Connect with us


The Peril of going to the IMF: Is there an alternative?



by Chandre Dharmawardana,

The forex crisis had forced the government to jettison its initial set of economic managers of the Central bank who looked for home-grown solutions and opposed dealing with the International Monetary Fund (IMF). The President re-instated a set of managers whose ideas were more orthodox and aligned with the neo-liberal bankers of the West. This “about turn” by Gotabaya Rajapaksa fitted perfectly with the views of his successor Mr. Wickremasinghe.

JRJ’s “import and sell” consumer economy

Gavin Karunaratne, a retired civil servant of the 1950-1970s era, has published a new booklet entitled “How the IMF’s structural adjustments destroyed Sri Lanka” (Godage Publishers) where he claims that today’s ills are a direct consequence of JR Jayawardena’s IMF-inspired policies. JRJ converted Sri Lanka’s “produce locally to consume and sell” economy of the Sirimavo era, to a post-1977 “import and sell” consumer economy. In 1975, Lanka’s foreign debt was negligible. According to Karunaratne, “the foreign debt of the country kept mounting throughout the rule of President Jayawardena, …, reaching to special drawing rights (SDR) of six billion by the end of 1994”. Here we may quote Maliyadde (The Island: 23/06/2013) that “at the end of 1976 the foreign debt of Sri Lanka was only $ 75 million, (and that) the external debt liability had increased by more than 500 times in 35 years, with a 2020 foreign debt of around $ 56 billion”. So these claims of Gavin Karunaratne are consistent with mainstream views. Unfortunately, the book has no illustrations, maps or graphs.

Sri Lanka’s Political and Forex crisis

Sri Lanka is facing a flood of economic and political turmoil that began as a minor Cabinet tussle against the then Finance Minister Bail Rajapaksa’s policies and “midnight deals”. However, it coincided with a farmers’ protest, triggered by collapsed agricultural incomes. A knee-jerk 100% ban on agrochemicals, imposed in 2021, by Gotabaya Rajapaksa, was imposed in the name of environmental policies, designed to create a “toxin-free” Sri Lanka, long supported by Champika Ranawaka, Venerable Ratana, advocates of traditional agriculture, and by the Viyath Maga – the “learned” advisory group of President Gotabaya. The JVP (Marxist) leaders, as well as many Western-funded “green” NGOs, welcomed it. Gotabaya boasted of it at the Climate summit and earned kudos from Prince Charles! The hidden reason for the leap into eco-extremism was the lack of foreign exchange even to pay for the import of fertilisers, needed for Tea, Rubber and other export crops, and for the paddy crop that feeds the people. That the investment in agrochemicals paid itself by almost a factor of five in export earnings was ignored by the short-sighted presidential advisors, dazzled by their “green” myths. Sri Lanka had relied on tourism, inward-remittances from expatriate workers, as well as its exports to service its foreign debts, and also to pay for its imports of fuel, food and pharmaceuticals. Of course, the arrival of the Pandemic, and the Ukraine war, created collapse. The government had to declare bankruptcy and look to foreign help, and the IMF.

Responsibility for “economic mismanagement”?

Unlike the economy of a large country, with its own economy, that of Sri Lanka is almost a random function of a multitude of market forces, beyond predictability, even though fully determined by such forces. Such systems are well recognized in modern chaos theory. Meanwhile, one is amazed to hear of a lawsuit seeking action against 39 persons, allegedly responsible for “mismanagement” of the country’s economy! Among the 39 are included Ranil Wickremasinghe, Mahinda Rajapaksa, former Finance Minister Basil Rajapaksa, former Secretary to the President P.B. Jayasundara, former Central Bank Governors Ajith Nivard Cabral and Prof. W.D. Laxman. etc.! Clearly, the petitioners seem to believe that economics is like engineering or medicine where professionals diagnose a problem unequivocally and provide remedies with a high degree of consensus. In such situations, failure to take correct steps would indeed be professional negligence. But this is NOT so for economics.

The litigants should heed Bernard Shaw’s comment that “ten economists seeking an exit from the same crisis will point in twelve different directions”! The litigant academics should revisit Friedrich von Hayek’s Nobel Prize address about the questionability of economic “knowledge”? Agricultural science is much closer to being a science capable of predicting the harvests to be expected, and so, shouldn’t the litigants take the architects of the toxin-free programme to court more meaningfully?

The assumption that major economic doctrines are independent of political ideology is clearly false. Even the attitude to foreign debt, and how it is discussed are coloured by political ideology. Western media claim that Sri Lanka has been caught in a “Chinese debt trap”. In reality, the percentage shares of the debt are: international capital-market borrowing 47%, Asian Development Bank 13%, China 10%, Japan 10%, World Bank 9%, India 2%, and others 9%. A significant share of the debt was created by orthodox economists during the “Yahapalanaya” era of the Sirisena-Wickremasinghe government.

Gavin Karunaratne, in his book, discusses how the JRJ government dismantled local industries and allowed the “private sector,” or the foreign investor, to do whatever they pleased. He notes that the inflow and outflow of Forex is not known to the government as private banks have wide liberties in managing their Forex, while the Central Bank mainly controlled domestic funds and domestic money supply.

The way out of the impasse

Given the present Forex crisis, the government cannot even run its day to day affairs, without a loan. Karunaratne gives us a brief account of the negative effects of JRJ’s free-market policies on a fledgling developing economy of a very small country. He does not tell us how to obtain the immediately needed Forex, or what to do with the accumulated debt. His long-range solution is largely to return to the model of local production that was laboriously built up under the Sirimavo government. Even if that were the right model, unlike in 1970, the country currently has no Forex to move forwards.

However, Karunaratne and many others, including the spokespersons of the “Aragalaya” (Agitation and Protest) groups rarely indicate the next set of steps. It is amusing to read some writers hark back to how the Kerensky government was replaced by the Bolsheviks, although the dynamics of each such black-swan event is utterly different from each other and those of yore. The only common factor is that all such “political revolutions” lead to arson, anarchy, and gory gulags.

The nature of globalization and the consequent incapacity of small nations to guide their economic destines make a strong case for demanding a general monetary amnesty – a debt cancellation programme – that should be launched in the wake of the Ukrainian war that toppled the precarious balance. The war is a massive money earner for the arm- manufacturing nations (

Furthermore, we can extrapolate from the 1970s model that Karunartne seems to strongly support. A small country like Sri Lanka CANNOT plan its economy unless and until it achieves some sovereignty over its supply of food and fuel. Energy is the life blood of modern societies. I have in my past writings (The Island 6th May 2019, and The Island, 27-June-2022) contended that Sri Lanka can use its biodiversity and its agrarian cultural framework rather than traditional industrialization to achieve self-sufficiency in food, and energy within a few planting seasons. Lanka had achieved self-sufficiency in food already, prior to its misadventure with “Toxin-Free” pseudo-science. As for energy, virtual self-sufficiency in petroleum and diesel substitutes can be achieved by exploiting its vegetable oils, as well as dendro (wood) energy. Exploiting solar energy has to wait for enough Forex savings to purchase solar panels. They should be installed on floats deployed to cut evaporation of water from reservoirs, and thereby increase hydropower outputs by 30-40% even without solar panels.

So, although Karunaratne has not touched on several issues and stuck to bashing the IMF, it is a rapid read and a spring board for further thought.

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *


Need for best relations with China



(This letter was sent in before the announcement of the government decision to allow the Chinese survey vessel to dock at Hambantota – Ed.)

I once met Pieter Keuneman sometime after he had lost the Colombo Central at the general election of 1977. We met at the SSC swimming pool, where he had retreated since his favourite haunt at the Otters was under repair. Without the cares of ministerial office and constituency worries he was in a jovial mood, and in the course of a chat in reference to a derogatory remark by one of our leaders about the prime minister of a neighbouring country, he said, “You know, Ananda, we can talk loosely about people in our country, but in international relations care is needed in commenting on other leaders”.

Pieter, the scion of an illustrious Dutch burgher family, the son of Supreme Court judge A. E Keuneman, after winning several prizes at Royal College, went to Cambridge in 1935. There he became a part of the Communist circle, which included the famous spies Anthony Blunt, later keeper of the Queen’s paintings Kim Philby, and Guy Burgess. Eric Hobsbawm, the renowned historian commenting on this circle, wrote of the very handsome Pieter Keuneman from Ceylon who was greatly envied, since he won the affections of the prettiest girl in the university, the Austrian Hedi Stadlen, whom he later married. Representing the Communist Party in parliament from 1947 to 1977, soft-spoken in the manner of an English academic, Pieter belonged to a galaxy of leaders, whose likes we sorely need now.

I was thinking of Pieter’s comments considering the current imbroglio that we have created with China. Our relations with China in the modern era began in 1953, when in the world recession we were unable to sell rubber, and short of foreign exchange to purchase rice for the nation. The Durdley Senanayake government turned to China, with which we had no diplomatic ties. He sent R G Senanayake, the trade minister, to Peking, where he signed the Rice for Rubber Pact, much to the chagrin of the United States, which withdrew economic aid from Ceylon for trading with a Communist nation at the height of the Cold War.

Diplomatic relations with China were established in 1956 by S W R D Bandaranaike, and relations have prospered under different Sri Lankan leaders and governments, without a hint of discord. In fact, in addition to the vast amount of aid given, China has been a source of strength to Sri Lanka during many crises. In 1974, when the rice ration was on the verge of breaking due to lack of supplies, it was China, to which we turned, and who assisted us when they themselves were short of stocks. In the battle against the LTTE, when armaments from other countries dried up, it was China that supported us with arms, armoured vehicles, trucks, ships and aircraft.

It was China and Pakistan that stood by our armed services in this dire crisis. More recently, amidst the furore, created by Western nations about human rights violations, China was at the forefront of nations that defended us. A few weeks ago, it was reported that the UK was ready with documents to present to the UN Security Council to press for war crimes trials against the Sri Lankan military, but the presence of China and Russia with veto powers prevented it from going ahead with its plan.

It is in this context that we have to view the present troubles that have engulfed us.President Ranil Wickremesinghe, in the short period he has been in office, has won the sympathy of people by the speed with which he has brought some degree of normalcy, to what was a fast-disintegrating political environment. On the economic front, his quiet negotiations and decisions are arousing hopes.

A shadow has been cast over these achievements by the refusal to let in the Chinese ship to Hambantota, a decision made on the spur of the moment after first agreeing to allow it entry. The manner in which it was done is a humiliation for China, one administered by a friend. We must remember that these things matter greatly in Asia.

These are matters that can be rectified among friends, if action is taken immediately, recognising that a mistake has been made. The President should send a high-level representative to assure the Chinese leadership that these are aberrations that a small country suffers due to the threats of big powers, to smoothen ruffled feelings, and normalize relations between two old friends. The American-Indian effort to disrupt a 70-year old friendship, will only lead to its further strengthening in the immediate future


Continue Reading


A change of economic policies for Sri Lanka



Millions of Sri Lankans are anxiously waiting to see what actions will be taken to make life bearable again.If we follow the example of successful countries we see them exploit their opportunities, and use the wealth created, not to import cars and go on luxury trips abroad, but to re-invest the money proceeds in further projects to bring in even more money. They proceed in this way until their citizens have good standard of living. Probably, the best example of that compounding of wealth is Singapore.

Singapore exploited its geographic advantages. It provided cruise ships with bunkering services and repair, later they provided airlines with refueling and expanded that to one night free stop- overs for passengers to buy luxury goods at their glamorous, tax-free shopping malls. The Japanese were making wonderful new gadgets: cameras, music players, portable radio cassette players, binoculars, all available in the malls and sold tax free!! Lee Kuan Yu forbade the ladies to wear denim jeans, and to wear dresses with hem lines coming down two inches below the knee! He even instructed the ladies to smile! No man could have long hair for fear of arrest. Littering was prohibited, so was chewing gum and smoking butts on the roads and pavements. The place was kept clean!

They used the proceeds arising from all this commercial activity to build housing blocks, develop new roads and other beneficial projects. (Individuals were not allowed to walk away with the profits, just to fritter them away.) Sentosa Island had installed a communications dish antenna connecting it with New York and the financial markets. This was an example of intelligent seizing of opportunities. I account for this intelligent development as due to the high educational and knowledge of Singapore’s progressive management. The result is a firm currency, holding its value.

Something similar has happened to Russia. Russia is rich. It is under progressive intelligent management. Stalin had developed the railway network across the full eleven time zones. But many areas remained to be connected. Putin found the finances to develop coal mines, develop oil and gas deposits and build railway bridges and tunnels for better access to markets and their demand for Russian products. Even as you read this, trains of 70 plus trucks, each with 70 tons of coal are grinding their way to China, day and night. Gas is flowing through an extensive network of pipelines, both east to China and west to friendly countries in Southern Europe. Mr. Putin and his men have succeeded in getting Russia fully functional. And the more Russians there are to spend money, so the more demand for goods and services: shops, etc., providing multiplying employment in Russia.

Mr. Putin wants to build a road and rail link south through Iran to India. A design plan is in the works. It is being discussed with Iran and India. Putin is displaying initiative for the benefit of Russia and its citizens. Putin cares for the citizens of Russia and is creating both wealth and jobs too. Architects are designing attractive living spaces and buildings which provide a better environment for Russians and contractors are building it. Education of Russian citizens is playing a big part in Mr. Putin’s thinking, too. Russia needs a talented workforce.

The result is that the currency, the Ruble is strong and does not devalue. It keeps its value.Belarus, Russia’s neighbour, can also be praised for outstanding development. The population in the big towns is cossetted with amenities and facilities which provides a luxurious way of life for townspeople especially those with industrial jobs. However, it must be admitted, the standard of life for the minority 30% population living in the countryside has yet to catch up. The administration is strict and everyone is law abiding. For example, you can leave your hand phone at your seat while you visit the toilet conveniences and it will remain undisturbed until you return.

Belarus, being a mostly agricultural country has a big tractor manufacturing plant, it has a fertiliser mining and producing plant, it has a commercial vehicle plant, DK MAZ which produces industrial trucks such as fire extinguishing trucks and also produces the most comfortable, bright, low step buses and so on, and of course, Belarus makes its own industrial vehicle tyres. The towns are prosperous and clean and Minsk, the capital is a beautifully laid out city. Town apartment blocks are multi-storied living spaces, but are so well designed and fitted as to provide pleasant living spaces for its people. These reduce urban sprawl across the wooded countryside.

What are Sri Lanka’s strengths? It is a small island thus making communications short and sweet. Its location in the Indian Ocean is a plus, its scenic beauty is a plus allowing a thriving tourist trade for people from colder climates, and its soil and climate allows almost anything to be grown. Therefore its agriculture is a great strength. Its long coastline can provide fish if the fisherised. It has deposits of graphite and phosphates which can be exploited to produce profits for further investment in development projects. It has its illiminite sands which are an extremely valuable asset but need to be controlled and exploitation expanded. It has a whole gem mining industry which need to be managed in way beneficial to the government. It has several government owned businesses which need to be overhauled and modernized to convert losses to profits. The rupee in 1948 was equal to the English pound, now it is around 450 rupees to the Pound. That gives a good description of Sri Lankan past governance.

Profits from projects need to be ploughed back into further projects to bring about a higher standard of living for all its inhabitants. Then the Lankan reputation of being a paradise island with happy people will be restored.

Priyantha Hettige

Continue Reading


Sapugaskanda: A huge challenge for RW



It will be interesting to see if anything fruitful will come of the so-called “investigation” announced by the Minister-in-charge, about what seemed like an outrageous overtime payment to the petroleum refinery workers.While waiting for the outcome of that investigation, I thought of highlighting again the real and central issue that cuts across all loss-making government undertakings in Sri Lanka, such as the CPC, CEB, SriLankan Airlines, etc. that have been mercilessly sucking off tax-payer’s money into them like “blackholes”.

These organisations have been typically sustaining a mutual understanding with corrupt or inept politicians. “Sahana milata sewaya” (service at a concessionary price) was the catchphrase used by them to cover up all their numerous irregularities, wanton wastage, gravy trains, jobs for the boys and massive corruption, mostly with direct and indirect blessings of the politicians.

Here, I’d like to bring out just one example to help readers to get an idea of the enormity of this crisis built up over the past few decades. You’ll only have to look at what seemed like gross over-staffing levels of the CPC’s Sapugaskanda refinery, compared to international standards as shown below:

* Sapugaskanda Refinery – 50,000 Barrels Per Day (BPD); 1,100 employees Superior Refinery, Wisconsin, USA – 40,000 BPD; 180 employees

* Louisiana Refinery (including a fairly complex petrochemicals section), USA – 180,000 BPD; 600 employees

* Hovensa Refinery (now closed) – US Virgin Islands; 500,000 BPD; 2,100 employees.

These are hard facts available on the Internet for anyone to see, but I’m open to being corrected. I doubt if any sensible private investor would even dream of allowing such a level of gross over-staffing in their businesses.

As everyone knows, this is the position in all government business undertakings, as well as in most other government agencies in Sri Lanka. One can say that Sri Lankans have been willingly maintaining a crop of GOWUs (Govt Owned Welfare Undertakings), primarily for the benefit of the “hard-working” employees of these organisations, but at an unconscionably enormous cost to the rest. Obviously, this “party” couldn’t have gone forever!

Will Ranil be up to this challenge? I doubt very much.

UPULl P Auckland

Continue Reading