Saturday, April 30, 2016

Sri Lanka, IMF agree on $1.5B bailout to avert balance of payments crisis

Lakruwan Wanniarachchi | AFP | Getty Images

From Reuters & CNBC - The International Monetary Fund (IMF) has reached agreement with the Sri Lankan government for a $1.5 billion bailout to help the island nation avert a balance of payments crisis.

The three-year loan will require IMF board approval in June, the global lender said on Friday, and is subject to Sri Lanka implementing reforms, including streamlining the tax code and reducing a bloated deficit.

"The Sri Lankan authorities and the IMF have reached a staff-level agreement on a 36-month Extended Fund Facility (EFF)," for a $1.5 billion loan, Todd Schneider, IMF mission chief for Sri Lanka, said in a statement.

The agreement comes as debt-laden Sri Lanka faces a looming balance of payments crisis due to heavy foreign outflows from government securities and high external debt repayments.

Sentiment on financial markets was bolstered by the IMF deal, helping the rupee currency trade firmer and stock index rise nearly 1 percent in early trade.

Sri Lanka's foreign exchange reserves have fallen by a third from their peak in late 2014 to $6.2 billion at end-March.

The government will seek to raise the tax-to-gross domestic product (GDP) ratio, which was 10.8 percent in 2014, to near 15 percent by 2020 through a new Inland Revenue Act, reform of the VAT and the customs code, Schneider said.

The loan - the second bailout from the IMF since 2009 - will support the government's ambitious economic reform agenda aimed at fundamental changes to tax policy, reverse a two-decade decline in tax revenues, and put public finances on a sustainable medium-term footing, Schneider said.

"Stronger revenue performance will enable smaller fiscal deficits and lower borrowing, reduce the overhang of public debt, and ease pressure on the balance of payments."

Sri Lanka's 2015 budget deficit hit 7.4 percent of GDP, up from 5.7 percent in 2014.

Schneider said the formal approval of the EFF was "expected to catalyze" an additional $650 million loans, bringing total support to about $2.2 billion.

How to play the nascent Sri Lanka market

The majority of the $650 million loans will be from the World Bank and the Asian Development Bank, government officials told Reuters.

"This (agreement) will boost the investor confidence," Central Bank Governor Arjuna Mahendran told Reuters via telephone from Hong Kong.

Finance Minister Ravi Karunanayake said Sri Lanka was already well on the way to implementing reforms, including raising value added tax (VAT) by 4 percent, announcing a restructuring plan for its loss-making state-run airline, and eliminating tax holidays granted by a state-run investment body.

Moody's Ratings agency said in a statement the loan would provide external liquidity to ease immediate financing pressures and could reduce Sri Lanka's vulnerability to a sudden halt in capital inflows.

Elephant summit: Kenya sets fire to huge ivory stockpile

Kenyan President Uhuru Kenyatta has set fire to a huge stockpile of ivory in an effort to show his country's commitment to saving Africa's elephants.

More than 100 tonnes of ivory was stacked up in pyres in Nairobi National Park where it is expected to burn for several days.

The ivory represents nearly the entire stock confiscated by Kenya, amounting to the tusks of about 6,700 elephants.

Some disagree with Kenya's approach, saying it can encourage poaching.

Before igniting the first pyre, Mr Kenyatta said: "The height of the pile of ivory before us marks the strength of our resolve.

"No-one, and I repeat no-one, has any business in trading in ivory, for this trade means death of our elephants and death of our natural heritage."

Does burning actually destroy ivory?

The burning comes after African leaders meeting in Kenya urged an end to illegal trade in ivory.

Experts have warned Africa's elephants could be extinct within decades.

But some conservationists have expressed opposition to the ivory burn in Kenya, the biggest in history.

They say destroying so much of a rare commodity could increase its value and encourage more poaching rather than less.

Botswana, which is home to about half of Africa's elephants, is opposed to the burn and its president did not attend the event in Nairobi.

Demand for ivory comes largely from Asia, with the main trafficking route being through the Kenyan port of Mombasa.

Monday, April 25, 2016

Sri Lanka's ruling party brats brawl over birthday girl

ECONOMYNEXT - A ruling legislator was assaulted during a birthday party of a daughter of another party stalwart at Colombo's Cinnamon Grand hotel over the weekend with all brats ending up at the nearby police station.

Police sources said UNP MP Kavinda Jayawardana was set upon by the son of another UNP politician Kithsiri Kahatapitiya at the party of another UNP politician Upali Piyasoma's daughter.

The de luxe party at the Sequel, a "champagne bar" which the hotel says has the "elegance of a night club"  was turned into a rowdy brawl when punches were thrown and furniture smashed in the melee.

“The party was at the Sequel but the sequel to the party was at the Kollupitiya police,” a party goer said adding that the recently re-branded Sri Lanka Police (earlier known as police department) did a good job of bringing about reconciliation among warring political brats .

The battle over the birthday girl left a thumping bill to replace broken glass, crockery and missing cutlery.  Police summoned both parties and is said to have settled the matter amicably with no charges pressed by either side.

However, it is understood that the hotel is insisting on charges for "breakages" and additional clean up, including a laundry bill for the soiled table cloths.

Sunday, April 24, 2016

I was born here, in Colombo

by Victor Cherubim
( April 20, 2016, London, Sri Lanka Guardian) To many in Sri Lanka, life overseas is a bowl of cherries. It is quite natural for longing to travel outside our shores of our small island, to see the world. Strangely from birth, it becomes a cherished ambition for some, in search of the unknown, the unchartered, the new frontier of experience? Could it hardly be a comparison, as a step on the Moon?
Over centuries however, many world travellers too have come to our land, some in search of adventure, and others in search of trade. We ask ourselves what makes them travel? Is it a pastime to find solitude, solace or sobriety or in hope to conjure memories of the hidden jewels of pleasure?
Life in our land and life abroad
If life in our land is so different to life abroad, or seen to be different, why is it that many leave our shores taking perilous journeys over land and sea(s) and many continents, as refugees?
If life in our land is so different to life abroad, why is it that they are willing to give fictitious accounts of persecution in today’s Sri Lanka,perhaps, to earn a crust abroad?
Why on earth are so many desperate to leave Sri Lanka and do work in unpleasant conditions and very long hours in an unfriendly work environment, say for example, in Sainsbury’s Freezer Rooms packing and stacking food, for a measly wage and studying during daytime to qualify for Student non-support Visas to UK?
It appears to me that there is disconnect between lives lived in Sri Lanka and life abroad and that we are willing to sacrifice everything for a wage? Do I have to mention what hardships our women domestic workers have to tolerate in the Middle East?
Reminiscence of my youth in Sri Lanka
As a small island I need hardly state we are used to a close knit family life. We experience diversity, many different environments, different climate, different races, different languages, culture and religions, a varied lifestyle within a small island.
Sri Lanka had a hot, steamy climate; when it rained, it thundered, when it was balmy, it was breezy. We had a variety of landscape, hills, rivers, beaches and wild life sanctuaries. Our seas surrounding us abound with coral and seafood and marine life.
As an island nation, privacy was an uncharacteristic. Everyone knew everyone else down the street. There was a parochial feel, perhaps, to co-exist in a more harmonious way to nature and man. This was toppled by the war and the disharmony it created. We thought of our homes as wellness generators rather than isolated residences. Islanders by nature are inquisitive. Hardly, would we think “Oh, that is not my problem, as everybody’s worry, was our worry.” What an interesting predicament? What an advertisement?
We were taught from an early age to think of Mother Nature, our ocean, our earth, our environment as something tangible, something to value and treasure. We were close to nature in more ways than one. Our New Year, our seasons, our festivities and frolics were in association and celebration of nature. Our customs, traditions and even our ayurvedic herbal medicinal treatments were natural.
It was sad that this cultural diversity, heritage, a closeness to nature was abandoned due to the exigencies of the 30 odd year war, when families were separated by association.
It is comforting to know that we are once again back on track, being driven to seek our natural habitat and our inborn tendencies to respect and in reconciliation with man and Mother Nature in our celebrations of our New Year.
What then is the difference between our lifestyles in Sri Lanka and abroad?
The most noticeable difference between life in Sri Lanka and say life in the UK, is the conspicuous spatial experience. Both Sri Lanka and Britain are islands, but there is a surrounding cloak of discretion, a secrecy and understatement tending towards unpredictability, unless you are here some fifty odd years, when this changed perspective becomes normal.
We become vulnerable, dependent and it becomes harder not to romanticise obstacles. Expatriate or diaspora life is learning to live alone. Seeing and sensing a routine, getting a hang of life abroad, takes time to establish.
We in Sri Lanka are passionate about our lust of wander which is compromised by its imperfections and now our debt burden.
What do I want for Sri Lanka in the future?
“I was born here, in New York City “stomps Bernie Sanders, the candidate seeking Democratic nomination– a qualification for Presidency of the United States.
My vision for Colombo, the capital of Sri Lanka, is because I was born in this City. My dream city of Colombo of the future, 50 years from now is for humans and not for cars. There must be places for people to walk down the street, to cycle to work, to be able to interact with people. Regrettably, our brains have been conditioned to autos and three-wheeler travel. They have commandeered too much living space. Much of the City of Colombo as seen from above, from air and space has changed. There is too much concrete, asphalt, the flow of goods and people has changed, what I used to know.
When in Colombo two years ago, I walked from Bambalapitiya to Kollupitiya, a short distance to Green Cabin, to sample the food I used to taste when I was a young lad. I walked the length of Marine Drive, parallel to the railway line, mainly to experience a stroll down the beach. The trudge to Pettah was an experience of meeting humanity.
How can we enhance the quality of life of Colombo?
Cities, if not parts of cities, need to be planned to be greener and more open, more walker friendly, more personalised shelters. We need to plant more trees, more flowering trees. We need patient grooming of these roadside shades. We need human surroundings and interaction.
More than most, we need to integrate solar power, water and wind to cool air in our homes and office spaces. We need to be different from Singapore or Chicago to be recognisd. In short, can we bring us closer to nature rather than build everywhere blocks to reach the sky?
There is a whole world out there which we won’t realise how much we don’t know until we get out and see how other people want to live. People are becoming eager to do things differently. Let us note these differences, not only to love and accept and work with difference, but see the beauty of diversity.

High profile belle of yesteryear is now in flesh trade!

From DM Online
A story doing rounds in political circles says that yet another belle of theatre and cinema of yesteryear is making a mint by operating a sex racket catering to a select clientele of some lascivious senior purohitas and business tycoons.   

The sex workers employed by this onetime belle are mostly young actresses, they say. 

The lady-pimp, said to be a confidante of a number of Diyawanna seniors is obtaining a variety of favours from the purohitas in addition to money for catering to their needs. 

A very senior Diyawanna member in particular is lavishly spending his wealth on the young girls sent to him by the lady-pimp from time to time, they say.

Sri Lankan founder of Lebara targets migrants with TV, cash services

LONDON, April 22 (Reuters) - Lebara, the mobile phone group often seen selling SIM cards to new arrivals at major railway stations in Europe, says its knowledge of a group largely ignored by major brands will help it also sell digital services like online TV to them.

The privately owned group targets the thousands of people who arrive in London, Amsterdam and other European cities from South Asia, West Africa and eastern Europe each year by putting itself right in the path of its customers.

"We are in a niche market targeting migrants," said founder and chairman Yoganathan Ratheesan, who came to Britain from Sri Lanka aged 15. "We saw an opportunity globally to create a brand where migrants feel 'that brand is for me'."

Founded in 2001, Lebara has 5 million active customers and its turnover was more than 600 million euros ($674 million) in 2014, he said.

Alongside SIM cards the London-based firm sells packages of international voice calls, texts and data using capacity supplied by its partner mobile networks, such as Vodafone in Britain.

It's a highly competitive market, with the networks and rivals like Lycamobile selling similar packages.

To branch out, Ratheesan wants to transform Lebara into a digital provider of services to migrants.

"They (migrants) need financial services and then once they settle down they want home entertainment, back-home content. Finally travel, being migrants they travel a lot," he said.

The first step was to change the relationship with the group's sales agents to a revenue-sharing model rather than mainly incentivising the sale of SIM cards and initial top-ups.

Gross customer additions have fallen but the upside has been longer, more profitable customer relationships, Ratheesan said.

"Churn is down in all markets," he said. "I could look myself in the mirror and ask why I didn't do this years ago."


The plan has already had an impact on the bottom-line, Ratheesan said, with all markets profitable since the beginning of the year.

Digital terminals enable its retailers to sell services like Lebara Play, a kind of Netflix for migrants showing West African French movies or Tamil channels from India, launched last year.

"A majority of customers do not use a credit card, it's a largely cash driven economy," he said. "If there's no mechanism for them to pay, then how can you digitalise that market," Ratheesan said.

Later this year Lebara plans to handle cash transfers for its customers too.

The company's offices in the City of London, where 25 languages are spoken, look more like a start-up than an established telecoms group, with "living room" areas where new TV products are tested.

Remittance services will come in the summer, Ratheesan said, helping Lebara become a brand that stays with migrants long after they've become established in their new homes.

"Twenty years ago or even longer, people wanted to be known as integrated," he said. "Today it's completely the opposite, people are happy and confident to be themselves and celebrate themselves in their own way."

India disapproves Pakistan aircraft deal & also Cogs within Cogs!!

From AM
A cabinet paper has been presented with regard to obtaining combat aircraft for Sri Lanka Air Force, the internal sources of the government report.
Though it has not been approved yet, it is said that there is a risk of a deal on a huge commission taking place through the purchase.
Furthermore, India is making diplomatic interventions to prevent the purchasing of combat aircraft from Pakistan, which is being backed by several higher officials attached to island's defence.
There had been a huge speculation that government of Sri Lanka was intend to buy 8 JF-17 Thunder which jointly manufactured by Pakistan Aeronautical Complex (PAC) and China’s Chengdu Aircraft Industry Corporation (CAC).
However, a huge objection was raised by India with regard to the purchase and India compelled Sri Lanka to purchase the Tejas Light Combat Aircraft manufactured by Hindustan Aeronautics Limited.
Though Tejas Light Combat Aircraft are better in quality compared to Pakistan aircraft, the government does not posses sufficient funds to purchase them.
The aircraft are higher in price and India is not providing loans to assist the transaction.
Under these circumstances an intermediary, who is a local businessman, has volunteered to assist the process where the aircraft are purchased through a Chinese company along with loan facilities.
He, who had been involved with all previous governments starting from President R. Premadasa's regime, was one of the most powerful businessmen during President Rajapaksa's regime.
He is maintaining a  close relationship  with the current government as well and has secured number of large business deals.
Hence there is a high possibility of his company handling the particular transaction.
Though another company owned by a relative of Minister Sarath Fonseka has expressed its interest in facilitating the purchase directly from Pakistan for half price along with loan facilities , the higher officials attached to nation's defence have ignored the opportunity due to their greed towards obtaining a commission.
Accordingly purchasing of the Pakistan aircraft will be another disadvantageous deal for Sri Lanka which will only increase the wealth of few individuals.

Video - My Shop: The shop in Coventry where cars paint

Artist and car nut Ian Cook has managed to combine his passions in his shop in Coventry.
PopBangColour is part of the Fargo Village shopping centre in Coventry, a hive of independent, creative shops.
Here he can be found painting large canvasses with remote-controlled cars, which he prefers to brushes. He sells smaller versions of the works as prints, on display in the shop.
As the city has historical associations with car giants like Jaguar and Rover, Mr Cook says he feels he's in the right place.
Video journalist Dougal Shaw went along to meet him in action at his shop and recorded the experience on his mobile phone.

Video - Why cannot Sri Lanka do this?????

Kenyans enjoy surge in affordable solar power projects

In Kenya, social entrepreneurs are turning solar into an industry that is attracting venture capitalists and mainstream investors who see it as an increasingly bright and profitable future.
From Nairobi, the BBC's Hannah McNeish reports.

Saturday, April 23, 2016

Tug-Of-War For Power Purchasing

From The Sunday Leader - by Ifham Nizam
Sri Lanka’s utility and power Sector regulator – the Public Utilities Commission of Sri Lanka (PUCSL) – has opposed a move by Ceylon Electricity Board (CEB) to proceed with emergency purchasing of electricity from independent power producers (IPP), pointing out that catchments receive ample rain and three plants of the first coal-fired plant in Norochcholai is working in full capacity contributing 900MW.
Last week, PUCSL has come hard on the CEB’s decision to purchase emergency electricity from 100MW Ace Power Embilipitiya (Pvt) Limited, saying neither the Government nor the Cabinet had stated about an emergency situation. It is learnt that CEB took a decision to cancel all bidding with regard to the recent proposal for emergency power.
PUCSL pointed out that energy availability within the system is sufficient. However, following a letter by CEB General Manager M. C. Wickremasekara, the PUCSL had given a no objection letter, stressing that additional cost should not be passed to electricity consumers.
Commission’s Chairman Saliya Mathew said that they believe that the failures of two 250MWA transformers are due to negligence in maintenance.
He points out at present only one 250MWA transformer is out of operation in Kotugoda Grid Sub Station and Biyagama Grid is fully functioning.
“Hence, the information provided to the Commission regarding the non availability of two 250MWA transformers is incorrect and misleading,” he wrote to CEB General Manager and Additional General Manager.
The Sunday Leader learns that the only reason provided by the License to the Commission to consider emergency requirement is the restrictions imposed to discharge (49MW), for which the evidence for water restriction is not placed before the Commission.
The Embilipitiya Power Station, the heavy fuel oil-run power station, was commissioned in March 2005, and was operated by Aitken Spence (sometimes shortened to Ace).
The power station consisted of 14 Caterpillar 16CM32C generation units of 7.11 MW each, which consumed approximately 550 tonnes of fuel oil per day. The Ministry of Power and Energy discontinued purchasing power from the private power station after its licence expired in 2015, and hence was subsequently decommissioned. The facility cost approximately Rs. 8 billion to develop, and is built on a 44-acre (18 ha) land on a 33-year lease.

Story behind Emergency Power
a) Inability of successive governments to construct the second coal power plant at Sampur (or an alternative plant).
b) Retirement of  225MW (100MW – Embilipitiya, 100MW – Puttalam, 25MW –Matara) of  Diesel Power Plants at the end of their costly 10-year agreement period. The worst affected area was the Sothern Province due to the retirement of 100MW Embilipitiya Plant and 25 MW Matara Plant. CEB tried to extend the agreement for a lesser cost in 2015 but the then Minister was very adamant and wanted to stop it.
c) Very low (less than 10 per cent) amount of contribution from Mini-hydro (installed capacity) 240MW and Wind power (140 MW installed capacity) during this dry season.
d) Restriction CEB had on Mahaweli water (by end of March CEB had water equivalent to 500 GWhr of electricity units but out of that 375 GWhr was in Mahaweli reservoirs which are managed by Mahaweli Authority).
e) Rapid loss of water levels in Massuakele and Castlereigh reservoirs (in Laxapana Complex) and Samanalawewa reservoir due to over use of water due to 2X4 days plant outages of Norochcholai after two total blackouts.
f) Lack of required fuel supply by Ceylon Petroleum Corporation for CEB and private thermal power plants. According to CEB engineers, the deficit of power in southern region was first identified in mid-March. The situation was mainly due to b), c) and e) above. Unscheduled power cuts had to be imposed for a few days in the Southern Province. Giving power to some part of Central Province and Eastern Province was also an issue due to d) above. ( i.e. CEB could not operate Bowatenna and Ukuwela Power Plants as no water released by Mahaweli Authority)
Initially the government plan was to procure 100MW of emergency power. The government was on a very firm stand that there can’t be any power cuts in the country. Under the above-mentioned background, engineers were pressurized by the government to somehow avoid any possibility of power cuts. CEB engineers pointed out that ‘Emergency Power’ is a very costly solution but finally recommended to procure emergency power if government wants to avoid any risk definitely at a high cost.
“So engineers recommend to procure 55MW of emergency power for three months to cater to areas affected with network bottlenecks. As per historical data the most difficult period with regard to hydro power for first week of April to second week of May.
There is no point of procuring ‘emergency power’ if it can’t be installed at least by first week of May. Going by the Meteorological Department indicators we expect some rain by second week of May. If there is no rain, 55MW is anyway not enough to solve the possible power shortage which may arise due to delay in monsoon,” a senior engineer said.
CEB would have avoided the procurement of ‘Emergency Power’ if government agreed to share a calculated risk. According to engineers the 55MW of additional power was recommended not due to lack of energy in reservoirs or lack of thermal plants as claimed by some politicians.
“It is purely due to the fact that we had network restrictions (created due to retiring of diesel plants) for delivering power. The major requirement was to get some power input to Southern area. This is due to the bad decision taken by the government in early 2015 to not to extend 100MW Embilipitiya Power Plant which would have negotiated and procured at a lesser cost,” CEB Engineers Union President Athula Wanniarachchi said.
CEB negotiated with owners of ACE Power Embilipitiya and has signed a fresh contract to run the plant for another year. Out of 100MW, 60MW is available at the moment. It is expected that at least 80MW will be available shortly. The cost of a unit from this plant including capacity cost and fuel is around Rs. 23 per unit. The issue in the southern part of the country has been solved with the addition of Embilipitiya plant. As per a direction of the cabinet, CEB called tenders for 55MW of Emergency Power. There were about five parties interested about this but only two bidders participated at the final stage, i.e. APR Energy and Aggreko. The APR, said to be the lowest and the total (capacity+ fuel) cost is around Rs. 29 per unit. This cost is almost same as the unit cost of IPP with the highest cost in the country, i.e. Kerawalapitiya 300MW Combined Cycle Plant (or West Coast Power Plant).
However, the approval of the PUCSL is yet to be received for this 55MW Emergency Power purchase.
CEBEUs’ stand is now there is no need to go for emergency power. If government wants the state of ‘zero risks’ this can be proceeded for only 20MW but must be limited to three months as initially planned. In the 1990s, CEB was bankrupt due to continuation of ‘emergency power’ for a few years with Aggreko. 
The best solution may be to construct a 100MW power plant in the southern area to inject power at 132kV level. A conventional diesel power plant can be constructed within about 14 months. The cost can be lowered by putting up this by CEB but if finding capital is an issue, it can even be done with private investors through a competitive bidding process.
Meanwhile, some business tycoons are eying on putting up a 300MW LNG (Liquid Natural Gas) Power Plant at Kerawalapitiya without going for competitive bidding process through unsolicited bid. They want to capitalize this power shortage and bypass the competitive bidding process ‘to save time’.  Only a plant in Kerawalapitiya will not solve the issue in the Southern region. On the other hand the decision to go for LNG should be taken very carefully.
Although the LNG prices are comparatively low in this year, it might go up at any time due to the high demand from developed countries. In the long run,  LNG  may be feasible only if all CEB & IPP Thermal plants in Colombo are converted to LNG and even the transport sector is also to migrate to LNG from petrol/diesel. Under this backdrop, it is not prudent to handle first LNG solution by a private party.
There are two groups objecting ‘Emergency Power’.  Objection of the first group is purely due to the high cost of Emergency Power which might bankrupt CEB if continued. The other group wants the power deficit to be continued so that ‘emergency situation’ can be capitalized for cut-short competitive bidding process.
In 2006-7 period under a similar situation, 300MW West-Coast Combined Cycle Power Plant was constructed without any competitive bidding process. This has now become the most expensive Independent Power Purchasing (IPP) in the country, CEBEU points out.

Jacket of gold

From The Sunday Times Cafe Spectator

Rather than return from an overseas trip with a fistful of dollars or currency spilling out of his suit, the official of a top agency instead returned with a jacket which virtually costs a fortune.

Charged in many ways with getting ‘greenbacks’ for his country, our man instead treated himself to a near 2 million rupee-worth jacket from a US store. Colleagues at a ministry which overseas this agency have dubbed him the “man with the jacket of gold”.

The episode doesn’t end there. The official wants to claim this purchase as part of his expense account.

Ministry officials have sought a clarification from higher-ups on whether or not to allow this expense as an ‘official purchase’.

New CB ruling silent on ‘service’ exports

From The Sunday Times
The Central Bank’s (CB) order to exporters to repatriate earnings forthwith is ‘silent’ on service exports, according to economists.
The April 22 announcement which repealed “the exemption granted in respect of payment for goods exported from Sri Lanka in the Extraordinary Gazette Notification No. 759/15 dated 26 March 1993” refers to only the export of goods (which are mostly traditional exports like tea or garments).
The fact that service exports – covering IT services, hotel trade, financial services, etc – appear to have been exempted in the new ruling has angered exporters of traditional goods. They say this is unfair.

Move to rush back export earnings

Govt. freezes 1993 rule to tide over foreign exchange crisis

The Government, in a dramatic late night move, has frozen a 1993 rule permitting exporters to keep their money overseas without restriction and ordered that all earnings must be immediately brought to Sri Lanka – or face the consequences.
Even in the worst years of a foreign exchange crisis (2001 and 2009), the then governments avoided such draconian controls, analysts said.
Friday night’s move, according to exporters, economists and tax experts who spoke to the Sunday Times on condition of anonymity, reflects the Government’s desperation to prevent the Sri Lanka rupee from sliding further and – another battle to secure foreign cash.
The rupee has seen a free-fall since the Central Bank in September 2015 reduced its foreign exchange intervention. The dollar then pegged at Rs. 135 per dollar, hit a record Rs. 150 and on Friday was traded at Rs. 145. The Central Bank (CB) despite all the lofty pronouncements on ways and plans of raising more dollars (IMF loan, etc), is showing signs of desperation with foreign reserves sinking. While export earnings annually are around $10 billion, imports cost almost double that at $19 billion.
The Friday night announcement by the Ministry of Finance surprised even the ardent of supporters of the Government, with one top exporter saying, ‘this issue should have been sorted out by discussion rather than drastic regulation.”
The latest crisis is exacerbated by wavering on the VAT implementation (and other taxes) in which the International Monetary Fund (IMF) has insisted that VAT should be implemented fully without exemptions – a per-requisite for balance of payments support – while the Government earlier this week announced exemptions to placate a restive population.
While the move is another reflection of the present regime’s inconsistent policy formulation, former Central Bank deputy governor and economist W.A. Wijewardena says it shows the Government seems to be desperate. “It will frighten everybody and force people to keep money abroad and under-invoice earnings (inserting bogus figures),” he believes.
The Ministry of Finance statement said that export proceeds retained abroad as at April 1, 2016 must be repatriated to Sri Lanka not later than May 1, providing less than a week to exporters to bring back their earnings. Any proceeds after April 1 must be repatriated within 90 days from ‘the date of exports”, cancelling an earlier March 1993 gazette notification which freed exporters from bringing back any earnings. Prior to March 1993, exporters were required to bring back proceeds within six months of the export.
A top exporter, who cited the latest ill-advised step as another “stupid move by the Ministry of Finance” and which is contrary to the Prime Minister’s policies, noted that: “Everyone knows that some 50 odd companies are responsible for 60-70 per cent of exports. You could talk to them and make this point (bringing back all the money) rather than bringing controls and creating uncertainty.”
Other exporters also said that since most exporters take bank loans for inputs, their earnings come back to pay off the loans. “There are times some exporters have remitted the earnings to another bank and not the bank that they owe money to. But banks are smart to this tactic and this practice is reducing,” one exporter of added value products, said.
“There is a crisis building up in defending the rupee (and preventing it from falling further). Hence this emergency measure,” said a tax expert, adding that the Government has also failed to implement many of the budget proposals.

Export earnings roughly US$10 billion are woefully inadequate to finance imports which are around $19 billion, and thus the difference is financed through borrowings.
The tax expert said that in a January 2016 ruling, the Government urged exporters and others holding foreign currency accounts overseas to park these funds in a foreign account in Sri Lanka through which money could be invested overseas or taken out without restriction.
Asked to comment, Sirimal Abeyratne, Prof. of Economics at Colombo University, said that while this appears to be a short-term measure the longer-term repercussion is that it will further erode the confidence of foreign investors creating “unpredictability in economic management”.
He said the pressure was building up on the rupee and implied that the expected back-up support from the IMF may be insufficient to tackle the foreign exchange crisis. The problem has been exacerbated by a fall in remittances from migrant workers in West Asia as declining oil incomes cuts jobs, wage hikes and limits the ability for residents there to employ more than one worker per household.
Mr. Wijewardena, who has been forthright in recent years on economic management issues, says that in 1993 (when he was working at the CB), a decision was made to exempt exporters from bringing back earnings.
“This was part of good economic management and moving away from a controlled economic environment. Even in the worst of times of foreign exchange crises – 2001 (during Chandrika Kumaratunga’s regime) and 2009 (under Mahinda Rajapaksa), the Central Bank resisted pressure to control export proceeds,” he said adding that the 2009 period was critical with foreign reserves sufficient only for 3-5 weeks of imports. Those two periods were met with IMF bail-out packages.
He said most countries are moving away from controls with, for instance, the Maldives not having any regulation to control foreign exchange outflows. The latest move is contrary to Prime Minister Ranil Wickremesinghe’s November 5, 2015 statement in parliament on economic policy management. “We will make structural changes in the Central Bank, enabling them to engage in their work in a more independent manner. The tasks of managing exchange processes and managing the ETF will be taken out of their purview,” he said clearly implying that exchange control will be a thing of the past.
Taking a step further in this regard, Finance Minister Ravi Karunanayake said in the budget speech that, “I propose to repeal the present archaic and draconian Exchange Controls Act and introduce an investor friendly Foreign Exchange Management Bill (FEMB)”. On Friday, it was the same draconian law that the Government used.
Meanwhile, the Sunday Times reliably understands that a Hong Kong law firm is believed to have been drafted by the Government to prepare guidelines in moving out of an exchange controlled regime.
The latest move also exposes the government’s inability to provide clear predictions, and thereby policy implementation, in managing the currency and the economy. Mr. Karunanayake, in his last budget speech said: “With the enhanced inflows generated from exports of goods and services and investment inflows, I expect the official reserves of the country will increase to US$10 billion by end June 2016.”
According to latest figures released by the Central Bank, gross official reserves dropped to $6.6 billion at the end of February 2016 from $7.3 billion at the end of 2015 attributing the drop mainly to “debt service payments and the supply of foreign exchange to the domestic foreign exchange market largely to cover the demand arising from foreign investors who moved their funds away from the government securities market.” In laymen’s terms, the statement reflects an outflow of foreign exchange to pay foreign loans and local bonds purchased by foreigners. In the past few weeks, foreign exchange outflows have far outstripped inflows.
Also the finance minister’s plea in the budget for exporters to bring back their money has not worked, hence the reason for the latest stringent control. Mr. Karunanayake said in the budget that around 30 per cent or over $3 billion of export earnings were outside Sri Lanka, urging “all Sri Lankan exporters to remit their export proceeds in full with immediate effect”.
The Government is battling on all fronts with revenues sliding and foreign exchange reserves sinking. Due to conflicting views in the Government, political considerations are getting more attention than the need to raise desperately-needed revenue.
An example of that was the UNP-section of the Government proposing VAT including on some essential commodities. Opposition from the SLFP-section of the administration led by President Maithripala Sirisena led to VAT being re-worked to exclude items that impact on the consumer, putting revenue management in jeopardy and also the proposed bailout package from the IMF.
While the Government and the IMF are close to striking a deal in which Sri Lanka would be entitled to around $1.2-1.5 billion at 1.05 percent interest (according to local economists), extra funding from the IMF up to $3 billion is believed to be at a higher rate of 3 percent interest. While Sri Lankan negotiators would have a tough time in convincing the IMF on the reversal on VAT implementation, the cash-flow crisis makes it imperative for the country to access more expensive funds.
Since March 1993, exporters and service providers categorised as ‘export services’ have no restrictions in retaining their earnings abroad. However since there are tax concessions for exports based on receiving the concession only if earnings are remitted back to the country, a large segment of export earnings have come back.
The Exchange Control Act provides for penalties, fines or prison terms for offenders.

'Panama Papers’: Deals and commissions

Many of the offshore accounts held by Sri Lankans are of those who have obtained commissions and secured bribes for brokering government contracts, informed sources said.The modus operandi is to act as the middle-man for a foreign agent and broker a government contract. The middle-man then opens an offshore account and the commission is directly transferred to this account by the foreign party.“The Government needs to stop this corrupt practice. The latest Central Bank ruling should cover all accounts (including for services rendered) held abroad, instead of only exports in the form of goods,” one source said.

Sri Lanka’s Independence and the Bracegirdle incident

Bracegirdle beside Colvin R. de Silva and other Trotskyite 
leaders at Horana in 1937 – Pic from Victor Ivan, 
Paradise in Tears, Plate 164.
Kindly reproduced from The Ceylon Daily News 


As the working people of Sri Lanka prepare to celebrate another May Day to defend our hard-won freedom, it behoves us to go back 74 years, to May Day 1937 which was a crucial one in the struggle of Sri Lanka for independence from the British Empire

On May 1, 1937, thousands of workers paraded through the streets of Colombo demanding the deportation of Governor Sir Reginald Stubbs and the sacking of Inspector General of Police Banks. The prestige of the colonial regime was in tatters and the Empire looked vulnerable in this country for the first time since 1815.

Although it is fashionable in certain circles to be nostalgic for ‘The Good old Days’ when Sri Lanka was a colony, the country was in fact in the grip of an evil empire based on racism. Sri Lanka had one of the poorest indigenous populations in the world, with mortality indices lower than those of India.

Here, as in other colonies the indigenous inhabitants were treated like second-class citizens in their own land.

As late as 1942, the British Commander-in-Chief, Admiral Layton, was able with impunity to call Oliver Ernest Goonetilleke, the Commissioner of Civil Defence a ‘black bastard’.

Second World War

Before the Second World War, the British Raj was considered impregnable and independence for this island seemed like a dream. It was in this situation that, in 1936 Mark Anthony Lyster Bracegirdle, a 24-year old Anglo-Australian came to Sri Lanka to become a ‘creeper’ on Relugas tea estate in Madulkelle.

The planters were almost all white in those days and formed a privileged minority in the estate areas, living in bungalows with many servants and with their own ‘whites only’ clubs.
It was in this atmosphere that Bracegirdle began taking an active part in the independence movement. He was soon sacked, but remained in the island as an agitator.

On April 3, 1937, a meeting was held in Nawalapitiya, addressed by Mrs Kamaladevi Chattopadhyaya of the Indian Congress Socialist Party, who was touring the island. Bracegirdle rose to address the gathering and was greeted with loud applause and shouts of ‘Samy, Samy’.

The effect of a white man speaking out against the White Raj was electric - it spelled ruin for the imperialist system on the island.

The planters got Stubbs to deport Bracegirdle.

On April 22, Bracegirdle was given 48 hours to leave Sri Lanka.

He went into hiding and the Colonial authorities were unable to find him - which did nothing for its prestige.

The vaunted Police force created by the notorious IGP Dowbiggin scoured the countryside, but was unable to apprehend Bracegirdle.

Robert Gunawardena, later to become MP for Kotte, was responsible for hiding Bracegirdle, taking him from Colombo to Lunugala and thence to a cave behind Relugas estate.

A week later Robert picked Bracegirdle up from Relugas and took him back to a house near the Grandpass Police Station.

A few days later, on getting a tip-off, Robert moved Bracegirdle again, to a plantation bungalow in Koratota, Kaduwela (now a boutique hotel).

Here, Bracegirdle gave an interview to a reporter for the Daily News, who had been driven there blindfolded.

On May Day, placards were carried which said ‘We want Bracegirdle - Deport Stubbs’, ‘Banks Out’ and ‘Withdraw the slave proclamation’ (the deportation order).

A resolution was passed which demanded the removal of Stubbs and the withdrawal of the deportation order on Bracegirdle. On May 5 a motion was debated in the State Council to censure Governor Stubbs for having made the deportation order.

Habeas Corpus

The motion was passed by 34 votes to 7. Later that day a rally took place on Galle Face in support of Bracegirdle, which was attended by 50,000 people.

Among the speakers were SWRD Bandaranaike and DM Rajapaksa, the uncle of our current President. Robert went to Koratota and drove Bracegirdle to Galle Face. The latter bounded out of the car, ran to the platform and proceeded to make a speech. The Police were powerless to arrest him amidst the massive crowd.

By this time a writ of Habeas Corpus had been prepared. The case was called before a bench of three Supreme Court judges and on May 18 the court ruled that Bracegirdle could not be deported for exercising his right to free speech. Bracegirdle later returned to Britain of his own accord.

However the effects of his actions were to last long after he had gone. The seeming invincibility of the colonial regime was shown up. Furthermore, as Philip Gunawardena, one of the masterminds behind the State Council motion said, all the nation’s political forces were united on this issue against the colonial authorities.

Dominion status

The Bracegirdle issue had set the ball rolling in the process that was to culminate in the complete independence of Sri Lanka. In 1943, the Ceylon National Congress called for complete independence and in 1945 the State Council passed the Free Lanka Bill.

In 1948 the British granted us Dominion status. In 1957 all the British military bases were removed and in 1972 Parliament passed a Constitution that broke all the previous servile ties to Britain. Bracegirdle, who made such a large contribution to the initiation of this process, died in England on June 22, 1999. Sadly, he never did return to this island.