The Challenge to get Sri Lanka on the right track to face  the economic problems of today.
Posted on February 11th, 2022

Garvin Karunaratne, Ph.D. Michigan State University

The Editorial of The Island tells it all: The challenge before us is to retrace our steps, figure out where we took wrong turns, and forge ahead in the right direction as many other nations have already done. Easier said than done, but there seems to be no other way.”

The problem is that even to retrace our footsteps there is no consensus in learned opinions. Addressing the Tenth Annual Conference of the Sri Lanka Forum of University economists on 27 th January 2022, Professor Premachandra Atukorale has said that it is impossible to heavily rely on import and exchange controls without compromising on a massive economic collapse and social upheaval.”(Ceylon Today01022022)

Perhaps some detail of how we once handled the economy of Sri Lanka, may be useful to think of how we can retrace our footsteps to the days when we did not have food queues and social upheaval, all the while handling development very  successfully..

In 1968 February I was posted as the Additional Government Agent at Kegalla District. I worked there for two years. I knew of no queues for any essential food during that period. In fact,  I was in charge of providing essential food- as the Deputy Food Controller for the District. At that time every area was covered with a cooperative society and in each division there were Cooperative Unions that were equipped with stores and lorries and on a clockwork basis all essential food was distributed through the cooperatives. This included a measure of rice per person per week, entirely free, under the Rice Ration Scheme, which was done away by President Jayawardena in 1978. Then there was a major Department at work- the Food Commissioner’s Department,  managed at the helm by a senior civil servant, a department that had very large stores full of rice and flour and also attended to imports when necessary.  At the district level there was an Assistant Food Controller who worked directly under me and it was our duty to see that food was always available without any interruption. Importing essentials like dhall, chillies etc was handled by the CWE because depending on the private sector has proved unreliable – the private sector has making a profit as its aim, service to the people comes next.

Even in other Districts there were no food queues

Kegalla District included the electorates of the prime minister Mr Dudley Senanayake, Minister NH Karunaratne, Deputy Ministers Imbulana, Vimala Kannangara, Beligammana and also Dr NM Perera of the Opposition. There was never a delay in providing essential food- and that included rice, lentils, chillies and other curry stuffs.. I had the unenviable task of meeting the hon prime minister every Saturday and Sunday morning at around nine at the Warakapola Rest House and to accompany him to a host of meetings in his electorate, ending in the late evenings, and there was never a person that had a complaint. The Divisional; Secretaries had to work to perfection and they were meticulous. . There were a few bad eggs that I had to get rid of. Had there been any interruption in food supplies, the ministers would have complained to the Prime Minister and Dr NM would have raised the matter in Parliament.

This was also the situation in Matara when I was the Government Agent in 1971 to 1973. There were no Ministers in any electorates and only one Deputy Minister, Mr Tudawe. There were no shortages except during the  JVP insurrection of April 1971.

In those day there was no foreign exchange problem because there were effective controls over the little foreign exchange that came in through exports and other sources. There were no currency dealers who handled foreign exchange like today and the intake of foreign currency was a guarded property, that was used first for importing essentials, and small allocations were made to import useful non essential items like automobiles and fridges.. This was the situation even when we had ample funds – when we financed the Gal Oya Development Project- a massive project building a tank three times the size of Parakrama Samudra at Amparai, bringing 60,000 hectares under cultivation and creating many industries all done with foreign funds we had. We had effective controls- even then. 

In 1970 I worked as the Deputy Director of Small Industries and one of my tasks was to ensure that every small industrialist had an allocation of foreign exchange to import any particular item they required for their manufactures. I can state that every application was inquired into by my inspectors of industry- I had some twenty of them and assessed by me, every genuine small industry received an allocation. Then no foreign funds were allowed for foreign study but an exception was made to provide foreign  funds  for Sunethra and Chandrika Bandaranayake,  and I had the occasion to question the prime minister as to why he did it, That was the only request I had from an earlier prime minister and I felt like allowing it.” was his reply.

Foreign exchange was then a guarded item. When I left the Administrative Service and moved abroad in April 1973 I did not get a single penny. My wife and three children were given only three pounds and five shillings. We had to earn and spend for studies.

 It was by effectively controlling by import and also controlling foreign exchange that all Third World countries managed their economies without any economic collapse. The economic might of India itself is indicative of an economy that did not follow the IMF and used funds borrowed from the IMF to bring about development  by controlling the economy. .

Sri Lanka managed its foreign exchange effectively till President Jayawardena was fooled by the IMF to follow the Structural Adjustment Programme, which advised President Jayawardena to allow the rich to spend foreign exchange as much as they want- for endless foreign travel, to educate their children abroad, import all luxury items and the IMF provided loans for this purpose and mind you to entice the leaders, even provided grace periods when the service and interest charges were not to be paid. The then leaders enjoyed and the rich played with the funds leaving the future leaders to bear the brunt of repayment. That is the process that led us to the present abyss.

Then there were two budgets a local Rupee budget for handling all work in the country including major development tasks, funded with printed money and a foreign exchange budget to handle the foreign exchange that was collected. Recently the Central Bank Governor Cabral had decided that all foreigners staying at hotels should be charged in foreign currency. This is a decision that should have been taken long ago. Other countries like India and Thailand took similar action over decades ago. We unfortunately do not collect even fifty percent of the foreign exchange that comes in today and it is time that we put a dragnet like in the period before 1977.  

Of the period 1948 to 1977, an exception is the period 1974to 1977 when there were shortages due to the Government de emphasising agricultural development in order to have their own Divisional Development Councils Programme and embarking on land reform which stifled development and caused foreign sanctions. Even then Prime Minister Sirimavo managed to make all demanded payments and managed without falling into foreign debt. 1976 and 1977 happen to be the last years when our country was run without a deficit. Since then annually our foreign debt has increased  and is at  $ 56 billion today. .

Thus the manner in which we handled the economy in the pre 1977 period is a tried and tested blue print that was successfully implemented for close upon two decades, which offers us the only path to follow to get out of the present  abyss.

Garvin Karunaratne, Ph.D. Michigan State University, 08022022

Author of :

How the IMF Ruined Sri lanka and Alternative Programmes of Success: Godages, 2006   

How the IMF Sabotaged Third World Development: Kindle/Godages, 2017)

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