By Garvin Karunaratne, Ph.D.( Michigan State Univerity)

 Economist  Dr Uswatte Aratchi,  has dubbed the current situation in Sri Lanka as a Warfare State.(The Island 19/8/2014)

 Already the views held by Dr UswatteAratchi have been contested by Professor G.H.Peiris in The Island of 19/8.

 Though I have been abroad since 1973, I lived in Sri Lanka from 1955 to 2000 and have also been visiting a few months every year since then. To my mind Sri Lanka was a Semi Welfare State till the late Seventies. It had free education and social services.  . Sri Lanka abolished the major poverty  alleviation programme; the Rice Ration Scheme in 1977, but has continued the free health service and education. It was far from the welfare state in the NATO block where there are payments to the unemployed and the old aged

 From the mid Eighties till 2009 it was a terrible situation where the LTTE Cadres were attacking either the armed forces or the unarmed civilians in some part of the island almost every day. They used suicide bombers, attacked the Katunayaka Airport destroying almost a dozen aircraft, the Airport at Anuradhapura, bombed the capital of Colombo among many other important targets. In the attack on the Central Bank on 31/1/96, 91 civilians were killed, 1400 injured and 100 lost their eye sight.  .  On 14/5/85 pilgrims and monks were gunned down at the most venerated Sri Maha Bodhi in Anuradhapura. The official report stated that 146 were killed . However when I spoke with the Superintendent of Police I was told that the number of civilians killed in Anuradhapura and a number of villages on that occasion was over five hundred. At that time the Government was afraid even to report the numbers killed.  Once I met a high ranking officer of the Administrative Service who was from Kebitigollewa and he said that three of his uncles were murdered by the LTTE.  I know of the Rajagiriya massacre on 10/3/2000 because I happened to be in Sri Lanka. There was absolute mayhem when a group of LTTE cadres started shooting their way from Rajagiriya Junction, near the Dr N.M. statue and shot at every vehicle that was on the road.  Some 30 civilians were killed and 53 wounded.  One of them even shot his way though the Castle Street Maternity Hospital.

 Everyone was scared because no one knew when the LTTE would attack next. At that time in many families the father and mother never traveled together for fear that if they get killed their siblings will become orphans. When I had to go to the City I would make inquiries from police officers known to me of incidents during the day. If the green light is given I would carefully drive to the car park behind Regal Theatre and approach the car park attendant and inquire about any attacks on that day. If any attack is known I would rush back home. If nothing has happened that day I would walk in trepidation, carefully alert, passing the temple at the round about where the chief incumbent was murdered a few weeks earlier.

In short there was never an end to the killing of civilians.

 That era stopped in  May 2009 with the defeat of the LTTE and to me the era of Warfare State ended  then. Thanks to our leader President Rajapaksa. The Armed Forces they have seen to it that there are no attacks since then.

 There have been instances of murders and these happen to be individual cases and this type of killing takes place in every country.  These have to be minimized and measures taken to ensure that the police and the judiciary are efficient and not corrupt.

 Dr Uswatte Aratchi highlights the expenditure on Defence. It is sighted that in 1974 only 4% of Government expenditure was spent on defence and that this increased to 17% by 2008 and is continuing at 12% in 2013.  The price of peace is eternal vigilance and it is my opinion that Sri Lanka must have an efficient and large armed force to maintain peace. I was the Government Agent at Matara when the JVP struck on 5 th April 1971 and we had to run in circles  to requisition private jeeps and even take back licensed guns to ward off the attack.  I once suggested that we should man the seas with a well equipped CoastGuard.  It is a well known fact that fisherfolk from Tamil nadu come to our area to fish.  Sri Lanka is blessed with a better climate and economy than South India and that makes people from South India come in by sea and settle down.  Further though the LTTE is defeated in Sri Lanka the LTTE cadres have established themselves overseas and agitate to get a foot hold some day. Thus it would be foolish to disband the Army.

 The Armed Forces are now being used for development work They did a yeoman service in purchasing vegetables in the producer areas and selling them at cheap rates in the City when the traders preyed on consumers. I was in the country at that time and am certain that it  was a job well done and reduced the cost of living of the people. Once this happened to be my job as Assistant Commissioner for Development of Marketing.  Then the Marketing Department(MD) had Purchasing Units in producer areas and the vegetables were brought overnight to Colombo where we had over fifty small sales depots where they were sold at cheap rates. The aim was unofficially controlling the prices. When  the MD sales unit sold any item at a cheap rate the traders had to reduce their sale price as otherwise they will not have sales. At the instance of the IMF this Marketing Department was axed and now inflation cannot be checked. The Army did accomplish a major task..

 The IMF also dictated that the Public Sector should get away from development tasks and that the Private Sector should be the engine of growth. With this provision, even today  the Public Sector could not be activated to re establish the Marketing Department, which planned the production and the sales of vegetables, ran a cannery that sold Sri lankan pineapples worldwide. The loser is our country. It is the Developed World that gained by selling Heinz Tomatoes sauce and many other  Fruit Juices to our country. Earlier in the days of the Marketing Department we made Juice with our fruits. Even Pineapples were exported. 

 Now the Army is used for developing the City and they have done a great job.

 In the USA too the Army is used for civilian tasks. I have seen them in action on my endless travels in the USA.. The  levees(bunds) that hold the Atlantic Ocean sea water away from  New Orleans because the level of the land is below sea level were built by the US Army and they maintain the levees even today. In Yellowstone National Park when at the initial stages  thugs and armed brigands took over the National Park it was the US Army that restored order. The US Army builds large hydro electricity schemes and I have myself seen the massive structures they have built on the Colombia River.  The US Army has played  a critical and essential role and it is good that our Army is following that model.

 Dr Uswatte Aratchi  holds the current Government responsible  for  the indebtedness of the country. It is true that Sri Lanka is today an indebted nation.   Dr Uswatte  Aratchi says that  the policies of the Government has made it necessary to borrow both at home and overseas.” 

 To state facts Sri Lanka was not an indebted nation at independence. We met the total . expenditure of the Gal Oya Project without borrowing a penny.

 The cause for this increase lies in the economic strategy that was sold to our country in 1977 by the IMF. This was the Structural Adjustment Programme(SAP) foisted on us when we went to the IMF for aid in 1977. This SAP included a set of policies which when implemented will cause any country to become bankrupt. Earlier we had very strict exchange controls which enabled us to use the foreign exchange that comes in for national development  and not waste it for luxury imports and endless foreign travel for those that can afford.  We had two budgets a foreign exchange budget and a local Rupee budget, Under the IMF’s advice we did away with exchange controls and allowed anyone to import anything and travel overseas and  allowed foreign exchange for overseas education. When the foreign exchange that came in was insufficient to meet the demand the IMF advice was to get loans and the IMF was instrumental in getting us loans at low interest and even grace periods, which meant that when the day comes to pay the interest and the instalment payments  the leaders who took the loans will not be in office. We took massive loans and that is true of other Third World  countries too.  Let me quote Cheryl Payer from her book, Lent and Lost: The IMF advised  to abolish  the foreign exchange budgeting system, lift controls on imports and consequently by the end of 1978 Tanzania had reserves only for ten days of imports. Then the IMF imposed its Structural Adjustment reforms. Tanzania which had a stable self reliant economy was broken down and brought to its knees”.

 That was not all the IMF dictated us to impose high interest on loans. Loans were given by banks at 24% interest and this killed all local entrepreneurs. Import tariffs were reduced and even abolished and in flowed imports. This was a ploy to revive the Developed Countries by creating sales for their manufactures.

 An important consequence was that this process of financing imports, allowing funds for overseas education, endless travel etc sent back the very funds that we were borrowing. back to the Donor countries. However as we had obtained the funds on loans it also increased our foreign debt. This was the process that was laid down by Milton Friedman to bring our countries to become colonies of the Superpowers once again.

 Another cause for our under development lies in the Devaluation of the Rupee that was caused by our implementing the SAP of the IMF. In 1978 itself immediately we accepted the SAP of the IMF the Rupee was devalued by over 100%(from Rs15.50 to the pound in October 1977 to Rs. 31.64 to the pound by 1978).  Over the period 1977 to 2014 the devaluation has been 1,319%(from Rs. 15.5 in 1977 to Rs. 220.00 in 2014)  On exports due to devaluation  we get paid less foreign currency and  on imports we have to pay more. In other words all our exports are given at a discounted rate.

 By the time the UNP handed over power after working on this IMF advice for seventeen years we had to borrow to service the loans and the indebtedness increased in leaps and bounds.  Thus this process was started well before the current regime took power.

 It is true that certain expenditure incurred on projects like the Mattala Airport, the Hambantota Port, the Infrastructure of Highways  etc bring little immediate dividends.  It is left to the Government to initiate projects to develop the resources in the rural areas to make use of  the expressways and the  air travel hat has  been  developed. Hambantota  was a neglected area when I worked- it had very little facilities.  When I traveled on the Mattala- Lunugamwehera- Kataragama Road which was being built recently I saw mangoes in plenty and children chased my car to sell luscious mangoes. We have to establish fruit processing industries in these rural areas and this will enable us to stop the imports of fruit and fruit juice for which we incur foreign exchange.  The Government has to consider taking this step to develop the areas opened up through the new infrastructure.

 The current emphasis of the government is to encourage exports. In addition we have to establish import substitution industries.  All these take a while and it is hoped that the Government will tackle this task.

 In this task of bringing about development- creating industries and creating employment and income  we tend to relate it to the shortages of essential goods and problems that people faced during the reign of Sirimavo from 1971 to1977, when we last did such a programme. . Professor Peiris  has raised this. The Government then established the Divisional Development Councils Programme which for the first time enabled the Government to establish agricultural farms and import substitution industries.  Though the results were not that significant in many cases, there were many industries that did create employment and incomes. I can mention a number of successful projects I established in the Matara District which were successful. We established a Mechanised Boatyard  making sea going large fishing boats with inboard motors which were sold to cooperatives. Established within three months from the planning to output this was a thriving business that brought employment and incomes to rural youth.  We also established a handmade Crayon Factory at Deniyaya. This was established entirely on our own within the District where my Planning Officer a raw Chemistry graduate, by experimenting with the aid of science teachers based at the Rahula College Science lab,  found the art of making crayons. Sumanapala Dahanayake, the Member of Parliament undertook to establish a crayon factory and this was done working day and night on a 24 hour basis. The Planning and  establishing this industry was done within three months and this factory provided high grade crayons on an  islandwide basis. There are many such successful industries to talk of.  The Government of President Jayawardena abolished this programme and so died the successful industries too.

 It is left to our Government to establish import substitution industries using the infrastructure that has been established.  If there is anyone who can accomplish this task it is no other than our President Rajapaksa. A few of us in the Administrative Service excelled in establishing new industries and employment creation projects. It is up to our Government to activate officers of the Administrative Service. It is said that the public service is overstaffed with a public officer for every 14 persons. Get a quarter of them working. In my endless trips to Sri Lanka over the past few years I have conversed with  Divisional Secretaries and Grama Niladharis and I am certain that they can easily shoulder new responsibilities if they are entrusted. My mind goes back in nostalgia to the Youth Self Employment Program that I designed and established in Bangladesh in 1982.  My task was also to train Bangladeshi administrators to continue the Programme after my consultancy was over . Today that Programme is the most successful and the only programme that actually guides trained youths to establish enterprises and by 2011 Bangladesh reported to the IFAD(FAO) that they  have guided as much as two million entrepreneurs to establish commercially viable enterprises. A Youth Ministry that attended to traditional youth work – dance, drama and sports is today spending 90 % of its time guiding youths to become entrepreneurs and has dwarfed  the development work done by the other Ministries. .

 Let me get back to why there were shortages  and problems during the time of Sirimavo which is always referred to when any idea of  establishing new projects is mooted.  Professor Peiris  tells us of the horrors he suffered.

Many do not know what really happened.  The Western Superpowers imposed certain sanctions  on Sri Lanka which caused this situation.

1. For a long time before this Sri Lanka was given flour at a discounted rate under the PL 480  Scheme by the USA. Due to the leftist policies followed by Sirimavo’s Government especially the take over of estates over 50 acres, the US stopped giving flour under PL 480 at a discounted rate and we had to find the funds to buy at the higher commercial rate.  This caused a problem of supplies. The bread queues were not due to N.M. but due to the action of the USA to punish Sri Lanka .

 2. When estates were nationalized the plan was to pay in bonds- by a promissory letter, at a later date. The British Government insisted on immediate payment and Sri Lanka paid the foreign companies  in hard foreign exchange.

3. The Oil Supplier Countries increased the price of oil which we had to purchase.

 These were actually sanctions placed on Sri lanka by the Superpowers who did not like the leftist and socialist policies that were followed. It was these causes beyond our control that ate up our resources and  brought about the shortages and problems during that period. Yet the Government of Sirimavo managed to meet all the expenditure without creating a foreign debt. When the country was ceded to the UNP in the 1977 election, the foreign debt was as low as $ 700 million. This was all on projects and not taken for consumption.   In those days there was no concept of deficit budgets. We had to live within our earnings and the years under Sirimavo are the last years where Sri Lanka managed its economy within its income. 

 On Law and Order-governance we are facing many problems. This is partly due to police inaction, the judiciary taking ages to settle a dispute and also due to the fact that there are as many as 50,000 deserters from the Armed Forces. The stark fact remains that these Army deserters have been trained only in the task of shooting and killing and many cases of extortion, murders are traced to deserters. It is up to our Defence Ministry to provide vocational training to these deserters and to those who opt to leave the Armed Forces and guide them to become employed. The achievement of the Youth Self Employment Program of Bangladesh which is today the World’s largest  such employment creation program referred to earlier offers ideas as to  how they can be reigned to become successful entrepreneurs, contributors to the economy. This was achieved by guiding trainees in vocational education to establish enterprises.

 Dr Uswatte Aratchi’s findings on the Welfare State and the Warfare State needs to be re written based on the facts in this paper.

 Garvin Karunaratne

Former G.A. Matara

More details on the facts in this paper are available in my Books;

How the IMF Ruined Sri Lanka… and Papers on the Economic Development of Sri Lanka(Godages)

30 th August 2014