Sri Lanka Newspapers Wednesday 07/03/2012

Tue Mar 6, 2012 5:16pm IST
* Dealers see rupee depreciating further

* Stx edge up in thin trade

(Reuters) - Sri Lanka's rupee ended firmer on Tuesday as banks sold dollars amid concern the currency will depreciate further, while the stock market moved sideways as concerns over corporate profits loomed in thin trade.

The rupee closed 121.45/55 a dollar, firmer than Monday's close of 121.95/122.05, in light trade, dealers said.

A Reuters monthly forex poll on Wednesday has forecast the rupee to fall as far as 128.50 by the end of August.

The rupee has fallen 5.9 percent since Feb. 9, when the central bank stopped defending it.

The stock market meanwhile edged up in low trade as many investors stayed away on concerns of slowing economic growth, rising interest rates and broadly flat December quarter profits.

The main share index edged up 0.24 percent or 12.86 points to hit 5,477.67.

The day's turnover was 441.4 million Sri Lanka rupees ($3.62 million) well below last year's daily average of 2.3 billion. The day's volume was 17.3 million. Last year's daily average was a record 102.7 million.

Foreign investors bought shares worth 983,963 rupees, extending the offshore net foreign inflow to 2.73 billion rupees so far this year, after a net outflow of 19.1 billion last year.

The Colombo bourse is one of the worst performers this year among Asian markets, with a 9.82 percent loss while the majority have had positive returns.

Stock and foreign exchange markets will be closed on Wednesday due to a Buddhist religious holiday. Normal trading will resume on Thursday.

($1 = 121.7000 Sri Lanka rupees)
(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Bryson Hull)
http://in.reuters.com/article/2012/03/06/markets-srilanka-idINL4E8E63SB20120306

Time for Sri Lankan businesses to tighten their belts, says MTI CEO

After 3 years of crucial post-war Bull Run, Sri Lankan businesses have begun to feel the ‘pinch’ of the combined impact of the global economy and the local consumers’ reduced buying power.

According to the CEO of MTI Consulting, it is a cyclical challenge that countries and business go through, except on this occasion the challenges faced by the global economy (which significantly impacts the local economy) are almost unprecedented. "The fact that North America, Europe, Japan and India are all experiencing severe economic challenges (at the same time) raises the question "are we in the early days of a 1930 style depression?" says Cader.

"The real challenge for Sri Lankan businesses is that we need to quickly shift gear and mind-set, mean times avoid moving into a shell. Sri Lanka needs to cautiously continue its growth agenda, the key word being cautious!"

The last 3 years have been characterized by a phenomenal increase in credit, significant part of which has been for consumption. This in turn has boosted corporate profits of businesses that have benefited from such consumption spending, based on which these businesses have added significant fixed costs. According to the MTI CEO, "time has come for businesses to take the fatness off their businesses, adopt a trim and a fit cost optimization process, while at the same time cautiously continuing the growth agenda.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=46877

* Exchange Rate Fiasco

Every right thinking economist and politician appreciates the Central Bank’s policy shift from defending the Rupee to a more flexible management of the currency. It has helped to avoid a crisis situation. Why did the policy makers have to re-think their exchange rate policy only after losing over US$ 3,000 million of foreign exchange reserves? Do the people of this country or at least the leadership and key policy makers know that Sri Lanka’s exchange rate in May 2009 was $1 * Rs. 122. After losing Rs. 300 billion we reversed our policy merely to reach an exchange rate which prevailed in May 2009. According to a realistic analyst, there is no need for panic at present. Provided the Central Bank stays out of the market and avoids making confusing statements, the market will determine an appropriate rate. However, there will be fluctuation of the exchange rate due to seasonal peaks and lows of demand and speculative moves.

In spite of the recent policy correction, the policy makers and the political leadership, especially the President, should be aware of the opportunity lost as a learning exercise. If the exchange rate had been allowed to remain at $1 * Rs. 122 since May 2009, many participants in economic activities would have been winners. These include exporters whose products would have been more competitive in external markets; import substitution industries receiving market based protection; increased earnings for the tourism sector; as well as increased incomes for Sri Lankan families receiving remittances from expatriate workers. In the process the government would have benefited from enhanced tax revenues. I hope the economist of the Central Bank will quantify these losses and opportunity cost for average citizens like us. Sri Lanka would also have a much stronger external position by earning more non borrowed reserves and enjoying gross reserves in excess of $10 billion. The President would have been able to claim a historical achievement no other leader would have been able to in the last 50 years. It would have also provided a cushion to meet external shocks being generated due to the volatile global environment.

If we had a realistic exchange rate policy throughout the past couple of years, the real economy would have experienced a faster growth in excess of the 8% targeted in the Mahinda Chintana. Small and medium size enterprises would have become more competitive and profitable as perceived by the same manifesto. By extrapolation, maintaining the 2009 exchange would have resulted in a 10% growth rate, $100 billion economy and $20 billion exports. Sadly, the country, the people and the political leadership have forgone these opportunities. Of course, the ordinary citizens of this country might ask why the government economists in institutions, such as the Central Bank and the Ministry of Finance, who have been trained by the government using tax payers money, have failed to capitalize on the opportunities without adopting inappropriate ‘cowboy style’ exchange rate policy. Shouldn’t the people and the President of this country ask for explanations from the policy makers behind this grave loss of opportunity?

M K Sunil Perera.
Kelaniya.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=46812