Hedging for financial hub

Wednesday, 3 November 2010 01:05 - - {{hitsCtrl.values.hits}}

THE hedging deal arbitration began in Singapore on Monday with a group of officials including former Petroleum Resources Minister H.M. Fowzie attending during the two week period that could decide the fate of US$ 194 million in funds.

Aside from the large amount of money that the case involves the financial reputation of Sri Lanka is on the line with an unfavourable decision possibly resulting in many international banks refusing to enter the local market. Under the Mahinda Chinthanaya the ideal is to create a financial hub in Sri Lanka – plans that could end up on the rocks if the arbitration is not dealt with in an efficient manner.

The hedging deal is one of the most unfortunate and controversial issue that has plagued the Ceylon Petroleum Corporation and by extension the government for several years. After grabbing headlines for months on end after the issue was made public it then receded into the background much to the relief of government representatives who had to shield themselves from uncomfortable questions at every press conference.

However in this instance out of sight is not out of mind and the issue continues to fester with the arbitration being a significant milestone in an important journey. Its outcome could well decide the fortunes of Sri Lanka’s capacity to open up to investment from foreign banks and also fuel overall growth- the stakes are high – the fallout sharp.

For the financial sector to evolve and become a more vibrant investment zone the government has outlined ambitious plans of converting Sri Lanka into a financial hub. However the details of this ideal have been left alarmingly hazy with no clear guidelines of what legal frameworks and management structures need to be set up to facilitate this process.

Moreover the banks themselves will undoubtedly be watching the events unfolding in Singapore with great interest and will be keen to adjust themselves to the eventual outcome. For the economy to expand the banking system must be strong – this is obvious and it is equally understood that no bank will enter the country unless they have iron clad assurance from the government that their contracts will be adhered to. Rule of law and good governance have to be at irreproachable levels for reputed foreign banks to even consider coming to Sri Lanka, leaving the government with a strong role to play.

Even though this issue is yet to explode in yet another round of media hoopla locally the same cannot be said for international news agencies. The government must take action immediately to minimise the adverse publicity the arbitration process might bring about and ensure that the relevant parties including the public are well informed of the proceedings.

Without a concentrated and pragmatic approach the government leaves the entire financial sector as well as the overall economy open to adverse repercussions. With experience over the fight that the government had to do and continues to do concerning the conflict it must be aware that development also requires the same proactive interaction with international agencies to take their message across. It must be realised that this cannot be done with suppression or high handed dismissal but with genuine concern and information. It is only then that the financial hub status of Sri Lanka will be safeguarded and be given a chance to become reality.