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BOI to market new industrial park as flagship if Indo-Lanka deal takes off
Perth sale will ease Kotagala’s problems

The sale to the BOI of Perth Estate, Horana, a 633 hectare property leased to Kotagala Plantations Limited, for a Rs. 109 million price will considerably ease Kotagala’s current financial problems, share analysts said.

BOI has negotiated the purchase of the lease which runs till 2045 to set up a new industrial park and townships with the advantage of convenient access to the Port of Colombo.

BOI Chairman/Director General Tilan Wijesinghe said that this is the largest block of land acquired by them to set up an industrial park intended to locate 450 industries.

"Two-thirds of the land will be used for housing, recreational and environmental needs of the park and will meet the future needs of the BOI and industrial development in the country," Wijesinghe said.

He said that the Sitawaka Industrial Park which is already one-third full is expected to fill up in two years. It was propitious to plan now for the future. The BOI was planning to market this industrial park as a flagship project for industries that may want to come in if the implementation of the Indo-Sri Lanka Free Trade Agreement proceeds as planned.

Asked whether this was the first plantation the BOI had acquired for purposes of industrial development, Wijesinghe said that its predecessor, the Greater Colombo Economic Commission (GCEC) had acquired both private and state land to set up the country’s first free trade zone (FTZ) at Katunayake.

"I know of at least one coconut plantation that was part of the land take over for the Katunayake FTZ," he said. "Also, I think a National Livestock Development Board (NLDB) plantation was taken for the Pallekelle zone."

He said that the new park at Perth, with ancillary townships, will eliminate many of the problems of housing and other facilities for a large workforce that would be employed in the new factories that would be set up.

Kotagala belongs to the E. B. Creasy-Lankem Group which with its dominant rubber plantation holdings had taken some heavy blows even while tea prices were good. Rubber prices have been poor for many years now and Kotagala is carrying substantial losses on its books.

Analysts said that the deal which is subject to the concurrence of the golden shareholder (the Treasury) will considerably assist Kotagala by enabling the settlement of loans and reducing interest obligations.

Intercontinental sells off 7% Hotel Services stake

The US based Intercontinental Corporation which was recently bought by a Singapore company, Bass Hotels and Resorts, has sold off its 7% stake of Hotel Services (Ceylon) Limited, owners of the Hotel Ceylon Intercontinental.

Mr. U. K. Sharma, the Indian born businessman who recently acquired a dominant majority controlling stake of the company has bought up these shares which Intercontinental originally said it would keep. Intercontinental already has management rights over the hotel built on leasehold land belonging to the Ceylon Tourist Board.

The management agreement has several more years to run, according to hotel industry sources. They also pointed out that the Tourist Board has begun charging a commercial lease rental for the property instead of the original "peppercorn" charge.

Following the change of ownership of the Intercontinental Corporation, the new owners had indicated the possibility of their selling off the 7%. This was communicated to the remaining minority shareholders of Hotel Services who have received an offer of purchase from Sharma as reported in these pages last week.

With acceptances from other minority shareholders as well as market purchases made, Sharma now has over 97% of the company for which he has paid over Rs. 477 million.

Stafford pays off debts, Bentota & Sigiriya profitable
Serendib consolidates for take-off in resort sector

The Serendib group of hotels, holding a substantial controlling interest of Hotel Sigiriya Limited and Stafford Hotels Limited in addition to the Serendib Hotel at Bentota, has reported an improved performance during the year ending March 31, 1999 when turnover was boosted to Rs. 116.7 million from Rs. 92.4 million a year earlier and an operating profit of Rs. 24.5 million, up from Rs. 8.4 million the previous year has been posted.

The company itself has recorded an improved performance with occupancy up to 70% from 58% the previous year, a joint review by the company’s Chairman, Mr. C. Wijenaike and its Managing Director, Mr. A. N. Esufally, said. This has resulted in an increased turnover of Rs. 70 million compared to Rs. 54 million the previous year and an after-tax profit of Rs. 11.8 million prior to writing off a loss of Rs. 7.9 million on the sale of investment in Emerald Bay Hotels Limited.

The directors of Serendib have recommended an interim dividend of 7.5% and a final dividend of 7.5% to give shareholders a 15% return for the year.

The joint review said that the sales proceeds of Emerald Bay was used to consolidate the group position both at Stafford Hotels and Hotel Sigiriya. The company which held 32.8% of Stafford purchased 4.4 million shares at Rs. 5 each and increased its holding to 52.3%. This triggered a mandatory offer involving the purchase of a further 0.32%. Together with subsequent purchases, Serendib now holds 56.5% of Stafford.

The company which held 68.1% of Hotel Sigiriya Limited purchased 77,300 shares at Rs. 11 each and now holds 71% of this company.

The joint review said that Sigiriya had made a net profit of Rs. 8.4 million for the year and paid an interim dividend of 10% for the financial year under review and also recommended a further 10% final dividend.

Stafford which owns the Club Hotel Dolphin on the western coast and Miami Beach Hotel had posted a net profit of Rs. 19.2 million. The company has paid its outstanding loan instalments and interest and rescheduled some of the loan instalments, it said.

They also said that the company owns 49% of Gullivers Travels Limited which had also made a profit of Rs. 1.7 million.

Mr. Asker S. Moosajee, the founder Chairman and Managing Director of Serendib, had retired from executive office from March 31, 1999 but remains a member of the board. He has been succeeded as Chairman by Mr. C. Wijenaike and Managing Director by Mr. Abbas Esufally.

The board has also changed the name of their 100% owned management company, Serendib Touring Limited to Serendib Leisure Management Limited. Serendib Leisure, which had made a profit of Rs. 1.2 million for the year, has appointed Mr. Srilal Miththapala, a tourism professional, as its CEO from July 1, 1999.

The joint review warned that the hotel industry which had several ups and downs would once again suffer adverse results if it is made liable to GST from April 2000. Wijenaike and Esufally said that the industry was not yet ready to absorb this high increase due to competition in the region.

The major shareholder of Serendib Hotels Limited is Leisure Asia Investments Limited holding 43.2% of the company’s voting shares and 51.6% of its non-voting shares.

The directors of the company are: Messrs. C. Wijenaike (Chairman), E. J. de Soysa (Deputy Chairman), A. N. Esufally (Managing Director), Asker S. Moosajee (Alternate Ms. M. T. A. Moosajee), M. R. Uvais, B. S. M. de Silva, Mrs. A. R. Gamage (Alternate Dr. Lalith Gamage) and Mrs. M. S. Fonseka.

Ground breaking seminar opens tomorrow
CSE and blue chips woo foreign fund managers

The Colombo Stock Exchange (CSE) breaks new ground tomorrow by hosting over thirty international fund managers at a "Value vs. Price" seminar exploring the potential of the Colombo Stock Market.

"We’ve got a full house," said CSE General Manager Hiran Mendis who indicated that attendance, with local participants included, will run at around 250. Among them will be over 30 international fund managers.

Although the CSE and the sponsors - the main sponsors are Aitken Spence, HNB, JKH and the NDB - are investing Rs. 10 million in this proactive exercise, international participation had fallen short of the fifty fund managers the organisers had hoped to attract here with an all found package.

The international participants have only been required to pay their airfare. All other expenses including five-star hotel accommodation with full board and a two day pre-conference excursion to the southern beach resort or golf in the mountains as well as day trips will be at the expense of the sponsors. The CSE and SEC will make good any possible funding shortfall.

The CSE originally hoped to persuade Sri Lanka Airlines (Airlanka) to offer fund managers flying in for the meeting special fares. But Mendis said that with participants making their own arrangements on different airlines, this was not necessary.

President Chandrika Kumaratunga was due to inaugurate the conference, but it looks as though the president who had up to the weekend not returned from her visit to New York and Washington for the UN General Assembly and the World Bank and IMF meetings may not be able to make it. She was in London on Friday on her way back.

The CSE, however, hopes that she will be able to see the visiting fund managers before their departure from the country. "That is the plan," Mendis said.

Opposition Leader Ranil Wickremesinghe too will be addressing the meeting on Tuesday. The idea was to have both the president and the leader of the opposition to assure fund managers that the policies of the incumbent government as well as the alternative is business friendly, analysts said.

Other government speakers include Commerce and Food Minister Kingsley. T. Wickramaratne, Central Bank Governor A. S. Jayawardena, and PERC Chairman P. B. Jayasundera (who is also Deputy Secretary to the Treasury).

Colombo has been dependent on foreign participation to keep the market buoyant and its spectacular performance in 1994 was due to foreign play. The reverse also held true with the market collapsing when foreigners pulled out massively in the wake of the Asian crisis.

While leading businessmen agree that it would be better if local investors are the dominant shareholders of companies quoted on the CSE as share prices will be less vulnerable to negative external sentiment rather than fundamentals of individual stocks as evidenced by the Asian crisis, it is conceded that foreign investment remains a major factor on the CSE.

"When the going is good, 50% of the market is accounted for by foreigners," a senior CSE official said recently.

According to Mendis, most foreigners do not know what the Colombo market offers. The automated scripless trading system is one of the most sophisticated in the region even matching what is offered in western markets.

"The Colombo market offers investors value in terms of the current share prices, an easy entry and exit mechanism, an efficient automated trading and clearing system, a strong regulatory framework and no exchange control regulations on the repatriation of capital, capital gains or dividends," says CSE.

"The trading and settlement infrastructure coupled with the regulatory framework has minimized the systemic risk of investment and makes Colombo one of the most competitive markets in the region."

The company presentations that will be made at the seminar are by JKH and Aitken Spence from the Diversified Holdings Sector, Colombo Dockyard from Construction and Engineering, Grain Elevators from Manufacturing, Distilleries from Food, Beverage and Tobacco, and the DFCC, NDB, HNB, Commercial Bank and Sampath from the Banks and Financial Services Sector. Additionally, Sri Lanka Telecom will make a special presentation.

Rs. 81 mn. ‘debenture’ dividend must first be paid off
Riverina profitable but unable to pay dividend for second year

Riverina Hotels Limited, a member of the Confifi Group, has been unable to declare a dividend for the second consecutive year despite an after-tax profit of Rs.27.2 million for the year ended March 31, 1999, up from Rs.15.9 million a year earlier and Rs. 46.5 million retained profits on its books.

The company’s Chairman, Prof. M.T.A. Furkhan, described the results for the year under review as "fairly creditable,’’ despite the hotel being operational only for nine and a half months of the financial year. It was closed for refurbishing for the balance period.

Furkhan explained that as the refurbishing which cost Rs.61 million had been funded solely from the reserves and rights issue proceeds, and they did not have the capacity to pay any dividends either for the current year or the previous year.

"We still carry the liability for the payment of the 100% tax free dividend declared in the form of a redeemable debenture for 1997/98 of Rs.81 million. This commitment has to be paid to the respective shareholders before any fresh dividends can be declared,’’ he said.

Furkhan said that their property continued to face severe competition in the European market for 4-star prices. During the last two years, they have introduced several value adding innovative features like a centralised film process laboratory and a centralised medical services clinic, both designed to attract customers to the hotel.

The hotel was also upgrading ayurvedic health facilities in view of the success of the Ayurvedic Centre introduced at the Riverina. A capital expenditure of Rs.6 million will be incurred on this project which is currently under way.

"Hopefully, from this exercise and other joint efforts of marketing handled by the management company, Confifi Management Services Ltd., we expect Riverina to continue to enjoy the attractive market share and produce significant results in the future, ‘’ he said.

The company has also decided to set up a central laundry facility through a wholly owned subsidiary, Southern Cleaners (Pvt) Limited, to offer adequate and up-to-date laundry facilities for all the Confifi group hotels. This project of setting up an up-to-date technologically advanced central laundry has been completed by the end of the financial year.

Furkhan said that the project involved transferring the existing laundry plant and machinery to the new company and the purchase of additional technically advanced plant and machinery at a cost of Rs.8 million for installation during the current financial year.

"The subsidiary company has been given a 5 year tax holiday on both profits and dividends, and hopefully therefore, when the subsidiary starts yielding results, the directors expect to be able to channel the benefits of those tax exempt earnings in the form of tax free dividends to the shareholders of the parent company,’’ he said

Furkhan also said that the "slight increase’’ in tourist arrivals during the year under review had not impacted on the trade. On the other hand, there had been an increase of almost 22% of room capacity specially in the better class hotels in the country resulting in severe price competition to retain business.

However, the current year has seen increased tourist arrivals. In the first half of the calendar year, these amounted to about 21% which was a welcome sign.

Furkhan was also hopeful that the efforts of Sri Lankan airlines now managed by Emirates to increase flights to London, Scandinavia, Australia etc. would boost the number of visitors to Sri Lanka at least for transit purposes.

"Hopefully, in the coming months, barring any intervening misfortunes, there is every likelihood that the tourist traffic to the country may show some welcome signs of an upward trend,’’ he said.

The directors of the company are: Prof. M. T. A. Furkhan (Chairman), Messrs. N. S. Jabir (Alternate Mr. M. Tariq Jabir), M. H. M. Nazeer, M. C. T. Cassim, V. Balasubramaniam, G. R. Pathmaraj, K. L. S. Kaviratne, A. C. M. Thassim (Alternate A. S. Lokuhetty) and A. S. T. Furkhan.

Kelani’s tyre business now part of joint venture

Kelani Tyres Limited has transferred all its tyre business activities to a joint venture/strategic alliance named Ceat Kelani International Tyres (Pvt) Limited with effect from July 1, 1999, shareholders have been told.

This joint venture has been floated following an agreement between Kelani Tyres, Associated Ceat (Pvt) Limited, Associated Ceat Holdings (Pvt) Limited and Ceat Limited of India signed in January this year.

During the first quarter of the current financial year, before the transfer to the joint venture had taken place, Kelani Tyres earned an operating profit of Rs.11.4 million, up from Rs.6.4 million a year earlier before interest and similar charges.

But with an interest cost of Rs.26.6 million, up from Rs.23.3 million a year earlier, there was a loss of Rs.15.3 million for the first quarter of the current financial year. An extraordinary expense of Rs.1.2 million boosted the loss to Rs.16.4 million and unappropriated losses to Rs.437.5 million as at June 30, 1999.

Kelani has told its shareholders that according to the unaudited management accounts for Associated Ceat Holdings (Pvt) Limited, an unappropriated carry forward profit of Rs.126.3 million has been recorded.

August tea production dips sharply

A substantial 27% decline in August tea production has endangered Sri Lanka’s prospects of continuing its run of record tea harvests for the sixth consecutive year, Sri Lanka Tea Board statistics reveal.

The Tea Board placed August production at 19.5 million kg. down from 26.5 million kg. a year earlier. The cumulative production from January to August at 184.2 million kg. was down 1% from production during the comparative period last year.

Much of the August shortfall was due to production losses in the low country largely due to inadequate rainfall. While the high and medium elevations too lost crop, the production decline was not as steep as in the low country.

Although orthodox teas lost volume during August, there was a slight gain in CTC production which was up 1.1 million kg. from 1 million kg. the previous August. January/August CTC production at 12.8 million kg. is running about a million kg. ahead of production during the comparative period last year.

The country has been achieving record tea crops for the past five consecutive years and seemed heading for yet another new record in terms of first half production. But since then there has been a lag and it remains to be seen whether this would be caught up with better rainfall now being experienced in many planting districts.

APEC — the Auckland summit

By Kanes
APEC summits are better known for bonhomie and golf outings than for serious discussion and economic initiatives. Its 21 members vary from the most developed USA to the least developed Papua New Guinea; its decision making by consensus makes it difficult to reach important decisions and there are some members who feel that consensus should be replaced by majority decisions. Its decisions, in any case, are not legally binding and it is left to the good sense of each member to implement them in whatever way it can. There is no code of conduct as such and no bureaucracy to monitor progress and ensure that the decisions are carried out. On specific substantive issues like liberalization of sectors including food and autos, APEC has foisted responsibility on the WTO because the WTO makes binding decisions on trade issues. It was founded when the Asian economies were booming and trade was expanding rapidly but its Asian members are in the grips of a serious economic crisis, recession and negative growth. APEC lost much of its credibility in the Asian crisis as it failed to provide a group effort to help the countries to overcome the crisis; instead of pushing for strong solutions it became a passive onlooker.

The East Asian crisis, apparently, has not perturbed the APEC as it should have done. It has not provoked it to study ways and means of averting such crises in the future; it has not given it a sense of mission. The East Asian crisis was caused mainly by the volatile movements of short-term capital made possible by liberalization and integration of financial markets or globalization. Liberalization of financial markets by removal of all restrictions resulted in a massive inflow of foreign capital much in excess of real needs, and when they were suddenly withdrawn on loss of confidence in economic policies, the economies could not withstand the shock of such a large withdrawal - amounting to 11 per cent of their precrisis GDPs - and crashed. As there was no help from APEC, the crisis-hit countries turned to the IMF and IMF'S prescriptions of fiscal austerity and tight money made matters worse by deflating the economies and transforming the currency crisis into an economic recession. A substantial part of the progress made by these countries in the last 30 years has been wiped out and people are facing a bleak and uncertain future. Disillusionment has set in as APEC - even with the most powerful country in the world - has shown its helplessness in meeting a regional economic crisis.

Tension in Asia

The Auckland Summit was held at a time when there was some tension in Asia which required American intervention. The most important of them was that of East Timor where the East Timorese who had voted in favour of Independence were terrorized by the local pro-Indonesian militia backed by the Indonesian army. The UNO and the US warned Indonesia of the dire economic consequences if violence in East Timor was not checked. Clinton stated: "Nobody is going to want to continue to invest in Indonesia if they are allowing this sort of travesty to go on", and warned Indonesia that it must either restore order or invite an international military force to do the job. He also warned of possible cutoffs of foreign assistance from international lending institutions. "My own willingness to support future assistance will depend very strongly on the way Indonesia handles this situation". Britain and Australia threatened to break their defence ties with Indonesia. At the end, Indonesia agreed to an international peace keeping force on account of international pressure. The APEC played no role in the East Timor crisis; it was too big for the APEC to handle. Indonesia showed its displeasure at international intervention, by not attending the summit.

The other major conflict is between China and Taiwan where China had threatened to use military force against Taiwan. President Clinton, however, urged China not to let their differences deteriorate into a confrontation; at a meeting with the Chinese President Jiang Zemin, he told him that `'these people have too much at stake in a peaceful future, benefitting all their children, to let the present difficulties deteriorate into a confrontation in which in the end all would suffer". Clinton told Jiang that Taiwan President Lee Teng-Hui's recent call for "special state-to-state" relations between Taipei and Beijing "had brought about a lot of trouble" for both China and the US. Jiang, refused to rule out military force against Taiwan, but said he wanted a peaceful solution to the crisis. Then there was the problem of North Korea; Clinton had discussions with the Japanese and South Korean leaders on peace and reconciliation in the Korean peninsula and stated "The people of North Korea need food and opportunities. They need engagement with the South and the chance for a brighter future. They do not need new weaponry that threaten the security of the region and the world". In the US-North Korea negotiations in Berlin, North Korea has agreed to what amounts to a freeze in testing of destabilizing ballistic missiles in what could represent a major step towards reducing tension in the region. The fourth problem - China's entry to WTO - too was discussed by Clinton and Jiang but the prospects of China's membership of WTO in the near future is still uncertain. Thus, although tension in Asia was not in the agenda of APEC, the behind-the-scene negotiations of the US with the countries concerned, succeeded in reducing tension to a great extent. There is no doubt that the US tends to push its weight around and this has led to confrontation with Japan but it is the US which is holding APEC together.

Ten Years of Stagnation

APEC was established by a dozen countries - the US, Australia, New Zealand, Canada, Japan, South Korea and six ASEAN countries - Indonesia, Malaysia, Philippines, Singapore, Thailand and Brunei - with the objective of liberalizing mutual trade and expanding economic ties in 1989. More countries joined its membership over the years - China, Hong Kong and Taiwan in 1991, Mexico, Papua New Guinea in 1993, Chile in 1994 and Peru, Vietnam and Russia in 1998 bringing the total to 21. The first ministerial meeting was held in Canberra in 1989 and it was decided to hold such meetings annually and a secretariat was set up in Singapore in 1993. The APEC Business Advisory Ccouncil - a business sector panel to advise leaders - was established in 1997. The first informal summit of APEC was convened by President Clinton in 1993 following the ministerial meeting. The Malaysian Prime Minister did not attend this summit complaining that the US and Australia were using APEC only to pry open Asian markets.

Oragnizationwide working groups were set up such as panels on industrial science and technology, energy, marine resources conservation, trade promotion and telecommunications in 1990. The high point was in 1994 when the leaders launched the Bogor Declaration which set the ambitious goal of free trade and open trade and investment for developed member economies by 2O1O and for developing ones by 2020. Then, a year later, in 1995, APEC adopted the Osaka Action agenda setting three priorities: trade and investment liberalization, business facilitation and economic and technical cooperation. The Osaka Summit further saw Japan influencing other Asian countries to make a declaration that any trade liberalization would be voluntary, flexible and non-binding. This weakened the APEC as a trading grouping. This was followed by the Manila Action Plan in 1996 - a compilation of individual action plans (IAPS) from each member outlining a blueprint for achieving the Bogor liberalization target. Most of the blue prints, however, remained only on paper. The Manila Summit also endorsed the Information Technology Agreement which was then adopted a few weeks later by the WTO ministerial meeting in Singapore.

Although several Asian economies were in deep trouble on account of the East Asian currency turmoil, the crisis barely made it on the agenda at the Vancouver meeting in 1997. Malaysian Prime Minister Mahathir Mohamed grumbled that his pet topic - regulation of short-term capital flows - hardly got a hearing. The focus of attention instead was the Early Voluntary Sectoral Liberalization (EVSL) under which the leaders agreed to move on 15 sectors. USA and Japan, however, wrangled over agriculture, timber and fish products. The Asian crisis topped the agenda in Kuala Lumpur in 1998 and the leaders agreed to pursue a cooperative growth strategy to achieve early and sustained recovery in the region. US Vice President Al Gore upset the hosts by supporting the backers of the ousted deputy Prime Minister Anwar Ibrahim, and the Philippine President Joseph Estrada added fuel to the fire by meeting with Anwar Ibrahim's wife. It was hardly an atmosphere conducive to goodwill and cooperation. The leaders could not agree on how to move EVSL on 15 products forward and ended up referring the matter to the WTO.

APEC's record has been so disappointing that even its early supporters have become its critics. Helmut Sohmen, the chairman of the Pacific Basin Economic Council which has been promoting regional cooperation for 32 years has openly caller' for APEC to be disbanded. "Let's admit it has been a failure and consider other options". Referring to the impasse in EVSL, he stated: "APEC has not demonstrated sufficient political will to reach agreement. Referred to the WTO appears like subterfuge to hide the failure to move forward... A lot of hot air, programmatic declarations or promises of greater willingness to act in future will not convince people that APEC deserves ongoing support". The former Australian foreign minister, Gareth Evans warned, "APEC is in real danger of marginalization unless some real momentum is regenerated in New Zealand". Mahathir Mohamed, the Malaysian Prime Minister dismissed APEC contemptuously: "APEC members will never be able to agree on anything. APEC is now just a place to meet each other. APEC has no clout". It is not an organization really structured for action. Mahathir criticized APEC's unwillingness to take decisive steps with regard to the financial crisis, and said he didn't expect APEC to achieve much in New Zealand. He also renewed his call for an East Asian Economic Caucus which would exclude the US, Australia and New Zealand.

Further Liberalization

The US is mainly interested in expanding its markets for trade and investment in Asia. Thus, its has emphasized the need for further liberalization of Asian countries, reechoing the IMF's prescriptions. The facts that Asian countries which had not liberalized like China, Vietnam and India escaped the crisis and that Malaysia has overcome its crisis by its own capital controls and restrictions have been ignored, and countries are pressurized to liberalize in order to create investor confidence, attract foreign capital and recover from the crisis. Liberalization has already facilitated the purchase of local firms in South Korea and Thailand by foreign firms - mainly American firms and the process of foreign take-overs will gather momentum with further liberalization. The US Secretary of State, Madeleine Albright, for instance, in a statement before the APEC meeting in Auckland, requested the Asian countries to keep up the momentum for free trade, banking reform, democracy and clean government and to deepen the legal and regulatory reforms that attract investment and improve the business climate, as safeguards against financial crisis.

The other major objective of the US is to secure the support of APEC membership to its agenda for the forthcoming world trade negotiations under WTO in particular to open markets for agriculture, services and industrial goods. The US tried to persuade the APEC to adopt its agenda for the WTO round. The US President, Bill Clinton, stated that the APEC should take a leading role in opening world markets as free trade offered benefits to all. "A strong world trading system is good for all the nations of the region." The APEC Business Advisory Council too recommended faster trade liberalization commitments by members, closer attention to developing the legal and regulatory system needed in each country to cope with future crises, increased transparency and further progress in corporate and financial reform. It suggested substantial improvement of individual action plans as they are not transparent, specific or comprehensive enough.

The US, it is important to note, is the largest export market of East and South East Asian countries and it is therefore of crucial importance to Asian economic revival. Just as the US wants an open market for its trade and investment in Asia, the Asian countries want an open market in the US. That is the reason why the Asian countries too support trade liberalization, although individually they have some reservations on free trade. They are careful not to clash with the USA lest they lose their main export market. The US too has reminded them of the relevance of the American market for Asian countries. Madeleine Albright emphasized in her statement that the US had done its share of work by keeping its own market open to Asian imports and by encouraging the IMF to respond to the Asian crisis.

The APEC Summit agreed therefore to intensify efforts to eliminate non-tariff restrictions on trade, to work in collaboration with other relevant organizations to develop a set of banking standards for consideration and possible adoption by APEC economies and accepted the calls of APEC Business Council to be more specific, transparent and comprehensive about each member's plans to liberalize trade. The Summit also agreed to launch a new round of global trade talks covering industrials, agriculture and services, to be completed in three years and culminate in a single package and abolition of export subsidies. Earlier, the APEC leaders had toned down their backing for a ban on agricultural subsidies, saying they would "support" the abolition of agricultural export subsidies. Leaders agreed to boost air-services liberalization and some of them announced that they would negotiate separate bilateral free trade agreements to speed up liberalization to reach the free trade goals endorsed in the Bogor Declaration. Leaders supported the accession to WTO membership of APEC economies that are not yet members.

There was however, no mention of any international measures to regulate the destructive movements of hot money which caused the Asian crisis or the need for a new financial architecture. A new and refreshing element in the Summit was President Clinton's call for open markets with a human face. For the first time, he showed concern for the people adversely affected by the Asian crisis. He emphasized that nations should strengthen safety nets, so people had unemployment insurance and job training and so that poor children were not the first and hardest hit victims of an economic crisis. "We must in short, continue our efforts to put a human face on the global economy - not because it is charity but because it’s the right thing to do from a humane as well as from an economic standpoint. It is essential for the long-term success of the markets". This call for open markets with a human face is however not reflected in the decisions and the communique of the Auckland Summit. The UN decision to send an international peacekeeping force led by Australia to East Timor saw a rupture of good relations between Indonesia and Australia, Indonesia and Malaysia were conspicuous by the absence of their leaders at the Summit: this augurs ill for the future of the APEC.

APEC a Fiasco?

Professor Waiden Bello of the University of the Philippines strongly believes that the APEC serves no useful purpose and should be phased out of existence. He says: "Of course, as a social club APEC is a great success, providing a good excuse for bureaucrats to spend taxpayers' dollars to subsidize tourist junkets that mask as exercises in economic diplomacy. Let's face it, none of these events - from the meetings of environmental bureaucrats to "clean up the Pacific" to conference on how to support small and medium-sized businesses, to the recent meeting in Manila to "advance gender equity" in APEC - has produced anything beyond nice-sounding declarations. No other regional association, not even the Association of South-East Asian Nations, has generated so much heat yet yielded so little".

Where there is no vision the people perish — Barbara Ward

By Analyst
The above is the title of an essay written by Barbara Ward in 1980. The Sri Lanka Broadcasting Corporation Chairman, Mr. Janadasa Pieris has written a book about the vision of the President Chandrika Bandaranaike Kumaratunge, which is reportedly on her slogan of capitalism with a human face.

It is good to see that our leaders have a vision. Both Margarat Thatcher and Ronald Reagan broke away from the prevailing economic orthodoxy as did J. R. Jayewardene. They moved away from the belief in state ownership and control. We in Sri Lanka had under the Bandaranaike followed a disastrous policy of socialism, which pauperized the nation.

Private enterprises in the port, in banking and in insurance, in transport all ended up as white elephants. The employees not only did little productive work but they became dishonest. There was no one to safeguard public property or to act in the public interest as the ruling politician, the ministers robbed the state and misused public funds to reward political supporters.

As a Russian Communist once said "they (state) pretend to pay while we pretend to work". Our politicians have not changed. They still rob the state and misuse public funds in their private and political interest. Nobody could support "statism". There is no chance that this behaviour of our politicians will change. They are not concerned with economic efficiency. It would be naive to expect development through the state as in some other countries.

The open economy

But unlike Margaret Thatcher and Ronald Reagan our politicians even not really committed to a free market economy. Contrary to Marxism the world is ruled by ideas as J. M. Keynes and Hayek believed. But there is a considerable delay in putting ideas to practice. Ideas filter very slowly from scholars and thinkers via students in the universities and the media to the wide public.

But our universities were cut off from new ideas in economics, politics etc. after the switch over to swabasha as the medium of education. Biologists stress the importance of language for human beings. Tradition is as important or even more important than natural selection in the evolution of man. A developed language is a better vehicle for the generation and transmission of ideas. So the classical liberal revival did not take place in our universities which continued to teach Marxist economics.

Not only was there no transmission of the classical belief revival in economics, there was no real understanding of what this involves.

We have carried out privatisations. We have de-regulated and got rid of many government regulations. But these efforts were more the result of pressure exerted by the World Bank and the I.M.F. rather than the consequence of any acceptance of the new economic ideas.

The public choice economists like James Buchanan have pointed out that even if the policy makers are committed to change, there are blocks to such policy changes in democratic societies. There are powerful interest groups in a democracy which oppose changes in policy. They are the politicians, the bureaucrats and the workers in the state sector and their trade unions.

None of these groups want a free market economy because it cuts into their power and privileges. There is also no direct link between costs and benefits in a democracy. The costs of any political decision, say a new regulation or free education are diffused across huge numbers of taxpayers including future taxpayers.

The people don’t understand that the cost of free education is borne by everybody either through taxes including indirect taxes which push up the prices of goods or through inflationary finance and or government borrowing where the cost falls on future tax payers. Deficit financing is a Bandaranaike heritage which was adopted by all political parties and has now come to stay since the people are under the money illusion.

Inspite of the pressure of the IMF, government budget deficits although coming down, have continued to be excessive. There is no hope that budget balance will even be restored unless and until the public come to understand the disadvantages of such financing and overcome the money illusion.

While the costs are diffused, the gains from regulatory action and from fiscal and regulatory redistribution is concentrated upon politically important interest groups. The professionals most of whom cheat on income tax have benefited from the tax reductions. Most professionals don’t give receipts, accept only cash and operate in the black economy.

Anyone can observe the lavish display of wealth and the conspicuous consumption. The Laffer curve certainly does not operate in an economy when the black economy dominates. What is required is to curb the black economy.

What is required is presumptive taxation as introduced in the Indian tax laws. Of course the last Taxation Commission recommended against it. But when most professionals and businessmen cheat on income tax there is no alternative to presumptive taxation. But a weak government incapable of maintaining law and order could hardly enforce tax laws.

Didn’t we say that ideas ruled? How then is it that economic interests of the elite — the professionals, the businessmen seem to prevail? Do we say both ideas and economic interests determine policy making?

Prisoners dilemma

According to James Buchanan, even if politics is driven by economic interests, it might yet be possible to convince all the players, the politician, the bureaucrats and the organised workers, the ‘iron triangle’ that it is of "negative-sum nature" and that a positive-sum outcome is possible where all will benefit.

According to Buchanan this requires a constitutional disciplining of government. For example in U.S.A. public choice economists argued for constitutional amendments to enforce a balanced budget. There was the Gramm-Rudman Act. We too need a constitutional solution. We need to enforce budgetary discipline at all levels of government.

We need to hold ruling ministers accountable. They have to be punished for acts of corruption which broadly means all acts in pursuit of private and political interests rather than of the public interest.

It is the ‘prisoners dilemma’ that we are faced with. Two prisoners held in separate cells without being able to communicate, face a choice in which they can benefit only if both pick a co-operative option (where both say the same under interrogation). But since they can’t communicate, each must guess what the other will say. The best option is, instead of mutual incrimination, to come out with the same story and each must trust the other not to betray.

This is very difficult in a society like ours where there is very low trust. Given the hostility and bitterness among the two mainstream political parties, there is very little chance of them trusting each other and putting forward policy changes that will benefit the nation. It is much easier for each party to promote its own interests assuming that the other will do the same. So there is no hope for better economic policy or for any resolution of the ethnic problem.

To quote Barbara Ward again "We are obviously in a position of deadlock — a miserable deadlock, without ideas, without vision, without any sense of our mutual interests and perhaps worst of all, without any moral convictions to sustain our government or direct our purposes. And this is possibly the most dangerous situation in which human beings can find themselves..."

Stagflation or Recession

Whatever the government may say the economy is shrinking, the stock market is in the doldrums, foreign investment flows are down, poverty is increasing and unemployment is high particularly among the educated youth. Tea prices are showing a slow recovery. But it is unlikely to boom. Rubber prices are still in the dumps. The garment industries are struggling to maintain their exports.

We are facing a serious economic crisis. Some blame it on globalization. There is no doubt that international trade and foreign investment promotes a faster rate of economic growth. But to benefit from such opening up to the world we need first to establish macro-economic balance. We have failed to do so. As a result our products are out priced in world markets.

Years of inflation and continuous depreciation of the rupee have pushed up the cost structure of all our products, both agricultural and industrial. Nor have we shown any restraint in wage demands. The lack of flexibility in the labour market, the high cost of employing workers, their lack of discipline and low productivity have discouraged the flow of foreign investment except to the garment industry with its docile female labour.

The World Bank repeatedly advised the government to abolish the Termination of Employment Act. Instead the government sought to introduce a labour charter.

On top of the economic crisis we have a political crisis, a crisis in governance. It is the function of the ruling party to at least govern, if they are unable to solve the economic problems. We not only do not have good governance we have no governance at all.

There is something radically wrong with our political structures. Parliament has no power to control the executive. With the politicization of the judiciary in addition to the politicization of the public service we are on the threshold of a dictatorship. But none of the leading politicians have the stuff required of a dictator. They are weaklings, incapable of making up their minds and unable to get any of their decisions implemented by the civilian bureaucracy.

How long will it be before the military bureaucracy also kick against the good. A government that resorts to extra-legal force loses its legitimacy. Media personnel have been intimidated, assaulted and killed. There is no justice for media personnel or for political opponents. Dr. G. Uswatte Aratchi has pointed out that democracy is based on a realistic understanding of human nature, that power corrupts and that there should be no concentration of power in one institution or one individual. We are fast reaching a virtual monopoly of power, unchecked power, in the Executive President.

The cause of the wealth of nations, is the creative mind — invention, discovery, innovation. This is not possible with any form of dictatorship in the name of the proletariat or otherwise. Economic development needs free institutions and a free economy.

Do we safeguard our freedom? As Jefferson pointed out freedom is nourished by the blood of martyrs. Such martyrs seem to be only from the ranks of the media, Richard de Zoysa then and Rohana Kumara now. A free economy is a necessary though not a sufficient condition for democracy.

Policy in Cul de Sac

The government has carried out extensive privatisation, primarily in a search for revenue. It has not understood the economic rationals for privatisation. Privatisation is not merely a sale of government assets. It refers to the introduction of conditions which typify private sector commercial behaviour into the public sector. It includes not only the sale of assets but also contracting out of services which are the responsibility of the government. This is essential for economic efficiency.

It is impossible to get public servants to work with dedication and commitment while politicians will use the public service and public funds for political patronage. There is no alternative to privatisation in this wider sense. But commercial behaviour is restricted even in the private sector, owing to the Labour laws.

Unless these laws are modified and re-structuring of businesses made easy, even the days of some private sector firms are numbered. Nor can the private sector expand unless these labour laws are dismantled. Unless interest rates are brought down (the real rate of interest) and the plethora of government regulations on business scrapped and a framework of law and order maintained with strict enforcement of contractual obligations, the private sector cannot grow let alone becoming an engine of growth.

No Third Way

Jeffrey Sachs the Harvard Economist who advised the former Communist countries like Russia and Poland in their transition to market economies warned them against any ideas about a ‘third way’ such as a chimerical market socialism. He asked them to go straight for a western style market economy. There is no middle way in the economics of development.

The slogan about ‘capitalism with a human face’ is only a cliche. The Media Minister has said "She (the President) is upholding the view that the blending of socialist and capitalist policies would be beneficial to the country". Jeffrey Sachs has been proved right both by the success of Poland and the failure of Russia. So the government is mistaken in its economic policy however good the intentions about a capitalism with a human face.

Hayek long ago warned that the adoption of socialist principles would lead to both ecoomic stagnation and political dictatorship — the road to serfdom.

Margaret Thatcher had a clear vision. She liberalised the labour market, curbed the excesses of trade unions, removed the monopolistic barriers imposed by professionals like doctors, lawyers etc. She abolished all exchange controls and wage and price controls, cut the top tax rate to 40% and the basic rate to 25%. Of course there was her massive programme of privatisation. She made a genuine move in the direction of an open market economy.

What has President Chandrika done except to be pushed half heartedly to deregulation. There has been no roll-back of the state as in U.K. In fact our government expenditure has increased. There was no deliberate attempt to cut back public expenditure except in capital expenditure. This was forced on the government by lack of revenue.

Of course one can fault the reduction in tax rates but then tax revenue has not fallen in absolute term although its ratio in terms of the GDP has fallen from 20% to around 17%. On the other hand government expenditure in terms of the GDP is near to 30%. It is this gap of 10% that is causing the problem.

We cannot continue with our welfare budget and at the same time spend on the war about 5% of the G.D.P. This expenditure must be met either by increasing tax revenue or by cutting government expenditure. The government has opted to cut expenditure and public investment expenditure at that the only component that promotes economic growth.

Are we not sacrificing economic growth for the war? The present government nor the J. R. Jayewardene government genuinely believed in the open economy. By seeking to compromise, and looking for a third way, a middle way, we have entered a cul de sac.

IFC sponsors South Asia regional debt market symposium

September 30, 1999 — The International Finance Corporation will hold a South Asia Regional Debt Market Symposium in Sri Lanka in order to build a shared regional view on the importance of local debt markets for economic development and to create specific action plans to develop each domestic market.

The East Asian crisis highlighted the serious problems that can arise when corporations and financial institutions rely too heavily on short-term funding and foreign currency borrowings. Local debt markets eliminate foreign exchange risk and provide longer term local currency financing in amounts that banks cannot often support, while providing the opportunity to reduce interest rate volatility. In addition, debt markets help reduce stress on the banking system during times of financial crisis, supply long-term investment opportunities for institutional investors (such as pension funds and insurance companies) and support infrastructure financing. In recent years, numerous emerging market countries have been developing local debt markets, although the pace of development remains slow due to many regulatory and institutional problems. The symposium aims to address these impediments head on so that South Asian countries can learn from one another’s experience and work together.

Participants will be regulators and key market players from five South Asian nations—Bangladesh, India, Nepal, Pakistan, and Sri Lanka—along with special guests from other emerging markets and developed countries. The program will consist principally of working sessions where small groups will discuss obstacles to market development, and how to resolve and remove them. Experienced special invitees will actively participate in working groups and contribute towards generating practical solutions.

The symposium complements IFC initiatives related to debt markets, including funding and implementation of in-depth studies of each market, provision of technical assistance, and making institution-building investments in the region’s financial sector.

The mission of IFC, part of the World Bank Group, is to promote private sector investment in developing countries, which will reduce poverty and improve people’s lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, and provides technical assistance and advice to governments and businesses.

The Symposium will take place at the Taj Exotica Hotel in Bentota, Sri Lanka from October 6-8,1999.

John Keells - Tata tie-up in information technology

The John Keells Institute of Information Technology, set up in technical collaboration with India’s Tata Group, was formally inaugurated in Colombo recently.

Tata is participating in this venture through Tata Infotech Limited which is one of India’s largest systems integrators and a leading software exporter. A spokesman for the new institute said that it will offer the TULEC qualification - that of Tata Unisys Limited Educational Services and offer a variety of programs including career courses, professional courses, computer courses for beginners and corporate training.

The new institute will have a capacity to train around 800 students annually, the spokesman said.

Mr. Sudipto Mukherjee from Tata Infotech was here for the opening of the new institute as was India’s High Commissioner to Sri Lanka Mr. Shiv Shanker Menon and Mr. Anton Ratnayake, Advisor to the Board of P & O Nedlloyd.

"It is a great source of pride to all of us at John Keells to be able to initiate this kind of institute, particularly with such an internationally famous technical collaborator such as the Tata Group,’’ said JKH Chairman Ken Balendra at the opening.

He said that their group had been in software development for the last eight years. In addition to their domestic activities, they currently have major software projects going in Britain and the Middle East where a large number of Lankan professionals had been placed. The British operation is with P & O while the Middle East operation is located in the United Arab Emirates.

Balendra who said that the software business in the country is growing rapidly said that they themselves needed over 300 people in this area. "Our group, having felt the shortage of quality IT professionals in the country, and particularly in relations to our own demand for software exports, decided to enter into the field of IT training,’’ he said.

Tata Infotech is posting one of its people, Ms. Anuradha Kosala, with John Keells on this new project.

A company news release said that Sri Lanka had the potential to be a major software development centre in Asia given the country’s high literacy rate and education level. The shortage of IT professionals of acceptable quality had been a major drawback.

British power sector mission to visit Sri Lanka

A British Power Sector Mission, comprising nine companies will be visiting Sri Lanka from 4 to 8 October 1999. They will take part in a two day Seminar to review the current situation in the power sector in Sri Lanka and look at how British companies can help future developments.

Mr. Graham Atkinson, Director, Power and Energy Projects at British Trade International will chair the seminar. The theme for the first day will be Power Generation and for the second day Transmission and Distribution. Topics to be discussed will include restructuring the power market and the role of the regulator; UK experience in generation, transmission and distribution; Boo projects and power purchase agreements; the role and requirements of the investment bank; independent power projects for generation; combined cycle gas turbines; coal fired plants and mini hydros; economic optimum performance of plant; consumer protection and service standards; transmission grid and power pool management.

Over 100 prominent people from the power sector including the Ceylon Electricity Board are expected to participate in the seminar.

This Mission is jointly organised by British Trade International and the British High Commission. British Trade International is the trade arm of the Foreign & Commonwealth Office (FCO) and the Department of Trade and Industry (DTI) in London.

Visiting companies include the National Economic Research Association, National Grid Company, Ampy Automation, British Power International, Mott MacDonald, ANZ Grindlays Bank, Cinergy, Gilbert Gilkes & Gordon and Rotary Engineering.

The Mission Leader is Mr. David Burton. They will be staying at the Hilton Hotel. — (British High Commission)

Let your brand do the branding

The Sri Lanka Institute of Marketing (SLIM) held its Brand Symposium ‘99 in Colombo recently, exposing some sixty brand-conscious businessmen and industrialists to three lively discourses by top Sri Lankan enterprises on the significance of brands in the global market.

"Global competition is right here. We are part of one big marketplace," said SLIM president Deepal Sooriaratchi in welcoming participants, adding, "not sharing experiences limits development."

In an interesting keynote address, Dr. Saman Kelegama of the Institute of Policy Studies cited several examples of how a pull towards a brand could made that brand, and the business it represented, less vulnerable in product marketing. Among the examples he listed were the success stories of Kandos vs. Cadbury, Kelani (tyres) vs. Goodyear and Dunlop; and how Maliban piggybacked with parry of India to capture one perecent of the Indian biscuit market. Another piggyback example was how Hero of India teamed up with Honda of Japan to produce the Hero-Honda at half the price of the all-Japanese Honda Motorcycles.

Justin Meegoda of Vanik Incorporation made a visionary’s revelation of how better brands led to better profits. He gave a case-in-point example of how Vanik had already established itself as an innovative financial service in Bangladesh where the word ‘better’ has now become synonymous with Vanik (Sanskrit for ‘merchant’).

Meegoda said he targeted the Bangladeshi business community with a ‘big bat approach’ of just seven days of black and white advertising in the print media, to give Vanik single-sentence positioning with very simple, yet very interesting, examples. The result was Vanik’s instantaneous capture (a little over 50 percent) of the Bangladeshi credit-card market.

Meegoda also emphasised that the high work ethics prevalent in Sri Lanka had largely contributed to the training of his Bangladeshi workforce in Vanik’s maiden overseas operation, its first in the SAARC region. He also thanked his forward-looking advertising teams at Q & E for the Vanik success story abroad.

Kingsley Bernard of Dankotuwa Porcelain Limited unrolled yet another tapestry of Sri Lankan brand success overseas. Dankotuwa Porcelain, he said, markets its products in 30 countries. With the second largest market being Italy — itself a producer of world-class porcelainware.

Bernard showed how the Dankotuwa products are regionally marketed under three major brand names: ‘Muirford’ in the USA, ‘Ashford’ in Japan, and ‘Laklain’ in Europe and the Gulf States. In addition, Dankotuwa Porcelain has what are called ‘flanker’ brands such as ‘Tulip’ in India, and also engages in one-to-one direct marketing.

In a porcelain-marketing scenario where there are more suppliers than there is demand, Dankotuwa Porcelain produces 70 designs for Italy alone and 12 designs for the US market. This was a startling disclosure of how — as Bernard himself put it — a porcelain factory with an export department having fast turned into a porcelain exporter with a factory.

Puttalam Cement’s Douglas de Villiers, whose holding company Holderbank, is the largest cement producer in the world, active on all continents and operating in 66 countries, related the third brand-success story.

De Villers’ approach to brand marketing was unique to the Symposium. This tough looking and fast-talking South African admitted that he was against global brands, but totally in favour of multiplication of the best practices, and decentralised cooperation.

With this approach, said de Villiers, "you know if it works or not in Sri Lanka within three days." He showed how the mindset to a brand loyalty, such as ‘Sanstha’ cement enjoys, had significant local relevance that might be used abroad.

"There are 27 brands of cement on the local market today, with nine of them competing in the media. ‘Sanstha’ is a brand asked for by name, and we are moving from what we want to sell to what consumers want to buy. In passing, it must be noted the Puttalam Cement is the only one of these 27 that are involved in the local manufacture of cement from scratch," said de Villers.

His approach (i.e. Sanstha’s) was to "start at the top and work down. Innovation is very similar to driving in Sri Lanka. Everybody is moving in every direction at a heck of a speed with a lot of noise, but nobody seems to be getting anywhere," de Villiers said.

Others associated with the Brand Symposium were Prof. Sarath Nonis of the Arkansas State University, and former EBD Chairman Asoka De Lanerolle.

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