President urged to come up with post-war economic growth plan

Concerned with the impact of global and local shocks, President Mahinda Rajapaksa has been urged by the Transparency International Sri Lanka (TISL) to come up with a credible and comprehensive post-war economic growth and prosperity strategy.

The recommendation from TISL whilst acknowledging and commending President Rajapaksa for his leadership, in undertaking the daunting task of delivering sustainable and equitable economic growth and prosperity to the Sri Lankan people, post war, terrorism and ethnic conflict.

“At this time, it is essential that the banking and finance sector of Sri Lanka stands capable, stable and solvent. Resources should be endowed to support the action strategies to be implemented by the government in partnership with the formal and informal private sector including small, medium and micro enterprises,” TISL Executive Director J. C. Weliamuna has said in a letter to President Rajapaksa.

He had said that in the current context of the global economic and financial crisis, and signs of financial instability with a few significant corporate collapses in Sri Lanka, the Government has already taken some steps towards arresting possible instability in the local financial markets.

“While these strategies would stimulate sustainable economic activity, there is a need to have in place additional risk mitigation measures to achieve the goals set by the government,” it had been emphasized.

Weliamuna said that TISL, along with some leading members of the private sector, professionals, academia, media and civil society have initiated a collective process, to support the initiatives of the government by examining the potential risks and gaps in the banking and finance sector.

As part of this process, TISL organised an initial round table review last week. The following issues were raised by the multi-stakeholder group in attendance:

Potential significant macro risks impacting on banking and finance sector in the current context

Probable vulnerability of several key market participants of the banking and finance sector

Need to develop and implement sector/business segment priorities, ensuring equity and effective allocation of scarce resources

Need to ensure the transparency and accountability in the administration of the stimulus package of the government

Urgent need to have an oversight over the process of rescheduling financial facilities and assuring speedy recovery of the impacted enterprises

Urgent need for collective regulatory oversight over key banking and financial sector enterprises whether presently regulated or not, and ensure that potential significant corporate collapses are minimized.

In this backdrop, TISL is recommending that a Banking and Finance Commission be appointed without delay by the President. It is proposed that this Commission comprise of three to five capable, committed and conscientious professionals, representing a number of different interest groups and be requested to submit an interim report by end June 2009, and a Final Report by December 2009.

See page 5 for TISL’s proposed outline for the Commission’s Terms of Reference:

Immediate Short Term
Immediate short term measures needed for macro economic and financial stability (in terms of liquidity, solvency, capital adequacy and professionalism)

Immediate short term measures to ensure public confidence in the financial market and availability of credit at optimum cost

Efficient and equitable means of implementing any government sponsored stimulus packages introduced to achieve set objectives at an optimum cost

Review of the recovery process implemented to give efficient and effective protection to borrowers by rescheduling financial facilities with equity and in line with national economic and social priorities.

To recommend further measures necessary for speedy recovery, if rescheduling processes implemented are ineffective in meeting set goals

Identify, using professional external expertise, key financial sector business entities “at risk” of insolvency and to devise appropriate recovery action plans (eg. Recapitalisation, Restructure and Turnaround Strategy, Management Restructure) and recommend action against failing key financial entities (eg. wind up and if appropriate take legal action against any wrong doing by the owners and director’s )

Short to Medium Term
Strategies to ensure sustainable, affordable and easy access to credit for prioritized sectors and enterprise segments, including small and medium businesses and pro poor growth oriented micro credit

The urgent need for market regulators to be independent, act collectively with intellectual integrity and have the required knowledge, skills and attitudes

Ensure the governance and regulatory frameworks are strengthened to reduce the chances of re-occurrence of similar risks in the future.

Reform of legislative and regulatory frameworks to enable effective regulation of all participants in the financial market, enforcing transparency, good governance and appropriate risk management (e.g. amendments to disclosure standards, accounting and auditing standards and recommendations to enhance the public interest related of accounting and auditing standards monitoring)

The need for all financial sector Regulators to work collaboratively and in close coordination with key professional market participants (Auditors, Financial Analysts, Rating Agencies, Stock Exchanges)

Enforcement of the requirement that only ‘fit and proper persons’ are permitted on the Boards and Management of financial institutions

The cost effectiveness and feasibility of a compulsory deposit insurance scheme