{"id":93471,"date":"2019-10-01T17:07:37","date_gmt":"2019-10-02T00:07:37","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=93471"},"modified":"2019-10-01T17:07:37","modified_gmt":"2019-10-02T00:07:37","slug":"can-we-win-our-economy","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2019\/10\/01\/can-we-win-our-economy\/","title":{"rendered":"Can we win our Economy?"},"content":{"rendered":"

By Garvin Karunaratne<\/em><\/span><\/h2>\n\n\n

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. <\/p>\n\n\n\n

In 1976 we did not have foreign debt. In 1977 our foreign debt was only $ 750 million.\u00a0 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.<\/p>\n\n\n\n

It is necessary to understand how did we fall into this\npredicament in order to find a way out of this mess.<\/p>\n\n\n\n

We had a sound economy, though facing some problems till 1977.\u00a0 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\u00a0 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.<\/p>\n\n\n\n

   It also happened that the\nsocialist policies of the 1971-1977 period were not appreciated by the\nSuperpowers who imposed sanctions on us, though very unofficially, which caused\nproblems. Take the bread queues of 1974-1975. This was due to the USA not\ngiving us flour under the PL480 Food Aid scheme on discounted terms, which they\nwere giving us earlier. The Government in the period 1972 to 1976 found it an\nextremely difficult task to balance the foreign exchange budget due to high\nincreases in import prices. the cost of imported rice increased from Rs.1015 to\nRs. 2639 per long ton in 1974. Sugar increased from Rs. 3093 to Rs.5486 per\nlong ton.  Flour prices increased from\nRs.  1386 to Rs. 2124. per long\nton.(From: How the IMF Ruined Sri Lanka: 2006) <\/p>\n\n\n\n

 Britain insisted that we\npay in dollars to the tea multinationals for the plantations we took over  and we paid that bill.  Despite all these price increases and\npayments to be made in foreign exchange, the Government was able to have a\npositive balance of payments of US $ 58 million \nin 1976 and $ 117 million in 1977. The value of the Rupee was maintained\nat Rs 15.50  to the $ US in October 1977\nand the foreign debt was nil in 1976 and only $ 750 million in 1977.  Though there were bread queues and shortages,\nthese statistics speak highly of the economy of the period 1970-1977.<\/p>\n\n\n\n

What happened in 1977 for a country that was self reliant and had\nno debt to become bankrupt?<\/p>\n\n\n\n

When the Government of President Jayawardena requested Aid from\nthe International Monetary Fund at the end of 1977, because we could not find\nfinances- due to the fact that the prices of oil were increased threefold, the\nIMF imposed various conditions that had to be followed. It was the intention of\nFinance Minister Ronnie de Mel that Sri Lanka will be able to get on its feet\nbased on following the advice of the IMF.<\/p>\n\n\n\n

The IMF imposed the Structural Adjustment Programme on Sri lanka\nas well as other Third World countries that sought financial assistance. The\neconomic theories that had been followed till then had enabled our countries to\nmeet all our expenses and to provide for local development- our countries were\nmaking what our people needed and the incoming foreign exchange was carefully\nhandled and allocated with care. Our imports were controlled.  This led to a situation where our countries\nimported less manufactured goods from the Superpowers.  The inability to sell manufactures crippled\nthe economies of the Superpowers and they came up with an alternative economic\nsystem which they imposed on our countries to cripple our economies. This was\nthe Structural Adjustment Programme. It was intended to restructure our\neconomies to make us indebted and make us economically subservient. <\/p>\n\n\n\n

This SAP was first made up by the Chicago School of Economics by\nProfessor Milton Friedman and adopted by President  Ronald Regan and Prime Minister Margaret\nThatcher and imposed though the IMF on our countries whenever we requested\nhelp.  The fundamental premise was for\nour countries to give up all controls on imports and the use of foreign\nexchange. We were told to allow all imports and to allow the free use of\nforeign exchange for foreign travel, for foreign cruises, and to even send\npeople for foreign study(this helped the rich) and when we faced shortages of\nforeign funds in this process we were given loans. This was aimed both to\ncreate sales for the manufactured products of the Superpowers as well as to\nmake the Third World countries indebted so that they can be brought under\ncontrol- the countries had to get more loans to service the loans they had\ntaken and will have to abide by the Structural Adjustment provisions which will\nmake them further and further indebted, a situation from which they can never\nrecover. <\/p>\n\n\n\n

To help this process we were given grace periods of 5 to 10 years\nwhen we need not service the loans and our leaders jumped at the idea because\nthey may not be there when the days comes to repay. There were additional\nclauses that crippled us. We were asked tlo impose high interest rates and Sri\nLanka hijacked interest rates to some eighteen percent which meant that banks\ncharged twenty five percent. This put off all our entrepreneurs from\nmanufacturing. They closed down their ventures and instead enjoyed high\ninterest on fixed deposits. While Sri Lanka follows this high interest rate\npolicy even till today India totally rejected it. Today finance is available to\npeople in India at 8 %. Our industries had to get crippled to enable the\nSuperpowers to sell their manufactures. \nWe have all become colonies once again. We produce raw materials get\nthem exported and then buy the manufactured product from the Superpowers. <\/p>\n\n\n\n

During the time when we were sovereign- from the time we became\nindependent till  the time we became\nappendages of the Superpowers by following the SAP conditions  (at the end of 1977 in Sri Lanka) we had\nbuilt up a development infrastructure to enable our producers to sell their\nproduce at reasonable rates. We built up the Marketing Department(MD)\nactivities, commenced under Premier DS Senanayake.  There was a vegetable and fruit marketing\nscheme to buy at high prices from producers- prices higher than what the\ntraders bought. These were brought overnight to the cities and sold at low\nrates to help city dwellers to buy at low rates. I happened to have been in\ncharge of this scheme and can vouch for its success. Our motto was to keep a\nmargin of 15% while left to the traders they kept 100% or more. That was how we\nkilled two birds with one stone- to provide a high price to the producer as\nwell as to sell at low prices to city folk. \nThereby we controlled inflation. The Marketing Department had a Canning\nFctory where fruits were processed into jam and juice.  The MD purchased the total produce of Red\nPumpkin, Ash Pumpkin and Pineapple and made them into Golden Melon Jam, Silver\nMelon Jam, Pineapple Jam and Juice. Our producers became rich and we needed no\nimports. This was a pain in the neck for the Superpowers who wanted sales for\ntheir fruit. They decided that the Govcernment should not have any commercial\nundertakings. The Marketing Department was scrapped. Its Cannery was privatized.  While we used the Cannery to make Sri Lanka\nself sufficient in fruit and veg preparations, the privatized cannery runs to\nmake a profit. No wonder we have on our shelves Tomatoe Sauce and Vinegar from\nthe USA, fruit juice from USA and Australia, just to mention a few items.<\/p>\n\n\n\n

We also had a Paddy Purchasing Scheme where we purchased paddy at\na premium price from genuine producers. \nAfter 1977 this Scheme was altered to purchase from anyone. The traders\ncollected paddy from the farmers and handed over to the Government and\nbenefited from the premium price offered by the people. In the pre 1977 Paddy\nPurchase Scheme paddy was purchased only from genuine producers on a list\nprepared by the agricultural overseers\/ agrarian services officials. After 1977\nthe purchases were from anyone and the premium price paid did not serve to help\nthe genuine farmers.<\/p>\n\n\n\n

Ronal Regan and Margaret Thatcher directed the IMF, under their\ncontrol to cripple our economies and make us \u2018colonies\u2019 once again and we were\nthe losers. What is sad to realize is that almost all our economists fail to\nunderstand the \u2018economics’ underlying the Structural Adjustment Programme and\nits effects. Our Universities are full of qualified economists, but analyzing\nthe Friedman economics is far beyond their comprehension.<\/p>\n\n\n\n

How we once do it? We imported chassis instead of coaches and\nbuilt the chassis into busses and at Ramalana we made all the coaches required\nfor the railways.  In that manner we made\na controlled economy. We were self sufficient in all textiles. We imported\ncars- never luxury models and that was done by import controls. Some think that\nimport controls will lead to chaos. I can assure that there was no chaos. I\nmyself handled small industries and was in charge of allowing foreign exchange\nto import machinery or an ingredient that was needed for making some item. I\ncan assure anyone that every genuine industrialist was satisfied.  <\/p>\n\n\n\n

Way back in  1972 I wanted\nto establish an import substitution industry. I decided to make crayons and my\nPlanning Officer Vetus Fernando, a raw chemistry graduate,  worked on experiments to find the art of\nmaking crayons locked up in the Rahula College school science lab for three long\nmonths from six to midnight every evening and did succeed.  I decided that a cooperative should be set up\nand Coop Crayon was born. I summoned Sumanapala Dahanayake the Member of\nParliament for Deniyaya who was also the President of the Morawaka Cooperaive\nUnion and authorized him to use cooperative funds and set up an industry. I had\nno authority to order the use of cooperative funds but in the national interest\nwe always bend rules. Sumanapala was a maverick who too connived to bend rules\nfor the benefit of the country. It was a handmade crayon like most Chinese\nproducts of today.  It was a difficult\ntask to have exact quantities, boil to a certain degree and then pour into\nglass jars. But it was done, established in some three weeks under the personal\ndirection of katcheri officials who worked day and night to assure the quality,\ntraining the youths who were workers. Coop Crayon was easily equal to the\nqualility of Crayola of today.  We had\nmany problems to surmount and we did it all. We were refused an allocation of\nforeign exchange by the Ministry of Industries because we were a cooperative\nand the officials there did not want to bend rules in the national interest. I\nthen approached Harry Guneratne the Controller of Imports who had earmarked\ndollars to import crayons. It did not take long to convince Harry that by\ngiving us a small allocation he could stop imports. He readily agreed and we\nsought the approval of his Minister, Illangaratne to do something wrong- in\nadministrative rules to use funds earmarked for imports to be used for\nmanufactures. Minister Illangaratne not only approved it but insisted that we\nshould establish a crayon making factory at Kolonnawa, his electorate.  This detail of how we once did \u2013how the\nmember of parliament Sumanapala Dahanayake slaved to establish Coop Crayon that\nhad islandwide sales within a few months illustrate that we can such feats if\ncalled upon again.<\/p>\n\n\n\n

. It was the IMF trap of the Structural Adjustment programme that\nreally trapped us and we have now in the few decades from 1978 lost our\nbearings. The few illustrations of what we did once achieve illustrate that we\ncan win.<\/p>\n\n\n\n

Now we come to today. As illustrated though not in great detail we\nonce did it and can do it again<\/p>\n\n\n\n

This effort has to get support from the Government in departing\nfrom the high interest policy, having controls over imports to ensure that we\ndo not import anything that we can make. For instance we can become self\nsufficient in all our fruit and fruit juice requirements in one year because we\nhave mangoes and other fruit in plenty. What has to be done is to set up small\nscale fruit preparation industries and develop an industry. That is a task that\ncan be done in a few months.<\/p>\n\n\n\n

This is true of many things we import. The mantra that has to be followed\nis Import Control and Local manufacture and if we cannot do that we will be\ndoomed for ever.<\/p>\n\n\n\n

In addition to all this there has been increased corruption which\ncan be effectively stopped somehow. I can assure that the Members of parliament\nand ministers till 1973, the year I left were not corrupt. Corruption was not\nin their veins. They were all fighting with the officers to get development\ntasks done.. It is my opinion that we can get out of the quagmire of\ncorruption. <\/p>\n\n\n\n

However many things have to be done. Economist Sanderatne cries\naloud in the Sunday Times that agriculture has got lost.  Why? We have made a few mistakes. Take\nagricultural extension.<\/p>\n\n\n\n

 Let me emphatically state\nthat we have crippled our agricultural exztension service in the Seventies and\nEighties. Firstly the World Bank(at the behest fd the Superpowers) decided to\ncripple our extension service. First they wanted our countries to privatize the\nSeed Research Stations, which we did. <\/p>\n\n\n\n

Then they wanted to cripple the service. In our countries the\nnumber of farmers are legion. The only method of working with them to find\ntheir needs, provide good seeds etc is through a cooperative network and our\ncountries had built up able cooperatives to muster and enable farmers. The\nWorld Bank came up with their Training and Visit System of Extension which they\nforced on our countries in around 1978. When Our administrators refused the\nWorld Bank gave us loans and grants and we readily complied. Giving us a loan\nor a grant is the bait offered by institutions like the World Bank and the IMF\nand even by the Superpowers. <\/p>\n\n\n\n

Next, during the days of President Premadasa, he promoted all\nAgricultural Overseers- those who manned agricultural extension at the village\nlevel as Grama Niladharis and since then there has been no officer with\nagricultural training at the village level. For a few years there was no one at\nthe village level and after a few years Niyamakas were appointed. They were not\ntrained nor was any training programme done for them done till today.  The closest trained agricultural officer is\nat the divisional level and he caters tyo some 4000 to 12,000 farmers. In short\nthe agricultural extension service does not exist at the field level. The\nproblem is that this vacuum is not even understood by the authorities.<\/p>\n\n\n\n

Building up the lost agricultural extension system, re\nestablishing the lost Marketing Department activities, building up new\nprogrammes, enforcing import controls  etc have all to be done and this is\na task that behoves attention by the authorities, even at this late stage.<\/p>\n\n\n\n

Garvin Karunaratne<\/p>\n\n\n\n

Former GA Matara<\/p>\n\n\n\n

Author of:<\/p>\n\n\n\n

How the IMF Ruined Sri Lanka, Godages, 2006<\/p>\n\n\n\n

How the IMF Sabotaged Third World Development, Kindle\/Godages,\n2017<\/p>\n\n\n\n

2\/10\/2019<\/p>\n","protected":false},"excerpt":{"rendered":"

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 […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[57],"tags":[],"class_list":["post-93471","post","type-post","status-publish","format-standard","hentry","category-by-garvin-karunaratne"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/93471","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/comments?post=93471"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/93471\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=93471"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=93471"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=93471"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}