What did happen to my Motherland-Sri Lanka
Posted on July 9th, 2022

by Garvin Karunaratne

With queues for fuel extending to miles at Petrol stations, with queues for cooking gas, essential industries like Sevanagala sugar closing down due to lack of fuel, scarcity of food and essential food getting beyond the reach of people due to the 80% devaluation of the rupee, Sri Lanka has a doomed future. With Ministers scrambling with the begging bowl to Russia, India and the Middle East begging for foreign companies to open up fuel distribution in Sri Lanka, the problem of fuel supplies is likely to be solved. However that will definitely increase our foreign debt .

Even if fuel is found, a food scarcity of immense proportion will inevitably come within months and the Prime Minister’s statement that the scarcity of food will affect 4 million means that 4 million will face starvation and of them a million or more could possibly die of starvation. This not wishful thinking. Instead it is what will really happen as we do not have any plans for development now. All what we have is mere statements. The only definite programme we have seen is the giving of land deeds for those on government land, proceeding at a thousand or more deeds a day in Kurunegala and Puttlam Districts. This was a pre requisite for the signing of the MCC Compact by the UNP in 2019, which meant to divide Sri Lanka into three segments with the Central Segment going to the USA for 200 years.

Minister Dhammika Perera is right when he called for the resignation of Prime Minister Ranil Wickremasinghe as uptonow he has failed to attend to any development to allay the economic woes in the country. What is immediately required is a crash programme to cultivate crops- and make all that we imported. At Matara,We did find how to make crayons and did make crayons within 4 months in 1972 under the Divisional Development Councils Programme. We can produce every food item other than wheat flour but we are pussyfooting and there is no crash programme to get production going.

When and why did this happen.

Till President Jayawardena won the elections in 1977 Sri Lanka managed its expenses within its incomes. The local expenses- running the government departments and all development programmes was met with Rupees- derived from taxes supplemented with printing money. Though Rupees were printed it was carefully handled and every rupee accounted for. The idea held by certain economists that printing money causes inflation is nonsense. Inflation is caused by Devaluation, increases in the prices of imports and providing money to people- the Safety Nets in IMF language. .

I served in senior positions, as the G. A. Matara, as the Deputy Director of Small Industries and as the Senior Assistant Commissioner of Agrarian Services which attended to minor irrigation and paddy production and marketing. All development work was done with Rupees. Then the entire country was developed and the entire government tasks – building large tanks, running departments that attended to agriculture irrigation- and all tasks were done with Rupees. I worked as a Consultant to the Government of Bangladesh in 1981-1983 and every government activity was done with Taka, the Bangladesh Rupee.

The input of foreign funds from exports, and other sources was carefully collected-no students were financed for foreign studies and no foreign funds were given for foreign travel etc. This foreign money was first spent on essential imports- food, medicines and allocations to keep local industries moving and very small allocations were made to import essentials like fridges and cars.

Even today while our people are starving for lack of food, medicines and fuel foreign funds are allowed for foreign travel, etc. We are not controlling the incoming dollars.

How did all this change. When President Jayawardena was elected in 1977 he went to the IMF for funds and the IMF imposed Structural Adjustment on Sri Lanka, which meant that Sri Lanka has to stop all development work, freely use the foreign funds obtained on loans to allow the import of every luxury item, enable the rich to live in luxury, send off their children for foreign study, go on cruises and foreign holidays all with the money borrowed on loans. The IMF even said that there need be no repayments for five to ten year periods to bribe the leaders to get their approval. Under IMF advise major development programmes like the Marketing Department and its Cannery and the Divisional Development Councils Programme were stopped. It is following this IMF prescription- structural adjustment that made Sri Lanka indebted. Till 1977 Sri Lanka was not in foreign debt.

Sri Lanka built up a foreign debt by following the IMF’s structural adjustment.

The World Bank itself tells us of the major change that was made in running our economy in 1977.

A major reversal in policies took place in 1977, when the Government decided to change the economic philosophy that had dominated decision making for decades and to limit the role of the State in the economy, increase that of the private sector and more generally increase the role of the Market Forces in the allocation of resources. Sweeping deregulations affected all sectors of the economy. Price Controls were eliminated, barriers to entry in industry were removed, foreign investment was encouraged, domestic trade was opened to the private sector and financial markets were liberalized. …

The new policies brought about a remarkable improvement in economic performance. The GDP growth rate at only 3 %in 1970 to 1977 increased to close to 7% in 1978-1980 and remained at 5% in 1981-1985”(From Trends in Developing Economies,The World Bank: 1990.

However it is important to note that the same Report laments the decline in the Sri lankan economy. In the words of the Report:

By 1986 the deterioration of the economy had become evident. . The growth rate of the GDP slowed to under 4%, unemployment rose to about 17% and gross official reserves declined to less than two months’ imports”.

Sri lanka had no foreign debt till 1977. By liberalizing the use of foreign funds in 1978 by allowing anyone grants to get overseas education, do foreign trips, import all luxury items etc using loaned funds the Country built up the foreign debt. By the time the UNP lost in 1995 the foreign debt had built up to $ 9.7 billion. Chandrika continued with this type of economy and the foreign debt grew to $ 11.3 billion by 2005 when Mahinda Rajapaksa took over and followed the same policies. By the end of 2014,when Mahinda Rajapaksa lost the foreign debt had built up to $ 42.9 billion and by the time Yahapalana ended in 2019the foreign debt had built up to $ 49.5 billion.

Sri Lanka fell into economic bankruptcy in 2022 when it failed to honour its loan repayment- defaulted on its sovereign bond dues. From 1978 as we built up the foreign debt there was no method of paying up the dues of interest and repayments with our funds. Instead we had to borrow further to pay up and when that too was not possible we started floating international sovereign bonds at high interest.

The problem in 2022 was that out of our foreign reserves of some $ 7 billion we spent $ 3 to 4 billion on facing the Covid epidemic and in the meantime our dollar income from tourism and the mid east workers dwindled. We were taken unawares and failed to find loans in time to bridge the gap. Our advisers were sleeping and the battleship hit the rocks without a dollar in sight. In the above process from 1978 under the advise and care of the IMF we were living well beyond our means and it was inevitable that some day we will face bankruptcy.

On 9/7, the President has decided to resign on 13/7 and the Prime Minister has also said he will resign. All political parties are due to decide on an Acting President and a Prime Minister to run the country till an general election is held.

The only method I can see is to get back fast to how we managed the economy before the IMF came in, namely manage all government development with Rupees and carefully control every dollar that the country earns from exports, tourism and other processes. In the meantime there has to be major programmes aimed at producing all possible agricultural and industrial items. and use firstly for consumption and thereafter for exports.

In this effort we are at a loss because since 1978 we confined the administrators to the barracks and did no development work whatsoever. In 1971-73 at Matara I had only one Planning Officer and some twenty Development Assistants. With that staff and the katcheri staff we did yeoman work in employment creation including many small scale agricultural and industrial projects, establioshed a Mechanised Boatyard turning out seaworthy boats. On my own steam without Ministry approval my Planning Officer found the art of making crayons and we did establish a Crayon factory which did succeed in attending to islandwide sales. The Divisional Secretary at Kotmale established a paper factory using waste paper. These successful concerns were stopped on IMF advice.

The one method is to open up a Development Programme to create industries to make every item that we imported. If we could have in 1972 found the art of making crayons and establish a factory within 4 months there is not a single item that we cannot make. That will find employment for millions.

That was the idea that Minister NM Perera had in establishing the Divisional Development Councils Programme;

The main objective is to create employment opportunities in rural areas through smallscale projets in agriculture, industry and in the provision of infrastructural facilities. Making use of the resources available locally, increase national production and involve the people in national development work…. To fulfill the aspirations of thousands of young men and women to whom life will lose all meaning unless they can find a useful place in our society”( Budget Speeches: 1970 & 1973.)

That is the only hope today. The IMF has never helped any country they betrayed. We ourselves have to muster our resources and Mother Nature will pour bountiful; not betray us like the IMF.

We have of course to re think our extension effort, buildup the agricultural extension system with a peoples base like a cooperative and also re appoint the village level agricultural workers that were in 1993, promoted to the rank of Grama Niladhari. It is sad that our excellent agricultural extension service of the Sixties was sacrificed- today the agricultural extension service does not exist below the Divisional level. Let us get back the extension development systems we lost to make up for the lost decades since 1978.

These are the words of a person who designed and established the Youth Self Employment Programme of Bangladesh in 1982 within nineteen months and trained the Bangladeshi staff to continue it and today that programme has guided over three million youths to be commercially viably employed. That Programme is today the largest employment creation programme the world has known.

Garvin Karunaratne, former GA Matara

Author of:

Microenterprise Development..:The Way Out of the World Bank Stranglehold, Sarasavi, 1997

How the IM Ruined Sri Lanka & Alternative Programmes of Success, Godages, 2006

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

How the IMF’s Structural Adjustment Destroyed Sri lanka, Godages: 2022

9/7/2022

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