4th November 2001

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  • Confronting excess labour 
  • Running on empty taps
  • Confronting excess labour 

    A fabric-manufacturing factory in Sri Lanka's Biyagama free trade zone was confronted with a major problem last month a militant union that virtually forced the closure of the unit for six days.

    For days, employees led by the Progressive Front and the JVP-controlled Inter-Company Workers' Union struck work demanding higher wages. Company officials had earlier offered a wage increase of 11 percent saying it couldn't afford anything more for economic reasons, company lawyers said.

    Workers demanded a 25 percent increase and then negotiated for 15 percent, which the company was unable to accept. 

    The workers then physically took over the building and held sway for six days intimidating senior management while the CEO was abroad with the result that production came to a standstill. Since this factory is a major fabric supplier to other garments production units in the zone, these factories too were faced with a crisis of supply.

    The police then stepped in and asked the workers to end their protest on the grounds of unlawful assembly, which they complied with. Union officials were not immediately available for comment.

    The company management then took back 500 out of the 800-strong workforce, terminated the services of 130 workers and applied to the Labour Commissioner for the retrenchment of 95 others and resumed production. 

    In a related development, a security guard at the factory was stabbed by unknown persons and was hospitalised, company lawyers said.

    "Where does this end?" asked a lawyer handling industrial disputes. "In this case the management was held to ransom and demands were made. Foreign investors in such a situation will wind up and leave if they have to face problems like this. Also this factory was said to be one of the best paymasters in the zone."

    Factory closures or downsizing of staff are a common occurrence these days as Sri Lanka goes through a twin crisis - an economic downturn here and a global one aggravated by the US crisis. 

    At least three to five companies on a daily average are facing a financial crunch, forcing them to either close down or lay off staff, with the once-lucrative apparel sector being the worst hit by the US fallout.

    This, according to industrial experts, raises the question of proper laws to enable employers to lay off staff when their businesses becomes economical and overheads rise.

    This is the key focus of a seminar organised by Corporate Legal Conference Services titled, "The impact of recessionary trends on garments and other export oriented enterprises in Sri Lanka" to be held at the Trans Asia Hotel on November 13.

    The keynote address will be made by Lyn Fernando, chairman/managing director of Creations (Pvt) Ltd and past chairman of the Apparel Exporters' Association which recently sought permission from the labour commissioner to retrench staff from a recession-hit garment sector. Fernando will speak on: "How does the law provide for coping with excess staff?"

    "We will be providing guidelines to employers on how to handle crises like the Biyagama factory issue and the legal remedies available towards retrenching staff in a loss-making situation," a conference official explained.

    "We also plan to discuss a proposal to amend current labour legislation to make it mandatory for 14 days notice to be given by unions before strike action is resorted to, and forward the recommendation to the government. This is a simple way of approaching strikes," he added.

    Other speakers include retired Labour Commissioner, Gamini Weerakoon and Neville Joseph, a legal luminary on industrial disputes. The session will end with a panel discussion on the issues with retired appeal court judge F.N.D. Jayasuriya joining Weerakoon and Joseph as the panelists.

    Looking beyond: Recessionomics

    Running on empty taps

    By Arjuna Mahendran
    With exports out of Asia falling to unprecedented levels, I wouldn't be surprised if Sri Lanka's exports contract by more than 20% this year. Fortunately imports have also fallen thus far, and oil prices have all but collapsed so our official foreign exchange (FX) reserves hover around the US $ 1 billion mark.

    What bothers me, however, is the impact the current spate of pre-election spending by the government will have on our FX reserves in the coming months. In small import-dependant economies like Sri Lanka, sudden increases in government spending have a high propensity to leak out of the country by increasing imports of consumer goods.

    Since the bulk of the extra-budgetary salary increases will benefit the lower echelons of the public service who arguably have a higher propensity to spend rather than save, it is almost inevitable that Sri Lanka's balance of payments and FX reserve position will come under pressure during the Christmas/Ramazan season.

    The precarious balance on the external front was reflected last week when the exchange rate fell to US$/LKR 92 as a consequence of falling domestic interest rates.

    The Central Bank of Sri Lanka (CBSL), according to press reports, is preparing for such an eventuality by issuing US dollar government bonds to local banks to the tune of US$ 250 mln. It has already been borrowing dollars through the Bank of Ceylon (BoC), which has been issuing its own paper offshore.

    However, there is a limit to how much the CBSL and BoC can keep on borrowing dollars especially when the IMF loan agreement is in abeyance and there is little prospect of exports improving at least for another year.

    Even inward remittances from our approximately one million housemaids are reported to have fallen by 17 % in the first half of the year. I wouldn't be surprised if this is repeated in the second half of 2001 and indeed for the whole of 2002.

    Bleak as this situation may seem, it does afford the opportunity to explore new avenues for tapping foreign exchange for the country to tide us over the coming lean period.

    Since 1977, there has barely been any attempt to make it easier for Sri Lankan residents to hold foreign currency within the country. Our archaic exchange control laws, drafted during World War II, have not been substantially revised to reflect the vast improvements in communications of the last 60 years.

    An excuse that has been regularly trotted out in defence of the current labyrinth of restrictions on FX transactions within the country is the currency volatility which affected East Asia after the 1997 crisis. It is contended that if the exchange controls prevalent in Sri Lanka are lifted, capital will flow out of the country at an alarming rate and bankrupt the country.

    In my opinion, these arguments have been proferred by some exchange control freaks in the bureaucracy to their gullible political masters/mistress. The reality is much more prosaic. Today there are a number of currency traders in Fort and Pettah who will arrange for transfers of tens of millions of rupees out of the country to any global destination at the flick of a computer key.

    The flourishing hawala networks of the subcontinent have their tentacles in all corners of the globe and transfer more money on a daily basis than all our banks do through official channels. Thus, a migrant worker in Toronto or Jeddah simply turns up at a local moneychanger and pays for a remittance to his/her relatives in Jaffna or Quetta. The relatives receive the money within 24 hours, usually delivered to their doorstep, accurate to the last cent.

    These money transfer networks flourish precisely because of the ridiculous controls these countries place on the movement of foreign exchange through their economies and the restrictions on banks opening ATMs throughout the country.

    The net result is that Sri Lankan residents cannot simply go into a bank and open a foreign currency account in the manner which they could open a rupee account. Instead, it has to be either an RFCA or NRFC or SIERA (more jargon!) account which entails additional paperwork and much less flexibility in writing cheques or sending a Christmas donation to a charity in Afghanistan.

    I think it is high time our bureaucrats face up to reality and abolish all these archaic controls. 

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