By Garvin Karunaratne
It is perhaps the right time to address our economic situation. We are currently deep in debt with some $ 60 billion to repay which we never can. Poverty is on the increase because 51% of the country’s income is earned by the richest 20% of the people.
In 1976 we did not have foreign debt. In 1977 our foreign debt was only $ 750 million. At the end of 2014, the foreign debt was only $ 42.9 billion. Even in the process of servicing that debt- paying the interest due and the instalments due per year we fall further into debt because we have to borrow dollars at high interest to meet that payment. We have to face a payment of $ 16 billion in the next 4 years to service our foreign debt. We are facing a drop in exports, and an increase in imports. Let us not forget that the massive Gal Oya Development was all done with our funds. This denotes that in the early Fifties we had a sound economy.
It is necessary to understand how did we fall into this
predicament in order to find a way out of this mess.
We had a sound economy, though facing some problems till 1977. There were ups and downs, but we were self-reliant. We often ran into problems like in the mid-Seventies when Minister Kobbekaduwa in the Government of Sirimavo decided to take over all plantations over 50 acres, which crippled the private sector. Fifty acres is not an economically viable extent to run a plantation. We ourselves crippled the private sector. Then came the demise in paddy production It is a landmark achievement to become self-sufficient in paddy while implementing a rice ration scheme- an achievement never reached anywhere.. Premier Dudley devoted all his effort at increasing paddy production and he did succeed. It was unfortunate that the next Government of Premier Sirimavo de-emphasized agriculture and instead concentrated on small industry and youth employment which had mediocre success. The Divisional Development Programme of 1971-77 provided employment to only 33,271 youths, some of them on a part-time basis. The possible success of this DDC Programme was hindered by the JVP uprising of 1971 which crippled the rural areas for some six months. All development work was at a standstill.
It also happened that the
socialist policies of the 1971-1977 period were not appreciated by the
Superpowers who imposed sanctions on us, though very unofficially, which caused
problems. Take the bread queues of 1974-1975. This was due to the USA not
giving us flour under the PL480 Food Aid scheme on discounted terms, which they
were giving us earlier. The Government in the period 1972 to 1976 found it an
extremely difficult task to balance the foreign exchange budget due to high
increases in import prices. the cost of imported rice increased from Rs.1015 to
Rs. 2639 per long ton in 1974. Sugar increased from Rs. 3093 to Rs.5486 per
long ton. Flour prices increased from
Rs. 1386 to Rs. 2124. per long
ton.(From: How the IMF Ruined Sri Lanka: 2006)
Britain insisted that we
pay in dollars to the tea multinationals for the plantations we took over and we paid that bill. Despite all these price increases and
payments to be made in foreign exchange, the Government was able to have a
positive balance of payments of US $ 58 million
in 1976 and $ 117 million in 1977. The value of the Rupee was maintained
at Rs 15.50 to the $ US in October 1977
and the foreign debt was nil in 1976 and only $ 750 million in 1977. Though there were bread queues and shortages,
these statistics speak highly of the economy of the period 1970-1977.
What happened in 1977 for a country that was self reliant and had
no debt to become bankrupt?
When the Government of President Jayawardena requested Aid from
the International Monetary Fund at the end of 1977, because we could not find
finances- due to the fact that the prices of oil were increased threefold, the
IMF imposed various conditions that had to be followed. It was the intention of
Finance Minister Ronnie de Mel that Sri Lanka will be able to get on its feet
based on following the advice of the IMF.
The IMF imposed the Structural Adjustment Programme on Sri lanka
as well as other Third World countries that sought financial assistance. The
economic theories that had been followed till then had enabled our countries to
meet all our expenses and to provide for local development- our countries were
making what our people needed and the incoming foreign exchange was carefully
handled and allocated with care. Our imports were controlled. This led to a situation where our countries
imported less manufactured goods from the Superpowers. The inability to sell manufactures crippled
the economies of the Superpowers and they came up with an alternative economic
system which they imposed on our countries to cripple our economies. This was
the Structural Adjustment Programme. It was intended to restructure our
economies to make us indebted and make us economically subservient.
This SAP was first made up by the Chicago School of Economics by
Professor Milton Friedman and adopted by President Ronald Regan and Prime Minister Margaret
Thatcher and imposed though the IMF on our countries whenever we requested
help. The fundamental premise was for
our countries to give up all controls on imports and the use of foreign
exchange. We were told to allow all imports and to allow the free use of
foreign exchange for foreign travel, for foreign cruises, and to even send
people for foreign study(this helped the rich) and when we faced shortages of
foreign funds in this process we were given loans. This was aimed both to
create sales for the manufactured products of the Superpowers as well as to
make the Third World countries indebted so that they can be brought under
control- the countries had to get more loans to service the loans they had
taken and will have to abide by the Structural Adjustment provisions which will
make them further and further indebted, a situation from which they can never
recover.
To help this process we were given grace periods of 5 to 10 years
when we need not service the loans and our leaders jumped at the idea because
they may not be there when the days comes to repay. There were additional
clauses that crippled us. We were asked tlo impose high interest rates and Sri
Lanka hijacked interest rates to some eighteen percent which meant that banks
charged twenty five percent. This put off all our entrepreneurs from
manufacturing. They closed down their ventures and instead enjoyed high
interest on fixed deposits. While Sri Lanka follows this high interest rate
policy even till today India totally rejected it. Today finance is available to
people in India at 8 %. Our industries had to get crippled to enable the
Superpowers to sell their manufactures.
We have all become colonies once again. We produce raw materials get
them exported and then buy the manufactured product from the Superpowers.
During the time when we were sovereign- from the time we became
independent till the time we became
appendages of the Superpowers by following the SAP conditions (at the end of 1977 in Sri Lanka) we had
built up a development infrastructure to enable our producers to sell their
produce at reasonable rates. We built up the Marketing Department(MD)
activities, commenced under Premier DS Senanayake. There was a vegetable and fruit marketing
scheme to buy at high prices from producers- prices higher than what the
traders bought. These were brought overnight to the cities and sold at low
rates to help city dwellers to buy at low rates. I happened to have been in
charge of this scheme and can vouch for its success. Our motto was to keep a
margin of 15% while left to the traders they kept 100% or more. That was how we
killed two birds with one stone- to provide a high price to the producer as
well as to sell at low prices to city folk.
Thereby we controlled inflation. The Marketing Department had a Canning
Fctory where fruits were processed into jam and juice. The MD purchased the total produce of Red
Pumpkin, Ash Pumpkin and Pineapple and made them into Golden Melon Jam, Silver
Melon Jam, Pineapple Jam and Juice. Our producers became rich and we needed no
imports. This was a pain in the neck for the Superpowers who wanted sales for
their fruit. They decided that the Govcernment should not have any commercial
undertakings. The Marketing Department was scrapped. Its Cannery was privatized. While we used the Cannery to make Sri Lanka
self sufficient in fruit and veg preparations, the privatized cannery runs to
make a profit. No wonder we have on our shelves Tomatoe Sauce and Vinegar from
the USA, fruit juice from USA and Australia, just to mention a few items.
We also had a Paddy Purchasing Scheme where we purchased paddy at
a premium price from genuine producers.
After 1977 this Scheme was altered to purchase from anyone. The traders
collected paddy from the farmers and handed over to the Government and
benefited from the premium price offered by the people. In the pre 1977 Paddy
Purchase Scheme paddy was purchased only from genuine producers on a list
prepared by the agricultural overseers/ agrarian services officials. After 1977
the purchases were from anyone and the premium price paid did not serve to help
the genuine farmers.
Ronal Regan and Margaret Thatcher directed the IMF, under their
control to cripple our economies and make us ‘colonies’ once again and we were
the losers. What is sad to realize is that almost all our economists fail to
understand the ‘economics’ underlying the Structural Adjustment Programme and
its effects. Our Universities are full of qualified economists, but analyzing
the Friedman economics is far beyond their comprehension.
How we once do it? We imported chassis instead of coaches and
built the chassis into busses and at Ramalana we made all the coaches required
for the railways. In that manner we made
a controlled economy. We were self sufficient in all textiles. We imported
cars- never luxury models and that was done by import controls. Some think that
import controls will lead to chaos. I can assure that there was no chaos. I
myself handled small industries and was in charge of allowing foreign exchange
to import machinery or an ingredient that was needed for making some item. I
can assure anyone that every genuine industrialist was satisfied.
Way back in 1972 I wanted
to establish an import substitution industry. I decided to make crayons and my
Planning Officer Vetus Fernando, a raw chemistry graduate, worked on experiments to find the art of
making crayons locked up in the Rahula College school science lab for three long
months from six to midnight every evening and did succeed. I decided that a cooperative should be set up
and Coop Crayon was born. I summoned Sumanapala Dahanayake the Member of
Parliament for Deniyaya who was also the President of the Morawaka Cooperaive
Union and authorized him to use cooperative funds and set up an industry. I had
no authority to order the use of cooperative funds but in the national interest
we always bend rules. Sumanapala was a maverick who too connived to bend rules
for the benefit of the country. It was a handmade crayon like most Chinese
products of today. It was a difficult
task to have exact quantities, boil to a certain degree and then pour into
glass jars. But it was done, established in some three weeks under the personal
direction of katcheri officials who worked day and night to assure the quality,
training the youths who were workers. Coop Crayon was easily equal to the
qualility of Crayola of today. We had
many problems to surmount and we did it all. We were refused an allocation of
foreign exchange by the Ministry of Industries because we were a cooperative
and the officials there did not want to bend rules in the national interest. I
then approached Harry Guneratne the Controller of Imports who had earmarked
dollars to import crayons. It did not take long to convince Harry that by
giving us a small allocation he could stop imports. He readily agreed and we
sought the approval of his Minister, Illangaratne to do something wrong- in
administrative rules to use funds earmarked for imports to be used for
manufactures. Minister Illangaratne not only approved it but insisted that we
should establish a crayon making factory at Kolonnawa, his electorate. This detail of how we once did –how the
member of parliament Sumanapala Dahanayake slaved to establish Coop Crayon that
had islandwide sales within a few months illustrate that we can such feats if
called upon again.
. It was the IMF trap of the Structural Adjustment programme that
really trapped us and we have now in the few decades from 1978 lost our
bearings. The few illustrations of what we did once achieve illustrate that we
can win.
Now we come to today. As illustrated though not in great detail we
once did it and can do it again
This effort has to get support from the Government in departing
from the high interest policy, having controls over imports to ensure that we
do not import anything that we can make. For instance we can become self
sufficient in all our fruit and fruit juice requirements in one year because we
have mangoes and other fruit in plenty. What has to be done is to set up small
scale fruit preparation industries and develop an industry. That is a task that
can be done in a few months.
This is true of many things we import. The mantra that has to be followed
is Import Control and Local manufacture and if we cannot do that we will be
doomed for ever.
In addition to all this there has been increased corruption which
can be effectively stopped somehow. I can assure that the Members of parliament
and ministers till 1973, the year I left were not corrupt. Corruption was not
in their veins. They were all fighting with the officers to get development
tasks done.. It is my opinion that we can get out of the quagmire of
corruption.
However many things have to be done. Economist Sanderatne cries
aloud in the Sunday Times that agriculture has got lost. Why? We have made a few mistakes. Take
agricultural extension.
Let me emphatically state
that we have crippled our agricultural exztension service in the Seventies and
Eighties. Firstly the World Bank(at the behest fd the Superpowers) decided to
cripple our extension service. First they wanted our countries to privatize the
Seed Research Stations, which we did.
Then they wanted to cripple the service. In our countries the
number of farmers are legion. The only method of working with them to find
their needs, provide good seeds etc is through a cooperative network and our
countries had built up able cooperatives to muster and enable farmers. The
World Bank came up with their Training and Visit System of Extension which they
forced on our countries in around 1978. When Our administrators refused the
World Bank gave us loans and grants and we readily complied. Giving us a loan
or a grant is the bait offered by institutions like the World Bank and the IMF
and even by the Superpowers.
Next, during the days of President Premadasa, he promoted all
Agricultural Overseers- those who manned agricultural extension at the village
level as Grama Niladharis and since then there has been no officer with
agricultural training at the village level. For a few years there was no one at
the village level and after a few years Niyamakas were appointed. They were not
trained nor was any training programme done for them done till today. The closest trained agricultural officer is
at the divisional level and he caters tyo some 4000 to 12,000 farmers. In short
the agricultural extension service does not exist at the field level. The
problem is that this vacuum is not even understood by the authorities.
Building up the lost agricultural extension system, re
establishing the lost Marketing Department activities, building up new
programmes, enforcing import controls etc have all to be done and this is
a task that behoves attention by the authorities, even at this late stage.
Garvin Karunaratne
Former GA Matara
Author of:
How the IMF Ruined Sri Lanka, Godages, 2006
How the IMF Sabotaged Third World Development, Kindle/Godages,
2017
2/10/2019
