The Sunday TimesBusiness

15th September 1996



Ban on export of poor quality tea is counter-productive

By Our Plantations Correspondent

Grave concern is being expressed by the Tea Trade over a recent decision of the Sri Lanka Tea Board.

The Tea Board has imposed stringent restrictions on the export of poor quality tea. There are however many countries in the world which require this Tea.

If we do not meet such demands, they will obviously look elsewhere for their requirements. Somalia, Ethiopia, and even some parts of Western Europe used this tea for straight consumption or for blending purposes.

Indeed what is even most surprising is that Sri Lanka on the one hand is attempting to permit the import of poor quality teas for blending and re-export but on the other hand, the same poor quality produced in the country is being restricted.

Take the case of rubber, there is crepe sheet, scrap rubber, shell scrap, lamps etc. These are all of varying quality and fetch prices in keeping with the quality. The rubber industry makes use of all types of rubber.

The same situation prevails in every major crop, including rice, red-rice, white rice, broken rice etc.

If international markets require a poor quality and Sri Lanka has that quality, there seems to be nothing wrong in exporting such teas.

The tea industry in Sri Lanka is over a century old. Poor quality teas have been exported throughout. There is no special advantage in depriving the country of valuable foreign exchange by excluding such poor teas from being sold.

This has been said before and it is emphasized again that the industry must be de-regulated - not regulated. Market forces must take over. State intervention and controls have inhibited growth in this sector.

So much so, that when state-owned plantations are put up for sale, no one in Sri Lanka has the money or the resources to buy them up.

Microimage launches Helawadana

Microimage who introduced sinhala software solutions to the SriLankan computer market, have introduced a unique Sinhala software package "Helawadana" for IBM & IBM compatible PCs. This package can be used for,Word processing, Accounting, Desktop publishing etc. on Windows based applications such as Ms word, Ms Excel, Ms power point, corel draw, Harvard graphics, Word perfect etc. It

contains a comprehensive spell checker which supports Ms word. Also it has an advanced tutorial which guides you to learn the Sinhala Keyboard. Microimage development team hopes to introduce more & more enhancements to support Sinhala computing in future.

Instruments to conduct monetary policy

Experts from Financial Programming and Policy: The case of Sri Lanka: by IMF Institute.

The Sri Lankan authorities have relied on a range of instruments to conduct monetary policy, principally direct bank-by-bank credit ceilings, changes in administered interest rates (including bank and refinancing rates), and reserve requirements.

Open market operations have been used to a limited extent, first in the form of transactions in Central Bank bills and, after auctions were established in 1986, through Treasury bills. The Central Bank has been involved extensively in these auctions, absorbing all Treasury bills required by the central government that did not draw bids at the bank's cut off price. From 1986 until 1990, the share of Central Bank holdings fell from 84 percent of the total to 45 percent.

Fiscal policy consisted of ad hoc adjustments to tax rates (direct and indirect), usually intended to compensate for the inelasticity of the system. As noted above, the authorities made frequent efforts to contain expenditures, either through targeted and across the board reductions or by tightening controls on spending.

Exchange rate policy became marginally more market oriented in late 1990. From September 1989 through August 1990, the rate had been held at SL Rs. 40 to US$1. After August 1990, a new system was adopted under which a reference rate for the rupee was calculated daily; this rate was the weighted average of the previous day's rates in the interbank market, including dealings with the Central Bank. Central Bank rates were determined by negotiations and varied according to the monetary authorities' external objectives and market conditions.

The market forces released by liberalization made the economy more vulnerable to inflation and external reserve pressures in the absence of sound macroeconomic management. The 1980s were characterized by large external current account deficits, sizable fiscal deficits (largely attributable to an upsurge in public investment), and an accommodative monetary policy. Although the fiscal and external current account deficits declined in the late 1980s, there was no commensurate improvement in the overall balance because capital inflows diminished, increasing pressure on external reserves and domestic budgetary financing.

Sri Lanka's economic restructuring efforts originated with the far reaching trade liberalization initiated in the late 1970s. Liberalization provided a powerful stimulus for economic activities in the private sector. However, after a strong initial response, Sri Lanka was unable to capitalize on the changes, for four reasons: (i) failure to expand the reforms into the public sector; (ii) the country's continued vulnerability to exogenous shocks (including adverse terms of trade and unfavourable weather conditions); (iii) relatively lax financial policies that continued for extended periods; and (iv) persistent civil conflict.

In 1990, Sri Lanka retained many of the structural impediments with which it had entered the 1980s. Many of these impediments can be traced to the size, inefficiency, and pervasive influence of the public sector. The central government employed almost 10 percent of the labour force and maintained a high level of expenditure about 30 32 percent of GDP because of perpetually high subsidies and transfers to households and corporations; a large and costly public administration; and a public investment program that expanded to very high levels in the early 1980s. A major part of this investment program was a large scale integrated rural development and irrigation project (Mahaweli), which absorbed significant budgetary resources throughout the decade.

Liberalization largely bypassed the public enterprises, which remained large and inefficient: in 1990, some 130 corporations in Sri Lanka employed 600,000 people (about 10 percent of the labour force), even though the sector's manufacturing output had stagnated or declined. Attempts to improve the financial performance of a few of these enterprises met with some success, but the imbalance within the sector lingered. A significant part of the problem lay with the three large state owned plantation corporations (tea, rubber and coconut), which incurred heavy losses in the 1980s and were generally producing at a much higher unit cost than smaller estates in the private sector.

The pervasive influence of Sri Lanka's public sector has long been reflected in the array of regulations and bureaucratic hurdles faced by potential investors or exporters. Over the years, many efforts were made to remove these distortions. Import restrictions and protective tariffs were reduced and investment regulations diminished. Some steps were taken to liberalize financial and insurance markets and more recently, ocean shipping. Nevertheless, many minor distortions and regulations remained in 1990, which, although individually inconspicuous, together constituted a significant hindrance to private sector activity.

These developments were aggravated by repeated waves of civil conflict, which at times became the dominant influence over economic activity. A further threat to economic stability came from developments in the Middle East in mid 1990 that not only raised the cost of imported oil but also threatened to weaken tea exports, reduce transfer payments from migrant workers, and create additional expenses for repatriating returning nationals.

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