President’s remarks on IMF and Beyond.
Posted on April 1st, 2023

Sugath Kulatunga

Delivering the keynote address at the ‘Economic Dialogue – IMF & Beyond’ President  referred to Sri Lanka’s missed opportunities for development, and mentioned the failure to implement D.S. Senanayake’s proposals and the Shenoy Report of 1965. He added that the country’s progress was hindered by the ethnic issue that turned into armed conflict in the late 1970s, which impeded the chance to rebuild the country’s foundation for development.

My comments on the D.S. Senanayake proposals which were posted on Facebook and LBN are as follows:  In 1944, the State Council resolved to launch a State Project of Industrialization in Ceylon. In the same year there was the – Industrial Corporation Bill. The concept of socialist industrialization was keenly advocated by the Marxist parties which believed that full employment could be achieved only through industrialization. In the same year J.R. Jayawardene (JR) moved a motion in the State Council for the preparation of a complete plan for industrialization. There was a firm bipartisan consensus on industrialization with a different emphasis on ownership. D.S. Senanayake (DS) was a prime mover of the plan for industrializatione briefly as follows;

At the general election of 1947 the UNP fell short of a majority and had to form a government in coalition with the All Ceylon Tamil Congress. The success of the left parties at the 1947 election alarmed DS who was an astute politician. He was aware that the left could build a mass base with industrialization. DS had a staunch commitment to the development of agriculture through colonization. He also had the motive to create a pool of peasant farmers who would be a strong base for the UNP. The project had both a nationalistic and political flavor and was vigorously pursued in the face of criticism from the left parties. But for the political bias, DS could have steered a two-pronged strategy for the development of the country leading to food security and full employment through industrialization. We had the funds, physical and human resources, and the infrastructure to venture into manufacture. But politics prevailed and we missed the most important opportunity for an early start of a manufacture-based economy with export orientation.

Maneuvers of DS on succession kept JR, the best brain in the party, out in the cold. If JR succeeded DS, he who believed in planned industrialization could have introduced industries with modern technology with the help of the Japanese who were under obligation to him for his open support to Japan, at the war reparation conference at San Francisco in 1951 where he rejected reparations and quoted the Buddhist saying Nahi verena verani.

President also said that ‘When we became independent, Mr. D.S. Senanayake said let’s be independent, cultivate and let us aim to be self-sufficient in rice. When we saved that foreign exchange, we’ll be much better off.”

Dudley Senanayake and all succeeding governments followed the same policies of paddy cultivation, but we are still not self-sufficient in food and meet 40 % of our food requirement of rice and flour with the import of wheat flour.

President added that The second chance came again in 1965 with Mr. Dudly Senanayake’s government and the Shenoy report. The starting of industry, the Industrial Development Board, education reforms, increasing productivity and tourism. Some of these were implemented, but the Shenoy report was not implemented, and as a result, we lost the next opportunity.If we had gone ahead with those reforms, it was similar to what Park Chung-hee brought in South Korea and Lee Kuan Yew brought into Singapore.”

Shenoy was a student of Fredrick Hayek who was the founder of the extreme neo liberal Mont Pellerin society. Perhaps Shenoy may have even been a member of this society which believes that the state has only a minimum role in the development of a country. President Wickremesinghe was a longstanding member of the Mont Pellerin society.

President’s reference to Singapore is not very relevant. Singapore did not resort to privatization but introduced a super management model in Temasek as a holding company of SOEs with a current assets equivalent to around USD 283 billion, which is about 4 times the amount of Sri Lanka’s Gross Domestic Product (GDP). Thanks to Dr. W.A.Wijewardhana  we have access to the unpublished report of Shenoy. Shenoy starts his report by remarking that Ceylon’s economy has been inflicted with 3Ps of maladies in 1950s and 1960s, namely, the maladies of production, prices and (balance of) payments. Amongst his recommendations are balancing the budget, listing state corporations in the stock exchange, give cash subsidies instead of commodity subsidies, Float the rupee and remove exchange and import controls. There were no recommendations on the first P of production.

President Wickremesinghe also urged that If we are to do this, we must remember that one of the biggest issues that held back our growth is the ethnic issue. We have to think as Sri Lankans. We cannot divorce that issue from the economic issues. There are two E’s as far as I can see. And we have to address both those issues. I am not dealing with that issue now.”

President must make a clear definition of the ‘ethnic issue’ before making any attempt to solve it. It is auspicious that he is not touching that can of worms now.

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