By Garvin Karunaratne

Our country is at the crossroads, saddled with an international debt that cannot be sustained, corruption going through the roof and the people suffering, unable to make ends meet. The situation is extreme. It is ,my opinion that there is yet a way ahead.

Our International Debt.

Chandra Maliyadde, a former Permanent Secretary once commnted that at the end of 1976 our country was indebted only to the extent of $ 75 million. He queried: how the external debt liability  was increased by more than 500 times in 35 years”(The Island 23/6/13). That was in 2013.  Today that debt has ballooned  to $ 64.9 billion(2016). Now when the periods of grace granted have lapsed, and because we used loans for consumption- for luxury items it is only to be expected that the repayments  due will be  unbearable- $ 2.4 bn. in 2017,  a predicted $ 2.6 bn. In 2018 and $ 4.0 bn. In 2019.

How did a country that managed to stand on its feet in 1976, degenerate to become so indebted? Though  Ronnie de Mel, our Finance Minister in following the IMF’s Structural Adjustment Programme(SAP) in 1977, said: We cannot remain in the murky cesspool of economic stagnation for ever. We must get out of this  vicious circle of no growth, stagnation and mounting debt.”(Budget Speech:1978),  what happened in reality was the opposite. The IMF insisted on an All out approach to replace central planning with the rudiments of a market economy in a single burst of reforms. These include rapid price and trade liberalization, the immediate opening of markets to entry by new businesses.(World Development Report:1988).   Any country that wanted Aid  had to agree to the SAP and the country was given funds freely. What are the conditions: In my words, The SAP provisions  include action to devalue and ultimately free float the currency. The foreign exchange that came into the country  was taken out of the control of the country  and instead handled by the market forces- by traders, investors and the banks. (Foreign banks were found to have hoarded the foreign exchange that they collected and insisted on a high price when the two Government banks had to pay a large oil  bill on 25/01/2001 and the value of the dollar increased from Rs.82 to Rs.106. Immediately we accepted the IMF teachings at the end of 1977 the Rupee was devalued by 100%.  A High interest rate was enforced (making local entrepreneurs close down their enterprises)… State commercial undertakings were abolished(Gone are the guaranteed prices offered to boost production, the Marketing Department that ensured high prices to producers and low prices to city dwellers for vegetables). Free Trade was followed  with free unrestricted imports, tariffs removed on  imports and s placed on  the Public Sector activities. …. In other words the economies of the Developing Countries were restructured to enable goods manufactured in the Developed Countries  to find markets. The use of foreign exchange was de regulated which led to the creation of a small class of rich people who could enjoy, travel abroad, enjoy luxury imports, send children off for foreign education all funded on borrowed funds.  This method of handling foreign exchange led to a process where the funds obtained on loan somehow went back to the Developed Countries- the donors, while simultaneously leaving the country indebted”(How the IMF Sabotaged Third World Development: Kindle).

In fact in 2004, John Perkins an expert working for a multinational has confessed how he drafted projects  with fabricated statistics all designed to send back the Aid given for the project back to the donor countries while leaving the country indebted to that extent. (Confessions of an Economic Hitman).

We have to take some action to stop becoming indebted.  It is important to note that since achieving independence in 1948, we managed our economy by carefully controlling the foreign exchange that came in. That was then, the sole task of our Central Bank. Ours was a partially controlled economy, where we allocated foreign funds at first for all essentials and carefully allocated what was left in the national interest.

The only method of facing our debt is to control our foreign exchange, control imports and avoid luxury imports. When the East Asian Financial Crisis hit South Asian countries, only Malaysia succeeded in facing it. Mahatir Muhhamed, the Prime Minister of Malaysia… effectively controlled the economy of his own country. He imposed strict controls on the use of  foreign exchange., restricted imports and even denied foreign exchange to students studying abroad.” Malaysia was the only country that came back to sustainability.  All other countries had to depend on loans- $7.2 billion to Thailand,  $ 43 billion to Indonesia, $ 58 billion to  South Korea etc had to g$ 7.2 bet further loans. These countries got a new leash of life by paying back the loans that were overdue. In actuality the billions given as Aid flowed back to the Donor  countries leaving the countries steeped more in debt.

Faced with a heavy debt, Equador has refused to pay its Loans on the grounds that the IMF was responsible for giving loans for non  developmental purposes. Equador was one of the countries that suffered at the hands of John Perkins.

The  IMF actually has led all Third World countries to become indebted. The only remedy the IMF offers is the HIPC(Highly Impoverisher Poor Countries Initiative) and the MDRI(Multilateral Debt Relief Initiative) by which the IMF treated their debt as cancelled. However this was done on the specific condition that the country would open their economies further for foreign investment, which meant that though they started on a new sheet, they invariably fell into debt in a few years. Ghana which had its debts cancelled on this basis built up a debt- as much as $28.5 billion in a few years.

It is up to our leaders to convince the IMF of its misadventure and to seek authority to follow Mahatir Muhammed’s method of making Malaysia sustainable. That was done by controlling imports and  restricting  the use of foreign exchange till even keel is reached.

It will be more in the interests of the IMF to understand what mistakes they made in making our economies indebted and make amends by allowing us to become a success once again

Many believe that  by following a partially controlled economy we will get back the bread queues and shortages of food that we had in the 1974-1977 period. Sri Lanka had a partially controlled economy till 1977. In the period 1948 to around 1973, there were no major problems and the economy was managed efficiently. The major causes for the problems the faced by the people in the mid Seventies was caused firstly by the Oil producer countries increasing oil prices threefold causing a financial burden. The Government mismanaged programme of paddy production leading to a shortfall in production.  In addition, the Developed Superpowers punished Sri Lanka by placing sanctions due to the socialist policies especially the nationalization of estates over 50 acres. – Concessions of Food Aid under PL480 were denied to Sri Lanka and we had to pay premium prices to buy flour. This was the cause of bread queues. Britain insisted that payments due to British Estates should be paid immediately and  we had to pay up. Meantime multinationals jacked up freight rates and the prices of essential items almost doubled. Yet the Governments managed to meet the payments without falling into debt which was an achievement.

To meet the charge of Corruption, it is an accepted fact that politicians were not tainted with corruption till recent times. I can vouch for the fact that the politicians in Kegalla in 1968 and 69 when I worked there as Additional Government Agent were not corrupt. I had to keep close company with them. That included Premier Dudley, Ministers Karunaratne and Deputy Ministers Beligammana, P.C.Imbulana and Vimala Kannangara  and Members of Parliament  Dr NM,  Kalugalla, and Dhanapala Weerasekera.

Similarly the parliamentarians at Matara in 1971-73 were totally free of corruption. That included Dr SA Wickremasinghe, Deputy Minister Tudawe, Sumanapala Dahanayake, Ronnie de Mel and Alien Nanayakkara. I raise my hat to all of them. Then I had to take action against many of my officers for corruption. In fact one of them  took a major bribe selling the name of Deputy Minister  Beligammana.

Corruption among politicians is a recent malaise  and I am certain that there are good leaders today that can lead the country to be free of corruption. Within the Administrative Service and the Services of Engineers, Educationalists and Scientists  etc. there are able administrators who can make the correct decisions that can lead our country away from the current abyss. Our officialdom do hold a record of achievement which has to be utilized by our leaders..

In nostalgia, I can recall how development was once achieved.

The entire Department of Agrarian Services was created in a few months. It was a major Department that handled agricultural production and marketing in the entire country.

Earlier the Land Development Department did wonders in building colonies- roads, houses etc.

I myself can relate how we established a Mechansied Boatyard in three months, which turned out 40 seaworthy boats a year. Unfortunately, we are yet importing fish. Today traveling on the coast one finds a lone carpenter building a large boat. That itself proves that we can make our own boats. Let us establish around fifty Mechanized Boatyards in three months and this will enable us to be self sufficient in fish as well as provide employment for a thousand boat builders and another thousand, fishing on the high seas.

I also established a Crayon Factory, mastering the art of making crayons-done by my Planning Officer, a chemistry graduate using the scanty resources at Rahula College Matara, in three months of experiments. Thereafter I established it in two weeks through the Member of Parliament for Deniyaya in his capacity as the President of the Morawaka Coop Union. Sumanapala developed Coop Crayon to have islandwide sales, a major achievement, without par.

Once the Cannery of the Marketing Department purchased the total production of Pineapple, Tomatoes, Red Pumpkin and Ash Pumpkin and we became self sufficient in jam, juice and tomatoe sauce. We can become self sufficient in all jam, juice and sauce in one year and that will create employment and incomes for thousands.

I speak from sheer experience as I was myself a chief lieutenant at the helm, and this is a task that can be done during the time frame suggested of a year, provided we administrators are allowed to work as we once did.

These are only a few aspects for action. Today one of our major industries is to collect cardboard and waste paper and pack it off to India. Thereafter we purchase cardboard and paper from India. Making paper is something we once did. Our engineers finalized the art of making paper from straw. Now many countries do it but we prefer to burn and waste the straw and purchase paper with foreign exchange. We can establish cardboard making industries within six months to one year.

We can win the battle to create employment. We only need the authority to get going and I hope one of our leaders will get into that role- the sooner the better.

I designed and established the Youth Self Employment Programme for the Ministry of Labour and Manpower in Bangladesh in the teeth of opposition from its own Finance Ministry because the ILO had failed to establish a self employment programme., The Hon Minister for Labour and Manpower approved it and we worked entirely on savings within approved budgets., I worked with hundreds of youth workers and vocational training officers, teaching them economic analysis and in less than two years, a Programme which is today the premium programme of employment creation the world has known was born. That Programme is credited with creating two million self employed youths by 2011.  This is an ongoing programme today.

To get down to Poverty Alleviation– the spiraling cost of consumer goods is a malady created in the post 1977 period, because all the systems  and price control systems we had were abolished when we commenced the Free Open Economy in 1977. The Vegetable and Fruit Marketing Scheme of the Marketing Department purchased vegetables and fruits at the Producer Fairs at a higher price than what the traders purchased, kept a small margin of 15% to cover transport costs and handling and sold at sales depots in the Cities. The Department had over fifty small sales depots. The Department had Purchasing Centers in all producing areas and a fleet of over a hundred lorries  eternally on the move.  Our margin of 15%  as opposed to the over 100% margin kept by private traders enabled city dwellers to get produce at low rates.  I was once the Assistant Commissioner in charge of this Scheme for one full year. The Government also implemented a Guaranteed Price Scheme to enable producers to market their produce without being at the mercy of private traders who offered low prices. The Marketing Department had a Cannery and was able to purchase the total produce in certain items like Red Pumpkin, Tomatoes, Ash Pumpkin and Pineapple which was turned into jam and Juice, making Sri Lanka self sufficient and thus avoiding imports. These Programmes were abolished and the Private Sector kept fanciful profits which caused inflation.

As far as essential items that had to be imported, the Government had       the Cooperative Wholesale Establishment (CWE) which imported and distributed goods keeping a low margin.

The Small Industries Department imported yarn and distributed to handloomers and powerlooms, offered them technical guidance and Sri lanka was self sufficient in textiles by 1977. There were Powerlooms managed by Cooperatives directed by Divisional Secretaries. All these Schemes were abolished at the instance of the IMF on the grounds that the Public Sector should not handle commercial undertakings. These were left in the hands of the Private Sector. The difference was that the Government aim was to help people wile the aim of the Private Sector was to gain the maximum profit.

It is necessary that this development infrastructure should be re established to bring down the cost of living. Our motto has also  to be Import Substitution- to create employment and incomes for our people swhile they make what is being imported today.. There is no other way ahead.

In keeping with the  Free Open market of the IMF  we had disbanded National Planning and left the Private Sector to deal with production.  The Private Sector  was accepted as the Engine of Growth.

It is of interest  to note that there are new moves to redirect our economy. Recently a National Economic Council has been established. We had no national planning from 1977 till now. The economic ills that plague us today are all because we blindly followed the IMF, did away with planning and became the dumping ground for manufactures from Developed Countries- we had to buy from them– the funds we got as loans went back to them with profits! Our country had no national planning from 1977 till today- a full four decades.

Another major move in the right direction is the Grama Shakti Programme which was established to enable poverty alleviation.

These two  initiatives prove  beyond doubt that we are acting to regain our economic sovereignty which we ceded to the IMF in 1977.

We do have the ability to shoulder the wheel. That is what the Administrative Service is for. We Assistant Commissioners were posted to Districts and we got going. No one could stop us. We were like steamrollers weeding out stragglers, firing corrupt officials- I fired an officer for misappropriating some hundred rupees.  We worked pell mell at times a 14 hour day. I would have been terribly offended if any one of my thousand or so officers got caught taking a bribe. It was I that had to control them and hound out the corrupt.  At times a few of us ran into skirmishes –mostly  by politicians who thought we would someday challenge them at the polls because we became so popular. At times we were transferred over night, but the work we accomplished remained and we start in another District all over again. We were trained and developed specialisms.  A few of us in Agrarian Services were specialists in rice milling and our opinions were sought above that of the Australian Expert who served the Department. I was once in charge of fertilizer and  my head would have been cut off if there were no stocks.  I was trained at the University of Manchester in Community Development and so were many others. We were a pool of knowledge and were called upon at short notice. That was my life for eighteen years and  I am delighted to have played that role.

I also played a similar role in establishing the Youth Self Employment Programme in Bangladesh, the largest employment creation programme the world has known. I designed the program, implemented it on the ground and trained the staff to carry it on. That was a tough task something which the ILO failed earlier. These instances tell me that despite all the odds we do face today, we can rebuild our economy under good leadership within a year or two.

I am certain that our country can be brought around and I hope to see that day.

Garvin Karunaratne,

Ph D. Michigan State University,

29/12/2017