By Garvin Karunaratne, Ph.D.

Minister Champika Ranawake has said that the Jayawardena Government borrowed $ 68 million for the Mahaweli Project, has already paid $ 314 million as interest and capital and has yet to pay another $ 548 million in the future, all on account of that debt. Many will say that the statistics have been fictitiously taken out of a hat and that Minister Ranawaka was talking nonsense. However it is important to note that this is what really happened and illustrates how Sri Lanka was made indebted by the UNP during its Eighteen Years 1977-1994.

In my own words:

In 1970 the foreign debt was only around $ 390 million. In 1977 it stood at $ 750 million. ƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚¦ Sri LankaƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s foreign debt increased to $1,845 million in hardly three yearsƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ liberalization. It increased to $ 4,063 million by 1986, increasing again to $ 6,723 million by 1993, increasing to $ 9,405 million by 1995.(From:How the IMF Ruined Sri Lanka & Alternative Programs of Success, Godages) Going through this free market-liberalization process that began in 1977, Sri Lanka rapidly increased its foreign debt.

The fact is that loans given as Aid to countries comes with grace periods of no payment- but the fact is that interest has to be paid even during the grace period and the unpaid interest is added onto the capital. The debt increases at compound interest and eventually a small loan grows into a stupendous amount.

This was the method by which the IMF subjugated the Third World colonies after they were granted independence. Sri Lanka was not only not indebted but had sufficient funds in foreign exchange to pay for the full cost of the Gal Oya Scheme. The Governments that ruled after independence developed systems to control the use of foreign exchange and borrowed money only for projects that when implemented fully, would create production and thereby gain an income that would be commensurate to pay for the capital and interest.

President Jayawardena accepted the IMFƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s Structural Adjustment Programme, under which, in response to adopting free trade and liberalization in the use of foreign exchange and deregulation, Sri Lanka was allowed loans for any purpose. Till then loans were allowed only for project expenses where the money was to be spent on projects which when implemented would bring in an additional income. Despite the fact that the incoming foreign exchange was insufficient to meet the lavish and extravagant use of foreign exchange, Sri Lanka was advised by the IMF to allow foreign exchange for anything- foreign travel- foreign holidays- foreign education for children, for the import of anything and the shortage was met with foreign loans and money raised through privatization. When that was not enough the IMF approved deficit budgeting. Exchange Controls were fully relaxed.

Many paying assets of the Government were privatized and the payment received was fed to the Treasury to meet foreign exchange payments.

Loans were drawn to meet the deficit. In short instead of balancing the incomes and payments of foreign exchange the IMF allowed Sri Lanka to run a deficit. Again in my own words:

The foreign debt has to be read alongside the annual foreign exchange deficit for the total economic picture to be revealed. Sri Lanka was a country that could boast of the fact that it held a credit of SDR 170 million in its foreign exchange budget of 1977. In less than five yearsƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ of liberalization the foreign Exchange deficit was as much as $

892 million. In 1995 the figure was at $ 997 million.(pg.14) Once a country is weighed down with foreign debt the country has to totally listen to the Superpowers, and their IMF. The country comes into a situation where it has to borrow more to pay for the old loans.

That is the plight of Sri Lanka today all due to the UNP following the IMF prescriptions from 1977 onwards.

Till recently it was a few researchers in development economics that were voicing themselves about how the IMF and the Superpowers were subjugating our countries economically. My book:Microenterprise

Development: A Strategy for Employment Creation & Povert Alleviation in the Third World: The Way Out of the World Bank and IMF

Stranglehold(Sarasavi) published in 1977 was one of the first.. I analysed the policies of the Structural Adjustment Programme related the implementation of the policies to the results and arrived at conclusions.. My second book on the subject: How the IMF Ruined Sri Lanka and Alternate Programmes of Success, was also written on the same basis. Though I said that it was sabotage, there was no direct evidence. It could have been a misadventure.

However with the publication of Confessions of an Economic Hit Man by John Perkins, a leading administrator of a Multinational, there is definite evidence of sabotage. The Multinationals, the Banks and the Superpowers along with the World Bank and the IMF purposely, led the Third World countries on the path to debt and economic destruction. Their method was to use Aid, to fabricate reports advising countries to plan their policies and projects in a manner that the Aid funds given by the donor country gets back to the donor country with profits. This also includes the rich and powerful in the country who also pilfer money in the process. The country is left to bear the brunt of the debt and remains mired in debt.

John Perkins in his book admits that wrote false reports, fabricated statistics and enticed politicians and bureaucrats to accept them. He admits:The tools include fraudulent financial reports, rigged elections, payoffs, extortion, sex and murder.

John Perkins details what happened to Ecuador because of his work:

I first went there in 1968ƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚¦.We loaned it billions of dollars so it could hire our engineering and construction firms to build projects..As a result in three decades the public debt increased from $ 240 million to $ 16 billion.

Once a country is indebted it cannot find the funds to repay its debt.

The Aid has been used on projects where there is no increase in production. The criteria has been for foreign contracting firms to get work and bring back the money to the donor countries.

The best illustration of this came from Karl Maier the author of This House Has Fallen, a book on Nigeria. He quotes:

They lend Nigeria money, somebody here steals the same amount of money and gives it back to them and then they leave these poor Nigerians repaying what they never owed. The role of the Western Powers has been totally disgraceful.

The stealing was done through contracts signed with companies of the donor country. In the Mahaweli Development, Britain gave a loan of $ 100 million and got its companies contracts worth $ 150 millions.

Every dollar given as Aid goes back. In my own words:

Loans and grants happen to be the key mechanism by which countries are made indebted. Reg Prentice, the UK Minister for Overseas Development once defended Aid Programmes by stating that for every one pound sterling that the UK gave as Aid she got one and a half pounds sterling in orders for British goods. In the case of the USA it has been found that for every one dollar they give as Aid they get back ten dollars worth of procurements.(Guy Arnold:Aid and the Third World). What happens is the careful manipulation of Aid by the selection of projects

to ensure that the resultant imports will offset the loans and grants given. The net result is a flow of foreign exchange from the Developing Countries to the Developed Countries.

This is really the story of the Mahaweli Project which Minister Ranawaka has highlighted. That is also the story of Sri Lanka under the UNP. This is of fundamental importance because the Common Candidate for the Presidency as well as the UNP that supports him are vowed to follow the free market economy, the very same economy that ruined Sri Lanka.

From 1977, President Jayawardena followed the provisions of the Structural Adjustment Programme. The interest rate was jacked upto 25% and this made all the local entrepreneurs stop manufacturing.

Then the tariffs were reduced which flooded the market with consumer goods from abroad. Our people remain unemployed. The goods came in from developed countries at their prices and this meant the First World Prices and the Third World Wages syndrome. The wages did not increase.

Poverty was the result. Our rupee tumbled in value. In November1977 the rupee that was at Rs 15.50 to the pound dwindled in value to Rs

31.64 by 1978, a devaluation of over100%. In my own words, In terms of the incomes of the people, the purchasing power of the people was reduced with the devaluation of the local currency.

Following the free market economic policy of exporting raw materials and importing all consumer requirements the people met face to face with First World prices and Third World wages. When imports become the order of the day and most imports come from developed First World Countries the prices of the imports are the prices prevalent in the Developed Countries. On the other hand wages are stagnant and any increases are marginalƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚¦ This situation is aptly summed up in the United NationsƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ Human Development Report 1996:ƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚The stabilization measures of the IMF aimed at reducing both budget deficits and trade deficits and usually involved cutting public spending, reducing wages and increasing interest rates. Although these policies reduced deficits in some countries they often did so at the cost of inducing recession. In short they often balanced budgets by unbalancing peopleƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s lives.ƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚

Before 1977, people could subsist with their earnings.

However with over 100% devaluation, high inflation, the loss of employment, high interest rates, loss of production and free inroads of imports it was no longer possible for people to subsist with their wages. Poverty crept in. These were the hall marks of the economy of Sri Lanka during the UNP regime. The rich became richer and the poor starved. The result can be aptly expressed in terms of wages. It is

alleged that Lalith KotelawalaƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s Golden Key CreditCard Company that

crashed had a number of Deputy Chairmen whose salary was Rupees three million plus perks a month. This salary can be contrasted with that of a Secretary of a Ministry which is less than Rs. 100,000. In most garment factories today the garment workers get paid at most Rs. 12,000 a month while the Chief Officers get paid in the region of Rs.300,000 or more.

Ranil WickremasingheƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s Regaining Sri Lanka: Vision & Strategy for Accelerated Development, his Plan of 2002, takes Sri Lanka on the further path to poverty and destruction, but for the rich of the country there was vision and prosperity.

This Plan proposes further reduction of Public Sector Activities, giving the Private Sector a greater hand in development. The motto of the Government was to open the country further to Foreign Investors and to entice them to come they were allowed to purchase land without paying any taxes. His 2002 Budget proposed reducing tarrifs on imports, which sounded the death knell of our local production. Taxes levied on companies were reduced, while taxes on low income earners were not reduced. The rich are better off in taxation. This resulted in the sale of prime land to foreigners. This was not in the nationƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s interest and was stopped by President Rajapaksa.

One has to understand that the task of defeating the terrorist LTTE was very costly and that was an expenditure that had to be borne.

Despite bearing such a burden, the Rajapaksa Government had commenced major development infrastructure projects which will have a bearing on future productivity.

It is to be admitted that the Government was able to withstand the effects of the Global Financial Recession. Certain countries like Iceland had to even close down their banks and in many countries like the USA and the UK, there were financial losses that people have had to face. Sri Lanka was saved this predicament. The growth rate was maintained despite the dislocation of many productive areas due to the LTTE menace. In the last quarter a growth rate of 4.2% is a commendable achievement. In 2007 the value of the Rupee had dwindled to a record low level of Rs. 230 to the pound in July 2007, Today the Rupee has regained its value to the level of Rs. 188 to the pound. In the case of the dollar the Rupee held a value of Rs. 114 to the dollar. In 2009 the value of the Rupee has dropped only by 1.2% against the US dollar. In normal years the devaluation of the Rupee had been around 7 to 8% per year. Being able to withstand the devaluation of the Rupee during the current regime of President Rajapaksa has been a significant achievement. Other countries like Turkey and Ghana that were faced with debt had their currencies drastically devalued to the extent of 31,480% and 13,300% per year due to following the Structural Adjustment Programme of the IMF.(From: Success in Development ,Godages -due to be released in Feb2010) This has been achieved by careful monetary adjustments.

According to Professor W.D.Lakshman, an eminent economist:

The country has paid equal attention towards the eradication of terrorism and the countryƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s development at a time when there is a global economic recession.ƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢

In terms of wages to the public sector the largest increases in salaries has been granted by the present Government. This has been a remarkable achievement in the face of conducting the war effort to defeat the terrorist LTTE.

The Mahinda Chintanaya which was the election manifesto of the President Rajapaksa at the last election provided a plan for five years of which three years have now lapsed. It has been possible to commence many programmes of development like the Gama Neguma for which a total amount of Rs. 98 billion has been spent. In addition many infrastructure development projects have been commenced.

The results of following the Free Market ƒÆ’‚¢ƒ¢-¡‚¬ƒ¢¢”š¬…”liberalization policies of the IMF has been poverty, deprivation, increased debt and a devalued currency. Every country that followed the Free Market-Liberalization policy dictated by the IMF has ended in ruin. The manner in which their currencies have been devalued illustrate the poverty created Turkey had its Lira devalued by 787,000% and Ghana by 332,000% during 1983 to 2007. Comparatively, India that shrewdly avoided following everything laid down for structural adjustment by the IMF and has instead followed self reliant policies has been able to withstand the demise. The Indian Rupee devalued by only 430% during the same period. India continued to control imports and concentrated on increasing production based on the concepts of self sufficiency and import substitution. In India all consumer goods are made locally and this has enabled them to control inflation. In Indian shops no imported goods can be found. The Indian Rupee has dropped in value from Rs.15.2 to the pound in 1983 to only Rs. 81 to the pound by 2007. In 1982 the Sri Lankan Rupee had a higher value than the Indian Rupee. In 2007 the Sri lankan Rupee had fallen to a low of Rs. 230 to the pound. In 2010 the Rupee has a value of Rs 185 to the pound.

In conclusion it is seen that following the IMFƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s Free-market cum Liberalization and deregulation cum privatization policy as proposed by the Common Candidate and the UNP will lead Sri Lanka to further depths of poverty, debt and currency devaluation. What is best is a mixed economy, run on the basis of self sufficiency, import substitution, bolstering local production and employment, where the interests of our people is foremost. This is what is aimed at in the Mahinda Chintanaya.

Garvin Karunaratne

Formerly of the Administrative Service of Sri Lanka.

9/1/2019

Author of How the IMF Ruined Sri lanka & Alternative Programs of Success, Godages, 2006