By Garvin Karunaratne, former CAS

. The decision of the Hon President of Sri Lanka to concentrate on developing the economy of Sri Lanka is very timely and it is hoped that this will usher hope for the very large majority of people who are today eking a hand to mouth existence.

Our Hon. President has formed a National Economic Council. It is Good Luck for Sri Lanka.

When under IMF advice we abolished National Planning with the Structural Adjustment Programme of the IMF, the Government has actually been functioning as dictated by the IMF and the World Bank. The Government had to agree to all the conditions laid down to get loans. The conditions totally crippled the development of the country but no one dared to question the IMF and the World Bank because till then these two institutions had looked after the interests of the countries. Ronnie de Mel, our former finance Minister is well known to me. It will be difficult to find anyone as intelligent and as sharp but the IMF.  retained erudite professors- the likes of the  Sachs and Stiglitzs  with whom no one could argue and win. The net result was that following their advice Sri Lanka piled up a foreign debt.  Sri Lanka was in debt only to the extent of $ 750 million in 1978 and that too on project funding, not for consumption purposes.  When the use of foreign exchange was liberalized for imports and foreign jaunts the deficit was to be met with borrowed funds. The World Bank also gave a grace period of five or even ten years where no payment of interest or capital was required and this enticed the leaders to accept the loans as they may not be in office when the day comes to repay the loans. Little did the leaders know that the interest to be paid also was piled upon  the loan. The loans were used for spending for travel, for foreign studies, for unnecessary  imports and the expenses being met with loans piled up the foreign debt and now we have arrived at a situation where we have to take further loans purely to pay up the loan instalments and the interest and there is no end in sight.. This process enabled the manufacturing Developed Countries to sell their manufactured products to us. The donors also got back what they loaned with profits as the foreign exchange obtained was used to buy  from Developed Countries and also to spend there.

The foreign exchange of the country was also taken out of the control of the Government and allowed to free float with the exchange rate being decided by the forces of  supply and demand. The IMF created a demand by dictating that Sri Lanka should liberalize the use of foreign exchange. The value of the Rupee fell over a hundred percent at the end of 1977 when we started  following the IMF advice. The value of the Rupee fell again and again when there was a demand. Meanwhile the foreign banks also made the value of the Rupee fall. It is on record that on 25 th  January 2001, with the free float when the banks were authorized to handle the foreign exchange that they collected, the two Public Sector banks had to pay a large oil bill in foreign exchange and both the Bank of Ceylon and the Peoples Bank, the two public sector banks did not have that amount of foreign exchange. Then these two Banks went hat in hand to the private sector banks- all foreign banks who then increased their sale price from around Rs eighty five to Rs one hundred and six to the US dollar and the public sector banks had to buy at the higher rate. Even the legitimately collected foreign exchange of the country was devalued by the foreign banks to make money. Of course the foreign banks repatriate their profits. (Full details of this process by which Sri lanka was reduced to have a foreign debt is given in my Books: How the IMF Ruined Sri lanka..(Godages:2006) and How the IMF Sabotaged Third World Development (Godages:2017)

Countries like India and Bangladesh have Planning Commissions comprising erudite national minded personalities who decide what policies have to be followed in the national interest.. Having worked in Bangladesh in  the top echelons for two years I know them and they are not of the type that will follow the dictates of foreign countries and powerful NGO. The Commissions look into the functioning of the development programmes. Since  we started following the IMF dictates, what has happened is that we totally capitulated to the IMF and the World Bank and sad to say, even our Plans were written for us by them. We had to accept them if we wanted loans. We depended on them for loans and we caved in. That is what our plight is today.

When we handed over our country that did not have a foreign debt for IMF management we were easily ahead of countries like India, Bangladesh, but today both those countries are ahead of us.

Thus it is admirable  that our President has decided to attend to the task of National Economic Policy making.

Though we are an indebted country today and find it difficult to make ends meet and even resort to sell our valuable assets to survive, our country has not yet degenerated to the situation of countries like Ghana. We have the ability to bring the situation under control purely by avoiding luxury imports. Controlling our foreign exchange was the sole task of the Central Bank before 1977. We should accept  the IMF’s advice only when we feel it is contributory to our development. Careful handling of the foreign exchange we earn is crucial and we have to avoid grandiose schemes which do not pay back in foreign exchange earnings.

We have to understand the  basic fact that foreign investors only come in to use our resources, make money and take away profits. We have to trust our own people to invest and also develop our public sector activities to usher development.

The infrastructure that we had built up to bring about economic development like the Department for Development of Agricultural Marketing with its Programmes- the Guaranteed Price Scheme offering premium prices for essential items that we import, the Vegetable  and Fruit Purchasing Scheme which offered fair prices(above what the traders offer) for producers and also sold the produce at fair price shops in the cities, at prices below the prices of private traders, thereby controlling inflation should be brought back.

The current predicament of begging for funds is not necessary and  this paper is all about how it can be done. It is therefore of great importance that the Hon President  has decided to address the economy.

It is necessary that our Government wrests control of development from foreign multinationals and private companies- their directors and their salesmen and handle development ourselves. Many, even our erudite  economists fail to understand the basic fact that  the Government is not in control today. The erudity they have acquired by book learning in economics, make them fail to understand the new economics of Milton Friedman  of the Chicago School of Economics, who designed the economics of the Structural Adjustment Programme of the IMF which was full of conditions meant to decimate all development so far achieved in the Third World countries. We have been  made to follow conditions that will make our countries indebted so that they will become colonial vassals again. That is what happened to Sri Lanka..

Our country can easily bring the economy under control and the way forward is to get down to have an economic plan for the country.

Under IMF advice we have developed an Import and Consume economy. Instead we should plan and build up a Produce , Consume  and Export economy.

The Government must immediately consider  establishing  an Employment Creation Programme to create production within Sri Lanka.  This will bring about employment to the people and enable them to have incomes. We must get about making everything we import and for this purpose every Government Institute- the Industrial Development Board and the Universities must contribute.

Let us not be deterred by the fact that the last similar programme we had, the  Divisional Development Councils Programme(DDCP) of the Premier Sirimavo days(1970 to 1977) only created employment for some 32,300 youths. There are many major successes within this DDCProgramme. The Mechanized Boatyard I established which made 40 seaworthy fishing boats a year was an acclaimed success. Further the Crayon Factory that I established in Deniyaya in 1971 was a great success and ended with islandwide sales. The Paper Factory established by the Divisional Secretary at Kotmale was a success.  These were a success  till the policies  of President Jayawardena closed them down.

My Planning Officer a raw, inexperienced chemistry graduate struggled for three months at the Rahula College science lab and found the art of making crayons equal to the quality of Crayola Crayons of world fame. It was established as Coop Crayon by Sumanapala Dahanayake, the Deniyaya Member of Parliament in his capacity as the President of the Morawaka Cooperative Union. Finding the art of making crayons, producing  and marketing the product successfully is a great achievement, which alone will stand for the success of the DDC Programme.

The Youth Self Employment Programme of Bangladesh which I commenced in in 1982 has now become the largest employment creation programme the world has known and has created self employment for over two million youths by 2011. Today Youth workers have turned economists and guide 160,000 youths annually to become self employed. I designed the programme and trained the staff to continue it when I was The Commonwealth Fund Advisor to the Labour and Manpower Ministry.

These two facts must convince our leaders that we can win the task of making all our imports ourselves. Mastering the art of making a good crayon is not a simple task. The fact that this was achieved tells me that there is nothing imported which we cannot make ourselves.

We can depend on the Private Sector. It is necessary that the Government provides tax free periods and low cost loans to private entrepreneurs to establish enterprises to combat imports. It is more practical and in our national interest to depend on our Private Sector than suck behind foreign multinationals..

When we had bumper harvests in paddy and had no milling capacity the Government called for private entrepreneurs to establish rice mills and guided them.. We had Plans for different sizes of rice mills and requested people to select depending on their capital. I was a part of that team that guided the private rice millers. To a man they responded and within a few years hundreds of rice mills sprung up and the money the millers made stayed within our country creating incomes for workers. They were not given tax holidays. Comparatively  when flour milling came up President Jayawardena gave it to a multinational, Prima, giving it authority to buy wheat, mill and sell us the flour. They could sell the bran. They decided the prices as well as the buying prices. In my words, ‘have we not learned a bitter lesson from Prima the Singapore firm that controls our wheat milling. Prima fixes the price of flour, is in charger of maintaining buffer stocks. Its responsibility is seen in the manner it recently supposedly sold  four to the Maldives, when there was a shortage in Sri lanka…. Earlier the Food Controller purchased wheat and flour and carefully maintained buffer stocks. (From How the IMF Ruined Sri Lanka). Easily a thousand rice millers prospered due to our policy of having our own private sector to mill rice. They paid taxes. The profits Prima makes goes to the Singaporean owners. This fact is repeated in every privatization and tells us in no uncertain terms our fate in finding foreign investment.

Let me quote from Vietnam’s development. Vietnam produces some world’s best coffee competing with Nescafe. Their coffee has worldwide sales. We have the land ideal for coffee. Our coffee belt is Kitulgala. We have to give out land and encourage growing coffee and do coffee milling ourselves. Instead we have now capitulated to Nescafe. This itself tells us the necessity for a National Economic Council- the idea mooted by our President..

We need not have special funds to implement this programme. The funds already being used for imports have to be utilized to create the items in Sri lanka.  The Youth Self Employment Programme that I established in Bangladesh in 1982 was entirely established by the Ministry of Youth from savings in vocational training budgets. When I won the day after a grueling battle at a high powered conference presided by the Minister for Labour and Manpower of Bangladesh, the Treasury refused funds because an ILO Programme to create a self employment programme in the earlier three years had failed. I said that I need no new funds and that the Ministry of Youth will find savings within our voted budgets to fund the necessary expenditure and re deploy staff.  Even our DDC Programme of 1970-1977 was implemented by the Government Agents and their staff in addition to their duties. Funds were provided only for a cadre of Planning Officers and Development Assistants and when projects were submitted the machinery and expenses were provided. These two instances prove that new programmes can be done through savings in voted expenditure

It is hoped that the ideas provided in this paper will encourage our Hon. President to establish an Employment Creation Programme with the aim of making every item we import today. This will create employment for thousands and also bring about savings in foreign exchange in the millions. This will eradicate poverty. This Employment Creation Programme can provide self employment to thousands within two years. The Boatyard and the Crayon Factory  were established  in four months time. If the go ahead is given we can make all the Jam, Fruit Juice and Food Preparations like Tomatoes Sauce within one year. There are many other areas which can be addressed within a year or two and poverty can be allieviated.

My long administrative experience handling development work in Sri Lanka and several other countries,  my studies at world famous Universities in Community Development and Agricultural Economics and being the author of the Self Employment Programme of Bangladesh, which is today the premier employment creation programme the world has known,  give credibility to my idea that Sri Lanka’s economy can be resurrected.

Garvin Karunaratne, Ph.D. Michigan State University,

Former Government Agent, Matara District and former Commonwealth Fund Expert to

Bangladesh. 25 th August 2017