Financial Times

Hot debate over foreign exchange earnings
The issue of export proceeds and whether all export revenues are being brought back to the country or some part retained by some exporters for reasons only known to them has become in recent times a hotly debated topic.

It was part of the focus of a recent report by COPE which said that there was a decline in export proceeds and there was a need to investigate this.It said there was a decline in remittances of export earnings as the Central Bank didn’t monitor the remitances and the foreign exchange loss to the country.
The Central Bank has said it is taking steps to rectify this but top accountant Nihal Sri Ameresekere, who blew the lid over the tax amnesty scam, is not convinced that the bank is doing its job properly.

He says the leakages are detrimental to the country and estimates foreign exchange losses to be in the region of US $ 6.5 billion or even more which with interest would be more than three to four times the foreign exchange reserves today, which stands at around US $ 2 billion.

“Some exporters keep their money overseas despite being given all concessions like tax breaks, etc, which is every reason why the government needs this valuable foreign exchange,” he argued, saying that on the other hand poor migrant workers have remitted US $ 8.6 billion from 1998 to 2004.
He said if not for these remittances of $1.2 billion per year from hard-working workers, the country would have been struggling with a shortage of foreign reserves.

Ameresekere, currently chairman of PERC, said the Central Bank governor had revealed that according to a recent study there was a leakage of 20 percent and when adjusted for NFE (no foreign exchange for imports) garment exports, the leakage was estimated at 12 percent.

Rejecting this view, Ameresekere – who says he is acting in the public interest and believes the country is losing millions of dollars in foreign exchange – noted that subsequently the governor expressed the view that the leakage was only one percent. “If the leakage is just that, then why oppose regulating export proceeds like other IMF Article V111 countries in the region?”

Asked to comment on the issue of falling export proceeds, the Central Bank said the number of countries having repatriation requirements dropped from 122 in 1987 to 98 in 2004 and the number of countries having surrender requirements of export proceeds have dropped from 97 to 75 during this period
“In response to concerns raised on the timely and full repatriation of export proceeds, the Central Bank strengthened its monitoring of export proceeds at end 2004 by initiating a comparison of export values recorded in the Customs with export proceeds remitted through the banking system on a mmonthly basis and undertaking a survey to follow up repatriation of export proceeds directly with exporters on a quarterly basis,” the note said.

Yet Ameresekere is confident of his arguments – most of which were published in a recent newspaper article -- and believes he has an iron-clad case of an exchange fraud taking place. “I am prepared to debate this issue with anyone,” he asserts, adding that some laws should be brought in to deal with this crisis.

Officials of two associations dealing with exporters however believe there is no large scale abuse of export earnings. Gratien Gunawardene, Chairman, Exporters Association of Sri Lanka, said the leakage may be 1-2 percent but most exporters bring their money back.

He believes one should not change the law on export proceeds “just because a few people are resorting to keeping their money outside.”
Gunewardene said he had recently proposed to the government to allow exporters to open a dollar denominated account here where they can repatriate their dividends/profits in dollars.

“Why can’t we do it? It would be a tremendous incentive also for the few who keep their money out.” Kingsley Bernard, President of the National Chamber of Exporters, is also strongly opposed to legislation to persuade exporters to bring back their money.

Currently there is no legal requirement to bring back foreign exchange to the country. He agrees that there is no proper estimate of how much money is brought back or how much is kept. But he says exporters are unlikely to keep their money overseas unless they need to buy inputs, machinery or to avoid exchange risks.

“Nobody has estimates. The Central Bank is trying to start something with the help of exporters,” he said, again arguing against legislation because this is a free economy.

The Central Bank believes its new monitoring mechanism will help stem whatever leakages in the system, which Ameresekere rejects. “Look the recent survey by the Controller of Exchange was information volunteered by exporters. Whatever information they gave was without documentary proof or evidence of their claims. There should have been a verification of these claims,” he said, noting that even these responses have revealed that only 81% of the export proceeds had, in fact, been repatriated into the country.

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