Chandra J urges Ceylon Chamber of Commerce to share regular insights into economic issues

Thursday, 14 August 2014 00:00 - - {{hitsCtrl.values.hits}}

Former Chairman Chandra Jayaratne has written to the Ceylon Chamber of Commerce leadership with regard to the need for regular issuance of insights into key economic issues by the private sector lobby group’s Economic Intelligence Unit. Following is the full text of Jayaratne’s letter, copy of which was shared with the media as well: The Need for Regular EIU Advisory Notes to Keep CCC Membership and the Private Sector Advised on the Emerging Economic Scenario and Critical Short to Medium Term Economic Issues and Risks I address this note to you as the Chief Economist of the Ceylon Chamber of Commerce (CCC) and the Head of the Economic Intelligence Unit (EIU) of the Chamber, from the inception of the said Unit. I note that the CCC web describes the EIU as, “The Economic Unit was set up more than ten years ago. The unit works closely with the private sector and steering committees to lobby with the government on issues impacting on private sector / to promote private sector development, conduct research for the members and associations, business to business surveys, and disseminates information to the private sector on macro-economic and sectoral developments pertinent to the private sector”.

Am I correct in my recollection in believing that, the EIU was justified and established as an essential part of the Chamber operations and membership services, based on it being structured in a manner to provide independent, unbiased and professional economic advice exclusively to CCC and its members and in order to embed these resource capabilities in the EIU, the D. S. Jayasundera Memorial Fund was floated and funded by members. In the above context it essential that EIU develops and shares with stakeholders, on a regular basis, Advisory Notes to Keep CCC Membership and the Private Sector Advised on the Emerging Economic Scenario and Critical Short to Medium Term Economic Issues and Risks, needing stakeholder attention in strategic decision making and operational business planning and management. A rumour I heard this week, that a leading private sector export business entity, sold in one forward market transaction US Dollars 200 million over a one year forward, made me wonder as to what the drivers of such a transaction were in the current external environment. I asked myself whether the purported transaction; a. was a regular transaction of the business house concerned, completed after careful economic analysis and risk assessment/management processes b. was merely a single speculative trade transaction c. was based on a hunch, or reliable advance/insider information of the likely exchange rate trends in the next 12 months d. was a result of misrepresentation or information placed or initiated with the intent of market making for the future by interested parties e. was prompted in the context of foreign debt and bond maturities falling due in the coming 12 months? I am sure many business mangers of CCC member companies may be asking similar questions. The aforesaid rumour and some recent media reports prompt me to address you, in the hope that the undernoted and other critical short to medium term economic issues will lead the EIU to develop and issue independent advise in line with the original objectives described before; 1. In the context of the purported forex forward market transaction referred to earlier, (if the rumour be accurate), consequential independent advice to the private sector in effectively and proactively managing forex forward transactions on the buy and sell sides. 2. Whether further policy rate downward adjustments (especially if accompanied by statutory reserve ratios being further relaxed) are in the interest of the private sector and stakeholders of society and are justified in the interest of overall economic and sectoral development and monetary stability challenges? 3. The risks, the drivers and macro economic impact of the continuing low private sector credit growth witnessed in recent months 4. The risks, if any, associated with the enhanced levels of borrowings from local Commercial Banks by the state and government corporations/authorities, especially long term debt by way of bonds and debentures 5. The risks, if any, associated with the Commercial Banks and leasing companies borrowing in foreign currency and portfolio mismatches of borrowings and lending of banks, leasing companies and financial services entities operating in Sri Lanka 6. The risks associated with purported high level of repossessed lease assets of leasing companies 7. Whether the purported exchange rate flexibility and market demand/supply led appreciation of the Sri Lanka Rupee is in the long term interest of the private sector (especially exporters and essential exports led growth) and stakeholders of society and are justified in the interest of overall economic and sectoral development and monetary stability? 8. Whether the present high focus and flag waving over the Sri Lanka’s Gross Reserves being in excess of 9 Billion USD and the reducing Debt to GDP ratio can be relied upon as singular achievements in effective management of the macro economy and risks, without any reference to a. The components of external and internal debt b. The rating structure, terms and tenor of the debt c. Expected revenue and free cash flows available to service the external debt in the short to medium term d. The potential risks if the external debt needs to be re-issued on maturity e. The likely impact of a global market conditions/ratings or global political /economic instability led sudden flight out of foreign funds invested bonds and treasury bonds f. The overall National Fiscal Gap 9. The level of reliance and validity of emphasis by the private sector planners and decision makers in strategic business decision making for the long term, based on the vision to realize per capita growth of USD 4,000 in the short term 2015 and USD 7,000 in the medium term 2020, to the exclusion a. Growing inequalities in income and wealth across the population b. Impact on household savings in the face of cost inflation and consumer behavioral changes c. Aging population d. Of the significant share of borderline households in the periphery boundary above the poverty line, who may fall below the poverty line if some of the assessment criteria are marginally stressed 10. The level of reliance and validity of emphasis by the private sector planners and decision makers in strategic business decision making for the long term based on projected longer term sustainability of high levels of GDP Growth following a review of; a. the component drivers of growth, especially the component of state services b. The high levels of spend on infrastructure development, especially if they are tainted by mega corruption/policy capture led corruption payments c. The External Debt financed infrastructure projects, where the free cash flows are insufficient to service the debt or the fiscal gap is negative and are likely to lead to significant project/debt/ownership restructures 11. An independent professional view on the integrity of the data gathering, analysis, independence and transparency relating to official GDP, unemployment and inflation as published. I trust that the genuine concern for assurance of good macro-economic governance driven private sector led growth that prompted me to address this note to you and the CCC leadership team and share it with stakeholders of society, will be appreciated all concerned. I hope that the issues and concerns highlighted above will be kindly assessed by you, the EIU, the CCC Committee and stakeholders of society. Yours sincerely, Chandra Jayaratne