Will we ever learn?
Posted on March 27th, 2017

by Garvin Karunaratne, Ph.D. Centre for Global Poverty Alleviation, London

I am reproducing a paper written and published one and a half decades ago which shows that we have never learned from our.  mistakes.  I highlight the fact that even at this late hour when our economy is in tatters, our leaders will concentrate on building up our economy, learning from our past mistakes.

Sovereignty goes out of the window

by Garvin Karunaratne, Ph.D.
Centre for Global Poverty Alleviation, London

September 11, 2001 has made a large difference in the American people. Many are the vehicles that carry the American flag. The slogan: Proud to be an American. is everywhere. Patriotic banners are all over the country. Speak to an American- most of them are charged with patriotism. The national anthem and the national flag are the emblems of sovereignty of any country.

I can remember one of Sri Lanka’s ambassadors mentioning to me years ago, of a function he had attended where the American Ambassador was due to unfurl the American flag. The cord had broken and the flag had been taken over by the wind. The Ambassador had taken to his heels, darting over chairs, pushing away people in the august gathering chasing behind the flag. He had leaped into the air and grabbed the American flag as it fell. That was the veneration that the American Ambassador showed to the national flag.

I can recall the numerous occasions when I, as Additional Government Agent at Kegalla had stood to attention aside .Mr Dudley Senanayake, the Prime Minister, when our national flag was unfolded and when our national anthem was sung. In our days we did not have a national flag hoisted on our tables, but to a man we officers were charged with patriotism to serve Mother Lanka. In the Eighties, when I visited my colleagues in their offices, I noticed a national flag on every staff officer’s table.

That is history now in Sri Lanka. The newspapers have recently revealed that we have compromised both the national flag as well as the national anthem at international functions. Is it not sad that that our sovereignty has gone through the window.

History

Tissa Devendra has recently brought to our notice that the teaching of history has been stopped in our schools from the Seventies. Is it not surprising to have people who do not know their own history. Take the USA, anyone who wants to become a US citizen has to learn the 200 years of US history. It is essential that history, with an emphasis on the 2,500 years of Sri Lankan history should be compulsory in schools. Moreover at the University level every student should have to follow and pass a course on Sri Lankan history.

Our economic sovereignty has also already been sold to the World Bank and the IMF. Our economy is being run by them since 1977 when Sri Lanka embraced freemarket economics ,the cornerstone of the Structural Adjustment Programme. In 1977 Sri Lanka was indebted only to the extent of $ 750 million. By the time the United National Party lost in the 1994 polls, after playing poodle to the World Bank’s freemarket economics for a period of 17 years, our indebtedness increased to $ 9405 million. We accepted loans from the World Bank and foreign sources to run our economy. The advice these two ‘development’institutions provided in the Structural Adjustment Programme was simply to get money on loans and to liberalize the economy- to allow foreign exchange to anyone, import anything, deregulate, offer tax holidays and provide free infrastructure to foreigners for investment, charge taxes from local private erntrepreneurs, jack up interest rates (till they become too high for local entrepreneurs to engage in business and compete with foreign companies that can get interest at very low rates), and when the tax base of income the country has is automatically eroded due to following these negative policies, then sell the paying assets (privatization) to meet the budget deficit.

Naturally in this process, there is no money- both local as well as foreign to meet the expenses and the country ends up being overly indebted and bankrupt. The PA Government of 1995 too was compelled to follow the Structural Adjustment Programme, because it inherited a foreign indebtedness, which meant that the country had to bow down to the dictates of the World Bank and the IMF. (More details of the Structural Adjustment plunder can be found in my book “Microenterprise Development‰€| The Way Out of the World Bank and IMF Stranglehold’, Sarasavi, 1997)

On foreign indebtedness it is important to realize that the foreign indebtedness increases with devaluation, because the indebtedness is calculated in foreign currency and more and more rupees have to be found to meet the commitment because the rupee is being constantly devalued.

Selling Assets

From 1977 Sri Lanka sold its assets one by one. We privatized our state assets- sold them to foreigners giving them tax free regimes to attract them to bring in foreign exchange and ‘Ã-nvest’. We called it investment and were made to think that these investors would develop our assets and leave us a share. In actuality the meagre investment that came in was meant to create wealth that they took away.

Take Prima, the food milling giant that calls the shots in our food security. At first, Prima was accorded the right to mill all our wheat requirements that we bought and handed over to them. They were paid for it and also got all the wheat bran. When the contract ended during the PA Regime, the Government gave them the sole right to import the wheat as well as to distribute it within the entire country- all this for a one off payment which was fed to the budget deficit. The profits created ended with Singaporean shareholders. Recently there were shortages of flour because Prima is alleged to have sold flour to the Maldives and failed to maintain reserve stocks in Sri Lanka. When I was in charge of Districts, the task of maintaining stocks was in the sole charge of a gazetted officer- the Assistant Food Controler, who would have been decapitated mercilessly, if there was a shortage. I too would have been decapitated for not supervising his duties.

Milling flour is not a difficult process. A few of us in the Agrarian Services Department acquired a specialism in paddy milling. The private sector in Sri Lanka to a man contributed by establishing rice mills and milling our paddy within two to three years. Then the entire profit remained in Sri Lanka and the millers paid income tax. I can myself vouch for the fact that rice of high quality was milled by them and that they made good profits. Today instead of putting the Sri Lankan private sector to the milling of wheat into flour we are currently getting some Middle East entrepreneurs- also on a tax holiday to establish a massive flour mill purely because we need some dollars to fund the budget defict to meet our endless luxury imports and luxury expenses for the elite.

Privatization

What has the privatization of assets achieved for Sri Lanka? It has eroded our incomes because we privatized paying assets. Recently the Insurance Corporation which earned as profit a billion rupees last year was privatized to find funds for the budget deficit. Go back and the last two decades is full of many such assets that were given away. Now the Ministry of Finance is crying out aloud that it has no income to meet the expenses. Who is responsible? The World Bank and the IMF in the first place and secondly our politicians who failed to understand that by selling our paying assets, we would come to a situation that our revenues would reduce.

Privatization has enabled our economic assets to pass onto the hands of foreigners- Telecommunications in the hands of foreign multinationals- Nippon, Bell etc, Flour to Prima from Singapore. What happened to the National Development Bank- I can recall how President Jayawardena praised it to the sky telling of how the NDB will create development. This asset was sacrificed. When essential services are privatized it is our sovereignty that is sold away. Kelani Tyres was an emblem of our economic sovereignty. The Government sold it to a local entrepreneur who in turn sold it to Ceat, an Indian multinational. When in the UK., the Rootes Group (that made the famous Hillman, Humber Hawk cars) was sold off to the Peugeot Company , it was thought that the Peugeot technology will develop the Hillman cars. Today the Hillman, Humber are no more and the Peugot has reigned supreme. What happened when we sold off Air Lanka? The profits ended in the Emirates and they made decisions that were not in our interests like closing the AirLanka sales offices in European countries, which was a blow to our tourist industry.

The only instance I know of where privatization has been used to develop the economy on a definite basis is from Myanmar. The only hotel at Chaitiyo, a prime place of veneration to tourists has been privatized to a Myanmar citizen for an annual payment, on the basis that he can develop the trade for ten years. At the end of this period it is again privatized to the highest bidder. The profits stay within Myanmar. Comparatively what happened to graphite in Sri lanka?. Bogala Graphite, a family business was at first, nationalized. Then with the privatization craze it ended in the arms of a German multinational. Sri Lanka that can boast of having the best graphite in the world can continue to buy all its pencils from as far as Japan and Europe. Even the State of California lost its sovereignty over electricity and was compelled to re-purchase the power distribution from the companies that were found to have been unnecessarily jacking up the prices to the consumer. Sri Lanka knows of Shell and gas prices- now it is Rs 560 a jar that two years ago was around half that price.

What many of our specialists do not realize is that privatization is the method by which our assets are offered for plunder by foreign multinationals.

Take the Bank of Ceylon and the People’s Bank. They have alone played a silent role in the development of the country. The People’s Bank took banking to the common man. Compare their charges with the foreign banks and they are easily the cheapest. Of course they are saddled with loans due to political meddling. Why wont the Government get hold of the rogue officials of the banks that authorized the dud loans? They can and should be held responsible.

These top officials should not have taken orders from the politicians. Once I had to record the statement of former Prime Minister Dr W. Dahanayake because an Assistant Director who had authorized foreign exchange to a large industrialist from funds earmarked for small industrialists said that it was given on the orders of Dr Dahanayake, the then Minister. The Assistant Director, a senior officer with over 30 years service was dismissed.

Many do not understand the implications of privatizing the national banks. These two banks alone have been the bulwark for the foreign value of our Rupee. The foreign banks have been hoarding the foreign exchange that comes into their grasp when remittances come in foreign money and they have after the free float used that money to bid the dollar upwards, as happened in January 2001, when a large payment had to be made by a State Bank for oil purchases. The foreign funds in both national banks was insufficient and the State Bank had to purchase foreign currency from the foreign banks. Then these foreign banks had increased their bid on the dollars they held, which sent the dollar from Rs 85 to over Rs. 100 and the pound to over Rs. 150. Before the free float the Central Bank decided the buying and selling rates but after the free float the banks are in sole charge.

The Central Bank did not have the nerve to question the foreign banks when they manipulated the value of our Rupee and only decided that thenceforth when a large bill has to be paid in foreign exchange they would do forward hedging, but they have now suspended Pramuka Bank from banking functions for a far smaller irregularity. If our Central Bank has ceded its right to handle the foreign exchange that comes into the country why do we need a Central Bank? What is banking or finance other than handling our foreign exchange, the prime factor in any economy. Will our Central Bank ever regain its sovereignty?

The World Bank and the IMF want the State Banks out of the scene because then the sky will be the limit for devaluation. Let us not forget that devaluation is the chief method by which the prices of our imports are automatically discounted, resulting in increased profits for foreign multinationals and even enabling developed countries to reduce their inflation. Western developed countries have achieved a no-inflation economy by imposing devaluation on the Third World.

Today the Sri Lankan economy is in severe straits. Recently it was said that we do not have the money in revenues to meet the commitments- that of paying our debts and of funding the salaries of the public sector. Our revenues have been dwindling because we privatized our paying assets and granted tax havens to foreigners and to influential locals and also because we neglected our production. Today the Trade Minister is trying to import coconuts. The subsidies for agricultural produce have today been cut to the bone. In the case of paddy and coconut, both are not profitable. In coconut the only method that people have found is to reap the harvest. If they apply fertilizer they incurr a loss. Therefore there is no plan to maximize production. I had to travel from Kelaniya as far as Walpita to obtain good saplings. The closer depots never had stocks. All they had was heads of damsels drinking tea, reading newspapers and chatting endless. Norman Gunatileke showed us the way to plant potatoes but four decades later we are yet importing potatoes. I myself got a bumper crop in 1965 when I worked in Nuwara Eliya. Paddy farming is no longer profitable as the inputs are well beyond the reach of the farmer and labour costs are high. In all cases the Government must prepare a cost of production, with a reasonable amount for the farmer’s labour and provide subsidies. The Ministry of Agriculture is silent on this. The current developments in agriculture tell me that we are moving towards a famine.

Our 2001 Budget was easily a IMF budget hitting hard at the poor, and enabling the rich and foreigners. to benefit from tax reductions. The 2002 Budget has continued beating the poor and helping the rich. The rich have found their taxation reduced from 35% to 30%. The budget hopes that foreign investors and the rich in Sri Lanka will spur production. Instead what we need is a budget that will enlist the active support of everyone- the farmer, the small industrialist too for national development. They will be better partners in development than the foreigners.

Who is responsible for all this? In the Fifties and the Sixties the responsibility could be placed firmly on the administrators. I am aware that then the politicians called the administrators and questioned them as to what had to be done to bring about development. Then the administrators were accepted as specialists. In the Seventies began the system where the administrators were effectively brought under the politicians and those who could not obey had to leave. This is due to the Westminister political system that was foisted on Third World countries, which meant the creation of a cadre of politicians who not only passed legislation but also had executive powers in administering the countries. This cadre of politicians were concerned about their own welfare and perks as opposed to serving the people. They passed legislation that they would be entitled to 90% of their salary as pension with five years’ service, while an administrator had to work for 30 years to earn around 50% of their salary as pension.

Today the perks include an Indian safari jeep at discounted prices. It is also alleged that this cadre of politicians can be bought over by a different political party and the price of betrayal in the 2001 defection is given as Rs. 30 million a head.(DailyNews, Editorial, Oct12,2001)Today a small country like Sri Lanka has to bear the cost of 63 Ministries, purely to keep the leading members of parliament within the Government in power. Currently the Government proposes to increase the number to 73. In my days, with the division of governance to around 24 ministries, it was difficult to attend to development work. Now with 73 Ministries we have come to a situation where no development work can ever be done. The safari jeep offer is only one of the perks that are offered to keep this pack happy within the fold.. The promises held to the people at the general election to reduce the cost of living of the people is all forgotten. At the elections the motto was to serve the people. Once elected the motto changes to one of self interest

The World Bank and the IMF collude in this by their Structural Adjustment Programme which means that the people of the country can be suppressed by reduction of subsidies and welfare budgets. All the provisions of the SAP aim at providing riches to the rich and the cadre of politicians are within the rich category. The plundering of assets by the multinationals is possible because this cadre of politicians pass legislation approving it.

It is sad that politics has come to this situation in almost every Third World country. Every country is caught in a catch 22 situation. One corrupt and self seeking government is overturned only to be succeeded by another government that comprises self seeking politicians that eventually become corrupt. There are bright stars- the Kadiragamas in all political parties, but they are too few in number. It is no surprise that one-party systems and military governments emerge. To be fair by politicians in Sri Lanka, I can vouch for the fact that the politicians at least till 1973, the year I left the Administrative Service were not corrupt. However some powerful politicians wanted their stooges exempt from disciplinary action and any administrator that did not comply was moved out. The fact that they were not corrupt then indicates that there is room to uproot corruption.

Since the early Seventies two major changes took place. In the early Seventies a member of parliament could easily afford to live with one’s salary. After 1977 the increases in the cost of living meant that their salaries could not meet their living expenses. This situation which applies to all public servants too, was caused by our following the IMF Structural Adjustment Programme which meant that we gave up local production and self sufficiency as a policy and instead freed imports, which caused the price levels of goods to be equal to those of Developed countries, while the salaries were stagnant. It was a situation of Third World salaries and First World prices. Secondly a member of parliament did not then have to find millions to spend for a general election.

Gone are the days of the Sixties when former Premier Dahanayake strapped a loud hailer to his shoulder and addressed public meetings. Calculate the cost of running a general election today, the cost of purchasing and maintaining a safari jeep and the cost of living- this would be far more than the total emoluments that a member of parliament can draw. Thus corruption in some form is written into the legislature today. We are not alone in this. Former U.S. Vice President Al Gore is battling to find $ 3 million merely to step into the primaries. If democracy is to be saved we have to find a way to get politics out of money peddling. This cannot be done in the American heartland but I am certain that it can be done in SriLanka. The salaries that are drawn should enable the people to live with dignity without having to beg, borrow or steal.

I never studied politics as a subject at University, but I have been a keen observer of the political systems in the five countries where I have studied and lived. My dealings as well as skirmishes have been with Heads of States, Ministers as well as with fellow students and common people. All countries have their own defects.. In the USA in the 2000 presidential election the victory was secured by stopping the counting of votes. In the UK the Prime Minister has no mandate to play poodle to the USA, but does so. In Bangladesh and Pakistan the army interferes with the politicians when they become corrupt and become self seeking. In Bangladesh the army does not shoot at unarmed people when they clamour to get out of their poverty. In none of these has sovereignty been sacrificed like in Sri Lanka.

Many blame President Jayawardena for the division of powers in the current Constitution. Few realize that it is the separation of powers and the checks and balances in the Constitution that has saved our sovereignty so far.

Is it not time that those responsible for following retrogressive policies that are not in the national interest- that have led to our indebtedness are held to book. Currently there is a talk that the Oslo Aid may find as much as $ 3 billion. Who will have to pay the interest and the capital? Will it not be prudent to limit Aid only to productive activity, where the Aid will create production? Then the productivity created will enable the repayments. This could be a litmus test that should be insisted upon. Is it a correct policy to sell off a national asset for a one off payment which is to be spent to meet the budget deficit. What right has the IMF to dictate to any country to sell off its national assets. What right has the politicians who have been elected for a short term of six years to sell any national asset, an asset that can usher in development and riches for even a century or more. Thanks to the Supreme Court we yet have our asset of Eppawela phosphate with us. It is the prime duty of the politicians to develop these assets; they do not have the right to sell them.

If democracy is to succeed it is necessary to get the democratic process out of the clutches of self seeking politicians. In any country the intelligentia lies cornered within a number of categories- one category is the politicians. Equally important are the other categories- the academic faculty of educational institutions, the legal profession, the doctors, the engineers, the administrators, the journalists, and the private entrepreneurs. It is only a political system that will include the best brains- the luminaries in any country from all these categories that can function in the interests of the country. If a country is to prosper the best brains have to be brought into governance. May I suggest that a future constitution should have around 50% or less elected on an area basis and the rest filled from the other categories- any one well known can be nominated by trade unions, university faculty, associations of engineers, administrators, doctors, lawyers, journalists etc for election by national polling and their services harnessed for the supreme task of the governance of the country.

A better alternative is to limit the area based politicians to 25%. Then the vast majority- 75% nominated for a parliamentary election will be from among the employed or self employed so that this category will have a wealth of experience and need not have to work out policies in parliament in a self-seeking manner to continue in parliament. Such a system may also do away with the party system, which is divisive. The party system ensures that the people are divided into two warring groups.

There is war in parliament as well as in the country. Working on building tanks and anicuts, culverts, bridges, addressing meetings of cooperative societies, rural development societies , development councils has been my lot in the administrative service for 18 long years. In all this I have seen the people divided- the government finds the money and builds a culvert only to be broken overnight by the people of the opposition. In the June 1960 parliamentary election, while I handled the election count as Assistant Returning Officer, Dr N.M.Perera observing that the former Prime Minister Mr Senanayake’s pile of votes was low remarked that he hoped that somehow Mr Senanayake would win his way to parliament. They were thick friends., who agreed to disagree on policies- amicable to the extreme. In the meantime, their supporters were in confrontation, knifing themselves and I was called out as I happened to know some community leaders. It was a difficult task to bring about peace. The party system does not work even in the democratic heartland of the USA or the UK. The party system should be scrapped and the former Sri Lankan State Council system of enlisting every elected representative to handle development work would be a better ideal.

My opinions are aimed at fundamental changes , which are found necessary to bolster a failing and decrepit system of governance. It is interesting to note that in Bangladesh, all parliamentary elections are held under a caretaker government during election time, a move which is admirable. This move which in my days in Bangladesh-1982-1983 was deemed fanciful has come to stay today, which indicates that changes in the system of governance suggested by me may sometimes be considered.

It is my humble opinion that till such a system is achieved, democracy lies doomed.

Today Sri Lanka is fast disintegrating into a situation of warlords like Somalia, a country that has not had a central government for close upon a decade. Once Somalia was a country that had agricultural and dairy production. Self sufficiency was sacrificed for imports and Aid flowed from the USA and later from the Soviets at low interest. It was easier to import and eat than produce and the easy Aid helped the politicians to ruin the production base. With the downfall of the USSR, US Aid was reduced and then it was too late to resuscitate the lost production. Today Somalia is a lost country.

Let that not be the lot for Sri Lanka. Though today we have lost our economic sovereignty, we can regain it. However the path does not lie through fixing Free Trade Agreements and arranging Lines of Credit. Who has to pay for the Credit?. Our industrialists yet make the finest of soaps. The path lies in banning the import of soap and developing our soap further. We have an industrialist who in the Sixties made rice hullers and polishers to compete with the Japanese. We need not import any more paddy milling and polishing machinery. We did produce Crayons of high quality in Deniyaya- a highly successful Development Councils Project- till it was closed down in 1978.

We were almost self sufficient in paddy in the early Eighties, till the rot set in. Our Minister for Irrigation should be thanked for concentrating on dredging our tanks. We have to get down to increase production and the way to achieve this is through the activation of the small industries and the rural development agricultural base. We have to argue with the IMF and point out to them that there is not a single country in the entire world that has succeeded under their Structural Adjustment Programme. Their Programme has to be changed. The answer does not lie through privatisation, selling our paying assets to meet the budget deficit. Instead it lies in handling the foreign exchange and directing the foreign exchange to be spent to spur development, not to spur luxury living by the elite. We have to develop a system of governance that is conducive to development.

One Response to “Will we ever learn?”

  1. Christie Says:

    Dear Gavin our problem is the countries economy is in the hands of Indian Colonial Parasites. When you are in Colombo go for a walk and listen and look around.

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