Posted on April 29th, 2023


 JR made a huge change to Sri Lanka‘s economy by ‘liberalizing’ the economy. That was in 1977, but JR’s economic policy is remembered   today as well, with deep feeling. His policy is   blamed for the current economic collapse and JR is criticized all over again.

Sri Lanka had liberalized too soon, said critics. Sri Lanka had opened its economy in 1977, while all other South Asian countries commenced opening their economies only after 1990, said economist Srimal Abeyratne.  Sri Lanka was the first in south Asia to openly embrace neoliberalism, added others.  India started implementing neo liberal reforms only in the 1990 and at a much slower pace.   

JR is remembered with deep feeling as the person who brought in the ‘Open Economy’. Critics observed that the ‘Open economy’ did not help to improve Sri Lanka’s economy. It made it worse.  Welfare gains were reversed. Food subsidies were trimmed and transport subsidies eliminated.  The protections that had been in place for small scale businesses were removed. The existing small businesses were closed down but   no new industries were started. This meant that   existing jobs were destroyed without creating new jobs.  

The emphasis was on imports. The private sector was encouraged to import and market almost anything from a pin to a Rolls Royce said critics.  Smuggled goods   flooded the consumer market with low priced imported goods. Local goods could not compete with these goods, their cost of production was too high. Out went the handlooms and the power looms and instead fabric was imported. CWE shops were disbanded, commented  Garvin Karunaratne.

Perfectly acceptable local products such as the Wadsco clock and Menik spaghetti disappeared. Satisfactory local products were replaced by inferior foreign products. To give two homely examples, the imported plastic curtain tape was far inferior to the locally produced cotton item I had used for years. For decades we had used a locally produced file tag for our files. This was replaced by a complicated imported plastic tag with three separate components. These continue to be used in offices today.  The local tag has disappeared.

Food and agriculture were affected by JR’s policy. The Paddy Marketing Board was abolished. The government scrapped the Guaranteed Price Scheme for rice and the farmers had to sell their goods to traders at low prices. Rice mills and paddy stores became neglected to pave the way to import rice.  I could not believe the way the Ambalantota Rice mill had been vandalized. It had been my home for one full year, lamented Garvin Karunaratne.

 A vegetable and fruit purchasing scheme   and a canning factory were set up in the Marketing Department and were functioning well.   Under JR the Marketing Dept was abolished because it interfered with the private traders. The canning factory was privatized.  Instead of buying fruit from local producers they now imports fruits and produce jam, continued Karunaratne.

 The CWE and  the Marketing Department  which purchased vegetable, fruits at fair prices from producer and sold the goods at cheap rate to city consumer, the canning factory which enabled us to be sufficient in jam and fruit juice, and  the rice mills were enterprises which Sri Lanka  had built up over three decades. They were all blown to bits by the JR Jayawardena government at the behest of the IMF, said Garvin Karunaratne.

This policy of importing food stuff continued long after JR. In 2019, a newspaper editorial  said that even kurakkan is imported today.  Cheap imports have taken their toll on the local food production. There have been instances where rice was imported shortly before the commencement of the harvesting season, here, so as to bring down the prices of rice and, thereby, enable big-time millers to purchase paddy at extremely low prices and hoard it. This kind of exploitation has caused many farmers to give up paddy cultivation, unable to recover even the cost of production, concluded the editorial.

Privatization was introduced by JR. The first to be privatized was United Motors. They were selling Mitsubishi vehicles and the Japanese were prepared to pay a big price and buy the firm, but JR said no.  They were finally given 5% of the shares. This trend to privatize continued thereafter. Bogala mines, when it was in private hands it was doing so well .Then the government took it and after that it was sold to the Germans, said Karunasena Kodituwakku.  Assets like Insurance Corporation and Distilleries Corporation that brought in money to the government were singled out and privatized for a song.

Petroleum Corporation’s Sapugaskanda refinery worked well throughout the 1970-77 period, despite difficulties. A new urea plant was built next door by the State Fertilizer Manufacturing Corporation, to produce urea for fertilizer for domestic agriculture, using naphtha, a byproduct from the refinery. After JR took over in 1977, the government decided to export the naphtha.    It shut down the new fertilizer factory and handed it over to a private business for producing nails.

The Foreign Direct Investment (FDI) brought in by JR did not benefit Sri Lanka. The benefits went to the  foreign company. The best example of this is Prima, the first recorded FDI signed by the JR  government.  JR gave Prima a lucrative deal in Sri Lanka.

 Prima had started as flour mill in Singapore in 1961 and rose to be a world flour milling company. Prima wanted to expand and had decided on Sri Lanka,   with Maharajas as the local negotiating partner.  The preliminary discussions were in Singapore between Cheng Tsang Man, founder of Prima and a representative of Maharajas.

 Sri Lanka was purchasing 400,000 tonnes of wheat mainly from France. Cheng proposed setting up a state of the art flour mill in Sri Lanka, with foreign investment of more than USD 50 million. For every 100 metric tonnes of wheat the government supplied, Prime would give 76 metric tonnes of wheat flour, keeping the 24 metric tonnes of bran. There would be no payment from Sri Lanka. In 20 years the mill would be handed over to Sri Lanka.   It sounded good but actually, Prima was benefitting, Sri Lanka was losing. Prima was getting the valuable part of the wheat, the bran. Sri Lanka was  getting the left over flour.

Negotiations began with JR’s government .Prima were hardnosed business men, who knew to strike a deal. After an interminable amount of time, there was agreement on both sides. Prima got unprecedented tax concessionsand government allocated land for the project in Trincomalee.

Prima was quick off the ground. Prima had earlier identified the perfect location to build the Prima facility, at China bay, Trincomalee through an aerial survey of the Trincomalee harbor. Mitsui Japan was nominated for the construction of the flour mill. This was Mitsui’s maiden foray into Sri Lanka. Prima brought in the  best expertise and world’s best equipment from Germany for the mill.

Construction was completed in 1980, and flour milling by Prima Ceylon started in China Bay. The collaboration was so close between government and Prima Company that the foundation laying ceremony was held at the Government Agent’s residence, recalled Jayatissa Bandaragoda, then GA Trincomalee .

 The Prima project was   presented to the public, as though it was a public   investment project, which it was not. JR used this mill as a trump card in his election campaign. He would craftily say on the election platform’ I am giving you eight kilograms of grain’, but never said that the  public was paying for it, observed Sumi Moonesinghe.

When  the time came for the plant to revert to Sri Lanka,   20 years  later, President  Chandrika  Kumaratunga sold the mill back to Prima. If it had been placed on the open market it would have sold for much more, said Sumi Moonesighe.  

In 2019 Prima  happily  celebrated 40 years’ uninterrupted operations  in Sri Lanka. Prima said it is getting on splendidly. It was operating one of the largest integrated flour-milling complexes in the world . The  silos store 350,000 MT of flour with the harbor having the capacity to berth vessels with a 100,000 MT capacity. Prima exports 45 different flour varieties. Wheat is imported from the US, Canada, and Australia.   Exports are mainly to South East Asia, India, the Middle East, and other Asian destinations which include Malaysia, Hong Kong, China, Indonesia and Sri Lanka. ( Continued)

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