Sugath Kulatunga

Media reports that the Sri Lanka Gem and Jewellery Association (SLGJA) has called for urgent policy reforms to accelerate growth and restore global competitiveness within the sector, aiming to once again establish Sri Lanka as ‘Ratnadeepa’ – the Island of Gems – the Jewel of Asia.

In this context it is relevant to reflect on how Sri Lanka lost its eminence as Ratnadeepa to Thailand.

At the very inception of the EDB it had selected the Gems and Jewellery sector to be given high priority in export development. The EDB resuscitated the Blue Diamonds Ltd giving a boost to the diamond cutting industry. Heat treating machines were imported to support the value addtion to geuda stones. A gem cutting center was established to improve the gem cutting technology. There were two critical problems that the gems and jewelry industry faced at the time.

One was the severe competition that the local industrialists had from Thai nationals who had established themselves strongly in the gem mining centers and buying up the uncut gems and specially geuda. These were then exported legally and more illegally to Thailand where uncut stones were cut and geudas burned and converted to sapphires. The Thais had the financial strength to buy up massive stocks of geuda and uncut gems. The local industrialist did not have the financial strength to stock the raw material. At a meeting where the Governor of the Central Bank was present the EDB explained this problem and proposed that the Central Bank should establish a special refinance scheme of Rs 500 million to meet this need. The Governor said that will increase the money supply in the country leading to inflation and other problems. In response the EDB offered to freeze that amount of funds which was held by the EDB in Bank deposits to prevent an increase in money supply. The Governor rejected the proposal. The outcome was that Sri Lanka lost the opportunity to become a gems and jewelry center, and our gems helped Thailand to become a premier center for gems and jewelry.

The second problem with our industry was the restrictions on gold import for manufacture of jewelry. When the problem was taken up with the Cabinet President JR h directed to undertake a study of the Gold Trade in a few East Asian countries. The.

The Hong Kong Chinese are reputed to be very conservative investors. They do not trust very much paper currency which have had many fluctuations in value. But gold is a solid investment, and the Chinese were willing to forgo the interest on Bank deposits, which was very small, and preferred to hold their investment in gold in the banks which were prepared to hold the gold on behalf of the investors. The investor had the right to get the gold back at any time. It was a win-win situation. It was the safest investment. Gold did not depreciate but appreciated against paper currencies. As proof of the gold deposit the investor was given a paper certificate and hence the gold in the Bank was called “Paper Gold”. The paper was also transferrable. Under this system gold was freely available in the country for the Jewellery industry.

It was also mentioned that it was encouraged by the government as paper gold mops up excess currency in the economy and reduces inflation. It was an efficient and transparent system.

The President JR had liked the idea of paper gold, but the Central Bank had objected to the idea on the grounds that gold is bullion and cannot be made a subject of any other agency.

EDB had from its inception been debating with the Central Bank to make import of gold free for the jewelry industry. Other than this irrelevant statutory restriction the Central Bank had an obnoxious objection which was not openly disclosed, that India will not like it as it will encourage smuggling of gold to India. EDB responded in jest that  if gold smuggling to India was done on a fair scale there would have been less terrorism in the North.

It was the short-sighted attitude of the Central Bank that deprived Sri Lanka from reestablishing again as ‘Ratnadeepa- the Island of Gems – the Jewel of Asia.”