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IMF programme: Is there a way out?

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by Garvin Karunaratne

The Sri Lankan government is finding it hard to fulfil the regulations agreed upon with the IMF in the Houses of Parliament on April 28, 2023. However, there was no other option but to agree. According to Professor Vasanta Atukorale, the increases in taxes amount to a staggering 441%. The IMF’s experts fail to understand that implementing these regulations will cause untold hardships to the public and may even lead to a severe recession. Perhaps, this is the ulterior motive of the IMF.

Sri Lanka was not a dollar in foreign debt in 1977. From 1948 to 1977, the country made strides in development, opening up land, colonisation schemes for people, building tanks, developing agriculture and industries, and implementing welfare measures. The country became self-sufficient in paddy production, its staple crop, and produced all its textiles. This development effort involved agricultural marketing, agricultural extension, small industry, and district administration. The golden era of Premier Dudley Senanayake’s rule, lasting 29 years, was where the people enjoyed freedom and development.

The IMF abolished many development programmes in 1978. The problem began with the Structural Adjustment Programme imposed on Sri Lanka by the IMF when President J. R. Jayewardene sought assistance from the IMF, which gave loans freely on condition that Sri Lanka follow neoliberal economics and allowed the rich to spend foreign funds that the country had obtained as loans. This led to foreign debt. Worse still, President Jayewardene and his Minister of Finance Ronnie de Mel were made to believe that this path would lead to development.

In 1978, the IMF even gave grace periods, when Sri Lanka did not need to pay the interest and repayment instalments on loans so that the leaders would not be burdened with the repayment. The burden was shifted to future leaders.

Many specialists have proposed alternative ways of dealing with the current crisis. The World Bank Country Director Fariz Hadad Zerous has said that the current crisis is not a temporary liquidity shock but the result of longstanding structural weaknesses, poor governance, and a public debt that is unsustainable. However, the World Bank Country Director needs to be told that it was the IMF itself that is to blame for taking Sri Lanka on this path of living on loans.

From Independence in 1948 to 1977, Sri Lanka’s development was done through various development programmes that involved people in production aimed at self-reliance. The IMF abolished all the developmental departmental activities and confined the administrators to the barracks while coming up with the ludicrous basis that the private sector was to be the engine of growth. It was this decision of the IMF imposed in 1978 that crippled the development of the country. The private sector has self-aggrandizement as its aim. The development of the country is not their concern.

Until 1977, the country had import restrictions in place to ensure that it could manage with its earnings. The development of the country was entirely run with local currency – the rupee – collected by taxes supplemented by money printing, while the foreign exchange that came in through exports and services was precisely collected and used for the purchase of importing essentials. Very small allocations were made for imports. The total expenditure of Sri Lanka in 1961/62 was Rupees 2013 million, all local rupees. The 1963 Budget Speech of Minister T. B. Illangaratne tells how imports of textiles were reduced by a third, powerlooms were imported, but imports of cars were banned.

The Budget Speech outlines the strategy to manage imports within the available expenditure, highlighting its potential as a developmental exercise. Minister Illangaratne said, “We stopped the import of coffee to increase coffee production” (p.1237). I met Minister Illangaratne in 1971, when I needed his approval for foreign exchange allocation to import dyes for my Crayon Factory in Morawaka. The Ministry of Industries refused to provide us with an import allocation because we were a cooperative. However, I learned that the Controller of Imports was about to allow an allocation of foreign exchange for the import of crayons. So, I intervened and convinced the Import Controller that by giving our Crayon Factory a foreign exchange allocation for the import of dyes, he could cancel all imports. I needed Minister Illangaratne’s approval as this procedure had never been done before. When I showed him the crayons we produced, I remember the gleam on his face. He insisted that I establish a Crayon Factory in Kolonnawa, his electorate, and ordered the total cancellation of all imports on crayons. That is how statesmen served the national interest.

Today’s economic meltdown, with foreign debt amounting to $56 billion, did not come without warning. In 1990, I began a series of lectures on Third World Studies at the Westminster Adult Education Institute, where I discussed how Sri Lanka’s foreign debt was increasing. By 1989, the foreign debt had increased to $5 billion. In 1992, the South Asian Forum of the University of London invited me to speak on Sri Lanka, and I commented that foreign aid could serve as an engine of growth if handled prudently. However, foreign aid could lead to chronic debt, poverty, high unemployment, and even uprisings if accepted in a non-developmental manner. I also mentioned that the healthy balance of payments achieved during the period of 1970-1976 turned into a nightmare of adverse deficits due to the governments that came into power since 1977 (From How the IMF Ruined Sri Lanka & Alternative Programmes of Success, Godage, 2006).

The foreign debt ballooned to $9.5 billion by the end of the UNP rule, $11.5 billion by 2005, $42.9 billion at the end of 2014, and $56 billion by 2019. Initially, the IMF gave loans, but it later backed out, and the country had to raise funds through other sources on less attractive terms. International sovereign bonds were obtained at high interest, as much as $4 billion during the Rajapaksa Regime of 2008-2015 and $10 billion ISB loans during 2015-2019. It is important to note that President Gotabhaya did not create the foreign debt. However, he made wrong decisions, such as providing a massive tax break to large enterprises and his infamous agricultural extension programme of using compost and banning the use of inorganic fertilisers, which led to massive crop failure. It is difficult to imagine a successful military commander failing to act forcefully in the interests of the country, but it did happen. The cause of Sri Lanka’s total economic meltdown lies in the salient features of the Structural Adjustment Programme imposed on Sri Lanka since the end of 1977. We have not used the loans for any purpose in development but lived extravagantly on loans, as dictated by the IMF. Corruption and politics in decision-making also aggravated distress, but the salient factor is that Sri Lanka started living on loans and abandoned development programmes. The IMF even disbanded the Planning Department and confined all development workers to the barracks.

It is unfortunate to note that the IMF’s $3 billion loan provisions for Sri Lanka do not include any measures to increase the country’s productivity and boost people’s incomes. The IMF’s focus is primarily on increasing the tax base, restoring price stability, restructuring debt, rebuilding reserves, and enabling the country to purchase essential goods from abroad in order to put it on a growth path. The Central Bank is expected to purchase foreign exchange worth $1.4 billion to rebuild reserves. According to the Financial Times, the reforms also involve addressing corruption and inefficiency at state-owned enterprises, combating inflation, recapitalising the banking sector, and overhauling the tax system, which currently sees half of the country’s taxpayers paying less than 5% of their income to the state.

However, the IMF seems to overlook the fact that taxes are collected in local currency and do not have any direct impact on the repayment of foreign debts. Therefore, Sri Lanka’s only viable option is to implement import substitution programmes that will reduce the country’s dependence on imports and simultaneously generate incomes for the people. The IMF has not prohibited such productivity-enhancing measures, and it is up to Sri Lanka’s leaders to devise programmes that can increase production.

Sri Lanka has previous experience with successful development programmes such as the Divisional Development Councils Program (DDCP) implemented by the government from 1970-1977. The DDCP provided employment training to 33,200 youths, established agricultural farms, and set up small industries. Many Districts also established small agricultural farms and industries, such as the Mechanised Boatyard at Matara, which produced 35 seaworthy fishing inboard motor boats a year and a Cooperative Crayon Factory, which had country-wide sales. These were established in a short period, within two to three and a half months, respectively.

Employment creation programmes that can also boost production have proven successful, such as the Youth Self Employment Programme established by the author in Bangladesh, which has created three million entrepreneurs and is now recognised as the world’s most successful employment creation programme.

It is worth noting that since Sri Lanka started following the IMF’s policies in 1977, no new development programmes have been implemented to reduce poverty, develop the country’s resources, or train people to make what is imported. The author highlights the work of previous statesmen in implementing successful development programmes, which can serve as a model for current leaders.

In conclusion, it is crucial for Sri Lanka’s leaders to establish programmes that will produce what is currently imported and create incomes for the people while simultaneously reducing the country’s foreign exchange expenditure on imports.

(Dr. Karunaratne is a former Government Agent and Commonwealth Fund Advisor to the Ministry of Labour and Manpower, Bangladesh 1981-1983.)



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Features

‘Lord Edgware Dies’

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It has been some time since I read an Agatha Christie, the plot of which I cannot remember. So, I was delighted to find on the shelves of a friend Lord Edgware Dies, which I had a vague memory of, but no certainty about who had done it.

When I read it, I found that my memory of who was probably the killer was correct, but I could not be certain and the red herrings Christie threw in were so diverting that until almost the very end I wondered if I had been wrong.

The plot is very simple. Jane Wilkinson, who is married to Lord Edgware, tells him that she is desperate for a divorce since she is in love with a very proper Anglo-Catholic peer, Lord Melton, but Edgware refuses to divorce her. She asks Poirot to talk to him, which he does, and is surprised to find that Edgware has told Jane he is prepared to give her a divorce. This was, after he had categorically refused, through a letter, which Jane said she had not received.

That night Edgware is murdered, after Jane had been to see him, or so the butler said, and also Edgware’s secretary. But Jane had been that evening at a grand dinner many miles away, where a dozen fellow guests could swear to her presence.

There was a solution however to the mystery of two Jane Wilkinsons, namely a skilful impersonator called Carlotta Adams who, in the opening chapter had impersonated Jane Wilkinson, who had also been at the performance. But when Poirot goes to see her, he finds that she had been found dead on the morning after Edgware had been killed, of an overdose. And in her bag was a gold case, with a strange inscription, that contained the drug, along with a pair of pince-nez.

Her maid said she had written a letter to her sister in America and posted it the previous night. Poirot asks Inspector Japp to get the letter, and a transcript is received from America, and in it the name of Edgware’s nephew Ronald Marsh is mentioned; he had taken Carlotta to dinner after her performance, with which the book opens, and had then set her a challenge. Japp arrests Marsh, but Poirot is not happy and asks for the original of the letter, which the sister sends him. That shows that a page is missing, and the tear is obvious, though that raises the question as to why it had not simply been cut.

Matters are further complicated by the fact that Marsh had gone in a taxi to the Edgware house, along with Edgware’s daughter Geraldine, in the interval of an opera which had previously seemed to provide them with cast iron alibis. Geraldine had gone in to fetch her pearls so that Marsh could raise money he needed, and thus had an opportunity to kill Edgware, as did Marsh, for the driver said he had got out of the taxi while waiting and gone into the house.

Agatha Christie

Marsh explained why he had gone to the house on the night of the murder as having followed Bryan Martin, an American actor, who had been in love with Jane, whom he saw go into the house with a key. But there was no one visible when he entered, and Geraldine almost immediately came down and they left together. And Martin too has become an object of suspicion to Poirot, for he had been to see him before the murders were discovered with a story of being followed by a man with a gold tooth – a story Poirot immediately realized was false when he was asked how old the man was, and was told he was young, for young people did not have gold teeth.

A heap of French money Edgware had got for a trip to Paris was missing, but since Marsh had no need for it after his cousin’s offer of help, Poirot deduces that it must have been taken by the butler, who has disappeared. Christie has stressed that he is astonishingly handsome, unusual in a butler, and Poirot notes a resemblance to Martin, so he thinks the mysterious man going into the house must have been him.

Incidentally, later Poirot assumes that Edgware’s change of mind was because he was involved in some scandal, and I believe Christie intends us to see the cause of this in his handsome butler, though this is not specified.

Meanwhile, Poirot has asked Japp to find out the provenance of the case found in Carlotta’s handbag, and it turns out to have been made in Paris, specially commissioned, and collected by a woman with pince-nez.

But then another murder occurs—that of another guest at the grand dinner, which provided Jane with her alibi. The victim is an actor who had been bemused when Jane, at a lunch, thought the Judgment of Paris referred to the city. He told Hastings he wanted to see Poirot, but was killed before he could get to the appointment. Poirot had rushed there when told about his request, but it was too late.

Meanwhile, Poirot has tried out the pince-nez on Edgware’s secretary, but she could not see through these. It was only a chance remark heard outside the theatre that led him to try them out on Wilkinson’s maid Ellis, a spare pair that had been appropriated for the night of the murders.

Poirot then lays things out, having summoned Martin and told him that he probably suppressed Edgware’s letter, as he had been dropped by then and he did not want Jane to marry another. But after teasing Martin, Poirot says that Jane was in fact the murderer, and she got Carlotta to impersonate her at the dinner while she went to the house and killed her husband. After meeting Carlotta later and checking with her through a call that she had not been rumbled, Jane had gone ahead with the murder – she put veronal into her drink and the case with veronal into the handbag. She forgot to take out the pince-nez she had used earlier to imitate an American. Carlotta had registered as the American in a hotel and Jane had gone to see her, and there they exchanged identities. After seen the letter, she made use of it by tearing off the page that referred to her, and the S of She, so that the person who had challenged Carlotta to impersonate her seemed to be a man.

There is a coda in which Jane, condemned to death, writes to Hastings, still full of pride at her ingenuity hoping she will be remembered.

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Desilt reservoirs, learn from our ancient irrigation systems

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Polgolla

by Prof. O. A. Ileperuma

Silting of reservoirs is a major problem today affecting our hydropower production and irrigation systems. The main Mahaweli reservoirs are silted to a considerable extent reducing the water holding capacity of them. Due to poor soil management practices, floodwaters deposit large amounts of silt in these reservoirs. When the Polgolla reservoir was fully drained about two years back, one could see mountains of silt in the lower reaches of the reservoir. A rough estimate is that 50% of the total capacity of these reservoirs has been lost to siltation. This is a serious issue which affects not only power and agriculture but also flood control.

Our ancient irrigation systems ensured that desilting of reservoirs took place under royal decree where all users of the reservoirs were ordered to carry out desilting of reservoirs during the dry season. The clay thus collected was used in making bricks for the construction of great stupas which dot the landscape of our ancient kingdoms. This ensured that the reservoirs had their full capacity filled with water for the next cultivating season. Our ancient kings were clever enough not to construct reservoirs by blocking main rivers such as the Mahaweli. A classic example is the Minipe left canal where they tapped only the surface water of Mahaweli. Even the bigger tanks such as Nuwara Wewa and Parakrama Samudraya were fed with minor rivulets. There were also other ingenious features in the cascade irrigation systems built by the ancient kings, such as mud sluice canals and forest reservations between the reservoirs in the cascade system. These reservations helped trap silt and remove excess nutrients, which could otherwise contribute to increasing salinity as water flowed from one reservoir to another.

Victoria

Moragahakanda

A classic engineering marvel is the former Yoda Ela, which carries water from Kalawewa to Nuwara Wewa and Tissa Wewa. It is 87 km long although the straight distance between these points is only about 40 km. The gradient of this canal is about 10 cm per km or 6 inches per mile. Yodha Ela functions as a moving reservoir and feeds about 4,600 hectares of paddy lands. It is a winding canal with about 120 smaller reservoirs on its way. It was constructed during the reign of King Dhatusena around 459 AD and later expanded by King Parakramabahu by connecting more reservoirs to the network. Unfortunately, during the Mahaweli project our modern-day engineers constructed a concrete canal replacing the winding path of this Yoda Ela also called Jaya Ganga. This effectively removed the ability of the old Yoda Ela to remove silt and nutrients. The bank of this Ela has wet zone trees such as jak and areca nut growing well. They take up the nutrients from the flowing stream making the water suitable for irrigation later.

Ancient Mesopotamian civilisations depended on dams constructed along the two main rivers, Euphrates and Tigris. After continuous irrigation of their fields over several thousand years, salinity of the irrigated lands increased making them unsuitable for agriculture. People died due to famine and this clearly illustrates the danger of blocking main rivers for agriculture. There is scientific evidence that the salinity of paddy soils in the Mahaweli C area is increasing.

We saw the devastation caused by Cyclone Ditwah. The sluice gates of the Kotmale Reservoir were opened, and Kandy and Peradeniya were flooded. If the reservoir had had greater storage capacity, couldn’t the opening of the gates have been delayed? This may not be an argument that modern-day engineers would readily accept, and I am not an irrigation expert. These ideas may well be naïve. But most of us tend to think of reservoirs mainly in terms of hydropower generation and irrigation, while their role in flood control receives much less attention. The question therefore deserves serious consideration. Could restoring lost reservoir capacity through desilting help improve our ability to manage extreme rainfall and reduce flood risks?

Desilting our reservoirs should be considered a national priority.

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Losing out to Ethiopia

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From Trailblazer to Tailender

Export diversification – Missing the wood for the trees – Part III

by Gomi Senadhira

In Sri Lanka, the word “Ethiopia” is often used as disparaging slang to describe individuals or areas experiencing extreme poverty, starvation, or severe economic hardship. This linguistic habit originated in the 1980s with the Western media coverage of the devastating Ethiopian famine of 1983-85. That media coverage shocked the world but also left an outdated and offensive global stereotype that the country is permanently starving. Much has changed since then. By now, with an annual growth rate of around 9%, it is the fastest-growing economy in sub-Saharan Africa. Ethiopia has also emerged as a highly competitive exporter and is challenging not only its competitors in the region but also countries like Sri Lanka. This article is on how Sri Lanka has lost ground to Ethiopia (and a few other countries) in the GCC markets for agricultural and floricultural products.

Sri Lanka – A Pioneer in the Agriculture and Floricultural Market in the GCC

As discussed in Part II of this article, by the mid-1980s Sri Lanka had established a strong foothold in the GCC’s fruit, vegetable, and floricultural market. Geographical proximity and well-established shipping and air links gave Sri Lanka a strong comparative advantage over Southeast Asian and African nations. Thailand, Vietnam, and Kenya were not even in the market. At that time, Ethiopia was experiencing (as BBC news reports described) “a biblical famine”.

The market was not very large, but it was lucrative and growing. Trade Minister Lalith Athulathmudali as well as the Chairman of the Export Development Board, Victor Santiapillai, who visited Kuwait (and the GCC countries), recognised the market potential for these products and encouraged us to continue with our work. The minister was particularly keen to further develop links between the market for these products, exporters, and his Export Production Villages (EPVs). So, it was becoming a successful case not only for export diversification but also for transferring gains from exports directly to rural households.

From Trailblazer to Tailender

As a result, even by the beginning of this century Sri Lanka had a larger market share than most of its competitors from Asia or Africa. But since then, our competitiveness has weakened significantly. The tables below provide a comparative snapshot of Sri Lanka’s performance vis-à-vis Thailand, Vietnam, Kenya and Ethiopia in the GCC market for vegetables, fruits and floricultural products. As illustrated therein, in 2001 Sri Lanka was ahead of Thailand, Kenya and Ethiopia in this small but rapidly growing market. Since then, we have fallen behind Thailand, Kenya and many other countries in that lucrative market. If this trend continues, Sri Lanka will fall behind Ethiopia within the next few years. (See Table 1)

In the GCC market for vegetables (covered in HS chapter 07), Sri Lanka was ahead of most other competitors in 2001. As illustrated in Table 1 , Sri Lanka had failed to develop this market, while Thailand, Kenya, and even Ethiopia had very efficiently increased their market shares. The GCC is a market to which Sri Lanka can supply some vegetables, like cabbages, by sea. It appears Sri Lanka had also failed to exploit this mode of supply.

We can see a similar trend in the market for fruits. Vietnam, Kenya, and Thailand have emerged as major players, while exports from Sri Lanka have staggered on slowly. In this segment, Vietnam has emerged as a leading player during the last twenty years and the GCC imports from Viet Nam have shot up from US$44 thousand in 2001 to US$346 million by 2024. In part one of these articles, I discussed the remarkable increase of jackfruit exports from Vietnam “…just $3 million in 2015 to an impressive $236.8 million in 2023” while most of our jackfruit production rots under the trees. This explains how countries develop their markets, geographically and product-wise. (See Table 2)

Sri Lanka’s performance has been weakest in the market for floricultural products (HS Chapter 06), which groups live trees, cut flowers, and ornamental foliage. When we first entered the market in the 1980s, the market was dominated by the Netherlands, and Kenya and Ethiopia were not even in the market. At that time, we identified the Gulf states as a market where Sri Lanka could have a dominant presence due to geographical proximity. Even in 2001, Sri Lanka was ahead of Kenya, Ethiopia, and Thailand. But by now, Kenya has emerged as the dominant supplier. Ethiopia is also expanding its market share and is the third-largest exporter. (See Table 3)

Missing the Wood for the Trees

In the mid-1980s, Sri Lanka first established its foothold in the GCC market. Since then, Thailand, Vietnam, Kenya, and even Ethiopia have moved well ahead of us and have become leading players. Why did we lag behind in our export diversification efforts in general and, more particularly, in the GCC market?

The reasons are very clear. After the initial attempts in the 1980s and early 1990s, Sri Lanka has not been proactively involved in identifying, developing, and promoting new products and markets, or protecting and further developing new markets already established. The focus has simply been on traditional exports: tea, coconut, cinnamon, and garments, while other products were almost ignored. In essence, we have been and continue to focus intensely on a narrow group of products and markets, and we have lost sight of the bigger picture.

(The writer can be reached at senadhiragomi@gmail.com)

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