by Garvin Karunaratne . Ph.D (Michigan State University)

The recovery for the Ditwah Disaster will require billions. It is a bigger task than fixing all our irrigation tanks and financing the resettlement of people in the Dry Zone, a task well done in recent times.

How is this task to be financed. Already foreign money is pouring in as donations. The IMF itself has approved SDR 150.5 million equal to $ 206 million under the Rapid Financing Instrument (Daily Mirror 19/12/25). Donations are also forthcoming in $ from various sources.

The Disaster caused will require an immense sum of money. The recovery of the Peradeniya Gardens, one of the petty tasks to be done will itself cost Rs 120 millions.

How is the recovery to be financed.

In this connection it is important to note that till 1978 all local expenditure in entire Sri Lanka was done with local Printed Rupees.

It is my opinion that in handling the recovery for this Disaster we have to make an estimate of the cost to be incurred locally as opposed to the funds required in foreign funds The funds required for all local expenses should be made in printed rupees while the expenses required for financing the import of machinery etc. should be done in foreign funds.

Till 1978, when our finances came under  the control of the IMF, all expenses were divided into two categories- local expenses and foreign expenses. The local expenses were met with locally printed Rupees while imports were met with our foreign funds.

It is my humble request to the present Government to kindly consider this fact, when handling this recovery.

I also enclose my earlier writing to further support.

Garvin Karunaratne,

former G.A. Matara

Our increasing Foreign Debt

Sri Lanka did not have any foreign debt when Premier Sirimavo handed over the country to President Jayawardena in 1977. Since 1977 our foreign debt has increased. In my own words:

Running the country on loans and not repaying them was the method that President Jayawardena accepted and ,,, the Foreign Debt of the country kept mounting through out the rule of President Jayawardena and reached SDR 5.5 billion by the end of 1993 and $ 6 billion by the end of 1994 when the rule of the UNP ended.”(From :How the IMF’s Structural Adjustment Programme Destroyed Sri Lanka(2021)

What really happened was that during the period of 17years, from 1977 to 1993, the economy of Sri Lanka was also totally changed from a produce , consume and sell economy, where we lived within our means to a neoliberal import and live economy where loans were obtained and repaying the loans were never envisaged and the release of foreign funds(obtained on loan) for foreign travel foreign education- an economy that inevitably led to debt. The IMF approved the scheme, gave loans initially,effectively made the country indebted and backed out later, leaving the country to face the music of having to face a foreign debt, which tied it down for ever to the IMF

Sri Lanka managed its foreign expenses till 1977. This was done with great care. Foreign Exchange was strictly controlled and utilized for essentials. No foreign exchange was allowed for foreign travel unless that travel was necessary for Sri Lanka. No foreign exchange was allowed for foreign study. An exception was an allocation of foreign exchange for Chandrika and Sunethra Bandaranaike for study abroad and I had the opportunity to ask the Prime Minister Mr Dudley Senanayake as to why he allowed it. I got the reply that it was the only request made by a former Prime Minister of the country and he felt like obliging her. Local industrialists were allocated foreign exchange to import what was required for their manufactures. In 1970 I was in charge of making allocations of foreign exchange to small industrialists. This was done with great care after an inspection of the machinery and also ensuring that what was imported was required to make something that the country required.

The management of foreign exchange was done with great care. In the early Seventies the oil sheiks increased the price of oil three fold and yet Sri Lanka managed its foreign expenses within its means.

In 1977 the control of foreign exchange was relaxed by President Jayawardena. Import restrictions were done away with foreign exchange was made readily available to all persons for anything including foreign travel and when the foreign exchange available was inadequate, foreign exchange was obtained on loan. Initially the IMF gave loans but gradually backed out and the indebted country had to obtain loans in the open market. It was this liberalized process of handling foreign exchange introduced to the countries that led the countries to have an economy that was indebted.

Garvin Karunaratne