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Govt holds emergency meeting as economy faces imminent collapse
By A Special Correspondent

The Sri Lankan Government held an emergency meeting as the economy faced imminent collapse. The emergency summit was convened by President Rarajapakse on Monday December 29th evening as the Lankan Rupee plunged to an all time low and the share plummeted.

With key industries on the verge of collapse and private banks saddled with bad debt gasping for survival even as deposit withdrawals sky rocketed and loan repayments and credit card debt remained unsettled by cash strapped customers, the situation was threatening to destabilise the country s entire financial framework.

On Monday Sri Lanka s rupee fell to an all-time low surpassing its life low of 113.45/65 hit on September 19, 2007 and shares hit a four-year closing low on negative economic outlook.

The Colombo All-Share Index (CSE) fell 9.72 points to 1496.38, its lowest close since December 29, 2004. The market it is reported has fallen 41.1 percent so far this year due to poor earnings, high borrowing costs, and the global recession.

Analysts pointed out that investor sentiment is dismally negative even as top companies like John Keells and LIOC s shares plummeted this week.

Commercial Bank shares also fell drastically after Fitch Ratings said Commercial Bank and People s Bank which were engaged in the controversial hedging deals were exposed to counterparty defaulting risk.

Against this backdrop President Rajapakse convened the emergency cabinet meeting to discuss among other things the acute financial crisis which set to overpower the government and prevent imminent collapse of the economy.

After deliberations the Government on Tuesday December 30th offered Rs.16 billion stimulative economic package in the form of a mini budget to benefit the entire country in 2009.



Media and Information Minister Anura Priyadarshana Yapa along with the key Ministers in the Government briefed the media about this stimulative package after the special Cabinet meeting convened by the President on December 29th at 6.30 p.m in which the mini budget was unanimously endorsed after it was presented to the Cabinet by the President.

The objective of this package was to strengthen and stimulate the economy in the face of a global economic crisis situation.

The President has offered this stimulative package considering the economic sector without considering each sector individually , the Minister added.

He also said while providing a relief package for the consumers, agriculture, service and industrial sector the Cabinet also unanimously decided to reduce the Government expenditure five per cent each from the state institutions and Members of Parliament, 10 per cent from the Cabinet of Ministers 15 per cent from the allocations for the President and the Prime Minister and 50 per cent from the allowance given for the Minister to rent houses.

The reduction in the Government expenditure will cost Rs. three billion, the Minister added.

The main objective of this stimulative package is to ensure that the economy will perform at six per cent growth rate in the face of current tendencies in the global economy , Enterprise Development and Investment Promotions Minister Dr. Sarath Amunugama said.

This is a proactive approach to ensure that the stipulated growth targets in the 2009 budget are achieved in 2009.

If not for these measures we would not be able to achieve these set targets in 2009 and it is part of the continuously evolving process of the economy in the face of downward tendencies in the global economy , Dr. Amunugama added.

He said the relief package given for the services sector and the industrial sector will ensure that those sectors will perform with the same rate as in 2008 without disruption in their services and reduction in their employment.

The inflation rate has shown a drastic reduction this year with a recorded reduction from 30 per cent during mid this year to 13 per cent in December, Minister Amunugama pointed out.

Amidst providing all these reliefs the Government intends to maintain the 6.5 per cent budget deficit which is in a declining trend, Minister Amunugama added.

The overall impact of this relief package will benefit the consumers with the drastic reduction in the gas prices. Laugfs Gas reduced by Rs.276 and Shell gas by Rs.166 with immediate effect from mid night yesterday.

The fuel prices will also be reduced with Rs. 10 reduction in Kerosene, diesel and industrial oils and Rs.2 reduction in the petrol prices, Trade, Commerce and Consumer Affairs Minister Bandula Gunawardana said.

The petrol prices will be reduced by Rs.20 for three wheelers with a maximum of 75 liters per month and four litres a day.

A coupon system will be introduced to provide this relief for the three wheeler operators.

According to Minister Bandula Gunawadana the overall impact of the reduction of fuel prices will benefit consumers as it could reduce bus fares by 4 per cent.

The tea plantation sector will also greatly benefit from this relief package as Government decided to provide 50 Kg bag of mixed fertilizer at the rate of Rs.1,000 a bag and to maintain Rs.45 price for one kilo of tea leaves with the intervention of the Tea Board.

The Government intends to cover the cost of this fertiliser subsidy after imposing 2 per cent cess on export tea once the price of tea exceeds Rs.300. Further the Government will also cut off the loans given for the tea factory modernisation for 2009.

The rubber industry also got a stimulus as Government decided to maintain the rubber price at Rs.150 rate.

Export Development and International Trade Minister Prof. G.L. Peiris said the Government has offered this stimulative economic package as an additional strength to the industrial sector to perform in the same breath whilst addressing the global economic issues.

The reduction in the fuel surcharge from the tourism and industrial sectors and the excemption of economic service charge from the export of rubber and tea will greatly benefit the tourism and industrial sector , the Minister added.

The business sector will also benefit from the decision to reduce the VAT refunding period to maximum of six months in the proposals submitted by the President to the Cabinet.

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