Activizing the Sri Lankan Economy: Ideas and Methods
Posted on September 21st, 2013

By Garvin Karunaratne, former Government Agent, Matara

‚ If Sri Lanka is to keep its head above water it is necessary to analyze the policies that it is following now and find out what has led to its mounting foreign debt, the ever increasing prices of goods, the lack of productivity, the dearth of avenues for employment and the poverty in which the majority of people live- poverty in the sense of being unable to match their expenses with the earnings.

‚ Sri Lanka is saddled with a massive foreign debt- over $ 22 billion. This has been accumulated since Sri Lanka started following the IMF advise contained in its Structural Adjustment Programme(SAP). This was not created by the military expenditure incurred for defeating the LTTE. It was also not created by the loans obtained for specific projects like the Mahaweli Scheme of the UNP days or the Mattala Airport, the Hambantota Port, and the Highways of the present Government. In these cases the loans were used for a particular purpose and what was created is there and it is left to us to work the projects more efficiently to bring about an income. Have we forgotten that when the LTTE attacked the Katunayake Airport planes could not land in Sri Lanka.

‚ Since 1977, the foreign debt was created by following the IMF policies specified in the SAP. The SAP specified that the use of foreign exchange should be totally liberated from all controls and that anyone can import anything, can use foreign exchange to travel abroad, to get children educated abroad and enjoy luxury imports despite the fact that the foreign exchange earnings of the country were not sufficient for such expenses. The deficit was to be met by selling off paying State managed commercial undertakings and if that was not sufficient by raising foreign loans. This is the process that has created this massive foreign debt. In this manner the loans granted went back to the donors in some form or other(to multinationals, foreign manufacturers and foreign universities etc.) while leaving the loan as a foreign debt.

‚ In 1977, the foreign debt of Sri Lanka was only $ 750 million according to my reading of Central Bank Reports. According to Chandra Maliyadde, former Secretary of the Planning Ministry the foreign debt was a some $ 70 million in 1976. Maliyadde has questioned as to how the foreign debt increased to this extent.

. Some of the salient policies that caused this foreign debt are:

‚ Allowing luxury imports

‚ Doing away with import controls

‚ Taking away exchange controls and allowing the liberalized use of foreign exchange. In the Sixties no foreign exchange was allowed for foreign education to anyone for a subject that was taught in Sri Lanka. The only exception was for the Bandaranayake sisters and once I asked the Prime Minister Mr Dudly Senanayake as to why he allowed this. His reply was that it was a request from a former Prime Minister which he could not refuse.

‚ Enforcing a high interest rate (24%),which crippled local entrepreneurs and made them close their industries because they cannot compete with imports from foreign firms that could obtain loans at low interest- even 2%,. The lack of local production is met with imports.,

‚ Commonsense alone proves that following the above ridiculous policies of the SAP brought about this massive foreign debt.

‚ The foreign debt increased to around $ 9900 million during the UNP days of 1977 to 1995 and thereafter because the debt has to be serviced, the interest and the payments due for the foreign debt could not be met from our incomes and further foreign loans had to be raised or bonds had to be issued to collect foreign exchange to meet the dues. This increased the foreign debt annually to what it is today..

‚ The escalating prices of local food has to be brought down by re establishing the Marketing Department-â„¢s Vegetable and Fruit Purchasing and Sales Scheme whereby we provided higher prices to producers as well as low prices to consumers in the Cities, This was done by keeping a low margin to cover up coat of transport and wastage. This successful scheme was abolished by the IMF-â„¢s advice. This was a Scheme that was operative in Sri Lanka for over three decades.

‚ Instead of understanding the above causes that brought about our increasing foreign debt and trying to take corrective measures like limiting the use of foreign exchange, limiting luxury imports we keep on finding other methods to find foreign exchange.

‚ The IMF advise is to find foreign investors. Recently it was reported that our Secretary to the Treasury wants the Chairman of the Board of Investment removed for not bringing in foreign investors. We fail to understand the basic fact that foreign investors come in to make a fast buck and run away. Take KFC, McDonalds and such ventures, they bring in some foreign exchange initially and set up a venture and thereafter import everything including cups, plates, meat etc with our foreign exchange, sell it on local currency and when they get a profit, transfer the profit to foreign exchange and send off the profit in foreign exchange. We continuously lose our foreign exchange first for the imports and then for the companies to take its profits. We have lost hands down but sadly we do not have the ability to grasp how our foreign exchange is fiddled.

‚ Take Noritake, they function on a tax free holiday and despatch the goods created tax free. But when the goods reach Japan a tax is levied and when it is sold in the USA Federal as well as State taxes are levied. In the meantime it is now reported that our caoline deposits are dwindling. Who is the net loser. Sri Lanka of course.

‚ There is a death of production in Sri Lanka. Take potatoes. Agricultural Instructor Normal Gunatileke in the Sixties taught us to grow potatoes but somehow we are not self sufficient even today. Last time I was in India I found that the retail price of potatoes was Indian Rupees four a kilo while at that time the retail price in Sri Lanka was around forty rupees. If you speak to the farmers they come up with a tale of woe of expenses. Something is wrong with the process of cultivation. Perhaps we are using excessive quantities of fertilizer. With all Agricultural Overseers being promoted as Grama Niladharis in the days of President Premadasa, there is no knowledgeable agricultural officer at the village level to offer any advice to farmers. This is a major problem and is at the bottom of the CDKU kidney disease in Anuradhapura etc but we fail to understand this fact. While we fail to plug the holes in our agricultural extension system, the death toll in CDKU the tens of thousands .

‚ One has to travel in countries like India and Thailand to travel behind lorry loads of manioc, sugar cane. In the Sixties on many occasions I travelled behind lorry loads of straw from Polonnaruwa to the Valachchenai Paper Mill. Many people in Sri Lanka have given up production due to a variety of reasons. Take manioc. My home for long was in Mawaramandiya and in the Sixties the village fair was full of manioc. In the night before the day of the Fair, right through out the night there were cart loads of manioc being taken to the Fair. The air was rife with carter-â„¢s songs the night through. Today there is hardly any manioc at the Fair. There is a great deal of petty thieving these day. Our neighbour had an acre of pepper, but now I gather that thieves come in and take the crop away. Once we had planted ,manioc. One group of youths came in and they said that their kite had gone into our land. I accompanied them inland searching for the kite, while another group of youths crept in at the other end of our land and removed the manioc. Once manioc was stolen from our garden in Nugegoda in the night. Thieving coconut is a common occurrence.

‚ We have to somehow get down to production. And I can tell you that no New Zealander or Norwegian is coming to help. If at all they will come with clandestinee ideas like the Japanese NGO that came in to help the Tsunami people near Mullativu; where later it was found that that Japanese NGO had built a subterranean water way to enable Prabhakaran to get away in a submarine! Our naval cordon was that smart to avoid that debacle to happen.

‚ Speaking of the current crisis in milk foods my mind travels back to the days of my work as the GA Matara. The Deniyaya area is having plenty of rain and I suggested a Cheese and Butter factory to be established there and our plan was to develop the dairy industry. Cattle breeds can be developed. I submitted a plan to the Ministry of Plan Implementation. I argued out my plan with the Secretary Professor Gunasekera. I was ably supported by Sumanapala Dahanayake and we submitted very forcefully that we can develop the local breeds but my plans died before the sleuths of the Plan Implementation and Agricultural Ministries. First they came up with the idea that we did not have pasture land. We said that grass will be grown on existing homesteads and on land left fallow. They stated that small scale cheese and butter factories were uneconomical and that local breeds cannot be developed. Switzerland is full of small scale cheese factories which they did not know. If our plan had been approved Sri Lanka would not be facing a shortage of milk today. The Deniyaya area is abundant in rain and the people even today have dairy cattle but the lack of sales makes them stop production. What I failed to do then I managed to do in Bangladesh where I worked as the Commonwealth Fund Advisor. I argued there that we should train youths in vocational training to become employed simultaneous to their training and the dairy industry was one of the main areas where we succeeded. In may be of interest to note that on the youth employment programme that I designed and established in 1982, Bangladeshi administrators trained by me have been getting record results- as much as two million youths self employed by 2011. It is today the premier employment creation programme one can find anywhere.

‚ The answer to the lack of foreign exchange today has to be tackled on many fronts. In addition to the methods of inviting foreign investors, we have to attempt at producing everything we need. One of the great success stories in my days at Matara is the Coop Crayon, established under my direction. We got the use of the science lab at Rahula College Matara after school hours for experiments and my Planning Officer Vetus Fernando with the help of Science teachers at Rahula found the art of making crayons. Therafter Sumanapala Dahanayake the MP for Deniyaya in his role as the President of the Multipurpose Cooperative Union produced crayons. We worked 24 hours a day for one full month to get it to production and finally sales were opened by the Minister of Industries TB Subasinghe. From 1971 to1977 till the industry was stopped by the UNP Government this Coop Crayon was able to meet a tenth of the country-â„¢s requirements. It is essentially a record of which I am proud- an achievement of the public officials as well as the politicians. Sumanapala rolled up his sleeves and worked with youths day and night, in establishing that project. In today-â„¢s context his role was the Chief Executive Officer of Coop Crayon, with a salary of three million rupees and perks a month(like Golden Key Deputy Chairmen), but he walked in his bata slippers, in his simple white sarong and bush shirt mingling with the workers and plodding them to work. He used a car that oft broke down. His idea was service to the people, an example to the Members of Parliament of today.

Verite Research has recently put forward a report that Import Substitution is impractical. This may be to researchers who have never established a single import substitution industry it in their lives and depend more on text book knowledge. Let Verite Research research on Coop Crayon of Deniiyaya, on the Boat Yard of Matara of the DDC days and of the Power Looms of the Small Industries Department which were run by the GAs and the DROs through the Cooperatives. The Power looms and the Handlooms of the Small Industries Department were a great success in making Sri Lanka self sufficient in textiles by 1970. I was in charge of these industries in Kegalla and Matara for two years and can challenge anyone who disputes this. Currently we are exporting our waste paper and cardboard to India and buying back paper from them. We even cant make paper out of waste paper which the AGA at Kotmale did in 1972. The Marketing Department did make Sri Lanka self sufficient in jam and juice in the Fifties and this was done by a group of Assistant Commissioners under Commissioner BLW Fernando. I was one of the Assistant Commissioners neck deep involved in it. It was a great success. The MD cannery was privatized and now we import jam, juice and tinned products. These are facts not imagination and Verite Research will have to eat up their ideas. My book -Papers on the Economic Development of Sri Lanka(Godages) documents our successs under the DDC Programme.

‚ It is time our leaders got down to do some deep thinking. We have some successes like flower growing plans by the Ministry of Economic Development. Now we do not import flowers. There will be success to talk of in the Home Gardens Programme but import substitution has to be added. We have to work fast to build up our economy otherwise we are dead.

‚ It is high time that our key leaders summoned key officials, professors of repute and include Chandra Maliyadde and a few from the old brigade and thrash out why our foreign debt increased and why our economy has slumped. Why has the thriving economy of the Sixties come to this situation of bankruptcy? The members of the old brigade are essential because it is they that did work the import substitution industries to success despite odds, Once I was a member of such a policy thrashing exercise in Bangladesh, when the youth ministry work was reviewed. It was the military government of General Ershard and I the only foreigner was asked what I could contribute for Bangladesh. I said that all youths in vocational training should be taught and guided to establish enterprises and hell was let loose with the Secretaries of the line Ministries including Finance objecting to the Youth Ministry, where I was the Advisor, getting into economic development. None of the Ministries training youths in vocations guided them to become employed and because an ILO programme that tried to do just that had failed in the earlier three years they said that I was suggesting the impossible. I argued out for over two hours. Finally when I had won the day on arguments the Ministry of Finance put a spoke in the wheel and said that they had no money. I immediately replied that I did not require any money and that all what I wanted was for the Secretary to the Ministry of Youth to be given the authority to re deploy officers and to divert funds already being used for traditional training. Air Vice Marshall Aminul Islam, the Minister in charge fully approved my suggestion. The Programme of youth employment I designed and commenced in 1982 is today the premier programme of employment creation to which I referred to earlier. It is time that our leaders take charge instead of going on the beaten IMF path that had destroyed our once self sufficient sustainable economy.

We cannot go on with the begging bowl to find finance for ever, chasing the same policies that have failed us since 1977 -for over two and a half decades .

‚ The problem today is that the UNP stalwarts who critisize the economy fail to understand that it was the UNP of President Jayawardena that accepted the free economy of the IMF which eventually made us indebted and thereby caused our demise.

‚ We have to succeed and the only leader who can bring that about is no other than our President Rajapaksa. If he could have defeated the LTTE he can easily achieve this and the people look forward to him achieving that task. I hope the message conveyed here will reach him.

Garvin Karunaratne , former G.A. Matara


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