KAMALIKA PIERIS

JR made radical changes to the economic policy of Sri Lanka .He brought in a free market economy, ending   years of socialist bungling. The economic liberalization of 1977 pioneered by JR made radical changes in the economic policy of the country, said economists.  The 1977 economic reforms saw an initial burst of healthy growth and the ‘take off’ of the economy, but it became sluggish thereafter.  It did not lead to any genuine economic advance.

JR’s ‘economic liberalization’ started the process that led the country into the economic disaster it is facing today in 2022. He said let the robber barons come. Who on earth in their right minds would say, Let the robber barons come asked a critic. He gave the wrong signal when he said let the robber barons come” said another.

JR   introduced Free Trade Zones to the country. The Greater Colombo Economic Commission Act (GCEC) was passed in March 1978 and Sri Lanka’s first Special Economic Zone was established. Upali Wijewardene was appointed the Head of the GCEC. He succeeded in inviting blue chip companies such as Motorola to set up shop here.

J.R. Jayewardene heralded the creation of Free Trade Zones as if they were something wonderful, said critics. GCEC brought some glamour, some jobs and a certain illusion of movement into an economy which had opened up after years of   socialist policy, certainly. They provided some jobs for unemployed youth, and put a little money in their pockets. This was very welcome after the stagnant Bandaranaike era, analysts said.

But JR’s Free Trade Zones were a failure.  They did not lead to the massive production economies that transformed countries such as Japan and South Korea. FTZs never helped to established industry in Sri Lanka. The foreign companies that came here used our cheap labor, our land, water and other resources and repatriated the profits. Then they left the county and went elsewhere. Sri Lanka got nothing in return.  FTZ did not create wealth for the country.

Sri Lanka did not have foreign debt till 1977. Up to 1977, Sri Lanka was able to manage its budget   and make all payments. 1976 and 1977 happened to be the last years when our country was run without a deficit.

Before 1977, we had two budgets. A local rupee budget for handling all work in the country, including major development tasks  and a separate foreign budget with the dollars we collected from imports.

We spent the dollars we had, first on essentials, and if we had anything left, we gave small allocations to import cars and electrical items. We never dispensed funds for foreign travel unless it was necessary for our country. Nor did we allocate any foreign funds for students to study abroad, said Garvin Karunaratne.

JR changed this. JR arranged for Sri Lanka to obtain foreign loans, which immediately meant foreign debt as well.  JR borrowed from the IMF.  This was, I believe, the first time Sri Lanka turned to the IMF for loans.

IMF readily provided dollar loans.  The IMF even provided grace periods where the loan installments and interest need not be paid-.  Then government could freely spend and leave the burden of repayment to their successors.

Sri Lanka started living on loans.    We sought foreign loans and even sold our assets to fund the budget itself .Sri Lanka was advised to engage in deficit budgeting which meant spending more than we earned.  Since 1977 we have been following this ridiculous concept, said analysts.

This tilt to IMF would have helped USA to increase its hold over Sri Lanka as well. The IMF was dominated by the US which was its biggest contributor and therefore had the largest voting bloc. This meant effective veto power.

The national interests of the United States are strongly supported by the International Monetary Fund, reported officials.  The IMF is a very good deal for us. Its programs cost us nothing yet it provides enormous benefits for our economy and our foreign policy.

When JR sought the help of the IMF in 1977, the IMF imposed condition for gratning a loan. These conditions included a demand to slash welfare assistance, to privatize state institutes, to impose tax concessions on rich and taxes on the poor, and  sell the resources of the country .

IMF insisted that funds would be given only if the country follows the Structural Adjustment Programme of the IMF.  This meant that Sri Lanka had to liberalize the spending of foreign exchange. Sri Lanka had to remove the restrictions over imports and permit free imports. . It had to allow those who could afford, (i.e. the rich,) to spend money as they wished.  The foreign funds loaned to us were, in this way, shunted back to the donors through purchases and services.

Garvin Karunaratne summarized it this way. Sri Lanka managed its foreign exchange effectively, till President Jayewardene was fooled by the IMF to follow the Structural Adjustment Programme,   which advised him to allow the rich to spend foreign exchange, as much as they wanted, for endless foreign travel to educate their children abroad, import all luxury items. IMF provided loans for this purpose and even provided grace periods when the service and interest charges were not to be paid,   leaving future leaders to bear the brunt of repayment, concluded Garvin.

The IMF also laid down that the public sector, (i.e. government) should not carry out   any   commercial activity.    The MEP government of 1956 had introduced industrialization at state level, and set up industries as government concerns, usually through corporations but also in government Departments. Thanks to IMF these were either closed down or privatized. The country felt this but could do nothing about it.

There was a slant to this privatizing. The intelligentsia observed that it was the corporations that made profits, and brought money to the Treasury, that were singled out and privatized for a song. These included Insurance Corporation and Distilleries Corporation .Both were making profit. Critics were indignant about this.

Hope Todd, Chairman of National Small Industries Corporation started Borwood Ltd, in the late 1960s. Borwood   made school furniture using rubber wood. Hope had worked with the Assistant Conservator of forests and an engineer to develop the techniques for this. The company had exported to China. Borwood had also been used in the new Parliament.  But JR got rid of the local industries, and Borwood also went,” said a critic.

The government textile manufacturing units, both handloom and power loom, also textile mills were privatized or abolished.  Out went the handlooms and the power looms and instead fabric was imported, said one critic. I myself, remember going to a sale of local silk   held by a government Department. That division was closing down.  I think   Pugoda and Thulhiriya Textile Mills were also affected.

Marketing Department had a Cannery that made Sri Lanka self sufficient in all fruit preparations.  This was closed down after the IMF came in.  Vegetable & Fruit Purchasing & Sales Scheme that assured high prices to producers and also made available goods at low prices to consumers was also abolished.

In the pre 1977 period we never imported a single rail carriage or bus or lorry. We imported the chassis and built them ourselves. Local Bus/Lorry Body building industry was started in the 1950s. Passenger coaches were locally built on imported chassis. Similarly, trucks (lorry bodies) were also locally built during the same period. Bus/Lorry Body building industry reached its peak in the mid 1960s to the late 70s.

CTB was well equipped with foundries and workshops: the Central Workshop at Werahera became the largest in South Asia, equipped with machine tools from India, Germany and the Eastern Bloc. In 1974 the assembly of bus chassis and prototypes of a locally manufactured bus and a car rolled out of Werahera. Preference was given to locally manufactured spare parts, and the automotive spare parts industry grew rapidly.

the industry declined after 1977 when the open economic policy of the  government came into play. Then in the mid 1980s the SLTB’s own local bus body building facilities were  abandoned and Indian imports in complete built form replaced the local manufacture,.

Local enterprises also closed down because the bank interest rate was jacked up to 25%, which made enterprises uneconomical to run.

JR’s Open Economy encouraged the excessive import of consumer goods. This country started to import all items killing the local industry, complained critics. The IMF policy killed    small and medium industries, catering to domestic needs, which had started to blossom in Sri Lanka. The replacements were not of better quality.

There was a pasta manufacturing company, Menik, which I patronized. This vanished and was replaced by an imported product, which takes the same length of time to cook. There was an excellent locally made cotton Ruflette tape, which I used for curtains. This was replaced by an imported tape, made of a   stiff synthetic material, difficult to sew or use.

Prior to open economic policies introduced in late 1970s, the quantity of milk imported was low and there were no adverse effects to the dairy industry of Sri Lanka. However, with the liberal economic policies, milk powder importation has increased rapidly and trading in milk powder became a highly profitable venture In addition, the multinational companies spent a staggering sum on milk powder commercials and  changed the attitudes towards milk powder consumption. This resulted in the preference for imported powdered milk.

In 1978, the tariff rate for powdered milk was five percent whereas for the liquid milk it was 60 percent. Moreover, policymakers announced milk as an essential food in 2007 and all taxes and levies on milk powder were removed to safeguard consumers. Experts said that it was not advisable to put milk powder into tea, better drink it neat, but this was ignored.

The liberalization of the economy was a success story, said Daya de Siva. Now we can buy a TV, a washing machine and pressure cooker. Now Colombo pavements are piled up high with Australian apples, Jaffa oranges, and Hong Kong wrist watches. Thanks to JR we can eat good ice cream now. We can eat Cadbury Chocolates and Danish cookies again. I really enjoy shopping at supermarkets, Daya said.

The Open Economy delighted the rich, because luxury goods came in. For those with a sweet tooth, imported chocolates and imported ice cream in plenty. Recently I bought a packet of ‘Himalayan rock salt’, imported from Pakistan and packed in Sri Lanka. I bought it because I had never even heard of Himalayan rock salt and wanted to see what it was like.  But even as I purchased the item, I thought that it was not an essential item for Sri Lanka and need not be imported.  (Continued)