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11th July 1999

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Aid Meeting:December date problematic

By Feizal Samath

The Aid-Sri Lanka consortium group meeting, which usually takes place in Paris, is due to be held in December this year against the backdrop of interesting developments in the political and human rights fields, official sources and diplomats said.

"As of now, the meeting is expected to take place in December though there is still no finality from the World Bank on the dates and month," a western diplomat said.

December may be a difficult month to hold the meeting, either in Paris or Colombo, if the government decides to hold elections.

A United Nations Human Rights group is also scheduled to visit Colombo in October to review the human rights situation in the country after the People's Alliance (PA) took power in 1994.

Its report is likely to be circulated among donor countries.

Speculation is rife about a December poll - either presidential or parliamentary - following President Kumar- atunga's move last week to appoint a set of new deputy ministers and reallocate the portfolios of others.

Her reluctance to implement major changes in the cabinet - and create unhappy faces among those who are relegated to less powerful positions or removed - is also seen as a move to hold early polls, political analysts believe.

Economists say the government is certain to request the donor meeting be postponement if a poll in December is on the People's Alliance agenda.

Elections in December would also have an impact on the government's November budget.

"If elections are being held in December, then the treasury would be under pressure to prepare a budget with vote-catching sops though officials have so far resisted attempts to increase uneconomic government spending," one economist said.

For the first time, the venue of the aid consortium meeting is uncertain.

The meeting has always been held in Paris but this time some donor countries have suggested moving the venue to Colombo, which Sri Lankan officials are not in favour of.

The meeting organised by the World Bank, since the 1960s, brings together foreign donors, financial lending institutions including the International Monetary Fund (IMF), the Asian Development Bank (ADB) and Sri Lankan officials, normally headed by the finance minister or the deputy finance minister.

The group met in Paris last year, but the sources said there was no cause for alarm in the change of dates. "We are holding the meeting once in 18 months," one source said, noting that the 1996 meeting was held in November while there was no meeting in 1997.

At last year's meeting, aid pledges totalling little over US$ 700 mn were made by donors to the Sri Lankan delegation led by Deputy Finance Minister Prof. G. L. Peiris. The World Bank also organised a half-day discussion on social issues and trends during the Paris meeting.

Meanwhile the UN Working Group on Enforced or Involuntary Disappearances is expected in Sri Lanka from October 18 to 28 - their first trip to Colombo since 1992, human rights activists told The Sunday Times Business.

Less rice please!

Rice is losing its place to other foods on the plates of Sri Lankan's earning more than Rs. 9,000, a Imagerecent Central Bank report said.

As a proportion of food expenditure, rice accounted for over 20 per cent for the income group upto Rs. 9000. This figure dropped thereafter at an increasing rate, to reach a proportion of 11.2 per cent for the top income earners.

Rice, being the staple food of the nation, overall accounted for a little over 20 per cent of total food expenditure in 1996/97 compared to 24 per cent in the previous decade.

Other basic food items, such as wheat flour, bread and sugar, also declined contributing to the overall drop in basic food items.

The overall food consumption patterns have changed over the decade, due to factors such as changes in consumer preferences, relative price variations, changing demographic composition, policy measures and variations in supply conditions, in addition to other factors.

Sri Lankans' spending on staple food declined steadily, while those of meat, fish and edible oil increased. Meat and milk consumption was, in particular significant as they increased from 9.55 per cent and 4.48 respectively in 1986/87 to 3.09 per cent and 6.10 per cent in 1996/97 respectively as a percentage of total food expenditure.

These increases indicate either a shift towards more nutritious food or could also be the result of changing relative prices, the report said.

Other noticeable changes in the decade was expenditure on meals bought from outside as a percentage of total food expenditure. The category took a small bite off the total expenditure on food rising from the 2.22 per cent in 1986/87 to 2.51 in 1996/97. The consumption of fruits also increased from 2.03 per cent in the previous decade to 3.96 per cent in this decade. This could be attributed to the availability and the affordability of fruits in this decade.

Dividends dilemma

By Dinali Goonewardene

Unit trusts are seeking a change in accounting polices to enable them to pay dividends from their variable capital accounts, unit trust officials said.

At present, accounting legislation specifies that dividends can only by paid to unit holders out of realised gains.

Interest income, dividend income and realised capital gains provide the basis for a payment of dividends. If capital losses were realised, it would erode the funds available to be paid out as dividends.

Balanced equity funds, which have made a commitment to pay dividends and increased capital gains for unit holders, would be prevented from paying dividends, if a capital loss is realised.

"This encourages unit trusts to hold on to shares which are depreciating, as a sale would result in a capital loss which stifle dividend payments," unit trust officials said. "Unit trust should not be allowed to decide which equities to sell based on an impending decision to pay dividends," Accounting Standards Committee Chairman, Riyaz Mihular said.

The Securities and Exchange Commission (SEC) has appointed a sub committee which has made its recommendations in this regard to the SEC, Director General SEC, Kumar Paul said.

The sub-committee which consisted of the Institute of Chartered Accountants President, Lal Nanayakkara; Urgent Issues Task force Chairman, Asitha Thalwatte; and Accounting Standards Committee Chairman, Riyaz Mihular have studied the recommendations of the Unit Trust Association and recommended that the income and expenditure account, which is currently prepared by unit trust, be replaced with a statement of total returns.

This statement will elaborate on realised and unrealised gains and losses in addition to dividend and interest income.

This development, if it materialises, will bring local regulations on par with global standards.

The Investment Management Regulatory Organisation (IMRO) of UK (an organisation similar to the Unit Trust Association of Sri Lanka) have issued similar guidelines which have obtained the approval of the UK Accounting Standards Board, unit trust officials said.

"Although it is contrary to accounting norms to pay dividends at the cost of eroding capital, unit trusts are variable capital institutions and should be viewed in this light," analysts said.

"There will be increased transparency as the total returns statement will depict all the results from operations," Unit Trust Management Co. Ltd. Executive Director, Dheerendra Abeyratne said.

Mind your business

By Business Bug

For elections

It's not only the appointment of deputy ministers that point to early elections; there are other signs as well. The think tanks in the Treasury have been asked to find out ways and means of easing financial burdens on the masses in the short term.

Among the measures likely to be suggested are reductions in the price of diesel, rice and lowering electricity tariffs, we hear...

Look again

It's well and good to allow duty free import of vehicles for public servants for they will feel rewarded for their loyal service. But the fact is that it is draining a lot of revenue that would have accrued as tax while auto dealers complain that the car market has slumped because of the ready availability of used cars up for sale. A long, hard look is being taken at this policy.

Setting limits

First, it was the turn of the telephone networks. Now it is the turn of the Internet service providers to be called up for regulation. They are known to be arguing against the regulation of charges for on-line services but it is likely that there will be some monitoring.

This will include compulsory off-peak hours and a ceiling on the charges, they say. Within such limits, the operators will be allowed to regulate their fees.

Move to provide greater transparency

New accounting standards

By Mel Gunasekera

A new accounting standard to calculate 'Earnings Per Share' and an amendment to the 'Retirement Benefit Cost' standard is to be introduced as part of an on going exercise to provide greater transparency in accounting methods.

Earnings Per Share (EPS) is a figure representing the amount available of a company's net earnings, which is available to each outstanding ordinary share. EPS is a very important indicator of a company's present growth as well as future growth prospects.

The EPS standard will give details on how it should be computed and what sort of disclosure is required, Director General of Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB), Ajith Ratnayake said.

At present, EPS is computed on general principles of accounting, by dividing the net earnings available for distribution to ordinary shareholders by the number of ordinary shares in issue.

The general principles of computation are universally adopted but it is used as a point of reference, Mr. Ratnayake says. The essence of the new standard does not mean that there is no general acceptable accounting treatment available for the particular transaction. But, the new standard will be a guideline to present a true and fair view of a company.

The Sri Lanka Accounting Standard SLAS 16, on 'Retirement Benefit Costs' is also to be amended under a recommendation by SLAASMB to the Accounting Standards Committee.

SLAS 16 requires retirement benefit costs to be provided for in the financial statements of an enterprise using actuarial valuation methods. However, only very few Sri Lankan companies use the actuarial valuation methods to calculate the provisions for retirement gratuity.

At present, most companies make provision for retirement gratuity based on the amount payable if all employees retire on the date of the balance sheet. This is subject to the assumption that every employee would be entitled to the payment, even if any or some of them may not have completed the minimum period of service required to be eligible on the date of the balance sheet.

With only a few professional actuarial firms available to undertake actuarial valuations, it is not practical for all Sri Lankan companies to obtain a valuation, within a short period after the date of the balance sheet.

The cost of obtaining an actuarial valuation would also be, too high compared to the benefit.

"We have proposed SLAS 16 be amended to include the present practice as an allowed alternative to the actuarial valuation method. This would permit enterprises to continue their current practice, without violating the Accounting Standards," Mr. Ratnayake said.

The Accounting Standards Committee has decided to permit the current practice as an allowed alternative for a three year period, once the amendments are gazetted, he said.

Sliding growth diminishes development expectations

Growth rates are essentially a way of communication of economists and statisticians. Politicians use them sometimes. The business community accepts the economy's growth rate as an indicator of economic performance and is perhaps an important influence on investment, particularly foreign investment.

In fact foreign investors look primarily to three vital indicators, the growth rate, budget deficit and rate of inflation, to make an initial assessment of a country.

Foreign exchange reserves, interest rates, the balance of trade and balance of payments and the quality of the country's economic and social infrastructure are among the other considerations.

So governments like good growth rates and shout from the roof tops about the economy's achievements. Others view it as a good overall indicator of economic performance.

According to the Central Bank, Sri Lanka's economy grew by 2.7 per cent in the first quarter of this year. This growth rate was nevertheless much lower than the growth in the first quarter of 1998 when it was 5.7 per cent.

The indications are that Sri Lanka's economy will grow at one of the slowest rates this year. Official predications are a growth of around 3 per cent. Some even wonder whether it would grow at all.

Let us place the economic growth rate in perspective. In 1993 the economy grew by 6.9 per cent. In election year 1994 the growth rate declined to 5.6 per cent. In 1995 the growth was similar. Then we had the disastrous year when everything seemed to go wrong.

Terrorist attacks, drought and a severe energy crisis brought down the growth rate to a mere 3.8 per cent. The economy recovered in 1997 to register a growth rate of 6.3 per cent, then dipped to 4.7 per cent last year. The expected growth rate this year is therefore likely to be one of the lowest.

What is more significant is that the average annual growth of the economy for the 1995-1999 period is likely to be only about 4.6 per cent, well below the rate required to resolve the country's problems of low per capita incomes, poverty and unemployment.

For the last decade or more we have been saying that a growth of 7 to 8 per cent per year sustained over a decade is needed to solve the country's economic woes and double per capita incomes in about a decade.

Our actual achievement has fallen far short and instead of the growth rate increasing, it has declined. The goals of economic development appear to be receding rather than coming closer.

It appears that the Sri Lankan economy is sliding at a time when the international economy and the crisis ridden countries of Asia are showing signs of recovery. There are two paramount reasons for this.

First, we were complacent about the Asian crisis owing to a few special features like our tea export prices and garment exports doing well.

Second, the government has been preoccupied with electoral politics with an eye to the next election. Economic policies took a back seat. Now the resilience of the economy the government boasted about is cracking, with both a sharp decline in tea prices and a decline in garment exports.

Actual economic performance is likely to be much worse than the economic growth statistics indicated for several reasons. Growth in GDP is essentially an increase in physical production. While physical production might increase, the value could even decrease. Tea illustrates this. In the first four months tea production increased by 22 per cent, but prices fell sharply. Consequently our export income from agricultural crops declined by as much as 25 per cent. It is this drop in revenue which really matters and will have an impact on incomes and on the economy in general. Where GDP is concerned the increase in production will contribute to the overall growth rate. It is not only agricultural exports which have decreased. Nearly all export categories have declined. Garment exports have decreased by about 9 per cent. Total exports have decreased by 12.7 per cent in the first four months.

These decreases would affect profits, income investment, government revenue, the balance of trade and consequently the rate of inflation and exchange rate.

Another factor of significance is that our services sector will show a growth owing to increases in expenditure on the armed services, and other public expenditures on services such as health and education. Therefore, despite the fallen fortune of the economy the growth rate will be sustained at a minimal level.

Therefore people would look around and say that even a growth of 2.7 per cent is not evident. How true.

Ratwatte turns flak on greens

The business community has also been critical of environmental groups saying their protests had often led to delays in implementing state or private sector projects adding to financial costs and other pitfalls.

By Feizal Samath

Sri Lankan green groups, which have successfully forced the government to reconsider options to environmentally-damaging projects, have been accused of lashing out at state programmes merely to attract international attention and funds.

The accusation was made recently by Irrigation and Power Minister General Anuruddha Ratwatte, who has been forced to delay or abandon some irrigation and power projects due to opposition from environmental groups.

"Unlike NGOs (non governmental organisations) in developed countries, we find that rather than being the watchdogs of community interest, some NGOs have become vehicles of influence peddling, mouthing platitudes more to attract attention and foreign funds rather than due to preoccupation with national interests," he said.

Ratwatte's remarks were made at a meeting in Colombo organised on June 28 to discuss a Water Vision for South Asia and formulate a regional water vision after discussions with water experts from South Asia.

Sri Lanka, India, Pakistan, Nepal and Bangladesh presented reports on the water vision of these respective countries, with projections of the assessments and water needs by the year 2025. The meeting was organised by South Asian Technical Advisory group of the Global Water Partnership (GWP-SASTAC).

Ratwatte did not name any particular group in his attack but most environmentalists believe he was referring to church-funded NGOs and the Environmental Foundation Ltd (EFL), both of which have been in the forefront of the green campaign in Sri Lanka.

The power minister, who is also deputy minister of defence and leading the military campaign against Tamil rebels, said that some of the country's experiences in environment issues in relation to development in general and power generation in particular with some internationally supported organisations have been mixed.

"While in most cases the objective, though sometimes detached and clinical, recommendations have been made to our benefit there have been the negative impact of actions of certain merely functioning as a 'fifth columnist' or lobbyists for varied interest groups as well," he said.

Ratwatte called for the need for greater credibility and a clear identification of clients amongst green groups but also agreed that NGOs, specially service oriented ones and think tanks had important and meaningful roles to play in the development of the country.

NGOs, funded by the Roman Catholic Church, are backing a campaign by residents against a key 900 megawatt coal power plant in the northwest coastal town of Puttalam, which the government says would provide 25 percent of the country's power requirements by the year 2004. Residents and environmentalists say the plant would result in pollution and health hazards to villagers.

Work has been suspended on the project due to the protests. Jagath Gunawardene, a well-known Sri Lankan environmentalist, believes that Ratwatte is also annoyed over the Church's criticism of a recent military campaign to bring a historic Church in a remote northwest outpost under government control.

"I think the minister is angry with Church groups for both these reasons (Puttalam power plant and Madhu)," Gunawardene said. The Catholic Church was dismayed when government troops captured the town of Madhu where a 350 year-old, venerated Church is located.

Government forces are battling Tamil guerrillas who have been fighting since 1983 for a separate state for minority Tamils in the north and the east of the country.

Ratwatte refused a request by the Catholic Bishop of Mannar for government troops to move out of the immediate vicinity of the Madhu church premises.

Mannar Bishop Rayappu Joseph, in an April 5 letter to President Chandrika Kuma-ratunga, said government troops were using Tamil refugees living in camps at Madhu church as a "human" shield against Tamil rebels, and wanted them to vacate the place. Since then all refugees have been moved out by the government to other welfare camps in the north.

Political analysts said that the government was also worried about a proliferation of Church-funded NGOs in northern areas and possible links to Tamil rebels.

The business community has also been critical of environmental groups saying their protests had often led to delays in implementing state or private sector projects adding to financial costs and other pitfalls. Sri Lanka's green activists have however come in for praise from the Asian Development Bank (ADB) and other intergovernmental agencies.

The ADB's Colombo office, in a recent document on NGOs in Sri Lanka, says that environmental groups have been much more successful than NGOs in other fields in raising important public issues and demanding government action.

The ADB has particularly praised the role of the EFL in this context.

EFL has run several campaigns against many projects by Ratwatte's Power and Irrigation Ministry of the grounds of environmental degradation and pollution. EFL has challenged many projects in court.

An environmental specialist at the United Nations Development Programme (UNDP) was also of the view that environmental groups played a key role in Sri Lanka. "We enlist the services of many environment groups and community-based organisations for our projects because of their expertise in this area," she said.

Earlier this year, the World Bank invited environmentalists in Sri Lanka to a core committee that would work together in Bank-funded green projects.

"Since the Bank and the NGO movement are both keen on environmental projects that benefit the country and the community, we believe in working together," said Sumith Pilapitiya, specialist on environmental affairs at the World Bank's Colombo office.

Unit Trusts wait for better weather

By Dinali Goonewardene

The performance of unit trusts shadowed the All Share Price Index and market capitalisation which declined by 25 per cent and 22 per cent respectively, in the financial year ending March 31, 1999. A glimmer of hope lies in the campaign being conducted to promote these institutions which are also looking at investments in corporate debt to bail them out.

Corporate debt instruments will play a vital role in the investment strategy of the NAMAL Income Fund. This market which is at its infancy, will provide a wider range of instruments to invest in, National Asset Management Ltd Investment Manager, Udara Wanigasinghe says in the annual report. The portfolio of the fund consists of corporate debt instruments, treasury bills, bonds, repos and deposits of commercial banks.

NAMAL's total net income after tax for the year ended March 31, 1999 was Rs. 13 mn. The fund had been in existence for 16 months at that date. The net asset value of the fund per unit was Rs 11.40 at the end of the financial year, rising from Rs.10.16 at the beginning of the year; yielding a return of 12.2 per cent for the period. However, the benchmark 12 month average treasury bill rate for the period was 12.52 per cent. The fund distributed two dividends of Rs.1.10 per unit during the financial year.

The Pyramid unit trust, managed by Eagle NDB Fund Management Company Ltd adopted a two pronged investment strategy at the beginning of the accounting period ending March 31, 1999.

"Firstly, holdings in fundamentally sound stock, offering good growth potential in the medium term were maximised. Secondly, the rationalisation of the investment portfolio with the disposal of shares in companies that do not offer reasonable prospects in the medium term and the disposal of illiquid shares took place," Eagle NDB Managing Director, C Jayaratne said. The number of stocks in the portfolio were reduced from 60 to 44 during the period.

Net income for the period after tax declined to minus Rs. 72.7 mn. The net asset value of the trust declined by 31 per cent to reach Rs. 191 mn. The fund realised a loss on sale of investments of Rs. 74.7 mn during the year and the market value of investments declined by Rs. 1.5 mn during the year.

Comtrust Equity Fund too reduced their exposure to equities and part of the funds was invested in long term corporate debentures, Comtrust Chairman, Mahendra Amarasuriya said, reviewing the year up to March 31, 1999.

Comtrust's investment in equities as a percentage of total assets declined from 72.79 per cent in 1998 to 69.1 per cent in 1999. The total value of debentures as a percentage of total assets increased from 5.91 per cent in 1998 to 12 per cent in 1999.

Total net income after tax declined by 28 per cent from Rs. 14.9 mn in 1998/99 from Rs. 10.7 mn in 1997/98. "However an investment of Rs. 9 mn in Magpek Exports Ltd, which was delisted on the basis that it was not a going concern was written off in arriving at the total income for 1998/99. Prior to this provision being made income had grown by 32 per cent from the previous period," Mr. Amarasuriya said.

The market value of the investment portfolio depreciated by Rs. 86 mn during the financial year 1998/99 and the capital account declined by Rs. 76.4 mn to reach Rs. 285 mn. The fund declared two interim dividends of 10 cents each, amounting to Rs. 12.6 mn.

The National Equity Fund decreased its overall asset allocation from 79 per cent of the net asset value at the beginning of the period, to 61 per cent at the end of March 31, 1999. "It is now well positioned with a strong cash position to take advantage of a rise in the stock market or interest rates, Investment Manager National Asset Management Ltd., P Samarasekera said.

The fund's net asset value declined by 19.58 in comparison to the benchmark All Share Price Index, which declined by 25 per cent.

Total net income for the year declined by 74 per cent to Rs. 22 mn. Net assets declined by 24 per cent to reach Rs. 739 mn. A dividend of 25 cents per unit was declared during the financial year.

Intellectual property laws to expand

The protection of trade secrets, certification of trademarks, protecting goods originating from a certain geographical area and a maximum Rs. 0.5 mn fine are some of the new areas to be covered in the proposed amendments to the Intellectual Property Act.

The amendments will also deal with copyright and patent rights; unfair competition and undisclosed information, the protection of integrate circuits, protecting new plant varieties and some areas of industrial design, Intellectual Property Director, Dr. D M Karunaratne said.

Elaborating further on the new areas that will be covered he said, with the 'certification trademarks,' the owner will certify the quality of goods sold under that mark.

The protection of trade secrets is another important area. Under the proposed amendment, employees who disclose trade secrets of their previous workplace to their new employer, and the new employer is found to have used the secrets, both parties will be punished.

Protecting goods that come from a certain geographical area is also important, particularly in the case of Ceylon tea, he said. There have been many instances where the name Ceylon tea is found on various foreign tea brands. Ironically, the tea packet doesn't contain any Ceylon tea. The new law will give Sri Lanka some muscle to protect the famous 'Ceylon tea' label.

The amendments will also streamline the enforcement mechanisms. For instance the customs department will have more powers to detect at the entry/exit point whether the goods exported/imported violate the intellectual property laws of our country, he said.

The World Trade Organisation and international lending agencies have made the introduction of new legislation mandatory. Sri Lanka is also a signatory to the Trade Related Aspects on Intellectual Property (TRIPS) agreement, and the new laws must be introduced before January 1, 2000. The World Intellectual Property Organisation (WIPO) governing body has also commenced a study to protect traditional knowledge.

Traditional knowledge relates to life, culture, environment, bio-diversity, science and technology and many other areas of human endeavours like health, medicine, food and nutrition and traditional art. It has a great scientific and commercial value, and can be an important and useful asset of any country in its development process.

Such knowledge belongs to a particular country, nation or community and is of great importance to them Dr. Karunaratne says.

However, the national laws to protect traditional knowledge will not produce desired results unless the international community is willing to respect traditional knowledge and international binding norms.

The existing intellectual property system doesn't cover the protection of traditional knowledge, hence new legal norms including mechanisms for the effective enforcement and management of such norms are some of the areas the WIPO study intends to cover. (MG)

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