Features

THE BANKING COMMISSION

Published

9 months ago

2025/07/13

Thilina Walpola

CHAPTER 9

(Excerpted from N.U. JAYAWARDENA The first five decades)

NU, aged 26, published his first important article on the Sri Lankan economy, in the Ceylon Observer Centenary Issue of 4 February 1934 – two months before he was to begin work at the Banking Commission. It was a sweeping 100-year survey of the economy between 1834 and 1934, written in his clear style. As he stated:

“One of the arresting features of the economic history of Ceylon during the last hundred years is the phenomenal growth of her trade. Between 1834 and 1926, when the peak was reached, the value of trade increased nearly two hundred fold. In the same period there also occurred a complete change in its character and distribution. From a few staple articles, the schedule of imports and exports has expanded into a numerous list, which, particularly in regard to imports, is continually increasing.”

The article not only described imports and exports over the period and issues concerning the balance of trade, but also the fluctuations in the economy, and cyclical recessions, including the collapse of the coffee industry in the late 1870s. NU wrote about the five-year recession (1880-85) caused by the coffee crisis, the “annihilation of capital values,” and the collapse of the Oriental Banking Corporation in 1884, one of the country’s early ventures in banking. The period 1900 to 1913 he styled the “Good Years,” a unique period of “universal progress and real prosperity”; and he claimed that there was “no comparable period in the history of Ceylon trade,” in tea, rubber, coconut and graphite. NU, who would soon be involved in analysing the need for a national bank, described the crash of that banking corporation in 1884 as follows:

It was one of the most terrible blows that ever fell on Ceylon. The effect was disastrous for a time, but the courageous action of the Governor in guaranteeing the discredited notes of the defunct bank saved the country from far more serious evils.

“Afghan” man (Pathan)

What NU called an “unparalleled development” occurred from 1886 to 1900 when tea, coconut and minor products flourished with “the rush of tea” becoming “a veritable stampede,” resulting in large exports and increased imports. This boom “of the first magnitude” ended with the First World War of 1914-18 which was a “cataclysm” and “universal upheaval.” The rubber and graphite industries, which had soared due to wartime demands, “fell headlong” in 1918. This was followed by what NU referred to as “the craziest boom in history,” with a “terrible orgy of spending” occurring between the decades 1919 to 1929, when the value of both exports and imports soared. But fluctuations continued and the “Good Years” ended in the Depression of 1929-33:

The Wall Street Crash in the summer of 1929 heralded the advent of the depression. In the next five years it raged in full force; tea, rubber and coconut all withering before its icy blast. The destruction it wrought and the misery it fostered form recent history and require no repetition. Trade shrank in value to pre-war figures…

The bottom was not reached until 1932, when exports receded to what they were 22 years ago. (ibid)

He concluded by asking the question: “Is this only a passing ripple before a gathering storm or an omen of better times to come?”

The Economic Depression of 1929-33

NU would have been profoundly affected by the Depression. He not only witnessed the impoverishment of his country through economic collapse, but would also have seen the value of his rubber holdings fall sharply. ‘From rags to riches’ was a phrase NU often used (speaking of himself ), but the period 1929 to 1933 was a case of the opposite – as the country descended from the ‘boom years’ of the mid-1920s, to the hard times of the Depression. The following figures from H.A. de S. Gunasekera (1962, p.165) vividly illustrate the extent of the drastic fall in the prices of tea and coconut as well as the “ruinous slump in the rubber industry” (ibid, p.66).

Another adverse consequence of the 1929-33 Depression was linked to imports – mainly foodstuffs and manufactured goods. The fall in the prices of Sri Lanka’s exports – mainly primary products – was greater than the fall in the price of industrial goods, leading to a serious adverse balance of trade (ibid, p.174).

As Gunasekera (ibid, p.174) comments: “The largest deficit occurred in 1932 when the value of exports declined to nearly onethird of its value in 1926 while the value of imports had fallen only one-half.”( The prices of exports in this period, taking 1925 as the base year, were calculated by Professor Das Gupta (quoted in Kumari Jayawardena, 1972, p.311)

The Depression resulted in grave financial difficulties for local capitalists, who had few sources of credit. These difficulties were a cause for concern since foreign banks were also reluctant to give credit to locals. In 1929 the labour leader A.E. Goonesinha said, “never since British rule has the country been faced with such a terrible plight” (K. Jayawardena, 1972, p.310). He was not exaggerating. All classes – capitalists, landowners, clerks and workers – were hit by the dramatic slide in the economy, and the country was exposed to the worst hazards of the trade cycle. As a consequence, plantations and factories were forced to close down, and government and private firms had to lay off employees, resulting in severe unemployment among skilled, unskilled and white-collar workers. This created many social problems.

Some consequences of these events included the increase in communal clashes fuelled by trade union leaders, who in a situation of unemployment, raised slogans calling for the ‘deportation’ of workers from Kerala (Malayalis), who were part of the Colombo workforce. Moreover, ethnic tensions spread to the middle classes who, affected by the Depression, denounced the South Indian Chettiars for their grip on credit facilities.

The Chettiar Phenomenon

The need for a national Bank of Ceylon was keenly felt in the years of the Depression. The British banks did not think locals were creditworthy, and as there were no national commercial banks at this time, Sri Lankan borrowers were dependent on a rather primitive credit system run by the Nattukottai Chettiars. As W.S. Weerasooria, in his book on the Chettiars, wrote:

For most Ceylonese the Chettiars were the only source of credit, whether long term or short term. They made loans for the purchase and development of estates as well as for trade, production and consumption… Whatever

Ceylonese enterprise existed was largely indebted to the assistance provided by the Chettiars. Ceylonese exporters and importers, retailers and small ‘boutique-keepers’, estate owners, coconut millers and arrack renters… had to obtain accommodation from the Chettiars… [who] were responsible for the thin trickle of credit which found its way to internal trade and production. (Weerasooria, 1973, p.28)

Weerasooria notes the “alliance” between the British banks and the Chettiars. These banks loaned the Chettiars over Rs. 25 million in the years between 1900 to 1925, and “the Ceylonese who borrowed from the Chettiars paid high interest rates referred to in business

circles as the ‘Chetty rate of interest’” (ibid, p.xv). The emergent local capitalists, merchants and plantation owners – who up to the 1920s had done well – were also heavily dependent on Chettiars for credit from the 19th century onwards. Lavish weddings were held and large dowries given with loans obtained from Chettiars, and often at these weddings the Chettiar had an honoured place. As H.A. de S. Gunasekera (1962, p.196) commented, the Chettiar was: …ready to accommodate the genuine businessman… the speculator and spendthrift. He lent as readily to the exporter of desiccated coconut as to the impecunious landowner trying to raise a dowry for his daughter.

In fact, many government servants – some from the highest levels of government – were reliant on the Chettiars for loans. According to Vernon Gunasekera (1981, pp.34-35), in the 1920s and early 1930s it was not an uncommon sight to find Chettiars waiting outside government or mercantile offices, in Colombo or provincial towns, to lend money or collect repayment. The problem became so acute that the first State Council of 1931 amended legislation, making it a penal offence for moneylenders to demand payment in person at anyone’s residence or place of work. This was initiated after “a plaintiff-creditor tried to serve writ on a legislator entering the Council.”

NU at his desk

The managerial staff of the foreign banks was European, while the clerical staff consisted of Sri Lankans. The Banking Commission reported on the social distance between local investors and the foreign bankers:

An ordinary Ceylonese has no opportunity to meet a European bank manager or even a junior officer, in his daily life, but a European merchant can almost daily meet his banker in the club or on the sports field.” (Weerasooria, pp.30-31, quoting from the Ceylon Banking Commission Report)

The problems culminated in 1925 when a Chettiar firm collapsed, the banks stopped giving loans to Chettiars. During “The Chetty Crisis,” as it was called, the Chettiars began to foreclose on local borrowers. Weerasooria (p.xvi) referred to:

…the spate of litigation initiated by the Chettiars against their Ceylonese borrowers who had defaulted in payment. Many a Ceylonese landowner lost his property to the Chettiar and many a Ceylonese debtor ended up in the Insolvency Court at the instance of his Chettiar creditor.

The “Chetty Crisis” of 1925 revealed not only the dangers of indiscriminately advancing unsecured loans, but also the gross inadequacies of the prevailing credit system and the need for a national bank.

The Banking Commission

H.A. de S. Gunasekera (1962, p.200) has observed that:

At a certain stage in the history of every colonial country, there grows up an indigenous capitalist class increasingly anxious not only to take over political responsibility, but also to play a larger role in the economic life of the country.

There was a public outcry at the worsening economic situation, inspired by growing national sentiment among politicians, local traders and landowners. In the State Council, George E. de Silva, the member for Kandy (known for his reformist and nationalist leanings), proposed in November 1932 that a commission be appointed “to go into the system of commerce, banking and insurance of this island.” This resulted in the appointment of the Ceylon Banking

Commission with Sir Sorabji N. Pochkhanawala, an Indian banker, as chairman, along with Sir Marcus Fernando and Dr. S.C. Paul as members. Professor B.B. Das Gupta served as Secretary, and N.U. Jayawardena as Assistant Secretary to the Commission. Pochkhanawala had worked as an accountant in two banks in Mumbai, the Bank of India Ltd – a private bank established in 1906 – and another private bank named the Central Bank of India Ltd, Bombay, founded in 1911.

He belonged to the Parsi community of India which, from the 19th century onwards, dominated the local entrepreneurial, banking and managerial sectors in India, and were renowned for their pioneering activities in Indian capitalist development in colonial times. Amiya Bagchi writes that the Central Bank of India Ltd.: “was the outcome of the Herculean efforts of… S.N. Pochkhanawala, who prevailed upon Sir Pherozeshah Mehta to be its chairman.

” By 1923 this bank was “the biggest Indian joint-stock private bank in terms of capital and reserves” (Bagchi, 1997, p.103). By 1934 Pochkhanawala, who had been knighted for his services to the banking sector, had become the managing director of the Central Bank of India Ltd., and in later years became its chairman. Pochkhanawala was to help Sri Lanka launch its first national bank. Pochkhanawala’s earlier “Herculean efforts” were, no doubt, qualities that inspired NU, who worked closely with him in the arduous work of the Banking Commission.

: The Bank of Madras

: The Indian Overseas Bank (est. 1942

: Delegation of Nattukottai Chetties

Public sittings of the Banking Commission were held, during which evidence was taken from 287 individuals and institutions. Many moving accounts of bankruptcy, indebtedness and financial ruin were related at those sittings, providing NU with an in-depth exposure to the hardships endured at that time. The findings and evidence contained in two volumes were published as Sessional Papers Nos. XXII and XXIII in November 1934.

George E. de Silva, who had proposed the establishment of this Commission, gave important evidence at the sessions, voicing the concerns of all classes of Sri Lankans during the Depression years – including the entrepreneurs, merchants and government servants. Speaking as a nationalist politician, his main grievance was the foreign control of banks in Sri Lanka and “the tremendous price the country is paying in allowing their banking to be done by foreigners.” In his words:

It is curious that none of the banks working in Ceylon is owned by Ceylonese. I should be surprised if Ceylonese held shares in these banks. These banks have not brought capital from abroad but are working here by collecting and utilizing the money of this country. They pay a small rate of interest on their deposits and that money is again lent to people of this country through the intermediary of Shroffs and Chettiars at a high rate of

interest, sometimes 15 to 18 per cent. The interest that is ultimately paid by the borrower is so high that his business or production can hardly bear it. The result of this system could be nothing but collapse and failure in the end. (Banking Commission, 1934, vol.2, pp.419-21)

George E. de Silva also criticized the absence of a “national policy,” and the failure of the banks to train locals, and elaborated on the lack of investment and therefore of economic development. He stated:

The existing banking system lacks national policy, which would certainly be in the forefront if the institutions were in our own hands. There would then be the desire to assist in the growth of our economic resources. The present bankers have not that patriotism to guide them. Their object is merely to make money and assist the trade and industries of their countries… [They] have deliberately kept out people of the Island from responsible posts. It would have been something if they had realized their responsibility to Ceylon and tried to train our own men in the banking profession. (as quoted in Ceylon Banking Commission, vol. 2, 1934, pp.419-21)

The impact of the economic depression on local investors was deplored by de Silva. He also blamed the policies of the foreign-owned banks during these years of crisis. If national banks had existed then, they “would have adopted more sympathetic policies,” he added. Gunasekara notes that this problem was common in a colonial situation:

The failure of foreign banks to integrate themselves fully with the internal economy has been a common phenomenon in countries which have been the field of capital investment by overseas countries. (Gunasekera, pp. 204-5)

The problems and hardships facing the local plantation owners were described by de Silva:

Our people borrow money for developing estates and they pay exorbitant rates of interest. As soon as the estates approach bearing point they find themselves in difficulties and cannot meet their obligations. Ultimately the land has to be sold and the borrower loses all his inheritance and life savings.

The plight of low-income groups such as clerks was also referred to by de Silva:

The people are heavily in debt. Moneylenders, particularly the Afghan [Pathan] type, do a thriving business charging poor unlucky persons sometimes over 100 per cent by way of interest. Mostly poor people and clerks

get into their clutches and they are ultimately ruined. (as quoted in Ceylon Banking Commission, vol. 2, 1934, pp.419-21)

An “Invaluable Document”

The Ceylon Banking Commission Report, according to Weerasooria, “is looked upon as one of the best and most authentic and authoritative accounts of the financial and economic condition of the island at that time” (Weerasooria, 1973, p.xvii). Gunasekera (1962, p.201), describes the Commission Report as: an exhaustive analysis of every aspect of credit in Ceylon, ranging from the organized credit institutions such as the commercial banks and the State Mortgage Bank, to the Chettiars, pawnbrokers, ‘boutique keepers’ and Afghan moneylenders who were the main suppliers of credit to the Ceylonese population.

The Commissioners acknowledged the work of NU, stating at the end of the Report that they “wished to place on record our appreciation of the able help that we have received from our Assistant Secretary with his knowledge and experience of Government Departments.” NU claimed that “the brunt of the work” of the Commission fell on him, especially as the Secretary, Das Gupta, served only on a part-time basis. Interestingly, as NU progressed upwards in his career, he would work again with Das Gupta in different capacities, first in the University College of Ceylon and then later in the Central Bank, when NU became Deputy Governor.

NU not only contributed to the work of the Banking Commission but also would have learned much from this important exercise, benefiting from interaction with Pochkhanawala and Das Gupta and also from listening to the evidence presented from a variety of sources. For NU, whose Economics degree had given him a theoretical understanding of the subject, the shocking stories of financial ruin of Sri Lankans during the Depression exposed him to the practical economic problems that people faced. It was a lesson in the economic realities of colonial rule, the backward nature of the economy, the need for local financial institutions, the class structure of Sri Lankan society and the role of foreigners – both British and Indian – in controlling credit. Being associated with a key commission on banking would have further bolstered NU’s interest in the banking sector, with which he remained closely involved for the rest of his life.

For NU, the experience was of tremendous value. Many years later, in 1961 as a Senator, NU, in a debate on the Budget and the Bank of Ceylon, would refer to the Banking Commission as being
the place where he cut his “financial teeth.” (N.U. JAYAWARDENA The First Five Decades Chapter 8 can read online on https://island.lk/early-career-and-londondegree/)

By Kumari Jayawardena and Jennifer Moragoda ✍️
Such financial teeth as I possess were cut with the Commission that was appointed to examine the banking system of this country – the Pochkhanawala Commission – of which I was Assistant Secretary.(N.U. Jayawardena, Senate Debate, 3 Oct. 1961, Hansard, p.832)

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Features

A World Order in Crisis: War, Power, and Resistance

Published

30 mins ago

2026/03/28

Thilina Walpola

Article 2(4) of the United Nations Charter prohibits member states from using threats or force against the territorial integrity or political independence of any state. Violating international law, the United States and Israel attacked Iran on February 28, 2026. The ostensible reason for this unprovoked aggression was to prevent Iran from developing a nuclear weapon.

The United States is the first and only country to have used nuclear weapons in war, against Japan in August 1945. Some officials in Israel have threatened to use a “doomsday weapon” against Gaza. On March 14, David Sacks, billionaire venture capitalist and AI and crypto czar in the Trump administration, warned that Israel may resort to nuclear weapons as its war with Iran spirals out of control and the country faces “destruction.”

Although for decades Iran’s Supreme Leader, Ali Khamenei, opposed nuclear weapons on religious grounds, in the face of current existential threats it is likely that Iran will pursue their development. On March 22, the head of the WHO warned of possible nuclear risks after nuclear facilities in both Iran and Israel were attacked. Indeed, will the current war in the Middle East continue for months or years, or end sooner with the possible use of a nuclear weapon by Israel or the United States?

Widening Destruction

Apart from the threat of nuclear conflagration—and what many analysts consider an impending ground invasion by American troops—extensive attacks using bombs, missiles, and drones are continuing apace, causing massive loss of life and destruction of resources and infrastructure. US–Israel airstrikes have killed Ayatollah Ali Khamenei and top Iranian officials. Countless civilians have died, including some 150 girls in a primary school in Minab, in what UNESCO has called a “grave violation of humanitarian law.” Moreover, the targeting of desalination plants by both sides could severely disrupt water supplies across desert regions.

Iran’s retaliatory attacks on United States military bases in Persian Gulf countries have disrupted global air travel. Even more significantly, Iran’s closure of the Strait of Hormuz—the critical maritime energy chokepoint through which 20% of global oil and liquefied natural gas pass daily—has blocked the flow of energy supplies and goods, posing a severe threat to the fossil fuel–driven global economy. A global economic crisis is emerging, with soaring oil prices, power shortages, inflation, loss of livelihoods, and deep uncertainty over food security and survival.

The inconsistent application of international law, along with structural limitations of the United Nations, erodes trust in global governance and the moral authority of Western powers and multilateral institutions. Resolution 2817 (2026), adopted by the UN Security Council on March 12, condemns Iran’s “egregious attacks” against its neighbours without any condemnation of US–Israeli actions—an imbalance that underscores this concern.

The current crisis is exposing fault lines in the neo-colonial political, economic, and moral order that has been in place since the Second World War. Iran’s defiance poses a significant challenge to longstanding patterns of intervention and regime-change agendas pursued by the United States and its allies in the Global South. The difficulty the United States faces in rallying NATO and other allies also reflects a notable geopolitical shift. Meanwhile, the expansion of yuan-based oil trade and alternative financial settlement mechanisms is weakening the petrodollar system and dollar dominance. Opposition within the United States—including from segments of conservatives and Republicans—signals growing skepticism about the ideological and moral basis of a US war against Iran seemingly driven by Israel.

A New World Order?

The unipolar world dominated by the United States—rooted in inequality, coercion, and militarism—is destabilising, fragmenting, and generating widespread chaos and suffering. Challenges to this order, including from Iran, point toward a fragmented multipolar world in which multiple actors possess agency and leverage.

The BRICS bloc—Brazil, Russia, India, China, South Africa, along with Iran, the UAE, and other members—represents efforts to create alternative economic and financial systems, including development banks and reserve currencies that challenge Western financial dominance.

However, is BRICS leading the world toward a much-needed order, based on equity, partnership, and peace? The behaviour of BRICS countries during the current crisis does not indicate strong collective leadership or commitment to such principles. Instead, many appear to be leveraging the situation for national advantage, particularly regarding access to energy supplies.

A clear example of this opportunism is India, the current head of the BRICS bloc. Historically a leader of non-alignment and a supporter of the Palestinian cause, India now presents itself as a neutral party upholding international law and state sovereignty. However, it co-sponsored and supported UN Security Council Resolution 2817 (2026), which condemns only Iran.

India is also part of the USA–Israel–India–UAE strategic nexus involving defence cooperation, technology sharing, and counterterrorism. Additionally, it participates in the Quadrilateral Security Dialogue (QUAD) with the United States, Japan, and Australia, aimed at countering China’s growing influence. In effect, despite its leadership role in BRICS, India is closely aligned with the United States, raising questions about its ability to offer independent leadership in shaping a new world order.

As a group, BRICS does not fundamentally challenge corporate hegemony, the concentration of wealth among a global elite, or entrenched technological and military dominance. While it rejects aspects of Western geopolitical hierarchy, it largely upholds neoliberal economic principles: competition, free trade, privatisation, open markets, export-led growth, globalisation, and rapid technological expansion.

The current Middle East crisis underscores the need to question the assumption that globalisation, market expansion, and technological growth are the foundations of human well-being. The oil and food crises, declining remittances from Asian workers in the Middle East, and reduced tourism due to disruptions in the Strait of Hormuz and regional airspace all highlight the fragility of global interdependence.

These conditions call for consideration of alternative frameworks—bioregionalism, import substitution, local control of resources, food and energy self-sufficiency, and renewable energy—in place of dependence on imported fossil fuels and global supply chains.

Both the Western economic model and its BRICS variant continue to prioritise techno-capitalist expansion and militarism, despite overwhelming evidence linking these systems to environmental destruction and social inequality. While it is difficult for individual countries to challenge this dominant model, history offers lessons in collective resistance.

Collective Resistance

One of the earliest examples of nationalist economic resistance in the post-World War II period was the nationalisation of the Anglo-Iranian Oil Company and the creation of the National Iranian Oil Company in 1951 under Prime Minister Mohammad Mosaddegh. He was overthrown on August 19, 1953, in a coup orchestrated by the US CIA and British intelligence (MI6), and Shah Mohammad Reza Pahlavi was installed to protect Western oil interests.

A milestone for decolonisation occurred in Egypt in 1956, when President Gamal Abdel Nasser nationalised the Suez Canal Company. Despite military intervention by Israel, the United Kingdom, and France, Nasser retained control, emerging as a symbol of Arab and Third World nationalism.

Following political independence, many former colonies sought to avoid entanglement in the Cold War through the Non-Aligned Movement (NAM), officially founded in Belgrade in 1961. Leaders including Josip Broz Tito, Jawaharlal Nehru, Gamal Abdel Nasser, Kwame Nkrumah, Sukarno, and Sirimavo Bandaranaike promoted autonomous development paths aligned with national priorities and cultural traditions.

However, maintaining economic sovereignty proved far more difficult. Patrice Lumumba, the first democratically elected Prime Minister of the Democratic Republic of the Congo, was assassinated in 1961 with the involvement of US and Belgian interests after attempting to assert control over national resources. Kwame Nkrumah was similarly overthrown in a US-backed coup in 1966.

In Tanzania, Julius Nyerere’s Ujamaa (“African socialism”) sought to build community-based development and food security, but faced both internal challenges and external opposition, ultimately limiting its success and discouraging similar efforts elsewhere.

UN declarations from the 1970s reflect Global South resistance to the Bretton Woods system. Notably, the 1974 Declaration on the Establishment of a New International Economic Order (Resolution 3201) called for equitable cooperation between developed and developing countries based on dignity and sovereign equality.

Today, these declarations are more relevant than ever, as Iran and other Global South nations confront overlapping crises of economic instability, neocolonial pressures, and intensifying geopolitical rivalry. Courtesy: Inter Press Service

by Dr. Asoka Bandarage

Features

Neutrality in the context of geopolitical rivalries

Published

1 day ago

2026/03/27

Thilina Walpola

President Dissanayake in Parliament

The long standing foreign policy of Sri Lanka was Non-Alignment. However, in the context of emerging geopolitical rivalries, there was a need to question the adequacy of Non-Alignment as a policy to meet developing challenges. Neutrality as being a more effective Policy was first presented in an article titled “Independence: its meaning and a direction for the future” (The Island, February 14, 2019). The switch over from Non-Alignment to Neutrality was first adopted by former President Gotabaya Rajapaksa and followed through by successive Governments. However, it was the current Government that did not miss an opportunity to announce that its Foreign Policy was Neutral.

The policy of Neutrality has served the interests of Sri Lanka by the principled stand taken in respect of the requests made by two belligerents associated with the Middle East War. The justification for the position adopted was conveyed by President Anura Kumara Dissanayake to Parliament that Iran had made a formal request on February 26 for three Iranian naval ships to visit Sri Lanka, and on the same evening, the United States also requested permission for two war planes to land at Mattala International Airport. Both requests were denied on grounds of maintaining “our policy of neutrality”.

WHY NEUTRALITY

Excerpts from the article cited above that recommended Neutrality as the best option for Sri Lanka considering the vulnerability to its security presented by its geographic location in the context of emerging rivalries arising from “Pivot to Asia” are presented below:

“Traditional thinking as to how small States could cope with external pressures are supposed to be: (1) Non-alignment with any of the major centers of power; (2) Alignment with one of the major powers thus making a choice and facing the consequences of which power block prevails; (3) Bandwagoning which involves unequal exchange where the small State makes asymmetric concessions to the dominant power and accepts a subordinate role of a vassal State; (4) Hedging, which attempts to secure economic and security benefits of engagement with each power center: (5) Balancing pressures individually, or by forming alliances with other small States; (6) Neutrality”.

Of the six strategies cited above, the only strategy that permits a sovereign independent nation to charter its own destiny is neutrality, as it is with Switzerland and some Nordic countries. The independence to self-determine the destiny of a nation requires security in respect of Inviolability of Territory, Food Security, Energy Security etc. Of these, the most critical of securities is the Inviolability of Territory. Consequently, Neutrality has more relevance to protect Territorial Security because it is based on International Law, as opposed to Non-Alignment which is based on principles applicable to specific countries that pledged to abide by them

“The sources of the international law of neutrality are customary international law and, for certain questions, international treaties, in particular the Paris Declaration of 1856, the 1907 Hague Convention No. V respecting the Rights and Duties of Neutral Powers and Persons in Case of War on Land, the 1907 Hague Convention No. XIII concerning the Rights and Duties of Neutral Powers in Naval War, the four 1949 Geneva Conventions and Additional Protocol I of 1977” (ICRC Publication on Neutrality, 2022).

As part of its Duties a Neutral State “must ensure respect for its neutrality, if necessary, using force to repel any violation of its territory. Violations include failure to respect the prohibitions placed on belligerent parties with regard to certain activities in neutral territory, described above. The fact that a neutral State uses force to repel attempts to violate its neutrality cannot be regarded as a hostile act. If the neutral State defends its neutrality, it must however respect the limits which international law imposes on the use of force. The neutral State must treat the opposing belligerent States impartially. However, impartiality does not mean that a State is bound to treat the belligerents in exactly the same way. It entails a prohibition on discrimination” (Ibid).

“It forbids only differential treatment of the belligerents which in view of the specific problem of armed conflict is not justified. Therefore, a neutral State is not obliged to eliminate differences in commercial relations between itself and each of the parties to the conflict at the time of the outbreak of the armed conflict. It is entitled to continue existing commercial relations. A change in these commercial relationships could, however, constitute taking sides inconsistent with the status of neutrality” (Ibid).

THE POTENTIAL of NEUTRALITY

It is apparent from the foregoing that Neutrality as a Policy is not “Passive” as some misguided claim Neutrality to be. On the other hand, it could be dynamic to the extent a country chooses to be as demonstrated by the actions taken recently to address the challenges presented during the ongoing Middle East War. Furthermore, Neutrality does not prevent Sri Lanka from engaging in Commercial activities with other States to ensuring Food and Energy security.

If such arrangements are undertaken on the basis of unsolicited offers as it was, for instance, with Japan’s Light Rail Project or Sinopec’s 200,000 Barrels a Day Refinery, principles of Neutrality would be violated because it violates the cardinal principle of Neutrality, namely, impartiality. The proposal to set up an Energy Complex in Trincomalee with India and UAE would be no different because it restricts the opportunity to one defined Party, thus defying impartiality. On the other hand, if Sri Lanka defines the scope of the Project and calls for Expressions of Interest and impartially chooses the most favourable with transparency, principles of Neutrality would be intact. More importantly, such conduct would attract the confidence of Investors to engage in ventures impartial in a principled manner. Such an approach would amount to continue the momentum of the professional approach adopted to meet the challenges of the Middle East War.

CONCLUSION

The manner in which Sri Lanka acted, first to deny access to the territory of Sri Lanka followed up by the humanitarian measures adopted to save the survivors of the torpedoed ship, earned honour and respect for the principled approach adopted to protect territorial inviolability based on International provisions of Neutrality.

If Sri Lanka continues with the momentum gained and adopts impartial and principled measures recommended above to develop the country and the wellbeing of its Peoples, based on self-reliance, this Government would be giving Sri Lanka a new direction and a fresh meaning to Neutrality that is not passive but dynamic.

by Neville Ladduwahetty

Features

Lest we forget

Published

1 day ago

2026/03/27

Thilina Walpola

Dr. Mohammad Mosaddegh

The interference into affairs of other nations by the USA’s Central Intelligence Agency (CIA) started in 1953, six years after it was established. The Anglo-Iranian Oil Company supplied Britain with most of its oil during World War I. In fact, Winston Churchill once declared: “Fortune brought us a prize from fairyland beyond our wildest dreams.”

When in 1951 Dr. Mohammad Mosaddegh was reluctantly appointed as Prime Minister by the Shah of Iran, whose role was mostly ceremonial, he convinced Parliament that the oil company should be nationalised.

Mohammed Mosaddegh

Mosaddegh said: “Our long years of negotiations with foreign companies have yielded no result thus far. With the oil revenues we could meet our entire budget and combat poverty, disease and backwardness of our people.”

It was then that British Intelligence requested help from the CIA to bring down the Iranian regime by infiltrating their communist mobs and the army, thus creating disorder. An Iranian oil embargo by the western countries was imposed, making Iranians poorer by the day. Meanwhile, the CIA’s strings were being pulled by Kermit Roosevelt (a grandson of former President Theodore Roosevelt), according to declassified intelligence information.

Although a first coup failed, the second attempt was successful. General Fazlollah Zahedi, an Army officer, took over as Prime Minister. Mosaddegh was tried and imprisoned for three years and kept under house arrest until his death. Playing an important role in the 1953 coup was a Shia cleric named Ayatollah Abol-Ghasem Mostafavi-Kashani. He was previously loyal to Mosaddegh, but later supported the coup. One of his successors was Ayatollah Ruhollah Mostafavi Musavi Khomeini, who engineered the Islamic Revolution in 1979. Meanwhile, in 1954 the Anglo-Iranian Oil Company had been rebranded as British Petroleum (BP).

Map of the Middle East

When the Iran-Iraq war broke out (September 1980 to August 1988), the Persian/Arabian Gulf became a hive of activity for American warships, which were there to ensure security of the Gulf and supertankers passing through it.

CIA-instigated coup in Iran in 1953 Dr. Mohammad Mosaddegh

The Strait of Hormuz, the only way in and out of the Gulf, is administered by Oman and Iran. While there may have been British and French warships in the region, radio ‘chatter’ heard by aircraft pilots overhead was always from the US ships. In those days, flying in and out of the Gulf was a nerve-wracking experience for airline pilots, as one may suddenly hear a radio call on the common frequency: “Aircraft approaching US warship [name], identify yourself.” One thing in the pilots’ favour was that they didn’t know what ships they were flying over, so they obeyed only the designated air traffic controller. Sometimes though, with unnecessarily distracting American chatter, there was complete chaos, resulting in mistaken identities.

Air Lanka Tri Star

Once, Air Lanka pilots monitored an aircraft approaching Bahrain being given a heading to turn on to by a ship’s radio operator. Promptly the air traffic controller, who was on the same frequency, butted in and said: “Disregard! Ship USS Navy [name], do you realise what you have just done? You have turned him on to another aircraft!” It was obvious that there was a struggle to maintain air traffic control in the Gulf, with operators having to contend with American arrogance.

On the night of May 17, 1987, USS Stark was cruising in Gulf waters when it was attacked by a Dassault Mirage F1 jet fighter/attack aircraft of the Iraqi Air Force. Without identifying itself, the aircraft fired two Exocet missiles, one of which exploded, killing 37 sailors on board the American frigate. Iraq apologised, saying it was a mistake. The USA graciously accepted the apology.

Then on July 3, 1988 the high-tech, billion-dollar guided missile cruiser USS Vincennes, equipped with advanced Aegis weapons systems and commanded by Capt. Will Rogers III, was chasing two small Iranian gun boats back to their own waters when an aircraft was observed on radar approaching the US warship. It was misidentified as a Mirage F1 fighter, so the Americans, in Iranian territorial waters, fired two surface-to-air Missiles (SAMs) at the target, which was summarily destroyed.

The Vincennes had issued numerous warnings to the approaching aircraft on the military distress frequency. But the aircraft never heard them as it was listening out on a different (civil) radio frequency. The airplane broke in three. It was soon discovered, however, that the airplane was in fact an Iran Air Airbus A300 airliner with 290 civilian passengers on board, en route from Bandar Abbas to Dubai. Unfortunately, because it was a clear day, the Iranian-born, US-educated captain of Iran Air Flight 655 had switched off the weather radar. If it was on, perhaps it would have confirmed to the American ship that the ‘incoming’ was in fact a civil aircraft. At the time, Capt. Will Rogers’ surface commander, Capt. McKenna, went on record saying that USS Vincennes was “looking for action”, and that is why they “got into trouble”.

Although USS Vincennes was given a grand homecoming upon returning to the USA, and its Captain Will Rogers III decorated with the Legion of Merrit, in February 1996 the American government agreed to pay Iran US$131.8 million in settlement of a case lodged by the Iranians in the International Court of Justice against the USA for its role in that incident. However, no apology was tendered to the families of the innocent victims.

These two incidents forced Air Lanka pilots, who operated regularly in those perilous skies, to adopt extra precautionary measures. For example, they never switched off the weather radar system, even in clear skies. While there were potentially hostile ships on ground, layers of altitude were blocked off for the exclusive use of US Air Force AWACS (Airborne Warning and Control System) aircraft flying in Bahraini and southern Saudi Arabian airspace. The precautions were even more important because Air Lanka’s westbound, ‘heavy’ Lockheed TriStars were poor climbers above 29,000 ft. When departing Oman or the UAE in high ambient temperatures, it was a struggle to reach cruising level by the time the airplane was overhead Bahrain, as per the requirement.

In the aftermath of the Iran Air 655 incident, Newsweek magazine called it a case of ‘mistaken identity’. Yet, when summing up the tragic incident that occurred on September 1, 1983, when Korean Air Flight KE/KAL 007 was shot down by a Russian fighter jet, close to Sakhalin Island in the Pacific Ocean during a flight from New York to Seoul, the same magazine labelled it ‘murder in the air’.

After the Iranian coup, which was not coincidentally during the time of the ‘Cold War’, the CIA involved itself in the internal affairs of numerous countries and regions around the world: Guatemala (1953-1990s); Costa Rica (1955, 1970-1971); Middle East (1956-1958); Haiti (1959); Western Europe (1950s to 1960s); British Guiana/Guyana (1953-1964); Iraq (1958-1963); Soviet Union, Vietnam, Cambodia (1955-1973); Laos, Thailand, Ecuador (1960-1963); The Congo (1960-1965, 1977-1978); French Algeria (1960s); Brazil (1961-1964); Peru (1965); Dominican Republic (1963-1965); Cuba (1959 to present); Indonesia (1965); Ghana (1966); Uruguay (1969-1972); Chile (1964-1973); Greece (1967-1974); South Africa (1960s to 1980s); Bolivia (1964-1975); Australia (1972-1975); Iraq (1972-1975); Portugal (1974-1976); East Timor (1975-1999); Angola (1975-1980); Jamaica (1976); Honduras (1980s); Nicaragua (1979-1990); Philippines (1970s to 1990s); Seychelles (1979-1981); Diego Garcia (late 1960s to present); South Yemen (1979-1984); South Korea (1980); Chad (1981-1982); Grenada (1979-1983); Suriname (1982-1984); Libya (1981-1989); Fiji (1987); Panama (1989); Afghanistan (1979-1992); El Salvador (1980-1992); Haiti (1987-1994, 2004); Bulgaria (1990-1991); Albania (1991-1992); Somalia (1993); Iraq (1991-2003; 2003 to present), Colombia (1990s to present); Yugoslavia (1995-1995, and to 1999); Ecuador (2000); Afghanistan (2001 to present); Venezuela (2001-2004; and 2025).

If one searches the internet for information on American involvement in foreign countries during the periods listed above, it will be seen how ‘black’ funds were/are used by the CIA to destabilise those governments for the benefit of a few with vested interests, while poor citizens must live in the chaos and uncertainty thus created.

A popular saying goes: “Each man has his price”. Sad, isn’t it? Arguably the world’s only superpower that professes to be a ‘paragon of virtue’ often goes ‘rogue’.

God Bless America – and no one else!

BY GUWAN SEEYA