How the IMF stalled Sri Lanka’s Development.
Posted on February 15th, 2022

By Garvin Karunaratne

It is on record that the IMF did stall development all over the Third World from the Seventies.

The colonies of the Superpowers were developing fast since they achieved independence. Seeking the help of the United Nations’ organizations- the Food and Agricultural Organization(FAO) for agriculture and livestock development, the UNIDO for industries, the ILO for employment creation- for labour, the UNESCO for education. There was all round development, new programmes were implemented fast bringing employment and incomes to people. This included industries making items that were earlier imported from the colonial masters. In the Forties the shops in Sri Lanka were full of imported food textiles and everything that was required. In order to enable people to have incomes industries were opened up and local production mounted . The Superpowers found that this development in the newly independent countries was causing unemployment and lack of income in their countries. The SAARC Report of the Independent South Asian Commission on Poverty Alleviation, Meeting the Challenge states that the international countries are for the first time since World War II in need of markets for their products…. So they have put into effect the Structural Adjustment Programme….the Industrialized countries are pressurizing the receipients of Structural Adjustment loans to unilaterally open their economies to goods from them.”

The Structural Adjustment Programme accepted the private sector as the engine of growth and the public sector should not have anything to do with development. The countries had since reaching independence developed various development programmes to enable the march of peasants to be allieviated from poverty and become economically productive. These were all done by Government Departments. It has so happened that my eighteen years’ span in the Sri Lanka Administrative Service was totally spent handling such programmes- in developing the marketing of agricultural produce, in organizing agricultural development, in developing industries and finally, attending to the total development of people. The condition stipulated in structural adjustment loans was that the public sector cannot attend to any commercial undertakings and this meant that all the development programmes that I had laboured in had to be abandoned or deemphasized.

SriLanka had developed a special agricultural marketing scheme where the Government department engaged actively to purchase produce from farmers. Farmers brought their produce to the Fairs and the Department for Development of Agricultural Marketing( Marketing Department-MD) also purchased in competition with traders. The MD purchased vegetables and fruits and sent them direct to their Headquarters in Colombo- called Tripoli Market, where the goods were distributed to a major retail outlet at Tripoli Market and also to over fifty small sales units. The MD was not interested in making a profit. Its aim was to offer a higher price to producers to encourage them to produce more, and simultaneously offer produce at cheap prices to city dwellers-aimed at reducing inflation. The MD had officers in all producer areas who reported the prices at which private traders purchased produce and availability. Private traders that purchased at the Fairs despatched good to the Wholesale Market in Colombo from where retailers purchased goods for sale at their retail outlets. The produce went through three hands which meant three parties keeping a profit. The MD closely followed the availability of produce at the Wholesale Market and the rates at which produce was being bought and sold. The Tripoli Market fixed purchasing prices for produce at a rate higher than what was offered by the traders at the Fairs. The MD sold the produce at rock bottom prices- keeping a margin of only 15% as against a hundred percent margin kept by the private dealers at the purchasing, wholesale and retail units. This system was worked to perfection. The Commissioner of the MD would summon all Assistant Commissioners in the Districts to a conference in he first week of every month where details of produce bought and prices fixed were looked into and we Assistant Commissioners in the Districts were pulled up if we had charged a profit of over 15%. The ideal was to break even. I worked in charge of Tripoli Market controlling the entire Scheme for one full year. This is a system peculiar to Sri Lanka developed by Commissioners RH Basset and later by BLW Fernando. This proved a boon to producers as well as consumers, all achieved by eating into the profit margin kept by the private traders. The MD purchased around ten percent of the total produce but was able, both to ensure that the producers received a high price and simultaneously city dwellers got their requirements at reasonably low prices.

A further development of this was a Cannery which purchased vegetables and fruits and canned them, even building up an export market. With the establishment of the Canning Factory the MD purchased large quantities of Red Pumpking, Ash Pumpkin, Tomatoes and Pineapple that was made into jam, sauce and juice. The MD Cannery was instrumental in making Sri Lanka self sufficient in all fruit products- jam, and juice within the three years 1955 to 1958.

This MD activity was abandoned and the Cannery privatized in 1978 at the advice of the IMF. As a result all jam, sauce and Juice are now imported from as far as Cyprus, the USA and Australia. The producers do not get high prices and the city dwellers have to depend on private traders. Traders have a heyday of high incomes.

The MD also attended to purchase produce in short supply from producers at a high price under the Guaranteed Price Scheme to encourage production. This programme covered paddy, red onions, and various cereals. The purchase of paddy was developed further by handing it over to the Department of Agrarian Services and later to the Paddy Marketing Board. There were rice mills to mill the paddy and this too was the public sector dabbling in commerce and the rice mills were closed down and abandoned. Instead the Structural Adjustment Programme of the IMF saw to it that government units that sought to increase production were gradually closed down and abandoned. Consequently imports increased.

In textiles, Sri Lanka developed handlooms, power looms and Textile Mills importing yarn and this scheme, worked with a major Research Unit, called Velona at Moratuwa saw to it that Sri lanka produced all its textiles by the Seventies. This was directed by the Small Industries Department. The textile section of the Small Industries Department was closed down and this entire programme abandoned, resulting in thousands of textile workers losing their jobs and earnings and causing the country to import all textiles all done as dictated by the IMF.

Government departments like agriculture and agrarian services were crippled and the private sector was moved in to attend to agricultural extension.

Sri Lanka had a major industry making all rail coaches, buses and lorries and only chassis were imported. These coach and lorry making units were closed down and lorries and buses were imported. This caused unemployment as well as proved costly due to having to purchase built up vehicles.

This was the situation in other departments and government controlled commercial undertakings. For instance an efficiently run commuter bus organization was totally scrapped, its vast machinery sold for scrap and abandoned and sections privatized.

This effectively stalled development, caused a fall in production, leading to the country importing everything.

The IMF provided loans freely and the loans were used to fund imports- the net result was that loans coming to Sri Lanka were sent back to the multinationals with profits, all done leaving the loans as a debt saddling the country. This is the process that in the period 1977 to today led to the mounting of the foreign debt to as much as $ 56 billion today.

The private sector was also crippled in an indirect but very effective manner by the provision that the country had to follow a high interest rate policy. As detailed by me:

The IMF and the World Bank advises to follow high interest rates. It has meant that producers and manufacturers have to get loans at around 20% to 30% interest. Can they ever compete with manufacturers in Developed Countries that can get loans varying from 2% in Japan to 7% in the USA…. This is engineered to ensure that local production and manufacturing is costly and thereby raw materials we produce( Like rubber) get exported without local processing. By this method, the riches accruing from adding value to the raw product remains with the Developed Country…The high interest policy also helps foreign banks to make fantastic profits through lending in Third World countries”.(How the IMF Ruined Sri lanka033,34)

This meant that private entrepreneurs had to obtain bank loans paying interest at high rates even to the extent of 25%. Speaking to many entrepreneurs known to me, they confided in me that high interest charged on bank loans made them sell or give up their ventures. They said that it was easier to deposit their funds in deposit accounts and draw high interest than having to toil in enterprise development. The imposition of high interest rates killed the commercial enterprises done by the private sector.

This was the scene in every country that followed the IMF”s Structural Adjustment Programme. It was always stalling production and imports taking its place, also causing unemployment and increasing poverty.

The IMF advocates attracting foreign investment which too means stalling local production. One type of foreign investment is for multinationals to bring some funds initially and set up sales outlets, eateries like MacDonalds and Burger King get involved in local trade . However this eats into our foreign reserves when we allow the investors to repatriate their profits.

Another type of foreign investment advocated, detrimental to the countries because resources in the country are exploited to make a profit, where the country only benefits from the employment created is widely prevalent. In Sri Lanka: Noritake came to Sri Lanka on a tax holiday and used ceramic deposits for making porcelineware. When the tax holiday period ended it was extended. It is now realized that the clay deposits are very low. Further working on the tax holiday no taxes are paid in the country of manufacture, but the products are heavily taxed in their own country and further taxes are charged when the goods are sent to Europe and the USA where sales taxes are charged.”(From: Success in Development)

When wheat imports and flour milling was given to Prima from Singapore, Prima fixes the price of flour and profits are repatriated. Earlier the Government imported wheat and flour and no profit was kept as a Government Department attended to the task.

The IMF was not interested in creating local production. Instead the IMF encouraged SafetyNets of hands out to the poor. The aim was not to create production in the countries.

Sri Lanka though one of the countries that provided rubber, depended on the import of tyres and tubes. A Russian grant enabled the establishment of the Tyre Factory. This was the Government dabbling in commerce and the Tyre Factory was privatized. Purchased by an local entrepreneur, now the Tyre factory was purchased by a international magnate CEAT.

Indonesia had developed BULOG a government organization that attended to agricultural development. BULOG was closed down at the instance of the IMF.


A further method of the IMf was its advice that the countries should do no development planning. Sri Lanka had to abandon Development Planning.. Development Planning is essential to enable development and production. This was a method of stalling development.

A classic case is Pueto Rico. In my words, Luring foreign investment was the model of development that was tried out by Piuerto Rico in the Fifties. This attracted a million $ worth of investment from outside. It was found that by 1980-1986, for evey single US $ imported $ 2.40 was paid as a return on capital.(Beckford: 1989(61) It was found that companies closed down when the tax exemption period lapsed>”(From How the IMF Ruined Sri Lanka)

Following the IMF’s Structural Adjustment Programme from 1977 crippled all development activity in Sri Lanka and confined the administrators to the barracks.

Next week- Get the Administrators out of the barracks to work again. Can it be done?

Garvin Karunaratne, Phd Michigan State University,

Aiuthor of

How the IMF Ruined Sri lanka & Alternative Programmes of Success(Godages:2006

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

Success in Development, (Godages:2011)

Papers on the Economic Development of Sri Lanka(Godages:2012)

Howthe IMF’s Structural Adjustment Destroyed Sri Lanka, Godages; 2022

Selleing the Mother Land& Ideas for Developing Sri Lanka, Godages: 2022


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