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3rd October 1999

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Coming in with the tide

pictureWith the rapids, tourists are expected to catch the wave and flood Sri Lanka. Industry officials hope adventure sports, the latest craze, will help Sri Lanka wash ashore some high net worth tourists.

The industry has been accused of attracting the so-called 'budget tourists'. But officials defending them as being most welcome, if not for whom we would not have what we have now. But a few hundred or even a few thousand of big money spenders would relay pump adrenaline into the industry.

To do this, Sri Lanka should present an attractive atmosphere to lure high spending tourists and coax them to spend their money, a tour official said. "We should cater to their needs, provide them with a traditional but exquisite array of attractions giving them a reason to come here."

Officials say the introduction of many outdoor activities, which include white water rafting, canoeing, Kayaking, hiking, cycling and mountaineering among others were doing the job in their own limited way.

In the first half of this year however, a total of 212,766 tourists came to Sri Lanka compared to 173,145 tourists who came during the same period last year, a growth of around 23 per cent. According to The Central Bank report for 1998, per capita tourist receipts for the year was Rs. 41,873, which travel agents say 'is what Sri Lanka should be looking at increasing and not the number of tourists'.

However, officials predict that this year's tourist arrivals would go above last year's 381,063 tourists.

IMF on a changing spree

ESAF out, PRGF in

By Mel Gunasekera

The International Monetary Fund (IMF) will to scrap its key lending facility for the poorest countries in favour of an approach more closely geared to combating poverty, a top IMF official said last week.

IMF's policy making interim committing last week approved the replacement of its 'enhanced structural adjustment facility' (ESAF) with a new programme called the Poverty Reduction and Growth Facility (PRGF), IMF's new country representative for Sri Lanka, Dr. Nadeem Ul Haq told The Sunday Times Business.

The changes come in the face of mounting criticism of the IMF - notably from aid organisations such as Oxfam International and in certain academic circles - that the Fund has been indifferent to human suffering and has focused too narrowly on controlling inflation, stabilising currencies and calming jittering markets.

Under ESAF, developing countries that agree to implement IMF mandated macroeconomic reforms are rewarded with financial credits.

But critics contend that IMF programmes raise interest rates, lower living standards and cause recipient countries to slash social spending.

Initial reports filtering in indicate the new IMF strategy will be based on five 'pillars' - support for increased spending on poverty reduction, targeting basic education and health; enhanced transparency in budget expenditures; stronger participation by the recipient country in IMF-promoted poverty reduction schemes; tougher 'monitorable' performance indicators for follow-through reduction schemes; ensuring macroeconomic stability and lowering barriers that have prevented the poor from access to the benefits of growth.

Dr. Ul Haq says the Fund is still wrestling with the finer details. "We still have a lot of work to do to flesh out how this approach will work in practice."

He said the funding structure has not been decided upon yet, but will be mainly finance through the Fund's gold revaluation and debt reduction mechanisms agreed to by donor countries.

Since countries seeking assistance also have prior debts, the earlier debts will also come into consideration. However, important details, like the criteria for eligibility, which countries will go first have yet to be worked out.

There is mounting pressure to try and make this programme happen fast. People are worried that it will be made a give away exercise, he said, adding that the process will take another year or two to finalise what the exact new structure is going to be.

Meanwhile, the Fund also approved the financing structure of the Heavily Indebted Poor Country Initiative (HIPC), last week.

The main elements of the financing package amounting to SDR 3.9 billion on an "as needed" basis (US$ 3.5 billion in end-1998 net present value terms)—comprise contributions by member countries and by the IMF itself. The financing of the cost of the HIPC Initiative to the IMF is projected to account for about two thirds of the IMF's total financing requirement.

CB predicts annual average inflation at 6%

The Central Bank has predicated this year's annual average inflation to be less than 6 per cent.

A bank release says that the Colombo District Consumer Price Index for September was 4.4 per cent. The point to point increase in the Index (September 1999 over September 1998), had increased to 5.0 per cent in September form 4.2 per cent in August, the release adds.

Several food items like low country vegetables, large varieties of fish, eggs and coconut oil increased in September, the report says. These price increases were almost offset by declines in the prices of dried chillies, onions, potatoes, sugar, some varieties of upcountry vegetables and small varieties of fish. Price hikes in transport last month also affected the index, the report adds.

The Colombo Consumer's Price Index (CCPI base 1952-100) published by the Government Department of Census and Statistics decreased by 0.1 per cent to 2353.4 in September. The annual average inflation in terms of this Index remained unchanged at 5.0 per cent while the point to point increase moved up to 5.4 per cent from 4.7 per cent in August.

World tea trade stumped on Camellia

By Shafraz Farook

U.N. tea researchers agreed during last week's FAO conference that products must contain anywhere from 80 to 100 percent pure tea to be eligible for an official label indicating health benefits.

Sri Lankan industry officials commenting on this situation said they would stick to the present 100 percent pure tea or Camellia sinensis as it is scientifically known.

The decision to regulate the percentage of pure tea came about because the tea consuming nations and major financiers of the Food and Agricultural Organisation (FAO) Intergovernmental Group (IGG) had wanted the percentage of pure tea in the final product to be as low as 70 per cent. However, after protests from the tea producing nations it was concluded that any tea product to carry the new health tea logo should contain between 80 percent to 100 percent pure tea.

Local officials said if this was so, they would produce black tea with a minimum of 90 per cent pure tea and nothing less. They added that all research done so far was based on black tea containing 100 per cent pure tea. They said such a reduction would not have the desired health properties as expected. The Sunday Times Business also learns that flavouring could sometimes nullify or reverse the health effects contained in black tea. This would mean that so many years of research would mean nothing, officials said.

Canada, the United States and England as tea consumers and major financiers of the IGG budget in a previous meeting had wanted the percentage of pure tea reduced to 70 per cent at first and 80 per cent consequently. The tea producing nations however had insisted that black tea contain 100 per cent pure tea, but reluctantly agreed to reduce it to a minimum of 90 per cent, an industry officials said.

The FAO in a document released at the meeting said it seeks to encourage the tea industry to adopt this new campaign because it has the potential to increase overall tea consumption for the benefit of both producer and consuming nations. Black tea is believed to reduce the risk of developing cardio-vascular disease as well as certain types of cancer, while drinking green tea may diminish the risk of cancer of the digestive tract.

A health logo that was tested in four test markets has been registered in over 40 countries including Sri Lanka. The logo will be the property of the FAO and they will regulate the use of it, officials said. The Sri Lankan Tea board as the local APEX body on tea will be the governing body for the logo in Sri Lanka, officials confirmed. The same principal will be followed in all the countries were the logo is registered.

The report also said that both production and consumption of black tea world-wide would grow by about 2.8 percent per year until 2005, when they would be virtually in balance at about 2.7 million tonnes, the UN agency said. Demand for high-quality packaged tea in the Commonwealth of Independent States (CIS) and in the Baltic States is likely to continue to expand, the report said.

Transparency, an antidote for

Last Sunday we carried a story that an international organisation - Transparency International - will help fight corruption in government and business. An accountable government and business sector ,as well as an independent judiciary, are among the objectives of Transparency International.

This is one of the many lessons taught by the East Asian crisis. Until the crisis occurred there was a tacit acceptance that corruption was inevitable at the early stages of economic development and even harmless if the, rules of the game were clear. In fact, some argued that corruption was a lubricant to economic development because it enabled quick decision making and a more action- oriented society.

Too much insistence on transparency and procedures, it was argued, delayed projects. Better to have a corrupt government which gets things done, than an honest one whose dilatory procedures delayed execution. Foreign and multilateral corporations found ways and means of handling corruption and it seemed all's well that works well.

After the East Asian crisis it is now clear that the old values of honesty and integrity are important to economic growth. Bribery and corruption lead to faulty decision making.

These are costly to the country as they increase the costs of development as well. It also results in poorer return on investments. Sometimes decision making could result in serious repercussions on the economy, particularly in the long run.

Bribery often leads to higher costs which have to be borne by the ordinary people of the country. Decision making without transparent and well thought out procedures could seem less time consuming and costly.

Some foreigners even admired the quick decision making of certain South East Asian countries. Once you established the link and paid the commission or bribe, the task could begin quickly.

Several components of the Asian crisis owed their origins to bribery and corruption. Costly projects were undertaken as higher the capital outlay the bigger the income to the bribe takers. This meant that prioritisation was distorted.

Grandiose schemes with little benefit to the economy or lesser benefit to ordinary people were undertaken owing to the huge amounts of money which could be siphoned off by politicians, their relations and bureaucrats.

Apart from the distortion in priorities, these projects cost considerably more. The higher costs were either borne by the public purse or passed on as higher prices to consumers.

A second way in which bribery was a cause for the crisis is that the regulatory arm of the government was paralysed. This happened in several ways. Regulators could be bribed to ensure that they turned a blind eye.

When the system was known to be corrupt, the regulations were by-passed as the offenders could get off the hook by bribing the officials.

This led to a number of investments, including faulty building construction, which were not in the public interest. The collapse of buildings in South Korea was an arresting illustration of this phenomenon.

But the damaging impacts of such corruption were more pervasive than collapsed buildings.

Another serious injury to these economies was when the prudential and regulatory norms were breached, the authorities were not in a position to enforce the rules as the offenders were the kith and kin of politicians. So the rot ate into the system more deeply till it had serious ramifications on the economy.

The lesson for Sri Lanka is that any justification of corruption on the basis of economic expediency and quick implementation of projects is untenable. We must also guard against the notion that because previous governments were corrupt, lesser corruption is an improvement of the situation. A little corruption is a dangerous thing as it grows and penetrates all sectors of society.

It is expensive as people have to pay for it in one way or another. The institutions must be established to deal with all modes of corruption and a bi-partisan approach would be the most effective and sustainable.

The propelling power for such reform must indeed come from the media and civil society. A people unconcerned with bribery and corruption have to pay a price - not only higher costs to themselves but a huge cost in hampering long term economic growth and development.

Corruption and economic growth are incompatible in the long run. Among Asian countries, Hong Kong and Singapore have cleaned up their societies. Unfortunately in Sri Lanka corruption has grown rather than diminished.

The rhetoric of eradicating bribery and corruption is not matched by action. Guilty parties are often rewarded rather than punished. Institutions must be set up to punish offenders. These are inoperative.

A new dedication to uproot corruption is urgently needed. Election promises which are unimplemented won't suffice. The economy would falter and fail if bribery and corruption is not controlled.

The new move to get international assistance is indeed very welcome. However it will succeed only if there is a real political will and action by civil society to ensure that bribery and corruption are not tolerated.

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