Budget autopsy on BENCHMARK

On a recent edition of BENCHMARK, in a week in which Budget 2008 was the cynosure of all eyes, Former Finance Minister Dr. Sarath Amunugama shared his perspective on proposed changes to fiscal policy with viewers of the widely watched business programme.

Commenting on this government’s fiscal policy, Amunugama addressed the issue of rampant inflation. Admitting that the cost of living is rising, he conceded that “people are finding it difficult” but, he also asserted that it was good for the economy in the long term, especially as one of the causes of inflation has been the removal of subsidies. It was argued that inflation had the positive side effect of increasing demand for locally produced goods. When challenged, while keeping Cabinet responsibility in mind to defend the budget’s putative thinking that the price of fuel would not go up if global oil prices remained stable, Amunugama conceded that there was a measure of speculation in the fiscal policy of the incumbent administration. He however countered that: “Our problem is not that. The real problem is that our Electricity Board is run on auto-diesel to a great extent. Nowhere else in the world is this the case. So, other countries are better cushioned against rising fuel prices.” Blaming poor planning, mismanagement and even corruption over the last 30 or so years for the present sorry state of this institution, Amunugama said that the Government attempted many times to move away from this mindset – especially by exploring avenues to generate alternative power.

Taking a big-picture view of key economic indicators – most of which are presently heading south – Amunugama said that what the country needs most is to ensure that there is a free inflow of foreign capital into Sri Lanka. He explained: “The only way to ensure that we maintain a decent exchange rate, put down inflation and lower interest rates is to ensure that we have a large inflow of capital into the country.” Asked how the Government proposes to do this, he responded: “Up to now, we have been depending on loans – assistance from countries and multi-national agencies; and now, commercial loans – but we have come to the end of that as well.

We have to think of foreign investment, but many political parties in Sri Lanka – particularly those of the Left – haven’t the foggiest idea as to how vital foreign investment is to stabilise the economy…”

Responding to a question about the Government’s borrowings, Amunugama said that the US$500 million sovereign-bond issue

became necessary because banks were unable to recover many of the loans that they had offered. “Now, the Government has been able to put some of that money back into the banking system,” he averred. Towards the end of the wide-ranging interview, he added that the banking system should not be starved of funds.

At the outset of the issue ‘in the spotlight’ – the budget – he was asked by BENCHMARK interviewer Savithri Rodrigo to comment on the crossover of COPE Chairman Wijeyadasa Rajapakshe, which was also a hot topic that dominated the headlines in the same week.

“If his grievance was that his findings were not acted upon immediately by Parliament, all I have to say is that the whole process has not been completed. One has to remember that the COPE report is not a judicial verdict. The Government has to examine the information provided by the Auditor General and question those concerned before coming to certain conclusions,” Amunugama said. He added that fellow parliamentarian Rajapakshe may be “barking up the wrong tree”.

 

2008 Budget is nothing new, no new targets

On a recent edition of BENCHMARK, Ranjan Seevaratnam – a non-executive Board Director at Nestlé Lanka – spoke to viewers of the weekly business programme on the budget, business ethics (or the lack of it) and what, in practice, can be done to protect the interests of the consumer.

Seevaratnam agreed with his interviewer that budgets, in general, do appear to be somewhat academic and even a waste of time – this, he emphasised, was even more so because usually, most revenue-related regulations are already in place. But this member of the boards of many leading companies – including Haycarb, DIMO and HNB – also charged that the Government introduces fiscal regulations without consulting parliament or the private sector. “The public are not consulted,” he pointed out, intimating that proposed changes to fiscal policy are often foisted on an unsuspecting and unprepared citizenry.

Elaborating on the proposals in Budget 2008, Seevaratnam appeared unimpressed with the new tax suggested vis-à-vis distributable income. He told BENCHMARK: “There were provisions for this sort of tax in the old tax act as well, but the discretion was given to the Commissioner General of Inland Revenue to invoke this section if he found that companies were not distributing their profits. However, this has become legislated now and made compulsory for all companies.”

He also pointed out that this was unfair, as companies now had to pay a plethora of dues to fill state coffers – these include VAT, income tax, the Social Responsibility Levy and the Economic Service Charge, among others. He also noted that if they don’t distribute a certain percentage of their quantifiable profits, they have to pay a 15 per cent tax on that as well.

Seevaratnam added, inter alia: “I think that one of the biggest weaknesses of the Government is that they don’t have a macroeconomic stabilisation programme. The problem is that they don’t set targets for GDP or inflation. The inflation rate, which is extremely high – I think it is the highest in Asia –, is entirely consumer-driven. It is not because the economy is overheating – it is due to increasing prices and cannot consequently be controlled by increasing interest rates.” He urged that the Government be more proactive – for example, by cutting down (if not seeking to entirely eliminate) the waste and inefficiency that characterises the state sector. The most pressing need, he told BENCHMARK, is for a government that is more responsible towards the people whose welfare it is supposed to manage.

The focus of the big-picture TV programme shifted to recently highlighted consumer issues and Seevaratnam addressed the public perception that certain multinationals purveying FMCGs may have indulged in unethical practices – for example, by maintaining prices, but offering a lower weight in similar packaging.

He refuted this allegation, maintaining: “I have been appointed, along with another person, as an independent non-executive director – and one of our duties is to ensure that the company does not do anything unethical.” In the context of Nestlé Lanka and the recent controversy over milk powder, he asserted that prices had to go up.

Seevaratnam elaborated, underlining many reasons for this: “One is that there has been a big demand for milk in China. There has also been a severe drought in Australia and New Zealand, which produce the biggest amount of milk for export. And there has been a ban of milk exports from the EU. The wholesale price of milk has doubled and Sri Lanka is a milk-importing country.” In terms of the packaging possibly misleading consumers, he averred that the MNC has “made it more available to the ordinary person by reducing the amount of milk powder in a sachet, but the weight is clearly mentioned on it – so, it is not a case of fooling the public”.

When BENCHMARK asked this director of an MNC if multinationals such as Prima and Nestlé are often guilty of prioritising their own bottom lines over consumer interests, Seevaratnam expressed the view that these two aspects need to be balanced. He concluded: “It has to be recognised that the prime motive of most internationally recognised multinationals that are here is profits – and if they are not going to make profits, they would not be able to exist. But at the same time, they are very conscious of consumer needs.”BENCHMARK is presented by LMD and produced by ‘the wrap factory’. It airs on TNL on Sundays – at noon, with a repeat at 9.05 p.m. The programme is also telecast over cable TV: on LBN’s Bloomberg segment, on Mondays at 10 p.m.

 

Nobel Peace Prize-winner Prof. Yunus featured on BENCHMARK

Nobel Peace Prize-winner Prof. Muhammad Yunus was featured at length in a thought-provoking interview on the most recent edition of the weekly programme BENCHMARK. “My position is that we need to bring peace. This is the most critical part in Sri Lanka as well as other South Asian countries. It’s a very important item on the agenda and it’s not something we can achieve later. Turmoil, conflict, war - these are extremely costly things for any nation,” he said, during the in-depth interview with the widely watched business programme.

Speaking at length to BENCHMARK during his recent visit to Sri Lanka, Yunus applauded the island’s economy, opining that it had performed reasonably well in the South-Asian context, despite the devastating and protracted war.

Asked what short and medium-term resolutions that any government which is serious about administering the country should be looking at, Yunus pointed out to poverty as the most critical factor. He revealed that Asia alone accounted for some 40 per cent of global poverty and emphasized that all governments in the region should consider this as the main hurdle to be overcome.

Given his long-term vision of eradicating poverty in the world, BENCHMARK asked Yunus if he believes that micro credit alone can achieve all desired developmental objectives - especially for developing countries such as Sri Lanka. In response, he averred: “Credit is a financial transaction. You can create employment and income. What about health, education and many other aspects such as democracy, empowering women and giving children a better future? So, everything has to be addressed. But we always say: ‘Never forget the micro-credit part’ - because it makes everything else easier to achieve…”

The Bangladeshi-born Yunus also provided some valuable guidelines on how best Sri Lanka can put the innovative tools made available through micro credit into practice. First on his list was developing an adequate and supportive legal framework as well as a separate regulatory body that could control and promote micro-credit programmes. He advised: “Keep it away as much as possible from the Government, because if the Government gets in to the picture as a delivery machinery, then it doesn’t work. It’s much better to leave it to civil society to do it.”Responding to a query by BENCHMARK as to what he feels about the role played by Sri Lanka in the SAARC region, Yunus noted that the island-nation is an important and effective partner in the region. However, he expressed some dissatisfaction with the South Asian Association for Regional Cooperation (SAARC) itself. He elaborated that SAARC does not work as a functioning entity, observing that it is more of a ceremonial body. He was of the view that SAARC should transform itself into an organisation that addresses real problems and finds real solutions to regional issues - and that, sooner rather than later, he urged. via Financial Times

 

“BENCHMARK”… on why biz confidence will fall

Head of ACNielsen explains to viewers of BENCHMARK why a unique barometer of business sentiments will continue its journey southward.

“It is unlikely that there will be an upswing in business sentiment in the next few months,” said Bhuwan Singh, the Managing Director of The Nielsen Company, on a recent edition of BENCHMARK.

Singh spoke at length about the LMD-Nielsen Business Confidence Index (BCI), which is a unique barometer of biz sentiment in the country. It is based on a survey of senior executives in Colombo who respond to a series of questions on business conditions and expectations. The most recent surveys reveal that business confidence has been nose-diving at a rate of knots.

BENCHMARK pointed out that the BCI crashed to a new low of 78 basis points in May, following the LTTE’s air attacks on Colombo on the night of the cricket World Cup finals. Asked if he foresees a swing upwards in business sentiments post the government’s show of military strength in the triumphalist aftermath of the fall of Thoppigala, Singh said: “Overall, I think public sentiment may be boosted, but it may not necessarily show up in business confidence. What is important to know is whether the investment environment has improved or will improve. And in the short to medium term, I do not see that happening.”

He noted that the BCI’s barometer has plunged in June and July. “It may go up slightly in August, but I don’t think it will be a major upturn,” he hazarded. Asked for the reasons for this negative trend, Singh responded: “We all know why it is going southwards, rather than upwards. The fact is that inflation is high – there is major inflationary pressure on the general public and on business. I think that the downturn of the last three months will continue for the next three months, at least.”

Asked if the powers that be do take note of this barometer of business confidence, he opined: “I think they should. The BCI reflects the voice of business and we implore and beg of them to seriously take note of it.” He further underlined that the BCI is the voice of the most senior business executives, who are “opinion leaders in the country”. Singh affirmed that in this context, the BCI is “a very good indicator of happenings in this country – good or bad”.

The BCI in June was less than 50 points higher than its all-time low of 31 – that was in September 2001, when former President Chandrika Kumaratunga perhaps precipitately prorogued parliament. BENCHMARK asked what political or other sensitivities could prompt a similar plummeting of business confidence. Singh stated that short-term military victories have an effect – “at least sentimentally”. He added: “But if you are looking at a slightly longer term, I don’t think short-term military victories are enough. The people, especially the business community, should know the long-term plans of the government – and that, I think, will have an impact on the BCI,” he said.

The Indian CEO also pointed out that there is a correlation between business confidence and the political climate. And the BCI, he noted, is affected not merely by the actions of the LTTE, but also by developments in southern politics.

Asked what biz sentiments would be in the context of a putative snap election or provincial council election in the east, he surmised that if these transpire peacefully, they would have an impact on business sentiment and create a more enabling environment for people to “be more open to investments”.

The Nielsen chief in Sri Lanka elaborated: “The north and east form a large chunk of a market which the business community in the south is not able to tap into now.” Hence, he speculated, a peaceful election would “definitely have an impact on the index as well as business sentiments”.

Asked how best the negative trend in declining biz confidence could be arrested, Singh said: “I’m not a soothsayer, but the fact is that the government has to show some direction in terms of solving the conflict peacefully.”

He concluded: “As a researcher, our observation is that the general public – inclusive of all communities – is fed up of the conflict. At the same time, the government has to encourage the voice of the people – be it the press, judiciary or bureaucracy. There needs to be public representation in this game – whether it is economic, political or social.”

Powered by Post2Blog Express & Financial Times