14th May 2000
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Lanka taken to task in the US

Lanka Internet Services Ltd's (LISL) American investor, International Internet Services Inc, is suing the Sri Lankan government for US $ 200 mn for failing to provide a conducive business environment.

International Internet Services will initiate arbitration proceedings against the government, for contravening/violating the Investment Protection Agreement entered into between the governments of Sri Lanka and the USA. 

Under the agreement, both governments undertake to equally treat investments by nationals/companies. If either government fails to adhere to the agreement, the grieved party/company is entitled to invoke the provisions of the agreement.

Under the present Sri Lankan constitution (section 157), the agreement is legally enforced and no administrative or executive action may be taken to contravene the agreements provisions.

International Internet Services will file the papers with the International Centre for Settlement of Investment Disputes in Washington within the next few days, LISL Director, Kalinga de Alwis said.

The exact amount of the damages is not known, but the figure would run into millions of dollars, he said.

''We expect the case to take six to eight months as our present investments are in jeopardy," de Alwis said.

The United States recently rapped the Sri Lankan government, to ensure it provides a fair play in the issues concerning LISL. If the present dispute is not resolved expeditiously, we are informed that the US Trade Department may issue a trade advisory against Sri Lankan investments, LISL said.

The US investors will also place the matter before the World Bank arbitration panel. This will have serious implications for future Sri Lankan investment, as funding for telecom projects will be subject to rigid scrutiny.

LISL's nightmares began when the company began providing enhanced voice services last year, which according to the company was within the preview of their licence. 

However, with the privatisation of Sri Lanka Telecom (SLT) in 1997, the government amended SLT is licence saying that 'no other international voice licences will be issued until August 5, 2002'. LISL says that the amendment excludes licences granted before 1997, while SLT interprets it as they have been given international voice monopoly till 2002.

While LISL began to import equipment to provide enhanced voice services with the Telecommunication Regulatory Commission's (TRC) approval, approvals to import subsequent equipment were withheld by the TRC, LISL says.

Meanwhile, on a complaint made by SLT, the CID began investigations into LISL's operations. SLT had complained that LISL's enhanced voice operations are depriving SLT of international revenue. LISL was further implicated in a conspiracy of having links with the LTTE through Gnanam Telecom'. A LISL engineer was arrested under the Prevention of Terrorism Act and is presently on bail, LISL's directors were questioned, the offices searched and guards were placed outside LISL premises. 

LISL then instituted legal action against the state authorities and the cases are pending in the Appeal Courts.

LISL is owned by Central Finance (20%), Lanka Ventures (32%), Esjay Electronics (24%), and International Internet Services (24%). 

Escise tax on Tobacco

More money will go up in smoke and down the hatch as the government yet again increased cigarettes and liquor prices last week. The increase came in a bid to raise Rs. 1.5 billion for the increased war effort. This is in addition to the Rs. 3.5 billion increase in taxes it expects from tobacco and alcohol this year. 

The Central Bank in its 1999 report states that it is anticipating excise tax on liquor and tobacco to go up from Rs. 8.75 billion and Rs. 17.2 billion respectively in 1999 to approved estimates of Rs. 10.7 billion and Rs. 18.7 billion respectively for this year. 

Moreover, officials say it would not stop here, especially in the heightening of the war. 

They said that this was the first for this year, but say we could be in for another hike later on. Historical data shows instances when the government raised duties twice in the same year. (See table)

John Keells Stock Brokers said that this hike on cigarettes and hard liquor did not come as a surprise, given the escalation of war. They said that successive governments in the past have resorted to similar hikes for revenue collections.

The retail price of all cigarettes was raised by 50 cents while the duty on hard liquor was increased by Rs.10.00 per bottle.

Economists expect rate rise this year

Inflation and interest rates are expected to rise this year, with the increase in defence levies and excise duties announced last week, economists said.

Deputy Finance Minister, Prof. Gamini Lakshman Peiris told parliament last week, that the government needed Rs. 12 bn immediately to fund the war. He also moved a motion in parliament to increase state borrowing limits by Rs. 20 bn and raise the official treasury bill limit by a further Rs. 10 bn to Rs. 135 bn.

Of the Rs. 20 bn, Rs. 10 bn will be issued via treasury bonds and rupee loans, while the additional Rs. 10 bn may be mopped up by Central Bank to control pressure on the rates, primary dealers said.

The defence levy was increased from 5.5% to 6.5%, to raise Rs. 2.5 bn in additional revenue. The estimated defence budget was raised from Rs. 52.4 bn to Rs. 64 bn, or about 5% of GDP. 

Prices of all cigarette varieties were raised by 0.50 cents per stick, while hard liquor prices now cost an additional Rs. 10 a bottle. The respective hikes will raise about Rs. 1.5 bn in additional revenue. 

Primary dealers are expecting short-term interest rates to rise in the coming weeks. Last week's treasury bill auction attracted higher yields, while the treasury bond auction yields remained stable. 

Economists expect inflation to rise to about 7.5% year end, overshooting Central Bank's expected increase of around 7% fuelled by tariff increases in telecommunications and electricity and a rise in fuel costs. 

However, an upward pressure on interest rates are expected with the delayed arrival with the proceeds from Sri Lanka Telecom's IPO, expected to bring in Rs. 30 bn (US$ 400 mn) and help reduce the budget deficit. The revised budget deficit is targeted at 8% of GDP. The government expectations of raising US$ 400 mn through SLT's IPO were made at a time when tech and telecom stocks were in vogue in the international markets.

However, with such stocks losing their glamour last month, most telecom and tech stock IPOs scheduled for this year have been put on hold. 

The increased country risk and the country being placed on a war footing will further dampen enthusiasm on the foreign placement of the SLT issue. Under such circumstances a question mark now hangs on the pricing and timing of the issue, analysts said.

A delay in SLT's IPO and a lower than anticipated inflow of money may create additional fiscal pressure. Despite a hike in excise duties and defence levies to supplement revenues, the bulk of the additional financing requirements is expected to be met through borrowings. 

An increased country risk may hamper the government's ability to borrow in the international capital markets, a substantial portion of the borrowings may have to be funded locally, leading to upward pressure on interest rates. 

Plantation workers plan prayerful protest

Plantation workers put the country's situation before their demands and decided to drop plans for a public protest. Workers instead are planning a peaceful prayer campaign, which would delay their morning clock in time. 

Wage talks broke down once again as both parties failed to reach a consensus, while a date for the next meeting is as yet undecided.

Officials said that due to the volatility of the situation, the President had requested the unions not to go ahead with the prayer campaign until after a proposed meeting with her and the parties concerned next week. 

Union officials said that talks ended with the Regional Plantation Companies (RPC) raising their offer to Rs. 115 from the present Rs. 101 and the unions bringing down their demand to Rs. 123 from their previous Rs. 131 for tea plantation workers. Officials said that the rubber plantation workers wage hike was put on hold as it represented a smaller percentage of the plantation workers. 

Sri Lanka to be ranked in a Corruption Index

By Dinali Goonewardene
Plans are underway to rank Sri Lanka by a Corruption Perception Index. The ranking will be done by Transparency International (TI), a non governmental organisation dedicated to increasing government accountability and curbing international and national corruption. 

" The corruption perception rank will provide the platform for other TI programs," Trustee, TI Sri Lanka chapter, Arittha Wikramanayake told the Sunday Times Business. The Centre for Policy Alternatives has been approached by TI's Sri Lanka chapter to conduct a survey of the peoples perceptions of corruption, Director, Centre for Policy Alternatives, Dr. P Saravanamuttu said. A representative sample of the population will be used to determine what they understand by corruption, in which areas corruption exists and possible remedial action. However this is the first of a series of surveys and at least three surveys have to be conducted to arrive at a corruption rank. The score which may affect business confidence, will be published alongside a standard deviation indicating differences in perceptions and the number of surveys conducted to arrive at the rank. In 1999 Denmark headed the corruption perception index with a high score indicating favourable perceptions. Finland and New Zealand followed. However Indonesia, Nigeria and Cameroon were last on the list of 99 countries ranked.

Transparency International was founded in 1993 and is active in over 70 countries wordwide. It focuses on building systems which combat corruption, which once in place, will highlight corruption. TI's national chapters are financially and institutionally independent.

Strategic alliances and counter moves

Investors pursuing strategic stakes caused a flutter in the Colombo bourse last week. Rubicond Enterprises Ltd has acquired 12.06 per cent of the shares in Aitken Spence & Co. Ltd since December 1999. And the market was a buzz with rumours that Rubicond was a Caribbean fund used by a Sri Lankan business magnate who had staked his claim in Spence.

Aitken Spence's major shareholders include the Distilleries Group (29%), International Finance Corporation and Commonwealth Development Corporation (13%) and the Directors and employees of Aitken Spence (18%). Foreign funds and retailers hold the balance. 

However the company has seen a considerable change in its shareholder base with the Distilleries Group holding less than 1 per cent in July 1999.

Meanwhile Seyfest (Pvt) Ltd, a Ceylinco group Company has acquired a 10 per cent stake in Seylan Bank. The Readywear Group headed by business tycoon Yaseen has also been showing an interest in Seylan and market watchers believe this to be an attempt by the Ceylinco Group to retain its check over the bank. 

Readywear Industries held 10 per cent of the bank's shares in April while Ms. Yaseen had a 4.9 per cent stake. However a flurry of recent transactions have resulted in concerns among industry watchers that the Ceylinco Group has breached the Banking Act which prohibits a group of companies from holding more than a 20 per cent stake in a bank. A list of the top ten shareholders in April revealed the Ceylinco Group held more than 20 per cent.

During the week the All Share Price Index declined 0.4 per cent to close at 444.9 while the Milanka Price Index fell 0.8 points to register 701.5. Average turnover for the week was Rs. 51.7 mn and net foreign outflows were Rs. 67.3 mn.

Central Bank's fiftieth and first annual reports 

The Central Bank's Fiftieth Annual Report published on April 30th was an impressive document of over 300 pages. It is no doubt one of the most comprehensive Central Bank Annual reports the world over. It is very different to the first Annual Report published on 31st March 1951.The first Annual Report was a slim volume of about 75 pages, which reviewed the economy in just 17 pages. The first report was modest in appearance. The latest has an attractive glossy cover, impressive graphics, uses the latest computer technologies and is printed by the Central Bank's own printing press. 

The contrasts in the two are not confined to the formats and printing. The years they review are not similar. The Report on the 1950 economy was devoted mainly to " an analysis of the inflationary situation in Ceylon", which the Report described " as a period of marked inflation". The latest year was a period of low inflation and "moderate growth" .While the economy grew at a lower than average rate last year, the 1951 Report said of 1950 that " the progress of the Ceylon economy during the past year has exceeded expectations". In 1951,the Central Bank was discussing the problems brought about by a surge in exports. This year, it was an explanation of what went wrong in our exports because of global conditions. 

The economy of 1950 was vastly different to what it is today. Despite the relative prosperity of the time, the Report struck a note of caution pointing out fundamental deficiencies in the economy. It said: " It is most find that even on the crest of the present boom there is still some unemployment and a very considerable amount of underemployment. Such a situation should not be, for economic conditions could scarcely be more favourable for using labour to expand production than they are today .Purchasing power is more than adequate; demand is brisk. Money capital, labour and land are available. The answer lies partly at least in inadequacy of enterprise. Or if enterprise is present, the ways and means of linking it with money capital are absent."

In retrospect, these comments appear almost an analysis of what happened. A story of missed opportunities. The prosperity of that year and for a few years after, was dissipated. The structural changes in the economy, which could have been effected at that time rather painlessly ,was not undertaken. The sharp rise in population, which the report noted, ate into the economy and reduced its capacity to grow faster. The actual story of what happened is more complex than this, but these threads are a part of the fabric of missed opportunities. 

And there is another characteristic that has manifested itself throughout our recent history. That is the sense of complacency when conditions are good or to think that they are not so bad, when in fact they are. We often quote the experience or performances of countries which have not fared as well as ours and even congratulate ourselves on our performance.

This has surfaced in the Fiftieth Annual Report of the Central Bank, where much effort is made to show that our economic performance has not been that bad, when compared to certain selected groups of countries. The Annual Report argues "Although this growth rate of 4.3 per cent was lower than the long -run annual growth rate of around 5 per cent, it was a satisfactory rate given the difficult environment in which the country had to manage its affairs." It takes much effort to outline and analyse the global conditions to provide an excuse for the lower growth rate. The report also concentrates on the recovery and sharp growth of the last quarter's GDP by 6.9 per cent.

However the Annual Report, which highlighted the fact that our growth of 4.3 per cent was higher than the global growth rate of 3.3 per cent and the developing country growth rate of 3.8 per cent, has also shown that it is lower than the 6 per cent growth of developing Asian economies. It has also pointed out that: " Sri Lanka has been lagging behind many other fast growing developing countries". Sri Lanka's growth of 5.2 per cent per year during the 1992-96 period, it points out, was much lower than the 9.1 per cent growth of Newly Industrialized Countries during the same period. The latter facts are somewhat different to the position taken earlier. This schizophrenic interpretation is very understandable. The Central Bank has to combine its economic analysis with a palatable report to please the government and people. It has the unenviable roles of being the watch dog of the economy and at the same time being a spokesman for the government.

This situation is a far cry from what the Bank was at its beginning years and for sometime afterwards. The founding fathers made every effort to ensure the independence of the Bank and placed provisions which they thought would ensure that independence. They could not see the changing political and social milieu that politicised all institutions within the country and may be all its peoples. What the Fiftieth Annual Report reflects ,at least in part, is that process of politicisation, which has robbed the Bank a robust and sturdy independence so essential for the long run economic growth and development of the country.The First and the Fiftieth is so different for this reason.

Think locally act globally? That's a laugh 

What was Colombo's most outlandish Vesak decoration last year ? Perhaps, McDonald's did the honours. The restaurants' outlet in Colombo had a Vesak lantern ( koodoo ) in the shape of a Big Mac, and a message underneath that said Happy Vesak.

This was multi national insensitivity at its most boorish; saying it of course can get me sued , because McDonald's has a record of curious litigation. More about that later, but the fact is that McDonald's being a multi national company ( franchise to be precise ) displayed typically corporate promotional behaviour with this lantern act which was culturally insensitive and typical of the behavior of globalised behemoths.

McDonald's may deny the display until the cows come home, but the fact is that the humoungous Mc Donald's "burger lantern'' was there, displayed for all comers to see and get grossed out. Not only was the decoration quite conspicuous, it was also kept - on by the management for several weeks after Vesak, which meant that the Happy Vesak Burger ethos was really kicking in.

No coincidence that the Ven. Gangodawila Soma alluded to the commercialization of Vesak on TV last week, and talked about special Vesak offers in restaurants and mini-bars. (One restaurant had a theme week called ":Vesak fun'', according to Ven Soma.)

But, this piece does not intend to be another Vesak sermon. Instead, what is sought here is a contradiction of the highly hyped drive claiming that MNC's ( multi national corporations ) want to humanize, something that had been crowed about by one guest writer in these columns too. All fellow guest columnists are entitled to their own point of view. Defend we do, their right to say, but attack the substance….

McDonald's is a very good example of a MNC that had not humanized or done any such thing, but had on the contrary generally been a typical MNC that has sought aggressively to maximize profit at the cost of the local culture and ethos. 

The Sri Lankan example was just symbolic. But there is now the mess of a trial that is getting to be quite notorious called the Mac Libel trial, which is fairly representative of the way in which this MNC has been operating, at least as far as litigation policy goes. 

The long and the short of the story is that Helen Steel, and David Morris, two members of London's Greenpeace, were sued by McDonald's for handing out leaflets entitled "What's wrong with McDonald's?" The two counter sued, and thereby began the twist in the tale. 

Says Cathy Lang, reporting the trial, that when Mc Donald's expert witness Verner Wheelock was asked to defend the company's description of its food as "nutritious'' , the consultant defended the word as meaning "has nutrients.'' When confronted with the term junk – food, he said it was "whatever a person doesn't like'' ( in his case semolina.).


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