{"id":94887,"date":"2019-11-07T06:58:46","date_gmt":"2019-11-07T13:58:46","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=94887"},"modified":"2019-11-07T06:58:46","modified_gmt":"2019-11-07T13:58:46","slug":"memories-the-economy-how-we-once-did-it-a-message-for-the-imf","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2019\/11\/07\/memories-the-economy-how-we-once-did-it-a-message-for-the-imf\/","title":{"rendered":"Memories: The Economy: How we once did it. A Message for the IMF"},"content":{"rendered":"

By Garvin Karunaratne , Ph.D. Michigan State University<\/em><\/span><\/h2>\n\n\n

In the current chaotic situation where our economy has totally\nfloundered, with a massive debt that defies any solution it will be prudent to\nnote that till 1977 our country managed the economy, attending to massive\ndevelopment tasks also,  without falling\ninto debt. I happen to be one of the few alive who played a major part in that\neconomy.<\/p>\n\n\n\n

In 1977 the foreign debt was only $ 750 million and that too on\nprojects, not for consumption because at that time loans were obtained only for\nprojects. In fact no less a person than Chandra Maliyadda one of our Permanent\nSecretaries questions how a country that did not have an international debt at\nthe end of 1976 could have deteriorated to have a massive debt today.<\/p>\n\n\n\n

It will interest readers to note that the massive Gal Oya\nDevelopment Scheme, building a massive tank from scratch, settling 40,000\ncolonists, building roads, towns  etc\nwere all done on a contact by a foreign firm, with our own funds. This was also\ndone within some three or four years.<\/p>\n\n\n\n

Our economy was in good shape till the IMF took over <\/p>\n\n\n\n

running our country at the end of 1977 when the new Government of\nPresident Jayawardena wanted aid from the IMF. No one ever believes that the\nIMF took over running our country, but actually the IMF dictated how we should\nrun it. It was an indirect  but a very\neffective.control.<\/p>\n\n\n\n

The variety of\npolicies that were imposed comprised liberalizing the use of foreign\nexchange(earlier foreign exchange  was\nvery carefully handled- controlled used mainly for essential supplies) taking\ncontrol of foreign exchange out of the hands of the Government, instead it was\nto function as decided by the market forces of supply an demand which really\nmeant that it was handled by the banks- mostly foreign- the banks decided the\nexchange rate,.. a high interest rate policy was to be followed(which meant\nthat local industrialists closed their enterprises,, import tariffs were\nreduced or abolished, subsidies were to be reduced or abolished and the\ncommercial development infrastructure that existed was to be closed down\u201d.(From\nHow the IMF Sabotages Third World Development<\/em><\/p>\n\n\n\n

Following this  path of\nspending foreign exchange that we did not have \nfor our rich to go on cruises, lavish holidays, to educate their\nchildren abroad, to import all luxury items, all done as advised by the\nIMF,  cost a massive amount and to enable\nthis the IMF even bribed us by giving loans with long grace periods which meant\nthat the leaders who took the loans and enjoyed spending them, were not in\npower when the loans had to be repaid. \nThis coersion was essentially a form of corruption to which  the IMF stooped to ruin our countries.<\/p>\n\n\n\n

Before 1977 we did manage our economy. Let me detail how it was\ndone. All the foreign exchange we earned from exports and dollars encashed by\ntourists etc was all pooled and disbursed first to import essential goods. This\nwas done by the Controller of Exchange of the Central Bank. <\/p>\n\n\n\n

For industrialists who made items when their manufactures required\nan import an application had to be made by large industrialis to the Ministry\nof Industries and by small industrialists to the Department of Small Industries.  In 1970 I was the Deputy Director in the\nSmall Industries Department that controlled the foreign exchange that was given\nto small industries. I registered all small industrialists when they wanted any\nitem or machinery to be imported this was considered after an inspection. We\nwere very strict but we did ensure that the industrialist did have a licence to\nimport what he needed.  All\nindustrialists were looked after in this manner and one of my readers \u2013 Susanta\nWijesinghe has stated in a comment to one of my papers that he worked then in\nthe company that made instrument boxes and instruments and they had built up a\nstock for the full island when the IMF entered Sri Lanka\u2019s economy in 1978. I\nhave seen and used these instruments and have found them satisfactory. Our\npeople were not scounging. Then we did have limousines imported not with  money that we obtained on loans, but sent\nfrom abroad by relatives. The country did not charge any taxes and the country\nbenefited.<\/p>\n\n\n\n

Let me detail how we did it then. In order to make Sri Lanka sellf\nsufficient in textiles, the Department had a programme to import cotton yarn,\ndistributed  it to factories, powerlooms\nand handlooms for producing textiles required. \nThe Department had a research and training unit that guided all\nindustrialists at Velona in Moratuwa. Powerlooms were obtained from China and\nestablished in various districts. I supervised five Powerlooms in Matara. The\nDivisional Secretaries guided the functioning of these Powerlooms as\ncooperatives and we were in 1973 totally self sufficient in textiles.  People from the Matara District who had\nmigrated to Britain when they came on holiday came to me when they wanted to\nbuy Hakmana Powerloom suiting because that suiting was better than what they\ncould get in Britain. The handloom sector had some 98,000 handloomers making\nbespoke sarees, with elegant designs and the ladies wore them- never did they\ngo to Britain, Singapore and Bangkok for any apparel. These functions of the\nDepartment of Small Industries were abolished on the advise of the IMF and\nimports of textiles became the order of the day while our workers who once\nearned a living went to the scrap heap of unemployment and poverty. That was\nhow the IMF  created poverty. <\/p>\n\n\n\n

The manner we did handle the foreign exchange that came   in very carefully and used it firstly to buy\nthe essentials and thereafter to import the requirements of industrialists, and\nthen to consider applicants for foreign travel etc. is perhaps the only  method we have to use  to get out of the mess that we are in today.<\/p>\n\n\n\n

It was following the IMF’s advice of  spending foreign exchange liberally, import\neverything and meet the shortage with loans that brought us to our present\npredicament of foreign debt.  Today the\nIMF  has given us a warning Sri Lanka\u2019s\neconomy remains vulnerable to adverse shocks due to its large public\ndebt”(Ada Derana:6\/11\/2019) The IMF has to be told that it was no other\nthan the IMF itself that advised us to spend foreign exchange freely and\nliberalize imports and meet the shortage with loans that brought us to this\nindebtedness. The IMF also has to be told that they bribed our then leaders to\nfollow their advice by giving us loans with long grace periods of no payment..<\/p>\n\n\n\n

It is time that the IMF realized that they did something terribly\nwrong and were the cause of the creation of untold poverty  by advising the Third World countries to\nfollow the economics of Milton Friedman. It is unfortunate that none of you in\ncharge of the IMF today were alive when the Third World countries were\ndeveloping fast, making ends meet and not falling into debt. It is time that\nthe mandarins in the IMF today do some historical studies and think of\nproviding our countries a ray of hope to get out of the mess which the IMF\nitself created.<\/p>\n\n\n\n

Full details of how the IMF gave us the wrong advice and\nhow Sri lanka was led to the slaughterhouse is the sad story narrated at length\nin my books: How the IMF Ruined Sri Lanka and Alternative Programmes of\nSuccess (Godages:2006) and  How\nthe IMF Sabotaged Third World Development (Kindle\/Godages:2017)<\/p>\n\n\n\n

Garvin Karunaratne, Ph.D. Michigan State University, M.Phil.\nUniversity of Edinburh, M.Ed. University of Manchester, M.A. University of Sri\nLanka.<\/p>\n\n\n\n

Former Government Agent, Matara.District, Sri Lanka<\/p>\n\n\n\n

06\/11\/2019<\/p>\n","protected":false},"excerpt":{"rendered":"

By Garvin Karunaratne , Ph.D. Michigan State University In the current chaotic situation where our economy has totally floundered, with a massive debt that defies any solution it will be prudent to note that till 1977 our country managed the economy, attending to massive development tasks also,  without falling into debt. I happen to be […]<\/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-94887","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\/94887","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=94887"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/94887\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=94887"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=94887"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=94887"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}