Building Up our Economy: It can be done
Posted on April 17th, 2016

By Garvin Karunaratne, Ph.D.(Michigan State University)

The Sri Lankan Economy is in the doldrums. It has been in the doldrums for long- since 1977, when we  under the advice of the IMF agreed to run the country with borrowed funds, ceded the right to determine the value of our currency and liberalized the use of foreign exchange,  banned national planning and import control.

In 1977 we did not have a foreign debt. The foreign loan we had was only $ 750 million that too taken for project development where at the end of that project we will have a foreign exchange income.  Today somehow going on the path dictated by the IMF we have built up our foreign debt to $ 46 billion.

The problem has also been that our economics professors at the beginning ignored how we were running the economy.  Lately they express concern.

Dr. Anusha Cooray, professor of economics at  the Nottingham University Business School at Malaysia, “one of the leading academics in the field”(Daily Mirror ,11/4/20160 commends the growth rates but concludes on the IMF loan; “the IMF funding is conditional. The structural adjustment policies attached to these loans  may not necessarily benefit Sri Lanka.”

Economist RMBSenanayake has in a recent  issue of Sunday Island, rightly pointed out the serious situation our economy is in. -the stock market falling since September,  a decline of 17%- capital outflows from bond and stock markets- foreign purchases of shares in a free fall-. Mounting on this is the fact that the world economy is weak and developing countries are bracing for a slow down. He also quotes the UN Report, “World Economic Situation and Prospects 2016”,  which  predicts gloom and doom.  Ultimately he adds that these are the views of Professor Joseph Stiglitz, a noble laureate and once the Chief Economist of the World Bank who slaved for years furthering World Bank policies. The Fitch Rating Agency has also down graded Sri Lanka’s international sovereign rating. Many  economic experts including Noble Laureate Jeffery Sachs  furthered the Structural Adjustment Programme which really ruined the Third World countries. Sachs served years in countries like Bolivia, Poland  and Russia helping the countries to get more loans and thereby to get further into debt.. They would not be Noble Laureates unless they furthered the cause of the IMF..

However, in his latest book , “The Price of Civilization”,  Sachs states that  the Private Sector is not the engine of growth and that the State has to play the major role of directing development.

Economist Professor Sunimal Abeyratne has too stated that our economy is facing a serious situation- “sluggish export growth and absence of a stable foreign exchange earning mechanism are among the reasons for this plight.” He adds “if the Government fails to undertake economic reforms”. .(Island 31/3) He does not elaborate any more.   The Financial Times encapsulates the grim situation- a balance of payments deficit of $ 1.5 billion, export incomes amounting only to 55% of our imports and a total debt of $ 76.9 bn.  at the year end 2014 of which the foreign debt amounts  to $ 46.1 bn.

The IMF rescue is   the only solution and it is mooted that a loan of $ 5 billion is being sought.(26/3/16). What will happen is anyone’s concern. When President Jayawardena sought the solace of the IMF in 1977  the Rupee dropped in value over 100 % in three months- from Rs. 15.50 to Rs. 31.00 to the British pound(GBP). In recent months our Rupee has fallen  from Rs 131 to Rs 150 to the GBP. What has happened to Ghana, a follower of the IMF, which  once had a self sufficient and resilient economy tells us where we are heading for. Its Cedi which held a value of Cedi 1.04 to a GBP in 1965 is today valued at 51,000 Cedi to the GBP. Ghana is helpless and reduced to nothing. The depreciation of currency enables the Developed Countries to get our exports at discounted rates and also enables foreign investors to set up investments bringing in very little capital. We are the net loser.

All well said and done and today the once self sufficient and self sustaining economies of Third World Countries that were not having a foreign debt are all steeped in debt purely because they followed the policies of Free Trade and Liberalizing the Economy further, funding the luxurious spending with funds raised on loans.  It needs no MIT or Harvard professor to predict that funding luxury living-luxury imports, luxury cruises-travel, luxury foreign education all funded on loans borrowed at interest will one day boomerang.

The IMF ‘s  Structural Adjustment Programme which was  foised on our countries whenever we sought help- was based on the condition that we open our economies further and spend our foreign exchange, even when we could not meet the expenses with what we earned and meet the deficit with loans. That IMF  is the culprit and the cause for the build up of foreign debt. The IMF thus is directly responsible.

What beats me today is why our celebrated economists failed to utter a word as to where our ship was steering to..  Economist AvdeS Indraratna some time back opined that the remedy is to expand exports.  The likes of Joseph Stiglitz and Jeffery Sachs too do not tell how we can come out of the mess.

In living memory the only person who revived a failing economy is Mahatir Muhammed, the Prime Minister of Malaysia.  In my words:

“In 1997 the East Asian  Crisis caused the death of many economies in East Asia. Ma;aysia, Thailand, Indonesia, Korea succumbed…. All these countries had their currencies thrashed and their economies ruined..  The way ahead was first spearheaded by Prime Minister Mahatir Muhammed of Malasia. He declared war with the IMF by doing the exact opposite of the IMF advice. He did not go on bended knees to the IMF; instead  he effectively controlled the economy of his own country. He imposed strict controls  on the use of foreign exchange. He did not allow any foreign exchange to be spent on the import of unnecessary goods. He clamped severe restrictions on the use of foreign exchange. This even went to the extreme extent of stopping foreign exchange for Malaysians studying abroad. There was mayhem in student circles in the UK.  Some went back. Others were compelled to work and pay themselves.”(From Karunaratne: How the IMF Ruined Sri Lanka…, Godages)

Mahatir Muhammed rejuvenated Malaysia.  All other countries were helped  by the IMF with massive doses of finance- $ 17.2 billion to Thailand, $ 43 billion  to Indonesia, $ 58 billion to South Korea. These funds enabled the ailing economies to pay back their debts and to continue to open up their economies for further investment. All these countries, though they tidied over have built up their foreign debt.

The economy of Sri Lanka  is in the red and the Government had resorted to charge the Super Companies with a special tax of 25 % of their profit.  Now all companies are to be charged a tax of at least Rs 60,000. It is my opinion that the Private Sector which was supporting the economy since 1977 will also grind to a halt. The Public Sector  had its wings clipped in 1977.   In 1970 we concentrated on the public sector and shunned the private sector, imposing restrictions on ownership of estates. In 1977 we embraced the private sector.  Today both the public sector as well as the private sector will grind to a halt.

As an administrator who laboured valiantly to bring about development for over two decades, I may be able to offer ideas based on my experience.

Since 1977 we have not had a single programme to create employment by bringing about  production that will obviate imports and simultaneously alleviate poverty. The last such Programme we had was the Divisional Development Councils Programme of the Premier Sirimavo days- 1970. Under the direction of celebrated economist Professor HAdeS Gunasekera we created employment for some 32,000 youths. It was a major effort and I was one of its chief lieutenants in charge of a major District, Matara.

It is time for a major effort of that type to create employment to local people, enable them to create the production of items that we import and by that means to save forex that is today being spent on imports and also alleviate poverty.

Many authorities think that this cannot be done because we do not have the funds and  the expertise. It is my contention that we do not need extra  funds and we do hold the expertise. It is the political will that is required, the will to tell the IMF that we are proceeding with some import substitution pilot projects aimed at creating employment, and in that process  saving foreign exchange  that we spend on imports and get their agreement.

Today we train and equip the youth and entice them to proceed to Developed Countries. They get into some menial work  and send back some funds which we hail as foreign remittances.  There is poverty as proved by the fact that around half the population receive samurdhi benefits.  There is little effort to create employment. We provide skills training to thousands hoping they will go abroad and bring us money. Look at our Supermarkets and one will find many items made in Indonesia, India and other countries. Most of these items can be made locally. We did make all these items locally not long ago.

It is my experience as an administrative officer that we did make things on our own.  By the Seventies we were self sufficient in textiles. Many ladies in the upper strata wore handloom sarees. They would contact a handloomer and get sarees woven with matching colour and design and get a saree specially done.  The Hakmana Powerloom made suiting of exquisite quality and Matara  Sri Lankans that lived abroad whenever they came on holiday went hunting for Hakmana suiting.  This was run by The Divisional Revenue Officer as director of the powerloom cooperative. Most Districts had a few powerlooms which were run by the Government Agents and some of these were run for 24 hours a day. It was a grand programme directed by the Small Industries Department. We have the ability to get back to development tasks.

Do we require funds. No, we do not require any new funds as we already have a plethora of development programmes  for which we spend a great deal of money. What is required is changing these projects to become more contributive to our own economy. I can illustrate how this can be done from my own work as the Commonwealth Fund Advisor  to the Ministry of Labour and Manpower in Bangladesh. That was in 1982. The new Minister for Labour and Manpower, after the Military Coup ,   at a meeting challenged me as to what I could contribute for Bangladesh. I replied that the Ministry should have a self employment programme side by side with the skills training programmes they already had. They were providing skills training to 40,000 youths a year and the youths were graduated with pomp and pageantry and most of them remained in the ranks of the unemployed. I said that we can provide guidance to these youths in training to become self employed. I faced a major battle because the ILO had tried to establish a self employment programme in the earlier three years and it was a miserable failure. I won the day after  arguments that lasted over two hours till the Minister approved my suggestion and authorized me to design and establish a self employment programme. I was then stumped by the Secretary to the Treasury by stating that there will be no funds. I countered his move by stating that I needed no new funds but should be given the authority to re orient training programmes and to re train the staff and re deploy staff, which was granted.  I worked with Bangladeshi Administrators in very difficult circumstances and they were trained by me to continue the programme which I designed and established. By 2011 the Government of Bangaladesh reported to the FAO, that on that programme  self employment had been created to 2 million youths. Today it is an ongoing programme guiding 160,000 to be self employed annually, the largest and most successful programme of employment creation in the world.

If we only have the will we can create employment for thousands. This will be in making many things that are imported. For instance in making fruit juice and jam alone we can create employment for a few thousands and this can be done within a year at most because we have the mangoes, the pineapple, the melon and the avacadoes that are not marketed properly today. Today millions are spent on the import of fruit juice and jam. I was once for years as an Assistant Commissioner in the Marketing Department that ran a Cannery and the Cannery that we had could easily be compared with the Del Monte Cannery I saw processing pineapple in Hawaii. The IMF forced us to privatize that Cannery and since then we have not been able to be self sufficient in  jam and fruit juice. The small Scale machinery  to make juice etc will cost a fraction of the forex that we pay out  on imports in one year. .

I can also speak with experience in making other sophisticated items. It is easy to make implements like knives, mammoties and we did make them under the DDC Programme. Today knives and small implements made in many counties like India and even Mexico are seen in our Supermarkets.

We  also marched into making crayons equal in quality  to the Crayola Crayons. The scientist who unearthed the art of making crayons was no other than my Planning Officer, a raw graduate in Chemistry from the University of Colombo. I was the man who directed him and the lab where it was done was the science lab at Rahula College Matara which was commandeered after hours for some three months, when every evening after work Vetus Fernando aided by some of the science teachers and administrative officers did the myriad of experiments till we found the real recipe.

I decided that we establish a cooperative and Coop Crayon was born. The man who made crayons was the Member of Parliament for Deniyaya- Sumanapala Dahanayake in his capacity as the President of the Morawak Korale Cooperative Societies. Withln  two weeks he  got his youths making crayons day and night and in the third week the sales were opened by no less a person than T.B. Subasinghe the Minister of Industries.  We did work fast because I had no authority to establish any such industry and with the grace of Minister T.B.Subasinghe, the Minister for Industries my task was made regular. .  It was so great a success that it  ultimately became  the flagship of the DDC Programme. When the SLFP lost in the 1977 General Election Coop Crayon was at its height, with islandwide sales, employing hundreds and it  brought a great deal of prominence to the outgoing government. Something had to be done and the Jayawardena Government instructed a Deputy Director of Cooperatives, A.T.Ariyaratne to make an investigation to find fault with Sumanapala Dahanayake who was directing the industry.  Ariyaratne went to Deniyaya to find a factory that was at work making exquisite crayons and the accounts were found to be in order. Otherwise Sumanapala would perhaps been arrested and charged. Later unable to meet the onslaught of imports Coop Crayon died a natural death.

My blood boils today, four decades later whenever I spot Crayola Crayons on sale in Sri Lanka. In nostalgia I wonder about a glorious industry that created employment for hundreds and saved forex.

What is important to note is that my Planning Officer and other administrative officers- the Development Assistants etc were not paid for finding how to make crayons and to supervise the production. This was in addition to their normal duties. They broke rest for some three months from five in the evening to midnight when we were experimenting and at the initial production stage full three weeks- every minute on a 24 hour basis, supervising the quality as well as training the youths. The Science Teachers too were not paid.  Today we have in Sri Lanka an overpacked government staff that can readily do that task.

My story is perhaps complete. This story in the form of a definite plan for action can easily be drawn up and implemented within a few   weeks  if only  the authorities require.  We can do wonders if only the will is there . May the authorities give some thought to build up a programme that will create employment for our  people, and in that process alleviate poverty and also save foreign exchange. This unfortunately is not the IMF advise. They will  gladly give us the $ 5 billion we seek, which will go back to the Developed Countries, our creditors in some form or other, as repayment of capital and interest on loans, for imports etc.  The IMF  encourages luxury living for the rich and they require Salmon imports.   Our Supermarkets have salmon for sale, all imported on our foreign exchange to serve the palates of our rich. We have instead to build up our country, our industries and create incomes for our people. We have to control the foreign exchange that comes in as well as control imports and have a massive programme to make things ourselves.

No foreigners are coming here to develop our country. They come to invest, reap a fancy harvest and vanish with the spoils. We have to develop programs that will help our private sector to invest and then the riches remain in our country, We have been blessed with a climate where we can grow anything, other than wheat. Yet we have failed. We even import vegetables and fish, We import coffee while we have ideal climates to grow Coffee- the Kitulgala area. Now we have Nescafe everywhere. We have to look to countries like Vietnam where with a command  cum open economy, they shun Nescafe. They have their local coffee which is as good.  If my Planning Officer, a raw Chemistry graduate, did find how to make crayons equal to Crayola crayons, there is nothing we cannot make.

In my never ending visits to my Mother Country I have run into many administrators, Divisional Secretaries and  Grama Niladharis who are enthusiastic and eager to play their part if only programmes of development are available.  As I have shown we do have the funds and the ability. It is only the will that is required and I hope that will be forthcoming in the near future.

I beg to differ with IMF policies that since the Seventies has brought ruin to our economies. The IMF belongs to the people and has to look after them, though the Developed Countries call the shots. It is also in the interests of the IMF to create development and to allow Sri Lanka to prove that a different path to economic success can be found.

That to me is the way ahead.

Garvin Karunaratne

Former Government Agent, Matara

And Commonwealth Fund Advisor to the Ministry of Labour and Manpower Bangladesh

17 th April 2016

8 Responses to “Building Up our Economy: It can be done”

  1. Christie Says:

    Taking over the economy from the Indian colonial parasites and the Indian Empire; the only way.

  2. Dilrook Says:

    There are more complex economic issues at play today. Although import substitution is very good, local quality must be raised to that of competitors.

    The public sector must be drastically reduced. It costs taxpayers billions of dollars every year. Provincial councils must be removed as they add no value but costs billions.

    Food choices should be diversified. People cannot be told what to eat. If food choice is diversified, everyone will have food to eat. Imposing restrictions reduces food availability. Inland fish, beef and pork industries should be supported to increase production enormously. These are untapped industries with tremendous potential. Restrictions on cattle slaughter must be removed to allow farmers to make an earning the way they think fit and not the way some religions specify. This creates employment, increase meat and milk production, reduces dangerous levels of protein malnutrition and increases quality of life.

    Large economic resources in the north are tied only to Tamils and others are prevented from their exploitation. The country cannot develop with such restrictions. Catchment areas must be depopulated to preserve water and support useful agriculture. Importation of luxury good should be restricted by imposing prohibitively high taxes.

    However, Sri Lanka is not in a position to do any of these. They involve going against the tide and there is no leader capable of doing it.

  3. sena Says:

    What is happening is rather simple- educated (free of charge) are drawing big rupee salaries while all the dollar earning are by blue collar workers like housemaids in our subsistence economy. And these freely educated people want to lead a middle income country life style. So all the meager dollar earning are spent for their luxuries and education abroad. It is sad after the youth of these blue collar families sacrificed their kids (more than 26 thousand total) to rescue us from terrorism, the privileged educated class and the politicians act like nothing happen and exploit these poor people. It is already a bit too late to show some returns from our 70 year old investment in higher education

  4. SenaD Says:

    Dilrook,

    You said “It costs taxpayers billions of dollars every year. Provincial councils must be removed as they add no value but costs billions.”

    If the people were asked about it via a referendum, the answer would definitely be a “yes” to their abolition; but which politician would promise to give that referendum?

    The ex-president did have the opportunity to do so but didn’t do it.

    Having got the 18th amendment he could have introduced all the structural changes that were (and still are) needed including that and implemented the new electoral system that had been already agreed upon, because the PE would not have been due even by today.

    We need a benevolent leader who would have the courage and the willingness to do that and all the rest you have detailed for the benefit of the country.

    The current one seems to be only in office but some other person(s) seem(s) to be exercising power through him. In any case he does not seem to know what is going on according to his own admissions,

    Further you said “They involve going against the tide and there is no leader capable of doing it.”

    I think you should have said “capable and willing to do it”, because I believe the ex-president was capable but was not willing to do that essential change.

  5. Dham Says:

    I too hated Provincial Councils until last year.
    However I realised that those hooligons, rapists, thugs are attached to Pradeshiya Sabhas and even MCs and UCs.

    PCs are not the problem. Problem is the underlying Tamil Bogus Homeland and Wahabi Homeland ( to come soon). The root cause shall be removed and eradicated. It can be done without shedding a drop of blood and it could have been done by 2010. Completely selfish, cunning , greedy politicians wanted to keep the UNDERLYING HOMELAND going for their future prosperity, not matter of capability, ability or willingness.

    I believe PCs can be canged to larger Local Government bodies in areas away from main cities. We don’t need so many Pradeshiya Sabhas, Gam sabhas ,this Sabhas and that sabhas eating public money and playing ethnic war games , making divisions, terrorising people.

  6. Dilrook Says:

    That is correct SenaD. We saw that very clearly. Provincial Councillors were very grateful to Mahinda and stayed with him after he was defeated in January 2015. Most UPFA provincial councillors came for the Nugegoda Movement. Some commentators (I will not name them) hailed PCs as very good as they supported Mahinda (whatever happens to Sri Lanka).

    PC posts are very useful to keep unsatisfied MPs and ministers happy. Although they may not get their desired ministry, their kith and kin will get lucrative posts in PCs. For instance, Chamal Rajapaksa was the Speaker (not at all a lucrative post and he did a very good job) but his son was made the Chief Minister of Uva. DM Jayarathna was the PM, held a few ministries and his son was not made the Chief Minister. Jonston Fernando was made a minister and his relatives were denied PC benefits. They went to his rival Dayasiri. PCs are used to balance out lucrativeness of benefits to a large number of politicians.

    Dham, PCs are the problem. Sri Lanka functioned very well without them until 1988. They are not needed. Local Government bodies on the other hand are very useful. They are closest to people and do many low level services to their communities although larger ones must be revamped or taken over by the government for better services. MPs are elected by the district level; president nationally and LG bodies by LG level. PCs are once again elected by the district level! What for? Voters already have a say at the district level. Money is double handled and according to a strong supporter of PCs, 7% of PC expenditure is for administration, which is 11 billion rupees a year, every year. PC capital expenditure for PC administration purposes are in addition. Cars, other administrative vehicles, PC ministries (9 of them each per subject), buildings, etc. are needed. Additional costly effort is needed to keep PCs within limits. Instead of curing diarrhoea (13A), an unlimited supply of diapers (executive president, appeasements, governors, corrupt funding mechanisms, needless elections, Divi Neguma units, impeaching Shirani for correctly interpreting the constitution – particularly 13A provisions, etc.) are used foolishly.

    Given the economic crisis, we cannot afford these. Instead of fixing the leakage, the UNP regime borrows more and imposes more taxes. Another problem is policy differences between Sirisena (centre left) and UNP (centre right). It does not create balance. It creates a “stuck in the middle” situation. The economy has to pay for blunders of both. In 2015, Sirisena (despite his lethargy) made more sense than the UNP but in 2016, UNP (despite its blunders) makes more sense than Sirisena. One has to go.

    People, especially the youth, have no hope Sri Lanka will get out of this mess. They have given up on Sri Lanka. They are willing to do anything to leave the country, even immoral acts, which is a very sad situation. Within just 1 month, Switzerland had received 146 asylum applications from Sri Lankans very recently. Sri Lanka is fast becoming another ‘postal-bride’ destination as young women desperately trying to get out. Even marriage proposals reflect this urge.

    When the percentage of seniors rise, population growth rate reduces and the economy turns towards the services sector, youth leaving the country puts an enormous stress on those who remain! As per capita debt rises annually, those who remain will carry a heavier burden. Why should they? They are paying the debts of their ancestors and those who left Sri Lanka.

  7. Fran Diaz Says:

    The whole world seems to be in the same economic ‘predicament’.

    Globalisation of the Economy is partly the reason, plus growth of populations and their growing Aspirations as what is the good life – a good job, a home & family, vehicle, money sved up etc., with now over 8 BILLION human beings on Planet Earth.

    Who controls these events ?

    Will most people everywhere on Earth have to be satisfied with Basic Needs (Food, clothing, Shelter) mostly ?

    I propose that it is mostly a lack of of a sense of Security, and Hope for Growth (Inner & Outer), plus a breakdown in Morals & Ethics by leaders in all spheres including parents, that makes people restless and wanting to leave their places of birth, anywhere in the world.

    Comments welcome.

  8. Fran Diaz Says:

    A search for Inner Peace and harmoney with Nature (the Eastern Way), instead of the mostly OUTER SHOW as encouraged now through western habits (Colonised countries fall into this trap), may be the key here ….

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