Export proceeds and foreign exchange leakage - Part 4

Nihal Sri Amerasekera
Former Chairman PERC

Continued from yesterday

It would be noted from the foregoing, that Rs. 41,335 mn. (i.e. today equivalent to US Dollars 364 Mn.) alone had been realised on the sale of Puttalam Cement, Colombo Gas, Prima, NDB, Orient Lanka, SLT, Air Lanka and CPC (whereas that too, against US Dollars 75 mn. reported for CPC only US Dollars 40 mn. had been brought in)

Had the exports proceeds ‘repatriation’ and export proceeds ‘surrender’ requirements been in force in the country since 1993, without such requirements having been questionably abolished by the Gazetted Orders of 1993 and 1994, would not the foreign exchange reserves have been more than the present levels, the foreign borrowings levels much lower, and the foreign exchange rates, for instance, US $ rate perhaps below Rs. 100/-, perhaps below Rs. 80/-, and the economy in a much better position; without having been compelled to desperately sell ‘public assets’ to raise foreign exchange, and desperately raise loans in foreign exchange on conditions imposed by lending agencies, and now in ‘foreign commercial bonds’ in an adhoc manner?

If the countries in South Asia / South-East Asia enforce strict ‘repatriation’ and documentation regimes in respect of export proceeds, how could Sri Lanka, which desperately seeks foreign exchange ‘earnings’, ‘investments’ and ‘loans’, stand out alone not doing so, whilst at the same time, time and again, out of compulsion, having had to dispose of valuable public assets for the purpose of raising urgently required foreign exchange? On the contrary, ought not the priority have been, first the enforcement of export proceeds ‘repatriation’ requirement and exports proceeds ‘surrender’ requirement?

Would not such ‘leakage’ of foreign exchange via exports have had a ‘cognisable impact cumulatively’ since 1993, on the foreign exchange reserves of the country and the foreign exchange rates, directly adversely impacting upon the ‘cost of living’ ? Could the country, given its economic realities, have complacently afforded such ‘leakage’ ? What was the ‘rationale’ and ‘logic’?

On the contrary, had the export proceeds ‘repatriation’ and export proceeds ‘surrender’ requirements been continued to be in force in Sri Lanka since 1993, with all exports required to be channelled through the banking system, then what would have been the current foreign exchange position, vis-…-vis, the foreign exchange reserves, foreign loans, and the foreign exchange rates, in the country today?

Leakages antithetic to the rule of law

What is the pragmatic purpose of the BOI having signed agreements, granting concessions and approvals, in the belief that there would be direct foreign investments, when in actual fact, if such approvals only result in a ‘net out-flow’ and ‘drainage’ of valuable foreign exchange, by the ‘non-repatriation’ of export proceeds?

Had not the investors signed agreements with the BOI, based upon representations made, vis-…-vis, their investments and exports ? Surely, BOI agreements cannot merely contractually obligate the Government, on one hand, without the reciprocal contractual obligations on the other hand, on the part of the investors to perform, as they had held out in their application and documentation, in seeking BOI ‘approvals’ and ‘concessions’ from the Government!

Ought not therefore, the achievement of the objective of ‘foreign investment inflows’, through BOI investments, and consequent export earnings, necessarily be monitored, verified and reported publicly?

Not only should this be applicable to BOI approved exporters, but also to all exporters, since it is a prohibition to ‘export capital’, without the express sanction of the Controller of Exchange.

International conventions and treaties, such as those in relation to corruption, drug peddling, money laundering, terrorism, etc., mandate the ‘tracking’ of the movement of flow of foreign funds, and for appropriate actions to be taken by the Government, where there is ‘flouting’ of such conventions and treaties.

In the ‘absence of the proper monitoring’ of export proceeds, with the attendant ‘leakages’, how could the obligations under such conventions and treaties have been or be conformed to?

With the enactment of Financial Transactions Reporting Act No. 6 of 2007, Prevention of Money Laundering Act No. 5 of 2006, and the convention on the Suppression of Terrorist Financing Act No. 25 of 2005, make such international obligations statutorily mandated to be applicable to transactions in Sri Lanka.

Export or import of goods, without ‘tracking’ the monetary payment therefor, would indeed be a problem, in the effective enforcement of the provisions of these contemporary statutes, for the due achievement of the objectives such statutes had been enacted for!

One is aware of the ‘stringent’ manner in which the Controller of Exchange ‘monitors’ the accountability of and the repatriation of the profits of Sri Lankan companies, permitted by him to function abroad, and also how stringently foreign ‘outward remittances’ are monitored, to ensure that there is no ‘repatriation of capital’.

With such ‘leakage’ of export proceeds, have exporters been granted ‘freedom and licence’ to build-up empires and wealth abroad, at the cost of the national economy and the impoverishment of the people of the country?

How can it be justified to have negligently or otherwise allowed a ‘privileged few’, the opportunity of building empires and accumulating wealth abroad, ‘stashing away’ foreign exchange, at the cost of the national economy, to the detriment of the interest of the poor people of the country, in such questionable manner ?

‘Privileges and benefits’, without adherence to the Rule of Law cannot be arbitrarily conferred on a ‘privileged few’, to the loss and detriment of the interest of the broader spectrum of the impoverished people of the country, further eroding their legitimate right to a better quality of life, and the consequent ‘unbearable rise in the cost of living’.

The cogent question arises, as to whether it was to ‘regularise’ such empire building and the accumulation of wealth abroad, at the cost of the national economy, that the perverse ‘all encompassing Tax Amnesty’ was sought to be granted under the ‘guise’ of the Inland Revenue (Special Provisions) Act No. 10 of 2003, including also for assets and cash ‘surreptitiously’ accumulated abroad ?

The said perverse Act was determined by the Supreme Court as ‘antithetic to the rule of law’, and ‘to have defrauded public revenue causing extensive loss to the State’, and was consequently ‘repealed’ by the Inland Revenue (Regulation of Amnesty) Act No. 10 of 2004, due to the public ‘hue and cry’!

On such premise, that the Supreme Court had determined the said repealed ‘Amnesty’, as a fraud perpetrated on public revenue, no protection, right or entitlement, or any legitimate expectancy, whatsoever, flows from such ‘Amnesty’, to whomsoever.

Thereafter, with no ‘Amnesty’ being afforded to ‘hide’ assets and cash, surreptitiously accumulated abroad, the Controller of Exchange in terms of Section 39(5) of the Exchange Control Act, directed the then Commissioner General, Inland Revenue to forward the particulars of those, who had declared assets and cash, surreptitiously accumulated abroad.

Questionably, due to ‘unknown pressures and influences’, then Commissioner General, Inland Revenue, failed and neglected to forward the same, disregarding reminders, in blatant violation of the provisions of the Exchange Control Act, thereby committing a punishable offence in terms of Section 51 of the Exchange Control Act.

Recently the Central Bank carried out a ‘hue and cry’, with much publicity and ‘full page advertisements’ and educational programmes, on alleged ‘pyramid’ scams, even enacting special statutory provisions therefor; and also, vis-a-vis, the abuse of credit cards to remit over US $ 3000/-, and the monitoring by the Controller of Exchange of credit card payments over US $ 3000/-. Such payments ‘are deemed to be export of capital’, unless proven that goods have been imported to such value.

As per media reports attributed to Central Bank sources, the total ‘Credit Card issue’ was reckoned to be in the region of a mere US $ 30 Mn., which ought be compared with the estimated ‘leakage of export proceeds’ in the region of US $ 6,718 Mn., to US $ 13,436 Mn. during the years 1993 to 2006.

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’ and such ‘puerile’ foreign exchange mismanagement!

Incredibly, the question arises, as to why there is no such ‘similar reaction’ by the Central Bank, to such a much ‘larger issue’ of ‘national economic’ importance ? Is it because, politicians and a privileged few, craved to surreptitiously ‘build empires’ and ‘accumulate wealth’ abroad, at public cost, with ‘miscreant’ exporters ‘lobbying’ to prevent the enforcement of the ‘Rule of Law’?

Ironically, the Questionnaires to exporters sent by the Controller of Exchange, to report on the repatriation of export proceeds, was merely ‘voluntary’, with no compulsion, whatsoever, imposed on the exporters, ‘to account for the repatriation of export proceeds’, and with ‘admitted’ violations by the exporters of the Exchange Control Act, brazenly ‘ignored’ by the Controller of Exchange!

On the other hand, notifications by the Controller of Exchange on Credit Card payments, calling for explanations from the ‘Credit Card holders’ had to be ‘compulsorily’ replied, if not, resulting in action in terms of the Exchange Control Act. Why was there such blatant ‘duplicity’?

If repatriation is required immediately in respect of all exports over 180 days, then would not there be a cognisable ‘inflow of foreign exchange’, immediately impacting on the depreciating Sri Lanka Rupee against foreign currencies and the country’s foreign reserves, thereby not necessitating the urgent borrowings in ‘foreign commercial bonds’?

Had there been a ‘systematic enforcement’ of export proceeds ‘repatriation’ and export proceeds ‘surrender’ requirement permitted to be continued since 1993, would not the country’s foreign exchange reserves position have been much better and stronger, and the exchange rates much lower, and the ‘cost of living’ not escalated to ‘unbearable levels’, as it is today?

The need to rectify the ‘deplorable’ and ‘perverse’ situation created by the questionable Gazetted Orders of 1993 and 1994 is of urgent and paramount importance.

The Controller of Exchange would then be free from carrying out a tedious, meaningless and non-credible exercise of such voluntary ‘survey’ of export proceeds repatriation; and focus only on those, who do not adhere to the Rule of Law or transgress the law, as is the norm in other civilised regimes, who practice ‘good governance’, and not merely pontificate ! Can Sri Lanka afford not to do so, at this crucial juncture of ‘perilous’ economic crisis, without ‘pragmatic management’?

Continued tomorrow