BUSINESS

Central Bank concerned over misuse of EFTCs

The Central Bank has expressed concern over the use of electronic fund transfer cards (EFTC) to make payments in foreign currency to nonresidents on behalf of third parties bypassing regulations stipulated by the Exchange Control Act.

The bank has stated that the use of EFTCs to make payments to a non resident on behalf of a third party apart from being a violation of the undertaking is also an infringement of exchange control regulations since it is tantamount to a sale of foreign exchange to a third party.

Exchange Controller, Central Bank, H.A.G. Hettiarachchi told The Sunday Leader that EFTCs are used solely for personal expenses that could cover payments including travel, medical, education, etc. in a foreign country.

Explaining further he said that some cardholders have now started to use EFTCs to make payments on behalf of third parties, which is a punishable offence under Section 51 of the Exchange Control Act.

Hettiarachchi asserted that according to the act, the lowest punishment would be a fine of Rs. 2,000 while it could even see a three fold increase depending on the offence committed.

Explaining further, Hettiarachchi said that the present trend has prompted EFTCs to do the businesses of a normal bank - "Usually, people go to banks to buy foreign exchange," he said.

When asked whether such dubious transactions would have an impact on the country's economy, Hettiarachchi said that it would depend on the total amount of the transactions. "If the transaction involves a large amount, it would have an impact on the economy as the money if brought through the bank would have helped increase its reserves," he said.

EFTCs that could be used to make global payments are issued by banks only on an undertaking from the cardholder to the effect that such cards would be used solely for personal expenses and not to be used to make payments on behalf of third parties.

Decline in foreign reserves

By Mandana Ismail Abeywickrema 

The Central Bank's intervention to stabilise the rupee has resulted in a drop in the country's official foreign reserves.

While the end of December 2003 saw official reserves at US$ 2.3 billion, by end April, 2004, it had declined to US$ 2.2 billion.

However, the country's total reserves have seen a slight increase. Total reserves of the country was recorded at US$ 3.2 billion by the end of last year, while by end April, it has increased to US$ 3.3 billion.

Explaining the reasons for a decline in official foreign reserves, Director, Economic Research, Dr. Uthum Herath told The Sunday Leader that while it depends on the inflows and outflows of the market, the decline has also seen an increase in commercial bank reserves.

Dr. Herath pointed out that the decline in official reserves has seen an increase in commercial bank reserves as the foreign exchange sold by the Central Bank was purchased by commercial banks.

He also went on to say that unlike in the present scenario, there have been instances when the Central Bank has purchased exchange from commercial banks, thereby increasing its reserves.

"So far the sales have been greater than the purchases," Dr. Herath asserted.

Speaking of inflows and outflows, Dr. Herath said that the funds the country receives too are operated by the Central Bank, resulting in the bank's involvement in repayment of foreign debt.

When asked how far  the bank hopes to intervene in stabilising the rupee against the dollar, Dr. Hearth said that the bank has always maintained that it would intervene if the rupee experiences a drastic drop.

As for the position of the rupee in the market, Dr. Herath said he would rather not comment on the issue, adding that there has not been too much volatility.

However, he noted that official reserves have not seen a drastic reduction when compared with the previous year.

Development on a CSR perspective

Two of the key learnings of the success of the South Africa peace process were the inclusivity of all stakeholders and the consultative nature of the process, said Chairperson / Coordinator Sri Lanka First, Neela Marikkar in an interview with Dinesh Weerakkody.

"The other was the ability of the South African people led by President Nelson Mandela, to forgive and move forward. We were very moved by the tireless efforts and deep commitment and patience that they displayed for nine years facilitating the many parties that were engaged in the peace process. Based on our learnings in South Africa currently our members are formulating a strategy as to how best we can play a meaningful role in supporting the next stage of the peace process," said Marikkar.

Following are excerpts: 

Q: You led a delegation to South Africa. What was the purpose of your visit?

A: To understand first hand the role that the business community in South Africa played in their country's peace process. To that effect a five day study tour was organised by Sri Lanka First and hosted by International Alert and the South Africa Business Trust.

Q: Does the private sector have the clout to influence decision making in the central government?

A: From a Sri Lankan perspective, I believe the private sector can influence decision making in the central government. We play a very important role in the areas of revenue generation to the government, economic development, job creation and human resource development. In fact time and time again governments continue to state that the private sector is the engine of growth. For the private sector to play a meaningful role in the country's economic development, we need peace and a stable government. At the same time the government cannot deliver its commitment to its people if there is no economic development; the two are interdependent.

Q: Private sector firms have only been solely responsible to their providers of capital. How come this has changed?

A: Increasingly, private sector companies the world over have been looking at the area of corporate social responsibility (CSR) as a additional value addition that they need to bring to society in general aside from the commercial aspect of business. Many companies have committed funds to various social programmes which impact especially on the less privileged areas and people in their countries. In the case of Sri Lanka, while companies have been doing CSR programmes on an individual basis, especially within their local communities, there has not been a collective effort that business has embarked on especially in countries such as ours which is coming out of a traumatic 20 year war.

The need for business to get engaged in reconstruction and rehabilitation from a macro point of view is critical. It is only through socio-economic development programmes that we can sustain peace in this country. We cannot continue to look on governments only to be providers. It is essential that the business community takes a pro-active role to create wealth especially in the under developed rural communities not only in the war torn areas but across the country, which will not only sustain peace but will also benefit business in the long term, as they will eventually become consumers for products and services.

Q: What is the basis for the Sri Lanka First initiative?

A: Sri Lanka First was initiated after the 2001 airport attack when the country virtually came to a grinding halt due to the serious repercussions of the aftermath of the bomb attack. It was the first time that businesses really felt the impact of the war on such a great scale, especially the tourism and export industries which were directly affected due to a drastic reduction of flights and freight services both by air and sea.

In the tourism sector within a month they were laying off hundreds of people. The business community realised that to prevent another bomb attack like this, we had to stop the war and get agreement amongst the political parties to start negotiations to resolve the ethnic conflict by peaceful means. It was with this in mind that we ran a multi media campaign explaining what the war had cost the country in the last 20 years and what it would continue to cost if we did not end it. We also asked civil society to show their support for this by coming out on September 19 and showing their support for a negotiated settlement. The response was overwhelming with over a million people coming out.

Q: What has this initiative generated so far?

A: After the cessation of hostilities, Sri Lanka First embarked on several educational campaigns to explain to the public at large through mass media, the cost of the conflict and the possible solutions as well as explaining the peace process as it was emerging at the time. More recently, 21 TV programmes ran on Rupavahini and had an excellent response from the public. We spent many months going across the country from Jaffna in the north to Hambantota in the south talking to people and getting their view point on the different aspects of the conflict.

Last month we embarked on a study tour to South Africa where a select group of business leaders spent five days engaging directly with the South African business leaders who worked on the peace process in their country. This led firsthand to their understanding of issues and how they set about finding a resolution. It was very inspiring and the Sri Lankan team greatly benefited from their firsthand experience.

Two of the key learnings of the success of the South Africa peace process were the inclusivity of all stakeholders and the consultative nature of the process. The other was the ability of the South African people led by President Nelson Mandela, to forgive and move forward. We were very moved by the tireless efforts and deep commitment and patience that they displayed for nine years facilitating the many parties that were engaged in the peace process. Based on our learnings in South Africa currently our members are formulating a strategy as to how best we can play a meaningful role in supporting the next stage of the peace process.

Q: What else can Sri Lanka First do to ensure the private sector demonstrates a social conscience with the greatest possible vigor to prevent antagonism being built up against the private sector by the various publics?

A: Sri Lanka First recognises the importance of the need for business to embark on a CSR programme that would benefit our people especially at rural level. The South Africa visit was a great example where we saw how the business community through the South Africa Business Trust set up in 1999 where 145 top companies have committed US$ 100 million in a major CSR programme to support the government's initiative to create jobs and develop their human capital through education.

With a staggering 40% unemployment rate the business community in South Africa recognises the urgent need to create employment and to this effect they have picked tourism as the fastest growing sector for job creation which requires the least amount of technology and investment. For every eight tourists, one new job is created. Even though many of these companies have no connection with tourism, they are actively working together to support this industry for the overall benefit of the nation. They are working in close partnership with the government in these two areas.

Perhaps it is time for Sri Lankan businesses to look at similar programmes that we could embark on collectively that could have a significant impact on the nation as a whole. Currently a group of us from Sri Lanka First are drawing up a CSR programme which we believe will help economic development at rural level. This could start the momentum which we would like to take across to all our business colleagues and get their support in the implementation.

It is only when people at the grass roots level see their lives improving, which many of them have not seen in the last 55 years, by the direct involvement of the business community in partnership with the local community, will they begin to see us in a better light. It is therefore essential for business to partner these CSR development programmes. Wealth creation and development at grass root level can no longer be left only to the government. The business community must get involved. If not we will continue to  be looked on negatively.

Q: Do you have the support of the entire organised private sector to go beyond your current mandate?

A: Whenever the need has arisen like post 2001 airport attack, we have always been able to enlist the support of the business community at large. I have no doubt that the business community today recognises the role we can play in the socio economic development of our nation from a CSR perspective, and will support an initiative such as this. So far the chambers have been very supportive of our peace building efforts. I can see no reason why we cannot all work together for our nation's sake.

Q: Finally, what role do you wish the government to play in bringing about private-public partnership to put an end to the north east issue?

There is no question that the government needs both the private and public sectors to work closely together in the areas of reconstruction, rehabilitation and reconciliation. It is only when there is economic development taking place in the conflict areas that people begin to put the war behind them. Up to now there has not been enough development and reconstruction work taking place in the north and the east to rehabilitate the hundreds and thousands of refugees and people affected by this violent conflict. This is extremely urgent as people who have been directly affected by the war must start to see the dividends of peace emerge for them to feel committed to stay away from war.

The same goes for the south. It is also essential that development in under developed rural areas must take place urgently as well. As the last elections clearly indicated, many people in the south did not feel the dividends of peace either. It is therefore essential that investment is encouraged and development takes place through private and public partnerships not only in infrastructure but also in industry, agriculture which will create jobs and stimulate rural economies. It is time that the entire country has the benefit of basic amenities like electricity, water, education and health facilities.