Ceramics industry looks for new clay deposits
Detailed investigations for fresh reserves of clay are required to ensure a reliable supply of raw materials for the ceramics industry, the largest mineral-based industry in the island.

With the expansion of the ceramic industry it is important to locate good quality feldspar deposits to ensure enough supplies of raw material, Dr. N.P. Wijayananda, director of the Geological Survey and Mines Bureau, said.

Giving an overview of ceramic raw materials at a recent Ceramics Symposium organised by the Sri Lanka Ceramics Cluster, Dr. Wijayananda said it was necessary to identify new deposits if the industry is not to face shortages in future.
There was a need to identify new deposits of kaolin as a substitute for the clay at the main deposits which are now being mined in Boralesgamuwa and Meetiyagoda whose reserves are enough only for the next 2-3 years, he said.

Large resources of clay are available for detailed investigations, he added.

Different grades of locally refined kaolin clay are valued at between Rs. 5,000 and Rs. 18,750 a tonne.

Investigations for deposits of ball clay also are required since there could be a shortage as no new reserves have been identified, Dr. Wiyajananda said.

But there are enough reserves of quartz, he said. Inferred reserves have been calculated as over 20 million tonnes.

The symposium was told that the ceramics industry is considering the possibility of entering the lucrative market for advanced ceramic applications such as in medicine.
The industry is trying to attract ceramics companies shifting their production bases from high cost Western countries to countries where wages are low.

Professor Vasantha Amarakoon, Professor of Ceramic and Electrical Engineering and director of the NYS Centre for Advanced Ceramic Technology, Alfred University, New York said ceramics have a wide range of applications.

In a paper on advanced ceramic applications, he said ceramics is used in such everyday items as electrical insulators, TV and clock parts, dishes and glasses, computers, tiles, and even in shirt buttons.

It is also used in jet engines and as glass and carbon fibres to build lightweight aircraft and spacecraft as well as in robots and sonars and in optical instruments, CAT scanners, and ultrasound imaging equipment.

Biomedical ceramics are used for tooth and jaw repair, joint implants, bone repairs, heart valves, eye-lens replacement, cancer treatment and anti-bacterial coatings.
The United States market for advanced ceramic components is worth over seven billion dollars a year, Professor Amarakoon said.

An increase in military-related applications has been noted because of increased defence spending following last year's terrorist attacks on America.

Charles Conconi of the USAID-funded The Competitiveness Initiative, which helped organise the symposium, spoke about the importance of differentiation - of moving out from making low value products for a broad market to manufacturing high value products with a narrow focus.

Competitiveness, he said, is not abundant natural resources, cheap labour, cheap currency, better government incentives, subsidies or protection, or tight control of knowledge.

Rather, it is about the sophistication of companies and the quality of the macro-economic environment in which they operate, he said.

Globally, competitive performers share common characteristics such as investing in technology with a commitment to upgrading their production processes and encouraging innovation, and having an intimate knowledge of the end-customer, he said.

The ceramics industry has set itself a target of achieving annual ceramics exports of over five billion rupees in the next five years.

Exports last year were worth about Rs. 3.7 billion.

Travel industry: Sex scandalSex scandal
Travel firm boss seeks to revoke Court order
The boss of the high-profile travel firm accused of sexually abusing male staffers filed an application last week to revoke an interim order issued by the Colombo Commercial High Court restraining him from functioning as the company's chairman.

He said the charges of sexual misconduct made against him by a co-director of the firm were absolutely false and were made up by the petitioner with the aim of destroying his character.

The petitioner had alleged that the travel boss was trying to intimidate and coerce male members of the travel department to perform sexual favours and those who refused were verbally abused and victimised.

Alternatives to IMF, World Bank loans
By Aleksandr Shkolnikov, Communications Officer, CIPE (US-based Centre for International Private Enterprise) and John D. Sullivan, Executive Director, CIPE.

There is an ongoing debate on conditionality and its effect on the development of emerging economies.

The growing consensus is that conditions imposed on countries by international institutions are too detailed and numerous.

They force governments to concentrate their efforts on meeting the loan requirements, rather than improving the standards of living of their citizens. A number of alternatives to detailed conditionality have been proposed.

This paper presents the history of conditionality, as well as some alternatives.

Role of World Bank/IMF
The role of the World

Bank has changed over the years. Originally created to promote economic development by means of loans and technical assistance, the bank has transformed into an institution that supports not only the construction of economic infrastructure, but also projects in the health and education sectors, as well as other programmes intended to deal with poverty in developing nations.

By contrast, the International Monetary Fund (IMF) was first created to provide countries with short-term financial assistance at times when they experienced balance of payments deficits.

After the system of fixed exchange rates was abandoned in the 1970s, the IMF transformed into an institution that now manages financial crises in developing markets, is a long-term lender to many developing countries, is an advisor to many nations and a collector and disseminator of economic data.

The loans that the financial institutions provide to the developing world are given under a set of specific conditions.

The purpose of conditionality is to provide safeguards to ensure that financial transfers occur only if key policies are implemented in a specific country and to ensure the borrower that it will continue to receive finances if the policies are fully implemented.

Interestingly enough, there are a number of countries that continue to receive loans even though they are not able to meet the conditions under which the loans were originally provided.

Detailed conditionality has made loans troublesome for developing countries because they often "restrict the role of national political institutions and the development of responsible, democratic institutions." Trying to meet dozens of conditions can severely restrict domestic decision-making in the reform process.

Institutional reforms cannot be imposed on countries through external conditions, instead they have to be built and developed from within.

Originally limited strictly to macroeconomic variables, the scope of conditionality has evolved over the years. Developing countries faced only a few structural conditions per programme in the 1980s, but by the late 1990s they had to meet an average of more than a dozen different conditions.

The growing number of conditions increased the risk of countries failing to meet them, and have resulted in an unwillingness of governments to negotiate for loans. Detailed conditionality usually does not give governments many options when designing policies for reform and it is often viewed as an attack on national sovereignty.

Despite increased attention from the World Bank, Nigeria hasn't been able to significantly improve its economic performance.

Instead it became more dependent on World Bank loans, while grants from international donors have actually declined over the years.

Nigeria frequently asked for assistance from the IMF and the World Bank, but it often suspended loan negotiations because of the number of conditions that were imposed. Overall, in 1999, the World Bank and the IMF imposed an average of 114 conditions on 13 sub-Saharan African nations. Tanzania, with 150 conditions had the biggest share. It has proved impossible for these African nations to meet this number of conditions and at the same time successfully and effectively improve standards of living.

For example, the conditions imposed on Turkey during recent negotiations for an additional loan by the IMF include:

1. Greater transparency of government operations.

2. State enterprise restructuring.

3. Intensifying privatisation.

4. Fostering FDI.

5. Fiscal adjustments.

6. Disinflation under the planned inflation targeting framework.

For the past decade both the IMF and the World Bank have worked to strengthen their collaboration on conditionality and ultimately improve programme design. They have focused on increasing country ownership in reform programmes and clarifying institutional roles.

One of the outcomes of such work was the decision to focus on developing conditions that are tied to results of the programmes rather than actions of the governments. The idea is to impose a minimal number of conditions, such as budget management and government transparency, allowing the government full control over the policy formulation and implementation process, which is an essential aspect of ownership and successful reform.

The programmes based on outcome conditionality specify the desired results, leaving the determination of the necessary steps for achieving the goals to the governments themselves.

Horst Kohler, the Managing Director of the IMF, has also recognised the problems that developing countries face from detailed conditionality. Reviewing the IMF's work on conditionality, he noted that attention should be paid to strengthening country ownership and the political support needed for sustained implementation of reforms, and that the number of conditions imposed when making loans should be decreased.

Alternative approaches
The IMF has engaged in a public debate on conditionality in its attempts to evaluate the problem and find possible changes that should be adopted.

* The Centre for International Private Enterprise (CIPE) - The approach CIPE has followed for years is to build political coalitions in developing countries to promote reform, much as the US Chamber of Commerce does it in the United States.

Voluntary associations
CIPE has concentrated its efforts on building a network of voluntary associations and private sector institutions, such as chambers of commerce, that are fundamental to the democratic system. This network facilitates public participation in the political systems.

* National Business Agenda (NBA) - The NBA is a tool used by the business community to encourage investment and stimulate economic growth.

It mobilises the business community to use their skills to affect public policy by setting legislative and regulatory priorities and communicate them to policymakers.
NBAs identify key factors that inhibit business activity and offer concrete recommendations and reforms to improve business climate and overall economic performance.

National Business Agendas present concerns of the business community to the government in a unified voice, increasing the likelihood of affecting policy.

* Corporate Governance Programmes - A major component of CIPE's strategy is to strengthen corporate governance practices worldwide.

National business communities are learning and re-learning the lesson that there is no substitute for getting the basic business and management systems in place in order to be competitive internationally and to attract investment.

Corporate governance mechanisms require the development of key institutions that are vital to successful economic and democratic reforms.

CIPE has supported successful programmes throughout the globe including Russia, Colombia, Indonesia, and Poland.

These programmes have contributed to institutional development through local private sector participation.

* Millennium Challenge Account (MCA) - In March 2002, President George W. Bush proposed that the United States increase its assistance to the developing world by $5 billion by 2006.

Such assistance will fund initiatives that will ultimately result in improving standards of living in developing economies.

MCA will achieve its goals by broadening development partnerships with private sector firms, national and local governments, and international and local NGOs. The funds will be distributed to the countries in the form of grants.

However, to receive the funds, the countries have to commit to good governance, development of education and health sectors, and support for private enterprise.

* The New Partnership for Africa's Development (NEPAD) - NEPAD is an effort by African leaders to eradicate poverty and place their countries on a path of sustainable growth and development. NEPAD provides a framework, based on internal initiatives, of interaction between African countries and the rest of the world to promote development programmes on the continent.

NEPAD is attempting to attract heavy investments by building institutions and developing key sectors in the countries of Africa.

It pays special attention to development of democracy and political governance, establishment of economic and corporate governance mechanisms, developing infrastructure, reducing poverty, improving market access and building a strong environmental programme.

* The Meltzer Commission - In 1998 Congress established the International Financial Institution Advisory Commission (IFIAC) as a part of legislation authorising an additional $18 billion to the IMF to evaluate the work of major international financial institutions.

IFIAC, headed by Professor Allan H. Meltzer, also became known as the Meltzer Commission, and its work has gained the support of President Bush and the other members of the Republican community.

As Mr. Meltzer has stated, the proposed changes were aimed at:

1. Increasing transparency,

2. Improving accountability,
3. Reducing corruption in the countries receiving assistance, and 4. Greatly increasing effectiveness of IMF and development bank programmes

The Meltzer Commission was unanimous in its recommendation that the debts of "heavily indebted poor countries" that commit to "effective economic and social development strategy" should be written off. Too often poor nations end up in a situation where the new loans they receive are only being used to pay off the interest on the loans they have acquired in the past.

In this situation the conditions under which the loans are provided become impossible to meet - in reality the debt is taken to pay off the old debt, not for restructuring programmes.

The Commission also proposed changes that the Fund and the development banks should adopt in their operations, including that the IMF should be a "quasi lender of last resort to emerging economies".

The opinion voiced by the Commission calls for the creation of pre-conditions that have to be satisfied by governments prior to borrowing emergency funds from the Fund.

That was proposed so that the IMF would not have to impose "detailed conditionality" that has proved to be problematic for many nations by making IMF programmes "unwieldy, highly conflictive, time consuming to negotiate, and often ineffectual."

The preconditions listed are as follows:

1. Governments should ensure that banks are adequately capitalised.

2. Governments should allow for participation of foreign financial institutions. This is done to limit corruption, increase capital base and reduce risk through portfolio diversification.

3. Governments that seek to borrow funds from the IMF should be required to provide timely and accurate information on the financial markets.

4. The IMF should establish proper fiscal requirements to which the countries should commit themselves.

While calling for the IMF to become a short-term lender, the Commission recognised that the development banks should assume responsibility of long-term assistance to countries. The IMF should evolve into an organisation that performs only a few emergency operations a year.

But, according to the Commission, the IMF should still regularly participate in the consultations with governments about their macroeconomic and financial policies, and only lend funds in case of a crisis.

The World Bank Group: Grants rather than loans

The programmes of the World Bank are also at times unsuccessful and ineffective. World Bank programmes in poor countries are successful in less than 33 percent of cases.

The poor countries that receive those loans are likely to remain poor and many are not going to be able to repay those loans.

This comes as no surprise, especially if we consider that the official debt of the forty-two needy countries has climbed to over $170 billion.

It is estimated that heavily indebted poor countries are currently repaying an estimated $8 billion a year to the creditors.

The Meltzer Commission has recommended that the World Bank abandon its current loan strategy to heavily indebted poor countries and instead provide funds through grant programmes.

The conditions of the grant programmes are straightforward and countries will continue to receive grants only if they can show results. The Commission argues that many loans given to poor countries are frequently wasted by governments who are corrupt and inefficient.

Grant programmes can ultimately lead to institutional development in poor nations if reforms are supported through careful creation of essential institutions.

The Meltzer Commission' proposal to provide funding to the developing world through grant programmes rather than loans has received a favorable reception from US and international experts.

President Bush has also recognized the benefits of grant-based programmes. In his address to the World Bank he proposed that "the World Bank...dramatically increase the share of its funding provided as grants rather than loans to the poorest countries."

He has also stressed that debt reduction programmes are working and the countries are now using funds to improve health and education sectors rather than paying off debts.

There are a number of studies that have criticized the programmes of the World Bank and the IMF and the conditions they impose on countries, and a general consensus regarding the need for reforming conditionality has emerged.

Yet there may not be a single correct alternative, rather the solution may lie in a mixed reform package that encompasses both a grants approach and outcome-based conditions on new loans.

The right mix of solutions will help international financial institutions to work closely with developing nations to achieve a common goal of economic development and poverty reduction.

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