By Garvin Karunaratne former GA Matara,

It is sad that the IMF, one of the two premier organizations created by the United Nations to enable financial stability did attend to the ignominious task of implementing the Structural Adjustment Programme from the Seventies, which did really cause all countries that sought financial assistance to become overly indebted. It is important to note that none of these countries were in debt earlier.

Sri Lanka did not have a foreign debt when Prime Minister Sirimavo handed over to the new Government of President Jayawardena in mid 1977. The IMF then insisted that if they were to be given financial help they had to follow the Structural Adjustment Programme of the IMF. They were made to believe that by accepting the Structural Adjustment Programme they were bringing about development. This is clear from Minister Ronnie de Mel’s statement in his budget speech of 1978:

We cannot go round the world begging for aid like international beggars for ever. We must get out of this vicious circle of no growth, stagnation and mounting internal and external debt.”

It is also important to note that in order to entice President Jayawardena and Finance Minister Ronnie de Mel the IMF gave a grace period of some ten years when no interest and repayment instalments were to be paid. In short, both of them were bribed.

The Structural Adjustment Programme insists that various conditions had to be followed.

There should be no subsidies and all production should face the market forces. Accordingly the Government was forbidden to provide incentive prices, which the Governments had earlier offered to boost production.

The Private Sector was to be the engine of growth and the public sector that had so far attended to development tasks had to stop work and be consigned to the barracks- find some work to attend to.

The Government should not engage in any commercial activity. The Marketing Department which attended to purchase all agricultural produce and sell at cheap rates in the Cities and also ran a Cannery that did make Sri Lanka self sufficient in all jam and fruit juice in the three years 1955 to 1958 was closed down. The Cannery was privatized. The Small Industries Department that ran Power Looms and handloomers and made Sri Lanka self sufficient in the manufacture of textiles, based on imported yarn, creating employment, was crippled. The Power looms were left to rot and we started importing textiles.

All commercial entities were to be privatized or closed down . The Agrarian Services which purchased paddy at high prices from producers and ran rice mills was closed and its rice mills abandoned and let to rot.

I speak with first hand knowledge as I have worked for long in the Small Industries, in the Marketing and Agarian Services Departments.

The IMF also laid down that we had to relax the use of foreign exchange, allow dollars to be used freely for foreign travel, for foreign studies and to do this and to enable free imports of everything, finances were provided by the IMF initially.

This liberal use of foreign exchange and the closure of all development activities saw to it that Sri Lanka built up a foreign debt of $ 1.4 billion by 1980, in three years’ of liberation, to a foreign debt of $ 4.0 billion by 1986, to $ 6.7 billion by 1993, to $ 13 billion by 2005, to $ 18 billion by 2009, to $ 30 billion by 2012, to $ 42 billion by the end of 2014 and to $ 56 billion in 2002 when the country was handed over to Mr Ranil Wickremasinghe. Within two years in Dec 2023, , the foreign debt was $ 96 billion . The Sunday Times of June 9 th states that Sri Lanka’s Debt Pile surpasses $ 100 billion and unpaid principal and interest exceed US $ 6.4 billion.”

What is worse is that twice Si Lanka had obtained funds from international sovereign bonds.

It is by going on this path that the Sri Lankabecame overly indebted.

When President Gotabhaya handed over the country to Mr Ranil Wickremasinghe the foreign debt was $ 56 billion and running Sri Lanka from 2022 to 2024, in two years the county’s foreign debt balooned to as much as $ 100 billion.

This means that in two years Mr Ranil Wickremasinghe created a debt of close upon $ 50 billion!

Further the deal entered by President Wickremasinghe with the holders of International Sovereign Bonds , in the words of the Diplomat of 9/7/2024, further entangles Sri Lanka in an exploitative global debt system that prioritizes creditor profits over the Country’s development and peoples welfare.”

In detail:

The restructuring agreement provides for a 28% debt reduction on bonds originally valued at $ 12.55 billion. However if Sri Lanka’s GDP grows beyond the conservative limits set by the IMF, the concessions could be reduced from 28% to 15%. This means the economic growth will accrue not to the people, but to the creditors,” says economic analyst Pathirana.

Rathinda Kuruvita rightly concludes that

President Ranil Wic kremasinghe’s late night agreement is not a victory, but a dangerous deception that further entangles Sri Lanka in an exploitative global debt system prioritizing creditor profits over the country’s development and the people’s welfare. A radical political shift toward debt justice and accountability is urgently needed to break free from this cycle and build a sustainable future for Sri Lanka.”

Kuruwita is perfectly right and our new Government is saddled with a major problem.

Following former President Wickremasinghe will definitely lead to disaster.

My books:

Microenterprise Development: The Way out of the IMF Trap, Sarasavi, 1997

How the IMF Ruined Sri Lanka and Alternate Programmes of Success, Godages, 2006,

How the IMF Sabotaged Third World Development, Godages, 2017

How the IMF’s Structural Adjustment Destroyed Sri Lanka, Godages, 2021

detail the total story,

Minister Ronnie de Mel was a close friend of mine. He was a brilliant administrator and we often met at Matara, me as the Government Agent and Ronnie as the Member of Parliament for Devundara. We discussed mainly development and often soujourned to lunch at the residency when our discussions continued for long. He was very sharp, intelligent and versatile. Yet he was fooled by the IMF. Let me hope that our present saviour President Anura Kumara Dissanayake will not face the same fate.

Garvin Karunaratne, former GA Matara,

20 th October 2024, London

garvin_karunaratne@hotmail.com