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The People’s Budget of
2008
By Garvin Karunaratne,
Ph.D. Michigan State University
The Sri Lankan 2008 budget has run into criticism from many sources.
The Opposition UNP even dared to provide an alternative budget. Critics
have said that this is an import substitution type of budget and have
voiced that we are to see food queues that were characteristic of the
1970-1977 period. They have said that that the attempt at import substitution
was a disaster.
What is the true picture?
The UNP gimmick of an alternative budget was really not necessary. This
is because in 2002 the UNP did submit a budget and one can compare that
2002 budget- because that is the UNP in its true colours. In fact in
my own words:
Sri Lanka’s 2002 budget, just passed in Parliament can be correctly
called an IMF budget. This is because the budget proposals all stem
from the measures that the IMF has been urging Sri Lanka to follow.
This budget will take Sri Lanka a few further steps towards more poverty,
deeper deprivation and increased indebtedness. (From How the IMF Ruined
Sri Lanka and Alternative Programs of Success, Godages)
Thus the 2008 budget can be compared with the UNP’s 2002 budget.
The 2 008 budget has imposed a tariff on the imports of many products
that can be produced locally. The aim was to increase local pr oduction.
When local production is increased there is employment for our people.
On the contrary the UNP’s 2002 budget provided that the then tariff
of 40% will be reduced to 20% and finally to be abolished in 2003. When
tariffs are reduced imports are encouraged and in other words we are
providing employment for people in other countries from which we import.
Our own people will remain unemployed and in actuality the 2002 budget
will cause poverty. Further our imports will have to find foreign exchange
and in view of the national debt that Sri Lanka has been collecting
since 1977, Sri Lanka will have an increased debt.
The 2002 UNP budget also imposed a 10% tax on interest paid on deposits.
This caused a great deal of concern to small deposit holders who depended
on the interest they get to supplement their incomes.
In my words the 2002 UNP budget also brought about the reduction of
taxes levied on companies and the abolition of stamp duty on property
transfers only help the rich.(From How the IMF Ruined Sri Lanka…)
The 2002 UNP Budget looked after companies, the multinationals and foreigners.
It did not care for the locals. This is clear from the following proposal:
“Concessions and incentives will be offered to transnational companies
in the fields of construction of residential buildings, roads, supply20of
water, mass transportation, telecommunication, professional services,
banking, finance, insurance,20stock brokering and the production and
distribution of energy and power9 D.
The result of this in my own words: what will happen is that foreign
companies will come, invest, pay no taxes to our country and take away
the profits that should remain in the country.. In short if a Hydo Electricity
Project is privatized to a foreigner, he will administer the project,
charge for electricity and water supplied and the profits will go the
shareholders overseas. This is happening all over the world as dictated
by the IMF. Thus transnationals are getting profits even from the provision
of water in Bolivia. Once this is done the waterbill paid by a consumer
in Colombo will ensure a profit for someone overseas. Why cannot we
have a local company go attend to this task which will ensure that the
profits will remain with us. We have to invite foreign investors only
in areas where we do not have the expertise.
President Rajapaksa’s budget ensures employment and profits for
our citizen s and not for foreign multinationals. His budget even proposes
for all seeds to be produced in Sri Lanka. Is it not a shame that even
seed potatoes are imported. I once investigated about potatoe production
in the Rahangala area. We can easily produce all our seed potatoes as
well as all the potatoes we need. Our President has truly made the correct
decision. Our people should remember that our President has made a bold
decision that there will be no privatization.
The 2002 UNP budget even reduced the 100% tax levied on foreigners when
they purchase property in Sri Lanka. The results of this provision is
seen in the Fort of Gall where foreigners moved in and made purchases
of prime land. That was a sad episode of our prestigious land ending
in the hands of foreigners. It is sad that the UNP, a political party
that once looked after our country is now working in the opposite direction
of helping foreigners!
As expressed by me:
The 2002 UNP budget is a total sell out to Foreign investors and to
the rich. Austerity is only for the poor and the middle classes while
the rich are better off in taxation.
To those who have come out against import substitution, my answer is
that import substitution is the only method by which we can find employment
for our people and also find profits in production for our people. It
looks as if the persons who come out in criticizing have never established
any ventures of their own. Most of them are journalists, who have never
done anything other than writing. I can state that establishing any
type of import substitution project is difficult, but that is the only
way ahead. That is how all countries came to success. Take any country-
Singapore, the USA or the UK. There are always restrictions. George
Bush the President of the USA is today shouting at the top of his voice
that protectionism is not the way ahead out of the current financial
m eltdown. He has forgotten that a few years ago he clamped a tariff
of as much as 30% on all steel imports to the USA in an attempt to save
steel manufacturers in the USA.
I have been working on import substitution type of agricultural and
industrial projects from 1955 and can make a firm statement that import
substitution is possible. It is a difficult task but the only way ahead.
Take the leading industrialists in Sri Lanka- if you do know details
you will find that they did struggle hard to establish their enterprises.
Tke Harischandra Industries. Harischandra began by crushing cattle bones
for fertilizer. People were asked to collect and bring them to the main
road, when he paid them and brought the bones by bus to Matara.. Thereafter
he ran a rice mill when I came to know him. Those were difficult years.
Sri Lanka had its handlooms and powerlooms. These were all of the import
substitution type and did very well in terms of employment creation,
bringing profits to the handloomers and the cooperatives that sold them.
Then we had the powerlooms and I was in charge of the power looms in
the Kegalla and Matara Districts when I worked there. The powerlooms
manufactured suiting and textiles of very good quality. In fact the
Hakmana suiting was so fine in quality that Sri Lankans who had gone
to live in the UK when they came home made it a point to buy Hakman
suiting to take back to the UK. With the power looms and handlooms and
with the mills at Tulhiriya etc Sri Lanka was self sufficient in textiles.
Now we import most of the textiles.
One talks of the garment industries that came up in place of the handlooms
and powerlooms since 1977. The handlooms and power looms were in rural
areas and provided employment in the areas where the people lived. All
powerlooms were run a s cooperatives and the workers got the profits.
Further there were no parasitic owners and executives who d rew fanciful
salaries and perks-cars-house rent etc. In a garment industry known
to me the owner drew Rs. 150,000 a month, plus car and a bunglow and
so did the chief executive, while the garment makers were paid Rs 7,000
or less. In a few years the industry went bankrupt. Take the Hakmana
powerloom. It was run by Ranjith Wimalaratna, the Assistant Government
Agent of the area- he had no additional salary for it but could draw
travel expenses. It took less than 5% of his time and it was a part
of his duties. If the powerloom ran into difficulties the Government
Agent or the Additional Government Agent would look into it and sort
it out.
The money made stayed in the country. Instead of developing on the
handlooms and the powerlooms we ran behind the garment factories and
the rich became rich. Today there is talk of the European Union withdrawing
the concessions given to us . Our President has rightly said that we
will stand by our sovereignty and not allow anyone to lay down conditions.
If the GSP plus is lost, the garment workers can be found employment
in handlooms and powerlooms and we need no longer be importing textiles.
This is not a difficult task as we have experience in handling handlooms
and=2 0powerlooms. The garment industries can find an alternative purpose
of producing all the garments that our people need. At first we have
to import yarn and later we can plant cotton. In the Early Fifties we
grew cotton in Tissamaharama and Wirawila and our stores were full of
cotton. We had so much of cotton that we did not know what to do with
it. That is our cotton belt which we have forgotten now.
The Small Industries Department of which I served as Deputy Director
encouraged and helped small industries and all were of the import substitution
type.
The Divisional Development Councils Program of the 1970-1977 period
was a success in import substitution. The problem was that it concentrated
only on cooperatives and had nothing to do with the private sector.
President Rajapaksa has not made that mistake. Some of the industries
we established under the Development Councils were a great success.
In Baddegama we made garden implements of good quality. Even today there
are smithys in Kotmale which produce small tools of very high quality-
far better than w hat is imported.
Let me talk of the Crayon factory we established in Deniyaya in 1971.
It produced crayons of high quality for around a tenth of Sr i Lanka’s
needs and provided employment and also saved foreign exchange. It was
a cooperative project which was a showpiece industry managed by the
Deniyaya Cooperative Union under the leadership of the late Sumanapala
Dahanayake, the member of parliament for Deniyaya. It was a successful
import substitution project and if it had been developed it could have
produced all Sri Lanka’s requirements. What happened to this industry
after the 1977 UNP victory was a sad episode. In my words,
The UNP Government after coming into power in 1977 wanted to close
down the Cooperative Crayon Factory that I had planned and established
in Deniyaya which was a paying industry in the first six months and
even dared to despatch a Deputy Director of Cooperatives to to find
fault, to hang Sumanapala Dahanayake, the member of parliam7ent, the
President of the Coop erative Union . That officer reported that the
industry was a commercially viable asset. Though spared from political
victimization by the Deputy Director, the industry could not face the
onslaught of freed imports and the disinterest of the new cooperative
departmen t. Even today my bl ood boils when I see a packet of crayola
crayons on sale in Sri Lanka.(From How the IMF Ruined Sri Lanka..)
So much for the UNP that stands now in sheep’s clothing as the
saviour of our country!
A word has to be stated of the problems that the people had to face
in the 1970 to 1977 period. It is true that there were food scarcities.
In my own words:
Immediately one talks of foreign exchange controls and regulations
economists quote the experience that Sri Lanka had in 1970 to 1977 when
we followed self reliant policies, import substitution and encouraged
local production pointing to the fact that these policies failed. The
bread queues and the problems faced by Sri lanka then was partly due
to sky20rocketing prices of the essentials tha t we had to import and
the action taken(sanctions) by the Developed Countries who did not like
the programs of nationalization that Sri Lanka followed. Between 1973
and 1974 the CIF prices of flour increased from Rs. 1144 to Rs 3132,
and the price of rice from Rs. 807 to Rs. 2462 per ton. There was no
world shortage but this was manipulated by the multinationals. This
was in addition to the fact that the price of oil shot up for the first
time in the early Seventies and that Sri Lanka had to pay in foreign
exchange to the foreign companies from whom estates were nationalised.
Yet that 1970 to 1977 period remains the last years when we did not
have budget deficits and when we were not indebted. In 1977 out foreign
debt was only $ 750 million. Even that was on projects that would have
paid us in terms of production. No Aid funds were used for consumption
as we did after 1977. From 1977 we followed the IMF and drew loans and
managed with budget deficits. Naturally we are so indebted now and we
have to get loans to service our debts. This was all due to the UNP
policies since 1977.
Today the entire world economy is in flames because of the capitalist
system- especially the IMF system of allowing budget deficits and encouraging
loans. A new paradigm for our development has to emerge and I am happy
to note that we in Sri Lanka have already started to aim at being self
sufficient. That is the only way ahead and our 2008 budget is a progressive
step in that direction. The next step is to get down to production-
produce everything we can from potatoes to coffee and corn and rice
and our own textiles. I have worked in over half our Districts and know
our potential. We can easily produce all our food and even our own cotton.
Garvin Karunaratne,
Formerly of the Sri Lanka Administrative Service.
November 24, 2008
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