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25th July 1999

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Easing tensions on Indian subcontinent bodes well, says DCR

New York: Pakistan's intention to coax fighters out of Kashmir and India's suspension of its military campaign there bodes well for stability in the region, according to Duff & Phelps Credit Rating Co. (DCR), the global rating agency. If tensions continue to abate, India's creditworthiness should remain stable in the near term. DCR currently rates India's long-term foreign and local currency obligations 'BB+' (Double-B-Plus) and 'BBB' (Triple-B), respectively.

'The recent cessation of hostilities should stem the drain on India's government resources,' said Shelly Shetty, DCR's South Asia analyst. 'We will monitor the withdrawal and cease-fire to see if tensions have in fact eased.'

While the easing of tensions is encouraging, DCR is concerned about the potential for fiscal deterioration in India. According to Shetty, additional defense expenditure and uncertain prospects for privatization could make it difficult for the government to adhere to its fiscal deficit target of 4.4 percent of GDP.

Persistently high fiscal deficits have resulted in a high government debt burden—underscored by an interest-to-revenue receipts ratio near 50 percent—that seriously jeopardizes India's fiscal flexibility.

The recent no-confidence vote against the BJP-led government and uncertainty about the outcome of elections later this year have contributed to the perception that policy is adrift. However, the recent scheduling of general elections and the announcement to undertake disinvestment of major public-sector enterprises in the current fiscal year are reassuring.

'The new government will have to address India's structural problems to maintain its creditworthiness,' Shetty said. Deficit-reduction measures, speedy privatization of state-owned enterprises and deregulation of the financial and trade sectors are key for India to improve its growth prospects.

Shetty also noted that rising oil prices could put pressure on the balance of payments. India's ratings and stable outlook continue to reflect the country's relatively strong international reserve position and favorable external debt structure.

India's democratic institutions have proven to be resilient during times of economic and political stress even though the fractious political system has made the passage of reforms difficult. DCR will continue to monitor developments on the Indo-Pak borders and the negotiation process.

NMB to open special windows

National Mercantile Bank (NMB) hopes to capitalise on the niche market concept by opening special windows to meet the distinct customer groups, when it commences operations by mid January next year.

One such pioneering effort by NMB will be the introduction of a range of innovative deposit and loan products styled as 'just banking', NMB Chairman, Milinda Moragoda said. An independent, dedicated unit will be set up to handle all related business, strictly conforming to Shariah Laws and cleared by a consultative committee consisting of persons competent and knowledgeable in Islamic jurisdiction. Specialised services will also be provided for high net worth clients, he said.

NMB, formerly known as the National Enterprise Bank (NEB), is expecting a formal banking licence from the Central Bank later this month. The Central Bank had earlier agreed in principle to issue a domestic and off shore banking licence once the company fulfils certain obligations as stipulated in the Banking Act, mainly relating to the foreign shareholding.

The Bank is in the process of selecting the necessary software and recruiting staff. We are also negotiating with two Indian Banks to explore trade-financing activities in India, Mr. Moragoda said.

Despite not commencing commercial operations, the bank's administration expenses were met by the interest income activities giving a surplus of Rs. 4.1 mn in 1998.

However, the loss of Rs. 22 mn brought forward from 1997, resulted in an accumulated loss of Rs. 17 mn being carried forward in 1998.

National Enterprise Bank changed its name in March this year, following an EGM to change the company's name to NMB. The Bank's articles were also amended pertaining to the foreign participants in the capital of the company and also increasing the number of directors to a maximum of 14.

Following a restructuring of the shareholding, the MMBL Group through three companies has a 25% stake. The Central Bank allowed such a holding on the basis of MMBL being given the promoter status. Central Bank followed a similar policy in granting John Keells Holdings 25% stake in the newly opened Nations Trust Bank. The Malaysian based TA Group, who previously held in excess of 50% in NEB, now holds only 20% after the restructuring process.

Binding manager and shareholder

Employee Share Ownership Plan (ESOP) schemes should be promoted to unite management and shareholder goals John Keells/Colombo Stock Exchange director Ajith Gunawardena said last week.

Mr. Gunawardena was speaking on equity listings at a capital markets development seminar organised by the Securities and Exchange Commission.

"It is essential to move away from the sole proprietor mentality that exists at very senior level in public listed companies", he said. "The current mindset in most corporates in Sri Lanka is not conducive towards shareholder wealth and it is time for this to change," he said.

He added that the bottom line was the creation of shareholder wealth which should be encouraged through ESOP schemes.

Managers and CEOs who focus on these schemes would think as shareholders and increase shareholder value. It would also encourage mergers and acquisition which would improve liquidity.

Mr. Gunawardena said many boards of companies are struggling to attract senior managers and CEOs to run their companies. ESOP schemes would attract management to companies and encourage strong management input.

Internationally, ESOP schemes are designed for employees and specific attractive options are offered to CEOs. Coca Cola of the US and British American Tobacco of the UK are examples of this. "Perhaps we could follow these international examples, Gunawardena suggested.

ANA's cost saving solution for passengers to Tokyo

Tokyo, Narita International Airport is far from downtown and one takes 2-4 hours either by bus or train to get to the city. A taxi ride downtown would even bankrupt an Arab Prince as it is so costly.

A recent article carried in AsiaWeek headlined "Hard Landing" was implying that the traveller who arrives at Narita International Airport stumbled bleary-eyed into the crowded arrival hall only to face another 2-4 hours journey into the city.

Further if a visitor wants to make a connection elsewhere in Japan, it means another 3 hours transit to Tokyo domestic airport which is Haneda. Also the article spells out that it is remarkable that one of world's key airport which handles 25 million passengers a year still has just one runway.

Having opened this International Airport more than 20 years, there seems to be a problem of acquisition of land for expansion. Another point raised was that Tokyo should look to its other airport, Haneda for a solution. After all Haneda served that function well into the era of Jumbo Jets prior to the decision of the authorities to change international operations to Narita. Further, Haneda Airport already has 3 runways and could easily handle a heavy load.

ANA - All Nippon Airways, Japan's largest airline offer her alternative for Narita International Airport by taking passengers from Colombo to Osaka (Kansai International Airport) via Singapore and with a direct connection to Haneda airport (Tokyo). The distance from Haneda Airport, Tokyo to downtown is just 20 minutes by monorail. Further the surface transport cost is about 1/3 compared to the cost of transport from Narita to the city.

ANA offers daily flights from Singapore to Kansai, making it possible for those passengers destined to Tokyo to take the connection through Kansai and arrive at Tokyo, Haneda Airport and thereby saving monetarily and on time.

ANA adds value to her product by offering four distinction products, the Visit Japan Fare, where a domestic sector, the shortest one or the longest is offered at a cost of mere Rs. 7,500, Japan Rail Pass offered for unlimited surface transportation for 7 days which includes rail, bus and ferry for the cost of around Rs. 16,500 and ANA's World Hotel Plan, which is the latest product which gives a very high discount percentage for hotel accommodation and ANA Mileage Club (AMC), which gives additional facilities, more than what is provided by other airlines.

Laksiri Fernando, AGM (Airline Services), Ceylinco Universal Limited, the GSA for ANA, says that ANA is a superior product where the airline's main concern is the comfort of the passenger and is very confident in saying that they need to promote a passenger on ANA only once as such passenger will always become an ANA regular.

Evergreen meets Lanka delegation at Taipei

Top representatives of the Ceylon Chamber of Commerce recently met the top management of Evergreen Marine Corporation at their head office in Taipei, during the delegation's visit to the Taipei Chamber of Commerce to discuss on investment opportunities in Sri Lanka.

Their visit to Evergreen Taipei coincided with the visit of Greenlanka Shipping Ltd, Executive Director Raju Radha who was there to discuss with their principals on the development and commitment of EMC and Uniglory service calls to Colombo.

The Sri Lanka Chamber of Commerce Chairman Ken Balendra and BOI Chairman Thilan Wijesinghe had cordial discussions with the EMC Taipei's investment chiefs who later entertained them to a dinner and further discussions.

Are NGOs fronts for people with political aspirations?

ADB wants more self-assessment by NGOs and their limitations In a draft report on NGOs in Sri Lanka, the ADB's Colombo office traces the history of the NGO movement in Sri Lanka, its capacities, co-ordination with the government and people's organisations, tensions between NGOs and the government and cooperation with donor agencies and international NGOs.

By Feizal Samath

Are non-governmental agencies (NGOs) in Sri Lanka donor- driven?

In other words, do NGOs prefer to work in areas where there are plenty of funds from donor agencies like child rights, child labour issues, human rights, environment, aids protection, media freedom and so on?

Is this the new mantra of social activists?

Some UN officials believe that Sri Lankan NGOs are generally driven by a desire to work in projects that attract plenty of foreign donor funds instead of areas where the NGOs are much more technically sound and have the capacity and experience.

This is what the Asian Development Bank (ADB) has to say on this issue:

"Concern has been expressed that in an era in which NGOs seemed to be operating as though responding to market signals, the NGO community must think seriously about what the ill-considered acceptance of projects might do to the identity, structure and orientation of their organisations," it said, in a recent internal document.

In a draft report on NGOs in Sri Lanka, the ADB's Colombo office traces the history of the NGO movement in Sri Lanka, its capacities, co-ordination with the government and people's organisations, tensions between NGOs and the government and co-operation with donor agencies and international NGOs.

The report provides an insight into the relations between international agencies and NGOs, between governments and NGOs, the problems and constraints.

It said that except for a few NGOs, the capacities of individual NGOs to take on major projects was limited. NGOs were hampered by financial constraints, limited technical and managerial capabilities and limited absorptive capacities.

The ADB said there was a need for much greater self-assessment by NGOs of their own limitations and a less opportunistic attitude to seeking grant assistance for development of their own infrastructure.

The Manila-based development bank has increasingly, in recent years, mooted government partnerships with NGOs to develop Asia. Since the ADB's Colombo office was launched more than a year ago, a number of Sri Lankan NGOs are slated to receive funds for development projects.

Thirty-five of 37 Sri Lankan NGOs that responded to an ADB questionnaire, expressed interest in co-operating with organisations like the World Bank and the ADB. Recently, the World Bank set up its own NGO forum in Sri Lanka to help guide environment projects that the bank is funding.

SANASA, one of Sri Lanka's top grassroots organisations, welcomed the idea of co-operation with the bank but insisted that the internal matters of their organisation should not be interfered with, the ADB report noted.

"SANASA added that it should not be used as a mere instrument in achieving the objectives of the lending agency," it said. Some of the other NGOs also expressed similar views that in the case of funding, the community and its representatives should have the right to participate in decision making.

"The Human and Environment Link Progressive Organisation pointed out that, in the past the ADB has worked through government agencies, and that experiences has demonstrated that not all development schemes have been designed with the participation of the community and neither have they been beneficial to the community. Similar opinions have been expressed in other forums," the report added.

The ADB said that some of the barriers toward increased co-operation between NGOs and the bank were confusing policy framework, tensions between government agencies and NGOs, inadequate co-ordination, capacities of NGOs and top-down approaches adopted by lending institutions.

Tensions between the government and NGOs have often stemmed from "conceptual differences regarding how each views the other." Past attempts by governments to oversee NGO activity through laws have drawn strong protests from the NGO community, which views these moves as a government desire to control them.

"The stance taken by certain NGOs in protesting government policy in sensitive areas such as environment, media freedom and human rights violations has, on the other hand, frequently prompted the government to see NGOs as mere fronts for people with political aspirations," the report said.

The ADB said that in the past few decades, relations between the government and NGOs have been characterised by an underlying feeling of mutual suspicion. "This perception has filtered into the bureaucracy, but in spite of this, the government recognises the importance of the NGO sector in the implementation of projects," the bank said.

It said emerging opportunities for NGOs lay in the areas of social mobilisation and the formation of community based organisations. The strong emphasis of both the government and funding agencies on poverty indicate that NGOs with a demonstrable capacity in this area will attract ready support whether in social organising, micro finance or income or employment generation.

Political analysts say that governments, while acknowledging the importance of NGOs are also suspicious of their motives. This was particularly so during the former United National Party (UNP) regime when President Ranasinghe Premadasa set up the NGO commission, purely to target Sarvodaya leader A.T. Ariyaratne.

The ruling People's Alliance (PA) is no better and in recent times has accused some NGOs of political agendas.

The ADB said that though President Kumaratunga, in a ceremonial speech to parliament in January 1995, promised to enlist the support of NGOs in the implementation of the Samurthi programme, Samurthi has largely ignored NGOs.

Referring to policy framework, the ADB said that both relevant government officials and NGO representatives felt that there was a need for appropriate legislating pertaining to NGOs so that the operations in the sector can be streamlined, accountability enhanced and greater efficiency achieved in resource utilization.

It said in the case of projects funded by bilateral and multilateral agencies, NGOs functioned more or less as delivery mechanisms, with no chance of being full partners in the project.

"It is often said that NGOs are seen as mere tools in the process of implementation and do not participate meaningfully at all stages of a given project, from project design, through monitoring to post-evaluation," the bank noted.

NGOs also complained of autonomy, saying development agencies tended to bulldoze their way over the concerns of NGOs and people's organisations. "It was also argued (by NGOs) that funding agencies in general are reluctant to take cognizance of the different objectives and capacities of the NGO community," the report said.

Textiles formed 54% of exports

Sri Lanka's total exports during the first quarter 1999 were Rs. 67.9 billion which is almost equal to last year's same period exports value of Rs. 68 billion.

However, in dollar terms it reflect a negative growth of 9.7 percent.

The exports have declined to US $ 992 million in first quarter 1999 from US $ 1098 million in the same period of 1998.

The industrial exports which normally contribute major share of exports with 76 percent of exports has shown a growth of 4.3 percent in rupee terms but that too has shown a negative growth of 5.8 percent in dollar terms.

Textile & Apparel which accounted for 71 percent of industrial exports and 54 percent of total exports during first quarter of 1999 has recorded and export value of Rs. 36.5 billion as against Rs. 34.6 billion during the same period of 1998 showing a growth of 5.5 percent.

However in dollar terms it reflects a negative growth of 4.7 percent.

The total export of textiles and garments during the year 1998 was Rs. 159 billion.

The breakdown of same are as follows:

Woven Fabric Rs. Bn. 4.67

Knitted/Crocheted Fabrics Rs. Bn. 1.11

Yarn Rs. Bn. 2.18

Garments Rs. Bn 142.33

Other made up textile articles Rs. Bn. 6.55

Others Rs. Bn. 2.46

With the quota system fully phased out by year 2005, international competition is likely to be intense.

In order to face the future challenges successfully, the industry has to invest in new technology, enhance human resources skills, improve productivity and quality and respond quickly to changing market demands.

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