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.
Former Government Agent, Matara
And Commonwealth Fund Advisor to the Ministry of Labour and Manpower Bangladesh
17 th April 2016