Are we not Lost in the Wood for the Trees
Posted on August 11th, 2013

By Garvin Karunaratne Ph.D.

Economic strategies to bring Sri Lanka out of the economic stalemate of today has come to the fore with the Economic pundits of the world coming together at our Economic Summit 2013. They all talk of traditional economics and forgetƒÆ’-¡ƒ”š‚  that in his latest book, Professor Jeffery Sachs ƒÆ’-¡ƒ”š‚ admits that ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-Economics as an academic discipline was turned on its head by Milton Friedman.(ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-Price of CivilizationƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚2011) However out institutes of higher education yet teach traditional economics and do not dare to touch the IMF’s economic mantra with a barge pole. Our dons are frightened to meet the IMF rhetoric.

Many leading figures lamented on the foreign debt that is unbearable in that servicing that debt costs almost our entire revenue, making it necessary to obtain further foreign loans. This has been Sri LankaƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s predicament since the mid Eighties.

Professor PremachandraƒÆ’-¡ƒ”š‚  Athukorale , the economist from the Australian National University hasƒÆ’-¡ƒ”š‚  advised the Government to get to the barracks and allow the Private Sector to take full control.ƒÆ’-¡ƒ”š‚  He is of the opinion that the Government is in full control.

FormerƒÆ’-¡ƒ”š‚  Central Banker Anila Bandaranayake has saidƒÆ’-¡ƒ”š‚  that ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-there is a lack of consistency in the GovernmentƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s message and the private sector gets mixed signalsƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚¦ The Government is very negative and defensive and the Private Sector is very silent. For example there has to be a discussion whether the Government and Forces will do all the businesses or the Private SectorƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚¦.Private Sector businesses were not working collectively towards improving the countryƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s business environmentƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚(The Island 19/7/13)

The strategies looked into in detail appear to be to increase exports. It was Professor Indraratna that has urged increasing imports to meet the shortfall in foreign exchange.

Once our Treasury Secretary had rightly lamented that the Private Sector has not pulled its weight despite many incentives. It is important to note that the tax rate in Sri Lanka is lower than in the USA and the UK

Everyone is aware that the Treasury Secretary is trying his best to reduce the deficit. ƒÆ’-¡ƒ”š‚ We have many austerity measures in place. But austerity ƒÆ’-¡ƒ”š‚ in itself does not bring about growth.

They all seem to forget the major causes that has brought the economy to its knees. ƒÆ’-¡ƒ”š‚ Everyone seem to be finding more and more water to put into the bucket that has gaping holes.ƒÆ’-¡ƒ”š‚  Why is no one trying to patch up the holes. ƒÆ’-¡ƒ”š‚ I ƒÆ’-¡ƒ”š‚ read through most of the news about the Economic Summit but failed to find anyone trying to patch up the holes.

Chandra Maliyadde, once Secretary Ministry of PlanƒÆ’-¡ƒ”š‚  Implementation has stated that at the end of 1976 the total oustanding ƒÆ’-¡ƒ”š‚ Foreign debt to IMF/World Bank was only $ 75 million and he has raised the question as to how it has now increasedƒÆ’-¡ƒ”š‚  more than 500 times in 35 years.(The Island25/6/2013)

Sri Lanka was a country that did not have pains and aches during the time of Prime Minister Dudley Senanayake in 1965 to 1970. The bread queues and shortages during the time of Prime Minister Sirimavo was due to ƒÆ’-¡ƒ”š‚ sanctions placed by the Western Imperialists. The USA did not continue with giving us flour under concessionary terms due to the socialist policies of taking over the plantations etc.. The Government was compelled to pay compensation to the foreign companies for taking over estates in foreign exchange. Further the price of oil tripled in the early Seventies. ƒÆ’-¡ƒ”š‚ Despite this the fact remains that Sri Lanka, ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-last lived within its resources when Dr N.M. Perera was the Minister of Finance. After 1977 the rot set in and Sri Lanka commenced borrowing to live. It has lived on credit ever since.ƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚(Pg.164)Karunaratne; How the IMF Ruined Sri LankaƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚)

We have to get to the cause of the problem instead of working at the peripheries if we require a solution and sad to say none of our economic pundits are addressing this.

The major change that took place was the imposition of the Structural Adjustment Programme by the IMF on Sri lanka in 1977. As stated by me,

ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-The fundamental flaw in IMF policy was that instead of a growth strategy, the Structural Adjustment ProgrammeƒÆ’-¡ƒ”š‚  was actually a strategy that when implementedƒÆ’-¡ƒ”š‚  caused unemployment, caused the closure of local manufactures, made the country indebted, devalued the local currency and increased poverty among the majority of the people. InƒÆ’-¡ƒ”š‚  detail , foreign exchange had to be liberalized- every citizen was allowed foreign exchange , every importer was allowed unlimited foreign exchange. The Central Bank no longer controlled the use of foreign exchangeƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚¦ when the funds were insufficient the IMFƒÆ’-¡ƒ”š‚  advised that the Government should getƒÆ’-¡ƒ”š‚  loans from the IMF or foreign sources. ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-(From:Papers on the Economic Development of Sri Lanka). It was the IMF policy to make a country indebted so that it will be subjugated and become a ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-colonyƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚ one again where goods produced by the Imperial Countries will be marketed.

This we do even today. We came to a position where to find funds to service the foreign debt we had to get further loans and all the reserves we boast of today are borrowed funds. Our economic pundits are raking further methods of borrowing foreign funds- like getting our banks to get foreign loans. Right now our National Development Bank, National Savings Bank and the Development Finance Corporation of Ceylon are expected to raise $ 1.5 billion from international capital. (The Island:26/7/13) Let not what happened to Argentina happen to us whereƒÆ’-¡ƒ”š‚  in 2002 when the peso was devalued the entire economy crashed due to the fact that foreignƒÆ’-¡ƒ”š‚  loans were allowed for banks and people.

The fundamental fact remains that under IMF policy imposed on us we spent on luxury imports, luxury living and luxury travel and raised loans for this purpose and now the foreign n debt is well over $ 22 billion. Funds incurred for the war with the LTTE and the Hambantota Airport, the highgways and Port are different in thatƒÆ’-¡ƒ”š‚  we have used those funds for a particular purpose.ƒÆ’-¡ƒ”š‚  It is ours to get them going efficiently.

In this predicamentƒÆ’-¡ƒ”š‚  utterances that deserve attention do come from non economists. Our Defence Secretary has once lamented that we are importing tamarind. We are importing endless and unnecessary things. We are even importing Tomatoe Sauce and Fruit Juice when within a few months we can set up a Cannery that can produce all the Tomatoes sauce and all our Fruit Juice.ƒÆ’-¡ƒ”š‚  We did that earlier because the Marketing Department of the Government had the Cannery that made us self sufficient in Fruit Juice, Tomatoes Sauce etc. I worked in that Department and we did it so that no one can doubt whether we can do it again. I am prepared to put my neck on that any time. We are importing Baked Beans and think it a luxury eat something shunned in the UK as the worst meal. Anything imported is great and we spend our foreign exchange unnecessarily.We meet all that with loans. We appear to be going on a road to nowhere, The irony of it is that none of our pundits realize it.

We have ceded the sole authority to handle our foreign exchange to the banks and the private sector and foreign banks are earning millions. We have allowed our private sector to import everything and meet the expenditure by raising further loans. ƒÆ’-¡ƒ”š‚ Our economic pundits think ƒÆ’-¡ƒ”š‚ it ƒÆ’-¡ƒ”š‚ great and close their eyes to ƒÆ’-¡ƒ”š‚ our ƒÆ’-¡ƒ”š‚ increasing debts.

What did happen will illustrate the futility of our IMF policy which we follow today of depending only on the Private Sector. Earlier I quoted economist Bandaranaike lamenting that the Government should get to the barracks.ƒÆ’-¡ƒ”š‚  The Government got to the barracks when the Marketing Department Cannery was privatized and nowƒÆ’-¡ƒ”š‚  we import instead of produce.

One has to travel by car inƒÆ’-¡ƒ”š‚  India or Thailand to be following lorry after lorry of sugar cane or manioc. There is no other answer we have to make it ourselves.We have to engage in production. ƒÆ’-¡ƒ”š‚ No Norwegian or Indian is coming to help us. ƒÆ’-¡ƒ”š‚ But we take no action, over it. Woe be unto us if we yet depend on outsiders. India has clamped the 13 th Amendment and has taken our sovereignty away and we yet lament. ƒÆ’-¡ƒ”š‚ We have to get out of NATO(No Action Talk Only)fast.

These days US Vice President Bigen is in India trying to open up India for US multinationals to come in and ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-investƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚ and take away profits. We beg and go on our knees ƒÆ’-¡ƒ”š‚ to get outsiders to come in and never make any attempt to make things ourselves.

We have to plug the holes in the bucket instead of pouring more and more funds into the bucket.

In nostalgia I can narrate what I did as Government Agent Matara in 1971-1973. We made sea worthy fishing boats, established from scratch within ƒÆ’-¡ƒ”š‚ around three months and sold them to cooperatives. The Chief Officer of this was a raw graduate who later became a Secretary of an important Ministry. The Government Officials found the method of making first class crayons and The Deniyaya Cooperative Union under Member of Parliament Sumanapala Dahanayake rolled up his sleeves, tucked his sarong and worked with youths all barefooted. We all worked for ƒÆ’-¡ƒ”š‚ 24 hours for a few weeks to establish the CoopƒÆ’-¡ƒ”š‚  Crayon Factory, doneƒÆ’-¡ƒ”š‚  against the wishes of ƒÆ’-¡ƒ”š‚ the Ministry of Plan Implementation which did not want us to attend to import substitution industries. The Chief Officer of this was also a raw graduate. Coop Crayon was sold island wide.ƒÆ’-¡ƒ”š‚  Today we import crayons!

Instead of trying to find more and more water to pour into the bucket, let us all get together andƒÆ’-¡ƒ”š‚  mend the bucket. ƒÆ’-¡ƒ”š‚ Let us find the Tamarind trees and if there is no one to pluck the Army can be enlisted as was once done to get the Army to cut sugar cane in Kantalai. That was in 1962. I too will be there to bear the burden if ever such an attempt is made..

To personages like our PresidentƒÆ’-¡ƒ”š‚  who defeated the LTTE, the only terrorist outfit that had a navy and an airforce ƒÆ’-¡ƒ”š‚ this I think is a far simpler task. ƒÆ’-¡ƒ”š‚ I hope the contents of this paper reaches him.

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

Former Government Agent, Matara District,

Author ofƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚How the IMF Ruined Sri LankaƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚, Godages

“Papers on the Economic Development of sri Lanka” Godages


One Response to “Are we not Lost in the Wood for the Trees”

  1. Mr. Bernard Wijeyasingha Says:

    What this article tells me is that the government is playing an excessive role in the economic development of the nation. Whenever Bureaucracy determines the development of the nation failure usually follows. Loans are procured by government entities and spent by the private sector. This pseudo socialist system has to end for Sri Lanka to develop a viable middle class who have the money and the influence to invest in the nation without foreign loans.
    If one were to look at all the “success stories” of Asian economies it is those that have cut the red tape of the government and allowed the free market capitalist system to thrive.
    With the exception of China where she used her peasantry to work in sweat shops at unbelievably low wages which eventually paid dividends back to China Sri Lanka has to look at other economic models such as Singapore, Hong Kong, Japan, Taiwan, South Korea etc for their governments are Democratic and their economies have transformed them into financial center of the world.
    Sri Lanka cannot be a consumer based society unless she produces most of what the consumer needs. that is how the US “consumer based” economy flourished from the late 1940’s to the late 1960’s… till the government started to enter the free market. Now the cycle is complete and the Federal government is running a defunct economy where the national debt is nearing 17 Trillion (simply Google US national debt clock real time)
    One of the advances of Sri Lanka is that it is a small nation and what would be pocket change for massive nations like India, China, the US would be game changers in Sri Lanka but at the same time it would take little to reverse the process.
    Colombo needs to hold control of the nation but like China it also can cut the unnecessary red tape and allow the people of Sri Lanka and the private enterprise determine the economy of the nation. Since profits are the ultimate goal of the private sector it has been proved that if the private sector is given the opportunity of a greater role with a minimum of government interference the nation usually prospers.

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