Sri Lanka Newspapers - 26/12/2011

Sri Lanka islet eyed by Canada firm for US$300mn leisure project


Sri Lanka is in talks with Sapphire Bay, a Canadian based leisure firm to develop an islet off the northwestern coast of the island in a 300 million dollar investment golf course and hotel development.

Sri Lanka has a received a detailed proposal to develop a part of the islet of Uchchimunai off Kalpitiya, an official source knowledgeable about the matter said.
The project involves building three hotels and a golf course on 400 acres of the 1,000 acre islet.

The project promoters have also proposed a community development project and a hotel school as part of a corporate social responsibility initiative linked to the project, the source said.

Sri Lanka offered 10 islets off Kalpitiya for development. The state land is offered on long leases.

Tourism to the island has been booming after the end of a 30-year war.

http://www.lbo.lk/fullstory.php?nid=2132092809

What a difference a year makes …

We started 2011 in recovery mode, admittedly weak and unbalanced, but nevertheless there was hope. The issues appeared more tractable: how to deal with excessive housing debt in the United States, how to deal with adjustment in countries at the periphery of the Euro area, how to handle volatile capital inflows to emerging economies, and how to improve financial sector regulation.

It was a long agenda, but one that appeared within reach.

Yet, as the year draws to a close, the recovery in many advanced economies is at a standstill, with some investors even exploring the implications of a potential breakup of the euro zone, and the real possibility that conditions may be worse than we saw in 2008.

I draw four main lessons from what has happened.

•First, post the 2008-09 crisis, the world economy is pregnant with multiple equilibria—self-fulfilling outcomes of pessimism or optimism, with major macroeconomic implications.

Multiple equilibria are not new. We have known for a long time about self-fulfilling bank runs; this is why deposit insurance was created. Self-fulfilling attacks against pegged exchange rates are the stuff of textbooks. And we learned early on in the crisis that wholesale funding could have the same effects, and that runs could affect banks and non-banks alike. This is what led central banks to provide liquidity to a much larger set of financial institutions.

What has become clearer this year is that liquidity problems, and associated runs, can also affect governments. Like banks, government liabilities are much more liquid than their assets—largely future tax receipts. If investors believe they are solvent, they can borrow at a riskless rate; if investors start having doubts, and require a higher rate, the high rate may well lead to default. The higher the level of debt, the smaller the distance between solvency and default, and the smaller the distance between the interest rate associated with solvency and the interest rate associated with default. Italy is the current poster child, but we should be under no illusion: in the post-crisis environment of high government debt and worried investors, many governments are exposed. Without adequate liquidity provision to ensure that interest rates remain reasonable, the danger is there.

•Second, incomplete or partial policy measures can make things worse.

We saw how perceptions often got worse after high-level meetings promised a solution, but delivered only half of one. Or when plans announced with fanfare turned out to be insufficient or hit practical obstacles.

The reason, I believe, is that these meetings and plans revealed the limits of policy, typically because of disagreements across countries. Before the fact, investors could not be certain, but put some probability on the ability of players to deliver. The high-profile attempts made it clear that delivery simply could not be fully achieved, at least not then. Clearly, the proverb, "Better to have tried and failed, than not to have tried at all," does not always apply.

• Third, financial investors are schizophrenic about fiscal consolidation and growth.

They react positively to news of fiscal consolidation, but then react negatively later, when consolidation leads to lower growth—which it often does. Some preliminary estimates that the IMF is working on suggest that it does not take large multipliers for the joint effects of fiscal consolidation and the implied lower growth to lead in the end to an increase, not a decrease, in risk spreads on government bonds. To the extent that governments feel they have to respond to markets, they may be induced to consolidate too fast, even from the narrow point of view of debt sustainability.

I should be clear here. Substantial fiscal consolidation is needed, and debt levels must decrease. But it should be, in the words of Angela Merkel, a marathon rather than a sprint. It will take more than two decades to return to prudent levels of debt. There is a proverb that actually applies here too: "slow and steady wins the race."

• Fourth, perception molds reality.

Right or wrong, conceptual frames change with events. And once they have changed, there is no going back. For example, nothing much happened in Italy over the summer. But, once Italy was perceived as at risk, this perception did not go away. And perceptions matter: once the "real money’’ investors have left a market, they do not come back overnight.

A further example: not much happened to change the economic situation in the Euro zone in the second half of the year. But once markets and commentators started to mention the possible breakup of Euro, the perception remained and it also will not easily go away. Many financial investors are busy constructing strategies in case it happens.

Put these four factors together, and you can explain why the year ends much worse than it started.

Is all hope lost? No, but putting the recovery back on track will be harder than it was a year ago. It will take credible but realistic fiscal consolidation plans. It will take liquidity provision to avoid multiple equilibria. It will take plans that are not only announced, but implemented. And it will take much more effective collaboration among all involved.

I am hopeful it will happen. The alternative is just too unattractive.

By Olivier Blanchard, Economic Counsellor and Chief Economist at theIMF.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=41887

The ASPI like our cricketing heroes have been stuck in a dull range for some time, however, the most anticipated "Santa Rally" came early this year and it managed to bring the index close to the 6,000, psychological resistant level. Sadly volumes and turnover have been thin as even "Santa" seems to be stuck with losses this year. Clearly the speculators have not been good this year, Bartleet Religare Securities said in a review of last weeks trading at the Colombo Stock Exchange (CSE)

Even though foreign funds have sold more than LKR17bn this year they have been net buyers over the last week and this change of sentiment we hope could continue into more of the value counters going into the final week of the year.

"When compared globally the ASPI is not the only loser this year but on a PE basis Sri Lankan is relatively more expensive as a frontier market when compared to its regional and global counter parts.

"Historically as the ASPI performs well in January we could see this mini rally build more steam as other market participants who are currently on holiday join the races. Technically the Index could go all the way to 6,250 within the next few weeks. The "Usual Suspects "will see most of the interest as the main speculative crowd will look to profit and get out of losing positions. There also should be some interest in value counters as foreigners may want to grab the opportunity to partake in some value buying," the brokering firm said.

http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=41883

External trade continued to remain resilient in October 2011, the Central Bank said last week announcing the External Sector Performance for the month as export earnings fell and the trade deficit doubled.

"Reflecting the high base of exports in October 2010 and contraction in exports of tea, rubber and minor agricultural crops, earnings from exports declined by 4.9 per cent to US dollars 882 million in October 2011. However, during the first ten months of 2011, the cumulative earnings from exports increased by 23.4 per cent to US dollars 8,702 million compared with the same period of 2010," the Central Bank said in a statement.

"At the same time, expenditure on imports, driven by high growth in investment and intermediate goods, increased by 41.4 per cent to US dollars 1,751 million in October 2011 compared with the same month of 2010. The cumulative expenditure on imports for the first ten months of 2011 increased by 50.7 per cent to US dollars 16,436 million, compared with the corresponding period of 2010. As a result, the trade deficit for the first 10 months of 2011 stood at US dollars 7,734 million, a significant portion of which was on account of imports of infrastructure related projects of the government that have been funded mainly by foreign loans. In that context, the total inflows to the government, including the proceeds of the International Sovereign Bond issue, amounted to US dollars 3,507 million, during the first ten months of 2011.

"Industrial exports recorded a growth of 12.8 per cent in October 2011 compared to the corresponding month of 2010. Earnings from agricultural exports, which accounted for 23 per cent of total exports, declined by 10.3 per cent, mainly due to decline in tea export earnings by 12.1 per cent, year-on-year, in October 2011. Despite the higher export prices, exports volume of rubber declined by 40.8 per cent in October 2011 as a result of high demand for rubber by domestic industries to produce value added exports.

"Earnings from minor agricultural exports also declined due to the lower exports of pepper, cocoa, fruits and vegetables. The growth in industrial exports was led by textile and garments, rubber based products, petroleum products, diamond and jewellery and food, beverages and tobacco. Textiles and garments exports grew by 12 per cent, year-on-year, in October 2011. The rubber based products exports increased by 34.8 per cent in October 2011 compared with the corresponding month of 2010.

"Expenditure on imports was mainly driven by increases in intermediate and investment goods. The intermediate goods imports increased year-on-year by 42.7 per cent led by petroleum imports. The higher petroleum import expenditure was mainly due to the higher average import price of crude oil of US dollars 107.2 per barrel in October 2011 compared to US dollars 81 per barrel for the corresponding month of 2010. Fertiliser imports grew in terms of both prices and volumes, by 28.9 per cent and 72.6 per cent, year-on-year, respectively, and the sharp increase of volume was mainly due to expansion of fertiliser subsidy to cover all crops. Imports of investment goods increased by a substantial 58.7 per cent in October 2011, led by higher expenditure on imports of machinery and equipment, transport equipment and building materials. Expenditure on non-food imports increased by 12.7 per cent despite the decline in personal motor vehicle imports by 16.3 per cent, year-on-year, in October 2011.

"For the first eleven months of 2011, earnings from tourism grew at a healthy rate of 46.7 per cent to US dollars 736 million compared to the corresponding period of 2010. Average earnings per tourist per day increased to US dollars 97 for the period under review from US dollars 88 for the same period in 2010. The tourist arrivals for the first eleven months of 2011 increased by 33.1 per cent to 758,458 compared to first eleven months of 2010. The majority of tourists numbering 281,484 arrived from Western Europe while arrivals from Middle-East, East Asia, South Asia and Australasia also recorded healthy growths during this period.

"The cumulative inflows on account of workers’ remittances grew at 24.3 per cent to US dollars 4,203 million for the first ten months of 2011. The expansion in exports of services and increased workers’ remittances helped contain the impact of the trade deficit, thereby mitigating the deficit of the current account to approximately US dollars 3,253 million for the first ten months of 2011.

"Gross official reserves, excluding Asian Clearing Union (ACU) balances, increased to US dollars 6,896 million by end October 2011 from US dollars 6,610 million by end 2010. Gross official reserves had reached a historically high level of US dollars 8,099 million by end July 2011 as a result of the Central Bank accumulating high reserves over a period of time thus avoiding fluctuations in the domestic foreign exchange market. A part of such reserves have now been utilized to deal with any pressure on the exchange rate due to increased demand for imports arising mainly from petroleum and investment goods. Total external reserves, which includes gross official reserves and foreign assets of commercial banks, also increased to US dollars 8,136 million by end October 2011 from US dollars 8,035 million by end 2010. In terms of months of imports, gross official reserves and total external reserves by end October 2011 were equivalent to 4.4 months and 5.1 months, respectively," the Central Bank said.

http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=41882

The IFC sent in the following clarification regarding an article presented by the Pathfinder Foundation in these pages last week.

"In reference to the Economic Alert as dispatched by the Pathfinder Foundation, we have noticed several errors in the references to the latest Doing Business Report released annually by the IFC and the World Bank.

As per the latest IFC-WB report, "Doing Business 2012: Doing Business in a More Transparent World":

*Sri Lanka has ranked 89th of 183 countries

*An improvement of 9 ranks compared to the previous year.

*Implemented the most reforms of any of the eight economies in South Asia including Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.

*he improvement in ranking can be attributed to reforms in two areas:

o Protecting Investors: Sri Lanka strengthened investor protections by requiring greater corporate disclosure in case of transactions between interested parties

o Paying Taxes: Sri Lanka made paying taxes less costly for businesses by abolishing the turnover tax and social security contribution and by reducing corporate income tax, value added tax and national building tax rates

The parameters evaluated in the IFC-WB DB Report are: Starting a business, Dealing with construction permits, Getting electricity, Registering property, Getting credit, Protecting investors, Paying taxes, Trading across borders, Enforcing contracts and Resolving insolvency. The Employing workers indicator is not included in the calculation for the Doing Business ranking - Data points are however available for each country.

As per the IFC-WB Doing Business methodology, a procedure is not considered completed until the company has received the final document, such as the company registration certificate or tax number. This methodology is consistently applied to all economies.

Inaccuracies in the article:

The analysis by Pathfinder Foundation carried several inaccuracies as listed below:

*Incorrect ranking for Sri Lanka: According to Pathfinder’s analysis, "Sri Lanka was ranked 102nd of 183 countries included in this index in the latest report, the same rank as last year according to the IFC-WB DB report." However, Sri Lanka’s rankings have climbed 9 ranks to reach 89 in this year’s IFC-WB DB Report 2012 - which reflects the improvements in Sri Lanka’s business environment

*Parameters identified in the article do not tally with the IFC-WB terminology for Doing Business: The article refers to a list of 10 functional areas which do not mirror the IFC-WB Doing Business Index, and has not captured several changes that were made to this year’s report:

*Getting Electricity indicator has been added

*Closing a business is re-named as "Resolving insolvency" to more accurately reflect the content of the indicator

*Employing workers indicator is not included in the calculation for the Doing Business ranking.

The parameters reported in the IFC-WB DB index are as mentioned above.

*Incorrect understanding of the IFC-WB Doing Business Report Methodology:

In the recommendation for Starting a Business recommendations, the article says:

"It is also noted that Sri Lanka is marked down on the DBI because the Ministry of Labor takes a long time to formalise EPF and ETF numbers. In practice, EPF and ETF numbers are provided on the date of application and are immediately in force. Doing Business should regard this procedure as complete de facto in one day, not one month as reported in the Doing Business report."

However, as mentioned above, the IFC-WB DB methodology only considers a procedure complete when the company has received the final document. Since in Sri Lanka, it takes approximately 1 month for the ETF and EPF numbers to be issued, the whole duration is counted."

http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=41889

Dec 26, 2011 (LBO) - Cairn Lanka, a subsidiary of Cairn India, aims to start the second phase of oil exploration in Sri Lankan waters after completing the first phase, although the third test well found no oil.

The company said it will further study two petroleum deposits it found off Sri Lanka.
"Cairn Lanka’s successful drilling programme - the first in Sri Lanka in 30 years - has established a working petroleum system in the frontier Mannar Basin," a statement said.

"Following this success, Cairn Lanka has notified the government of Sri Lanka of its intention to enter the second phase of exploration."

In October, Cairn Lanka invited contractors to carry out "3D marine seismic data and Gravity Magnetic data acquisition".

The company said its third well, CLPL-Dorado North 1-82K/1, in the Mannar Basin, off the northwestern coast of Sri Lanka, was plugged and abandoned as a dry hole on December 14, 2011.

The first two well resulted in two successive gas and condensate discoveries in the the CLPL-Dorado-91H/1z well and, the CLPL-Barracuda-1G/1 well.


"The exploration programme involved the acquisition, processing and interpretation of 1,753 sq km of 3D (three-dimensional) seismic data and a three well deep water drilling programme," the statement said.
"The seismic programme exceeded the phase I commitment by 20 percent and the drilling programme exceeded the drilling depth commitment by 50 percent," it said.

"The operations were conducted safely, in accordance with the highest global standards, within schedule, budget and in compliance with Sri Lankan regulations."
http://lbo.lk/fullstory.php?nid=1599506947