Financial Times

Tackling the recession


To many – the global economic and financial crisis is causing havoc, distress and untold pain to individuals and their families in general. Lay-offs have also begun to hit Sri Lanka as reports in this section show. Unofficial figures show that at least 50,000 workers, have lost their jobs since January 2009 while more are set to follow in coming months.

But for some the crisis could be a blessing in disguise, according to a human resources specialist. C. Hewapattini, an HR specialist and leading member of the Institute of Personnel Management, speaking at a Colombo symposium this week on the crisis. According to him, this is a good opportunity to trim the fat and reduce waste. He says substantial savings can be made if proper measures are taken.

In many ways, companies have reduced costs through decisions like switching off unnecessary lights, reducing the use of ACs, minimizing use of paper, cutting down on transport, doing away with unlimited petrol allowances and providing limits on spending. Some companies have also enforced pay cuts among top executives who were earning a couple of lakhs in addition to unlimited entertainment and petrol allowances. Companies have saved millions of rupees through these measures. Furthermore most companies offer foreign trips to executives as incentives for meeting targets which is another avenue that may be reduced in due course – though some HR experts argue that incentives are essential to enhance productivity and improve targets.

It is no doubt that top corporate sector executives have had a cushy lifestyle with unlimited perks and other benefits -- a lifestyle that will come down to earth with the reality of the global crisis.

There is the good, the bad and ugly in this crisis. The good news is that inflation is coming down, according to the Central Bank (CB)’s latest figures. Inflation according to the 12-month moving average fell in April to 16.7 % from 18.6 % which is the lowest level since January 2008.

The CB said point-to-point inflation fell to 2.9 % against 5.3 % in March 2009, another record low.
The bad news is that the US government has, according to foreign news reports, urged the IMF to delay the proposed $1.9 billion standby facility to Sri Lanka as a means of putting pressure on the government to minimise civilian casualties in the northern conflict.

The reports which appeared late on Wednesday triggered anxiety in the Colombo money markets on Thursday and put pressure on the US dollar which rose to Rs 120.50 from Rs 120 (per dollar). Bankers said the Central Bank then quickly issued a statement – to reassure the markets – saying an IMF team is now in Colombo for further discussions and that the loan process had reached an advanced stage of progress, implying that there were no problems at this state of the discussions.

The dollar which has peaked at Rs 120 (per dollar) in recent weeks after the CB stopping inflating the rupee by pumping in dollar reserves to keep the rupee up, is likely to remain at these levels in coming weeks. With inflation falling and lower import demand, pressure on the dollar would fall while export revenue is also set to rise with gains in the dollar so far. Bankers say, largely on CB estimates, that Sri Lanka may end up with a current account surplus for the first time in years.

That’s the good news but what about the social impact on job lay-offs and downsizing? HR expert Hewapattini made a valid point when he said that Sri Lanka seems to take the crisis very lightly.
Referring to a recent statement by some high officials that although 50 factories have closed down, another 50 factories have opened, he said this was an absurd comparison. “This is like saying for every two divorce actions, there are four new marriages. What about the social consequences of losing jobs and how do these workers feed their families, pay off loans, debts, etc?” he asked.

At the same seminar, economists Dr Harsha de Silva and Dr Sirimal Abeyratne made the point that the global crisis became a crisis for Sri Lanka only after the CB issued many warnings in its 2008 annual report issued in early April.

“Throughout the latter part of 2008, the Central Bank said not to worry, the crisis won’t affect Sri Lanka,” Dr. Abeyratne said, adding that CB had been saying there was no need for IMF support because the situation was well under control here.

Wrong signals no doubt and the CB is now scurrying for cover and an agency who didn’t want the IMF, is now desperately in need of the facility. Like Mr Hewapattini and many others say, Sri Lanka is not prepared for the crisis and only reacts when it happens. While criticising the CB for giving the wrong signals, it must also be acknowledged that the banking regulator set measures last year to bring inflation down, and that is happening which is a positive sign in a sea of gloom.

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