the Army's business empire, as pointed out, is very large and accounts for a sizeable part of national output, any changes must be done without interfering with production. Further, the amount of compensation and who will take over the enterprises have to be determined. Some of the businesses have already been transferred to family members and friends while remaining under the effective control of the offficers.

Anti-Corruotion Drive

Zhu Rongji has launched a nationwide crackdown on corruption which is regarded as China's most pressing social problem. Investigations into corruption have recovered more than one billion pounds since 1993 and more than 124,000 of the 50 million members of the Communist Party have been punished. In the summer of 1998 alone 900 party members including police and customs officials were punished. but there has been only one significant politician - the former

Mayor of Beijing - prosecuted for corruption and jailed for 16 years. As most of the corrupt officials have not been punished in proportion to their crimes, many regard the anti-corruption drive as ineffective in checking corruption in the country. People are divided on the issue of corruption: while some say corruption is endemic because of the lack of democracy, transparency and accountability, others maintain that it is the logical result of Deng Xiaoping's "to get rich is glorious policies.

Ideological Differences

Zhu Rongji's reforms are not favoured by all sections of the Chinese society. Prominent among those who have expressed their reservations on market-oriented reforms are intellectuals like Duan Ruofei, Deng Liqun and Liang Xiaosheng. They chafe at the injustices and corruption inherent in the transition to a market economy and fear that China's market socialism is veering too far toward the market and too little toward socialism. They are particularly concerned about privatization and argue that state enterprises constitute the heart of socialism and without a strong state sector there would be no difference between China and any capitalist economy. In a time of uncertainty of employment and income, there is an increasing number who agree with them and yearn nostalgically for the certainties of the socialist past.

Democratic capitalism needs cultural change

By Analyst
Culture should be at the centre of the agenda for government reform because we now know from the findings of a wide range of research, that culture is perhaps the most important determinant of long run economic success as well as social cohesion.

"The seven cultures of capitalism", culture is often referred to in a narrow sense to the fine arts, art, music, painting, literary works etc. But what is relevant is culture in a much wider sense including religion, history, values, customs etc.

Democratic government have often ignored this important dimension. So the functions of the government are defined in terms of economic management, maintaining macro-economic balance or the political aspect of maintaining law and order.

Trust

F. Fukuyama in his "Trust the social vrtues and the creation of prosperity", argued that the societies which show the greatest economic dynamism and viable social cohesion are the ones where there is a culture of high trust which enables individuals to take personal responsibility but also to sustain long term co-operative relations in trading, in industry in employing people who are strangers to them.

The Japanese fall on their sword rather than face dischonour. Our society is one where trust is very low and personal responsibility is not taken seriously. Go into any government office and note how they ask you to produce letters affidavits, birth certificates etc: from various other organisations. However honourable you are, nobody in the government will take you at your word. They look upon you with doubt if not suspicion. So the public are pushed from pillar to post.

The present day breaucracy, unlike the older English educated and more sophisticated previous bureaucracy, do not wish to exercise their discretion. They don't seem to understand the rationals for the rule and often rules are followed more in the letter than in the spirit. What the bureaucracy wants is a letter to take cover instead of using their discretion. They might even accept fake letters or docurents with reason to suspect their genuineness.

Govt. can change culture

Government policy can affect the culture of the society even if it takes time to do so. The breakdown in social discipline which took place in 1956 has never been repaired. The traditional obedience of the ruled to the ruler has never been restored.

The encouragement of women seeking employment abroad has led to the breakdown of families. The rise in the member of suicides, particularly among the youth, shows how frustrated young people are. The Youth Commission recommended that avenues be created for youth to enter politics. Has this policy been implemented?

The illicit distilling of liquor has assumed serious proportions owing to inaction by the government. No laws, however stringent, can make the drunken sober. The solution is to legalise kasippu manufacture and regulate it rather than to outlaw it on paper while the kasippu mudalalis are in cahoots with the local police and the politicians.

The government must take responsibility for its policy or lack of policy on the illicit manufacture of hooch. By legalising and regulating at least the poisonous compounds was he carbed.

A great extent of crime and vice can be clearly traced to these manufacturers of illicit liquor. But the government chooser to ignore and instead wants to regulate the lawful industry. This illicit liquor courses great social mising in the home and away the children in addition to crime and public disorder.

The government talks of creating an enterprise culture. But it doesn't have the toggest idea of what to do. It has no constructive programme to promote self-employment. Then there is the dependency culture born of the pantemalist state espoused by our politicians ever since independence.

Instead of helping the poor to stand on their own feet and teaching them self-reliance, the government continues to make hand-outs under the so-called Samurdhi Scheme, which is nothing but politically motivated patronage using state funds. A fair portion of the hand-out is said to be leaking to government officials.

Consider the educational policy and the so-called reform. There is little prospect of improving educational performance without enlisting the active co-operation and enthusiasm of the parents. The parents need to be empowered, to be given a voice in choosing the school and the type of education. They should be given a role in managing the school since they are on the spot unlike the remote control by the Ministry of Education.

Policies to solve the unemployment problem among the educated youth are yet to be formulated. Cultural and attitudinal changes are required of the educated unemployed. But the government has failed to do anything.

Buddhist Culture

Culture are systems of beliefs, expectations and aspirations. It no doubt takes time to change people's aspirations. Culture is close to the centre of our identity - an identity which is too much linked to the traditional religion - Buddhism.

It will no doubt take years to alter people's perceptions assumptions and hopes about what the state will do for them. People assumed for a long time that it was natural for the state to run public utilities, but many are now in the private sector in many countries.

Cultures that value the future, hard work, frugality, education, promotion on merit, strict ethical code, justice, fairplay, self-reliance promote economic development. Calvinism made an important antribution to the growth of capitalism and democracy. Opposite traits obstruct democratic capitalism.

Culture matters but to what extent does it explain our poor economic performance and erosion of democratic values? Buddhism with its emphasis on individual salvation by one's own effort and its emphasis on rational behaviour could contribute to development although any excessive pessimism or defeatism needs to be played down.

Although the seamier side of western culture is condemned by well meaning people, the sexual permissiveness, the addiction to drugs, the pop music gets popular particularly among the young. There are features characterstic of the mass consumption stage of capitalism, not what is required during the capital accumulation stage.

What is required at this stage of development where we are, is frugality, simplicity and hard work. The market economy, at least its economic dimension through trade, industry and commerce, produces a set of psychological attitudes and moral dispositions which are both desirable in themselves and also conducive to development.

The problem is that the popular practice of Buddhism is not the national Buddhism stressed by the elite which has been called protestant Buddhism. The recent attempts by a popular monk to extirpate the worship of gods and goddesses, seems a step in the right direction although it should not have any anti-Hindu Tamil overtones.

A local newspaper report quoted someone saying that the Sinhalese are averse to trade and industry and that the minorities have thereby monopolised wealth and undue power. But the Sinhalese capitalists were deprived of their wealth by S.W.R.D. owing to his anti-establishment populism.

But there is some truth in the proposition that the Sinhaled have missed business opportunities over the last fifty years. The Sinhaled have been influenced too much by Marxist theory which argued that capitalism undermines the moral foundations on which any society including its own must rest this is capitalism's self destruction thesis which has not been borne out.

Historically it was the essence of the conservative reaction to the advance of the market economy voiced during the latter half of the 18th century. Coleridge referred to it as "the over balance of the commercial spirit "as against the" ancient feelings of rank and ancestry. This tendal element still dominates our politics though not the economics. The bourgeoisie, the capitalist class has so far not countered these fendal relics such as the political power of the dynastic fendal families.

Fendal shackles

The submissiveness of the captains of industry and commerce in the attempt to bring about bipartisanship on the ethnic problem shows the power of the fendal overhang.

Capitalist development is very adversely affected by the ongoing north-east war. The government has no proper understanding of the economic consequences of the war. It doesn't realise that because of the high taxation due to the war, the whole economy is becoming uncompetitive.

Agriculture, industry and even services like tourism which are vital sectors of the economy are seriously undermined and may perish. The politicians pay scant respect to the fears of the businessmen.

The big business class has not been vigorous enought to alter decisively either the social structure or the fendal mentality of the politicians. Under capitalism those who have money and wealth should call the tune. This has not taken place because most of the development has come through foreign capitalists.

The local capitalists are not strong enough to tell the politicians what is in the national economic interest. Capitalism has so far failed to raise up the poor or generate democratic political habits. Could it be that the religious and cultural under-pinnings have not developed or been adapted to sustain democratic capitalism?

Political culture

As Fukuyama pointed out, the level of trust in a society is important. Ours is a low trust society. The government can create a culture of trust and trust worthiness by improving its own trustworthiness. Organisations tend to be trusted when their purposes are clear and acceptable.

But it is sad to say the government is doing the opposite. Statements made by government ministers are unreliable if not downright false and fabrications of the truth as we saw in the aftermath of the Wayamba election. The statements issued from time to time on the North East war, particularly the numbers of the enemy killed have become a joke. Deadlines by the Deputy Minister of Defence for the completion of "Jayasikuru" have been subject to radicule.

"No-one can do more to set the tone and style of the nation than the (president.).... noone can do more to lower the standards than the leader".... The leaders..... both by inaction and improper action can betray the people's confidence in them" (Greg Toop as The headerslip Code of Papua New Guinea and the Role of the Ombudsman Commission" (Lawasia 93).

Following upon the Wayamba election 91 Benjamin Franklin would have called the ruling party "a band of brigands". Folk lore has it that the Sinhalese are naive if not foolish. Any nation that has within it a majority of "men possessed of much wisdom or virtue" would not tolerate the election violence, the rigging of ballot boxes, the intimidation and violence which were carried on boldly in our midst by our elected representatives and their henchmen which included the Mafia.

If we hadmore wisdom and urtue if we knew how to judge people, we would have better MPs, better Buddhist monks more honest traders and less demagogues giving false promises. It isnot possible for any society in

which there are sufficient numbers of wise or virtuous men, to be as vicious as our society is today - to have such a low standard of right and wrong, to accept so much lies and deception by politicians. As John Stuart Mill said "if we ask ourselves on what causes and conditions good government... depend.... we find the principal of them... is the qualities of the human beings composing the society over which the government is exercised.... a noble people will be nobly ruled and the ignorant and corrupt ignobly".

Russia today shows what happens to the economy when the rule of law collapses along with law and order. A few big business tycoons amassed millions through their connections with ruling politicians. Now they have gone bankrupt and they have bankrupted the country as well.

While their business empires flourished they were linked both to politicians and to the mafia. The Russian Mafia grew in power and there was only a thin live between legal economic transactions and robbery.

Economic prosperity is always threatened by violence. Peace is always the hostage of anyone carrying a gun. It is the nature of the state that it has amonopoly of weapons and the use of force. If this monopoly is broken and criminals carry guns both economic as well as political activity and governance itself is subverted.

Instead of confiscating such weapons the government seems to be using the mafia to achieve its objective to retain power, a practice started in the Premadasa regime. Those in power break the law with impunity. The Supreme Court awards demages to citizens whose fundamental rights are violated. But is it adequate when the culprits continue in office to repeat their actions? Justice demands that they be punished not merely required to compensate their victions.

Constitutional guarantees alone are not enough to safeguard our rights. If the government is in complete contial of the mass media if the judiciary cannot find public support and if vigilant public opinion is lacking, civil and political ubecties are in danger.

The president being the commander-in-chief can call out the armed forces to prevent or suppress lawless violence. The president has already used the Emergency Regulations to postpone elections indefinitely and if not for the Supreme Court decision we won't be having Provincial Council elections.

In Pakistan the prime minister set up military trbunals to try offences under the normal law. The Supreme Court in Pakistan has held them to be illegal.

Democracy is always in danger when there is an all powerful president operating in an environment of war. Many state institutions like the public service and the police have already been politicized. The state banks, state insurance and the corporations are completely malleable to the president's will.

The vital question is to what extent the military has been politicized. President Premadasa sacked public officials at his whim and fancy, while those remaining cringed before him.

Any loss of faith in the integrity of the public service will sooner or later redound badly on business confidence. They are the ones who keep the playing field level. Business has to be assured that there will be a clear transparent and well enforced commercial system. Otherwise business confidence will not be maintained.

Those who sow the wind will reap the whirewind. Even frequent elections which are free and favour are not enough. A government must have some purposefulness in governance and must deliver a better quality of life to people.

Entrenched structures of corruption and crony capitalism in East Asia laid those economies low. We have our own structures of corruption and the P de-activated by the simple device of not filling the post of Director General. All prosecutions can be brought only by him.

Corruption not only empties the pocket, it saps the people's fighting spirit. People believe that corruption inquiries even against. Those of the previous regime have been effectively scuttled. There is virtual looting of the public treasury as rules are relaxed to benefit powerful vested interests.

Our politicians are Machiavellian, contemptuous of principles and indifferent to norms of propriety and probity. The president keeps on harping on how the UNP robbed state land, robbed the state banks, indulgedin violence etc. But why doesn't she prosecute and punish them? Nobody is protecting their now whatever the difficulties an attempt must be made to bring them to account.

Letting the criminals of the old regime scot-free offends natural future. But rhetoric is not enough. There must be action. Only then will the rule of law be upheld in the future.

Unsustainably narrow margins on major product lines
Mounting losses compels Metalix to restructure

Metalix Engineering Co. Ltd., a 31-year-old company quoted on the Colombo Stock Exchange, is in deep distress with losses mounting to levels that has made its auditors report that the income generated by the company is inadequate to meet financial expenses and other overheads.

The company's Chairman, Mr. M. P. Wijesinghe, has acknowledged the problem in his annual report saying that a substantial net loss of Rs.55.4 million had been incurred in the financial year ending March 31, 1998, up sharply from the modest loss of Rs.4.2 million the previous year.

"The major cause of the loss is the unsustainably narrow margins on sales of our major products lines, added to which is the overdue trade debtors position which, in hind-sight, had not received the necessary attention it deserved. Following prudent financial practices and as advised by our auditors, we have made a provision of Rs.9 million against bad debts this year, which posts an increase of Rs.6 million compared to 1996/97", he said.

Wijesinghe reported that the company, whose managing director and finance director during the period under review has resigned, is actively engaged in a restructuring program. This involves evaluating costing of major product lines with a view to reduce the cost of production wherever possible and increase prices of products where the market is amenable.

The chairman said he was happy to inform shareholders that their efforts for reducing overheads had been successful during the post balance sheet period.

"Paving way for a fresh equity infusion upon re-organising the company is our major task in hand, and we would like to assure our shareholders that we shall leave no holds barred in this connection", he said.

Wijesinghe said that they were grateful for the support and encouragement they have received from their bankers and their major shareholders who had advised and helped them in many ways during the period of restructuring.

The company's largest shareholder, the DFCC bank, has appointed two nominee directors to its board.

Metalix has closed the agency post office operated by its subsidiary, Metalix Communications and Services (Pvt) Limited which was found unviable due to a decline in business.

Wijesinghe also acknowledged the services to the company by Mr. N.M. Udeshi, former Chairman and Founder Director, who had served the board for nearly two decades and resigned at the end of 1997.

Metalix' auditors Wijeyeratne & Co. , chartered accountants, has said that it was necessary for the restructuring program to be speedily implemented. Otherwise the company's resources would come under pressure.

Metalix is a closely held company with the DFCC Bank holding 31.3% of the equity. Nine other shareholders including the directors and the Udeshi family own about 66% of the shares while other shareholders account for about 12%.

The directors of the company are: Mr. M.P. Wijesinghe (Chairman), Ms. U.M.M.P. Unambuwe (Managing Director), Mr. K.C.S. Dharmawardana and Mr. B.G. Alahakoon.

ISO 14000 seminar attracts over 100
Over 3,000 Lankan factories 'high polluting'

Sri Lanka has over 3,000 factories considered "high polluting" industries and despite the laws already in place to control their impact on the environment, economic and practical difficulties prevent them from strictly conforming to legal requirements.

This is what the Sri Lanka Standards Institution (SLSI), which hosted the first ever national seminar on environmental management systems in Colombo on February 18, has said.

SLSI said that there were over 100 participants from the industrial sector at the seminar which was held to create an awareness of the importance of environmental management systems standards and their application in industry.

The 3,000 polluting factories figure has been reached following a survey done by the Central Environmental Authority, SLSI said.

It said in a news release that the ISO 14000 standards facilitate businesses to be proactive to environmental issues associated with industrial processes and take preventive action to minimize ecological damage.

SLSI says that benefits for firms implementing ISO 14000 standards include reduced cost of waste management; savings in consumption of energy and materials; improved corporate image among regulators, customers and the public; framework for continuous improvement of environmental performance; and advantage in international trade.

SLSI noted that no single industry here has been certified as up to ISO 14000 standards. A program to reach this benchmark has been initiated by SLSI with British government assistance.

Already 20 SLSI staffers have been trained on auditing procedures for ISO 14000 certification and the business community too is being informed and educated on the work that is being done and the benefits that will flow.

SLSI said that the recent seminar will strengthen their program for the development of ISO 14000 certification activities in Sri Lanka.

Currently, SLSI has undertaken a pilot project at four local industrial establishments for the development of environmental management systems to reach ISO 14000 standards. They will be used as role models for other industries here, SLSI said.

Hilton lays on an Austrian promotion

An Austrian restaurateur, Mrs. Doris Huber is now in Colombo to give Sri Lankans a taste of classic Austrian cuisine.

Mrs. Huber who owns a famous restaurant, Landhaus-Keller in Styria with her husband, has brought down two chefs with her for the special promotion of Austrian cuisine at the Colombo Hilton from February 26 to March 7.


Chef Peter Stanzenberger demonstrates how strudel is made in his country while restaurateur Doris Huber looks on.		 A spokesperson for the hotel said that Mr. Vinzenz Strommer will be responsible for the preparation of well known Austrian savoury dishes, soups and salads while his colleague, Peter Stanzenberger, will do the honours with the desserts that Austria is famous for including apple strudel.

Stanzennberger will be responsible for the various specialist pastries that will be on offer during the festival and will also demonstrate strudel making.

"We are also offering a special menu of Austrian coffee, served in the traditional way during this festival and a variety of Austrian cakes and savouries will be part of our high tea buffet during the promotion", the spokesperson said.

A 3-piece orchestra will serenade diners with compositions from Austrian masters including Mozart and Strauss, the spokesperson said.

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