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99 200
 

Lanka. | ECODIO

Page 2
THE ANTIQUES DRAIN
Countries deprived of pri CeleSS Cultural treal - sures now seek their return to the homeland
Down the centuries countless Works of art and artifacts of all kinds have been carried away from their homeland. The flow of such priceless property has almost always been in One direction. Only, from the poor to the rich countries. A number of COuntries with outstanding artistic gifts have been deprived in this way of their entire cultural heritage. The richer their traditions the more their artifacts have tended to flow abroad. This explains why many countries are now feel
ing frustration and resent
ment - and are demanding the restitution of their Works of art. As UNESCO's Director General has pointed out in a recent appeal (see page 17) art is for the Whole World. but people who have been deprived of their cultural heritage have the right to demand the return of the objects that best represent their culture. Already some of these items (as illustrated on this page) have made the long voyage home. More often, however, it has been found that When ΟΥ1Θ country approached
another. With a formal request ... for the restitution of a Work
of art taken away in unhappy circumstances the other country would listen politely and then regret that it is not in a position to take any action.
This chalk figure Ireland in the Bisn pelago (Pacific Oceal a number of items. 1977 to the Papua National Museum by lian Museum, Sydn originally acquired tralian Museum by p.
items
the inome, Centul the
dess from
Which in Ap Musel Jakar by th
VOOr Leyde lands.
 
 

The Hungarian coronation regalia have returned home once more. The crown was given to St. Stephen the first King of Hungary, in the year 1001 by Pope Sylvester II; the sceptre and the orb date from the 12th and 14th centuries respectively. Several times lost and even stolen during the centuries, these precious objects were stored at Fort Knox, Kentucky, after the Second World War. Following an agreement between the United States and Hungarian Governments the regalia were returned to Budapest early in 1978.
from New narck Archih) is one of
returned in New Guinea
the Austra- - ూరో" . ... - This pre-Columbian ceramic, Ley. It was produced sometime between 800 Dy the AuS- and 1200 A.D., was discovered in hurchase a tomb at Sitio Conte in Cocle
province, northern Panama. The Peabody Museum at Harvard University (U.S.A.), has returned it to Panama, under a ten-year renewable loan.
Already SOrme
ha. Ve made long WOyage like this 13th y statute of Buddhist godPrajnaparamita, East Java, Was returned, ril 1978, to the Lim Pusat, in Da, Indonesia, e Rijksmuseum Volkenkunde, n, the Nether
Detail from a stele dating from the late classical period (600-900 AD) of Mayan culture. This stele, which stands 240 cm high, was originally discovered at the ancient ruins of Piedras Negras, in north-Western Guatemala. The stele, which was acquired by a United States Museum, Was returned to the Government of Gipatennala in 1970.

Page 3
ONOMG RAVANI
Published by the People's Bank Research Department
Head Of ice. Sir Chittampaların A. Gardinar Maviatha,
Coon to 2
Sri Lanka.
HE ECONOMIC REVIEW is intended to promote knowledge of and inter est in the economy and economic development process by a many sided presentation of views & reportage, facts and debate.
HE ECONOMIC REVIEW is a community servico project of the People's Bank. Its contents, however, are the result of editorial considerations only and do P101 PROCes Sarily refect Bank poficies or the official viewpoint. Signed feature ar tices also are the persona views of the authors and do not represent the Institutions to which they are attached Similar contributio i s a 3. vel as Connents and viewpoints are welcome THE ECONOMIC REVIEW is published monthly and is ave labla both on Subscriptio a ari on d oc o sale.
Volume 4
Nihal Kappag
S. A. C. M. Z.
R. S. 2deralin.
Readers
We Order tC ari Sen th all Our S subscrip
NEXT SSU
3. The Ma lens an frOm Sri
3 Land C
() Rural B
Ca11C6,
COVER A
ph.
 
 

Numbers 4 & 5 July/August 1978
u
C O N T ENTS
COLUMNS
2 Diary of Events Junie & July 1978
13 Foreign News Review China's New Long
March
6 Antiques ബ The Plunder of
National ToredStreS
18 Conin Odities SPICES - dODn
Dard trend
SPECIAL REPORT
3 Sri Lanka's Economy - A half
yearly review
FEATURES
*0d0 9 The cost of foreign aid to deve
loping countries
uhyle 26 A future for Sri Lanka's desic
cated coconut industry
g0173 3. A case for upgrading banking legislation and/or practice regarding collection of cheques
; Please Note
have combined two issues (July and August 1978) in I catch up on our backlog in printing which had rough circumstances beyond Our control. We assure ubscribers, however, that the validity of their annual
ions would extend over 12 Seperate issues.
Ya
haweli Project - a discussion of current plans and probd Ways Of achieving optimum economic and social benefits i Lanka's biggest ever development project.
onsolidation - a strategy in dry Zone purana villages.
anking in Sri Lanka - its beginnings, growth and signifi
2Omposite view of the Sri Lankan economy as seen by ptographic artist Palitha Kan mangara.

Page 4
June
基垒
6
2.
23
1.
5
DIARY O
The government imposed a general ban on the import of all luxury anotor cars, Radio licence fees were increased to Rs. 25/- for the first broadcasting receiving set and R.S. 12/50 for each, additional set,
A large West German multinational manufacturer of elasticated rubber extruted thread will be setting up a plant in the Katunayake Export Processing Zone in collaboration with Sri Lanka, entrepreneurs, it was announced in the press. This is the second project to be approved for setting up in the Export Processing Zone, the first being the project of a Hongkong ready made garments manufacturer.
The Inland Revenue (Amendment) Bill containing incentives and reliefs for several areas of investment in the Export Processing Zone has been gazetted, according to a press announcement which carried the details.
A Free Trade Zone is to be set up 35 miles from Bangkok, as part of a long term plan to promote exports from Thailand, according to the London Financial Times. The World Bank estimates that goods from this FITZ and the surrounding 400 acres domestic industrial estate should be worth about $200 million annually.
The World Food Council concluded a three day session in Mexico City sending out a call to all governments to allocate part of the resources freed by disarmament especially for food production and to combat widespread hunger and malnutritiΟΙΩ.
The governing council of the United Nations Development Programme (UNDP) meeting in Geneva, approved aid programmes for a total of $ 322.5 million in assistance to a dozen countries in Asia, Africa, Latin America and the Middle East. 3.
A report on the world economic outlook issued by UNCTAD warned that the growth rate of developing countries was falling far short of the 6 per cent target established for the second development decade. The rate was expected to fall further to 4.5 per cent in 1978/79 and this refected the effects of a general slow down in economic activity, stated the report.
The Board of governors of the United Nations Special Fund (set up in 1974) to aid the countries most seriously affected by the economic situation after the fuel price hikes decided that the Fund's activities should be suspended temporarily, due to a lack of contributions. China, is producing a new kind of chemical rubber tree stimulant that raises latex output by 10-20 per cent when the stimulant is injected into old rubber trees, stated a Hsinhud Bulletin.
Iran informed the United Nation's Secretary General that $ 7 million was being diverted from its national defence budget to support the programmes of the International Year of the Child.

F EVENTS
24 Work on the RS. 569 million Lunugamvehera, (Kirindi Oya) Irrigation and Settlement Project, which will help to irrigate 2,750 acres of irrigated land and 11,127 acres of existing fields in the Hambantota, district, was inaugurated.
29. The Central Bank of Ceylon directed commercial banks not to increase the total of their advances to government corporations and statutory boards (other than financial and lending institutions) over the level of Such advances outstanding as at June 28, 1978. The ceiling which is applicable to loans, overdrafts and local and import bills financed, was introduced with a view to restraining the expansion in money supply.
July
1 New bus fares, entalling a 10 cts, increase for every one rupee unit or part thereof in the prewailing fares, came into effect.
2
The National Savings Bank announced a new scheme to pay monthly interest on new Fixed Deposits over Rs. 5,000/- at the rate of 18.4 percent per annum.
3. In order to contain the fertilizer subsidy within limits, the Government announced a reduction in the subsidy from 75 percent to 50 percent in the case of the private sector, and from 50 percent to 25 percent to state-owned land management institutions.
7 An adhoc inter-governmental Working Group on the Problems of Corrupt Practices recommended that the U.N. Economic and SOcial Council convene a diplomatic conference to conclude an agreement against illicit payments in connection with international commercial transactions.
11. The Rs. 7 million Polwatte Ganga, Drainage and Reclamation Scheme which will help to improve drainage of about 3,775 acres in the area, between the Ginganga, and Nilwala Ganga, was inaugurated.
12. Two Agreements were signed between the Government of Sri Lanka and the International Development Association (IDA) for U.S. $ 21 million and U.S. $ 4.5 million for financing the proposed Tree Crop (Tea) Aehabilitation Project and the Tree Crop (Tea) Diversification Project, respectively.
13. The Central Bank relaxed marginally its ceiling imposed on June 29 on bank advances granted to Government Corporations and Statutory Boards by permitting a 5 percent increase in the overall ceiling.
31. The Paddy Marketing Board had purchased 23.5 million bushels of paddy from farmers, at Rs. 40/- per bushel, between January and July this year, according to figures compiled by the Paddy Marketing Board. On this basis the paddy farmers would have earned a total of Rs. 940 million from the PMB during the first seven months of this year,
EconoMIC REVIEw, July/AUGUST 1978

Page 5
AOA?
/?O/rs'7。
リー
リエ*
リア
ൃ7
リエ
リ
リ
リ
scarcities o eCOInOIY1y ceive
been removed, the form of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2ーリZ O///4//}y orded the highest increases were
A those of imported goods and in
termediates (which also have C/ SA?/ AA/Achigh import content).
No estimates are available On the growth of overall production in this half year, but the official estimates project a growth rate of about 5.7 percent in the GNP for the year as a whole. If realized, this would be the highest annual growth recorded for the last decade. - The estimated population in mid1978 Was about 14.2 milli On Signifying an increase of about 1.7 percent over the level a year ago.
In COntra St, to 1977 When Over half the increase in the GNP came from the agricultural sector, the manufacturing, construction and service sectors are expected to be
the major contributors to the increase in the GNP this year. While the Output of the agricultural sector is expected to increase by 5.7 per cent in 1978 as against 7.2 per cent in 1977, the corresponding increase in the manufacturing sector is expected to be 5.6 per cent in 1978 against an increase of only 1.1 per cent in 1977. The output of the construction sector is estimated to increase by 9.5 per cent in 1978, the trade and transport sectors by 5 per cent and the banking and finance sector by 21 per cent.
According to the provisional inis dex of agricultural production Acomputed by the Economic Review the overall production of rincipal agricultural crops (tea, bber, coconut, and paddy) reİştered an increase of 7 percent r the first half of last year, 3. a 20 percent increase Over the verage level of 1975-76. This increase was largely a result of the substantial increase recorded in padd production, the Maha ಟ್ಗst having reached a record evel variously estimated at 59 million and 62 million bushels. The continued increase in paddy prošis duction since 1977 vas a significant event carrying important economic consequences. For the first time it enabled the realisation of a substantial saving in the country's rice import bill and horeover, it also served to raise rural incomes in the paddy growYing rural sector, thereby expanding the rural markets for What had been mainly urban consumer goods. In the plantation sector only rubber production registered 8. sizeable increase. Coconut prodown ii, duction, though showing an imrly months uf provement over the 1977 slump, conprices that re- tinued to remain below the past
:ே . தேடி
ம்ே ரங் ஆ 3.
*ஆர்டிங்
78 -

Page 6
average levels, and tea failed to show an improvement over the
last year's performance.
The production of many public
sector industries recorded a distinct
improvement Over the half-yearly average levels of 1967-77. Sizeable production increases were recorded in Cement, Steel, ceramics, tyres, graphite and electricity. The greater availability of imported inputS enabled many private sector industries to raise thier production levels and Capacity utilisation. However, liberal import flows and the higher cost of imported raw materials created a slump in the local textile industry and a reduced level of activity also characterised such small-scale industries as safety matches. There was also a decline in gem production (as reflected in exports).
There was an acceleration construction activity compared to the previous years. The improved Supply and availability of building materials and the initialton Of large Scale development Orojects by the government were contributory factors. Economic activity in the transport sector was boosted by the Substantial increase in the imports of vehicles and transport equipment. The higher level of activity evidenced in both public and private Sectors led to the generation of new employment, though the exact number of new created is not known.
iri
Under the new exchange rates'
system introduced in November 1977, the exchange rates of the Rupee were daily announced by the Central Bank presumably On
the basis of market developments. During this half-year, while the Rupee-US Dollar rate remained relatively stable, there was a depreciation of the Rupee against the Yen by nearly 15 percent and against the Mark by nearly 6 perCeilt. --
When measured in SDR terms, while export earnings of the first half of this year remained virtually constaint, the import expenditure showed an increase of 4 percent. The ability of the country to limit the increase in the overall import bill despite import liberalisation was largely a result of the substantial savings realized on rice imports which declined by over 70 percent. The highest increases in imports were recorded by vehicles, transport equipment machinery and mechanical/electrical equipment and the share of these imports in the overall im
4
jobs
port bill shot u cent. There was crease in the ex by Sri Lankans All increase of 38 registered in tra the first half o compared with periods last year Despite the balance of trad ternal assets reg and the level of the end of Julie to the total imp Six nointikiS Of t modity terms of half of 1978 ay 100) which was about 15 percent level of 1977, (w
PLANTISTATETON
The Overall tion (as reflecte showed a nodest over the first ha production level average level O. rubber production improvement ove coconut productic main bell OW nOrn production showi export earnings produce during amounted to SDF represented a dec
lion or 4 percen with the first hal
TABLE 賈寶
Cross
Tea, Rubber CJG Cointit Plantation Cro. Paddy Ali Principal C:
* Computed it
case of last yea,
from plantation to provide 74 pe export income C
The failure Output (in parti tion) to show should be viewed grond of the management th: the change-over private to state Land Reform ( a deliberate neg by the former p view of the Lar Substantial decli

p to over 20 per
also a sharp inenditure incurred On foreign travel. 0 percent has been vel expenditure in
this year
the corresponding
increase in the e deficit, the exstered an increase external assets at was almost equal Drt, bill Of the first he year. The comtrade of the first eraged 93.3 (1967an improvement of över the average hich was 81).
| PRODUOTION
blantation producd in our index) gain of 3 percent if of 1977 but the WaS pel OW the f 1975-76. While showed a distinct r that of last year' Dn continued to renal levels, with tea, ng a decline. Total from plantation ; Jan.-June 1978 R 239 million which :lime of SIDIR, 10 milt when compared if of 1977. As in the
when
the Land Reform,
of management characterised many organisations such as Cooperatives which managed a part of the plantations after the state take-over. The seriousness of such a management breakdown can be realized. When it is noted that after about twothirds Of the tea, lands, nearly Onethird of the rubber lands, and about one-tenth of the coconut lands are being owned and managed by the state. Since late last. year, some significant steps have been taken by the government to improve the management of plantations. The institutional ; uncertainities that had surrounded the state-owned plantations have been removed by bringing the management of all estates under the umbrella of a single Ministry - the Ministry of Plantation IndustrieS. Moreover, cooperative institutions which were ill-equipped and inexperienced to handle plantation management had been done away with, and the management of all state-owned plantations have been entrusted to two leading State agencies namely the State Plantations Corporation and the Janata, Estate Development Board. Besides, some of the past management practices such as the visiting agents system, and the role of Superintendents have been restored with certain modifications.
A notable advance is also seen
LL00LL0LL S 0LLS SLLLLLLLYJSLLLLSLLLLLSLLLSL0LLYLLLL0GGLL qSqqS PRINCIPAL
CRO PS :
|- g; 1978 100. 103 99 100 100.6 1. 100. 74.3 多了。台 Ps 00 96 99 00 蓝43 } tops 100 12 120 gy Economic Review (provisional).
, export earnings in the plantation sector. The sales crops continued of fertilizer to the plantations
:rcent of the total if the country. of the plantation cular tea producan improvement against the backdislocations in 3t resulted
of Ownership from 2 hands under the of 1975. There was let of productivity rivate owners in ld Reform and a ne in the quality
from
during Jan.-June 1978 amounted to 137,960 tons which was almost equal to the annual average ferti - lizer use in this sector during 197577. These developments and/or improvements in management and the increased fertilizer use, augur well for the future and should improve the production prospects in the plantation sector in the medium tern, The production and export performance of each plantation crop during the first half of 1978 is briefly reviewed in the following Section.
EconoMIC REVIEW, July/August 1978

Page 7
TABLE 2 TEA: PRODUCTION AND EXPO.
Production Colombo Auction ബ (Million kg) Sales Average Price Vol.
Vol. (Rs) m.kg (m.kg)
1975-76
First Half (avg.) 110.7 94.7 12.26 99.2 Second Half (avg.) 94.5 92.7 16.73 107.6 1977 -
First Half 114.0 95.9 14.57 92.7 Second Half 94.6 90.8 18.60 92.9 1978
First Quarter 49.4 48.2 8.68 39.2 Second Quarter 60.1 45.1 7.83 51.4 Second Half 109.5 93.3 14.50 90.6
Tea 79.4 kilos represe
11 Tea production in the first E. E.
half of 1978 at 109.5 kg was lower than in the correspoding period of 1977 by 4.5 kg or nearly 4 percent. This decline was mainly reflected in the production of high and medium grown teas. The low growns have shown a modest increase in production. The quantity sold at the Colombo auctions also showed a decline of nearly 3 million kg. and the quantity exported declined by 2 million kg. The average auction price too declined when compared with the first half of 1977: The monthly average auction price having reached a peak level of s. 18.31 per kilo in February declined in the subsequent months. The average price in June stood at Rs. 11.08 which reflected a decline of 39 percent from the peak level recorded in February. On the other hand, the average export price (f.o.b.) showed an improvement throughout the first six months of this year rising from Rs. 27 per kg. in De cember 1977 to RS. 36.36 per kg in June 1978, showing an increase of 35 percent. While in Rupee terms the average export price for tea in the first half of this year recorded an increase of about 100 percent over the corresponding period last year, in SDR terms there was a decline of about 5 percent. Thus, the higher rupee value was largely a reflection of the devaluation of the Rupee rather than an upward trend in prices in real terms.
Rubber
Unlike tea, the production of rubber in he firs half of 1978 shoved a disinc improvemen when compared with he corresponding periods of 1975-77. Production at
ECONOMIC REVIEW, JULY/AUGUST 1978
pOnding figure ( export volume re crease of nearly
TABLE 3:
1975-76
1st Half (a 2nd Half (
1977
1st Half 2nd Half
1978
1st Quarter 2nd Quarte 1st Half
6 percent. The in Rupee terms in but in SDR term a marginal increa lion. (SDFR, 60.3
compared With SI 1977). Rubber ex for 18.6 percent O earnings as age last year. The ave
TABLE 4 C
First Half
of:
1975
1976
1977
1978 * Provisional

RTS
Exports
Value. Unit RS. value
per
Kilo
932.9 9.40 1082.5 10.06
1548.4 16.70 1951.3 21.00
1261.8 32.26 1786.7 34.94 3048.5 33.64.
inted an improveit Over the corresof 1977, and the gistered an in5 million kilos Or
per ton at Rs. 13.75 represented a, more than 100 percent increase compared to the level of the corresponding period last year, but there was a slight decline when measured in SDR unitS.
Coconut
Coconut production showed a recovery from the worst ever slump recorded in 1977 but the production level continued to remain considerably below the past average level.
The estimated production in the first half of 1978 was 1,004 million coconuts compared with an
average production of 1,146 million nuts in the corresponding periods of 1975-76. (Both coconut oil and desiccated coconut production remained considerably below the average level of 1975-76. Though the export volume recovered relative to the 1977 level it was only about half the average level of
RUBBER: PRODUCTION AND EXPORTS
Production. Local Price (Mn. Kilos) RSS Crepe Volume Total Value Average
No Mn. Kilos (Rs, millions) Value (Rs. per kilo) Rs. per kilo
vg) 臀5.4 78.1 355.9 456 avg) 80.1 70.6 415.2 5.88
7.3 4.25 5.14 78.9 5350 6.79 75.5 4.79 5.13 55.7 397.0 7.13
38.2 5.84 6.06 42.1 590.3 13.92 41.2 6.56 6.88 41.6 560.3 13.54 79.4 6.20 6.47 83.7 1150.6 3.75
export earnings lore than doubled is there was Only Se Of SDR 1 milmillion in 1978 DR, 59.3 million in ports accounted f the total export inst 17.5 percent
of 1975-76). Coconut production in 1978 is now estimated to reach 2,250 million nuts as against an annual average of 2,458 million nuts in 1975-76,
Total earnings on the export of all coconut products during the first half of 1978 amounted to RS. 516.2 million as compared to Rs. 200
brage export value million for the same period last
DCONUT PRODUCTION AND EXPORTS
Production Exports Coconuts Oi D.C. Total Total Unit Value mm. nuts) (tons) (tons) Volume Value per
(mm. nuts) (Rs. mn) Rs. equivalents
1,154 20,242 51,252 386 199 0.52 1,137 21,407 45,547 390 48 0.37 851 11,324. 18,376 107 126 1.18 1,004 14,473 33,448 198 350 1.81 estimates.

Page 8
year. This reflects an increase, in rupee terms of about 158 percent in 1978 over that of 1977. The major share of these earnings came from D.C. exports which contributed about Rs. 230 million or 45 percent of the total earnings. Fibre exportS brought in about Rs. 126 million or 25 percent and coconut oil exports around Rs. 123 million or 24 percent of the total.
Paddy Production AmOng the principal agricultural crops, the most significant production increase was in paddy. The estimated Maha production at 61.6
the Guaranteed Price Schemt Paddy purchases in 1977-78 under
million bushells represented an increase of 12 percent over the Maha of 1977 and 46 percent over the Affan. Of 1976. This higher production was largely a result of the higher harvested acreage estimated at 1.39 million acres, an increase of 11 percent over the previous Maha crop. The increased paddy production led to a sharp increase of 42 percent in the purchases of paddy under the G.P.S. The purchase vOlume at 21.9 milliOm bolu,Sh —
TASLE 6
1. Electricity 2. Petroleum (a) Petro (b) Furna (C) Diese 3. Steel (to 4. Cennet ( 5. Chemicas (Caustic 6. Tyres nu! 7. Paper (t 8. Ceramics
(Crocke 9. Graphite 10. Ilmenite 11. Salt (totI 12. Sugar tor 13. Hardware (Imamim 14. Textiles 15. Processed 16. Plywood 17. Gems (ex
SIDER,
els was the high ed for a Maha history. The high of paddy, the de CominiSSi Omer’S rice to be iSSuled Scheme (as a res dira Wall of rice ira about half the the availability ( inported rice (a high level of im to a substantial imports. The imp first half of 197, tons) was only a the half yearly during the year paddy production raiSe rural incom
TABLE 5 PADDY PRODUCTION & RCE IMPO
Maha Crop Gross C (million Harvested Pur bushels) Area $imi (Million bu
acres)
First Balf of: 1975 34.5 0.88 རྒ 1976 42.3 1.05 1. 1977 54.9 1.25 1: 1978 61.6 1.39 2 * Also estimated as 59.08 million bushells
 

PRODUCTION OF SELECTED INDUSTRIES e
1976 197ኝ 1978 %. Change
Full First គ្នា 198 Year Year Half over 1976-77
average half-yearly level
(mln. kWt) 1133 1217 672 -- 14.2
l (tOnS) 99508 丑03348 5568 十五3.5 à ce Oil (tOnS) 513678 蚤45349 2993.99 -- 13.1 oil (tons) 3G4454 368428 201621 + 10.0 盒S》 28295 24558 18867 +-42.8 tons) 竺逻台449 356641 28008 -- 45.2 (tons) 1546 1516 器5垒 -- 1.5 soda) inher) 180837 156474 1335 十三$4.2 ors) 17257 19429 100.53 士三粤。合 (tons) 2383 2909 1811 -- 37.6 ry)
(tons) 800 872 5031 -- 20.2 (tOS) 54932 34092 10710 ー51.9 S) 丑签强孪9 47.093 垒8732 -- 3.5 S 2353 23.316 其1431 一 2.4 number) 1994.6 384,720 14994 + 2.7 oties) (million metres) 107.8 106.盛 51.9 - 3.2 Milk (pints) 22202 28210 5019 -- 9.2 (sq. ft.) 47582 38613 16956 - 21.3 port value) 29.5 24.2 里2.5 - 7.4 Lillion
est So far recordseason in recent GPS purchases cline in the OOd requirements of under the ration
Sult of the withtion books from 20pulation), and
of high stocks of s shown by the ports in 1977) led
drop in the rice Ort vollime in the
8 (about 100,000 bout one third of imports Of rice
175-77. The higher also served to
Les in the surplus
RTS
GPS Rice chases imports lion (tons) shels)
7.9 322,900
).2 244,800
5.4 363,293
1.9 100,130
paddy producing areas (notably in the Dry Zone districts) thereby ex
panding the market for urban goods in these areas. This high production should continue into
the Yala, season, with production estimated at over 30 million bushels, as against an annual average of about 23 million bushells for the last three years.
IN DUSTRIAL PRODUCTION
In general, the industrial sector showed a higher production performance compared with the corresponding periods in the previous tWO years. In the public sector significant production increases were recorded by electricity, petroleum, cement, steel, ceramics, graphite, chemicals (caustic soda), and tyres. The enhanced availability of raw materials and other inputs as a result of the import liberalisation, and the relative industrial peace that characterised this period were among the factors contributing to the higher level of industiral production. There were, however, industries which recorded production declines in the face of the import liberalisation. The most important among them were the textiles and Such Small Scale industries as toys, glassware, safety matches all of which had to face competition from better quality imported pro
EconoMIC REVIEw, July/AUGUST 1978

Page 9
ducts; and assembly industries such as radios, fans and electrical items. There was a tendency for some of these manufacturers to move towards trade or direct import and distribution of the items they previously assembled locally.
The textile industry, particularly the handlooms, suffered adversely as a result of import liberalisation and the institutional changes in the yarn import and distribution policy. While the price of yarn almost doubled, the final output could not be marketed owing to the competition from the better quality foreign productS. On the otherhand, the export-oriented garments industry continued to record production increases. During the first half of 1978, nearly 4 million pieces of garments valued at R.S. 156 million i were exported as against 5.2 million pieces valued at Rs. 94 for the whole of 1977. Among the projects approved for the Free
Trade Zone are several garment manufacturing projects Which should raise the garment export
capacity of the country sharply in the coming year.
The production in the gem mining industry (as reflected in gen exportS) Showed no increase during the period under review. Although the value of gem exports in K'ull pee terms (RS. 238 milli On) rOSe by 85 percent over the first half of last year, when neasured in SDR terms, there was a decline of about 13 percent.
CONSTRUCT ON The implementation of a number of large scale development prOjects (accelerated Mahayeli prOject, Free Trade Zone, Greater ColOmbo development schenne aind the five-year housing construction pro
nomic activity in
led to an expansi activity. The inc ties of key buildi. as cement (a 45 in production) Wa tant factor in th conStructio: activ. prices of most bl Such as Sand, tir bricks registered Which raised the
tion; in particu shortage became
COnstructiOn actiV: pelled the Gove) the import of tim portant projects
struction. Moreove Outflow of constru Middle-eastern c
TTABLE 8
1. Vehicle P of which: Privat
Lorrie
Tra CtC 2. C.T.B. Op Opera
(millic
PaSSer
(rhillic 3. Port Carg Cargo
(Thou
Impor
Expor
shortages of car and other skilled local wages for S1 ire COided SubStant recent mOnth S. TI activity in the pub
gramme) and the increased eco- continued at a hig
TABLE ? CONSTRUCTION ACTIVETY IN HE PUB
The Performance of S elected Agencies
Agency January-June
Target Perform (Rs. Millions)
1. Dept. of Buildings 62.6 46 2. State Engineering Corp. 58.9 36.垒 3. Dept. of National Housing 26.4 19.8 4. River Valleys Dev. Board 27.9 25.4 5. State Development and
Construction Corp. 24.6 15.0 6. Dept. of Highways 1.2 15.5 7. Irrigation Dept. (Major
Works) 25.6 16.2 8. Decentralized Budget for
irrigation works & roads 3.0 is 23.4 Total (1 to 8 above) 268.3 197.7
* 50% of 1978 allocation
ECONOMIC REVIEW, JULy/AUGUST 1978

the private sector, )n in construction reased availabiling materials such
percent increase S also an impore higher level of ty. However, the lilding materials (nber, metal and sizeable increases cost of construcllar the timbèr, a constraint on ty and this comnment to permit Qe fO in Ore inplanned for COnr, the large Scale Lction workers to
1977, showed a shortfall in relation to the targets. The average performance has been about 74 percent of the construction targets set for the first half 1978, as seen in table 7 below.
TRANSPORT AND TRAVEL
A substantial increase was recorded in the imports of vehicles and transport equipment and this led to higher output and employment in the transport Sector. The vehicle population of the country (registered with the Commissioner of Motor Vehicles) rose frOnn 203,771 in July 1977 to 213,678 in June 1978 which is an increase of nearly 10,000 vehicles. This WaS the highest increase recorded for a 12month period in many years. The position as at June in the previous
sountries caused two years was 1975-193,054; and
RANSPORT: SELECTED INDICATORS
First Half First Haf Percentage
97. 978 Change
Dpulation: 196,750 213,678 十 8.6
e Cars 91.559 94,621. -- 3.3 S 35.077 36,514 十 4.1 DS 2.378 23,535 -- 10.1 erations: ted Kim. 量94.4 220.8 13.6۔ --سے
ins) nger km. 7,659 8,935 斗。其6.7 ))S) o Corporation
handled Sand Tons) t Cargo 且.G链7 1,120 - 6.97 5 Cargo 508 535 -- 5.31
Jenters, masons 1976 - 196,750. The greater part of personnel and the the increase during the past one Lich skills have year took place in the first half of ial increases in i978. Of the total increase during the The construction past One year Over 3,000 were
blic sector, though gher level than in
LC SECTOR.:
i878 % of the ace target
a chieved
73.5 61.8 臀4.8 90.6
61.2 37.9
63.5
75.5 73.7
private cars, nearly 2,200 were tractors, and nearly 1,500 were lorries. Substantial increases which were recorded in lorry and tractor imports, in particular, would have led to enhanced employment opportuinities in the transport sector. The public transport sector also recorded a higher level of activity as seen by the higher operated mileage of the CTB which rose by 14 percent over the first half of 1977 and the higher passenger mileage (which rose by 17 percent). The Port Cargo Corporation registered sizeable increases in the cargo handled, im
port cargo by 7 percent and export
cargo by over 5 percent.
Tourism An estimated 93,604 tourists visited the country during the first half of 1978, and this represented an increase of 22 percent over the

Page 10
TABLE 9 FOREIGN TTRAVEL: SEL RECTED INDICAT
First Half First H.
9. 198
1. Receipts from foreign travel
R.S. millions 137 350 SDR, nilions 15.2 18.3 2. Payments for foreign travel
RS. Inilli Ons . 13.7 139 SIDER, milli OinS 1.5 7.3 3. Net earnings from
foreign travel (1-2): R.S. millions 23.3 21 SDR milions 13.7 11.0 4. Tollrist Arrivals
(Number) 76,878 93,604 5. PaSSport ISSues
(Number) 20,014 53,053 6 Foreign Travel
by Sri Lanka residents (Number) 30,710 57,313
first half of 1977. The gross earnings from foreign travel thus re- BTN No. gistered an increase of 20 per cent. The visitor room strength of the country as at June 1978 was 4,900 and approval had been granted for 86-89 Vehicles nine more hotel projects with a equipme room strength of 577. An important 84-85 Machine development in the first half of apparat this year has been the substantial trical e increase in the number of Sri Lan- 28-38 Chemica kans travelling abroad on holidays, 16-24 FoOdStuj business, pilgrimage and for emi- Tobacco ployment. Statistics on the num- 1-5 Animal ber Of Sri Lankans travelling 78-83 Base M abroad show that over the first six 68-70 Stone, nonths of 1977 and 1978 there has Aនbesto been an almost 90 per cent in- 90-92 Optical crease. From 30,710 in 1977 it rose A. Scientific to 57,313 in 1978. A further indi- 94-98 Miscella. cation is provided by the number of passport issues. 57,846 pass- All Impo
ports have been issued during the first half of 1978 and this number
TABLE 10
BALANCE OF MERCHAN DISE TRADI
Exports Imports B
EERS. million SDR* RS. milion SDR3 哥
st Half 1977 2937. 326.5 3127.1 347.6 1st Half 1978 6244.7 327.2 6874.9 360.2
* SDR value cas Rs. 8,9965 for the first half of 1977
for the first half of 1978.
TTABLE 11
EXTERNAL ASSETS AND EXTERNAL ED
External Assets
in terms
External
Rs. SDR of months Public Debt .
MIn. Mn., imports Rs. nnn.
End June 1977 1602。° 189 3.5 4412 End Dec. 1977 5573.6 306 5.5 10,827 End March 1978 6356.0 329 6.0 11,359 End June 1978 6167.5 316 6.0. 12,692
8

ORS
represents a considerable increase at 165 percent over the first half of
af Percentage 1977 and 39 percent over the Chase second half. A good part of these new passport holders could be as十 155.5 Sumed to be prospective migrants 十 20.4 to Middle Eastern countries. The expenditure of Sri Lankans for + 914.6 travel abroad amounted to Rs. 139 386.7 milion (or 7.3 million SDR) and this represented an increase of 387 percent over the corresponding
• → period last year. When allowance is -- 71. made for the outflow of this expenditure, the net foreign eXchange 19.57 جیتے۔ earnings from tourism amounted + 21.8 to only SDR 11 million which represented a decline of 20 percent +- 165. from the net earnings of the corresponding period last year. However, the remittances from -- 86.6 migrants to Middle Eastern countries are likely to show a signi
Item Increase
in Rs. in SPDR. in 96 milia million
and Transport ent 550.6 21.5 54.5 ry, Mechanical uS, and Elecquipment 515.9 重4.6 61.6 1 & Allied Products 90.5 0.2 17.3 Efs, Beverages and
315.1 6.39 33.垒 Products 245.9 5.9 44.4 etals & Products 163.8 5. 75.6
laster, Cement & Allied 218.9 3.02 18.9 Photographic and 45.9 42 76.8 instruments 50.2 1.07 36.3 neous Manufatures 19.4 0.8 163.8
Drts 3,755.8 14.73 4.3
ficant increase this year. Rough
Balance of Trade
se million SK) PR8.
-90 -21.1
-630.2 33.0
and Rs. 19,0860
EBT
External
assets as % of Public Externa Delot
36.3 5.5 56.0 48.6
estimates are that Rs. 25 to 30 million were being remitted per month by the Sri Lankans working abroad.
EXTERNAL TRADE AND
PAYMIENTS In rupee terms, the value of exports and imports more than
doubled but this was primarily a result of the devalued Rupee value. In SDR terms, the exports valued at SDR, 327 million remained virtually unchanged from the level recorded in the first half of 1977, while the inport value at SDR. 360 million registered an increase of Only 4 percent. The unchanged export earnings (in SDR terms) was a result of the increases in the earnings from rubber, coconut and industrial exports being offset by a decline in the earnings from tea, gems and minor agricultural crops. On the other hand,
EconoMIC REVIEw, JULY/AUGUST 1978

Page 11
the modest increase recorded in the import bill (in SDR terms) despite the import liberalisation was a reSult. Of the large Savings realized on rice imports which declined by as much as 72 percent, in value and by 73 percent in volume. Foreign exchange Savings On account Of this reduced level of rice imports (relative to the first half of the previous year) was as much as SDR 45.4 million. This Saving enabled the country to accommodate a good portion of the increases recorded in the rest Of the import bill, and to contain the rise in the overall import bill to only SDR 15 million or 4 percent.
The import categories which showed the highest increases in previous year are seen in the table, at left, on page 8.
The import picture also showed SOne important structural changes. While the Food Commissioners imports (rice, flour and sugar) declined from 39.4 percent of the total import bill to 27 percent, the share of the major import categories covering machinery and vehicles and transport equipment (BTN nos. 84-89) rose from 11 percent to 20.4 percent. It was the category of vehicles and transport equipment which showed the highest absolute increase (an increase of as much as SDR 22 million) representing a percentage increase of 55 percent, followed by machinery and equipment (an increase of SDR 15 million) representing an increase of 62 percent. The highest percentage increase
TOTAL PUBLIC DEBT
RUPEES000 MCis
"| |HT|TF| é{}
FOREIGN OEST DOMESTIC DEBT
5 75 77 78
1972 Source: Central Bank of Ceylon
was recorded by miscellane OuS manufactures (164 percent increase) although the absolute in
crease was quite modest (being less than SDR 1 million).
The balance of merchandise
EconoMIC REVIEw, July/AUGUST 1978
trade showed a c million which Crease in the tra 50 percent in rel half of 1977. The ficit WaS Of COurs increased flow O. export earnings remained virtuall Despite the h trade deficit, the Of the country rOS amount. Compare SDHR, 189 milliOn June 1977, the assets at the end year amounted to
THE FORE
冯 75 Source: Central
lion, representing 67 percent. Comp positi On at the el was an improvem percent by the enc dropped to about June. The extern were almost equ half of 1978 Vhi! Substantial build When it is noted vious years of external assets co ab Out tWO to thre ports. Since the Was in deficit, th external assets we increased inflow tal and aid. It ml the external publ 17 percent durin months of 1978. tion to the extern Of the external : the first half of 19 Valent to about 5 external public de picture of less tha characterised the the 1970's.
Another healt the foreign trade first half of 1978,
 
 
 
 

eficit Of SDR 33 epresents an inle deficit Of OVer tion to the first higher trade dee a result of the imports while (in SDR terms) 7 constant. igher balance of external assets e by a significant with a level -Of at the end of ountry's external
of June this SDR 316 mil
GN DEBT
RUPEES000 *ill:8ệ
'76 777 魏
3ank of Ceylon.
an increase Of ared with the (nd of 1977, there ent of nearly 10 i of March, which 5 percent by end all assets in June lal to the first Ch. represents a up of assets that in most prethe 1970’s, the puld finance Only e months Of im– balance of trade e higher level of as a result of an pf foreign capiay be noted that ic debt rose by g the first six MeaSured in relaal debt, the level assets throughout 78, has been equi0 percent of the 2bt, as against a in 30 percent that previous years of
hy element in picture of the was the notice
able improvement in the country's commodity terms of trade reflecting an increase in the import purchasing power of a unit of exports. The commodity terms of trade which have continuously dropped from 1967 (which is the base year, 1967-100), upto 1975 when they reached the lowest level at 46) showed some improvement in the Subsequent two years, and by December 1977, they had recovered to the 1967 level of 100. During the first half of 1978, the monthly terms of trade fluctuated between a low of 78 and a high of 103, averaging 93.3 for the period as a whole and this represents a Substantial improvement over 1977 when they averaged 81. The improved terms of trade largely reflects the rise in the export price index of tea. TABLE 11 CHANGES IN
THE COMMOOTY TERMAIS OF TRADE
(1967-100) Export Import Terms
Price Price of Index Index Trade 1967 100 100 100 1975 199 433 46 1976 239 383 62 1977 382 471 81 1978 JanMarch 684 748 92 1978 AprilJULIne 715 761 95 1978 1st half 701. 757 93
Source: Central Bank Trade Indices However, the trends in the first half of this year seem to indicate that the balance of payments would recOrd a deficit Of ab Out SDR 122 million (R.S. 2,432 million) as compared With a Surplus of SDR 121 million (R.S. 1,250 million) in 1977. This turnaround is primarily attributable to the larger inflow of non-food imports and also to an estimated decline of about 4 per cent in export earningS.
Making allowances for shortterm capital repayments, the balance on the Services account and private transfers, the balance of payments for the Whole of 1978 is Officially estimated to record an Overall dificit Of SDR 14 million.
EXCHANGE RATE MOVEMENTS Since the exchange rate reform of mid-November 1977, the external value of the Sri Lanka Rupee has been announced daily by the Central Bank presumably on the basis of the supply and demand picture for various currencies in the local foreign exchange market. An analysis of the exchange
9.

Page 12
TABLE 12
THE VALUE OF Rs. 100 IN FOREIGN
Rupees 100 is
Yen, D.M- áB Indian
End June 1977 (a) Official Rate 3876 32.9 7.99 121.5 (b) FEEC inclusive 2349 19.9 4.84 73.6 End Dec. 1977 1538 13.4 3.34. 53.9 End June 1978 1304 13.2 3.43 52.7 Percentage Change: (i) June '77 to
June '78 at (a) Official
Rate -66.尘 -59.9 -57.1 一56.7 (b) FEEC Rate -44.5 -33. -29.1 -28.4 (ii) Dec. ”77 to
June 78 2.4 - 2.7-- 5.9- 14.8 سے
rate changes during the first half of 1978 reveals that while the Rupee-US Dollar parity rate has changed only marginally, there has Occurred a significant depreciation of the Rupee in relation to the Japanese Yen and a modest depreciation against the German Mark. The extent of the depreciation of the Rupee against the Yen has been nearly 15 percent and against the German Mark about 6 percent, while against the dollar the depreciation has been less than 1 percent. Thus, the outcome of the operation of the new system of exchange rate determination in the first half of this year has been the maintenance of a highly stable relationship with the US Dollar and a variable relationship with the Yen and Mark in particular. It may be noted in passing that this observed stability of the DollarRupee rate has occurred during a period when the value of the Dollar has continuously declined, particularly against the Yen and the Mark, in world money markets. If we could assume that changes in the exchange rates have been announced by the Central Bank on the basis of the Supply and demand for foreign currencies in the local market, then it could be said that the depreciation of the Rupee against the Yen essentially reflected a situation where the demand for Yen continuously outstripped tİne Supply of Yen (meaning that 1mports from Japan were taking place far in excess of the exports to Japan) while stability of the dollar value reflected that the demand for dollars has remained roughly in line with the dollar supplies.
In relation to the Official exchange rates that existed in June last year, the exchange rates prewailing at the end of June this year represented a depreciation of 66
O
percent against against the Mal percent against
US Dollar and However, when
the FEEC-inclus of June 1977 (w fective rates for transactions), th rates reflected a gree of deprecia percent against
TABLE 13
(1) Currency
End of Per JUre 1977 December 1 March 1978 June 1978
against the Mar against the POu, Rupee and 24 p. US Dollar. The Rupee against t ternational no value of which is of key currenc year ended June percent (using of the Rupee a percent (using Sive rate).
Ry60NEY Sł IFTERE The money defined to inclu and demand dei Mil), stood at R the eind Of Jun represents an il cent Over the er 1977 level. The in Supply Was coni January - Apri of 12 percent w;

CURRENCES
worth
ts, U.S. S SDR.
13.73 11.78 8.32 7.14 6.41 5.30 6.35 5.13
-53.8 -56.5 -23. -28.2
- 0.9 - 3.2
the Yen, 60 percent *k, and 54 to 57 the Pound Sterling, the Indian Rupee. measured against ive exchange rates hich Were the elfmost foreign trade le end June 1978 much lower detion, namely 45 the Yen, 34 percent
line set in during May Which continued into June mainly due to a drop in the country's external asSets.
The increase in the money supply during the first six months of 1978 was largely a result of (a) a rise in the external assets of the banking system and (b) 3. expansion of commercial bank credit to the private sector, public corporations, and co-operatives. The high level of bank credit to finance GPS purchases was an important factor in the commercial bank Credit expansion. With a view to restraining the expansion in money supply, the Central Bank directed commercial banks not to increase the total of their advances to public corporations and boards over the levels of such advances Outstanding as at June 28th. This ruling was marginally relaxed in mid-July to permit an increase in this overall ceiling; and was due to be further relaxed.
The money supply, broadly defined to include not only the currency and demand deposits but also savings and time deposits
MONEY SUPPLY (Rupees million)
(2) (3) (4) (5) (6) (7) Demand Money Percent Savings Money Percent Deposits Supply Change & Time Supply Change (M1 = (1) + (2)) Deposits (M2= (3) + (5))
iOd
2626 2322 4964. - 2.3 71.16 12980 977 2792 2574 530 -- 11.8 6716 12717 十15.8 3042 2959 6066 -- 8.5 6037 11403 -- 11.5 2938 2926,5847 4897 98.44 + 2.1
'k, 28 to 29 percent nd and the Indian ercent against the depreciation of the the SDR (the innetary unit, the s linked to a basket ies) during the 1978 was nearly 57 the Official rate year ago) and 28 the FEEC-inclu
UPPLY AND ST RATES
Supply, narrowly de Only currency posits (denoted by S. 5,864 million at e 1978. This level increase of 9.3 perld Of the December crease in the money lined to the period 1. When an increase as recorded. A dec
(denoted by M), stood at a level of Rs. 12,980 million at the end of June 1978. The level of this broad concept of money supply (M) was thus 121 percent higher than that of M, (narrow concept). Moreover, during the first half of 1978, M, increased at a faster rate (at 14 percent) than the increase recorded in M, (which was 9.3 percent). The reason for the higher rate of M, expansion was the continued increase in the savings and time deposits which recorded an increase of 18 percent during the first half of 1978.
The high level of Savings and time deposits (at Rs. 7,116 million
at the end June 1978) was an important source of secondary liquidity in the economy. High
interest rates continued to attract funds into the Savings and time deposits of the commercial banks and the National Savings Bank, and the increase in this flow Of
ECONOMIC REVIEW, JULY/AUGUST 1978

Page 13
savings in the first half of 1978 amounted to Rs. 1,079 million.
The Central Bank rate On advances to commercial banks (Bank Rate) continued unchanged at 10 percent since August 1977. The market rate for Treasury Bills continued at 9 percent since Nowember 1977. The Commercial bank lending rates ranged from a minimum of 13 percent to a maximum of 20 percent... The banks and priwate finance companies continued to offer high rates for savings and time deposits. The National Savings Bank offered 8.4 percent for savings deposits and 12 to 18 percent for fixed deposits ranging frOn 6 mOnths tO 18 mOnths.
The financial operations of the Government sector were a significant factor in that they helped to exert a contractionary influence on the money supply. Further, most of the factors that caused the money supply to increase during the first half of 1978 are expected to exert a negative influence during the Second half. Thus, the Central Bank has estimated that the money Supply WOuld increaSe by about 12 percent in 1978, as against 35 percent in 1976 and 29 percent in 1977.
PRICES AND WAGES
The period under review witnessed significant price increases for many commodities, but there is no reliable index to measure the inpact of these price changes on the cost of living. The Colombo Consumers Price Index is a defective barometer of consumer price
TABLE 4.
changes and its well known. Durin of this year, this registered an incr cent. This increas gresult of the 量为 open market price calculation of th February this yea) and Sugar rations from families ear more per month. this change, the (which has a we Cent in the Over: tered a sharp inc cent in February. no other significa) are reflected in t example, clothing mained constant, a fuel and light a commodities (whic a weight of 23 Index) registered Of Only about 1 picture is hardly significant price c. place in each of grOLOS.
A mOre realis price change is p Wholesale Price by the Central this index measur primary marketing at the first comin tion in the chain product) rather t tail level. Hence ered by this index ducers' prices (in
CHANGES IN PRICE
June Dec.
9. 1977
1. Colombo Consumer
Price Index
1952-100 203.9 204.6 of which Food Sub-index 205.3 203. 2. Wholesale Price
Index (1974=100) 142.8 153.2 of which: (a) Imported Goods 85.0 11.6 (b) Intermediate Goods 107.7 141.4 (c) Textiles and Footwear 155.1 196.4 (d) Paper Products 118.5 18.5 (e) Non-metallic Products 152.8 220.5 (f) Metal Products 91.9 105. (g) Fuel & Light 3.1 25.5 3. Minimum Wage Rate
Index Numbers 1952 = 100 (a) Central Govt.
Employees 237.2 275.2 (b) Govt. School teachers 1829 203.9 (c) WorkerS i
Wages Boards Trades 309.3 402.0
EconoMIC REVIEw, JULY/AUGUST 1978

hortcomings are g the first half 'defective' Index ease of 11 pere was largely a inclusion of the of rice in the is index since , when the rice Were withdrawn ning R.s. 300 Or As a result Of food sub-index ight of 62 perall Index) regisrease of 13 perApart from this, nt price changes his Index. For prices have reind the two groups Ond miscellaneous h together have percent in the price increases percent. But this
realistic since hanges did take these commodity
stic indicator of
rovided by the Index computed
Bank. However, es prices at the g level (that is, mercial transac
of sales of the
han at the rethe prices covare mostly prothe case Of lO
S AND WAGES
cally produced goods) and the import prices of imported goods. The Wholesale Price Index having shown an increase of 3.2 percent during January-March, declined by 3.5 percent during the next three months (April-June), SO that for the six months as a whole there was no increase. Within the Overall index, however, several important , categOries Of COmm Odities showed significant price increases. The price increases were highest in the case of imported goods (an increase of 26 percent) and intermediate goods (an increase of 14 percent). The subcategory Of textiles and footWear (which is an important consumer item group) rose by as much as 23 percent and this stands sharply in contrast with the picture depicted by the Colombo Consumer
Price Index where the Clothing index had remained constant for the first half of 1978. Among
the intermediate products which showed relatively high price increases are paper products (-- 17%), non-metalic products (+13%), metal products (-- 15%) and fuel and light (+ 17%). However, the rate of price increase recorded for most commodity groups during April-June was much lower than in the first three months of the year. This may be an indication that by mid-1978 most prices having worked through the adjustinent process necessitated by the devaluation, import liberalisation and other policy reforms were
arch June Percent Changes
1978 1978 Dec. 7 March 78 to June 78 to June 78
221.6 227.0 -- 11.0 -- 2.4 230.1 238.3 -- 17.3 + 3.6
158.1 152.6 一 0.4 - 3.5
130. 40.9 8.3 -- 26.3 +۔ 146.9 1610 + 13.9 十 9.6 228.1 240.5 -- 22.5 -- 5.4 128.3 138.8 -- 17.1 十 8.2 263.1 249.2 十13.0 - 5.3 105.9 121.2 十- 15.3 + 14.4 232.6 25.2 -- 16.6 -- 8.0
275.2 275.2 - No Change 203.9 203.9 - No Change
424.5 438.2 -- 9.0 -- 3.2
11

Page 14
approaching their new equilibrium levels.
There was speculation, however, that the pressure on prices would continue for sometime in view of the excessive monetary expansion. Of the past two and a half years, since monetary expansion reacts on prices with a time lag; and the need for monetary restraint would persist for Some time before pressure on prices could be relieved.
Beginning from around late 1977, there was a spectacular rise in urban land and property values, particularly in and around Colombo. In Some parts of Colomb0, the extent of the increase in land values has been as much as 100300 percent. While a good part of the explanation of these price trends has to be sought in the activities of real estate Specualtors, the inflationary trends, high interest rates and liquidity in priwate hands, and the increased business activity in the private sector were further factors that contributed to this land price inflation.
The wage increase of Rs. 50 (ma Xinnullim) granted in December 1977 raised the minimum wage rate index of Centra GOvernment employees by 16 percent, and those of government school teachers by 11.5 percent and the workers of Wages Boards Trades by nearly 11 percent for the next six months. While the wage rates of all government employees remained constant those of the Wages Boards Trades recorded an increase of 9 percent. It could be assumed that the increase in the living costs that followed went to offset a substantial portion of these wage increaSeS. The erosion of the real wages led to a demand by many trade unions for higher Wages and the government was expected to make adjustments in wages and salaries in keeping with the living costs in the 1979 Budget to be introduced in mid-NOvember.
MANPOWER AND EMPLOYMENT
The number of unemployed persons at the end of 1977 has been estimated to be Over one million or over 20 percent of the labour force in the country. In view of this high rate of unemployment, the government has attached high priority to new employment generation. In the medium and longterm, the government expects tO absorb the unemployed manpower by the implementation of major development projects such as the accelerated Mahaveli Develop
12
ment Scheme, Development Sch vestment Promot
No data are extent Of EMP. during the first or on the numb the end of the VieW. HOWevel available suggest of employment i the public secto of new employm filling up Of Wa. isting CadireS O. Sector institution Of vacancies fille June has been r 120,000 and the cies reported as ing as at the en to the Ministry tation, was ove! scheme for the neployed perSOn jobs (called the was inaugurated to provide 168,00. of 1,000 persons under this Sche The government to the private se workforce by it is anticipated creation of about Sector.
The enhance Inic activity in evidenced throug would have led pansion in emp inities. Unofficial gest an increas about 20,000 du months of this of jobs advert papers (mainly rial and technic than 8,000 durin this represents : crese Over the ] vious year. Lib imports of raw ery and Spares, private sector in a higher capacit have led tO SOI pansion. Moreov import liberalisa had a direct eff ment generation wholesale and I tourist traffic (C inflow), Substan the imports Of tractors, and th construction act factOrS that WOl ed to the emplo

Greater Colombo heme and the Inion Zone.
available on the loyment creation half of this year er unemployed at period under rer, scattered data, a fair expansion in this period. In r the main course ent has been the cancies in the eXif various public S. The number *d upto the end of eported to be over number of vacanavailable for fillind June, according of Plan Implemen
130,000. A new placement of uns in public sector
Job Bank Scheme)
and it is expected 0 jobs (at the rate ; per electorate) me during 1978.
has also appealed !ctor to increaSe itS 10 percent, which
would lead to the E 50,000 jobs in this
edi. level of ᎾᏣ0ᎥᏁᎤ-- the private Sector ghout this period to a sizeable exloyment OppOrtulestimateS SUge of the order of cing the first six year. The number ised in the daily skilled, manageal j ObS) Wa S im Ore g this period and a considerable infigures of the preeralisation of the materials, machinby enabling the dustries to achieve y utilization, would me employment exer, the policy Of tion would have ect on the employin the import, 'etail trade. Higher utflow as well as aial increases in lorries, vans and e higher level of ivity were further lld have COintribuyment expansion.
TABLE 5
REGISTRATION OF COMPANIES
Year No of Companies s Registered 1965 220 1961 181 1967 206 1968 215 1969 279 1970 240 1971 14 1972 26 1973 355 1974 349 1975 284 1976 265 Monthly Registrations Nos,
1977 198 Jan. 22 33 Feb. 23 12 March 49 3 April 18 36 May 17 శ్రీ JԱne 29 56 July 15 59 Allg. 20 58 Sept. 27 58 220 400
A further indication of the expanding business activity is evident from the numerous applications being received by the Registrar of Companies for the registration of new businesses. Some of these applications have even come from established businesses which were hoping to make use of the tax concessions granted to new companies set up after the budget of November 1977. The major part, however, are reported to be new concerns which in 1978 averaged 45 registrations per month as compared with a monthly average of 25 in previous years. The total number of new business registrations in 1978 was expected to exceed 500. (See table).
There were also signs of increased activity in the Investment Promotion Zone area and according to latest official information 46 prOjects had been approved with a total investment of Rs. 1,600 million on these projects and employment potential in them of 26,000. The construction of infrastructure facilities in this Zone were underway and was providing direct employment to considerable numbers. Several tube Wells had been sunk and the internal roads relating to Phase I of the project were completed. The increased economic activity that has been stimulated through this project and several other major Schemes, it is hoped, would ultimately generate the new employment opportunities which is expected to be the principal thrust of the government's future economic and Social policy.
ECONOMIC REVIEW, JULY/AUGUST 1978

Page 15
FOREIGN NEWS REVIEW
China's
China has launched on a course of "modernisation', a new policy that can have major repercussions on the balance of economic and political forces of the entire World and Asia, in particular. Its diplomatic offensive between May and August, with no fewer than five key members of the Chinese hierarchy embarking on extended tours covering every major continent, climaxed by the signing of the China-Japan Pea 3 and Friendship Treaty on August, 12; its shopping for new military hardware in the capitals of Europe; its ambitious targets for agricultural mechanisation Which it. hopes would help eventually in providing SUrpluses for exports which will in turn pay for other programmes; its large scale import of foreign technology and virtual invitation to foreigners to develop the country on the party's behalf; and its open acceptance of the profit notive in banking and other business sectors are all clear indications that China, intends moving quickly out of its earlier isolation from the rima. In Streann of the WOrld eCOnOny.
When China's Chairman Hua, Kuo-feng addressed the Fifth National People's Congress in Peking in March this year he visualised a Chinese economy in the year 2,000 where
“the output per unit for major agricultural products would reach Or Surpass advanced World levels, and the output of major industrial products approach, equal or outstrip that of most developed capitalist countries”. Such ambitious goals and the path China, would take to reach them have been the subject of much discussion and interpretation ever since. Sceptics keep asking whether “revisionist Socialism is really right for China' or whether it was possible for China, "to buy its Way towards a vision of Self-reliance'.
Chairman Hua, Kuo-feng in his report to the Fifth National People's Congress thus set out quite clearly his new targets:
in agricultural production, the highest possible degree of mechanisation, electrication and irrigation Will be achieved. There will be automation
ECONOMIC REVIEW, JULY/AUGUST 1978.
New Long March
ir), the main imdt major increase i and communicat a. considerable ris tivity. The result, and technology O. be applied, exte materials and so be made, and and the processes be modernised. technical norms in or surpass advan The ten year, are crucial for a gigantic tasks. China is to prod grammes of grain of steel. Every and 1985, the vi output is to inc percent and indu. by over 10 perce the Output of m ducts during thi to far exceed th yeal ́S . . . . . The st have built or cor scale projects, ir and steel compl rous metal comp nines, ten oil an power stations, s ways and five ke “There are only the year 2,000. I period of time, c task be accomplis Where specul mOSt, rife is how í be accomplished; what its repercuss SO much for the res for China. Chair Sising what has c. a. S the “drive foi ernisations', stat goal was to mode industry, natiO Science and tech With advanced W Surpa SS then, and technically. that China, is to Of a majOr moder and emerging fror imposed isolation. the four moderni. Calling for univ Urging the pe Oplé to newspapers an if they wish to vic CeS. An indicatic

ustrial processes, a rapid transport Ons Services and e in labour producof modern science a broad scale will SiWe use Of neW |rces of energy will he major products of production will he economic and ust approach, equal Ced, WOrld le VeliS.
from 1976 to 1985 2complishing these In this interval, lce 400 billion kiloand 60 million tons rear between 1978 alue of agricultural rease by 4 to 5 strial output value nt. The increase in ajor industrial proS time is expected Lat of the past 28 ate expects to mpleted 120 largeincluding ten iron exes, nine non-ferplexes, eight coal di gas fields, thirty ix new trunk railèy harboursʼ. y 22 years left to in Such a short an this formidable shed', he asked.
lation has been lar this task could a,.h.d. evern rnOre
ions would be not it. Of the world as man Huia, emphaOme to be kinOWin the four mod‚ed that, China'S riniSee a gri Culture, all defence and nology, catch up 7Orld levels and both economically here is no doubt lay in the midst nising movement n a period of Self
In its drive for Sations China, is "ersal education, to Write letters d to government ice thier grievenon of this policy
came in the Chairman's call to raise the scientific and cultural levels of the entire Chinese nation. In his address at China's National Science Conference on March 24, Chairman Hua commented,
"the most powerful base and inexhaustible source of strength for the modernisation of Science and technology in our country are the masses of the people in their hundreds of millions who, fired with enthusiasm, are determined to do away with blind faith, emancipate their minds, rid themselves of inferiority complex, call up the courage to break new ground and to think, speak and act, and
exert, themselves in study and WOrk.”
China's modernisation drive
has moved on to sending out innumerable technical delegations overseas and welcoming foreign technicians, and to paying emphasis to the need for rules and regulations in enterprises, and stressing the importance of developing a legal cOde. All this and minore have been done in the name of the “four modernisations' of agriculture, indu Stry, defence and Science and technology. How China hopes to meet the challenges, as visualised by Chairman Hua of propelling his country into the ranks of modern industrialised nations by the end of the century, appears to be through select borrowing from the capitalist countries.
Capital equipment imports from abroad will certainly play a Inajor role in China's new production drive. Following its early initiative in this direction there is speculation that China's shopping list would range from transport equipment to power plants including various types of Western gadgetry. For instance, its recent purchases of off-shore drilling rigs from U.S. companies and its commitments of more than U.S. S. 5 billion for imports which includes Se Veral steel mills, one of which is a 6 million ton Japanese facility to be built near Shanghai; and also West German skills and equipment needed to build five new deep coal mines and modernise another, plus two large opencast mines, together With the factories to build the machinery for these projects estinated to all cost nearly $ 4 billion, seem Only the begining.
直器

Page 16
With a these activities on the http:Ofն ifՕ11t: many important gSiteS COiliği alfiSė. According to some observers, “Peking's long standing posture of rigid fiscal conservati Sr Wii al-Ost certainly be incapable of dealing with the large financial burdens imposed by multi-billion dollar buying. And the country's technological infrastructure, long neglected in the Walke of the post-Cultural Revolution emphasis on ideological purity and economic egalitarianism, seeins similarly unable to cope With the requirements of a large influx of sophisticated plant and technology.' There is little doubt that, the mainer in which China's leadership meets these twin challenges Will decide the precise direction the import programme would take, and in the end the result of the entire modernisation drive.
Following three consecutive defict of trade year'S Peking ’ėgisterei tWU impressive Surpluses aid this perhaps has given China's leadership SUfficient Coafidence to ninGive foi Ward On the import front. A major part of the U.S. $ 8 billion capital equipment to be purchased from Japan will be financed throgh its exports of oil and coal. But there would yet be a part of its imports upto 1985 that would have to be paid for by other means. The Chinese Import and Export CorpOration has therefore adopted international practices, in trading with Other countries. China's Foreign i\inister Lee Chiang was very Specific about China's method of payment when he said recently: “our imports should be based on the ability to pay. Only if we have the ability to pay can we increase our imports. That is to say, only if we increaSe Oir eXp Orts simultaneously can we Import more goods. No matter what forms of payment we adopt cash, instalment, fairly long-terim deferred payinents, compensation by our own products, or other prevailing forms in international trade, we hold that all these forms should be based tipon our ability to pay immediately or within a specified period. Of time. Other forms which deviate from this principle are unacceptable to us'. In several Cases the Chinese Shopping missions have hinted that they may be prepared to adopt more conventional forms of financing and possibly pay in hard cash through foreign banks.
As important 戮S financing arrangements will be the problems
量4
美 R.
홀 3.
a SSG cate With { rodern and a civ China by some e be nearly two de ditStrialised COL. advanced branch explanation is disruptions over have eliminated tion of young
technology man Filary of th previous generati fi the middle a. inent pQSitá3128 Out of touch. W developments ove Furthermore, wit obsolescence Of has widened. On Sending of Xiaore for training and
Scieratific 2. Kad te changes with
CJG Erieg. Bitt, ai Eset Weeri Chine S scientists, Chii StudentS, Chin Oficials, inevital. raised about va, the Chinese S. leaders are no direction of giri free hand in ei Couraging i. Vent O fheir G Study religion a di SCUSS the neri tlies, to read p books - this is qüestioning Olí
Alt a neu).S ping, asked η ιραίίοη of
...il/Mr. Ten eyes to the l tere handSO
ÄAʼr. T"eng Japan concl Thatt Sq!
(Reported
questioned tene ernisation Inea,S day contra St S inward looking wailed during in case,
Analysts po of history whe periods during introduced fO: and new induS periods have a preceded or fi struggle favouri

she absorption of anced technology. stimates is said to cades behindi inatries in certain es of Science. One that educational the past decade an entire generapeople from the L-power pool and :ԴՏ8 frO ine ion who have to indi Senior Írlanage
fiind themselves 選t量。 internati Oia er the last decade. in shortages and equipo IīneÍt the gap e Solution is the Chinese abroad the increasing of schnological exthe industrialised S contacts increase :6 aid fGreign ! 638 and foreign .eSe and for eign ly doubts will be rious features Of ystern. The new W II noving in the ying Scientists 毯 heir work, and are tellectals to give "etivity, freedom to nd philosophy, to tS Of Capitalist feareviously forbidden bound to lead to
previously Uia
ideological stance behind the in ports. Striking similarities in vents towards the end of the last entury have been noted by Some Geservers. The Current, eve?itS See emii Scelt Of e a SeS prOposed back in 1898 by the reformer Kang Yu-wei. At that time, Kang acting as Erigeiro Kuang-hsu's adviser, called for a reform of the educational syster, with seperate Schools being Set up to study overseas Subjects, politics and aedicine. Gie degree encouraged private citizens to make suggestions to tine government. Another called for high officials to tour foreign Countries. A third called for the i provement and simplification Gf legal codes. Kang also called for promotion of agriculture, indusຂຶa1 and connercial developi gaelit.
"l'i) e p3rOpO sed soiutions, tOO, are said to be similar, but Kang's reforn. In Overheit, failed because the Empress Dowager, TSuhsi, feit that the mea Stres Were too drastic, azad treatened China's cultural theritage and Cultural values. She
Stegged in, seized the reigns Of power from the young emperor and K3 g had to flee for his life. That
鲨邻
gori:21, 10Weriner htt, W72.S | CitilƆGik, foi China’s -day modernisation drive, however, 23 ears to be nich brighter. Tiinaigh theře are people Who undoubtedly feel that the post-Mao leadership. Inay be going too far or too fast, there is no impress
a barted. present
TENG F"OiR, IEFACENG- FREAIITII3ES
conference in Tokyo, China's Vice-Chairman Teng Hsiaofor "felp from all industrialized countries in the moder
Chind”.
g Said, “ue are back Dard and use must not close
traith. It is a stupid
me when in fact his face is ugly'.
said the S 29 billion, eight-year trade agreement with uded earlier this year is just the beginning. 'm must be doubled and tripled', he said.
Street,
in the Asian Wall
0ገዟ?”
person upho behaves as if he
Journal)
tS, nege ឆ្នាgd= FeS i Chistą, totrongly with the attitudes that preOSf. Of the ja St de
int to a repetition 2n reviewing the which China has reign technology trial plants. Such lways been either ollowed by political ng or opposing the
Dowager who can seize power. Riao's widow, Chiang Ching, who gold have played such a role, was arrested and will not be in a position to exert any political inflece. The only forces that could emerge to oppose China's present policies are the essentially conservative ones who see the present policy direction as a threat to the country's Marxist - LeninistMaoist heritage.
Another particular area where the new policy could have a sig
EconoMIC REVIEW, July/August 1978

Page 17
nificant impact is the emphasis on the need to increase profits and accumulate more funds, spelt Out thus in a recent address by China's Chairman:
"In the struggle to eli
ininate the pernicious influence of Lin Fiao and the 'gang of four', we must carry out widespread
education throughout the Party and among all economic, financial and trade workers on the need to strengthen economic accounting, pay attention to economic results, increase profits and exercise strict financial Supervision, so as to stimulate production greatly and accumulate more funds for Socialist construici ion *.
The ASIA WEEK of July 21, 1978 commented cynically on ti. impact this policy was having C.I.
the financial sector in Hongkong When it, Stated:
Deals deemed consistent. With
socialist ideals were most favoured by Peking's thirteen banks in the free enterprise British territory. Now, profit, it seems, is the main priority - by order of the Chinese government.
Reports circulating in Hongkong last week made it clear that Peking is giving its banking comrades in the international financial centire much more flexibility on their capitalist OperationS. News of that development emerged only days after statements at the top levels of the Chinese government, which indicated strongly that Peking is ready to accept some form of foreign loans instead of relying on deferred payments for OverSeas capital pürChaS€S . . . . . . . . China's tiptoeing down the road of financial revisionism to help fund its ambitious modernisation programmes cones as no surprise to capitalist cousins in Hongkoag. And Such news, of course, is Welcome, particularly by the Stock market, which is in the midst of its biggest rally since the 1973 share boom went bang.
What caused most excitement - and a prompt eight-point gain OI the Hang Seng Index — was the initial report that Peking had a Ctually issued a directive to its finarciers in the colony to adopt 'capitalist methods' to boost profits. Whether Peking was so explicit is not clear. Certainly, the banks were urged to raise earnings and implement
more efficient cost control to contribute to the 'four modernisations' programme which China, has Set
itself for the rest of this century'.
One fact stands out in the
whole process and that is by taking
too China down the road to moder
ECONOMIC REVIEW, JULY/AUGUST 1978.
nisation, the pres in effect, travellir from which there turning back. questions keep c ever, as China's the trappings of under way.
Foreign tech table again, but backlash if progr In turning it mechanisation ar.
Oder iSe Will ears of China's being left behind
Se?
How exactly leadership plan innumerable mode: Th ingleme policies will the industrial মৃo}} Ouit by the new
As tie econg education becomes will the Chinese in other countries Stäíàdard Cf liv Share of the cak CCK forts, free tin greater say in th, that affect their
China's entry Stream of the in KINOIMy COUild al SO neededi, OOS, O ging WOrid eCO3107. syster). There app
hope that the har
SIGNS ○F 雪 SOIA E RECENT HEADL. 'The Bank o. @ örg72óた 。善三五。 “France sect, li O72, m.iSSile Orde;
“Shanghai C que Shop resum “Unit of IPA tig2ental Hotels, of hotels in Chi) yerin has been Cre: tional currencies, U.S. dollar, may U.S. GreSSures CGi cut back on her trial products. Ja. to confine er ex piant and te Chr: She is first Qin ti enOGus Cines there exists the concentration of ers. For the Oth nations that hop the prospects see The hierarch China, today is c
 
 

2nt leadership is, g down a path seems to be no Many crucial }ming up, hOWirive to acquire nodernisation get
nology is respecWill there by a SS is not swift?
farms towards d the it ish tO Chairminan Mao’S poorer peasants finally material
joes the Chinese to finance its raisation projects?
(ting the new 3 gricultural and efS get caught
ideological shifts? my develops and nore widespread people, like these expect a higher
ing (a greater 2), more material i.e., travel and a
e Way dieci SiOS lives aire nadie?
into the nailterration 21 ecoprovide a much
4. Շա:rently Sagnic and nonetary ears to be greater VOC the JapaneSe
HE ASS NEWSPAPER INS: f China to open Cemburg”. {reS $ 700 ገmålr from China”. Yurio and Anties ballSineSS'. NAM, Interconto build choin,
g.’ sting for internaparticularly the novy be Curbed. impelled Japan to exports of indus pan's answer WaS ports largely to Ology and AgW he scene in the e market where vAJorld”S largest potential conSUlmher industrialised e to follow Suit in bright. y in power in 2rtainly aware of
the problems and implications of their new policy and appear confldent that the solutions are within their grasp.
In Peking Vice Premier Keng Piao, a member of the Politburo, talked of then candidly with 2, group of visiting American journalists. Vermont Royster, a Wall Street journalist who accompanied the delegation states in a report that Keng agreed for example, that China, would have the problem of rising expectations, the more SO the more it succeeded in raising the standard of living. The Vice Premier conceded quite frankly that Such moves as sending young Chinese students abroad carried with it some “risks'. They expect to “lose’ some of them, who once abroad will not return. But it is a risk that must be accepted, he said, if China i S to move forward. He thinks the risk is minimal becatl. Se great care will be taken in choosing the students from among those with a proven loyalty to China and patriotism for their country.
As for those rising expectations among consumers, he expressed confidence that China's production can keep up with them if the modernization program, for both indusČry and agriculture, does not Slacken. Unlike the Soviets, he said, the Chinese are not overemphasizing the develOpment Of heavy industry at the expense of either agriculture or light industry.
They are all tied together, he explained, if agriculture is not run well it will hurt industrial development and agriculture cannot be improved without industrial development: neither can it be improved if the people who must work hard to bring that about do not see SOa e regardS for their abour in improved living conditions.
The major task for China, in his view, is to catch up everywhere and to accept whatever risks are necesSary.
The problem of class divisiors - i.e. the Seperation of intellectuals, government functionaries and managerial personnel from the maSS of people - is to be resolved by One of the practices left over from the Cultural Revolution. That is the practice of government Officials, college professors, managerial perSonnel and the like being forced to spend periodic times working among the people as farm or factory workers. “To go to May 7th Schools', as the catch-phrase has it, referiring to those first launched by Chairman MaO.
15

Page 18
ANTIQUES
The Plunder of National 行、
In the May and June 1975 issues of the Economic Relied We had two incisive columns on the antiques drain from Sri Lanka. These two articles directly or indirectly led to a Series of newspaper articles and reports, broadcasts, seminars and academic resolutions in the months and years that, followed. It was in this sense of the verbal response created that these turned out to be among the most influential pieces this journal produced that year. However, at the level of action those two articles, as well as numerous other respOnses thereafter continue to remain ineffective. Hence this attempt to re-emphasise the seriousneSS Of the problem.
Following On Our May 1975 artiCle, the newspaperS reported that a Three-man Committee consisting of the Commissioner of Archaeology, the Director of Museums and the Commissioner of National Archives was engaged in drafting recommendations for a check on the traffic in antiques. Numerous newspaper reports subsequently have repeated that legislation was around the corner and recently a Cultural Delegation from India, (Which is far more advanced in these matters than Sri Lanka) asSured the Sri Lanka authorities that India, WOuld be giving us as much technical help as possible in stemming the flow of antiques.
Judging from the record of the last three years of implementing some sort of regulation. On the Outflow of antiques, it becomes clear that what is required is not so much foreign assistance, although this would be valuable, but a will to do What needs to be d'Olne. Our Own lethargy takes place within the context of much international success in stemming the flow of antiques in other countries. The current issue of “COurier", the UN organ on cultural matters, devotes a high degree of attention to these successes, not only in stemming the outflow but even of returning antiques already spirited away. Thus the Director General Of UNESCO
has made a stirring appeal “for the return of an irreplaceable heritge to those who created it.'
Several countries even Without a long recorded heritage and authen
16
ticated antiques to, have taken ection. For exar country is attem four ivory mask by members of tion. The article well as Our ph attention tO SOm We also have in ViOus correspond tional newspaper highlight SOme
HOW IT WAS
Through the
Commissi
The followin “Ceylon Stand: June, 1903:-
Bell, Archaeologica allowed the Distri mowe certain StOI ings which are r Buddhist Colleges, garding this was Priest before Mr. istrate, who order promptly stopped, cating with the missioner who sa Priest hid no rig land in question and that they we Government and sonally hold hims the removal of th for mending road gineer was allowe In Oval of Stones, i Sucią a minne ance to the Budd. stones were broke on the spot, and t loads. This has c; faction among th as they found tih powerless to chec) ism owing to the of the officers co
“The Ceylon in its editorial C ber, 1907, on
Commissioner' S "The Commiss tunate position of of that kind, - if dihists, who from the cry in the v sacred cities are invaded . . . .
The Work O Commissioner has

SSUSS
that We are heirs Steps in this dirhple, one African pting to recover S rem OV ed in 1897 a punitive expedis that follow, as ) to coverage draw le Of these factS. cluded some preence in the naS on this matter to Df these facts.
DONE THEN Archaeological
oner himself
g appeared in the 3rd’ dated 5th
A few days ago Mr. il Commissioner had ct Engineer to reles from the build2cognized as ancient A complaint remade by the High Brayne, Police Mag'ed the work to be but after communiArcheological Comid that the High há, výh 3teveno #tgo the or the stones there re the property of that he would perself responsible for e stones presumably S, the District, Eind to resune the rewhich was done r as to cause aroyhist Community. The n up into small bis hen removed by cartLused great dissatise resident, Buddhists at they were quite is act of wandalhigh official status ceriei”. Morning Leader' f the 14th SeptemThe Archaelogical ayS: Loner is in the unfor
having no restraints We exclude the Budtime to time, raise ilderness that their being unnecessarily
the Archeological been a terra incog
nita to the Government and the public alike.
We want a return for the expenditure of over Rupees 900,000/- something the wide world is expecting from the favoured spot of Archaeological work - we want the detailed report of the Archaeologist with all its invaluable sidelightS on the history of Ancient Ceylon'.
In the midway between the Dagoba and the bund there lie the ruins of Mahapa, duma, and Sun hata, Piirivenas or Oriental Colleges.
It was from this precincts of the former that the coolies of the Public Works Department removed stones; and those shown in Plate XLIV are Some that were left unbroken through the interferenc of BuddhistS. These were photographed by a representative of Messrs. F. Skeen & Co., Colombo, on the 17th November 1907, at our request. From the words of the Archaeological Commissioner in page 78 you could very well understand the despotic attitude this servant of His Majesty has assumed. His authority appears to be something higher than that of the Court of Law! We know that he is one of the oldest civil servants; but it is gross violation of British Justice to reduce these sacred Stones to metal and to say that the remains of religious edifices in the Sacred City do not belong to the Buddhists.
If the sacred precincts are allowed to be devastated in this manner, in a short time the Buddhists will have very little evidence to maintain their long enjoyed rights and privileges, and the lo Vers of antiquities who visit this city of Shrines and Ruins will be disappointed'. HOW IT IS DONE NOW Through the Tourist Trade
Many of those vendors who upto a few years ago were selling books for local pilgrims (Wandana Poth) at the main centres of pilgrimage - namely the ruined cities ... have now Switched over to selling antiques to tourists. Among these antiques are S.One very rare Specime1}S (judged on stylistic grounds) which have been obtained from temples throughout the island. According to information Supplied by these vendors themselves there is a systematic ring of Suppliers - at least three mudalalis - who comb the country's temples and supply the tourist, trade with antiques. There is also a brisk sale of rare palm leaf manuscripts (Pus Kola, Poth). This latter trade has reached Such ridiculous heights that instead of
EconoMIC REVIEw, JULY/AUGUST 1978

Page 19
A Plea for the Return of an irreplaceable Cultural Heritage to
those who created it
An appeal by UNESCO's Director-General
One of the most noble incarnations of a people's genius is its cultural heritage, built up over the centuries by the Dork of its architects, sculptors, painters, engravers, goldsmiths and all the creators of forms, who have contrived to give tangible eacpression. to the many-sided beauty and uniqueness of that genius.
The vicissitudes of history have nevertheless robbed many peoples of a priceless portion of this inheritance in which their enduring identity finds its embodiment.
Architectural features, Statues and frie2es, monolith.S, mosaics, pottery, enamels, masks and Objects Of iade, ivory and chased gold - in fact everything 2Dhich has been taken a 2002), from monuments to hãn đẩCrafÎ8 - ?Uere m.0re thẩm dec07°ations 07° 07°mamentation. They bore witness to a history, the history of a culture and of a nation whose Spirit they perpetuated and remented.
The peoples who upere victims of this plunder, sometimes for hundreds of years, have not only been despoiled of irreplaceable masterpieces but also robbed of a memory which Dould doubtless have helped them to greater self-knowledge and pould certainly have enabled others to understand them. better.
Today, unbridled Speculation fanned by the prices prevailing in the art market, incites traffickers and plunderers to eacploit local ignorance and take advantage of ang connivance they find. In Africa, |Latiт Атerica, Asіa, Oceатiа атd eтрет, in Europe, modern pirates with substantial resources, using modern techniques to satisfy their greed, spoil and rob archaeological sites almost before the scholars have eaccalated them.
The men and 200 men of these countries have the right to recover these cultural assets which are part Of their being.
These men and mUo mem upho have been deprived of their cultural heritage therefore ask for the return of at least the art treasures which best represent their culture, uphich they feel are the most vital and whose absence causes them the greatest anguish.
This is a legitimate claim, and UNESCO, whose constitution makes it responsible for the preservation and protection of the universal heritage of works of art and monuments of historic or scientific interest, is actively encouraging all that needs to be done to meet it.
The return of cultural assets to their countries of origin nevertheless continues to pose particular problems which cannot be solved simply by negotiated agreements and spontaneous acts. It therefore seemed necessary to approach these problems for
EconoMIC REVIEW, JULY/AUGUST 1978

their ouvm. Sakce, eacaimining both the principle underlying them and all their various aspects.
This is uphy, on behalf of the United Nations Educational, Scientific and Cultural Organieation.
Dhich has empOnDered me to launch this appeal.
I solemnly call upon the governments of the Organiadition's Member States to conclude bilateral agree ments for the return of cultural property to the countries from which it has beem takcem, to promote long-term loans, deposits, Sales and donations betu)eem im.Stitutioms concerned in order to encourage a fairer international eacchange of cultural property, and, if they have not already done so, to ratify and rigorously enforce the Convention giving them effective means to prevent illicit trading in artistic and archaeological objects.
I call om all those working for the information media - journalists of press and radio, producers and authors of television programmes and films - to arouse Dorldwide a mighty and intense movement of public opinion so that respect for works of art leads, wherever necessary, to their return to their homeland.
I call on cultural Organizations and specialized associations in all continents to help formulate and promote a stricter code of ethics with regard to the acquisition and conservation of cultural property, and to contribute to the gradual revision of codes of professional practice in this conneacion, on the lines of the initiative taken by the International Council of Museum.S.
I call om universities, libraries, public and private art galleries and museums that possess the most important collections, to share generously the objects in their keeping 2.0ith the countries which created and which sometimes no longer possess a Single eacomple.
I also call om institutions possessing several similar objects or records to part upith at least one and return it to its country of Origin, so that the young will not grow up without ever having the chance to see, at close quarters, a work of art or a well-made item of handicraft fashioned by their anceStors.
I call on the authors of art bookcs and om art critics to proclaim hou) much a work of art gains in beauty and truth for the uninitiated and for the scholar, when lieuded in the natural and social setting in Dhich it took shape,
I call on those responsible for preserving and restoring works of art to facilitate, by their advice and actions, the return of such uporks to the countries uphere thegy upere created and to Seekc upith, imagination and perseverance for new upays of preserving and displaying them once they have been returned to their homeland.
I call on historiams and educators to help others to understand the affliction a mation can Suffer ait the Spoliation of the porks it has created. The power of the fait accompli is a Survival of barbaric times and a source of resentment and discord which prejudices the establishment of lasting peace and harmony between nations.
Finally, I appeal with special intensity and hope to artists themselves and to upriters, poets and singers, asking them to testify that nations also need to be alive om an imaginative level.
Amadou = Mahtar M’Bowy
17

Page 20
palm leaf books being sold whole, pages are cut into Small strips and sold to tourists as souvenirs for about Re: 1/- per Small Strip.
At these traditional centres of pilgrimage antigues are openly sold for foreign Currency by these vendors and there is a considerable profit in this business. A former General Afanager of the Anuradhapura Preservation Board who visited Anuradhapura a few weeks ago after an absence of nearly five years found that there has been a sharp rise in the standards of living of these vendors arising from this trade.
The Sale of antiques also goes on either directly or indirectly at almost all the leading hotels in the country. Thus the foyer of the riter Continental fiote has a very prominent display and advertisement for a Welli known antique dealer in Colombo. Similarly there aire antique boutiques at many Oï the leading hotels in Anuradhapiira, Colonbo, Bentota, and Negoinbo. In the rare event of antiquies not being sold in the hotel premises itself, there are often shops adjoining the hotels (and which form part of the hotel complex) which Specialise in this trade.
Most of the antique shops in Chathan Street and Queen Street in the COOI: Bo Fort area, Specialise aliIl Ost eXclusi Vely in sale of antiques to tourists.
Men in robes Whom he would hesitate to call bhikkhus were behind. Some of the antique racketS discovered recently, the Secretary to the Ministry of Cultural Affairs told a press conference recently. He said that Stringent measures Would be adopted to arrest the outflow of 2ntiques fir Onn, Sri Lanka.
A few months ago the Police in Anuradhapura arrested a dealer On Suspicion of possessing stolen antiques. Induiries, however, ΙΘ -- vealed that the antiques were Sold to this dealer by the Chief Priest of a not so remote temple. There is also evidence to indicate that to lists are made offers of antidies even from well known temples, a. S Well, a S frOn ITU,Selum S.
Apart from Sales to tourists who corne to the country for a few weeks, there is a rauch more systematic sale to foreign experts, diplomats and the like who are here for a longer stay.
18
the
COMMO
SEFCES D), gwinward treigiad
The downward exports experienc first quarter of into the second
yea. With cinna. being most affec these two . Corn
dWindled by 10 per cent respectively i the same period
mOrnS, nutmeg a ever performed be eXpOrtS di Uriling Ap declined by 25 p. Sana period last y
TABLE 1. EX
Aeril9. letric
Cinnannon
(Quills & Chips) 12: Cardamoins Pepper ClOVeS 3.
Nutmeg & Mace
15。
Source: CuSiO772
The half year for all Spices, hori a smaller decline C Over 1977 figures performance of In and cardian OraS increase in the e: these CG}}oïn GditieS and 20 gefcent rei
璽A露蠶翼雲。 SIPH3OH
薄a重.ー
量9??
RS. Inni
Cilla, 3
Carča noms Pepper
Šio VeS 3 ܡ
Nutiileg & Mace
Source : CuSiO11
It is Worth re. present context w urged in June Stated “clearly a v on antiques must Should incide nOt lation and tighter trol būt also a COin Sal of What is hist The development O ness through edu paganda, aIld the

ITIES
trend in spice ed during the 1978 continued quarter of the MnOn and ClO WeS :ted. Exports of nodities further "Cent and 72 perin comparison to in 1977. Cardiaind race howtter. 'Otal Spice ril - June 1978 ercent Over the
e3.
January to June this year. Pepper exports during the first half of 1978 amounted to 677 metric tons. This is a significant achievement COHapared With the Sarne period in 1977, when pepper exports were negligible. Ain il-provement in the local pepper crop together with an increased availability of red chillies (i; Or Willich gepper is a Substitute) thus reducing local coinSumption of peppe to a minimum Were two factors responsible for filis favourable increase. Coves and cinnimon or a the other hand. registered declines of 59 percent and 26 percent in quantities ex
PORTS OF SPICES ANUARY - UNE 193
SLLLLLLLL LLLS0 LLLLL SYS S LCLL StmmLSASJL tLLSAAuuLDLCL % over
重9亨等 薰掌莺 9??, 98. 9 tens ahetric toast metric Égeghs Ihleti'ic É0113
37.10 了53.45 - 39.90 2718.60 2020.09 -0}{".25 - س{
5.30 30.54 -- 100.00 50.90. 61.03 +- 20. - 162.91. - - 67.09 — 30.90 9重。64 - 72.30 707,60. 290.18 - 59.08 0.20 162.91. + 1500.00 76.40. 213.81 -- 180.00
33.50 12G且.45 - 24,60 3553.50 326 25 -83.20= -س
S Returns and Central Bank Aonthly Batlletin
ly performinance Wever, registered f only 8 percent S. An improved !tmeg allad Ima. Ce reSuited ilin a? Sport volume of by 108 percent Spectively during
ported this year compared to January-June 1977. A poor crop of cloveS indicated by the complete absence of this cognanimodity at the Colombo Produce Auctions (except for Small quantities on iiree occasions) vivas ima: inlly responsible for the poor performance (Continated on inside back cover).
五三型韋雪*@麗雲一蠶為雲裏囊電棗喜羞貫電蓋璽一三哥覆了寰亞董9鷺一璽證誓8
Juine Jasa-SüEne % 量9亨3
oyor Janouile Jan:June % Geir
9. 9. 용 977
iora R.S. Riiga mi. Sääoš ??iiga
S RS
60 岳9.重拿 十_8穹.QQ 3.51 3.10 --س-- i1.8}{ 孪8夺 重睾拿拿 - 8.0) 0.87 0.89 -28 - 2010 ട്ട-- - 1.05 - 1.70 2.60. - 3.90 3.52 1.13 6- - --س"T.396{ 1.20 5.50 -- 3:58.30 G.3 0.29 十 靼6.5拿
2器夺 重23.3G 十了Q.50 8.04. 6.堡签 - 1960
's Returns and Central Bank 174ontFilgo Bulletin
peating, in the hat the Revie) 1975 When We ery broad policy be evolved. This
Only new legisnnethods of Conplete re-appraiOrically valuable. f popular awareration and s proestablishment of
local antiquities registers are Vitally necessary. The registration of dealers, the encouragement of &local COllection S and the formation of Small provincial 2 useums should be coinoized with a renewal of craft, skills and the reproduction of antigues for Sale and export. Incidentally, much of this is already being done. It only needs systematisation and €11COԱrage
let'?.
ECONOMIC REVIEW, July/AUGUST 1978

Page 21
FEATURES
The Cost of Foreign Aid
to Developing Countries Nihal Kapagda
Ninal Kappagoda who is at present Vice-Pré national, of the International Development Re: (IDFC) år, Canada, examines flere the "cost of foreig economic Candi political termis and focuses on the recipient developing countries face in absorbing ance. He was the Director of Eacternal Resources a of Plaining and Employment in Sri Lanka from and drcials profitably of his personal eacperiences. experiences are shared, in various forms, by other de tries. His background of direct involvement in man oping country’s eCternal FreSources gives this pat pe dice in the debate of the debt is Sale. This p oil, a talk delivered to the Society for International (Ottava Chapter) om December 13, 1977. The vie iially those of the author aid not necessarily reg
the I.D.R.C.
The need for enhanced transferS of foreign exchange resources to finance the development efforts of Third World countries in the post1973 period has brought into focus once again the problem that recipient nations face in absorbing foreign assista H.Ce. The internationall community responded positively to the acute balance of payments problems that arose in these countries in 1973 and after, but in concentrating on the volume requirements that increased five-to sixfold annually On a global basis some of the qualitative aspects of foreign aid did not receive the same attention, The costs to recipient nations of absorbing increasing amounts of foreign aid continue as
in the past, in Sp all efforts to red paper discusses S problems that h; tered by recipient that has been ach to alleviate these through the initia tries of the Devel Committee (DAC) tion for ECOmOmic Development (OE
TETHE REËPAYAW
The depot Ser been discussed at
Seriational gath during the past economic problem countries. It fig
YZYLLLSLLSS SSS LLLLYYSYLLLLLLCLS S S LLLLLLS LLLLLLLLmmLzL0L00LSZLLLY SS SSLLLZLS S S caaYLLtt
1964-66 % of % of
Average 1970 GNP 92
Gifficial levelopment Assistance 5926 鲁。玺李 681 翰.34 85.38 Gitter Oficia flows 233 0.22 1149 0.06 1546 Private capital 3932 0.29 7751. 0.38 960g II
Total 10092 0.75 1571. 0.77 19693
* Preliminary.
Sources: Tables 1, 2, 3, 4 of Statistical Anneac, Deve 25, Annual Report, 1977: World Bank.
ECONOMIC REVIEw, July/August 1978
 

sident, InterSegrch. C'e72ire 2 Cid” i OtF problems that foreign assisit the Ministry
互970 to I973。 IMany of these veloping coinvaging a dever special releaper is ba Sed l Development US Cire eSS81resentative of
ite of internationluce them. This Ome Of the majOr ave been encounS and the progreSS lieved in the 1970s problems, mainly tives of the counopment ASSistance of the Organiza; Co-operation and CD).
FENT BUERIDERAJ
vice problem has Virtually every in
ering Convened decade to di SCUSS S Of die VellOping
ured high on the
agenda at the 1976 meeting of UNCTAD V IN Nairobi and at the Conference on International Economic Co-operation (CIEC, the Forth South dialogue) that was concluded in the summer of 1977. "he high levels of resource transfers to developing countries that
have taken place Se93 brought into sharper focus the need for international action. On
the debt question, because much of the borrowing since that time has been on hard terms from non-official sources, thereby increasing the repayment burden of developing Countries. As Seen from Table 1, private capital flows constituted 57 per cent of the fOtal net flOW Of resOurces frO{17 Development ASSistance Committee (DAC) countries in 1976 compared to 49 percent in 1972, and during this period, annual transfers from official sources increased by only 61 percent compared to 134 percent from private sources.
There is no danger to an econormy fron11 a. high level of bOrrowing even on hard terms, provided these funds have been used to build up the capacity to repay such debts. Specifically, a country borrowing heavily will experience a debt problem if it has not adopted policies that have generated a high rate of growth of foreign excharage earnings through θΣξports of goods and Services O if it has not adopted import subStitution OTO'gra. MnS that Will 2. Chieve real savings in foreign exchange expenditures. If a country's economic policies are not geared to achieving these objectives and it
es and multilateral institutions to developing countries
(millions of U.S. $)
% of % of % of % of GNP_1973 = GNP 19ኘ5 GNP 1976% GNP
0.33 935 Ꭴ.30 13590 0.36 i3740 0.33
0.06 2463 0.08 3020 0.08 3430 G.03
2841 1248. 0.4 23330 0.61 224-40 0.55
0.76 24.628 0.79 39940 1.05 39610 0.96
lopment Co-operation, 1976 Review. OECD, and page
19

Page 22
TABLE 2. Global structure of current account balan (billion,
96-2
Av. 1970 1971 1972 1973 1974
Industrial countries 蓟.2 0. 其3.4 9.4 1. -11.2 Major oil exporters 0.ሽ 0.3 2. i. 6.2 87.4 Other non-oilproducing countries -9.8 -8.6 -1.0 -8.9 -9.6 -43.8
Source: Annual Reports, International Monetary Fu
faces a sharp decline in export earnings or an increase in import prices, then the debt problems could become very acute because of higher borrowings needed to maintain import levels, if the additional resources have not been ohtained on concessionary terms.
The benefit Of a Oan tO a, recipient is often measured by the grant element of the loan, which is the difference between its face value and the present value of the amortization and interest payments discounted by an appropriate rate of interest. This should normally be the rate at which Capital could be borrowed by developing countries in international capital marketS. Except to the high income developing countries, this rate of interest is often an academic concept, as they have no access to these markets. As a working rule, therefore, the grant element is estimated by discounting the repayment Stream by 10 percent. For example loans that are extended by the International IDevelOpment ASSOciatiOn (IIDA), which are interest free and repayable in 50 years including the grace period of 10 years, have a grant element of 90 per cent compared to 100 per cent for Outright grantS.
Recognizing the need for international action. On the debt, problenn of developing countries, the DAC adopted a recommendation on financial terms in 1972 for Official Development Assistance (ODA) *, To fulfill these conditions, each member country was expected to reach and maintain an average grant, element for their ODA commit
*ODA is defined as resource transfers to developing countries and multilateral institutions provided by official agencies with the main objective of promoting the economic development and welfare of developing countries; it is concessional in character and has a grant element of at least 25 percent.
20
ments of at least However, countr; commitments as a Gross National Pro below the DAC av be considered as target for financia in recognition of the least develope was agreed that countries should the fOrm Of gran average grant elen mitments from should either be a cent for each country over a 3 at least 90 perce the least develope a, grOU.
Problem W.
Developing
Since the ad resolutiOn On fina,
been made in SOİfi of ODA. In 1975, element of all O cent, much above 84 percent. There that positive steps by individual cou. this target, but th problems Of die Vel have worsened by Crease in export ( lending since 1972 financial requirem producing countrie brought about by ces, Shortfalls in and higher import
TABLE 3. Repor
Total OutStandin Commercial debt Deiot Service
Commercial debt
* Excludes nongl Source: Table 11.

CᎾcᏚ. - ral, are illustrated in Table 2,
s of U.S. $) which presented the global struc
— ture Of Current a CCOunt ballen
CeS.
19596 In contrast to the softening
terms of ODA, the terms of the
18.6,一l.4 total flow of resources have hard
ened in the 1970s due to the dec
34.7 4.0 lining share of ODA and the
growth of Euro-currency lending
of surpluses generated by oil
-53.0 -41.0 exporting countries, the terms of
which have hardened. If One ســـــــسی۔سی۔سی۔۔یبر ۔۔۔۔۔۔
n.d. examines the non oil-producing
- countries, it is seen (Table 3)
84 per cent that the total debt outstand
les whose ODA ing increased by nearly two
percentage of thirds from 1973 to 1976 and
bduct were well
rerage would not having met the l terms. Further, the problems of !d countries, it
ODA to theSe preferably be in ts and that the
this was accompanied by an increase in the proportion of commercial debt in total debt outstanding from 48 percent to 56 percent and in debt service payments from 67 percent to 77 percent.
If We next examine the debt
Outstanding in terms of the inaent of all con- come groups (Table 4), it is seen a given donor that three-fourths of the debt up ut least 86 per- to the end of 1974 had been in least developed curred by countries whose per
year period Ol' nt annually for di COuIntrieS aS
capita incomes exceeded US $ 200. The shift in the debt structure toWard commercial debt on harder terns is common to all income categories but Wa S mOst prOn Ouin
Orsens for
o Ced fOr thOSe COuntrieS Wh0Se per Countries capita încomes exceeded 3: 375. Option of this Debt On commercial terms now repincial terms in resents the bulk of their total debt, progress has which is an indication of their
tening the terms the Overall grant DA Was 88 per
credit worthiness, as well as their ability to raise funds in international money markets. Even in
the target of poorer Countries with per capita is no question incomes of less than $200, comhave been taken mercial and Other debts on harder ntries to meet terms accounted for 45 percent Of e Overall debt total debt OutStanding and for oping countries two-thirds of their total debt ser
the greater in2redit} and bank . The increasing entS (5 non Oil es, which were higher &àil prifood production, prices in à gene
vice payments, but this group of countries accounted for Only 13 percent of total debt service payninents in 1974. In 1975, debt service payments to DAC countries on ODA loans were only 19 percent of the total by all developing countries. These statistics show that the prob
ted debt and debt services of non oil-producing countries
(billions of U.S. $)*
93 1974 195 1976
g 79.0 96.8 116.3 129.0 (%) 48 52- 54 56
9.1 11.8 15.0 17.8 (%) 67 72 75 77
Laranteed private bank lending.
-4, Development Co-operation, 1976 Revietuv: OECD .
ECONOMIC REVIEW, JULY/AUGUST 1978

Page 23
TABLE 4. Debt outstanding at end of 1974 and debt sel
U.S. $)
Debt (%)
Least developed countries 4967 (4) Under $2.00% 23653 (20) $200-374t 8114 (7) $375-699 17333 (15) $700-999 17611 (15) S1000 and Over 3.0137 (26) Total nonoil-producing developing countries 96.848 (82) Oil producers 20517 (18) Total 117365 (100)
*Excludes Indonesia, iExcludes Nigeria,
Source: Table 34 of Statistical
Reyieu): OECD.
lem is not with official flows but with private lending on commercial terms that has responded more to the increasing needs of developing countries than Official transfer S.
Several countries have experienced acute external positions brought about by excessive debt. service payments, and debt relief of one form or another has been extended to some 50 countries Since 970. Included in these debt-relief operations have been multilateral arrangements within the framework of the Paris Club for Chile and Zaire and within the framework of the World Bank consortia for India, 8hdi BPakistan. Thea Writing off of debts has been On the agenda of various international conferences including the UNCTAID IV and CIEC but tO date (Dec. 13, 1977) unilateral action has been taken Only by Canada, which Wrote off 3 254 million. Of foreign debt with a present value of $ 35 million owed to her by the poorest developing countries to whom she provides assistance, and by Sweden, which agreed to write off debts totalling $ 236 million. Unfortunately, Canada did not follow through and failed to provide new aid to these countries On grant terms. International action On debt relief has been under consideration for Some time, but the inability to obtain the support of the Eastern European Bloc for such action, among other reasons, has made it impossible to arrive at a general agreement covering grOulpS of developing countries. Nevertheless, the serious debt service situations of many developing countries make it imperative for the international dialogue to continue.
ECONOMIC REVIEW, JULY/AUGUST 1978
Anneac, Developmen
THE TYN
The practice aid to don Or SO the end of the to the balance O culties d'Onor COU periencing at th the case with t When she began Supplies financed loans to U.S. sc. even Went furt that funds remit costs of projects used for imports In the Same Way, dom began t0 t to U.K. Supplies tion on the part tries that had ba deficits also led by Surplus count Federal Republ: due tO preSSures port lobbies wh markets threaten tions of deficit c.
One reaSOn
tance to commod donor countries i Surplus Stocks Or in industries. Thi, the motivating f: origins of the program in th and was effective minimise the reg the donor. To th ever, the costs ar Support prices r nally in dOn Or COl tural produce. A ] valuing such a SS tO price the qui tional 'world ma these supplies b the market.
In spite of t it has to be col

vice (millions of by income group
Debt
Service (%) ” ვვე (2) 1604 (10) 1012 (7) 2049 (13) 2379 (16) 4709 (30)
11752 (76) 3733 (24) 15485 (100)
ιί, 1976
G OF AD
of tying foreign urces began at 1950s in response f payment diffi
intries were exe time. This was he United States in 1959 to tie by development burCes, and she her and ensured ted to meet local Were subsequently ; from the U.S. the United Kingie her a SSistance in 1963. This acof donor counlance of payment to similar actions ries, Such as the lic of Germany, exerted by exO found their led by the 2COuntries.
for tying assislities produced in S the existence of
excess capacity S was undoubtedly
actor behind the PIL 480 foOd aid Le United States
:ly an attempt to l cost of aid to e recipient, howe high because Of (laintained interIntries for agricul"ealistic method of istance would be antities at a no.rket price' had een released to
hese higher costs, ceded that the
existence of Surplus stocks or excess capacities often results in additional resOurces being chanmelled to developing countries. Strong export lobbies in developed CountrieS influence governments to extend credits to Support sagging industries that have excess capacities or to dispose Of surplus stocks that have arisen due to wrong market expectations and in such cases, aid is necessarily tied. Further, credits are given for the explicit purpose of export promotion Of developed country prOducts. In all these cases, the reaSOns addu Ced against tying WOuld apply, but had it not been for expOrt prOmotion Or other policy objectives of developed countries, these additional resources Would not be available.
Another reason for tying aid is the preponderance of project aid in total aid extended by developed countries. This is due to the mistaken belief that project aid is used more efficiently by recipient countries. But concentration on this type of assistance often results in the implementation of projects that are not often of high priority and leads to an incorrect allocation of resources for investment. There is also the coSmetic effect that a project is better identified With the d'Onor than commodities whose use is ΙΩΟΥθ dispersed throughout the economy and not easily identifiable. Once a. decision is taken to provide project aid there is even a greater reluctance to untie aid, because a project is better identified with the Supplier of equipment and Services than with the donor providing funds.
It bears repeating to mention What iS Often Stated ab Oult the efficient u Se of external reSOurceS. It is the Soundness of an annual import program within the context of a country's development plan that is important and not the financing of individual items or projects in Such a program. Commodity aid provides greater flexibility in the use of aid and often leads to minimizing the costs resulting from the tying Of aid to donor Sources.
Basically, the direct costs of tying arise from paying FOB prices that are higher than WOrld market prices. There could be two treasons for this. First, suppliers in donor countries, realizing that the gOOds are financed under aid programs and that the recipient country has no choice but to make
21

Page 24
this purchase under aid, charge a monopoly price. This would be minimized to the extent that it is possible to invite worldwide tenders and then select a supplier from the donor country and to the extent that there are a number of suppliers to introduce an element of monopoly pricing but the situation is worse when there is only a monopoly supplier in the donor country. Second, the cost of production in the donor country Inay be higher than from the traditional source, which is the main reason why purchases were not made from the donor country Originally. This arises often in cases where imports are diverted from traditional sources. The tying of shipping and insurance to donor sources also adds to these costs.
The Additional Costs Can Wary
The additional costs, of course, wary from country to country and depend on the multiplicity of donors, the volume of assistance from traditional sources Of Supply, the possibilities of competitive bidding, and the goods that could be purchased using aid funds. There are in addition indirect COStS that cannot be easily quantified. These result from the use of aid for low priority items due to the dictates of donor countries, the distortions in the price structure (which is, in any event, complicated in a developing country), and the administration costs Of managing a tied-ald program where disbursements have to be controlled to ensure the COrrect SOurcewise procurement procedures laid down by donor countries. Accordingly, the real value of foreign assistance is reduced, and the disbursement procedures required to einsure SOurce-wise tying result ilin Waste and delays in the transfer of resources and also dampen the expansion of trade, especially between developing countries.
Theoretically one could minimize the cost of tying aid by inwiting international bids for commodities and projects and selecting the cheapest source, provided that adequate assistance is available On time to finance the imports. An accurate estimate of the cost of tying could only be obtained by international bidding conducted on a freely competitive basis, which condition is unlikely to be fulfilled in practice, and it is probable that these costs are not less than 20 percent. The knowledge of the availability of
22
tied funds could
polistic pricing b. donor Sources an from other suppli tor that has to b in project financi cipient Often lac expertise to neg ductions.
International
ly by the DAC, began in the mi early 1970s agree. reached only on l ti Ons tO multila by DAC countrie effectively chang though it represen mitment by the and in 1975 these ted 28 percent of greSS tOWards u loans has been lir 10 DAC countries ly signed the agr ing bilateral dei permitting procur loping countries. F petus given by CIEC fresh initia taken toward unty gress made in Ql is unknown at th
Apart from j DAC, some count) individual initiativ ing aid. By 19 States authorized almost all develop increased the pre: content of aid-fin Federal Republic removed many res tal project aid an tance equipment and Canada too to 20 percent of COuld be used fo developing count local costs. In 19 cided to permit countries whose p were less than $ also took legal m neceSSary to fa aid
The position I ancing of local more liberal. DOnt den and Norway bilateral project On local costs. Ot for the poorer col ected to agricultu development pro cases, local costs particular recipien Of France for countries.

result in monosuppliers from indifferent bids S. Another faCborne in mind g is that the reS the technical tiate cost e
iscussions, mainbn untying aid 1960s. By the hent had been Intying contribu-, eral institutions , which did not earlier practice bed a moral COmroup as a whole funds constitultotal ODA. PrOltying bilateral ited and to date have collectiveeement on untyelopment lOans ement in die VeOllowing the imJINCTAD IV and tives have been ring but the prolantitative terms e present time.
Oint action by
ties have taken reS toward unty70, the United
procurement in ing countries and missible foreign anced goods. The of Germany also trictions on capid technical aSSiSaround this time decided that up
bilateral aid r purchases in ries or to meet
75, the U.K. deprocurement in er capita incomes 200, whilst Japan 2aSures that were cilitate unitying
'egarding the fincosts has been DrS Such aS SWepermit all their aid to be spent hers permitted it untries when dirle and social jects. In some are financed for its as in the Case the francophone
These have been the recent changes in the developed countries of the West. Amongst the centrally planned economies, only China. has permitted the financing of local costs or provided united assistance in the form of cash grants to some developing countries. The costs of tying aid are even greater in the case of these countries as we deal with a monopoly supplier in the donor country, whose prices
are fixed by considerations not apparent to those Outside and price reductions are almost impos
sible to achieve.
DISBURSERENT PROCEDURES
The timing of agreements and disbursement procedures are often key elements in the effectiveness of aid programs to a recipient country and delays in these procesSes add to the COSt Of aid tO the recipient. In the initial phase of a country’s development, particularly those that were colonized by the metropolitan countries, foreign aid was obtained mainly from One country. As these countries developed, both politically and economically, and took their place in the international community, the reliance on a single donor decreased in importance and recipient countries began to deal with a multiplicity of donors whose procedures and practices difiered considerably. This process was evident even in the 1970S When the number of developing countries obtaining more than 50 percent their total bilateral and multilateral assistance from a single country deCreased from 43 in 1970 to 30 in 1974.
As a result of the multiplication of donors interested in a SSiSting a single recipient, action was taken ni the late 1950s to set up coordinating mechanisms of One type Or another by multilateral institutions such as the World Bank, beginning with the consortia set up by the World Bank for India and Pakistan in 1958 and 1960 respectively. The Bank also set up Other COOrdinating mechaniSms such as consultative groups and aid groups for discussing foreign aid requirements of recipient countries individually, and this certainly helped countries facing acute balance of payments problems as it enabled the total foreign exchange requirements of a recipient to be looked at by the donors as a group On an annual basis. But this still left the negotiation of agreements by each donor to an
EconoMIC REVIEW, JULY/AUGUST 1978

Page 25
independent process determined by the internal approval procedures of donor countries for approving aid allocations to individual countries.
A development that improved the timing of agreements was the introduction. Of COuntry programing by many DAC countries Such aS Canada, Denmark, Finland, France, Germany, New Zealand, Norway, Sweden, Switzerland, and the United Kingdom. In Spite of this, the availability of funds was yet dependent on budgetary appropriations approved by the legislatures in the donor countries and Only limited action has been taken to provide developing countries with the multiyear commitments.
For example, the Australian authorities permit commitments 1 year ahead of 75 percent of current aid levels, 50 percent 2 years ahead, 25 percent 3 years ahead, and 10 percent 4 years ahead. In the case of Canada, I understand that allocations for the main recipients, which number around 35, carry forward commitment authority of 75 percent for each of the 4 Succeeding years.
It is true that the coordinating mechanisms and the country-prograining exercises of donor countries have improved the timing of agreements, but the improvement has only been marginal. Aid decisions are yet made independent of the overall coordinating mechani Sm and the uncertainity regarding the timing of agreements ir CreaSes the difficulties of mana--> ging a COuntry's foreign exchange budget, The delays in this process should not be underestimated, and this led the Pearson Connission to report (in 1969) that in the case of United States Development Loans, the checklist of statutory provisions required at that time before a loan can be approved had reached 68 seperate items. Ideally, developing countries, require information in advance of the total quantum of aid that would become available annually and the commodities and projects for which these funds could be used. It is fit this reason that the Pears.On Commission recommended that the aid appropriation period of donors should be extended to at least 3 years and that appropriated funds could be carried forward for Several years. Agreement could be reached in advance of the quantum of aid and the items to be purchased and the signing of agreements
EconoMIC REVIEw, JULY/AUGUST 1978
should not affect aid provided the cedures of donor reimbursement O. curred prior to agreements. r. the case and in developing count be a feasible all do not have adec change resource short-term lines mit advance pUr
Cause fo
Apart from t reements, the di dures Of dOInOf ( Sullt in COIm Sidera, a country has a donors, the deta
rocedures Of ea to be mastered b. agency in the as well as by thi rity and the in allocations under The realization led the PearSOn comment: "Hard trated administ SideS II lay SOrne 1 for WOndering wil grams will fail ruim Out Of CarbC
The negotiat of iterns that CC under each prog in protracted ba) the dOn Or and atter is more in cing items that greater impact development and disbursements, wi often has to bal inotion interest country with 1 needs of the recip Varie:S fľOm dOn it depends On t export lobbies ex ernmentS. The approval Of indi Often tenders h in the dOnO CO a decision is tal the prior approva cy in the develop quired and paym tract is rnade di plier. Some d'OnO. permitted the re expenditure, upo. documents for g been shipped and for items agr donor and recipi following these dures and galinir

the utilization of disbursement prOcountries permit f expenditure inthe signing of This is often not the Ca,Se Of many ries, it would not
ternative as they luate foreign eXS O 2006SS to
of credit to per2hases.
bir Delays
he timing of agsburSement prOCesountries also reble delays. Where multiplicity Of illed disbursement ch country have y the coordinating recipient country, e licencing authonporters receiving
each pI'OgraIIl. of this problem
Commission to pressed and frusrators on both times be pardoned
nether their prObecause they will in paper'.
ions on the list puld be permitted ram often result, rgaining between
recipient: the Literested in finanwould have a On the country's
permit quicker hereas the former Lance export proS in the donor the development pient country. This Or to d'Onor and he influence that ert On these gOynext delay is the vidual COntractS. ave to be called untry and after Ken On each - One, Il Of the aid agenbing country is reent for each cOnrect to the Sulpr countries have eimbur Sement Of submission. Of goods that have di paymentS IMlade, eed Up On betWeen ent. Even after elaborate proceng approval for a
purchase, the US-AID audit could call upon the recipient country to refund the amount disbursed for an item purchased using a U.S. Development Loan if any irregularity is later discovered.
Not all the blame is on the dionor country. The recipient fountrles also have elaborate licencing arrangements that have to be dovetailed with the procedural requirements of the donor agencies. Often, in the interests of equity, aid allocations are distributed amongst ΩLIΥ1θrous importers making it necessary for each of them to master the procedures of each dOnO agency. It also reduces the real value of aid eliminating the possibility of obtaining discounts on bulk purchases and reductions in shipping costs that could be achieved by bulking. It is perhaps difficult to imagine the delicate balancing act performed by many administrators in developing countries who are called upon to administer these aid programs. Often imports of critical commodities are financed on aid and delays in their arrival haye a chain efect On the ecOnomy that cannot be avoided in the short run. For example, delays in fertilizer imports financed by aid effects the entire food production effort of the recipient country and it is ofen not possible to overcome this problem by purchasing commodities from abroad at short notice, either because it is physically impossible to affect shipments within a short time period or the foreign exchange resources needed to finance Such purchases are not available at the tine.
POLITICAL AND ECONOMIC
COMMIHTMENTS
The influence by donor countries on the domestic policies of recipients has been dealt with extensively in many publications but more critically and not altogether impartially in books such as Teresa Hayter's “Aid as Imperialism' and Cheryl Payer's “The Debt Trap: The IMF and the Third World.' I think it is necessary to look at Specific examples to understand the full implications of the so-called leverage effects exerted by donors and for this purpose I will quote SOrne examples from Sri Lanka.
In the preceding sections, dealt briefly with the role coordinating mechanisms have played in expediting the flow of resources to developing countries. It is how
23

Page 26
ever, normal for donors belonging to consortia, consultative groups, or aid groups to base their decisions on foreign aid to developing countries on the framework Of
economic policies adopted by the country concerned, aS analyzed and presented by the agency sponsoring the co-ordina
ting group. It is normal for growthOriented ecOnOmic programs to receive the endorsement of donor countries by pledges of higher volumes of assistance. However, in these analyses, the World Bank and the International Monetary Fund, which have been responsible for sponsoring most of the co-ordinating groups, emphasize the impact of domestic policies on private enterprise, the Operation Of market mechanisms, the promotion of private investment both domestic and foreign, all of which are important for the creation of a capitalist Society. It is relevant to question whether much of this is applicable to a society that is backward and based for the most part on a subsistence economy. Even the World Bank has now nodified its position. On the pursuit of growth-oriented development and has Over the last few years turned its attention to basic human needs such as nutrition, health care, education and housing by its support for integrated rural development projects. But nevertheless, the Orientation and thinking of these institutions are based on the Operations of the market place. For example, subsidies are often an integral part of government programs for the distribution of the basic necessities to the masses in developing countries and this is anathema, to these institutions and no Opportuinity is lost to pressure developing cOuntries tO elimia, te them iIn the interests of increasing investment for growth. A recent example was the attempt by the Government of the Arab Republic of Egypt to remove subsidies on a series of basic necessities as part of a Standby Agreement with the International Monetary Fund signed in 1977, and it led to widescale disturbance in Cairo and finally Of the Withdrawal Of the meaSUlreS.
No One could really quarrel with the prescription made to divert more resources for investment in the interest of achieving higher growth rates, but it has to be understood that such policies often
24
have to be implen frameWOrk Of den institutions. Th Systems exert leaders in develop never be understC Societies and it is about by the acces to the political le countries. In such elimination of Sul Welfare-Oriented be gradual and ir the full support Otherwise these Only be controlled political systems t employing repress. again is unaccept: ern societies, whi U.S. PreSident rights program dic ties and this is flict based on diff of political ins process Of develo
Specific Poli Up
The need for policies as a gen for providing foi cannot be questi( the interest of th try to use the ad generated through grams as effectiv But nevertheless, need for specific that are insisted countries before Here II WOuld di betWeern Co. Mi Mill ( and project assist ner, SOund Overa cies are more ju ditions than in the feasibility of its priority in th lOpment plan sh0 COI) CeTI1, The in assistance should the merits of the than the overall economic policies institutions under cies are being ir
An additional ent in the Case ( the need to hire ing firms to exe cost of which air loans, to satisfy tries regarding t tion. This often l fiable accusation against the donor ing COuntries technical personn

ented within the
locratic political e pressures such on the political
ing countries can od by Western largely brought is that people have adership in these a situation the DSidies and other Olicies have to Inplemented with Of the masses. preSSures can by changing the O autocratic ones, Ve taCiti CS. ThiS able to the West2h emphasize, as Carter's human )eS, human liberan area Of COnerent conceptions titutions and the pment.
3ies insisted
O
SOund eCOnOnmiiC eral precondition reign assistance Dned as it is in e recipient counditional resources foreign aid prOely aS pOSSible. One questions the 2conomic policies upon by donor providing aid. raw a distinction dity assistance ance. In the forll economic poli1stifiable preconthe latter where the project and e country’s deveuld be the main eed for project be judged ΟΙΩ 2 proposal rather framework Of or the political which these polinplemented.
cost to a recipiof project aid is foreign consult2ute projects, the e debited to the the donor COunheir implementaeads to the justiOf neocolonialism as many developpossess qualified el to supervise
the implementation of projects, though they may lack the experience Of WOrking as a team. Within the framework of a consultancy Organization. In a similar way the practice of the World Bank and the Fund in placing staff in developing countries to monitor the implementation of programs is questionable.
One important aspect of the leverage effects is that often the preconditions imposed impinge on the sovereignty of developing countries. Here, I would like to use an example from Sri Lanka where in early 1970 the World Bank provided assistance for a major diversion project and insisted on including two clauses that were objectionable; first, that that Government appoint as the Chief Executive and the Deputy of the statutory body responsible for the project, persons who were both competent and experienced and acceptable to the Bank; and second, that prior approval of the Bank be obtained before changing any legislation governing the statutory body. This agreement created serious political problems in the country and became a major issue in the general election that year. The Government that negotiated the loan agreement was defeated and the new Government renegotiated these clauses, Which were subsequently deleted and substituted by clauses whereby the Government undertook to merely inform the Bank of changes in the management and legislation.
One would have expected these experiences to have settled the issue for all time as far as Sri Lanka was concerned but it came up once again two years later with the Asian Development Bank. The ADB is, after all, a regional institution and is expected to be more sympathetic towards the aspirations of Third World countries. Nevertheless, they insisted on consultation when changes in top management of another statutory body was contemplated as a precondition for providing assistance. Explanations to the negotiating team of the experience with the World Bank on the diversion project proved to be of no avail and the Government broke off negotiations, which was the first occasion in the history of the Bank, up to the time, that a recipient country had taken such action. Subsequently, negotiations were resumed and the offending clause deleted by the substitution of a Side Letter whereby the Government undertook to inform the Asian Development Bank of any proposed changes in the top management.
ECONOMIC REVIEw, JULY/AUGUST 1978

Page 27
These are particular but they nevertheless point to the need for recipient countries to be constantly aware of the danger of acceding to such conditions as they constrain the recipient to a COurse of action that is both unpalatable internally as well as being a commitment made for a long period of time.
SACRIFICE OF LONG-TERM DEVELOPMENT OBJECTIVES
The rationale for negotiating foreign aid is to increase the inport capacity to a level necessary to achieve a given rate of growth as laid down in the country's development plan. At the same time, it often enables the recipient to avoid taking harsh economic decisions that would be politically unpalatable in the short run. One could provide examples of cases where actions to curtail imports of agricultural products could develop the capacity to grew these items locally. In the short run, the internal prices rise and provide the necessary incentives to increase production locally but at the same time the increase in prices leads to demands for high wages, which, if granted, could set off an inflationary spiral. However, the availability of foreign aid in the form of agricultural products that can be grown locally or cash grants that would enable the importation of these items Sacrifices the longterm development interests Of the country because of the predisposition of many governments to reduce internal prices for shortterm political gains. One could point to similar examples in the other sectors but the adverse effect is most often felt in the agricultural Sector.
Food aid, whether provided under emergency conditions such as famines and natural di SaSterS or provided for balance of payments reasons, has an impact on domestic production in recipient countries. Emergency food aid is a necessary response of the international community to meet national disasters such as famine, earthquakes, etc. Nevertheless, there are examples of cases where due t0 a la Ck of COOrdination amongst donors or an inadequate assessment Of needs to Overcome Such disasters, the farming communities in the disaster areas have been adversely affected. The unC0Ordinated effOrtS in the Sahel and in Bangaladesh are now historical facts. A recent example
EconoMIC REVIEw, JULY/AUGUST 1978
inStainCeS:
quoted in the Ne 6 November 1977 perience of Guat ceived emergenc from the United earthquake in 19 (Of the disaster, era ting in the CO that adequate Sup available but, bu Were in Short Su this a SseSS ment, and damaged the pects Of the S farmers living in Guatemala City prices for their lined sharply d ability of aid su further adverse ing the financi farmer cooperativ lands regions an ample of aid sent intentions, but mi aging to the recip vice from the O. accepted.
If One lOOkS provided as bala] support a similar It represents Sur chased from aid high priCes due provided by dono: ternally to agrict The consumer in try often pays m purchases, which deliland Of COn: countries. These then sold in the reducing the pri plies and Sul damaging the lO of farming COmn. ent countrieS Whi urban con SuimerS, the entire picture of production in try to the COn Sul ent country, it i the donor count consumer in the who benefit at til consumer in the the farmer in th try. Clearly, t note developme World, although in this manner balance of paym. cipient COuntries. long-term interes aid on a contin after year.
Here again, I an example from staple food is rice.

:w York Times of relates the exemala, which rey food supplies States after the 76. At the time mOSt agen CieS Opuntry recognized pplies of food were ilding materials pply. In spite of food aid arrived e financial prossmall individual the highlands of who found the produce had decue to the availpplies. It had the effect of weakenall structure of "es in these highd is a good exwith the best of splaced and dampient because adcal level was not
at the food aid nce Of paymentS Situation energes. plus stOck purallocations at to the Support r governments inultural products. the donor couinore because of aid are added to the Sumers in donor food supplies are recipient country Ces Of local Suppstitutes ,thereby ng-term interestS nunities in recipiilst benefiting the If one looks at 2 from the Source the donor counmer in the recipiS the farmer in y and the urban recipient country he expense of the donor country and le recipient counhis does not pro2nt in the Third food aid provided affords immediate ent relief to reIt is not in their tS to rely on food Luing basis, year
would like to quote Sri Lanka, whose There have been
es attempts made to grow other food crops such as sorghum, maize, millet, cassava, and yams, but in the past, these efforts have been launched during periods of drought as an emergency measure to switch consumption from rice to other cereas that require less water for production. Such a situation arose in the financial year 1974-75 and due to the lack of rain during the period preceding the m in cultivation season it was abundantly clear that there would be a substantial shortfall in the local production of rice. Faced with this situation, the Government launched a major production program to encourage farmers to grow other food crops and due to balance of payments difficulties during this period, the distribution of imported wheat flour
was also restricted. Around Marc 1975, the US offered 100,000 tons of wheat flour, which they asked the
Government of Sri Lanka to ship before the end of the fiscal year on 30 June 1975. In anticipation of these additional supplies, the Government of Sri Lanka liberalized the distribution of flour from the month of April 1975 onward, as this coincided with a festival period in the country. This was un fortunately the harvest period for the other food crops that had been grown and the farmers sufferred catastrophic losses in income. A
major extension effort by the Agriculture Department received a setback as the farmers required COs siderable persuasion to grow these other crops and the country's longterm development prospects were seriously damaged.
Conclusion
In dealing with this subject under five headings, I have not aSSigned any priorities to them. The repayment burden is the One that perSons interested in international development are familiar with and it is readily quantifiable. Nevertheless, the others are real costs that reduce the Value of foreign aid to the recipient. Perhaps I have introduced a note of pessimism to the foreign aid effort, but my main purpose is to raw aftention to the need tO improve the qualitative aspects Of aid, at a time when the volume of resource transfers is increasing Sharply. Both aspects are important and Should continue tO receive the attention of the international community in the interests of Third World development.
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Page 28
A Future for Sri Lanka Desiccated Coconut lr
S. A. C. M. Zuhyle
The declining trend in desiccated COCOnut production, while market prices kept rising, has been a clear indicator of the crisis that beset Sri Lankca’S || coconut industry. The obvious solution is to eliminate the problems that retarded increased production, argues S. A. C. M. Zuhyle who is an assistant manager at the Coconut ProcesSing Board in Colomb0.
Coconut production has been fluctuating between 2,400 and 2,700 million nuts per year With the unusual increase to 2,963 million nuts in 1972, to a drop of 2,031 million in 1974 and an exceptional 1,825 million nuts in 1977. Owing to a record drop in output. The fluctuation in production is characterised by weather conditions, variations in the application of fertiliser and foreign market conditions for exportable COCOnut products such as desiccated coconut, fibre, oil, charcoal and copra. Both 1972 and 1974 had been remarkably unusual years. Within the period 1965-77 due to favourable Weather COnditi OinS that prevailed in 1971 and the substantial fertilizer application on coconut lands in 1972, nut production increased to a record figure of 2,963 million nuts. On the contrary, the steep drop to the level of 2,031 million nuts in 1974 was characterised by the drought that prevailed in that year, and the negligence of the estates by management, on the eve of nationalization of the estates which were brought under the Land Reform COmmission.
It is clear, as illustrated in figure 1, that the trend line is declining, which indicates a falling production.
Following the trend, the nut production for 1980 and 1990 could be estimated at 2,374 and 2,230 million nuts respectively. Comparing the forecasted figures with the actual production figures of 1975 (2,447 million), a dirOp Of 3 per cent in 1980 and a 9 per cent drop in 1990 is expected. This fact has to be considered against the increas
26
ing local cOn Sump ing population.
LOCAL CONSUMP
LOCal consum is estimated to
perSOn per - ann the population pl future (based. On W. Jones & S. S projected consum] for the period 197 dily inc. ease. On t percentage of dic tion of nuts in 19 increase to 71.5 p production and in 79 per cent of which would leave in 1980 and 21. pe: the purpose of i tion and export. the availability of trial purposes) is it would result in
Mi}sor, ኵtkuቅ»
35○○
5CCO
1965 66 67 66 62 7ం 7
子iáーでé ]
Coconut Productic 1965 - 19',
ment of desiccate tion thereby dire country's exports.
D.C. EXPORTS
Sri Lanka des mainly exported t market while the monopolised by (1977 witnessed a through by the Ph U.K. and Europea recent data shows the usual deman Was unable to m by the Philippine quantity, 65 - 7 ( purcha Ses are ge
 

S Idustry
tion by Our grow
TION
ption of coconut be 125 nuts per um. COnsidering ojections for the a study by Gavin elvaratnam) the btion Of coconuts 3-1990 must Steahe same basis the mestic consump30 is estimated to er cent Of total 1990 it would be total production Only 28.5 per cent cent in 1990 for industrial producIf the decline in nuts (for indusleft unchecked, 3, Serious curtail
苓 Z3 Z年。75 云 亨玄平
bn in Sri Lanka.
di c0c0nut producctly affecting the
iccated coconut is io the continental
U.S.A. market is
the Philippines. dramatic breakhilippines with the in markets as the S. A large part of that Sri Lanka, eet was captured 2S). In terms Of ) per cent of the 2nerally made by
the principal buyers in Western Europe such as the United Kingdom, the Federal Republic of Germany, France, Netherlands and Spain. However, the variations in market conditions in Such countries seriously affect the local desiccated coconut trade due to this concentration and dependence On only these markets. When the contracted buyer decides to purchase less, say due to increase in the price of Sugar - (i.e. Sugar is a complementary item for the end-use of desiccated coconut), our sales naturally drop. To a large extent therefore, the Sri Lanka desiccated coconut industry is at the mercy of these purchasing countries. For example, in 1975, when Australia, decided to purchase most of its desiccated coconut from the Philippines for internal reasons, our sales there dropped from 1,321 long tons in 1974 to 183 long tons in 1975.
Due to various governing factors, Such as market conditions, variations in demand for confectionery in the buyer countries etc., the world desiccated coconut export market varies. However, apart from the world market conditions the local conditions such as the availability of nuts, (depending on the nut production) and conditions in the consuming countries of our desiccated coconut, exports had been fluctuating between 300-400 million nuts (converted to nut equiValent On the basis of 300 lbs. per 1,000 nuts - though the out-turn per 1,000 nuts varies, depending on the SeaSOnality and on a regional basis, an average of 300 lbs is observed to be a justifiable rate). Considering the thirteen year period 1965-1977, one could observe an exceptional rise up to 517 million nuts in 1968 and an unusual drop of 285 million nuts in 1973.
The highest ever export of desiccated coconut, approximately 70,000 tons, bringing in about Rs. 164 milli On aiad cOntributing a then recOrd foreign exchange earnings in 1968, was indeed an unusual occurance. (The RS. 323 million earned in 1977 was also an exceptional Occurance). The unuSual Situation in 1968 WaS caused by the unfavourable Weather conditions in Philippines in that year resulting in a short Supply of coconuts. As a result the principal buyer of Philippine desiccated coconut, the United States, purchased 13,000 cwts. Of desiccated coconut from Sri Lanka, while due to inCreased demand, Canada and the European countries too purchased
ECONOMIC REVIEW, July/AUGUST 1978

Page 29
increased quartities. (This situation appears to have been reversed, in favour of the Philippines, in the
U.K. and European markets in 1977).
The lowest ever production of 39,000 tons of desiccated coconut in 1973, Was a severe set-back caused by the prolonged drought in 1972 and the curtailment in the application of fertilizer. The coconut pest
畿變鱷露
Desiccated Coconut Exports by Volume
1965 - 1977 (Nuut equivalent in million nuts)
which attacked the plantations also caused a drop in nut production which in turn affected desiccated coconut production. Yet, in this particular year the low volume of desiccated coconut produced did not affect foreign exchange earnings which remained as high as Rs. 119 million. Apart from these two unusual years the production. On the whole shows a declining trend and the future of the exports, according to the present trends, could be a threat to the entire (socOnut industry.
The fluctuation in eXport performance and declining trend is pictorially shown in figure 2. From this trend it could be estimated that desiccated coconut exports in 1980 and 1990 would be 328.9 and 293.9 million nuts respectively. These estimated figures with 1975 exports reveal approximately a 12 per cent drop in 1980 and a 21 per cent drop in 1990 which is a dangerous declining rate from the point of view of the industry.
EconoMIC REVIEw, JULY/AUGUST 1978
Table SJR.I ]
(
Year 1965 1966
Quan- 345 352 tity
MARKET PRICE
DESICCATED CO(
The export p Lanka, desiccated fluctuating on an Apart from times varying market c always shown this 1966.
Table II AVERAGE
Year 1965 1966 :
Pice per lb. .52 47
RS. CtS.
Considering t prices over the ObServe that de Sic ces are in an up\ attractive prospec yet falling nut pro ved earlier, pOSes upward trend in
Table III DESI
THE PH
Year 1965. 19
Exports in hullit 840, 8:
equivalents (milli
A study of
de Siccated coconu exports would be compared with t Other major exp( PhilippineS. Marke aS demand fOr di production and Su termining factOr : ports. Neverthele the World producti tedly an influenc complete study ar future of desiccat Lanka, the trend Sri Lanka-Philip as shown in Tab relevance.
Considering t exports of both coconut producim possible increase C and 1990 is 982.4 lion nuts respecti a steady increase
 

LANKA EXPORT OF DESICCATED COCONUTS nut equivalent in million nuts) - 1965-1977
967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977
315 51 382 360 390 367 285 315 375 345 240
OF two major exporting countries. This CONUTI trend is characterised by the increasing demand in the buyer counrices for the Sri tries. But as it was noted earlier coconut has been there is a contrasting picture in upward trend. that the local export of desiccated s of exceptionally coconut has been on the decline onditions it has over the years. If the necessary rising trend since steps are taken, however, the dec
lining local production trend could
MARKET PRICE PER POUND OF DESICCATED COCONUT
(1965 - 19')
1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977
.49 79 58 64 57 .71 89 1.41 .90 1.57 2.68
he movements of be arrested and production geared years one could to meet increasing world demand. Cated coconut priE E" E PRODUCTION CAPACITY its in the future; The desiccated coconut indusduction, as obser- try is mainly located in the coconut a threat to the triangle with about 83 out of 86 earnings. mills being located in that area.
CCATED COCONUT EXPORTS OF SER LANKA AND ILIPPINES (in nut equivalents) - (1965 - 1977)
66 1967 1968 1969 1970 1971, 1972 1973 1974, 1975 1976 1977
50 760 1052 759 80 945 647 860 780 867 962 988 on nuts)
the Sri Lanka’s t production and incomplete if not he trend of the Drting country - it conditions, such esiccated coconut, pply etc., is a defor Sri Lanka, ex2ss, the trend of On iS alsO UndOubing factOr. For a, ld forecast of the ed coconut in Sri
of the combined pines production, le 3, is of much
he trend line of major desiccated g countries the relugs. of exports for 1980
and 1,132.4 mil- Market Price of Desiccated Coconut vely, which shows - Average price, rupees per lb.
in exports by the 1965 - 197
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Page 30
Resures ●·
Desiccated Coconut Exports of Sri Lanka and the Philippines 1965 - 1977 (Nut equivalent in million nuts)
Though most of the desiccated coconut mills are conveniently located in the coconut growing area, the mills are never worked at maximum capacity. If maximum utility is obtained at a reasonable estimation of 230 days WOrk per year, 73,000 tons of desiccated coconut could be manufactured (computed on the basis of an out-turn of 300 lbs. of desiccated coconut per 1000 nuts.) The total nut requirement would be approximately 545 million per annum. The actual production from 1965-77 had been far below the maximum capacity.
The principa in the desiccated largely those des. di Scarded frOm
(except for a fe using driers). A nery constantly the management obtaining Spare ) readily availabl Hence, the parts out or Searched mantled machi: involves a loss O and contributes production.
A good part duction getS trar consumption m8 production is he Sonal fluctuatio. favourable (lear. the lean period very high price chasing nuts at (30Î[16S t11160011011) tors. HOreover, countries desicc: es a very high ticular SeaSOn : prices remain l ted coconut pric prices are high ecOrmOmical fOr o close doWr the operations.
Administrativ problems etc., t
Table IV D.C. PRODUCTION AND PERCENTAGE OF '
Year 1965 '66 '67 '68 '69
D.C. Prod: in nut equiv. m. nuts
345 352 315 317 382
CAPACITTY PRO
'70 '71 72 73
360 390 367 285
% of the total capacity
63 65 58 94 70
66 72 67 52
It was only in 1968 that the boom for the desiccated coconut industry occurred where production reached near maximum capacity. At all other times production has been less than 75 per cent of full capacity. The desiccated coconut industry is faced with a number of drawbacks and as such, the mills could not be in continuous production. Some such handicaps are: 1. Bad machinery; 2. Uneconomic operation; 3. Administrative difficulties; 4. Labour problems.
28
Or regular are
affect producti in production
mental require meahanical WC Which could be nising the exi
Another c increase of prO Sion of the m hardly tapped ka Such aS thé dle EaSt count
 

machinery used coconut mills are -cators which were the tea, factories y mills which are such, the machibreaks down and face difficulties in arts which are not in the market. have to be turned Or among the di Ses. This process Several days WOrk O a curtailment in
of the coconut proSferred to the local riket Since COCOnut .vily subject to seaS during the un) Seasons. During coconuts fetch a and as such, purhigh prices beical for mill operaamong the buyer ited coconut fetchprice during a parand at other times DW. When desiccaes are lOW and nut it becomes more the miller to either mill Or minimise his
re difficulties, labour hough not seasonal
TOTAL ESTAMATED DUCED
77"י 376 75* 74" -
315 375 345 240
58 69,63,44
other factors which in. For an increase One Of the fundanents is Satisfactory king of machinery achieved by moderting machinery.
(nditional factor for uction is the expanriket. The hitherto markets for Sri LanU.S.A. and the Mides can make a SubS
tantial contribution with to this aspect.
regards Producing desicca
ted coconut according to the requirements of these countries would enable market expansion,
particularly in the case of the United States market where extremely high hygienic Standards are required. Production in conformation tO these requirements would help increase production, utilizing the preSently un-utilised capacity.
LAND EXTENT UNDER, COCONUT CULTIVATION AND ITS UTILITY
The coconut plantations are mainly concentrated in the so called “Coconut Triangle' (with the apexes Chilla W, NegOmbo and Kurunegala) which also extends along the coast line up to Hambantota, and are Scattered in blocks in the ea, Stern coa St and in the Jaffna, peninsula. Apart from these, Small plots are sprinkled over some parts of the central highlands as a mixed CrOp.
According to the 1962 Agricultural Survey Report, the extent under Coconut cultivation as at 1St. July 1962 was 1,152,418 acres. The breakdown is as follows:-
Holdings under 50 acres -
843,626 acres Holdings of 50 acres and above
acres 308,792 ܐܚܢܚܠ
This was One of the only reliable estimates Of the extent Of acreage available. Subsequently certain amounts of land have been brought under cultivation while certain coconut lands have been taken up for road construction, building sites, overhead wiring etc. On the Other hand 20,000 acres of uneconomic citronella lands and 20,000 acres under colonization Schemes have been brought under cultivation. The acreage added to the coconut cultivation is not sufficient to offset the land that haS gOne Out Of production. Hence the existing land keeps contracting. Further the last five year plan did not provide for an increase in the acreage under cultivation and according to the plan the existing acreage at 1,150,000 was given as a stable figure.
NUT EQUIVALENT OF EXPORTS
The quantity of desiccated coconut manufactured out Of 1,000 coconuts varies from season to season, regional wise. During tine lean period the out-turn per 1,000 nuts is greater than in the season when
ECONOMIC REVIEW, JULY/AUGUST 1978

Page 31
the crops are high in yield. Regionally coast line estate nuts are larger and prOvide a higher pOundlage than those of the interior lands. On this basis it has been observed that the out-turn per 1,000 nutS varies from about 260 lbs. to 350 lbs. Hence for purposes of computation of relative figures, for desiccated coconut, poundage per 1,000 nuts is rated as 300.
On this basis is also computed the estimated nut equivalent of desiccated coconut exported from 1965-77, as shown in Table V below.
Tae W
either intensive vation, particular ing hybrid var action, and imme help to meet the
for desiccated cc Sri II.a Inka to rem ner or competitC desiccated COCOnu
FREET ATTEID HCON(
By-products coconut industr charcoal and pa. considerable ano
COCONUT PRODUCTION IN RELATE
Year
1965 66 '67 '68
'69 '70
Nվt; prod, ! in
Inillions
2681 2468* 242.
260
2440 250
| D.C. | Equiv.
in 345 352 315 51
million nuts
Souřce
* COCOInuit, cultivation Board
382 360
* is Central Bank of Ceylon.
According to Coconut Research Board sources the national average production per acre is 2,500 nuts. Taking this standard into consideration we find that the quantity of desiccated coconut exported in the form of nut equivalents as obtained from the acreage of coconuts cultivated is given in Table VI.
From Table VI we find that approximately 150,000 acres of coconut and are directly feeding the desiccated coconut export market.
REPLANTATION
The increa Sing rate of consumption at 125 nuts per head per year, also taking into consideration the growing population, Would leave little and possibly no hope for exporting desiccated coconut in the 1990's. The only possible solution for the challenging phenomena is
Table W.
my. While shell
ted in raW fOn form of activate is made use of fo of oil which is I the Soap industri received fron th the marlufacture Cattle fOOd. Ei another industry in hand. With the industry. Though necessarily opera, cated coconut m the fibre mills de Siccated cocon area.S. The husks are U.Sed in di manufacture, fin the fibre mills W. ceSSed into vario hackled, bristle, fibre. All these
ACREAGE CULTIVATED AND EXPO
Year 1965 66 67
69 70
D.C. Export
(nut 345 352 31 51
equiv)
382 36
Acreage
expec
ted 38
(in '000s)
140.8 26
206.8
152.8 且垒
Econow Ic REVIEW,
JULY/AUGUST 1978

or extensive cultily the high yieldieties. Such an diate action, would increasing demand conut and enable ain a Strong partr in the World it export market.
OMIC AVTIVITIES Of the desiccated y namely, shell rings contribute a unt to the econo
exported except for a small portion which is retained for local industry.
Copra is another product which has necessarily come to stay with desiccated coconut production. As a result the high quality requirements for desiccated coconut, laid down in regulations by the Coconut Processing Board, all the coconuts purchased for processing could not be utilised for making D.C. In the case of nuts which are germinated or split open, if the possibility of contamination exists, such nuts are not permitted in production of desic
ON TO DESICCATED COCONUT EXPORTS
172 3 '74 75 6 | |
2610 2963 1946** 2031, 2447 2330 1921
i 390 367 285 35 375 345 240
SqSqSqqqSqMSMSSqqqSqqS
charcoal is expor- cated coconut. Such rejections
L and also in the id carbon, parings }r the manufacture mainly used up by y, and the poonac is is utilized for : Of poultry and Ore processing is which goes hand desiccated coconut fibre mills do not te alongside desicills, in some cases are located in the ut manufacturing of the nuts which lesiccated coconut their way into here they are prouS grades Such as mattress and Omat
total up to a considerable quantity in deSiccated COCOnut, mills each day and they are sent for copra curing and oil milling.
Most of the desiccated coconut mills in the island also have set up an oil mill which process all copra, obtained from the rejected nuts and the paringS. Copra llinlike parings is graded into No. 1 and No. 2.
Oil extracted from No. 1 is either used for export purposes or for local consumption While the oil manufactured from No. 2 copra is sold in the local market for domestic use and sometimes for the purposes of SOap manufacture and Other industrial uses.
Another by-product obtained comes in the form of coconut water
fibre products are which otherwise goes waste. The
RTS OF DESICCATED COCONUT
1. 72 74 75 76 Tτ
-
O 390 367 285 315 375 345 240
156 146.8 114 126 150 138 96

Page 32
water is collected in a tank and left for a few weeks. Out of the sediment oil is extracted. This oil is really not obtained from water, but from the oil in the Water. Such oil is used by the Small Soap manufacturers while the refuse which is called the “sediment poonac' is used as poultry food. The by-products of the desiccated coconut industry do not only contribute in large measure to the economy, but also generate many economic activities in the areas where the de Siccated coconut mills are located.
The industrial processing of the above coconut shell productS has become a major export industry in recent years with about 25,000 to 30,000 metric tons of these items being manufactured each year to meet the country's growing export demand. Coconut shell charcoal is the most important of these byproducts, accounting for nearly R.S. 21 millions in foreign exchange earnings in 1977.
The local shell Supplies come mainly from the DC industry while a small percentage is supplied by the copra manufacturers. About 10 to 15 percent of the total 600 million shells supplied is used up by domestic demands, mainly for fuel purposes, while the balance 80 to 85 percent is fully absorbed by the export trade.
The desiccated COCOn ut indu Stry as stated earlier employs a large amount of old machinery. As such, the maintenance and repair activities are very high. Hence this industry generates a considerable amount of mechanical engineering activities and certain establishments are now specialising in the mechanical activities related to the indu Stry.
FOREIGN EXCHANGE EARNINGS
Coconut is the third largest foreign exchange earning cash crop of Sri Lanka, and contributes significantly by means of its various inidustrial processing activities such as D.C. fibre, oil and charcoal manufacture. Unlike the other prOductS Of the coconut industry, how
ever, desiccated co been contributing tage of the foreign ingS. EXcept for til 1968 and a very fa 1974, the contribut foreign exchange e consistent at 4-5
The increaSe in per cent would res rable increase in foreign exchange
CONCLU
Over the year coconut industry h as an established p trial sector. This trated in the coco) many tangible effe nomy Of the CO is that desiccate
ports are bring and steady fol earnings into t
addition to its o Of abOut 4 per ca foreign exchange e contributes by me ings from the by-p from charcoal, a fibre, oil and copre sizeable portion O foreign exchange desiccated coconut Other charcoal, industries located triangle generate activities to a con Many of the areas industries are loca, to be areas of 'f where most employ directly or indirectl activities of these i:
The desiccated try which has provi of socio-economic greater attention. I ved that c0c0nut the decline and on tes by 1980 and 199 per cent and 21 pel ly of local produ available fOr indi
able W. FOREIGN EXCHANGE CONTRIBUTIONS FRO
COCONUT EXPORTS
Year 1965 66 67 68 69 ሽ0 71 72 78 74
% of
country's
total 磐 4 肇 8 5 5 强 7
export
earnings
30

onut has always steady percenexchange earnLe boom year Of vourable year in on made to the arnings has been per cent. production of 25 1lt in a considethe amount of arningS.
SION
s the desiccated aS come tO Stay art of our indusindustry, concenhut triangle, has cts on the ecountry. Foremost d coconut exing substantial 'eign exchange he country. In Wn contribution 2nt of the total arnings it also ans of its earnroducts earnings ctivated carbon, to contribute a. if the country's earnings. The industry and the fibre and Oil in the coconut further economic siderable degree, ; in which these ted are observed ull employment' rable persons are y engaged in the industries.
coconut indusded a wide range benefits needs t has been ob Serproduction is on current estima0 only about 28.5 : cent respectiveiction would be Lustrial purpOSeS.
M DESICCATED
75 7 6 77
-—ത്ത
The effect of declining nut production is matched with the declining export of desiccated coconut; in nut equivalent terms in 1980 this is estimated to be 328.9 million nuts and in 1990 t0 ble 293.9 milli On multiS.
The declining nut production and consequently desiccated COCOnut production presents a contrasting picture when compared with the upward market price of desiccated coconut over the period under review. The satisfactory upward trend in prices could be coupled with the increasing demand in international markets and exports, particularly of the Philippines. It may thus be Observed that the WOrld market is becoming a promising place for the deSiCGated COGOnut trade while OCа conditions are not satisfactorily geared to meet the World demand and tap fully the available resourCeS.
By the beginning of this year trade circles felt strongly that Sri Lanka's export trade in desiccated coconut, despite the high unit price earned in 1977, had reached a stage requiring immediate action to ensure its survival. Until about 1969 Sri Lanka exported almost the same volume of desiccated coconut as the Philippines, but thereafter this declined and in 1977 Sri Lanka's exports were only about 30 percent of those of the Philippines, and her total earnings were 40 percent lower compared to the Philippines. The trade was of the view that as long as Sri Lanka, remains a marginal supplier, merely to bridge the gap between international demand and supply, a high unit price is assured for her produce. But the Philippines and other newly emerging Suppliers will before long increase their supply to wipe out the gap between demand and supply and there will be no need for marginal suppliers to participate in the trade.
One solution to meeting the increasing demand and maximising our foreign exchange earnings in what would turn out to be a very competitive market is to launch a programme for steadily increasing nut production over the years to come and feeding the desiccated coconut mills with more industrial grade coconuts. An increase in producti On Within the limited reSources available would be possible only by means of intensive cultivation with a high yielding variety of coconuts.
EconoMIC REVIEw, JULY/August 1978

Page 33
A Case for Up-dating Bankir Legislation and/or Practice R Collection of Cheques
R. Sunftheraliagam
Mr. Suntheralingam, who has
Several years of practical eacperience as a manager in the People's Bank, eacpresses his personal suggestions here On measures to facilitate collection of cheques. It is emphasised that these opinioms are mot those of the People's Bank or ẩn dny tDay the Official ?)ỉe?0= point. The tuvo footnotes are mot those of the author but are the vievs of authoritative perSOm:S Uho have di SclSSed Mr. Suntheralingam's suggestions. They are included at the end of this paper with the hope that they would stimulate the discussion om this subject.
Among the many services Banks are called upon to perform, one of the traditional services is collection of instruments for payment to customers' accounts, largely in the form of cheques. When customers of a Bank deposit cheques drawn on other Banks (or on itself too) this Bank serves as a collecting agent Or if it had already given value for the cheques the Bank functions as a Collecting Banker.
The Bills of Exchange Act of 1882 in England and its parallel Act in our country gives protection to the paying bank under its proviSions. When the Bank acts in the bonafide capacity and pays the Collecting Banker. The relevant sections of both these Acts is quoted below:
"When the Banker on whom a rossed cheque is drawn in good faith and without negligence pays it, if crossed generally, to a Banker and if crossed especially, to the Banker to whom it is crossed or his Agent for collection being a banker, the Banker paying the cheque and if the cheque has come into the hands of the payee, the drawer, shall respectively be entitled to the same right and be placed in the same position as if payment of the cheque had been made to the true owner thereof'.
This is the current legal position in Our country.
EconoMIC REVIEW, JULY/AUGUST 1978
Before we pl us analyse the and the type of bility involved in cheques.
The Banking country is at pri the two State-OW of Ceylon and branches of Six F locally owned and a Commercia. ownership.
The Banking the following sec nomy - the GOve Co-operative sect tion sector and The last one is business establish ders, CraftSmen, duals who have a termed personal
Though statis be possible to pri rence, it is true GOvernment sec sponsored Sector, tor and big b managed by prof major customers major part of the On their behalf.
When cheque, Banks are deposi mers, the Collecti pected to collect expeditiously as are deposited b either over the co Either way the ch received, acknowl nised... Here the done as is done b. ker. As for the among other th question that has that Of conversa defined as “Wro of goods belongin alternatively as act which depriv property permane! definite time'. guage, a cheque for “A” Should na “B” even if “B” c( sion and presents standing and hon mer “B” may be.

g segarding
"oceed further, let customer content vork and responsithe collection of
g sector in our sent composed of ned Banks (Bank
People's Bank), 'Oreign Banks, One commercial Bank Bank with mixed
sector caters to tions in our ecornment sector, the Or, the Corporahe private sector. composed of big ments, petty traetc, and indiviccounts which are accountS.
tically it may not pve by direct refe
to say that the tor, Government
Co-operative secusiness (business essionals) are the of the Bank. The e WOrk is handled
s drawn. On other ted by the custong Banks are ex
the proceeds as possible. Cheques y the customers unter or by mail. heques have to be 2dged, and scruti
scrutiny is not y the paying BanCollecting banker,
ings, the major to be resolved is tion; i.e. legally
gful interception g to another' or 'an unauthorised 2S another of his htly or for an inIn layman's lan
Ostensibly meant ot be credited to omes into posses
it however longlourable a custoWhen the Banker
scrutinises, he sees to it that he does not colect a cheque purportedly meant for 'B' into 'A's account.
Once the Officer is satisfied as to the existence of rea,Sonable grounds to believe that there is no obvious attempt at conversion, he guarantees the fate of proceeds wherever relevant. Suppose the checque is a direct credit, i.e. the cheque is drawn payable to 'A' and he is called upon to collect the proceeds to the credit of 'A's account, he assures the paying banker that the proceeds will be credited or if he intends crediting it before the fate is known or before the lapse of the number of days of waiting, then he assures in the form of a confirmation that the payee's account has been credited. In case of a negotiated cheque it is at the most On the assurance of the beneficiary customer, preferably on the guarantee of another disinterested customer, that the collecting Banker guarantees the fate and uses the Obvious Words to that effect. The signature is placed on the reverse of the cheque, in the appropriate places stamped, and the credit voucher or slip is also signed in the appropriate place.
These cheques, looking at it from the point of view of a Branch in COlOmb0, WOuld c0n Sist Of brOadly speaking cheques drawn in Colombo branches and cheques drawn on Outstation branches.
Cheques drawn on Colombo branches have to be cleared through the Central Clearing chaired by the Central Bank. This is done twice a day. All cheques received upto - say 10 a.m. or thereabout - will be sent to the Central Clearing around 11 a.m. on the same day and all others will be sent on the morning before 8 a.m. the succeeding day.
The Colombo cheques received up to 10 a.m. if they are to be expeditiously cleared, must be sent that day by 11 a.m. In order to do that the Bank has to receive, acknowledge, Scrutinise, guarantee fate, sort them, list them, tally them, schedule them and be in time at the Central Clearing lest the Bank staff be "shut Out'. Outstation cheques have to go through the Same process and be ready to catch the post by 2 p.m., the latest.
This rush exists because, though the Bank is legally entitled to keep the cheque for an additional day, it opts to clear it the same day to be of invaluable Service to its customers. The major delay is caused
31

Page 34
by the necessity for satisfying the conditions regarding guaranteeing the fate, assuming that the other contributory factors such as sufficient staff and machinery are available. Statistically speaking the number of cheques handled by the Banks in the process of collection of cheques is not readily available. A crude attempt has been made to arrive at the dimensions involved by taking a sample of the number of cheques handled over a period of five consecutive days by one of the Branches of the People's Bank situated in Colombo which may be regarded as one of the largest Branches. This, in no way Will reflect the full effect of the amount of work involved but would at least give an indication of the number of signatures the Officers are called upon to place, and if inecessary Sanction were granted, the amount of time that could be saved and thus enable the expeditious collection of cheques. (See Table).
Is there a necessity for the collecting Banker to guarantee the fate of cheques? The paying Bank's
The Authorit Banking (Sheldor position as follow
“The Cheques tain statutory in mitigate the sever (i.e. need for endor take the vast majc indeed the vast in instruments outside paying Banker doe: bility by reason on or irregularity in e 1, 2) and the colle longer negligent by failure to concern absence of Or irre ment of an instrum
The relevant Cheques Act 195
OW:
Paying Banker: Sel
When a Bank i the ordinary course cheque drawn on endorsed or is irre; does not in doing si by reason only of th gularity in endor
COLLECTION OF
COLOMBO CLEARING OUT
Date No. of Cheques Amount No. of
(1) (2) (
78.05.29 1,927 28,859,052.20 1, 78.05.30 1,802 7,224,028.72 $ 78.05.31 2,154 10,708,076.40 1,8 78.06.01 2,512 22,081,885.69 19 78.06.02 2,421 47,665,142.01 1,4
Total 10,816 116,538,185.02 7,6:
responsibility ends when that Bank pays the collecting Bank. They need not and cannot keep track of the fate of the proceeds thereafter. That is the factual as well as the legal position. In such a situation why should there be a time consuming practice of guaranteeing the fate of proceeds.
The relevant Section 80 of the Bill of Exchange Act 1882 quoted above spells out the position clearly.
In the United Kingdom the Cheques Act 1957 sought to dispense with the necessity for endorsement but succeeded in achieving one thing, it dispensed with the necessity for calling for endorsement and of guaranteeing of fate when the cheque is credited to the payee's account.
32
deemed to have pa Collecting Banker:
A Banker is in the purpose of thi been negligent by failure to concerr absence of or irre ment of an instrul
Why should English example? not far to Seek. the bulk of the is done on accou ment departme: Co-operatives a None of these O) negotiated chequ debts by whoevel then. In othe drawn in their account only are ble. (The Seemi rope meant for

on Commercial ) SummariSes the
'Act 1957 (and certruments) do not iy of this position ement) but they do ity of cheques and ajority of Banking their purview. The not incur any liay of the absence of dorsement (Section cting Banker is no reason only of his himself with the ularity in endorseent”.
Section of the 7 are quoted be
stion 1 (1)
in good faith and in of business pays ahim which is not gularly endorsed, he p, incur any liability Le absence Of Or irresement and he is
CHEQUES FOR FIVE
ceptor) and payable to them only are accepted by them. Again these cheques are credited to their respective accounts and not negotiated or transferred to other accountS. The cheques deposited by the National Savings Bank and other similar institutions too fall. Within this category. -
The major time consuming work or chore that could be avoided is in the process of guaranteeing fate; Other items of Work like scrutinising, of vouchers, tallying, listing etc. cannot be avoided.
What is required now is to dispense with the necessity for perusal of the reverse of the cheques when the proceeds have to be credited to the account of the Ostensible payee. If this is permitted the officers can dispense with the practice of guaranteeing fate when collecting cheques meant for the payee to the credit of the payees. In case of planned conversion by the customer the collecting Bank has recourse to its customer provided he has acted bonafide and without negligence.
From the point of view of the customers too, they need not waste
DAYS
STATION CLEARNG TOTAL COLLECTION Cheques Amount, No. of Cheques Amount 4) (5) (6) (7)
(2十4) (3+5) 512 7,349,163.72 3,439 36,208,215.92 972 6,390,766.48 2,774 13,315,993.85 327 7,607,917.45 3,981 18,315,993.85 923 6,707,138.13 4,435 28,789,023.82 51 5,029,625.99 3,872 52,694,768.00
35 33,084,611,77 18,501 149,622,796.79
id it in due COUSe.
Section (4) (3) ot to be treated for s section as having reason only of his himself with the gularity in endorsement.
we emulate the The reasons are First and foremost usiness Of banking nt. Of the Governhts, Corporations, ind big business. 'ganisations accept es in discharge Of has dealings with r words, cheques favour; or their made not negotiaIngly innocent long the intrepid inter
their time writing credit instructions on the reverse of every cheque that is received.
It may not be out of place to quote the relevant extracts from the Circular dated 23rd September, 1957 issued by the Committee of London Clearing Bankers -
“Broadly the effect of the Act (i.e. the Cheques Act 1957) is that on and after that date paying Banks need not concern themselves with the endorsement or absence of endorsement upon any cheques or analogous instrument and the same applies to collecting banks unless ostensibly there is or has been, negotiation of the cheque or instrument for which purpose endorsement is still required”. The intention of the Act is to relieve customers from the task of endorsing instruments which
ECONOMIC REVIEW, July/AUGUST 1978

Page 35
TABLE III.
SPICE PRICES JANUARY -- JHU NIE 1977
AV". ʼt! b)li (' RS, / Kgn. AW. F.O.B. RS./Kgl. A.V.
Auction Price Jan.-June IPri{ze Jan-June
Jan.-June 1978 Jan.-June 1978 Jal
19 19,
Cinnamon 13.60 16.49 11.57 30.40 Cardamoms 211.47 202.88 165.45 278.33 Pepper 30.67 28.75 — 28.15 ClOVeS 80.73 117.00 44.54 72.64 Nutmeg 37.74 31.20 17.36 22.96 Ma Ce 35.88 25.64 -
Source. Sunday Produce Reports and Customs Returns.
A case for updating....
(Continued from page 32J
are to be collected for the payee's account, and to save them and the Banks the trouble caused by the return of a large number of such instruments for correct endorsement'.
The time consuming process could be dispensed with if there is legal Sancti On by legislative enactment Or even a decision Or arrangements between the members of the ASSociation of the Clearing Banks with the concurrence and approval Of the Central Bank.
Apart from til that may arise, if dispOSe With the p) ing the reverse O payable to an acc situation where th has more than Or ting to a differen the wishes of th may lead tO ur. ti On.
1.
As regards Section 1 of the Cheques Act (1957) whic tried in courts, the authorities on banking law, wi the object of the Act is to eliminate the need for pondered whether Section 1 protects against irregular in cases in which it is not asked for but neverthele it is called for it would seem that the former protect of Exchange Ordinance is still available. Where required it must still be regular for although the sect in respect of an irregular endorsement, the instrun considered paid in the ordinary course of business a the section. Would be available. Since the banks Course of business and since this Section has not be in the courts the question has been raised wheth Course should be departed from.
AS far as Section 4 (3) which protects the Collecting even this section has received little judical conside been doubts raised for instance as to the definiti Further the WOlds used in Section 4 (1) (d) of the
are sometimes at variance with Section 82 of the Ordinance. Some authorities have argued that there Cheques Act to show beyond doubt that the law has in this respect. With the advent of the Cheques AC tion is still not free from doubt, by reason of the
4 1 (b) there appears to be a confusion which did not is made more difficult as the Act does not provide an is, however, a People's Bank Circular 369/75 Addend Instructions issued by the Bank which states as foll
"Cheques crossed 'Account Payee Onl honoured by the paying banker if they put correctly endorsed by the payees'. Howev no evidence of 'Account Payee Only' crossin complied with, cheques should be returned confirmation of fate of proceeds, from th Returning of such cheques calling for co should be regarded purely as a courtesy exte Bank to the Collecting Bank'.

-1978
.O.B. (SI) Rs) ice Jan.-June | une 1978
140 1.60 1785 14.64 1.48 4.80 3.82 1.87 1.21
nese legal issues
the Banker is to *actice of examinf a che que made Ount holder in a le account hOlder le account, credit account against e account holder necessary litiga
h has not yet been hile conceding that
endorsement, have ' endorsements Only SS appears. Where ion under the Bills an endorsement is Jion gives protection ment might not be nd it is doubtful it have established a en tried and tested her the established
banker iS COn Cel'ed ration. There have On of true Owner. Cheques Act (1957) Bills of Exchange 2 is nothing in the s not been changed st the bankers posiWording of Section t exist before. This y definitions. There Um í 1) — General
}WS:
y' should also be rport to have been er, where there is g instructions being
unpaid calling for e Collecting Bank, infirmation of fate inded by the Paying
Of clove (Details in Table II).
The total value of Spice exports in June 1978 amounted to Rs. 14.9 million. This brought the total earnings for the first half of the year to Rs. 123.3 million as against Rs. 72.3 million in the corresponding period in 1977. The increase Of Rs. 51.0 million Or 70.5 percent is reflected mainly in the increased earnings from the export Of cinnamon quills whose contribution was R.S. 58.0 million Or 47.2 percent of total spice export earnings during the period, despite a fall in export volume by 26 percent. Earnings from nutmeg and mace and cardam Om S tOO recOrded Substantial in Creases Of Over 300 percent and 100 percent respectively over earnings during the same period last year. Earnings f YOYη. pepper and cloves were around R.S. 20.0 million each amounting to approximately 32 percent Of the total spice earnings. Although in rupee terms the performance of Sri Lanka Spices sh OWS a major increase When evaluated in terms of SDRs (Special Drawing Rights), total earnings from Spice exports amounted to SDRs 6.46 million during the first half of 1978, which amounts to a drop Of 20 percent Over the corresponding period in 1977. Further, in SDR terms the earnings from individual Spices such as cinnamOn dropped by 19.3 percent and Of cloves by 68 percent. HOWever, nutmeg and mace recorded an increase Of 117 percent, prima — rily due to higher export volumes while cardam Oms shOW ed a Small increase of 2.8 percent. (See table III).
Despite the sharp increase in export values of most Spices recorded in rupee terms during the first half of 1978, in real terms there was a drop Of almost 20 percent as against earnings from the corresponding period in 1977.
A fall in the price of spices in the world market during the year aas further contributed to a drop in export earnings. Except for cinnamon all other Spices recorded declines in their FOB prices (reflected by lower SDR values) this year as against prices during the first half of 1977. (Table III). If this trend continues export earnings from Spices could decline appreciably this year. However, One can hope that during the next six months there would be an arrest in this downward trend and that by end Of 1978 We WOuld have recovered from this unfavourable Sitution.
exportS.

Page 36
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The People's Bank offers the public a wide range and facilities unrivalled by its competitor
:: Bankers to the Cooperative Movement & State Co : Agricultural Credit for cultivation of paddy, tea, rul cinnamon, citronella, tobacco & subsidiary Crops. :: Financing Industrial machinery for Public & Privat
& Corporations. : A variety of banking services, including individual
Accounts, Fixed Deposits, (interest up to 15%) Salvi and the exclusive Investment Savings Account scher : Import & Export facilities, Documentation, Market
services. : Finance for Hire Purchase of Motor Vehicles, Refrige
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abroad. Daily Loans scheme for small traders (Atha-maru)
Special facilities for Fishermen and Carpenters. Financing of rural electrification.
Aid to Higher Education, Arts & Crafts. Tourist information and finance for the tourist indu : Fisheries Banks to cater to the needs of the Fisherie
: Financing of Handloom and powerloom industry, :: Financing the local film industry. :: Financing Housing schemes for the public and Bank
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of Braaches.
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anks-544 hes-210 - 4
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