Balance of Payments and Exchange Rate – Conspiracy of Silence or Wishful thinking – Enemies or friends? Treasury and Central Bank

We live through uncertain times. There is a lot of chatter and forecasts of what is to come. The pundits are not sure, but hope for the best. The reason for this is if the indicators come to pass, they may become toast! Or at least they should be if they are held accountable.

Heavy duties were imposed recently on all vehicles except those transporting goods and buses. The hope is that imports of such will dry up saving $1B a year. In this instance the duty increase will reduce revenue as it is to stop imports. The idea was that it will go a long way in reducing the balance of payments deficit.

We expect a 2012 balance of payments deficit of US$10B on trade, where imports will be US$20B and Exports US$10B. Remittances will plug this by US$6B and tourism by US$1B meaning the balance has to be borrowed or financed by some magicians touch. If things do not go according to plan, like the drought, it will cause an increase in Fuel imports to produce energy, it will increase our deficit despite the drop in oil prices.

If for some reason the IMF does not assist Sri Lanka because the country does not follow their strictures, then in the instance of a shortage, and in a floating exchange rate scenario, the country having hawked all its gold reserves to protect the rupee at unrealistic levels, will see a sudden and drastic fall of the rupee, to perhaps between Rs170 and Rs200 per US$1.

This will take place when confidence in the government’s ability to manage the economy is at a low ebb. The stock market is likely to be about 10% lower than currently. This is the time when due to problems in the banking system and financial companies, money will be tight. So people desperate for cash will try and reduce their stock portfolios, if they are able to get a better price.

At that time, there will be concerted effort by foreign funds, most likely from around the region, which will see value as a result of the in US$ terms 50% reduction in the value of shares, to pounce and buy up some of our companies on the CSE. If they are unable to buy, they will at least purchase up to the level which will trigger a bid. At this time the flood of money from overseas, will drive both the market and the exchange rate up giving the original overseas investors during that run up, a huge capital gain allowing them to remit their funds back. Sri Lankans will follow the herd, and buy these shares once they have risen, sold by the overseas investors, and be left holding another set of overvalued shares to be disappointed again if they are short term investors.

This was similar to what happened to the Asian economies. There was a time they contracted. We will see that time too, and perhaps by the end of the year, our GNP per capita in US$ terms would have fallen from US$2,800 at the end of 2011 to US$2,000 by the end of 2012 due to the exchange rate prevailing at that time. I challenge that this scenario is inevitable and desirable to clear the warts off the system. There are too many bad decisions made on the economy due to these incorrect assumptions, like the desire insane desire for a high $ GNP per capita.

There are two factors that can improve our situation. That is a reduction in the US$ price of oil and therefore fuel imports, and an increase in the remittances from the projected US$6B. The outlook on the agricultural side looks bleak, so exports of rice today could turn into imports in 6 months! The drought affects Tea Production immediately too.

The political stability that we appear to have on paper will also become an illusion once it dawns on the people that they have been taxed to the gunnels. The recent drop in the world market price of sugar resulted in an immediate increase by Rs10/kg this week in the tax on a sugar imports. Taxes on other items are more likely to increase than decrease making the cost of living an issue as it cannot be matched by increases in wages from an increasingly cash strapped government and also the private sector which now feels the pinch in the slowdown in the economy.

The hotel sector wonders why rooms are empty despite apparent increase in tourism! Why wonder when the reality is they are all being squeezed.

To sum up we must learn from people who have more insight than we do. The international funds pulled out of the Sri Lanka stock market with good profits, when our exchange rate was strong and markets were buoyant. They will return again when the exchange rate is weak and the markets down, to make another killing at the expense of the fools at the CB and Treasury, who seem to mismanage our economy, and still find fault with the foreigners for making profits!! What sour grapes.

The Securities and Exchange Commission – “Bolsheviks”

The FT of June 20th highlighted the fact that the SEC has sent out letters to people they have selected who could possibly be involved in driving up the shares of two companies, namely East West and Swarhamahal Financial. This is based purely on them having purchased shares at a lower price and sold at a higher price, and made a minimum profit predetermined by the SEC. The included a politician, to show that no one was immune from being questioned. The letters are accusatory of illegal activity and in no sense should be sent to innocent shareholders, just because they have the right and immunity from prosecution for mental anguish!!

SEC is permitted within the powers vested in it by act of parliament to question possible violators and obtain proof before deciding upon legal action. However when a large number, perhaps over 1000 have received such letters, it spooks a number of LARGE investors who made money recently on trading in shares.

The SEC, though its Chairman, recently appointed to clear the mess, may be a sensible man who is out to clean the shop, is run by a bunch of incompetents who have no clear idea of how they should operate. After all if they had any idea, our market would not be in such a mess!! It was clear that there was manipulation on a large scale that did not lead to anyone being pulled up. It is therefore WRONG to pick on a large number of people and send a threatening or accusatory letter to mostly (99%) innocent people so that they may catch the culprits.

I have also been called into advise these recipients and I have told them in no uncertain terms, that they have nothing to worry about, as they have not been party to upward and downward share movements as they have given their brokers complete discretion in how their accounts are handled. They must just turn up at the enquiry and just tell the truth and not be bothered by some lackeys asking questions, which even they do not know why they are asking! They only act as human machines, asking a bunch of standard questions and will write your answers to them before taking any further action.

It was interesting that after the FT article was published, the SEC was quick to send a reply to the FT, which was published in full by the FT of June 21st 2012. First I shall allude to the tone of the letter by the SEC, to the front page FT article of the previous day, which I believe says it all as to the attitude of a responsible financial newspaper, doing its job.
They allude to the FT article as one that creates fear psychosis in the minds of the investors. In fact the tone of the SEC letter is one that does exactly the same, as it has gone to over 1000 of the most active investors in the country, a sure sign of them not wanting to play the market if this is how the regulator acts and reacts to news!!!

Further, and I quote from the letter by the SEC to the FT “It may be a matter of interest to note that in terms of Section 51(1) (c) that any person who willfully obstructs any member of the Commission or an Officer of the Commission in the performance of its duties under the provisions of the SEC Act, shall be guilty of an offence and the SEC will not hesitate to pursue action under this Section if the need arises.” This IS AN unwarranted veiled threat aimed at the publication for its reporting.

Further the letter goes on to say “Daily FT………. to refrain from commenting or furthering the objectives of persons who are deliberately setting out to obstruct the functioning of the SEC by bringing disrepute to the Commission, its Members and staff.” This is preposterous as the FT is tasked as a responsible publication with an independent editorial policy of presenting view points, not necessarily in accordance with what is acceptable to some who read it be it the general public or within the SEC, but which collectively instructs a financially astute readership to come to their own conclusions, based on what is written.

I would not hesitate to call on the SEC not to be like the Government which presents a biased viewpoint of their own, and takes to task those who disagree with their warped opinions. The SEC must keep its independence and perform their duties impartially and any act on their part that seems to veer from that must be pointed out to them, so they can correct their position to one that is impartial, without taking umbrage as to a very rational opinion that has been expressed, to which I subscribe to.

It is important therefore that the SEC take a leaf from this opinion, and be careful not to kill the CSE EGG forever, as that is what they are about to do by committing Institutional ‘Hara Kiri’, at the cost of a unthinkable damage to the Sri Lankan Economy. They have no idea the importance of the task they have been entrusted with and act as ‘brainless nincompoops’ when confronted with constructive criticism. Let us hope they learn and go forward to clean up the mess they have PERMITTED.

DS College Colombo – Country before Self the motto!!! – Really

I was walking to my office this morning, because as usual the pick-up was late, as the drivers seem to be bosses these days! I pass DS Senanayake College on Gregory’s Road on the way, and I glanced at the Crest of the School embedded on the wall which said in English, and not Latin (the Crest I downloaded from Wikipedia is in Sinhala and therefore has the motto in Sinhala?) which said “Country before Self”.

That is a very noble motto to have and to live by and if we all did that we in Sri Lanka will without doubt be paradise on earth, where people will never wish to leave and everyone wishes to come to. I certainly try my best to live in accordance with that motto alongside other goals.

As I looked up at the classrooms, I was appalled at what I saw. All the classrooms have at least two tube lights on (on a clear sunny morning) and two fans to a class on full!!!! Now when I went to school we had no lights on a clear day, and only if it was raining and overcast would they even contemplate switching lights, and no never a fan in a class room.

We are going through a drought. Our hydroelectric reservoirs are empty we are importing thermal fuel at huge cost to cover the shortfall, the Minister of Power & Energy has appealed to all of us to reduce out energy usage. Who pays the bills? Is it the department of education, as it is a State School or is it the parents who pay the electric bill? I am not sure of the answers to that question, but that answer is irrelevant.

It is the duty of the school to explain the problems the country is undergoing and inform the students that in the interests of energy conservation, they will have to study without fans and use lights sparingly. I cannot understand why these school rooms which have open windows, grills or meshes on two sides, cannot draw sufficient light into the class rooms. It is the fault of the architects not to design the rooms to obtain maximum advantage of ambient light not to require artificial light.

It is the responsibility of the school to give their charges an understanding of conservation, environmental protection and patriotism. The best way to do this is to show commitment by way of example. The country is going through a temporary crisis and if the school, acts on its motto now, the students will understand what the motto means. I challenge anyone to test their knowledge of the motto and its intentions.

We who fight ‘INJUSTICE’ face a tough battle – ‘One Day’ we will win against all odds – that is what keeps us on course.

You face incredible hardships and obstacles, when you devote your life to fighting for justice. It is heartening to see some who finally make it after years of suffering and to see the positive effects of their sacrifice. The name that springs to mind today as she received her Nobel Peace Prize was Burma’s Ang San Su Kyi. He acceptance speech in Oslo reinforced the strength the prize gave her that she was somehow not forgotten. It is our duty sometimes, when we cannot directly help people, that we do not forget them, and let them know that they are not forgotten.

Let us move along into the Sri Lankan context, as that is what this blog is all about. There are many who toil tirelessly on behalf of others, and many who put their lives on the line daily for the cause they personally are affected by and fight for themselves and those in a similar predicament. In the Sri Lankan context under the present administration, it is all the more difficult to fight these battles, as the power wielded is so immense that intimidation alone is sufficient to suppress dissent.

I notice people in Sri Lanka are selfish when it comes to ‘rights’. I mean that if it does not affect them personally they do not bother. If it the land rights of some other person or persons, if it is fundamental rights, if it is basic civilized behavior, as long as it does not threaten me I don’t care. Little do they realize they could be next!

Collectively it is our duty to fight for the rule of law. There are statutes in place and there is a Law Enforcement in the form of the Police Force, and there is a Judiciary tasked with interpreting and passing judgment. It is sad therefore that the General Public have no faith in either to solve their personal or collective issues.

Further when people are threatened those around that person have to fight for justice from another collective which protects the perpetrator. An example that illustrates the point came out today, where a 13yr boy of Mahanama College in Kandy, was beaten until he bled from his ear by a Buddhist Priest, at Buddhism class, because he did not know who Buddha’s parents were. By the way the boy was Catholic, and the Priest knew that too. His religion is irrelevant but makes the attack even more unconscionable. He was threatened not to tell anyone of the incident!
Whilst this incident is purely a case of illegal beating, which calls for a police entry, the arrest of the Priest and him being enlarged on bail, once he is able to obtain proper legal defense; it did not occur in that manner. The investigation has not gone to the lengths it should in law. I just hope the boy or his parents who made the complaint at their local police station do not end up as victims, further compounding the crime.

Society is led by example from the Leaders. If they do not care for the law, obey the law and abide by the law, it is difficult for the Public at large to do the same. When the law is broken there is usually someone who is a victim, and someone who is a perpetrator. When the perpetrator is not identified, dealt with according to the law and punished, the victim is punished a second time for the injustice done to him. Further the example further reinforces the perpetrator to continue with his crime and many more victims are at the receiving end of his or her actions.

It is important therefore that law enforcement is fully aware of their complicity in NOT solving crimes as a grave injustice, and a failure on their part to perform! That latter fact is not generally understood by our Police. In short they are blissfully unaware that they are constantly in breach of their duty to prosecute. In a Sri Lankan context, they are only told to go through the motions, so the book is kept up to date.

It is laughable, how when one makes a police report, in a rural police station, a police officer is assigned to make an investigation into the matter and report back. The investigation is not proportional to the crime. If the report is of the theft of a bullock and next one is of a murder, the theft of the bullock comes first and then the murder investigation. That is what I mean by the book. The order is not prioritized. If the order comes from above, a grievous crime is not investigated and the book fudged.

Take extra judicial killings, and white van abductions that go on almost on a weekly basis. There has been NO attempt at solving these crimes. The government shows NO intention of so doing either. That is an attempt to subvert the course and cause of Justice pure and simple, and the leaders of this Country are culpable for this crime.

Let us fervently hope there is change of direction in thinking and we can seek justice once again, as otherwise it is the leadership that faces the wrath of the law next and they have been warned on what to expect.

What is it with the breed of Sri Lankan chauffeurs?

I write this at the end of my tether waiting for a vehicle to pick me up. It is more than 6 hours since I got ready. There is a huge amount of work to do in the office. As my day’s schedule has been so basely jolted, I am not in a mood to speak with anyone lest I fly off the handle due to this.

A driver from a pool is scheduled to pick me up. What speed he comes in or what other tasks he sets for himself are out of my control and he is not paid any more or less whatever time I am picked up. I could have made alternative arrangements if I knew in advance that I would be hanging around like this, but no I was assured one would have come a long time ago. Due to my continuing recovery, I cannot take the bus on short journeys, and getting on and off is a little difficult and the way the drivers behave, I am more likely to be left flat on my face in either event, so in order not to be incapacitated further it is better to be patient!!

These drivers are paid well, earn their overtime, and all other perks, so when they are not concerned about the interests of the charge they have undertaken it irks me as the work that I could have done in this period far exceeds what any of them achieve in a week, but that is their life and this is mine, but the chauffeurs are those who come between and can if they are reliable, punctual and efficient make a huge difference to my life as well as to my work which is both important to me and to my employer.

I compare and contrast this with chauffeurs lets, say in the UK who though they are on a different pay scale come from similar stock. I believe they are more reliable as far as time keeping is concerned as well as attendance, I see so many people in Sri Lanka who believe that a drivers job, especially one where they have little to do, is one to covet. If that is so, responsibility is also part of it. I have also known that some drivers refuse to do anything else but drive, and are even loathe to go shopping and remove shopping from the vehicle. It is presumably up to the employer to hire people who are more versatile and willing to have a broader job profile.

A good driver is hard to find. When found they are worth their weight in gold, but most people I know fail to hang on to them, as they are the ones who are the upwardly mobile, forever looking to better themselves up the greasy pole. The likes of us have to do with the remainder, is that our lot?

So you thought Sinha Bahu was your ancestor, did you?

I was reading an article in the New York Times, earlier today about an impending book due out later this month, chronicling Mrs Obama’s (First Lady of the USA) ancestry. While she is generally referred to as African American, she can trace ancestry through all her 4 grandparents to Whites who lived in America, including slave owners.

Thanks to DNA testing, and gene testing it is now possible to trace our ancestry over generations, perhaps thousands of years. I understand that the ancestry of Native Americans, both in North and South America, trace their roots to twelve people who came of the Baring straits 10,000 years ago, and trace their roots to Africa. I look forward to the day I will be able to find out what a hotchpotch of an ancestry I may have.

More to the point, racial and caste based politics in Sri Lanka has become the bane of our inability to settle down as a nation, and wish to find some corner that we claim is ours or that we have some special claim on a racial blood line or to a particular religion. I look forward to the day, the extreme racists within our society be it Muslim,Tamil or Sinhala discover they have the least ancestry from the race they represent!! Wouldn’t that be something? They will then shut up, except for a couple of die hard odd balls who will blame it on a Western Plot to destroy their heritage!!

We have visionary leaders who can put our past behind us and move forward to build the nation undivided by petty differences that continue to prevent reconciliation and togetherness. We must give them the chance to lead us, instead of even giving a second hearing to the rabble rousers who use hate to divide. It is those same people who will in time, and I sincerely hope not soon enough be proved to be charlatans in disguise.

I am hopeful that once this technique is in widespread use we will embrace it and then realize we have been living in a false world of pettiness brought about by fear of losing identity that we never really had any control of in the first place. We have been living a myth a lie and that has created no end of problems and futile wars, which pitted one relative against another without our knowing. We can then embrace each other as members of the Human Race once and for all time!! Amen

Parliament – Is it serving its purpose in our Democracy?

We as a nation accept too much blindly. When anyone expresses an opinion on a subject that people accept as ‘just the way it is’ we are complicit in its failure. Parliament is just another institution that has fallen into disrepute by the public at large. In a recent example the National List MP for the TNA Mr Sumanthiran, stated in his speech on Friday, the 8th of June, that parliament has become increasingly irrelevant to the lives of people and even to affect much needed change in society.

The 225 MPs who represent all parties, both elected and through the National List, are duty to bound to protect and run the nation in a manner expected of them by the citizens who elect them to represent their interests. Lately a proposed bill is being hotly debated, to prevent clergy from seeking elected office. Some say it is a violation of a fundamental human right. There is a written constitution whose safeguards and guarantees are not even in place, and there is nobody holding the executive responsible for putting them in place. The judiciary being currently politically manipulated is impotent in its enforcement.

When one reads the daily reports from Parliament, one has to wonder whether the interests of citizens get a fair airing. Parliament usually sits every other week for a whole week beginning in the afternoons. More importantly there is a whole day reserved for votes of condolences relating to MPs who have died. I personally do not accept that important parliamentary time be reserved for this, and should be relegated to an evening session once a month where people are allowed to express their opinions on the deceased. It is normal for people to speak well of the dead, whilst they are castigated as anything but during their lives. One recent case in point was the votes of condolences for Anuruddha Ratwatte, who made himself a General during his stint as Deputy Defense Minister, and a whole lot more after that incident!

It is time to get back to basics and reorder the procedures in Parliament. The Secretary General of Parliament, together with the Speaker must institute needed procedural changes, in consultation with the parties to ensure the smooth and efficient running of the institution, so that maximum productivity is achieved by the servants of the people, who for a moment seem to have forgotten their service to the nation, and appear to believe that the nation owes them a living and not the other way round!

If there is a grain of truth in the Rumor – then pity the Pied Piper’s followers – they are drowned in a sea of shame

Is it true that SF has joined the Government I was asked a few moments ago? I said I have not heard anything of the sort, but if it was, I said it will not surprise me.

There are those who I know will go to their graves with their principles intact and there are those who I label as opportunists who go where the wind blows.

The hardest thing is to hold on to principles in the face of tremendous pressure, especially where life and future is concerned. Many who bend to whichever way the wind blows, say to themselves, hell I have only a so long to live, and I may as well make the most of it and make hay while the sun shines. I say good luck to them. There is freewill and it is only humans who have that advantage. Animals cannot make that choice.

With the same breadth I say to others do not follow and believe in people as you will be disappointed. Just believe in yourself and everything else will fall into place. You only have to follow a person, when you have no principles yourself. If you know where in the world you are and where you are heading you need not follow anyone or any dogma, you only express your opinion based on your beliefs and then you will know you are always right, no matter what someone else tells you.

We in Sri Lanka are led down the garden path by opportunists. It is easy to be conned. Do not get sucked! It is your blood they live off of not theirs. Beware before you get on a stage and praise a devil. It is best to praise your principles and let the audience make its own mind if the devil they see has those principles. Do not bum suck yourself, as you could be sucking the wrong bum, but will only realize later that it was so.

It is best therefore to stick to the message, to principles and to your beliefs, and it is therefore most important to know what you stand for. You are then a man or women of principle and praise or damn those who go with your flow for that moment, by merely saying, I believe in him today as he is espousing the cause I also hold, but the day he deviates from that I will be the first to ostracize him as an outcast and infidel.

If we try that simple logic, we will never be compromised and those who believe in freewill will themselves realize the importance of principles and may stick to them, instead of being swayed by short term carrots.

The country is embarrassed yet again by the British!!!

I reported widely about the Oxford address the President should never have agreed to give before it was so unceremoniously cancelled with a bunch of nebulous reasons. As if that lesson was not enough the President’s advisers did it again conning him into agreeing to give a keynote address at the Commonwealth Business Council at the Diamond Jubilee Commonwealth Economic Forum at the opening sessions today, 6th June 2012.

After an emergency meeting of the Organizing Committee, in order not to embarrass Mahinda Rajapkse, the whole of the morning session of the first day of the two day conference was cancelled, for which the participation fee was 1000 pounds (inclusive of VAT) per head.

I do not know the exact reasons, but it was to be held at Mansion House close to where I worked for 11 years in the City of London. I can only guess at the reasons and they go as follows. There were threats of disruption from the pro LTTE Diaspora, who were intent on making a statement. The organizers together with the Police were again scared that this will lead to a traffic snarl up as the 4 day Queens’s Diamond Jubilee Celebrations come to an end. She was by the way the main honoree at the Marlborough House luncheon hosted by the Commonwealth Secretary General today, to which President and Mrs. Rajapakse were invited.

Now why didn’t the organizers think this would happen earlier taking the Oxford Union address as an example? Why didn’t the local advisors along with the High Commissioner Chris Nonis also think about this possibility? Are they so deaf to the reality which is the Diaspora, or were they just willing the problem away? Nonis who was probably still puffed up by the award of Diplomat of the year for Asia given by the diplomatic community in the UK, that he thought he could do no wrong by this advice to accept this prestigious request, should hold some of the blame for this disaster unless we find out otherwise.

I wonder how the fallout of this will play out in the ensuing days, with no doubt pundits putting their two cents into it. It will be interesting to see how the administration will play explain away yet another embarrassment for the country. Why does the President go to the UK if he is so averse to their treatment meted out to him? He never learns!

It is called pomposity and arrogance of despotic rule. It only works within these shores, never forget that.

The ‘Dansala’ – is it a contest or a real attempt at sharing?

The original dansalas were to offer relief to pilgrims on their way to a particular religious site so they could be fed along the way as an act of charity to help them on their pilgrimage, however that is almost forgotten, and they are usually no nearer a place of worship and more likely by the side of a road, where the captive audience is flagged down in a rather dangerous manner and offered some refreshment, sometimes in ways it is hard to refuse.

The really serious types organize annual Dansalas as if it is a right of passage from this world to the next and make a big deal of the fact that they have been doing this for so many years. Others decide on the spur of the moment and gather a few friends round them and organize a smaller affair with whatever resources they can pool together. They on the other hand are the more genuine, but usually shortlived ones that last as long as the food!

This year we see an added spoke, namely in the cost of food, and also requirement of a license. The latter is so that the food hygiene inspectors are able to inspect the way the food is prepared and determine if it is done properly. It must be remembered that improperly prepared food fed to many can cause a potentially catastrophic scare, which they try to avoid by this sort of regulation.

I have given Vesak dansalas both at Godagama on the farm many years ago, and at my Hingurakgoda property subsequently, but I have funded it all by myself as I do not much approve of this collection of food or money from people in principal. Mine have been roaring successes both for an unusual ambiance with lights and the type of food served and the method by which they were served. The Polonnaruwa one was where one sat on the ground and ate on Nelum Kola surrounded by over 1000 coconut oil lamps and lit king coconut on the river whilst the river was flowing giving a very unusual twist.

I have seen wish lists for dansalas this year and the organizers seem to only organize and arrange for the preparation, considering their effort as their contribution, and others who are pressed to fund it are those usually who are their closest friends associates and politicians who get sucked into this as a captive audience. I feel for them as usually they are not local to the area and are asked to pump not a small amount and then invited to participate!

I was in Polonnaruwa during Vesak and I will also be there over Poson, as I have a wedding in Polonnaruwa that I will attend and then stay on for the long weekend as I came by the good old public bus leaving the private bus stand in Pettah before 5 and was in Minneriya 230 rupees lighter as that is the fare for the whole trip, and will hopefully return by train on Poson Poya night! That way I will not be delayed by the dansalas on the road all day all the way, for next day’s work.

Just for the record, the taxi fare at that time of the morning to the Pettah bus stand was Rs300 and the three wheeler fare from Minneriya to Ratmale where I have my home was Rs500.