Daily News: 18/07/2005" by Nihal Sri Ameresekere, F.C.A., F.C.M.A.
Central Bank reaction to COPE report
The Parliamentary Committee on Public Enterprises (COPE) in its recent Report to Parliament has, inter-alia, reported as follows:
"The Committee was seriously concerned over the activities of the Central Bank of Sri Lanka (CBSL) and wishes to report to the Parliament on matters that need immediate attention of the house"
"The Auditor General and the Department of Public Enterprises have highlighted the following in their reports....."
* "Decline in the remittances of export earnings to the country as the Bank did not monitor the remittances of such export proceeds to the country and the foreign exchange loss to the country."
"Your Committee in conclusion recommends the following:"
* Carry out investigations on the non-repatriation of export proceeds to Sri Lanka and take corrective action appropriately to avoid drain of foreign resources."
The Statement published in the 'Financial Times' section of the 'Sunday Times' of July 10, 2005 attributed to the Central Bank does not curiously disclose the name/s of the Official/s, who has/have taken the responsibility for the issuance of such a Statement. Given the contents of the Statement, it has to be presumed that the hierarchy of the Central Bank, the Governor and the Deputy Governors and the Members of the Monetary Board take full responsibility therefor.
Given the above findings and recommendations made by COPE in its Report to Parliament, specifically recommending the carrying out of investigations and to take corrective action to avoid the drain of foreign resources, the cogent question arises, as to whether this Statement issued and caused to be published by the Central Bank, tantamounts to the contempt of COPE and Parliament? If so, ought not those who are responsible, be answerable?
It is patently clear, that the Statement of the Central Bank had endeavoured to cloud and camouflage casting a 'smoke screen', with deliberate intent to pre-empt the very investigations recommended by COPE to Parliament being carried out. Ought this be the attitude of a responsible Central Bank on such a matter of national economic and public importance?
In fact, the above findings on the decline in the remittances of export earnings to the country and the consequent foreign exchange loss to the country due to the non-monitoring of remittances of export proceeds by the Central Bank, had been reported by COPE, as a matter that had been highlighted, by none other, than the Auditor General of the country, and the Department of Public Enterprises, which gives credence to such findings.
Revelations by survey suppressed?
The multi-billion dollar question is, as to why the Central Bank in its Statement has knowingly and deliberately suppressed the findings of its own survey of remittances of export proceeds received by December 31, 2004 of the exports made during the quarter ended September 30, 2004, which had revealed that only 81.07% of the export proceeds had been repatriated to the country by that date. The balance 18.93% reportedly had been accounted as shown below:
US$ %
Repatriated to Sri Lanka 958,640,082 81.07
Used Abroad for Foreign Expenditure 121,111,158 10.24
Used Abroad for Foreign Loan Repayments 4,302,571 0.36
Retained in Commercial Banks Abroad 878,392 0.07
Value of Short Shipments 8,620,554 0.73
Defaults by Foreign Buyers 1,439,411 0.12
Export Proceeds due from Foreign Buyers 87,531,779 7.40
Total 1,182,523,947 100.00
In view of the value volume of exports, one must not be misled into complacency by mere percentages, in that, it is admitted that US$ 121.1 mn. has been used abroad for unauthorised expenditure from the exports of one quarter i.e. 3 months. Similarly, foreign loan repayments during the quarter and monies retained in Commercial Banks abroad had admittedly amounted to US $ 5.2 mn. The export proceeds reported yet to be received had been US $ 87.5 mn. All these are in respect of exports during just one quarter i.e. 3 months. Can a general average over 10% be conceded as permissible for traditional exports such as bulk tea which is a cognisable component of the total exports?
Ought not one compare the foregoing quantums of foreign exchange so utilised during a mere quarter, i.e. three months, with the foreign exchange borrowings with documentation signing by the Secretary to the Treasury photographically depicted in the media ranging in the region of US $ 3 mn. to 50 mn? Comparatively, the CEB re-structuring is to borrow US $ 60 mn.! The sale of 100 Petrol Filling Stations to IOC was to raise US $ 75 mn.! It is beyond comprehension, as to why one cannot simply understand the significant comparison? How could one endeavour to cast a 'smoke screen' to cover up and camouflage the foregoing?
The above data reported by the Controller of Exchange had been in terms of responses received to a Questionnaire laboriously circularised to 3,054 reported exporters, disclosed as per data of the Customs Department. Only 1,554 exporters i.e. 51% had responded, whilst in respect of 194 exporters i.e. 6% the Questionnaire had been returned undelivered, and a further 136 exporters i.e. 4% has stated they had not exported, which is a total of 330 exporters i.e. 10.1%. Since the exporters data had been extracted from the Customs Department data of exports effected during the quarter to September 30, 2004, then are these 330 exporters 'ghost' exporters? Would this alone not warrant investigation? Surely, one cannot believe that there was 10% error made by the Controller of Exchange!
Furthermore, the Questionnaire circularised by the Controller of Exchange merely required the exporters to report information, without any proof or bank certification, whatsoever, to confirm the repatriation of export proceeds. In such circumstances, the exporters were at liberty to have indicated whatever data. Indeed is this not an incredible manner of verifying the extent of export proceeds leakage?
Leakage 19% to 20%?
The Controller of Exchange H. A. G. Hettiarachchi had reported on May 5, 2005 the data of the survey to the Governor Sunil Mendis, Deputy Governor, Dr. Ranee Jayamaha, Asst. to the Governor, R. Jayatissa and Director Economic Research, Dr. H. N. Thenuwara, giving the data separately for BOI and non-BOI companies. Not only had the disclosures made by this report, knowingly and deliberately been suppressed, but also the very leakage of such report disclosing such factual findings had been inquired into and the officers berated. The legitimacy of 'squealing' in the public interest is recognised both in the developed and developing world. The disclosure of the famous mega corporate failures, with startling fraud and corruption were as a result of 'squealing'! Such suppressed report had been made available to none other than a Member of Parliament, who is elected to uphold and protect public interest.
Prior to carrying out the above survey, the Governor of Central Bank by his Letter dated October 20, 2004 had admitted thus:
"The Central Bank has also done a special study on the receipt of export proceeds by matching Customs data with export proceeds of banks. This study has revealed that over 80 per cent of export proceeds have been brought into the country. In the case of garment exports where inputs (fabric and other accessories) are provided by the buyer, it is only the value addition that is derived at this end. Once the Customs export data is adjusted for this impact, it is estimated that 88 per cent of export proceeds are brought into the country. The balance could be due to holding of export proceeds abroad to cover up exporters' foreign currency expenditure; identification and categorisation problems; and payment defaults by importers etc. These indicate that there is no large-scale retention of export proceeds abroad."
Quite significantly, the 20 per cent leakage admitted by the Governor, as per a study carried out at that time, is further confirmed by the above unauthenticated survey carried out of the exports during the quarter ended September 30, 2004, where export proceeds remittances had reportedly been only 81 per cent and the balance 19 per cent specifically accounted by the exporters as reported above. In such circumstances, how could one honestly ever state that the leakage is only 1 per cent?
There is no disclosure by such survey that 8 per cent of the 20 per cent leakage has been in respect of garment exports, where fabric and other accessories are provided by the buyers. Surely, are not such garment exports invoiced for the value addition of cutting, making and trimming? If the total value of the made garments is invoiced for, then would not there be the need to pay for the import of fabric and other accessories? The percentage of non-repatriation of export proceeds reckoned is a mere average, where one exporter would have repatriated 100 per cent, whilst another exporter would have not repatriated at all, thereby having in effect, exported his 'Capital' in the form of goods, in violation of the Exchange Control Act.
One cannot cover-up with a 'smoke screen' the reality on ground, that several export industry companies had continuously exported with bank borrowings, and the owners thereafter having decamped, without the exports proceeds having been repatriated to the country, leaving the workers in the lurch, with statutory, bank and other liabilities! The gravity of this matter had even warranted the appointment of a Cabinet sub-committee to deal with the same. Had there been the enforcement of stringent requirements for the repatriation of export proceeds, then would not this flight of capital, with other social consequences, have been prevented?
Mandating repatriation requirements
There is no argument, whatsoever, for not mandating the export proceeds repatriation requirements, particularly when exporters had been given import duty concessions, even before the commencement of exports, and several other tax and other concessions, foregoing public revenue. This would be the Government's investment to achieve exports, not mere reported figures, but the actual realisation of the export proceeds to boost the much needed foreign exchange requirements of the country. Would not there be a contractual obligation that would come into force, when an exporter obtains such concessions at the cost of public revenue, promising and/or holding out to effect exports to bring in valuable foreign exchange, for which purpose alone, the Government invests such monies forgoing public revenues? One simply cannot understand, what is so sensitive for mandating export proceeds repatriation requirements and enforcing the same, when there is a contractual legal obligations to do so?
IMF Article VIII status is essentially, vis-a-vis, the liberalisation of imports and exports, that too, subject to, quotas, restrictions and sanctions, and does not prevent countries from monitoring and enforcing the correct repatriation of export proceeds. Exports must necessarily result in proceeds being repatriated back to the country, within a stipulated period of time, and exports ought not be permitted to be effected, without the export documentations being channelled through the banking system. To avoid doing so, on the pretext that bank charges are prohibitive would be nonsensical, given the overall impact on the national economy. Where any exceptions are warranted due to emergencies and/or bank holidays, separate procedures and guidelines ought be adopted as in other countries. The banking system is not costly as baselessly made out!
As per the IMF Report 2004 on Exchange Arrangements and Exchange Restrictions, it is disclosed that 98 countries enforce exports proceeds repatriation requirements, whilst 75 countries further enforce export proceeds surrender requirements, where export proceeds are compelled to be converted into the currency of that particular country. Countries that had done away with export proceeds repatriation and surrender requirements are those developed countries with considerable foreign exchange reserves and attracting the inflow of foreign capital.
Among the countries in the region that enforce both export proceeds repatriation requirements and export proceeds surrender requirements are India, Pakistan, China, Malaysia, Thailand and South Africa. All these countries, like Sri Lanka, are Article VIII status countries. Hence the question arises, as to how and why Sri Lanka had not and does not enforce export proceeds repatriation and surrender requirements from 1993, or in the least enforce exports proceeds repatriation requirements? Even the Republic of Korea enforces exports proceeds repatriation requirements. Are not the economies of these countries very much larger and stronger, than that of Sri Lanka?
Ironically, Sri Lanka, on the other hand, in fact borrows in foreign exchange from some of the above countries; and whilst these countries have procedures to enforce export proceeds repatriation requirements and exports proceeds surrender requirements. Sri Lanka on the other hand since 1993, does not enforce such requirements, not even exports proceeds repatriation requirements.
To compare Sri Lanka, with practices in developed countries, who enjoy substantial foreign exchange reserves and attract capital is puerile and misleading. On the other hand, to compare with those practices in countries such as Indonesia and Philippines is far worse! To adduce that at contemporary times in 2004, several countries are moving away from export proceeds repatriations and surrender requirements, is no justification to cover-up what had happened in Sri Lanka since 1993! The cogent question is, what were the procedures and practices in those very countries, during the years 1993 to 2003?
Warrants investigation and action
This whole episode warrants investigation to ascertain the extent and volume of foreign exchange leakage over these several years. On the contrary, it would be pertinent to postulate, as to what the prevalent foreign exchange rates, level of foreign exchange reserves and level of foreign borrowing would have been, had foreign export proceeds repatriation and surrender requirements been continuously enforced since 1993. To begin with ought not the top 100 exporters be investigated to examine the malignant malady and 'ghost' exporters investigated promptly?
The Central bank recently permitted indirect exporters to maintain foreign currency accounts, strictly for the purpose of utilising such foreign exchange for the purpose of importing input requirements of the indirect exporters, and the Central bank stipulating that no cash or travellers cheques should be issued from such foreign currency accounts, and further stipulating that nay excess at the end of each month over US $ 5,000 should be surrendered and converted into Sri Lanka Rupees at the end of each month.
Does it therefore not stand to logical reason, that the direct exporters also necessarily must be subjected to the same restrictions and enforcement procedures, without any discrimination and unequal treatment before the law? What is the reason not to have done so, and not to do so? Why such discrimination of the small indirect exporter entrepreneurs?
Recently, the Central Bank carried out a 'hue and cry', with much publicity and full page advertisements and educational programs on alleged 'pyramid' scams, enacting special legal provisions therefore; and also, vis-a-vis, the abuse of Credit Cards to remit over US $ 3,000; even involving Her Excellency the President to issue a public statement!
The Central Bank's estimation of the loss of foreign exchange reported in the media was in the region of US $ 30 Mn. Ought not this be compared with the extent of leakage of export proceeds disclosed above? In this context, one simply cannot comprehend the duplicity, and the evasive and lukewarm reaction, and the endeavour to cast a 'smoke screen' to cover-up the foreign exchange leakage of far greater proportion!
There is existing legal provisions in the Exchange Control Act for the Controller of Exchange to enforce the requirement for the repatriation of export proceeds. The Exchange Controller had been precluded from exercising his power to enforce such legal provisions of the Exchange Control Act by Gazette Notifications Nos. 759/15 and 813/14 published by then Minister of Finance, Hon. D.B. Wijetunga dated 25.3.1993, when R. Paskaralingam was the Secretary, Ministry of Finance, and 29.3.1994, when R.V.K.K. Weragoda was Secretary, Ministry of Finance, respectively. The Gazetted orders read as follows:
Order dated 25.3.1993
"Exemptions hereby granted from the provisions of Section 22(4) of the Exchange Control Act No. 24 of 1953 as amended by the Exchange Control (Amendment) Law No. 39 of 1973, with regard to payment for goods exported from Sri Lanka."
Order dated 29.3.1994
"The order published in Gazette Extraordinary of the Republic of Sri Lanka No. 187/2 of 27.10.1975, by the Minister of Finance by virtue of powers vested in him under Section 22(3) of the Exchange Control act is hereby rescinded."
The question arises, as to whether these dubious Gazette Notifications referred to above published on 25.3.1993 and 29.3.1994, without full disclosure and debate in the public domain, had been approved and sanctioned by the then Monetary Board, realising the full implications and consequences thereof? Had it been done surreptitiously, on the pretext of Sri Lanka then becoming an IMF Article VIII status country?
Prior to the above Gazetted orders, export proceeds had to be repatriated to the country within six months of the export, as had been required under Section 22 (4) of the Exchange Control Act.
As per the Central bank annual reports, Sri Lanka's exports for the years 1993 to 2004, as per export data of the Customs Department, had amounted to US $ 53,949 mn. 19% leakage thereof without the incidence of interest over the years would have amounted to US $ 10,250 mn.
The 10.67% admittedly unauthorisedly utilised for foreign expenditures and monies retained abroad, as per the sample survey carried out by the Controller of Exchange for the quarter ended September 30, 2004, would amount to US $ 5,756 Mn. also, as per Central Bank's annual reports the foreign inward remittances since 1998, essentially from poor Sri Lankan employees working abroad, particularly from those undergoing hardships in the Middle Eat, had amounted to US $ 8,635 mn. this is the reality! On the other hand, why enact anti-money laundering laws, if not to be strictly and effectively enforced?
Given the foregoing facts, how could one baselessly espouse that 'wrong signals' would be sent in enforcing export proceeds repatriation requirements, whereas this is not a matter of sending 'wrong signals', perhaps to 'robber barons', but a grave matter of national and public importance of acting to protect the interests of the broad spectrum of poverty stricken masses, whose rightful resources have been mismanaged, perhaps permitted to be pillaged and plundered! On the contrary ought not 'correct signals' be sent to these very masses, who are the real stakehodlers, who brought this government into power, and action taken to protect their very interest and future.
Central Bank reaction to COPE report
The Parliamentary Committee on Public Enterprises (COPE) in its recent Report to Parliament has, inter-alia, reported as follows:
"The Committee was seriously concerned over the activities of the Central Bank of Sri Lanka (CBSL) and wishes to report to the Parliament on matters that need immediate attention of the house"
"The Auditor General and the Department of Public Enterprises have highlighted the following in their reports....."
* "Decline in the remittances of export earnings to the country as the Bank did not monitor the remittances of such export proceeds to the country and the foreign exchange loss to the country."
"Your Committee in conclusion recommends the following:"
* Carry out investigations on the non-repatriation of export proceeds to Sri Lanka and take corrective action appropriately to avoid drain of foreign resources."
The Statement published in the 'Financial Times' section of the 'Sunday Times' of July 10, 2005 attributed to the Central Bank does not curiously disclose the name/s of the Official/s, who has/have taken the responsibility for the issuance of such a Statement. Given the contents of the Statement, it has to be presumed that the hierarchy of the Central Bank, the Governor and the Deputy Governors and the Members of the Monetary Board take full responsibility therefor.
Given the above findings and recommendations made by COPE in its Report to Parliament, specifically recommending the carrying out of investigations and to take corrective action to avoid the drain of foreign resources, the cogent question arises, as to whether this Statement issued and caused to be published by the Central Bank, tantamounts to the contempt of COPE and Parliament? If so, ought not those who are responsible, be answerable?
It is patently clear, that the Statement of the Central Bank had endeavoured to cloud and camouflage casting a 'smoke screen', with deliberate intent to pre-empt the very investigations recommended by COPE to Parliament being carried out. Ought this be the attitude of a responsible Central Bank on such a matter of national economic and public importance?
In fact, the above findings on the decline in the remittances of export earnings to the country and the consequent foreign exchange loss to the country due to the non-monitoring of remittances of export proceeds by the Central Bank, had been reported by COPE, as a matter that had been highlighted, by none other, than the Auditor General of the country, and the Department of Public Enterprises, which gives credence to such findings.
Revelations by survey suppressed?
The multi-billion dollar question is, as to why the Central Bank in its Statement has knowingly and deliberately suppressed the findings of its own survey of remittances of export proceeds received by December 31, 2004 of the exports made during the quarter ended September 30, 2004, which had revealed that only 81.07% of the export proceeds had been repatriated to the country by that date. The balance 18.93% reportedly had been accounted as shown below:
US$ %
Repatriated to Sri Lanka 958,640,082 81.07
Used Abroad for Foreign Expenditure 121,111,158 10.24
Used Abroad for Foreign Loan Repayments 4,302,571 0.36
Retained in Commercial Banks Abroad 878,392 0.07
Value of Short Shipments 8,620,554 0.73
Defaults by Foreign Buyers 1,439,411 0.12
Export Proceeds due from Foreign Buyers 87,531,779 7.40
Total 1,182,523,947 100.00
In view of the value volume of exports, one must not be misled into complacency by mere percentages, in that, it is admitted that US$ 121.1 mn. has been used abroad for unauthorised expenditure from the exports of one quarter i.e. 3 months. Similarly, foreign loan repayments during the quarter and monies retained in Commercial Banks abroad had admittedly amounted to US $ 5.2 mn. The export proceeds reported yet to be received had been US $ 87.5 mn. All these are in respect of exports during just one quarter i.e. 3 months. Can a general average over 10% be conceded as permissible for traditional exports such as bulk tea which is a cognisable component of the total exports?
Ought not one compare the foregoing quantums of foreign exchange so utilised during a mere quarter, i.e. three months, with the foreign exchange borrowings with documentation signing by the Secretary to the Treasury photographically depicted in the media ranging in the region of US $ 3 mn. to 50 mn? Comparatively, the CEB re-structuring is to borrow US $ 60 mn.! The sale of 100 Petrol Filling Stations to IOC was to raise US $ 75 mn.! It is beyond comprehension, as to why one cannot simply understand the significant comparison? How could one endeavour to cast a 'smoke screen' to cover up and camouflage the foregoing?
The above data reported by the Controller of Exchange had been in terms of responses received to a Questionnaire laboriously circularised to 3,054 reported exporters, disclosed as per data of the Customs Department. Only 1,554 exporters i.e. 51% had responded, whilst in respect of 194 exporters i.e. 6% the Questionnaire had been returned undelivered, and a further 136 exporters i.e. 4% has stated they had not exported, which is a total of 330 exporters i.e. 10.1%. Since the exporters data had been extracted from the Customs Department data of exports effected during the quarter to September 30, 2004, then are these 330 exporters 'ghost' exporters? Would this alone not warrant investigation? Surely, one cannot believe that there was 10% error made by the Controller of Exchange!
Furthermore, the Questionnaire circularised by the Controller of Exchange merely required the exporters to report information, without any proof or bank certification, whatsoever, to confirm the repatriation of export proceeds. In such circumstances, the exporters were at liberty to have indicated whatever data. Indeed is this not an incredible manner of verifying the extent of export proceeds leakage?
Leakage 19% to 20%?
The Controller of Exchange H. A. G. Hettiarachchi had reported on May 5, 2005 the data of the survey to the Governor Sunil Mendis, Deputy Governor, Dr. Ranee Jayamaha, Asst. to the Governor, R. Jayatissa and Director Economic Research, Dr. H. N. Thenuwara, giving the data separately for BOI and non-BOI companies. Not only had the disclosures made by this report, knowingly and deliberately been suppressed, but also the very leakage of such report disclosing such factual findings had been inquired into and the officers berated. The legitimacy of 'squealing' in the public interest is recognised both in the developed and developing world. The disclosure of the famous mega corporate failures, with startling fraud and corruption were as a result of 'squealing'! Such suppressed report had been made available to none other than a Member of Parliament, who is elected to uphold and protect public interest.
Prior to carrying out the above survey, the Governor of Central Bank by his Letter dated October 20, 2004 had admitted thus:
"The Central Bank has also done a special study on the receipt of export proceeds by matching Customs data with export proceeds of banks. This study has revealed that over 80 per cent of export proceeds have been brought into the country. In the case of garment exports where inputs (fabric and other accessories) are provided by the buyer, it is only the value addition that is derived at this end. Once the Customs export data is adjusted for this impact, it is estimated that 88 per cent of export proceeds are brought into the country. The balance could be due to holding of export proceeds abroad to cover up exporters' foreign currency expenditure; identification and categorisation problems; and payment defaults by importers etc. These indicate that there is no large-scale retention of export proceeds abroad."
Quite significantly, the 20 per cent leakage admitted by the Governor, as per a study carried out at that time, is further confirmed by the above unauthenticated survey carried out of the exports during the quarter ended September 30, 2004, where export proceeds remittances had reportedly been only 81 per cent and the balance 19 per cent specifically accounted by the exporters as reported above. In such circumstances, how could one honestly ever state that the leakage is only 1 per cent?
There is no disclosure by such survey that 8 per cent of the 20 per cent leakage has been in respect of garment exports, where fabric and other accessories are provided by the buyers. Surely, are not such garment exports invoiced for the value addition of cutting, making and trimming? If the total value of the made garments is invoiced for, then would not there be the need to pay for the import of fabric and other accessories? The percentage of non-repatriation of export proceeds reckoned is a mere average, where one exporter would have repatriated 100 per cent, whilst another exporter would have not repatriated at all, thereby having in effect, exported his 'Capital' in the form of goods, in violation of the Exchange Control Act.
One cannot cover-up with a 'smoke screen' the reality on ground, that several export industry companies had continuously exported with bank borrowings, and the owners thereafter having decamped, without the exports proceeds having been repatriated to the country, leaving the workers in the lurch, with statutory, bank and other liabilities! The gravity of this matter had even warranted the appointment of a Cabinet sub-committee to deal with the same. Had there been the enforcement of stringent requirements for the repatriation of export proceeds, then would not this flight of capital, with other social consequences, have been prevented?
Mandating repatriation requirements
There is no argument, whatsoever, for not mandating the export proceeds repatriation requirements, particularly when exporters had been given import duty concessions, even before the commencement of exports, and several other tax and other concessions, foregoing public revenue. This would be the Government's investment to achieve exports, not mere reported figures, but the actual realisation of the export proceeds to boost the much needed foreign exchange requirements of the country. Would not there be a contractual obligation that would come into force, when an exporter obtains such concessions at the cost of public revenue, promising and/or holding out to effect exports to bring in valuable foreign exchange, for which purpose alone, the Government invests such monies forgoing public revenues? One simply cannot understand, what is so sensitive for mandating export proceeds repatriation requirements and enforcing the same, when there is a contractual legal obligations to do so?
IMF Article VIII status is essentially, vis-a-vis, the liberalisation of imports and exports, that too, subject to, quotas, restrictions and sanctions, and does not prevent countries from monitoring and enforcing the correct repatriation of export proceeds. Exports must necessarily result in proceeds being repatriated back to the country, within a stipulated period of time, and exports ought not be permitted to be effected, without the export documentations being channelled through the banking system. To avoid doing so, on the pretext that bank charges are prohibitive would be nonsensical, given the overall impact on the national economy. Where any exceptions are warranted due to emergencies and/or bank holidays, separate procedures and guidelines ought be adopted as in other countries. The banking system is not costly as baselessly made out!
As per the IMF Report 2004 on Exchange Arrangements and Exchange Restrictions, it is disclosed that 98 countries enforce exports proceeds repatriation requirements, whilst 75 countries further enforce export proceeds surrender requirements, where export proceeds are compelled to be converted into the currency of that particular country. Countries that had done away with export proceeds repatriation and surrender requirements are those developed countries with considerable foreign exchange reserves and attracting the inflow of foreign capital.
Among the countries in the region that enforce both export proceeds repatriation requirements and export proceeds surrender requirements are India, Pakistan, China, Malaysia, Thailand and South Africa. All these countries, like Sri Lanka, are Article VIII status countries. Hence the question arises, as to how and why Sri Lanka had not and does not enforce export proceeds repatriation and surrender requirements from 1993, or in the least enforce exports proceeds repatriation requirements? Even the Republic of Korea enforces exports proceeds repatriation requirements. Are not the economies of these countries very much larger and stronger, than that of Sri Lanka?
Ironically, Sri Lanka, on the other hand, in fact borrows in foreign exchange from some of the above countries; and whilst these countries have procedures to enforce export proceeds repatriation requirements and exports proceeds surrender requirements. Sri Lanka on the other hand since 1993, does not enforce such requirements, not even exports proceeds repatriation requirements.
To compare Sri Lanka, with practices in developed countries, who enjoy substantial foreign exchange reserves and attract capital is puerile and misleading. On the other hand, to compare with those practices in countries such as Indonesia and Philippines is far worse! To adduce that at contemporary times in 2004, several countries are moving away from export proceeds repatriations and surrender requirements, is no justification to cover-up what had happened in Sri Lanka since 1993! The cogent question is, what were the procedures and practices in those very countries, during the years 1993 to 2003?
Warrants investigation and action
This whole episode warrants investigation to ascertain the extent and volume of foreign exchange leakage over these several years. On the contrary, it would be pertinent to postulate, as to what the prevalent foreign exchange rates, level of foreign exchange reserves and level of foreign borrowing would have been, had foreign export proceeds repatriation and surrender requirements been continuously enforced since 1993. To begin with ought not the top 100 exporters be investigated to examine the malignant malady and 'ghost' exporters investigated promptly?
The Central bank recently permitted indirect exporters to maintain foreign currency accounts, strictly for the purpose of utilising such foreign exchange for the purpose of importing input requirements of the indirect exporters, and the Central bank stipulating that no cash or travellers cheques should be issued from such foreign currency accounts, and further stipulating that nay excess at the end of each month over US $ 5,000 should be surrendered and converted into Sri Lanka Rupees at the end of each month.
Does it therefore not stand to logical reason, that the direct exporters also necessarily must be subjected to the same restrictions and enforcement procedures, without any discrimination and unequal treatment before the law? What is the reason not to have done so, and not to do so? Why such discrimination of the small indirect exporter entrepreneurs?
Recently, the Central Bank carried out a 'hue and cry', with much publicity and full page advertisements and educational programs on alleged 'pyramid' scams, enacting special legal provisions therefore; and also, vis-a-vis, the abuse of Credit Cards to remit over US $ 3,000; even involving Her Excellency the President to issue a public statement!
The Central Bank's estimation of the loss of foreign exchange reported in the media was in the region of US $ 30 Mn. Ought not this be compared with the extent of leakage of export proceeds disclosed above? In this context, one simply cannot comprehend the duplicity, and the evasive and lukewarm reaction, and the endeavour to cast a 'smoke screen' to cover-up the foreign exchange leakage of far greater proportion!
There is existing legal provisions in the Exchange Control Act for the Controller of Exchange to enforce the requirement for the repatriation of export proceeds. The Exchange Controller had been precluded from exercising his power to enforce such legal provisions of the Exchange Control Act by Gazette Notifications Nos. 759/15 and 813/14 published by then Minister of Finance, Hon. D.B. Wijetunga dated 25.3.1993, when R. Paskaralingam was the Secretary, Ministry of Finance, and 29.3.1994, when R.V.K.K. Weragoda was Secretary, Ministry of Finance, respectively. The Gazetted orders read as follows:
Order dated 25.3.1993
"Exemptions hereby granted from the provisions of Section 22(4) of the Exchange Control Act No. 24 of 1953 as amended by the Exchange Control (Amendment) Law No. 39 of 1973, with regard to payment for goods exported from Sri Lanka."
Order dated 29.3.1994
"The order published in Gazette Extraordinary of the Republic of Sri Lanka No. 187/2 of 27.10.1975, by the Minister of Finance by virtue of powers vested in him under Section 22(3) of the Exchange Control act is hereby rescinded."
The question arises, as to whether these dubious Gazette Notifications referred to above published on 25.3.1993 and 29.3.1994, without full disclosure and debate in the public domain, had been approved and sanctioned by the then Monetary Board, realising the full implications and consequences thereof? Had it been done surreptitiously, on the pretext of Sri Lanka then becoming an IMF Article VIII status country?
Prior to the above Gazetted orders, export proceeds had to be repatriated to the country within six months of the export, as had been required under Section 22 (4) of the Exchange Control Act.
As per the Central bank annual reports, Sri Lanka's exports for the years 1993 to 2004, as per export data of the Customs Department, had amounted to US $ 53,949 mn. 19% leakage thereof without the incidence of interest over the years would have amounted to US $ 10,250 mn.
The 10.67% admittedly unauthorisedly utilised for foreign expenditures and monies retained abroad, as per the sample survey carried out by the Controller of Exchange for the quarter ended September 30, 2004, would amount to US $ 5,756 Mn. also, as per Central Bank's annual reports the foreign inward remittances since 1998, essentially from poor Sri Lankan employees working abroad, particularly from those undergoing hardships in the Middle Eat, had amounted to US $ 8,635 mn. this is the reality! On the other hand, why enact anti-money laundering laws, if not to be strictly and effectively enforced?
Given the foregoing facts, how could one baselessly espouse that 'wrong signals' would be sent in enforcing export proceeds repatriation requirements, whereas this is not a matter of sending 'wrong signals', perhaps to 'robber barons', but a grave matter of national and public importance of acting to protect the interests of the broad spectrum of poverty stricken masses, whose rightful resources have been mismanaged, perhaps permitted to be pillaged and plundered! On the contrary ought not 'correct signals' be sent to these very masses, who are the real stakehodlers, who brought this government into power, and action taken to protect their very interest and future.
