கவனிக்க: இந்த மின்னூலைத் தனிப்பட்ட வாசிப்பு, உசாத்துணைத் தேவைகளுக்கு மட்டுமே பயன்படுத்தலாம். வேறு பயன்பாடுகளுக்கு ஆசிரியரின்/பதிப்புரிமையாளரின் அனுமதி பெறப்பட வேண்டும்.
இது கூகிள் எழுத்துணரியால் தானியக்கமாக உருவாக்கப்பட்ட கோப்பு. இந்த மின்னூல் மெய்ப்புப் பார்க்கப்படவில்லை.
இந்தப் படைப்பின் நூலகப் பக்கத்தினை பார்வையிட பின்வரும் இணைப்புக்குச் செல்லவும்: Economic Review 1978.01

Page 1
eople's Bank Publication
 
 

ΟΝΟΜς REVIEW

Page 2
PROGRESS OF PEASANT AGRIC
Sri Lanka’s still viewed in ter tation sector on and the traditio: agricultural secto) The distinction is number of well tors: the scale and technology these two sectors jectives of produ case of the latt consumption. Ra of the domest sector has becom general economic country in recen
As in the re. loping world, on pressing problems too has become t ways of ensuring have adequate su that is within th here the progress and increased p been a key factor realised that it the practising that matters, but of agricultural pro crops, increasing basic food crops, gest increase in achieved in the s adopting improv cultivation. In modernising of culture has recei attention during
ter century.
The adoption logies has, ho with it attendan has increased the ninents of the f him to a highe) and increased hi critical inputs su tilisers and pl chemicals. In t illustrated some change and theil
The picture at top left illust of modern irrigation syst channel for diversion of Wat at right is a more recent being adopted in Sri Lanka f supplies through wind powe
The buffalo traditional ploughing of fields is fast m motorised tractor While Winn ditional manner (bottom lef way to winnowing by mecha tom right).
 
 
 
 

ULTURE
agriculture is ms of the planthe one hand nal or peasant r on the other. s based om a recognised facof operations employed in and their obction - in the er for domestic bid development tic agricultural es vital for the uplift of the t years
st of the devee of the most
in Sri Lanka he need to find that all people upplies of food heir means and s of agriculture productivity has . It has beec is not merely of agriculture the maximising duction and food yields of our and that the laroutput could be shortest time by ed methods of this context the traditional agrived considerable the past quar
of new technowever, brought it problems: it è capital requirearmer, exposed r degree of risk s dependence on ch as water, ferlant protection hese pictures are of the agents of r impact.
trates the advance 2ms, a concrete er to fields while irrigational device or obtaining water ered pumpS.
lly used in the aking way for the Lowing in the trat) is also giving nised means (bot- :

Page 3
হিত্যািতষ্ঠা Wolume 3 REVIEW "
Milka Casanegr R. Suntharalling
Susantha Goona
en egen
リ side presences కైకి శొంఠి *、 t リーにGN。
og 曇 リ。 ients revevo. リ - ': editorie consas, een リ
క్ష్ 莹、。 లైకెల్ప్స్ థ్రో * 、 Eësona neve or i
- present e エ ." *、 COVER a segons ° - (i) ආදී ' *its are vecome.
· A
リ。
NEXT Issue
 

Number 10
16
13
21.
22
January 1978
C O N T ENTS
COLUMNS
Diary of Events
Finance and Banking The Economy
Agriculture Foreign News Review
a de Jantscher 23
an 27
29
tilake 3.
SPECIAL REPORT
Peasant Agriculture
FEATURES
Tax havens explained some notes on the role of banks in capital formation
INTERVIEW
Joseph Collins on World Food Supplies
REVIEW
Ralph Pieris’ “Social Development and Planining in ASia” and “Asian Development Styles'
Forests - their role in environmental and human
Welfare and economic
importance, with special
reference to Sri Lanka.
O Urban housing for low income groups
D. A scheme for mixed farming in Sri Lanka's wet
ZOne
Developments on the economic scene - an interview with Dudley Seers.
Photographic designs by Palitha Kannangara.

Page 4
DIARY OF
DEC.
97.
The U. S. Department of Agriculture approved a $300 mn, credit to Poland for the purchase of grain. A further $ 200 mn, credit is under consideration, according to the U. S. Secretary of ComI ՈՇ1:ՇԹ.
Indonesia's recent purchases of more than 1 min, tonnes of rice will include 300,000 tonnes from China, and 100,000 tonnes from the D. P. R. of
Korea, the U. S. Department of Agriculture an
nounced. In its weekly roundup of world pro
duction and trade, the USDA said the 300,000
tonne purchase, for delivery from November 1977
to March 1978, is the largest purchase since 1975
when Indonesia, imported 336,000 tonnes of Chi- neSe rice.
Employment would be found for the 1.2 million jobless persons within the next six years, the Prime Minister Mr. J. R. Jayewardene told the 23rd annual conference of the UNP in Colombo. The main avenues of job creation, he said, would be the Maha Welli project, the Colombo Development Scheme, the project to develop the suburbs of Colombo and the Free Trade Zone.
Britains official reserves of gold and foreign currency climbed by a modest $183 million (£101
million) in November ending a run of specta
cular increases dating back to May. But the $1.83 million rise was enough to take the reserves to a new all time record of $20,394 million (£11,227 million), the British press reported.
The developing countries - members of the Group of 77 — are strongly determined to continue and intensify their diplomatic and political efforts to finance the buffer stocks of raw materials and other primary products, it was decided at a plenary meeting of the Group in Geneva. (Also see page 22).
The Bank of Baroda, joined 13 overseas banks, led by Lloyds Bank International, to grant a loan of 37 million dollars to Mauritius, it was announced in Bombay. This is the first occasion when an Indian Bank has joined in raising a syndicated loan. in the Eurodollar market for a foreign country.
The Government of Peru devalued its currency, sol. The revised exchange rate was fixed at 68.32 sols per US dollar.
Vietnam’s Vice-Foreign Minister, Mr. Vo Dong Giang, said that his country has agreed to take part in the Association of Natural Rubber Producing countries, states a report in the Public
Ledger

o EVENTS
9. The Government announced the creation of the Agriculture Development Authority, a new statutory body, to assist in the development of all agricultural land throughout the country.
10 The British Export Credits Guarantee Department guaranteed a £5 min, line of credit which Morgan Grebefekk, acting on behalf of itself and a synidicate of London and Scottish clearing banks, made available to the National Bank of Hungary. It will help finance contracts awarded by Hungarian buyers to U. K. exporters for capital goods and services, according to Britain's Financial Times.
12 The U. S. S. R. has given Ghana 4,000 tonnes of wheat and some agricultural machinery to a total
value of C 1 min, the journal West Africa announced.
13. The Australian Government revalued its dollar by 1.3 cents against the U.S. dollar, the second upward move after it was devalued by a record 17.5 per cent in November 1977.
14. The dollar fell to its lowest point in two-and-onehalf years when hectic trading in New York followed Wild fluctuations on European markets. DealerS Said the US Federal ReSerWe B0ard intervened only slightly, Smoothing out the hectic trading, but not attempting to stem the dollar's fall. The dollar closed at 2.0714 Swiss Francs and at 2.1367 West German markS.
23 The Budget was passed in the National State ASSembly without a division. The Minister of Finance and Planning, Mr. Ronnie de Mel said the most important part of the budget was putting it into operation. He proposed to make 1978 Development Year.
22 The dollar strengthened briefly on New York's foreign exchange market following President Carter's pledge that the US currency would be protected. -
23. A bill to establish "The Greater Colombo Economic Commission” was gazetted by the Minister of Finance and Planning.
28 1978 is likely to be much better for the British economy than, 1977, according to the Paris-based Organisation for Economic Co-operation and Development (OECD), But the British improvement will take place against
Economic Review, January 1978.

Page 5
, N,
PEASANT AGRICUL
Paddy production in 1977 is reported to have reached 80.4 million bushels, the first time in the country's history that the 80 million bushels mark has been exceeded. Provisional estimates place the Maha crop at 54.8 million bushels and the Yala, crop at 25.6 million
bushels, which should finally amount to a total of 80.4 million bushels for 1977; while forecasts
targets are achieved we should be closer to producing our entire re
Review, ANUARY 1978.
mic plan or
f rice; and the country should be closer to its major goal in the domestic agricultural sector,
hoped for? current situation in the perspective
of replacing all ir that pr0duced loca fore in recent yeal has eluded tih
Some time.
The Success Ol
poli and the progress nomy have been cess of the food
creased productivi tic agricultural se achieving that lev in agriculture tih
Any
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

losion
"URE
nported rice with lly, than ever be'S - a goal which le COuntry for
In any an eCOnOtical programme Df the entire ecoa. Sed On the Suc
diri Ve -- On iny in the donestOr. IS Sri Lanka, el Of development at We SO long aSSeSSment of the naS to be wie Wed
Of the agricul
tural and fiscal policies that have existed Over the last 150 years and the COn Sequences that flowed from the implementation of these poliCies.
The traditional peasant based
domestic agricultural Sector dates back to ancient times and has al
ways provided a livelihood for the
majority of the people. The introduction. Of the plantations under colonial rule in the 19th century struck a blow at the peasant based agriculture Sector. The transition from a rural Subsistence eCOmOmy to a modern export economy also began with the establishment of the plantations. The transformation in the economy was completed when the plantations made deep in roads into the existing village economy. The economy of the village in turn became less and less adapted for supplying the everyday needs of the community, The country thus became dependent. On foreign sources for even its basic necessity, food. The System which was based. On Wage labour, factory type operation of large estates and production for foreign markets offered very immediate benefits to the peasant Sector. The surpluses produced Were also either re-invested in the plantation sector itself or paid as dividends to foreign investors. One result was that the domestic rice economy remained stagnant nearly a century.
In contrast to the plantation sector, which was modernised and based on capitalist enterprise, the peaSant agricultural SectOr consisted of subsistence agriculture, employing traditional technology. The individual farmer had Self-sufficiency as his goal and Supplemented paddy cultivation with other crops. The main characteristics Of this sector were: Small holdings, fragmentation. Of land into Still Smaller une COnomic holdingS, traditional technology, tenancy agreements Which inhibited the cultivator from making an improvement to the land and increasing output, and indebtedness which kept the cultivator tied to the village landlord. This pattern remained more or less unchanged upto the end of World War II When a, Significant transformation Occurred and the stagnant peasant agricultural sector emerged as a dynamic Sector in Sri Lanka's economy. Today the food crops Sector is regarded as most crucial for the country's des velopment strategy.
3
plantation
few -
for

Page 6
ROLE OF THE FOOD CRoPs SECTOR IN THE ECONOMY
The importance of the food crops sector can be viewed from several points of view.
F'Or instance, its contribution to the grOSS national product and the growth of the economy. Comparable national accounts, data is available only from about 1959. The following table places in perspective the contribution of the food crops sector from 1960 onwards.
of employment. ilustrates the pos
The agricultu ed employment to total gainfully el accounts for the of employed in ) other single crop.
Consul Again, the ext and food crops f
family þUdget alS importance Of this
Table .
GNP and the Agricultural Sector
(1959 constant prices) 3 year moving averages (R.S. min)
wa 1960 1965 (1) Paddy 3500 377.4 (2) Subsidiary food crops 105.1 16.5 3. Major export crops 1,337.0 1,547.4 4. Minor export crops 21.3 22.0 Total Agriculture and - Fishing 2,450.5 2,846.6 Total GNEP 6,202.2 7,577.4
*ബജ്ഞ Source: Central The above data also highlights ing to the Consum the growing importance of the sub- vey of 1973, expe
sidiary food crops sector. By 1976 the value added in the latter Sector was very close to that in paddy. This development has occurred largely over the last 6 to 7 years under favourable price conditions resulting from import bans on these productS. There was a realisation in Official circles also that excessive concentration. On one crop would not result in the best use of our land and water resourC€S. “A paddy field is no longer a place where only paddy is grown. Water is no longer a resource that is applied only to paddy', stated the Draft Agricultural Plan, 197177 Wol. 1. In SOme contexts, the term subsidiary food crops has been replaced by 'other field crops' since the former expression implies that paddy is still the principal crop.
The table above alSO ShОWS the changing importance of the food crops sector over the years. The relative role of the export sector has been reduced over the years, though the combined value of minor and major exports still exceeds that of the food crops sector. The percentage of food crop production to GNP has increased from 18.5% in 1960 to 29.3% in 1975. (Three year moving averages were taken as the agricultural sector is very susceptible to Weather conditionS).
The importance of the food crops sector can also be viewed from its contribution as a provider
4
cereals
formed 27% of tot food while the pro starches and pl (excepting formed 5% of the
be an underesti
Table 2. E.
Agriculture, fo
Paddy (rice)
Other field gr
agos Vegetable and
Tea, rubber, c
Cultivation of
crops) LiveStock
Source: Popu
consumption since sumption has beer
Growth of The relative g and highland cro)
by the trends in agricultural produ
Table 3. Year Paddy
1962 100.0 1964 105.2 1968 134.4 1970 161.3 1972 13.0 1974 160.0 1976 125.1

Table 2 bellOW tion.
all sector providabout 52% of the nployed. Paddy ighest percentage elation to any
mption
2nt to which rice orm, part of the highlights the
Sector. Accord
597. 549.6 240.8 50.3 1,524.7 基449.1 24.9 59.4
3,332.8 3,576.2 9,570.8 11,096.0
Bank Of Ceylon ler Finances Surinditure on rice all expenditure On portion spent on
The index for highland CropS has almost trebled whereas the paddy index has shown a high degree of fluctuation, as seen in table 3 bellOW.
THE PADDY SECTOR
Paddy cultivation has dominated peasant agriculture from ancient times and throughout these years formed the basis of the rural economy. It was the pivot around Which the economic and Cultural life of the village revolved'. This has been reflected in the agricultural policy of successive govern — ments, a policy which has been oriented mainly towards the deve
opment of the paddy sector.
The underlying theme in all planning exercises since 1948 has been the objective of attainment of self sufficiency in rice. The strategies for attaining this objective, however, have varied in different degrees with each successive plan. Production increases could be attained in two different Ways:
(a) The extension of cultivated area by irrigating new areas and by increasing cropping intensity.
alses and other (b) Increasing the productivity Wheat flour) Of land al ready under cultitotal. This may vation, that is by increasing mate of actual the per acre yield of paddy mployment in the Agricultural Sector - 1971.
(2000) restry and fishing 1829.0 cultivation 802.8 ains 1.8 fruit gardening 62.2 Oconut 740.3 other crops (excepting minor export
132.4
4.7
lation Census 1971: Economically Active Population
Only direct con- through intensive applicaCOinSidered. tion of fertilizers, agroAgriculture chemicals, high yielding rowth of paddy Strains etc. s is clearly seen The relative weight given to index numbers of these two strategies has varied
tiOn.
Over the years. In the early fifties,
AGRICULTURAL PRODUCTION
Highland Crops
100.0 130.3 132.4 且57.2 1740 269.4 28.0
1962=100| Animal Husbandry Overal Index (all agricultural
products) 100.0 鳕1000 121.0 109.8 125.9 117.2 177.7 129.2 166连、 124.3
140.5 స్ట్ 122.9 155. 120.3
Source: Department of Census and statistics 濠
Economic Review, JANUARY 1978

Page 7
the availability of large areas of uncultivated land in the dry Zone and On-gOing COlonisation and settlement programmes tended to favour the first strategy. The postwar Development Proposals of 1946 stated that “the first object of the plan is to produce locally as much of our Staple food and other requirements as we are able to do with reasonable efficiency.' This pian was followed by the first Six Year Plan both of which were not implemented. These also stressed the importance of the agricultural sector on grounds of
need for self sufficiency, availabi
lity of Vast areas of potentially cultivable land and the lack Of an industrial base.
The Ten Year Plan of 1958 was the most ambitious of these attempts at national planning. "A considerahle increase in rice production is a major objective. The Plan aims at more than doubling of present rice output by 1968. A substantial contribution to this increase Will accrue through the raising of productivity per acre.'
This plan therefore marked the shift in emphasis towards more inten Sive strategies, Such 2S increased use of fertilizer, in the drive towards self sufficiency. How ever, like the previous plans, the Ten Year Plan could not be innplemented and the actual amounts of investment followed bore little relation to planned II) agnitudes. The Short Term Implementation Programme of 1962 which stressed the raising of productivity by less capital intensive means shared the same outCOOle,
More serious attempts at planning as well as implementation in relation to agriculture were Observed in the latter half of the 1960s. The Agricultural Development Proposals of 1966 presented a five year programme Of development for the paddy sector. The approach adopted was based on the view that rice production could be intensified only through a package' of activities and the plan worked-out details relating to supporting services of input supplies, credit and extension and institutional arrangements as well. “The best laid plan can be nullified unless a detailed strategy of implementation is worked out and imaginatively carried through", it stated. In keeping with this view
an Organisational network for (im
plementing the paddy programme was iš evolved, which co-ordinated
ECỢNOMIC: REVIEW, JANUARY 1978
1 Laos is
5
foffhées per hectare
2
Stage o i ofte
AD600 AD 800
Sarcos. Asian Agricultural Survey
In a recent momist (LOndO Norman Macr: China's agricul ed, With the that “most countries, from Vietnam, still production per to the 13—23; tc ed by Japan in right hand side. dragging them: out of the mic
'China, Koreas have (33-54 tonnes Japan reached of this century the chart col Statement. In m
divisional and di grammes with grammes. The pr plemented in the programmes and In Ore Or leSS attai
Intensification duction on a regiO other guiding pri for development o during this peri diverse agro-ecolC in the country t
production WᏋaᎢ" from region to re given due recog
making as well a The next stag Five Year Plan, c 1972-1976. The plan Was On incr tivity in lands all wation, which contribute around increase in prod paddy Output reach 116 mln. bu
 

apan in AD 900
South KOREA NORTHKOREA s.
. PADDY cffilia PRODJapanese rice A-1 UCTION yield
Sam 2 IN THALAND AND ASIA AME PHILIPPINES 1.
1. stagෂ්! දී ug: 筠 من سياسي في سفحص SLLLH STSzS TLBuBueBu STS LBLBLBT STS LLLLLBBBBBLeSTS LBLs STTSzSeL0L
F; Asian Olavskapet Sarik, 1369
issue of The Ecoin) its deputy editor ae reporting O). tural growth. Showabove illustration, South-east ASìa
Laos to South. have levels of rice hectare equivalent nnes already reachAD 900. But, at the seven countries are selves triumphantly idle ages now'
Taiwan and the a.d.Wan Ced to levels per hectare) that in the first half
Moreover, I think
intains an underLany parts of China,
production of rice is now going well above even the present JapaneSe average of 6 tonnes per hectare (which isn't surprising because Southern China, has much better weather).
In one county we visited in Hunan the proportion of teams with two crops a year has risen
from 25% to 95% in the past elle- , ven years, and within that 95% about a quarter have now gone on to three gain crops a year; the triple croppers were planting the winter wheat between the year's two rice crops while we were there. The double croppers average 8 tonnes of grain per hectare a year, the triple croppers Over 10 tonnes . . . '
strict level pronational proOpOSals Were imform. Of annual the targets were ned by 1970.
Of paddy pronal basis Was annciple of planning f the paddy Sector Od... Given the gical zones found he potential of ies considerably gion. This was Inition in policy S in research.
ge was set by the overing the period emphasis in this easing of produc'eady Under cultiVere eXpected tO 80% to the total uction. By 1976 was expected to shels which would
have made the country about 97% self-sufficient, according to the Plan. The institutional structure of this sector was changed through a series Of legislative measures. Agricultural Productivity Committees were set up at the divisional level
to co-ordinate the activities of Cultivation Committees. These were vested with wide powers to
promote optimum use of the land resources in their respective areas. The credit and insurance schemes pertaining to paddy were replaced by new Schemes. However, the period was not a successful one for paddy mainly due to droughts in the latter part of this plan period, particularly in the 1974-75 and 197576 SeaSOinS.
Growth. Record "The question of paddy output is a complicated one, involving as it does hundreds of thousands of Small peasant cultivators and a tangled web of social and economic problems: technology, knowledge,
5.

Page 8
ancient custom, economic incentive, co-operative action, tenure relationships, law and government administration”. ThiS view of D. R. Snodgrass in his book “Ceylon' sums up many of the reaSons Why there have been problems connectled with the attainment of targets
in the paddy Sector.
There can be no doubt that the paddy SectOr has experienced SubStantial growth Over the past two decades. Starting from a low productiOra boa,Se Of 43.0 milliOn. boushelS in 1959-60 production increased to 77.4 million bushells by 1969-70, representing an increase of Over 65 percent during the period. The increase in later years was mainly the result of an increase in the yield per acre which rose from 36.38 bushels per acre in 1959/60 to 46.87 bushels per acre in 1971 /72. During the period 1959/60 to 1971/72 the acreage under paddy" also increased to 1,578,929 acres by 1971 / 1972. Last year's performance, howsever, as expected reached an all time high with paddy production increasing from 60 million bushels in 1975/76 to over 80 million ioushells in 1976/77.
The growth has not been a Côn Sistent One and also not im–
pressive in relati This same period bad crop years - 1964/65 and 1974 1963/64, 1969/7 1976/77 will go c of exceptionally g is implied is that Occured around ; trend, as seen ir
In terms of grc be divided into fi
(1) 1950-59 pr
40 mln. 1959-65 pr 1966-70 pr 1971-77 p. bushells. due to a
Growth of p periods is instrut changes in paddy
(2) (3) (4)
таыe 5. Groүyt
(1) (2) (3)
Production Area, Yield
(A WOrd of Sary about the Which have bee base and end-ye
Table 4. Production, Area and Yield of Paddy (1.
Original Values (a)
Production Net Harvested A Year million bushes a creage in '000
1951/52 28.90 936.62
1952/53 21.90 808.78 1953/54 31.0 1,021.45 重954/55 35.70 1,092.51 1955/56 26.90 894.37 1956/57 3.28 967.56 1957/58 36.60 1,053.32 1958/59 36.40 1,043.89 1959/60 43.00 1,183.97 1960/61 43.10 1,195.78 1961/62 48.00 1,268.45 1962/63 49.20 1,296.51 1963/64. 50.50 1,304.50 且964/65 36.30 1,056.21 1965/66 45.70 1,285.46 1966/67 54.90 33195 1967/68 64.50 1,388.99 1968/69 65.86 1,308.49 1969/70 77.45 1,509.52 1970/71 66.90 • 1,457.16 1971/72 62.90 1342.07 1972/73 62.90 1,410.83 1973/74 76.33 1,659.73 1974/75 55.32 1,256.90 1975/76 60.05 1,360.82
Source: (a) Dept. of Census and Sto
(b) Compiled from series

On to targets set. di al SO Sawy Several - 1955/56, 1958/59, /75. Crop years 0, 1973/74 and on record as years good harvestS.What fluctuationS have an upWard grOWith a table 4.
)wth these years may pur broad periods.
oduction less than
"OductiOn 40-50 mln. ’oduction 50-78 min. "oduction. 60-80 mln. Dampened growth diverSe Weather.
production by Sub2tive in analysing y output.
Paddy production has grown at an annual rate of 3.8% since 1952. The annual growth rate WOuld have been higher were it not for the adverse Weather conditions in recent years. This increase in production was achieved both by increases in the extent cultivated and in that of per acre yields. Growth rates of area, and yield indicate that their contribution by Sub-periods show the same tendency, the only exception being the 1966-70 period. The growth rates here are rather inflated because of the poor performance in the crop year 1966 and hence they may not convey the correct picture. Despite advances in the breeding of high yielding varieties and their diffusion, the yield contribution to total production was hardly signifi
h rates by sub-periods
(annual compound rates in percent)
1952-76. 1952-59 1960-63 - 1964-0 9-6
3.8 3.0 3.4 7.3 2.1 سنبسی۔
1.4 2.0 2.5 -1.4 --سن
1.9 6 1.4 4.8 0.17 نسبہ
caution is neces- cant Over the years. It is neces
Se growth rates in computed using 2ar values only).
Sary to analyse the area and yield trends to assess their role in expanding production.
952-1976) - (Original Values) 3 years moving averages
3 years moving averages (b)
verage Yield Production
Net Harvested Average Yield
per acre million bushells a creage in '000 per acre
30.80 - - ܒ 27.00 27.30 922.28 29.2 30.02 29.57 974.25 29.82 32.45 31.23 1,002.78 30.83 30.03 3.29 984.8 36. 32.35 3.59 971.75 32.26 34.40 34.76 1,021.59 33.89 349盘 38.67 1,093.73 35.23 36.38 40.83 1,141.21 35.8 36.3 44.70 1,216.07 36.80 37.90 46.77 1,253.58 37.31 37.91 49.23 1,289.82 38.17 38.69 45.33 1,219,07. శొ86.97 34.32 44。其? 1.215.89 86.21 35.62 45.63 1.224.54 41.27 55.03 1,335.47 46.49 61.75 1,343.14 50.33 69.27 1,402.33 5.30 70.70 1,425.06 45.90 69.08 1,436.25 46.32 64.38 1,470.88 44.58 67.85 1,442.49 45.99 - 64.90 1,425.82 440盘 63,40 44.13
titiStics
d
EconoMIC REVIEw,

Page 9
Area Expansion
Expansion of area, place in two ways.
i. Expansion of a Sweddumized area (that is land ridged and bunded and prepared for paddy cultivation). ii. increaSes in Cropping intensity (that is, as weddumized land may be cultivated both Seasons - double cropping). There are two Ways of increasing the a Sweddu mized area under cultivation by governmental
can take
Schemes of irrigation or through farmers' Own effort.S. The figures On the Se trends are aS fOllOWS:
Year Acres Index
1952 964,484 00
1960 1,160,097 120
1965 1,272,664 32
1970 1,408,922 46
1976 1,549,857 6.
ASweddiumized area has in
creased progressively over the last 23 decades as shown in this table.
It has increased by slightly more than half a million acres Over this period. This may reflect basically the impact of new irrigation Schemes and to Some extent expansion of acreage Owing to more attractive prices for paddy.
The beneficial effects of irrigation, higher prices and various Subsidies may also be seen in intensification. Of paddy farming. The cropping intensity index, however, does not show any marked changes. The ratio is highly sensitive to Weather COnditi OinS. The position in a good crop year may reflect the possible extents of double cropping.
Paddy Cropping intensity
Year Per cent 1952 120.5 1964 126.9 1970 133.1 1974 136.1 Cropping Intensity (Total
annual Sown area/ASWeddumized area) Σς 100. -
With the Operation of the Mahaweli Scheme the situation may change but the cropping intensity so far has not shown a very mark
ed improvement. One would have
gnificant improvement of cropping intensity following changes in development of new and improved varieties, increased irrigation and government incentives offered to farmers but this has not occured for various reasons.
| Trends in met harvested area are more relevant when observing production behaviour. The growth
EcoSonic Review, JANUARY 1978
rate (annual co, harvested area was Over the period c. by Sub-periodS indi ing position.
Year
1952-59
1960-64
1966-70
1971-76
The impact droughts during 76 on paddy acre Crop failure is a and it has ranged acres to 244,000 a. plying a loss of th bushells in a bad failure Stati StiCS Department of Ce tics ShOW the foll two good and two
Table 6.
(Pe Year Majo
1965 8.1 1970 3.2: 1974 3.0 1975 8.
The main cau: as We See it thered lem Of Water. M ance for the reliab the following pictl available figures.
Paddy
1965
All Adverse factorS 100.0 Seed 0.7 Drought 89.1 Floods 2.0 Pests 0.7 Others 7.4
SOllrge : CenStS
Drought and be the main fac crop damage.
Yield E
The behaviour tutes another in ant of total prod remarkable ad Van C high yielding vari diffusion it is Sign age yield per acre of the lowest in nual yield per acre 45 to 50 bushells p about a 50 per c. that of the early f
 
 
 
 

hpound) Of net
only 1.9 per cent incerned. Growth cates the follow
Growth. Rate 1.4% 2.0% 3.3% 1.4%
Of SucceSSiVe he period 197 fage is clear cut. sizeable problem from about 70,000 2res roughly, ime Order Of 10 m,1n. *rop year. Crop collected by the In SuS and Statiswing pattern for bad crop years.
eral average yield level of course conceals important regional variations in yield levels; but it is clear that yields are low in relation to the widespread adoption of improved varieties. The actual yield in SOIme CaSeS have ainm Olunted to al
most 100 buShells per acre.
In fact the main impact of a green revolution strategy would normally be on increasing yield. This to an extent reveals the limited impact of new farm technology which has shown impressive results only in localised contexts,
ATTAINMENT OF SELF-SUFFICIENCY
Problems and Prosepcts.
“The idea of self-sufficiency can be understood in various Ways
Crop Failure Rates
Potential out
put lost at rcent of gross area, SOWn) 45 bಳ್ತs per
置 Total 氹董éC aᏓᏟ Minor Rainfect. To ('000 acres) ('000 bushes) 14.6 19.5 14.6 212.7 9,57): 3. 3.9 8. 5.3 99.7 4,486, 3.38 3.71 3.36 68.6 8,08፮: 16.0 16.8 14.2 243.6 10,962
se of crop failure but in the popular mind it has
fore is the probaking due allowility of this data, 1re emergeS frOm
Crop Failure
1970 1974 1975 (Maha)
100.0 100.0 100.0 4.4 4.2 1.1 量4.3 50.7,94.4 57.9 22.9 16 5.0 15.8 1.1 4.7 6.3 15
and Statistics
Department
floods appear to Ors that govern
ehaviour
of yield constiOrtant determinLictiOn. Despite es in breeding of 2 ties and their ficant that averStill remains. One sia. Average anstill ranges from er acre, which is nt increase over fties. This gen
predicted
meant the elimination of import.S. The desire to be Self-sufficient in rice has always received a sympathetic response from the people not. Only becau Se Of the economic advantages but also because it was a matter of national pride', stated: the Draft Agricultural Development. Plan 1971-1977, Annual Crops.
Several international reports self-sufficiency for Sri Lanka in the early 1970s. A Field Report of the FAO/FFHC Ceylon Fertilizer Project (1968) stated that “self Sufficiency is no longer in doubt' and “is now simply a matter of reliable extrapolation from existing trends.'
Viewed in retrospect, many of the forecasts about attainment of Self-sufficiency seem to have been unduly over optimistic. If plan targets and achievements are considered, the Agricultural Development Proposals of 1966-70 produced a good performance as table 7. On the
following page shows. The targets of:
the Agricultural Development Proposals 1966-70 were broadly attained by 1970. The Five Year Plan of 1972-76 planned an output target. Of 116 mln. bushels by 1976 but there, was a marked divergence between.
7.

Page 10
plan targets and actual achievement throughout this period. The years 1972, 1973, 1975 and 1976 were particularly bad crop years. The attainment by 1976 was only 52 per cent of the target. The annual compound growth rate in production between 1971 and 1976 WaS negative. However, the Situation seems to have changed with the onset of the 1976/77 Maha Season which produced the record harvest Of 54.j8 t mln. buShelS and indicatiOnS are that annual production in 1977 has exceeded 80 min, buShelS.
It is not possible to work Out self sufficiency projections on a detailed basis but an attempt is made here to derive rough guidelines on
Table 7. Paddy
Year
1966 96. 1968 1969 1970
P
al
Targe 51.97 53.95 6.45 7.34 74.97.
the baSis Of SOII
tiOnS.
The concepts for rice should b
1.
estimates ba consumption by nutrition and
Table 8. Imports, Domestic Production, GPS Purchases
Self-sufficiency Ratio
2. b. 3.
GPS
Imports of production of Ses fois
Rice thou rice thousands bushe
sand to as ίons pad
1952 386 371. 1. 1953 439 276 0. 1954 407 399 3. 1955 38 46. 13. 1956 471. 35 8. 1957 556 402 3. 1958 580 472 3. 1959 - 519 47 6. 1960 532 56 20. 1961 97 563 22. 1962 515 642 2. 1963 55. 644 27. 1964. 54? 661 29. 1965 642 466 21. 1966 494 593 28. 1967 38 723 13. 1968 344 853 14. 1969 260 873 13. 1970 526 1028 26. 1971 334 880 32. 1972 262 828 26. 1973 338 828 22, 1974 297 105 20. 1975 450 725 1. 1976 419 788 12.
* Long tons
Sources : CI.
Food Commission b. Census and Stat
c Self-sufficiency r cloted in th
ገጊeገ‛. ( P - S X. 100 R, — """ qSSqqSSLSSASqqSAASS SS SSMqSeASAAAMSASSAASS SSSSSSSAAAqqS SSAAAA qq
1 M -- (P - S)
R P S
V W
Self-sufficiency ratio in per cent.
Domestic production of paddy (ann
Seed requirements at the rate of 2 b,
Volume of imports. Correction factor for waste in "hanc
transport, etc. Assumed to be 4%
imports.
It is assumed that rice imported in a given year is co
years and that stock changes are negligible.
production and

output - Production Targets and Achievement
1966-70 and 1972-76
roduction Actual Production Actual ... bushes as % of Year mn, bushes as % of t Actual target Target Actual target
45.79 88.1 1972 78 62.9 80.6 54.96 101.9 1973 94 62.9 66.9 64.59 105.1 974. 100 76.8 76.8 65.86 92.3 95 107 55.3 57 77.4. 103.2 96 115 600 汤l,7
he Crude aSSնmp- 2. estimates based on actual or
of total demand be distinguished: ased on per capita at optimum fixed all or other norms,
and
Purchalillion is of lidy Ratio 9, 3.
3
8
6.3
er’s Department istics Department atio has been calte folloтрітg тат
ual) Ushels per sown acre.
ling, processing, for both domestic
Insumed in the same
apparent consumption which is the Sum of production and imports allowing for seed waste, etc.
Self sufficiency is in a sense a a relative concept.
Comparing per capita con
sumption trends, according to Con
Sumer Finance Surveys and food balance Sheets, a per capita conSumption of 100 kg. of rice seems reasonable. It has been found in various surveys that our cereal consumption, which includes wheat flour, in average terms approximates the standard nutritional requirements. The recommended per capita daily allowance for cereals is 586 grams. Per capita consumption. especially, has been closely tied up with the rice ration. Which has in turn contributed to a certain stabi- , lity in consumption levels. The rice ration has in fact guaranteed a minimum level of consumption. See table 8.
Some crude estimates of demand COuld be yOrked On the basis of projected population data and aSSum ed average per capita cOnsumption of 100 kg. According to the high population projection (15.90 m.n. in 1981) the estimated requirement by 1981 is about 125 mira... bu,ShelS. If per capita. consumption rises to 105 kg. (to allow for rising incomes) the total requirement would be around 130
min. Ibu ShellS.
This may be contrasted with production estimates within the next five years. Recent experience has demonstrated the danger of extrapolating from past trends. However, the new area to be a Sweddumized during this period could be ascertained from programmes of the Ministry of Irrigation. It is esti mated that about 120,000 acres will be brought under major and minor irrigation schemes by 1981. Assuming an increase of national yield per acre to about 60 bushels, a production of 123 min. bushells has been tentatively estimated in official circles. This estimate is of course based on
ECONOMIC REVIEW, JANUARY 1978

Page 11
Mla. Il y assumptions particularly nOirmal weather COnditions, rem Oval Of certain bottlenecks On availability
of farm power and input Supplies,
and effectiveness of rural instituti OinS. When estimated requirements are contrasted with production, prospects for self-sufficiency in the early 1980s look good.
The position in regard to SelfSufficiency in food Or total cereal consumption is a different matter. In view of the fact that Wheat flour has established itself as a
more or less stable component of
local cereal consumption patterns, the ratio of Self-sufficiency Will be Sensitive to trends in Wheat flour consumption. The following table shows that though Sri Lanka has produced a higher proportion of cereals Over the years the ratio of self-sufficiency is less than 60%, the lowest among these Asian COun
tries.
Domestic production as a percentage of total cereal consumption in selected Asian countries
1963-196 90-1974
Per cent Bangladesh. 93.1. 98.2 India, 91.4 97.1 Pakistan 93.3 99.6 Malaysia (West) 56.2 66.5 Philippines 85.1 - 87.2 II dOnesia 94.3 92.5 Sri Lanka 45.4 56.7
Source: ADB Quarterly Review
3-77.
SPREAD OF NEW TECHNOLOGY
The advent of a 'green revolution in Jelation to food growing and its likely effects have been a
matter of considerable controversy
in recent years. The new farm technology is mainly based on high yielding seed varieties which are responsive to fertiliser. In examining the extent to which Sri Lanka's paddy Sector has been affected by the improved methods of cultivation the extent to which the following practices have been ad
opted are relevant.
i i Use of high yielding varieties
ii. Fertiliser application iii. Pest and disease control iv. Transplanting of paddy ... v. Ploughing by buffaloes and
tractor vi Weed control.
Sri Lanka has na de the biggest advances in the breeding and diffu
ision of improved varieties of rice.
be identified:
Econovic REVIEW, JANUARY 1978
stages in this programme can
a) from the
about 1970 b) from 1970 Developments
Were balSed On lOca ties such as H4, H the early 1960s the that about 70 per ( area was under H. In the Second St. through was in of higher potential ation to Suit differ regions. The Varieties is also ex by the following
Variety adopted
Newly improve Old improved Traditi Onal
Source: CrOp
Despite the W. new varieties who ranges from 100 - acre, the national rather low, (arou One main reaSOn technology is not “package” basis. FC improved varieties opted, other input liser, agrO-chemica trol are not made commended mann the yield potential ieties have not gi
yields. SOme about a process Of high yieldin
the sense of adopt for which they we
*Fertilizers pr potent Weapon in raising agricultu (Chandra ratne, M 1976). Substanti lizer use have O last decade Or SC World Oil crisis : the cost of fertiliz ment haS been O Schenes Over a lo View to pOpulari Sil peak in fertilizer paddy was reach there Was a shar quent years due and high prices. tures of the ferti high cost in tern change and Subtion due to final and lack of e Work. This may the Observed low
 
 
 
 
 

late 50's upto
to date.
in the first Stage lly bred H varie7 and H8. From Se Spread fa St SO ent Of tOital SOWI varieties by 1970. ge, the breakvolving varieties and shorter durent agro-climatic spread of these ensive as shown figures.
– Maha 1973/74
% of farmers
420 33.3 24.7
Cutting Survey.
de diffusion Of se yield potential — 140 buShells per average yield is nd 50 bushels). is that the new adopted on a }r inStanCe, While are Widely adS. Such as fertils and Weed conUSe Of in the reer Which affects The ne W Varven the expected. have CallUltiOrned Of 'Over adoption' g varieties in ng them in areas re nOt meant
Ovide the most the strategy for 'al productivity” larga, Vol. 3, 1, all gains in fertiCurred Over the However, the harply increased er. The governperating Subsidy ng period with a lg fertilizer. The con Sumption in ed in 1973 but ) drop in SubseO bad Weather The main feaizer problem are s of foreign exptimum applicaLcial con Straints ective extension partly explain Vield S.
The different control mechanisms created Over the years have resulted in delays, artificial shortages and unnecessary costs for the ecOn Onny aS a WhOile. This Situation applies as strongly to fertiliser di Stribution a S it does to Several Other essential items. One Of the key factors for the non-application for fertiliser or its application in Small does, therefore, Was its nonavailability in village level stores. The availability of fertiliser at the correct time and price for farmers
is a problem that has to be tackl
ed.
Fertilizer Issues for Paddy (Thousand Tons)
1961 - 29.0 1962 38.1 1963 47.1 1964. 60.1 1965 42.0 1966 44.1. 1967 罩3.2 1968 85.2 1969 83.5 1970 87. 1971 95.4 1972 88.4 1973 125.5 1974 96.4 1975 48.7 1976 T2.4
Transplanting of rice is practised on a very Small scale. During Maha 1973/74, only 18% of the farmers reported transplanting. This practice is not popular because of high demands on labour. AbSence of transplanting adds to the problem of effective Weed control also. There is no doubt that remarkable advances have been made on the technological side which could effect a marked increase in productivity though this is still to be realised.
''Deficiencies in institutional Structure appear to have impeded reSearch advances in Sri Lanka in recent years. Farmers' fields YnUISt; progressively replace the experiment stations as the venue of reSearch,' -
9

Page 12
Land Settlement and Colonization
Large scale colonization of the dry zone under major irrigation schemes Was initiated in the 1930S With the enactment Of the Land Development Ordinance of 1935. The main objectives of these schemes were relief of population pressure in the wet zone, contribution to food production, establishment Of a peasant proprietor group and employment creation. Generous assistance was initially given to settlers but this policy was changed after 1953 due to the high costs of settlement. The initial allotment of 8 acres (COnSisting of 5 acres of paddy and 3 acres of highland) was scaled down to 5 acres and Subsequently to 3 acres as a result of a heavy demand for allotments. Roughly about 400,000 2 Cres COme under theSe SChemeS at present, (excluding the settletimentS under the Maha Welli Ganga Project).
The objectives of land settlement under these schemes have been realised only to a limited exteht. It iS eStimated that ab Out 20-25 per cent of national paddy production is accounted for by these schemes but the share may rise Once the Mahaweli Project exerts its impact. Wide variations in the level of performance Of colonization schemes has been a major problem. LOW cropping intensities due to excessive use of Water, low productivity and underutilized highland, illegal tenancies and fragmentation and increasing unemployment among the Second generation are characteristic Of the problems faced in most Of these schemes. This situation, described by B. H. Farmer in 1957, would still apply to many of these aspects. Under a World Bank initiative, the
Land Commissioner's Department embarked on a special projects programme in Selected area.S.
starting with the Elahera Scheme. The Objective was to obtain a higher rate of return to capital invested in these schemes by promotion of productivity at high levels, with the concentration and (OOrdination of extension activi– ties under a Project Manager. Even here, success was short lived and the Land Commissioner's Department Seems to have stopped extension. Of the scheme to other scheries.
The Malaweli Project is the most ambitiolls of our land settlement schemes. It plans to benefit
10
rural
132,000 acres of for double croppi Qf neWilly irrigat irrigated areas a fit about 25,000
Besides the major irrigation nation was effec Other SchemeS Su sion schemes, hi and middle cla: Since 1966 exper Out with youth operative lines. ties SaW the en types of collectiv RefOrm Commi Samupakara Gal farms. These v already develog Settlers were la ever, there Was the degree of S these Schemes. lective farming Sue in VieW Of On cultivable : tiOn inCreaSeS. TI nOW With eStab tive farms has couraging but se have to be giv. means Of naki in Order that t be extended in
Irrigation and
The experie years clearly in role of assured attainment of p International e ShOWn that the the diffusion of that of irrigati remedied in two
(a) Expansion (The high the basic C gard).
(b) More effici exiSting Sol
It is very that inefficient procedures resul Waste Of costly staggeIring Of Cl and flooding O COntrol measure. institutio Water issues is cause that leads Water. The resul cannot be very a second crop. ted that more trol alone could ten mijlli On buS output, accrding

existing farm land ng and 70,000 acres d land. The newly re expected to benefamilies.
colonization under Schemes, land alieted under Several ch as Village expanghland colonization SS leSSe es SchemeS. ments were carried Settlements. On co
The early Seven
ergence of several
e farms: the Land SSiOn, Jana WaSaS, in manas and D.D.C. Tere established. On hed land and the gely youth. HOWno uniformity in uccess achie Ved in The scope for colLS an impOrtant iSincreasing pressure ands With populahe experience upto liShing CO-Operanot been very encious thought would en to Ways and ng them effective he principle could
the future.
Water Controls
hce Of the last few dicates the crucial
water supply for production targetS. xperience also has OaSiC, COinStraint, OIM
new technology is On. This could be
WayS.
of irrigation facilities, cost of irrigation is OnStaint in this re
ent management Of urces of irrigation.
Often pointed out Water management it in considerable
irrigation water, ultivation Schedules f fields as a Weed
Ineffectiveness Of ns in charge of said to be a major
tO excessive use Of t is that tank Water
Often reSer Ved for It has been eStimaffective Water COn
add about four to hels to Our paddy to Robert Cham
ha. S been a
bers. How to enforce stricter discipline and economy in use of water controversial i SSule. Some have suggested going back to the old vel vidane System (irriation headman) While Some favour pricing of irrigation water. This issue now becomes particularly important in the areas irrigated by the Waters Of the Mahaweli Ganga.
Land Teniure and Land Reform
Two aspects of the tenurial situation deserve attention:
i) Small holdings
ii) Share cropping
Paddy is predominantly a small holder's crop with over 94 percent of the holdings below. 5 acres in extent (1962). Parcelisation of the holdings added to this problem. The Land Reform Law of 1972 imposed
છે. ceiling of 25 acres on Ownership
of paddy lands and its impact. On the paddy sector was at best marginal. The Optimum or economi - cally viable size of paddy holdings for a family farm is a controversial issue though there is general agreement that holdings below the size of one acre cannot generally guarantee a sufficient income for a family. In this sense, the holdings in the dry Zone are larger than those in the densely populatied Wet ZOne.
Under different, land alienation Schemes, land was allotted to settlers on a lease-hold basis and restrictions were placed on fragmentation, transfer and sale. It was
- Often pointed out that this form
of tenure gave the peasant little incentive to improve productivity On a long-term basis. The Sale of State LandS LaW Of 1973 WaS designed to enable settlers to acquire ownership of the land by outright purcha. Se Or in in StalmentS.
ADOLlt 75% Of Sri Lanka, ’S paddy holdings are operated under various forms of tenancy but the dominant system is that of “ande' Or share CrOpping. Traditionally the tenant had to surrender 50 per
cent or more of the produce to the
landlord. This System has been criticised on grounds of equity as well as production efficiency. The tenant has little incentive to invest in high yielding inputs since he has to surrender half or more of the output. Empirical studies indicate that productivity differences between Owners and tenants are not marked but the net.incomes of tenants are much below those of owners.
ECONOMIC HREVIEW, JANUAR
1978

Page 13
familiar cycle.
The Paddy Lands Act of 1958 was aimed at ensuring security of tenure and rent regulation on lands operated under armade. It established cultivation committees at the village-level for implementing the regulations. However, the impletation of the Act was far from satisfactory and a large number of evictions took place. Ineffectiveness Of cultivation committees, protracted legal procedures and the Superior economic position of the landlord in the village setting, meant that tenants had limited a Ccess to benefits accorded by the Act. The Paddy Lands Act was superseded in 1973 by the Agricultural Lands Law which extended the act to COver all agricultural land and established District Agricultural Tribunals. Available Studies indicate that there has been no marked improvement in the situation mainly because of the in efficient
the landlord bias of the existing committeeS. Measures which attempt to regulate terms and conditions of tenancy are unlikely to succeed in the absence of any organizati Ons of tenants and Sharecroppers. The view that radical approaches, such as the abolition of share cropping may be more fruitful, are w Orth considering.
Agricultural Credit
Though government intervention in the sphere of agricultural credit dates back to 1947 the farming community still continues to depend heavily On non-institutional Sources of credit. A major change in policy was effected in 1967 with the launching of the new Agricultural Credit. Scheme under which the People's Bank channelled credit to farmers through the Co-operative network. This was followed by the Comprehensive Credit Scheme of 1973 which envisaged the provision of the entire credit requirements of the farmer through Co-operative Rural Banks and Bank of Ceylon branches located in Agricultural Productivity Committee buildings. With the 1977/ 78 Mäha season, some modifications have been carried out to this system. Credit is provided for both paddy and subsidiary food crops but the bulk of credit granted up- to now is for the paddy farmer.
The experience of these credit schemes follows what is now a Initial liberalisation and expansion of credit dis
ECONOMIC REVIEw, JANUARY 1978
i defaultS.
functioning of Agricultural Productivity Committees and
Table 9.
1967/68 - 1969/7 1970/71 - 1976/7
bursements, an inc defaultS Over SuC and a subsequent tion in the volume ed. With the fall in eligible borrowers.
jectives of Supply liberal terms for pl ductivity and credi the Sense of pena thus came into CO dit Schennes h Imechani Sm for the dit to decreaSe X
Table 9
recent experience W disbursements and
AS at the end ( total Outstanding WaS R.S. 340 nnin. I] cided to grant C to all applicants faulters. It is estir credit volume will ex This in the absenc worked-out progral up and Supervisio encourage further
Table 10
Perfor
1. NO, of a creS
insured 2. Indemnity pa
RS. Inn. 3. Premium Coll
R.S. nan.
VarioulS Solut
Situation have bee is believed that th firmer commitment any defaults. A g) autonomy to the Selection of eligibl. also said to be ne of credit, marketin also could facilitat recoveries.
Crop Ins
It has been risk and uncertair incentives to produ by restricting in ment and al SO tO improved methods Hence the governm
 
 
 
 
 

Paddy Loans and Recoveries
(RS. min)
Total olans Total Percentage of
granted repayments repayments ) 180.09 重27.96 71.0 7 4448 223.20 50.2
'reasing rate of in inaugurating a paddy crop sessive SeaSons insurance scheme from 1958. By drastic reduc- 1970, nearly 200,000 acres had been
of credit grant
the number OfThe tWin Obing credit On "Omotion of proit discipline in Lising defaulters Inflict. Al Creave a built-in VOlume Of CreWith increa Sing above Sums up rith regard to repayments.
of Yala, 1977, the folume of credit It has been deedit this season including denated that total Ceed R.S. 300 min. te of a carefully mne Of fOOVn is likely tO
defaults.
bsought under the coverage of the programme in 16 districts of the country. But there were inherent defects in the Scheme reflected in a high rate of indemnity payments and unduly low premia collection. Hence the Agricultural InSurance Law of 1973 attempted to reform this by establishing a systerm of compulsory insurance for paddy. The Agricultural Insurance Board was set up to administer the scheme. A regional approach was adopted in the fixing of premium rates. The experience upto now Over 3 to 4 seasons has not been very impressive and does. not indicate any significant improvement over the earlier scheme. Low premia collection and the high rate of indemnity payments in the face of unprecedented droughts have created the need for large scale subsidisation by the Board. The situation seems to be in
'mance of the Agricultural Insurance Scheme
1975 1976 97. 1978
Maha Yala Maha Yala Maha
54,031 198,110 114,150 245,950 71,115 370,520 id
1,299 4,734 2.846 3.09. - - ඉcted
0.8 3.854 1568 4.55 0.80 6.89
iOnS to this proving now as seen in the above
bn Suggested. It ere should be a not to write off reater degree of
banks in the e borrowers is cessary. Linkage g and insurance 2 the problem of
E}}{3}{10€
ecognised that ty act ag dis1ction promotion CreaSed investthe adoption of of cultivation. ent felt justified
table.
Paddy Marketing Problem
The marketing problem as defined here refers to all problems connected with disposal of paddy by the farmer upto the time of consumer purchases. The GPS which had been a voluntary support Scheme upto 1971 was modified in that year with the establishment of the Paddy Marketing Board which has monopoly power of handling paddy. The purchasing network at the village level was still to be the Co-operative Movement. The monopoly situation led to various problems in the face of Successive bad har Vests and reStricti OinS Were removed in 1975.
1.

Page 14
institutionalised
Hatton National the main
AGRICULTURAL LOANS
The highest rate of credit disbursements, in the form of agricultural loans for any single season given by the People's Bank upto date, has been for the Maha of 1977/78. A Sun of Rs. 221.5 million had been granted up to December 31, 1977. In the early 1960's the People's Bank stepped in to meet a Vital need of the traditional paddy farmer. The lack of finances
was a major obstacle in the path of
his progress. The farmer was indebted to money lenders and others
in his Village. A solution to this
problem, it was realised, was central to the problem of increasing production of the Small paddy farmers. It was necessary for an institution to help him to tide over this difficulty. Most of the credit for paddy cultivation thus came to be provided by the People's Bank through the Co-operative Societies.
The idea that the peasant farmer Should be given financial assistance goes back to before the Guaranteed Price and Crop Insulrace Schemes. Production oriented agricultural credit has taken three formS.: Short term Oans to cultivators for the purcha,Se of Seeds and fertilisers; medium term loans intended for the purchase of machinery; and long term loans for
capital expediture and storage, transport and rice milling equipment. The Co-Operatives, either
Co-operative Credit Societies or Multi-Purpose Co-operative Societies, have been agents in the distribution and recovery of loans.
The New Agricultural Credit Scheme and the Comprehensive Rural Credit Scheme operated by the People's Bank and the Bank of Ceylon and to a lesser extent by Bank, has been Source of institutional Credit for the peasant farmer.
Unlike commercial Credit, however, agricultural co-operative credit is not given on Security. This is generally decided by the past performance iii repayment of
loans. But with past overdues be
coining a problem and possibilities of further defaults tending to become a decisive factor in restraining the expansion of rural Credit, it was decided to use the in
i strument of the Guaranteed Price
Scheme for effecting loan te
PEOPLE'S
coveries. Loan recovered fron
O a CIUltiValtor hiS Paddy und was expected t recovery of ar. to lead to a agricultural Cre was expected inmpact on pri Scheme has not anticipated.
The tread, page 11, haS bl eralistion and C. of disbursement increasing rate then a drastic Volume Of cred fall in the num erS. The origin scuing the far money lenders and many farm to go back to 1 of indebtedness Maha season, cided to grant plicants includi
eIS. AS e Vide below the perce has dropped
year’S and the not been able OI’€SSUIIe OI DO NileInt Of Oar S.
New Agricul (People's Ban
Cultivation Season
67/68 Maha 68 Yala, 68/69 Maha 69 Yala, 69/70 Maha 70 Yala 70/71 Maha 71. Yala, 71/72 Maha 72 Yala, 72/73 Maha 73 Yala, 73/74 Maha 74 Yala 74/75 Maha 75 Yala 75/76 Maha 76 Yala 76/77 Maha 77 Yala, 77/78 Maha.
TOTAL
2

BANK
instalments were the amounts due
from the Sale of r the G.P.S. This enable immediate ears of loans and rapid expansion of dit, Which in tura o have a decisive duction. Yet the always Worked as
as pointed out on 2en an initial libnSequent expansion S, followed by an Of defaults and reduction in the it granted and a ber eligible borrowall objectives of remer from private is thus defeated hers are compelled heir original states For the 1977/78 LOW e Ver, it Was deCredit to all apng earlier defaultit from the table ntage of recoveries heavily in recent Co-Operatives have to bring any real rrowers for repay
Very large amounts of People's Bank resources, particularly in the form of liquid cash had to be channelled to the operation of this scheme, Earlier it was the practice to count the cash holdings in the People's Bank branches for computing the statutory cash reserWeS Which the Bank haS tO maintain with the Central Bank. A recent directive from the Central Bank, however, has made it impossible for the Bank to consider this cash, commonly known as “till cash, for providing the required deposits. The directive was to have the effect of freezing the till cash.' component of the Bank’s reserves. The need to restore the former condition of permitting the bank to maintain three-fourth of the reserve requirement in till cash was brought immediately to the notice Of the Central Bank This new condition has aggravated the Situation for the Bank, which is expected to assist the peasant farmer in his credit requirements. In order to keep to this requirement the Bank is compelled to find many millions more of money each month. It is apparent that financing of paddy purchases and farmers requirements could be crippled due to the non avai
lability of cash at Bank branches
and therefore a heavy toll of this type of lending should be viewed more rationally.
Itural Scheme and Comprehensive Rural Credit Scheme k) - Paddy Loans position as at 31st December, 1977)
Amount (R.S. 000) Loalas Total Overdue Granted Repayments Amount Outstand Fecent of
Mag Recovery 61,424 52,845 8,526 8,579 86.0 11,288 9,788 1,500 1,500 86.7 45,802 28,498 16,981 17,304 62.2 9,867 8,100 1,726 1,767 82.0 39,347 20,516 18,755 18,831 12,358 8,706 8,638 3,652 23,456 12,946 10,510 10,510 5,817 5,068 749 749 23,956 15,200 8,756 8,756 6,667 5,385 1,261 1,282 20,236 13,485 6.751 6.751. 8,029 5,078 2,951 2,951 84,305 42,817 41,488 41,488 24,744 14,753 9,991 9,991 70,450 30,394 40,058 40,056 6,613 4,814 1,799 1,799 44520 20,616 23,894 23,904 11,847 8, 186 3,635 3661 65.299 18,834 46,423 46,465 7,852 2,094 38 5,758 2221,586 31. - 221,555 805,463 328,154 249,425 477.309
EconoMIC REVIEw, JANUARY 1978.

Page 15
PMB Paddy Purchases
% of output Quantity
bought by PMB Purchased
(million
bushells) 1970 33.8 26.2 1971. 48.4 32.4 1972 41.9 26.4 1973 36.4 22.9 1974 27.2 20.9 1975 20.5 1.3 1976 21.4 12.8 1977 29.5 23.8
The Situation that arOse in 1977
was un precedented; with the bum
per Maha harvest storage prob
The need for agricultural credit through institutionalised soürces, it is agreed by all, is imperatve. The mechanics of operating Such a Scheme particularly the problem of recoveries, has been the Subject of much debate. Different views have been expressd on defaults in the repayment of loans taken from government sources. It is accepted that difficulties have prevented pleasant farmers from repyaing their loans to the Co-operatives. A recent view on this problem was expressed by L. A. Wickremaratne, in Sri Lanka - A Survey, an InStitute of Asian Affairs Hamburg, Publication 1977, which states that “even while one may make every allowance for the difficulties of the cultivator, the evidence suggests that default has often been due to his Own rather negative attitudes. Having benefited from a number of welfare measures, the peasant evidently feels that it is the business of an essentially paternalistic government to look after his interests. In other words, credit has been viewed in the light of a further increment in social wellfare - a view refurbished by the pledges given from time to time by responsible politicians to get the State to write off these debtS.' A view which illustrates that in order to make the peasant farmer 壹Q攻e receptive to the rationale behind an institutionalised agricul| turals credit scheme his fundamentaliattitudes would need to be changed. Recent statements by the Ministers of Finance and of Agriculture urging farmers to view Government Sposored agricultural credit as loans to be repaid would therefore have to be followed up in a more purposeful and sustained manner by all extension perso nel who come into daily contact with the farmer.
EconoMIC REVIEw, JANUARY 1978.
lems occurred all and the mOV enmeIl PMB stOrkes WaS ra quacy of the available to the P the disposal Of pat cord harvest (55 farmers found it ficult to sell and p down. In many seems to have play of petty village-le as some PMB st operative manager The pressure On underlines the nee action on the pad ties in the country
With the cut i the P.M.B.'s involv procurement may is believed that til now concentrate O rice milling, proces facilities so that til be assured of bette
Farm Mech
Another contr policy making is mechanisation. forms Of farm p OW (ii) animal and (
Official circles a policy of selecti On the grounds t population in the Sufficient in relat mand. However, til ability situation is SatisfactOry. FC tors have sharply Research has sh Wheel tractors are local conditions. E problems in the g a situation where tractors imported lation to demand inflated hire prices tor Owners in the
Policy in regar needs to concentra aspects.
(i) encouraging
buffaloes
(ii) rationalisati OI Sources of f augmenting Simple to uSe
It is in the a farming that the ably designed im at farm level is Continuous highlar give rise to proble trol and tillage. for popularising
 
 
 
 
 
 
 
 

ver the COuntry
of paddy to her slow. Inadehilling capacity MB also affected dy. With the re
mln. bushelS)
increasingly dif
addy prices came
instances this d into the hands el Officials Such) Dre keeperS, SOand mudalali S. storage capacity for early PMB Ly storage facili
h the rice ration, ement in paddy be reduced. It le P.M.B. Should in improving the Sing and StOrage le COnSumer Islay r quality rice.
anisation
Oversial area of that of farm There are three ter - (i) human iii) mechanical.
have advocated fe mechanisation hat the buffalo country is not On to the dehe tractor availis also far from ur-Wheel tra Cgone up in price. Own that tWObetter Suited to 'Oreign exchange last have led to the number Of was Small in rewhich resulted in charged by tracvillage context.
d to farm power te On tWO main
the breeding of
of existing airm power and the stock Of farm machinery.
ea of highland absence of Suitlements for use learly observed. di farming WOuld nS Of Weed conHence the need implements that
broad aspects:
could be productively used in rainfed highland farming.
Price Policy
Price policy consists of two. (a) input prices policies; (b) output price policies, On the input side, the government has been operating a subsidy scheme for paddy since the 1950's. Heavy subsidisation is also implicit in the Supply of irrigation water and the large volume of defaults on agricultural loans. On the Output side, price support. schemes have been applied to almost all food crops. The Guaranteed Price Scheme for paddy dates. back to 1948. This price was revised to R.S. 12/- by 1952 and it remained at this level until 1966 though import prices fell sharply since then, paddy prices have beer. revised upwards in stages to reach the present level of RS. 40/- per bushel.
The incentive effect of the GPS On paddy production is diffi- . cult to assess since it was only one among a number of measures Oriented to promotion of production in the paddy sector. Though. GPS price was not determined in an objective manner, the attractiveness of the GPS price has to be assessed in relation to costs of production and open market prices. A survey carried out by the Central Bank of Ceylon in 1967 shows. ed that the cost of production of paddy exceeded the GPS price only in a few districts. The situation has changed somewhat since then due to upward revisions of the price. According to a recent ARTË survey the cost of production of a bushel of paddy varied from Rs. 23.00 to Rs. 30.00 in five districts, in 1976/77. Assuming that the costs have changed. Only marginally since then, the present price of R.S. 40/- per bushel Seems quite, attractive.
The powerful leverage effect of the price factor to stimulate production has been used over the years, paticularly in the late 60s, With consumers given only part of their requirements through imports they are left, with the option Of supplementing this by purchasing locally produced Supplies in the: Open market. Often prices of local Supplies were higher than World market prices but these benefitted the local producer. This dual price. technique came to be applied to other agricultural products as well in the late 60s. Imports of chillies and onions for example were
13

Page 16
aestricted to levels which fell short of total consumption requirements.
Guaranteed prices for other produce have generally served as floor prices, as market prices were generally much higher. The amounts purchased by the government under the Scheme have remained low. With the ban On imports open market prices of many subsidiary food crops rose to unprecedented levels. This has proved very effective in inducing arecent production gains in crops such as chillies, pulses and cereals. Unlike in the case of paddy the prices of Subsidiary food crops have been subject to wide fluctuations. Food import policies have contributed in SOme measure to this instability. The sharp fall in the price of manioc consequent on the free import of wheat flour is a case in point. The relative profitability of chillies, onions, pulses and such crops has declined to Some extent due to falling prices recently. The Sections worst affected by these trends would be the Small producers. The basic issue involved here is that of reconciling producer interests with econsumer interests. The problem is really One of guaranteeing the groducer a reasonable margin of profit while also ensuring supply tio cOn Sumers at reasonable prices. The trend, however, has been a greater reliance on guaranteed i price Schemes by these producers.
Subsidiary Food Crops
Foodstuffs. Other than rice and fish products, Sugar, livestock and livestock products constituted near4y 40 per cent Of the value Of Our food imports upto the mid-1960's; by 3976 they made up less than 5 percent. With import prices moving up steeply it was realised that mony of the crops from which these foodstuffs were prepared could be grown in this country. A programme was therefore launched to move towards
self sufficiency of these crops b port substitution cultivation is th livelihood of the generally does n( alone. The Sub Sector too plays in pea.Sant far II. tor that has as lopment of this for substitutes of also the need to ported pulses, ce chillies, Onions a rice was freely imported in larg demand for the stuffs Was less f. Successive gOver mitted to a po the cultivation C Among the mai growth of the Se the import res' food stuffs, fav producers in the a guaranteed mi wheat flour and tion which occu. time and the rol tion and relaxati ing cultivation O changes in acre pal food crops Seen in the tabli
LOOking back Over the last two its apparent th: Subsidiary food crease as rapidl der paddy. The Sus of earlier ye Ween 1953 and under Subsidiary very slightly. Th Which Sufficient tention had not development an ter yielding stra tion practices. potential for us developing syste farming in the
A CREAGE OF PRÍNCIPAL FOOD CERO
1965
Paddy 1,323,317 Kurakkan 64,635 Maize 29,408 Chillies 48,603 Red Onoins 14,559 Otatoes 1,662 Manioc 130,492 Sweet Potatoes 34,418
1970
1,775,897 52,078
50,730
58,990
16,660
8,188
147,036
39,150
Source:
建4
Departime mit of Census and Statistics.

in regard to most y a process Of im... Although paddy e chief means of peasant farmer he bt depend on paddy sidiary food crops an important role ling. The key facSisted in the devesector is the need rice and flour andi ) CUt, COW On Irlreals, seed crops, ind potatoes. When available or flour ge quantities, the se subsidiary food elt. In recent time:S nments were comlicy of of subsidiary crops. ni CallUISes for the ctor, however, were trictions on these purable prices for Open market, and nimum price, the rice deficit Situarred from time to e of Chena cultivaOn of rules regardin crown land. The age in the princibver the years are e pe O-Wy.
at the crop figures p decades, however, at the area under Crops did not iny a S the area unAgricultural Cernars show that bet1970 the acreage crops has grown his is One area to y COncentrated at
been paid to the
d growing of betins and Of cultivaFor instance, the ing rainfall for ms of rain fed dry Zone, especially
PS
96
1,788,891 97,630 94,592 134,873 23,892 7,693 373,575 112,548
promoting
in the Yala season, could be dramatically changed if very short dura, - tion strains of 50 to 60 days for a range of cereals, pulses and oil Seeds could be bred. There are also rapid advances taking place in the production of potatoes, manioc, Sweet potatoes, chillies and Onions
in some of the advanced research
centres of the developing world from which Sri Lanka could benefit much.
Institutional Framework
and Agriculture Extension
There is obvious room for improvement in the services and institutions concerned with agricultural extension. There is a lack of sufficient staff to cover all farmers adequately, many Co-operatives 雳8 not capable of providing inputs, credit and marketing arrangements in an efficient manner, while the Cultivation Committees have nOft had uniformly good results.
Another charge is that many of the rural based agricultural officials do not seem to have undergone adequate training in extenSion work, credit administration, rural living etc. and do not appeаї” to particpate, with the Samle degree of involvement in improving the country's agriculture, in contrast to their counterparts in some other Asian countries.
Another characteristic of the situation is that the administrative structure has expanded on the Sale lines of the traditional Schematic approach in administering different
ments. The results are that at the local level there is a multi O offices and officials, each Working often in a compartmentalized manner, without any integrated ap = proach to solve the problems of the 'new' agriculture.
The changes generated by the
adoption of the new technology and the implementation of institutional reforms on the one hand and the 溪
degree of politicization
increasing among rural people on the call for an altogether different
kind of capability and commitment. on the part of the rural adminis
trator today. The adoption of the new technology has increased the
capital requirements of the farmer exposed him to a higher degree of risk and increased his dependence
Ecoxonic REVIEw, JANUARY 1978

Page 17
Oni critical inputs such as water, fertilizers and plant protection chenicals.
The Agricultural Extensioni Ser
vice of the Department of culture is the main agency responsible for supply of farm advisory Services. The hierarchy consists Of Agricultural ExtenSi Ori Officers at district level (DAEO) Agricultural Instructors (AI) at divisional (APC) level and Krushikarma, Wyapthi Sevaka (KVS) at the village level.
As pointed out earlier, diffusion of the new technology has not been eWer. While high yielding varieties are generally adopted, adoption of other components of the package such as fertiliser is Ot very satisfactory. The low paddy yields in relation to potential yields also has been cited as evidence Of ineffective extension. It must, however, be pointed out that exten Sion alone cannot motivate farmers to adopt practices which require investment of money and
effort. Two criticisms of the preSent exten SiOn network are often Inade.
(a) The number of extension workers is relatively low in relation to demands made On then
(b) There is a 'paddy-bias' in extension activity, especially at the levels which reach the farmers. Improving farming techniques and agricultural practices would however, necessitate the change in the outlook of the traditional farmer, and winning his cooperation by understanding his psychology and the society he is a part of. Traditional farmers often show a negative reaction to change and their willingness to take any risks in agricultural ventures is low. The final success of agricultural development in Sri Lanka, however, will depend on whether these farmers will resid to modern practices and the consequent prospective increases in their incomes and whether they will be eager to make the extra efforts necessary to achieve this. It is clear that a more effective stru
1978
ECONOMIC REVIEW, JANUARY
Agri
ctural framework servicing will have play in this regar
The fu
The preceding that the developm ture in this coun ficult path to tra seen that, a wide
between the wari C their actual out.( early 1950s. The ence Over the yea that purposeful a.) forts be made if development objec achieved. It is ( three decades of p sufficiency in rice appears to be in Lanka, within the Good harvests ha last year and evel are forecast for 19 to guard against fel. SOne SucCeSSfl countries where, “ harvest the tempt get the urgency ( ment. The impetu Sion is lost and CC food production is of Governments as tulate each othe lag and older pla or delayed or set day”. For the ef and programmin development it is past policies are c. and the constrain development C0Ꭵ*
Self-sufficiency
not be the goal.
benefits of attai sufficiency must examined. Certain COSt) producers business because C heavy subsidisatio) outputs currently It would be ne gramme carefully Of these incentives ficiency is attaine
It is also pointe emphasis on speci
 
 

and extension a vita role to d.
ture
analysis shows lent of agricultry has a difverse; we have gap has existed
us plans and conne frOn the country's experirs now demands nd sustained ef
OU? tives are to be Dnly after about planning for Selfthat this goal n sight for Sri next few years. ve been reaped better harvests 978. But we have dangers that beul rice producing after each good jati On is to forof rural develops for early deciDmplacency about stalks the halls s officers congraer. Expenditures ins are scrapped aside for another ficient planning g Of agricultural imperative that ritically analysed its that impeded rectly identified.
per Se Should The costs and Animent Of Self
be critically inefficient (high may remain in of the policy of n of inputs and
being pursued. CeSSary to prothe dismantling S Once Self Suf!d.
d out that heavy ific crops were
- ping patterns
agricultural
somewhat misplaced. If the ultimate objective is that of upliftment of the Standard of living Of farmers, the emphasis should be On developing appropriate farming systems combining low land, highland and livestock. The Department of Agriculture has identified 24 agro-ecological regions in the country. Each of these regions. has a potential for the production of a different group of crops and each Would require different cropand management systems. In the long-run, optimum utilisation of resources has to be ensured by diversifying Our agriculture on this basis. نجي
The need for stabilising the water and irrigation supplies and adopting improved methods of Water exploitation and management for CrOp production have been highlighted in recent years. Some basic investments will need to be made in this connection. At the same time, rain fed farming. should be actively promoted on scientific lines to better developed areas now under traditional chena cultivation. The institutional framework for input supplies, extension and research may have to be modified accordingly. Areas that. have not received due attention. such as the provision of infrastructure facilities like road con struction, transportation, storage, space and the ready availability of inputs and extension services need to be taken up more purposefully, A sustained drive at creating a comprehensive integrated pattern, of modern services for the farm. ers of each region can no doubt. improve the capacity in that region to increase its agricultural production.
A viable domestic agricultural system offering the peasant farmer a standard and way of living conmensurate with the expectations generated by education and the force of social and political change in the country, will need to be established. It is clear from the present demographic Situation in Sri Lanka that a large part of the increasing work force would have to find opportunities for employment Or gainful living in the rura areas. If the present agricultural Sector is to succeed in providing
such opportunities, an agrarian Structure Substantially differents from what has existed must energe.
15。

Page 18
FINANCE
BANKING - F.
The Dollar
Wide fluctuations in international currency values Was a
imajor feature of the monetary scene, particularly in Western capitals, throughout 1977. The second half of 1977 especially was full of uncertainity for the world foreign exchange markets mainly due to chronic Weaknesses of the U.S. dollar. The d'Ollar Weakened against the stronger currencies and this resulted in a growing sconcern about what should be done to Save the dollar from further deterioration. The crucial international currency question in 1978 will therefore also hinge on the issues connected with the fate dof the dollar.
The question raised most often at the end of 1977 was why the World's most powerful economy had WOund up With One Of the WOrld's I "weakest currencies. By and large, the world has been on a defacto dollar standard and it became apparent that a prolonged dollar Cirissis COuld have serious repercussions On the international financial sysem and the ec0Omic Situation Of almost every country. A counterpart of the dollar depreciation was the strengthening of the other major currencies notably the Japanese Yen, the Deutsche Mark and the Swiss Franc. The dollar depreciated by more than 18 per cent against the Yen; 12 per cent against the Deutsche Mark and in Switzerland the Franc had risen 25 percent against the dollar in the past year. It is estimated that the dollar declined by 12 percent in 1977, against the trade-Weighted average of sixteen major currencies. The depressing of the value of the dollar with regard to other major currencies during the year 1977 is seen in table 1 and in the graph. It is now evident that such a zigzagging in the currency exchange graph Would have long range political and social implications.
Fluctuating currency values, for instance, have left bou.SineSSmen. with their CIF quotes varying considerably. In the West German market, for example, buyers of imported goods quoted in U.S. dollars found that they had benefitted by nearly 10 per cent over a period of about three months. Or Once
16
again in India f serves dropped crores because the rupee-dollar of January, refl strength of the
Prior to the the situation. Wit ternational Cul latively stable C settled condition Sterling Pound and the French heavy pressure period. Inspite ( deficit and hig. U.S., the dollar Stable in the fil 1977. Evidence O in table 1, whe the dollar at th at the middle O By mid 1977, h had begun to st ness particularly But the deterior grew significant more rapid tow ter of the year.
DOL)
Currency
Deut Schemark Pound Sterling Japane:Se Yen French Franc Canadian Doll Swiss Franc Italian Lira,
The widesp. that the decline the dOllar aS a II rency is due to The enlarged cu. in the U.S. bal which rose to : in 1977, appears greatly to the dollar. It has b ably the dollar' be restored and U.S.A. establishe gramme which oil imports. Th 45 billion dolla. and gas in 197" import bill of t to be met for ments, the U.S ments would c. trouble. The c.

INANCE - BANKING - FINANCE -
reign exchange reoy over Rs. 100 if readjustment Of rate at the end }cting the grOWing Indian Rupee.
second half of 1977, in respect to the intrencies Was reIompared to the unS of 1976 When the the Italian Lira Franc came under
Within a short if the large trade inflation in the remained fairly 'st four months of this can be found In the position of e end of 1976 and 1977 is compared. Owever, the dollar, OW Signs of WeakVis-a-Vi S the Yen. ation. Of the dollar y evident and also rds the last quar
appeared to be either to have a strong stable dollar or Middle East oil; not possibly both.
On the other hand, measures to cut down the massive trade deficit in the balance Of payments would include domestic deflation and trade protectionism. Both these would have domestic as well as international implicationS. Such measures can contribute to a. recession in the economy, higher unemployment and still greater budget deficits in the U.S.A. Ironically, a trade deficit in the U.S. balance of payments appeared to be imperative to facilitate liquidity to the rest of the World; as there has been a tendency to hold dollars for Want of an alternative. But With the dollar continuing to deteriorate steadily and rapidly there were fears of a shifting away from dollars to other strong currencies.
Pressure both externally and internally for action to prop up the falling dollar reached a pitch by the end of 1977; resistance to intervention could no longer be
TABLE
LAR, RATES VAVTHI R,ESPECT TO
KEY CURRENCIES
31, Dec.
1976 2.3579. 1017 293.2361 生.9553 al 1.01.05 2.44了6 873.838
ead impression is of the strength of
international curproblems at home. rent account deficit ance of payments
massive 30 billion to have contributed Weakness Of the en said that, prob
position could not Stabilised until the s a firm energy proWill enable a cut in U.S. had to pay S for imported oil
and SO long as an
is magnitude had
s.S. energy require
balance of payintinue to be in oice for the U.S.
ECONOMIC REVIEw,
SELEO'ED
19, June 31, Oct. 28, Dec. 1977 19 1977 2.341.7 2.2521. 2.1266 17210 1.8405 , 1.8950 267.5769 249.3888 240.6332 4.9216 4.8289 4.7230 10623 1,1076 1.0966 2.465量 2.233 2.0396 884、6602 879.1089 873.3506
stalled. Some economists argue that even in the absence of a threat of dollar depreciation the US would not be able to bridge its trade gap With foreign capital inflows. These lobbies were advocating a confidence in the free market, and Were against “engineering a recession just to achieve a narrow objective of pegging the dollar parity'.
But the growing trade deficit of the U.S. tended to expand the amount of Eurodollars (ie. dollars circulating abroad, particularly in Europe) which resulted in a swelling of the Volume of external dollar liquidity. This, in turn, adversely affected the market value of the dol
lar. The marked. inCreaSe in the EurodOllar component of the Euro-currency System has been
cited as evidence of the fact that
JANUARY 1978

Page 19
ANKING -
FINANCE -
BANKING -
the U.S. authorities were not exerting control over their currency.
Finally the policy of non-inter
gention had to be, at least, partially abandoned and the U.S. Trea
Sury and the Federal Reserve Board
had to come to the rescue of the dollar. In deciding to intervene in saving the dollar, the U.S. abandoned what was known as “malign neglect" of its currency.
In the first Week of January U.S. authOrities į SSled a terSe announcement that the U.S. Would actively begin supporting its weakEning currency On World marketS. It decided to buy up 25 million Worth of dollars in exchange for foreign currency from the InterRational money market. Soon afteryards, the interest rate of the Federal ReServe Wa S raised tO 6.5 per cent. The first action Was aimed at mopping up the excess dollars that had been in circulation, in Order to avoid further deterioration. Of the market value of the dollar. The SeoOnd Was intended to attract foreign investments into the U.S.,
重鲁77
3i 28 3 2g 31 30, 29
ஜ் & x ,
Jan, Feb. March April May June July - Aug.
policy. Throughou foreign governme dollars On their price from slidin; Values of their O fear that such a their economies
exports more exp erin EurOpean S. WÄ impression that
Wanted the dolla cau Se it, WOuld h ports. The Am. found Out that i decline in the di rican goods Chea sell in the foreig benefits Were Sn Were often suppo of the products a broad Such as aircraft and con inelastic'; sales
go up when prij So too. With U.S. ports: the quant American farme Or the Soviet Ur factorS Other tha
it Oct. Now, 3 : 3 31 30
cUMULATIVE PER cEN
FROM'D:
DOLLAR’s VALUE AGAINST: . . .
Rossa sa EDEUTSCHE MARK a SWISS FRANC 圖窮0劃轉動
後冒旺麗
so that a greater capital inflow would facilitate the financing of the balance of payments of the country.
This action and its impact was shortlived, but what *Siyas significant was that this decision marked an about-face in U.S.
EcoToMIC REVIEW, JANUARY 1978
The declin against currencie Or the Deutsche makes Japanese goods nore expe. rican market. Volkswagon car twice as much i.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

FINANCE
- BANKING
it much of 1977, nts had bought own to keep the g and pushing up wn currencies, for
rise would hurt by making their ensive. But Westrere gaining the the U.S. actually r to go down beelp American eXericans, hOW e Ver”, 1 classic theory a Dillar made Ameper and easier to n markets, but the
haller than they Sed to be. Many the U.S. Sold
commercial jet hputers are 'price do not necessarily CeS COme d'OWh. agricultural exity of wheat that CS Sold to Japan lion depended on in only prices.
ā垩、5影
CHANGES EC 31, 1976
e Of the d'Ollar S Such as the Yen
Mark however, or West German insive on the AnneFor instance, a now costs almost n dollars as it did
the OPEC members
five years ago While Japanese cars, television sets and transistor radios Were also much dearer for the Japanese transnational firms such as Sony, which supplies about a third of its exports to the American market. While dollar profits remain at the present level, receipts will be considerably less when calculated in Yen.
The dollar pressure on the Yen in 1977 led to its revaluation by 22 percent in relation to the U.S. Currency, and a CCOrding to One interpretation this amounted to introducing customs duties on all Japanese goods exported to the United States. The dollar pressure on the West German Mark has the same impact.
West German bousineSSmen Were apprehensive ab Out the growing appreciation of the Mark as exports tended to fall and imports rise. The German economy is so structured that it is heavily dependent. On exports and is naturally affected by the dollar's decline. This could lead, to a further recession in its job market and also have serious political implications.
The OPEC countries were also WOrried about the current situation and there have been persistent rumours that OPEC was attempting to stop pricing Oil in US dollars. One estimate states that in all, lost between 15,000 and 16,000 million dollars within a year because of the dollarʼs depreciatiOn.
The Saudi Government suggested recently that if the present trend in the dollar value continued, there might be second thoughts about keeping Saudi cash in American securities and investments. The other OPEC nations are talking a 'currency basket formula for oil pricing. The oil receipts of the
exporters in the currency of the importers or in the “basket' of their trade-related rates would be more in keeping with the lat
ter’s Share in the OPEC countries” trade. It is estimated that, with the dollar rate falling by 5 to 6 per cent, oil pricing at the “currency basket' rate would mean an increase in the dollar price of oil.
Financial analysts feel that the U.S. Government Would SOOn be forced to tackle the energy problem more firmly than at present.
17

Page 20
FINANCE
The U.S. treasury will be forced to finance the trade deficit by borrowing in foreign currencies. And above all, the U.S. administration will be forced to push up the interest rates to attract the 'footloose fUCIS”.
Prospects of
stabilising the
value of the dollar are by no means
certain. A fall in the dollar's Value is expected to continue until the US government resolves the problem of its trade deficit caused largely by oil imports and a poor export performance. The situation was by no means improving with the U.S. trade deficit recording dollars 2.4 billion in January, continuing the pattern that led to the record deficit. Of dollars 26.6 billion in 1977.
With respect to the other currencies the Outlook for 1978 iS expected to be as follows: the surplus Of Japan will remain unchanged at $ 10 billion, while the German surplus is estimated to decrease marginally to $ 3 billion. It is also anticipated that the position of the previously weaker economies will improve in 1978. Thus the U.K. could move into a substantial current account surplus. The French deficit is expected to decline from $ 3 billion to $ 2 billion and Italy could have a surplus of $ 1.5 billion. The Overall surplus of the OECD countries is projected to decline from $ 40 billion to $ 35 billion. But such trends in themselves are relatively unimportant and it is the Overall performance of the dollar that would hold the key to the performance in the foreign exchange markets during 1978.
The present sickness of the dollar, however, is not due to problems Of the U.S. balance of payments alone it is more a manifestation of the inherent dilemma of the international monetary System. The currencies such as the Dollar, the Pound and the Deutschemark, in addition to their serving as a national currency have to perform an international function as a reserve currency. The creation of international liquidity therefore reQuires some country with a hard currency running into deficit in its international transactions. The weakness of dollar is only an indication of the problems associated with the international monetary System, solutions to which are already Overdue.
18
The Eco.
Sri Lanka's
Sri Lanka’’ S, ec experiencing mode during the past year 1977 was in average annual r the economy in t was a low 3.0 p. mately. Comparec rate, however, th the economy in significantly bett nated rate of Stands at about 4 I, given below, after 1970 (whe recorded a 4.1 p. rate) the best been in the past
TABLE s
Year
1970 1971 1972 1973 1974 1975 1976 1977
Also significant the fact that Wit of the country g 1.6 per cent, the has grown by 2.5 This per capita i is the second hig the Seventies ar. abOve the aver growth rate (whi 1.4 per cent) in th However, the ina. capita growth rat can be Seen fro) even at this rat nearly 30 years national Output O.
The recovery in during 1977 attributed to t pèrformance of sector. This sec estimated growth 8 per cent whic. more than the growth of this se ties. Considering activities account third of the tota

ΩΟΙΩΥ
லோ in 1977 and 1978
Onomy has been 3rate growth rates decade and the o exception. The ate of growth of he years 1970-76 per cent approxito this growth e performance Of 1977 has been er as the estigrowth in 1977 1 per cent. Table indicates that !n the economy er Cent growth performance has Vear.
of Sri Lanka, a high performance in the agriculture sector is vital for raising the Overall economic growth of the country. In fact, the inability to achieve high growth rates during the previous years of the decade was largely due to the erratic performance of the agriculture sector.
Adverse Weather COrditions (mainly droughts), high fertilizer prices and high cost of other farm inputs appeared to have arrested the expansion of agriculture production during the seventies. In addition, the unavoidable disruption associated with the land reform programme would have
ri Lanka's Economic Growth Rates
፲970-1977
Real rate of Rate of growth Per capita growth
growth in output in population rate
4.丑 2.丑 2.0.
醇4 5 0. جسمه
3.2 2.0 2
3.8 1. 2.7
3.0 6 4.
3.6 量、 .9
3.0 1.7 1.3
虫。其 .6 2.5
in this table is adversely affected this Sector, in the population particularly plantation agriculture. growing at about Furthermore, unfavourable prices
per capita output per cent in 1977. increase in output hest registered in di al SO- iS z Well age per capita Ch Was lesS thain le period 1970-76. dequacy of a per se of 2.5 per cent in the fact that 2 it would take to double the f the country.
economic activity an be mainly he satisfactory the agriculture tOr recOrded an rate of about h is significantly average rate of 3tor in the seventhat agricultural for about onenational output
for export crops in earlier years had contributed to a lower räte of growth in the plantation sector. Since a good portion of Sri Lanka's service sector activities (such as transport, trade and banking) are also ancillary to the agriculture sector, the performance of the latter was an important determinant of the overall growth rate in the seventies.
The improvement in the agriculture sector with an estimated
growth rate of 8 per cent was the
main force behind the recovery in 1977. ther conditions in the past year, helped particularly the domestic
economic
agriculture sector's good perform
which is
ance. Paeidy production - was on the average about 66 million bushels during 1970-76,
registered a record level of over
80 million bushells in 1977. Con
pared to the level of production
EconoMic REVIEw, JANUARY 1978
Favourable wea

Page 21
TABLE 2 Production and Price Trends of Major A
CROP 1960 1971- 1972-1973-1974
Tea, Production (Mn., lbs) 468 480 471 466 450 Av. f.o.b. price
per kilo (Rs.) 5.375.56.116.135 Ribben
Production (Min, los) 351 32 309 341. 291 Av. f.o.b. price
per kilo (Rs.) 2.73 2.38 2.05 3.68 5.75 Cocontit, Production (Mn. Nuts) 2510 2610, 2963 1935 2031. Av. price per kilo of desiccated coconut 2.01 1.96 1.59 2.71. 5.91
Paddy Production (Mn, bushes) 77 70
63 63 ףך
in the previous year (which was only 60 million bushells) the level achieved in 1977 represents a 33 per cent increa Se.
Several subsidiary food crops also contributed to the improved performance of the agriculture sector in 1977. Since 1970, an appreciable degree of diversification of the domestic agriculture was evident, and crops such as chillies, Onions and grain varieties have emerged as cash crops bringing in an additional income to the Small farmers. The upward trend in subsidiary food crops continued through 1977 and was further supported by the improved
performance of several minor
export Crops Such as COCOa,
eardam Oms, pepper and cloves,
Plantations
In the plantation sector, from the early 1970s the production of tea has been subject to fluctuations showing a declining trend, particularly after 1973. The year, 1977, however, witnessed a slight recovery in production compared to the performance of the previous year - an increase of 12 million kilos over 1976. More than the improvement in production, however, were the high prices fetched by tea, which enabled the country to earn a substantial amount of
foreign exchange. The average f.o.b. price of tea was Rs. 10.50 per kilo in 1976 and
throughout 1977 the monthly f.o.b. prices of tea were well above this. The prices in latter half of the year Were particularly favourable and were in the range of Rs. 27 | and RS, 19 per kilo. The average f.o.b. price of tea in 1977 worked 下 Out to about Rs. 19 per kilo reflecting an almost two-fold increase compared to 1976.
While rubber production showed ECONOMIC REVIEν, 1978
JANUARY
a modest in prov til Oil Of COCOUut ther in 1977 com 1976. Rubber p. SignS Of impr the latter quarte the CaSe of COC level of produ extent, Was Offse prices fetched by nut throughout 1: in the last quarte n
The manufa ( accounts for abo the total output this share has b contribution Of sector to the gli Output in 1970s appointing. The growth per anni. facturing Sector WOrked Out tO les
TABLE 3. The
Sectors 1 Primary Secto 1. a, Agricultu (including for hunting & fis 1. b. Mining & Quarrying 2. Secondary Se 2.a. Manufact 2.b. Construct 3. Tertiary Sect 3.a. Transport Communicatio 3.b. Trade & Commerce 3.c. Housing Services 3.d. Public Administratio) Defence 3.e. Other Ser WiCeS,
* Very py
 
 
 
 

ricultural Crops
1975 1976. 1977.
471. 433 4.60
9.08 10.50 18.9
328 335 350
李、}6,6.50 6.85
2398. 2093 1959
3.25 3.91 9.62
55 60 80
ment the producdeteriorated furared with that Of ices too showed vement towards r of the year. In nut too the 10W. ction to SOIle it by higher f.o.b. Desiccated COCO)77, and especially, r Of the year.
dustry turing Sect Or ut, 13 per cent Of in Sri Lanka, and een static as the the Industrial owth of national has been di Saverage rate of Im Of the manulduring 1970-76 is than 2 per cent;
Relative Importance of
as against the previous Five Year Plan (1972-76) envisaged target of a 83 per cent growth rate in this sector. The performance in 1977 is estimated to be not much better than that of the previous years. The major bottlenecks in industrial expansion in the past year's has been the lack of foreign exchange for the import of raw materials, machinery and spare parts. The situation has been somewhat relieved in recent years from the 60 per cent of the installed indu Strial capacities which remained unutilized in 1974. This - ratio has been reduced to a level of 46 per Cent in 1975 and further reduCed to a level of 36 per cent by 1976. The availability of about 1/3 of the
total capacity as unutilised capa
city indicates the potential for expansion of this sector.
Construction Construction activities suffered a negative growth (about 12 per cent less compared to the year) in 1977. As a result the share of Construction industry in . the aggregate national Output also dropped in 1977. The relative availability of principal building materials (Such as cement) and the eScalating costs of construction Were largely responsible for this Situation. To some extent various legislation that came into effect With respect to private ownership Of houses and rent controls also appearS to have a Cted aS a di Sincentive for private sector construction in recent years.
Different Production Sectors
in Sri Lanka's Economy
1959
39.6
re estry, hing) 39.1 场
0.5 ctor 6.4 uring ion 4.8 Dr. 垒垒。●
9.2
13.6
3.4
1 &
5.1
13.0
rovisional data
Change during 1970 19穹※ 1959-1977 35. 35.0 -46
35.0 325 6,ژ6ھه
0. 2.5 --2.0 20.0 O 十拿。台 13.8 3.0 --14 6.2 40 -0.8 44.3 晏8。● 十4-尊
9.4 0.0 十0.8
连.3 13.5 0.4-سسه
3.1 3.0 一0.4
李.7 6.0 + 0.9
13.4 15.5 -- 2.5
19
previous

Page 22
In the Services Sector, major improvements were seen in the Transport and Communication ser
vices, and in the Trade and Commercial activities. These two services have exhibited approxi
mately 4 per cent growth rates in 1977 compared with their values of output in 1976. The relative share of Transport and Communication Services stands at about 10 per cent while that of the Trade and and Commerce services account for almost 13 per cent, of the national output of the country.
Table 3 on page 19 indicates that the economy of Sri Lanka has not undergone any significant structural change in the past two
decades. The structure of the economy has remained basically unaltered except for a modest
decline in the share of the primary sector comprising that of agriculture, fisheries and mining activities. There were no indications that the secondary sector would emerge as a leading sector, thereby initiating a move towards a, more industrialized economy. The services Sector encompasses а, range of activities whose expansion is dependant primarily upon the rapid growth of the other two sectors. Thus in the absence of a marked increase in the rate of growth in the primary and Secondary sectors the relative importance of the tertiary sector has also remained fairly static. That the economy Of Siri Lanka ha. S not shown any remarkable improvements in growth or structural change over the past two decades becomes apparent. It is important to note that the economic growth rate of 1971, cited at the Outset, is in real terms: i.e. net of price changes over the period 1976-77. The Colombo Consumers Price Index during the year 1977 reflected a relatively stable price level approximating Only a 2 per cent increase over the index for inflation; as this index exceeded 140 towards the end of 1977 com
pared to 112 observed for the year 1976.
The price increases for export
crops in 1977 appear to have more than offset the relative stagnation (or even deterioration) of the exportable surplus of commodities such as Tea, and Rubber. As a result the export earnings in 1977 were estimated to have been enhanced by almost 40 per cent over the 1976 earnings (in rupee terms). The total export earnings have passed the Rs. 6,600 million
20
mark in 1977, T. tributors to this and minor agric which recorded
mentS in their ea The favourable respect to expOr also resulted in foreign trade accC of trade which continuously sinc Out in 1976 to bé almost a decade. the trade Surplu WaS arOund 125 in 1977 the es ShOW ed a five fO, was the Outcome an import bill. Of million as agains ings exceeding RS This imprOverme balance in 1977 Contributed to a tiOn in the Curren Of the country payments. With a of grants and ai the country and from tOuri Sm and the current accou appear in a st breaking a trenc deficits in the pas
Prospects
Turning to th 1978, it is import that the new package' OrOIMI Budget Speech in aims at accelerat economic growth. the exchange ref liberalization Sche duction Oriented gra, IllIne are eXpe pand economic ac dite the rate Of g]
The import, a ralization Schemes tended to facilitat utilization in the tries as well as
establishment of
ventures, particula SectOr. In additi Of an n WeStiment should enable a h dustrial growth ir was observed in t of this decade.
ConStruction : be expected to ex incentives offered ers and develope availability of bu The public sector plating playing a creasing the hou Si

le principal COnhave been tea, ultural exports great improveIrningS.
position with t earnings has a surplus in the unt. The balance Was in deficit e 1966, turned 2 a surplus after Compared with is in 1976, which million rupees, timated Surplus ld increase. This of maintaining about Rs. 6,000 st export earn3. 6,600 million. int, in the trade appears to have favourable poslt account balance s balance Of greater amount d flowing into higher earnings i. Other invisibles int balance could urplus in 1977, Of continuous it tWO decades.
s for 78
Le prospects for ant to recognise economic policy ised in. the November, 1977, ing the pace of In particular, orm, the import me and the proexpenditure procted to help extivities and expe
owth this year. nd exchange libeare mainly ine greater capacity existing industo encourage the nev indulStrial rly by the private On, the setting up Promotion Zone ligher rate of in1978 than what he previous years
activity can also pand due to the for house build}rs and greater ilding materialS. is alSO contemmajor role in inng stock and in
proving housing conditions. The anticipated expansion in industria. activities, particularly in the Investment Promotion Zone, should also act as a Stimulus to the construction industry.
Until the Mahaweli Development Scheme is fully completed an Overwhelming increase in the domestic agriculture Sector cannot be expected. However, with greater availability of fertilizer (at the 75. per cent subsidy) higher GPS price and improved credit and extension facilities it should be possible, if weather permits, in 1978 to exceed the level of paddy production (80 m. bushells) achieved in 1977.
The diversification of domestic agriculture whereby subsidiary foodcrops Such 3S Onions, grain varieties and Sugar cane are expanded need to be give special attention in 1978. In this respect, greater liberalization of food imports aimed at consumers Welfare should in no Way be allowed to adversely affect local productiOn.
The Setting up of an Agricultural Development Authority and the emphasis. On improving the management Of the plantation Sector are desirable moves in increasing the output of export crops. The enhanced subsidies for rubber and tea replanting and the increased rupee incomes resulting from the exchange rate unification should also prove useful in encouraging production in the plantation sector. As proved by the last year's performance minor agricultural export crops such as cocoa, coffee, cardam oms, cloves and pepper als8 have considerable Scope for expanSiOn in the yearS tO COme.
The linkage effects of agricultural and industrial expansio would benefit the Service Sector aetivities. In this regard, Transport and Communications, Trade and Commerce and the Finance and Banking SectOrs in particular cara be expected to grow at faster rates in the course of 1978.
A higher level of activities car. also be expected in terms of both exports and imports. If the price trends observed in the last quarter of 1977 continue through 1978, both major and minor export crops are
bound to register higher levels of
foreign exchange earnings. The
benefit of favourable prices, however, can be fully realised only if supply responses are good and there
is a greater exportable surplus.
(To be concluded in our February issue).
ECONOMIC REVIEw, JANUARY 1978

Page 23
CHNAS
An Interview with Norman Borlaug
"China's determination to feed
its Own people has created Ole of the nost spectacular transfornia, ti OinS Of agriculture the World has seen, stated Dr.
Norman Borlaug, Nobel Peace Prize Winner for his Work in breeding the dwarf tropical wheat, and getting it widely accepted in Southern Asia. One of the key factors in China's success is the incentives to encourage production: paid to farmers have gone up but the cost of fertilizers and Other inputs has been kept down.
In an interview Will the U.S. Christian Science Monitor in December 1977, Dr. Borlaug said “China alSO is leading the developing countries in its adaptation of other modern Scientific farming methods, especially double and triple Cropping, which now blankets, almost the entire country.”
Dr. Borlaug, who visited China for the Second time in June and July 1977, speaking at the International Maize and Wheat Improvement Centre in El a Batan (MexiCO) where he directs the wheat programme, expressed admiration at China's determination to feed its own people, a goal so far not fully realised.
"I have great admiration for What the Chinese have done in Wheat, rice and maize', he said. He reported that although the Chinese quietly have been testing dwarf wheats developed in Mexico for many years, the Chinese green revolution in wheat really dates from 1971.
In 1971, China, imported more than 1,000 pounds of experimental seed lines from Pakistan and Australia. Then in 1973 and again in 1974 it bought 15,000 tons of the Mexican seed, and its green revolution was on. By 1975, the Chinese had produced 41 million tons of wheat, third in the World after the Soviet Union's 65 million, and 58 million by the United States. India
in the meantime, produced 26
illion tons.
"Agriculture has the highest
priority in China'', Dr. Borlaug
said, “in research production, and distribution. Food goes to every
ECONOMIC REVIEW, JANUARY 1978
SPECTACULAR GREEN REVOLU
prices
One equitably. I hungry person in
Dr. BOrlaug sa China has been in agricultural i ample, in 1960 vil cal fertilizer Wa:S They composted a Waste and in that the Organic strel In China, they dev and got the COa. lages for COOking they have the CO never exploited i COW dung is used which is why Ir poor'. Dr. Borlal
“Then in 196 Setting up SOIne Zer plants. When they had 1,200 or tories Scattered a try . . . . . . By 1974, the largest imp fertilizer in the W. it Was coming frO petroleum imports after the oil-price ruptly cut back ( duction, mainly t farnerS”. -
*Within Six W cided to build t day-capacity anhy plants. They hire in the World, to bu ricans, Dutch, Fr. eSe. Now they more, for a total resentS the larges chemical fertilizer any COuntry has e
Dr. Borlaug w thought the conce motivated by mol material incentive Under Mao Tse WOrkers, and the the di Octrine Of S COIn. In Olin gOOd: Wi not each Want a the cake?
He replied, “A through China's hi dominated by a The “great proleta! VOlution ainmed build — up i Of a, bu Would stifie all pl
 
 
 
 
 
 
 

Tion
we never seen a
China’. id that since 1963 heavily investing nputs. “For ex(tually no chemi
USed in China. final and human Way maintained ngth of the soil. eloped COal mineS
Out to the vil
fuel. In India, +al, but they have t. Instead, the
as COOking fuel, dia’s Soil is SG g said. 10, China, began chemical fertiliI visited in 1974 Ω1ΟΥe Sinall fa Cfound the counChina, was also Orter of nitrogen Orld. But most of Im Japan. When from Japan fell, rise, Japan abDin fertilizer piroO Supply its own
seekS, China deen 1,000-ton-perdrous ammonia, d the top people ild them — Ame2nch and JapanWe added two of 2. It rept investment in in a short time Ver Innade.”
aS a Sked if he bt of Maoist man, 'al rather than S, WOuld endure.
tung, peasants, Army accepted a Crifice for the
thout him might bigger share of
S YOU know, all Story it has been ureaucratic elite. *ian i cultural reto prevent the Yeaucracy that OgreSS. Ma O WaS
Χ.
fearful that unless he found some Way to perpetuate the revolution, the historical pattern would take
hold in China’.
Dr. Borlaug, who grew up on a farm near Cresco, Iowa, much admired Chairman Mao's strategy of sending intellectuals “out to the villages to live with the lowest,
poorest rural masses'. He noted that
only 4 per cent of Americans InOW live on the land and that finding agronomists or plant breeders with actual farming experience was be-, coming a problem in the United States.
“We get all these young men With Ph.D. degrees and I have to baptize them in the dust, mud, and Sweat Out on the farms with Mexican farmers before they are any gOOd', he said.
Success Ranking
Asked to rank the successes of the green revolution in order, Dr. Borlaug listed China, India, Argentina, Egypt, and Pakistan. He said India still suffered from a distribution problem; at present it has nearly 20 million tons in stock “but the poorest people are still going hungry'.
He thought both Argentina and Pakistan have failed to realise their tremendous agricultural potential because of political leadership that kept farm prices down to provide cheap food to restless City people.
In contrast, Chinese policy has been to give incentives tO encourage production: prices paid to farmers have gone up but prices they have to pay for fertilizer and other inputs have been kept down.
Dr. Borlaug said he had not been aware that President Johnson. Once threatened to withhold 10 million tons of emergency relief Wheat to India, unless that country enacted policies to launch the green revolution and keep it going. This deal was Secretly struck in
negotiations in Rome between the then U.S. Secretary of Agriculture Orville Freeman (who did nOt ’ divulge it
until years later) and the then
I Indian Agriculture Minister, Mr. C.
Subramaniam, and later Was reaffirmed in private talks between Mrs. Gandhi and Mr. Johnson in Washington.
Dr. Borlaug said he has two main concerns for the future:
- Present record harvests in North America, may once more lead to “dump
ing” wheat as gifts or at CDracessionaal
prices to poor countries that may then (continued on page 22)
21

Page 24
FOREIGN NEWS REVIEW
UNCTAD's Poor Progress on Commodifies
UNCTAD'S Common Found COnference reconvened for the Second time in 1977, during December, but once again recorded little progress. In March 1977 the four week long negotiating conference on a Common Fund to finance international commodity arrangements ended with a general consensus among the developing nations that this session had ended in “complete failure'. Both developed and developing nations had agreed on the principle
that there should be some kind of
Common Fund, but there continued to be profound disagreements on just what kind of Fund it should be. The developing countries were asking for a new financial institution whose establishment WOuld also encourage, by the availability of cash, the setting up of individual commodity agreements. They wanted the Fund to have a broader role than simply financing buffer stocks.
China's spectacular .........
be tempted to again ignore agriculture. He said most of the world's present political leaders are overly concerned with getting cheap food to their cities, a situation that would tend to magnify possible future problems should the North American wheat crop do badly some year.
-- Only 10.15 per cent of the world's 3 billion cultivators so far have been affected by the transfer of American farm technology that began in the 1960s, most of them engaged in dry zone irrigated farming. The wet rice basis and small fry land rain-fed holdings that feed most subsistence peasants are still to be reached.
WORLD FOOD SUPPLIES... contributes to a better life for all Neither Of these conditions haS been met in any of the countries in which people are hungry today.
E. R. You have emphasised self
reliance in food is basic to the eco
nomies of the less developed countries, but considering how practical this goal is in a global system that is so inter dependent, would you
continue to think that this is a
22
Their hope was til We:St mOnies frO other Ways to
COImeS frOm COmr
The developed are the main co, the otherhand no neW institutiOn Wł intervene in the
rials markets and WOuld nOt, have ml countries Were a smaller Fund only after each i dity agreement is Only used to fina
The outcome
Fund negotiations found effect on a modities, particula which is likely. drawer. On the reach agreement
leave the World's r commodity prod System in a chaot ing suspension of the COmmon Fun focussed in Ger gress achieved so f
individual commoc
UNCTAD’s Integr; for Commodities.
the meeting, toget ation. Of the COn ference was the UNCTAD's Session to 16, 1977. Pre to have proceeded to negotiations w clude internation: rangement.S. A r this session by Se Dr. Gaimani, Corea. headway had bee the commodities
held true in parti
paratory Work C
feasible Way Out
Collins: In ing fOOd SelfSeveral conditions mental to the en involves achieving fundamentals whi Lappe and I have a chapter in our “F00d First Bey Scarcity’, which ing yOu On my r to reproduce thi food self-reliance" issue.

hat they could inIn this Fund in improve their inn'Odities.
countries, who In SummerS, are OIM t in favour of a
nich could actively -
WOrld's raw mateOver which they lch control. These Of the view that should be set up individual commosigned and then ince buffer Stocks.
of the Common can have a prOlil individual comrly that of copper to be the biggest Fund. Failure to could ultimately 'aw materials and uction and trading ic State. Follow7—.
negotiations. On d, attention was leva on the pro'ar on the eighteen lities covered by ated Programme An aSSeSSnent of her with an evalunOn Fund Conmajor concern Of from December 12 paratory work was by February 1978 nich WOuld COnall COmmodity areport presented to cretary General revealed that little n made regarding under review. This cular for the prein COpper. The
of the situation? my view achievCeliance requires that are fundatire situation. It of at least Seven ch Frances Moore set out clearly in most recent book ond the Myth, of I shall be sendeturn. (We hope s view point on in a subsequent
position seems pessimistic, except that for Sugar an international agreement had been reached and for rubber there were good prospects, that governments may decide to begin negotiating an international agreement to stabilise rubber prices.
Besides this little progress, it is clear that in no case have formal decisions been taken to move to the negotiating stage, and there is no indication when this will be reached for any single commodity, except perhaps for rubber. There has been a tendency for the preparatory meetings to recommend further meetings and studies, according to the UNCTAD Secretariat.
Since it has been impossible to meet the deadline Of getting through the preparatory meetings by February 1978, the schedule of meetings On individual commodities for 1978 has been revised. This was approved by the Ad hOc Intergovernmental Committee on the Integrated Programme for Commodities which also hoped the preparatory meetings in December would be actively continued so as to move into the negotiating Stage as soon as possible. This Committee stressed the close relationship between negotiations On a Common Fund and the discusSiOn S. On individual COrnmOditieS. Ît has emphasised that in providing a framework for these discussions, rapid progress on the Common Fund would in fact have a major impact On progress on individual commodities.
At the end of the UNCTAD meeting in March 1977 Secretary General Dr. Gaimani COrrea COmmented “The Fund has the support of many developed countriesuphile others in the Group have imidicated ment) and more positive attitudes. If the time vas mot ripe in March to translate all this into positive decisions, the opportunity will be there when the Conferenc reSilmes later this year, But the taskc upill mot be easy”.
The outcome of these resumed sessions has proved that the task is by no means easy and UNCTAD will now have to seek another opportunity.
The Economic Revieu of April 1977 concluded its comment on the March Common Fund meeting thus:
The most recent message of Geneva
is clear. The only agreement arrin?-
ed at Geneva seemed to be “that the
сотference recontрете.........29
This comment holds good the December Sessi Ons tOO.
Gశ్లో
ECONOMIC REVIEw, JANUARY 1978

Page 25
FEATURES
Tax Havens
፥፳Å ilka Casanegra de Jamtscher
Many countries of the depeloping world, in their bid to attract foreign capital with the hope of speeding up their depelортетt, hape beет дrатting liberal concession to foreign investors, and contemplated taac haven-S, numbered bdmk: ассоитts атd several such теchanisms. Here Mrs. CaSatnegra, a Chileam national attached to the World Bank, aS di Semior Taac Administration Analyst, discusses the possible dinpide nds and diratuD"backcS for countries contemplating taac
hidem Statinu.S.
What do the Bahamas, Berm Hong Kong, lands, the New Hebrides,
tuda,
Liberia, the NetherPanama,
and Switzerland have in common?
They are all “tax havens'.
As such
they are apt to excite either passionate praise or passionate denun
ciation, depending on the poin view of the commentator,
What is a tax haven
Essentially, place where
a tax haven is foreigners may
t Of
3.
e
ceive income or own assets without paying high rates of tax upon them.
Although strictly speaking not tax havens are countries, We refer to them as Such here for
all Cal the
Sake Of COnvenience. In SOme havens the tax relief that foreigners enjoy stems from the absence Of the chief
forms of direct
taxation-income,
estate, and gift taxes; but in most
countries the relief stems from cial features of the tax system result in a very low effective rate. On certain investment. Some countries enjoy a reputation have cultivated it. In others features that make them a
Spethat tax
forms of foreign
that
as tax havens
the tax
haven are merely a consequence of
their having followed certain prin
ciples of taxation, such as that of
strict, territoriality in applying come taxation, but without the
in
tention of establishing a tax haven. Such countries are likely to con
ECONOMIC REVIEW, January 1978
Explain
sider the tax hav tOry.
In the ab Sen On the use bei havens, exaggeral advantages that Offer to taxpayer cribed in guides Sionals who spec Out Operations their clients. But formation On the
venue loSSes Suffe
countries and th tax ha Wen COunti: their Status iS There is general a few facts, prin amount of busing ed Out in tax able, even though not available. M that the use of terprises in highparticularly by m
prises is growing.
Even thoug havenS include S S countries, In OSt countries. It is
ample that Other tries are tempted hope that becomi help them Solve nomic problems.
haven Statu. S d'Oes fitS tO) the ta,X ha one of the object dispel the myth t status is a pana C economic problem
The modus operar
Tax havens a. variety of Opera purpose of those them is tO minin total tax burden least, a part of hi. to a lower effecti otherwise be ap should be taken Ween Operations : pose is that Of di payer's total burg have a bona fide The latter are gi dered tax haven they take place in
 

ed
2n label deroga
e of reliable data ng made of tax ions flourish. The
these countries ; are Well deswritten by profesalize in carrying in tax havens for hard Statistical inextent Of the rered by high - tax e benefits which ties derive frO WOefully meagire. agreement on Only cipally that the SS activity carriavenS iS COnSider— exact figures are Dreover, it appears 13X havens by entax countries - ultinational enter
h the list of tax everal developed are developing
precisely their exI developing counto follow, in the ng a tax haven will Ome Of their eco
While the tax bring Some beneven country, it is s of this article to hat the taX haven ea, for a COuntry’S S.
di
e used for a great ions. The main
who patronize ize the taxpayer's by subjecting at income or wealth 'e rate than WOuld licable. But care 50 distinguish bethOSe main purminishing a taxen and those that business purpose. nerally not consiperations, even if a tax haven. Some
industries located in tax havens are
engaged in producing goods for the domestic Or international market. Some royalities are paid from -tax havens for patents or know-aow actually being used in the country. Some foreign citizens work in tax haven countries. Even though these individuals Or corporations benefit from the country's low rates, they do 'real' business within its borders.
In contrast, much “tax haven' business is fictitious, in the Sense that little of none of it is effectively carried out in the tax haven proper. GOOds that are bought and Sold by tax haven. Subsidiaries often do not pass through the tax haven's territory; they move directly from
the country of origin to the country
of destination. The assets of trusts that are established in tax havens are usually kept thousands of miles away; and neither the grantor nor the beneficiary is normally resident in the tax haven country. *
Tax haven OperationS COn Sist fundamentally in establishing withlin a tax haven country One ( Or mOre legal entities, such as trusts, personal holding companies, or COirporate subsidiaries, and attributing to them incOne earned el Sewhere in Order that it should be taxed at the country's low rates - or perhaps not taxed at all. This objective is usually accomplished by either (1) accumulating income in the tax haver country at low rates of tax, to be withdrawn later and invested elsewhere according to the investors wishes; or (2) artificially shifting business profits from hightax countries to a tax haven country.
in the case of passive invest
ment, from which dividends, interests, or royalties are derived, trusts and personal holding com
panies are used as buffers or screens between the real investor and his assets. For many years the creation of these legal entities for the purpose of Obtaining a tax advant
age was among the most popular uses Of tax haven S. As a result Of counters measures enacted during
the past few years in certain capital exporting countries, the use of tax havens to shelter passive investment income has apparently not increased as fast as other tax haven. activities.
23

Page 26
At present, the most growing type Of tax haven Operation is that of shifting business profits from high-tax countries to tax haven. countries. These profit shifting transactions are usually carried out by large corporations through tax haven Subsidiaries, using sophisticated methods that are designed to diminish the tax base artificially in high-tax jurisdictions while increasing it in the tax haven COuntry.
rapidly or branches
lOC countries to do E
eSS.
The activities sector are largely dependent nature ject of many o trust companies i CeS tO Other taX SUIch aS admini triuStOS and COIDO and hOlding depO: vestors. Much of
“There is a tendency to eacaggerate the
jobs created by taac haven activitie
The most important of these methods involves transfer pricing: the setting of prices on goods and services that are bought and SOld between a parent company and its foreign subsidiary. No 'arm's length.' bargaining takes place between these parties, so the prices that are set can be manipulated to minimize the enterprise's total taxes. (The 'arm's length' relationship implies dealings between two independent and unrelated parties, where prices are determined according to market forces). For example, instead of a company Selling goods directly to a foreign buyer and realizing a profit that is fully taxable in its home country, it may sell the goods at an artificially low price to its subsidiary in a tax haven country. Thus, it shows only a small profit on which it has to pay a low tax, Or perhaps even a lOSS. ItS Subsidiary then resells the goods to the ultimate buyer at the normal price, earning a large profit, all of which however is taxed at a low rate, or not taxed at all, because the subsidiary is located in a tax haven.
Another type of activity is carried out in tax haven countries by the financial sector. In most of theSe COUntries there existS a financial Sector Whose Size and importance are Out of proportion to the size and resources of the country itself. This sector USUSally comprises a large number of banks
and trust companies most Of Which
are branches Of Subsidiaries Of foreign Owned institutions. The reaSons for their presence in tax haven countries are quite varied. These institutions manage trusts and holding companiels that have been established to shelter foreign passive investiment income; they hold deposits for foreign investors, they provide a dinhi ni Strative facilities for a variety of corporate Subsidiaries. Foreign banks also use 'shell' bank
24
this Sector is “rea tax haven. Ban panies that aldr holding companies ount Of the tech 1egal WOrk Of adım tax haven COuntry however, such as
oran CineS Of for “real' activity is
Where, except per
nal presence in
Taxxi haven S a nerS WhO COme tC banks Or. Other c. tirees, who decide residence Where til temperate climate of a low-tax envir cases there is “rea country-Whether residing in it -a. is Only One Of Sevi that induce thes Settle in a tax ha.
Tax and other a
LOW tax rates principal atractic havens. Usually associated with in fact what spring: diately upon heari haven' is the a taxation, or the e Of in COne taXa foreign investmen true that many Offered by ta X ha income tax advan no means the C these countries O. VeStOrS. \,
Within the ta. of other taxes. Suc tance, and gift important tO cer the absence Of ar. teral tax treatie haven country an jor developed cou feature that may

ated in tax haven urO — currenCy bolu,Si
Of the financial of an ancillary Or The main Obf these banks or S to provide Servi
haven activities, stering tax haven rate Subsidiaries
sits for foreign inthe business of
number Of S’
1' business in the KS and trust cOnninister trusts or 3 do a large amnical, audit, and inistration in the V. In Other cases, the Euro-Currency eign banks, the
Carried Out el Sehaps for a in Olmithe tax haven. lso attract foreig} WOrk for foreign Ompanies, and reto establish their he advantage of a
is joined to that Onment. In these al' activity in the Working or merely ind the tax factor eral COinSiderati Ons
e individuals to
ven country.
dvantages
are perhaps the in offered by tax these low rates are COme taxation; in to mind immeng the words 'tax bSence of income xistence Of a form ion that exempts t. Though it is of the advantages ven countries are tages, these are by inly benefit that fer to foreign in
field, the absence h as estate, inheritaxes may be as lain in VeStOS aS
inCOnne ta,X. Bila3— S between a tax 5 SOIme Of the Inąntries are another
attract investors.
located abroad
Econovic
The existence of a tax treaty allows third-country investors to base their holding companies in tax havens and obtain a reduction in Withholding taxes applied to the dividends and interest they receive from developed countries with which the ta,X ha Ven COuntry has the tax treaty.
Strict and well-enforced rules of banking secretary and, in general the possibility of doing business without close supervision by goverInnent agen CleS are additiOrnal attractions usually offered by tax haven countries. Other factors, such as the low cost of doing busineSS, the existence Of liberal banking regulations, and the absence of exchange controls are also important. These advantages were the chief reasons why foreign banks established Euro-currency branches in the Bahamas; the country's attractive tax climate was apparently Of Only secondary importance. Finally, a good communications service, a well developed legal system. With an abundance of legal and a,c- COunting expertise, and, above all, a high degree of political and financial stability also help to make a country successful as a tax haven.
Countering tax loopholes
Are these all the elements necessary to enable taxpayers from high-tax jurisdictions to minimize tax burdens In fact, there is One other element without which they could not do SO and that is the existence of features in the tax systems of developed countries that allow taxpayers to take advantage of the benefits offered by tax haven. countries. Among these features are, for example, the more favourable tax treatment granted to trusts than to domestic trusts, and the mechanism of tax deferral that allows taxpayers of high-tax countries to defer income tax payments on income from foreign sources until it is repatriated. These and other mechanisms may be likened to escape valves left in their tax systems by high-tax countries, in order to grant taxpayers relief from the pressure of taxation. As long as these provisions remain. in effect, high-tax countries cannot place all the blame on tax havens for the losses of revenue they suffer.
During the past tWO some countries have moved to eliminate these safety valves. The United States has pioneered, the way, with other countries, such as Australia, Belgium, Canada, the
1978
REVIEW, JANUARY
decades

Page 27
Federal Republic of Germany and the United Kingdom following that example. The enactment of measures against the use of tax havens has not been easy and in each Of these countries has produced an uproar among interested taxpayers in high-income bracketS.
In general legislation on this subject is aimed at one or both of the following objectives: (1) preventing the tax-free accumulation by tax haven countries of certain forms of income, such as passive investment, income, and income derived from the a SSignment of serwice contracts to a foreign Sub Sidiary; and (2) attacking the problem of transfer pricing, by attempting to tax a parent company on the profits it would have obtained if the transaction with its Subsidiary had taken place at arm's length.
The tax Systems Of a number of industrialized countries, such as Canada, the Federal Republic of Germany, the United Kingdom, and the United States, permit domestic companies to postpone the payment of taxes. On profits earned by for
eign subsidiaries until those profits
are repatriated. This has made attractive the establishment of foreign personal holding companies in tax haven countries that can accumulate income either free of tax Or. subject to a very low effective rate. The rules recently enacted in some developed countries to prevent this accumulation generally requires the income Of these foreign holding companies to be taxed on an accrual basis, thereby eliminating the tax deferra privilege that the owners previously enjoyed. Complex rules
There are several reasons why these rules are complex. Perhaps the main one is the wish of the deVeloped countries to soften their impact upon companies that are accumulating income in low-tax jurisdictions for normal business reasons, without intending to avoid taxes. In order to achieve this purpose, anti-accumulation rules rely heavily on percentage criteria, which have the merit of being objective but which at the same time leave a wide margin for manoeuver
sing by taxpayers.
Thus the anti - accumulation
rules usually apply only when the subsidiary established in a low-tax country is “controlled' by taxpa, yers in the high-tax country. “Control" is defined as ownership of more than 50 per cent of the stock s of the foreign subsidiary. The United States and Canada, however,
ECONOMIC REVIEW, JANUARY 1978
Only COllint COrpOra duals, each Of w than 10 per cent Od poration, toward “controlling' share This latter rule at clude portfolio inve anti-accumulation Federal Republic C not employ this p Ously, these percen be easily circumver point is the recent number of Subsic countries whose legally owns Only : the stock, but in full COntrOl With Oui the anti-accumulat
Apart frOn thi to the percentage ( other important eX illles that haWe uS ted in response to groups. This is t ample, Of the exce rules that until shipping interests States.
Transfer pricing
In Spite of the the rules that att the accumulation o in tax havens thro' panies, these rules been nnOre SԱC0 provisions designed of transfer pricing from high-tax to ti OinS. The tax la veloped countries C to ensure that sale rations carried Out, tic corporations a Subsidiaries are trg length prices. Th difficult to admini actual determina length prdce is fr plexity.
AS a result, against the use of developed countries troduced have mai accumulation of p. income in tax have by banning accum but only for very and complex. The mulation of income panies and trusts but only for very Or the large corpo latter are also the use transfer pricin to tax havens, an cing practices havi affected by the pri the USe Of tax hav
 

ions or indivinOn OWns nOre the foreign COrthe 51 per cent of the company.
;empts to θXstment from the provisions. The
f Germany doeS ovision. Obviage criteria can ted. A case in increase in the iaries in low-tax arent company 0 per cent Of practice exercise being subject to ion provisions.
Se loOpholes due 'riteria, there are ceptions to these tally been ena C
special interest he case, for exptions to these
recently favoured in the United
ShOrtCOmlingS Ol empt to prevent if tax-free incOmie ugh holding comappear to have essful than the to curb the use to shift income low-tax jurisdicWS Of Several de:Ontain provisions S and Other Opé.
betWeen d'OmeShd their foreign ansacted at arm's ese provisions are ster, since the tion of the arm's aught with com
the provisions tax havens that S have lately innly affected the a SSive investment in countries, not ulations outright, wealthy investors refore, the accuby holding com
is still pOSSible, Wealthy investors rations. As the
corporations that ng to shift income d as transfero prie not been much Ovisions against ens, it is probable
that the 'clients' of tax havens are increasingly being drawn from higher-income and greater-wealth bracketS. In fact SOme of the movements against tax havens in developed countries has stemmed from medium or small corporations that claim that tax havens afford tax relief mainly to large corporations, making competition more difficult for other enterprises. The benefits
But What are the benefits that tax havens may obtain from their status and what is the price they must pay for those benefits? For deVeloping economies one of the main apparent advantages of being a tax haven is the possibility of achieving a higher employment level. This is particularly attractive to countries with a narrow resource base, which tend to have chronic unemployment problems. -
However, there is a tendency to exaggerate the number of jobs created by tax haven activities. The establishment of hundreds and even thousands of corporations and trusts and the large number Of transactions that technically take place in tax haven countries are generally accomplished by using little manpower within the tax haven countries. The case of Norfolk Island, a possession of Australia, and a former tax haven, illustrates this point. According to a survey quoted in a manual on tax havens, in 1972 more than 1,450 companies were incorporated in Norfolk Island-nearly One per inhabitant. Nevertheless, it appears that the tax haven Sector was directly benefiting only 25 residents of the island, as much of the business was being carried out by lawyerS and accountants in Australia.
It should be remembered that the main purpose of tax haven activity is to avoid taxation and that no business or trade is actually carried out in the country. The main exceptions are the institutions in the financial Sectors which are the principal generators of employment opportunities and additional demand for Services Within the ta haven sector of the economy. HOWever, these institutions usually prefer to Staff their Organisations with expatriates - particularly in the higher positionS-SO not all the jobs created by this activity will be available for nationals of the host country.
Other ecOnOmic activities are also stimulated by tax haven operations. Construction is boosted, principally of commercial buildings.
25

Page 28
As in the case of employment, the number of new buildings required is much smaller than the size that the tax haven sector might indicate, as hundreds of holding companies or other subsidiaries may require only enough office wall space on which to hang a nameplate. Only those enterprises that actually do something-again mainly enterprises in the financial sector-require sizable office space to carry Out: their activities. Another activity that may be stimulated is tourism, particularly if the country enjoys an agreeable climate and meetings of directors in the country are a requirement for incorporation. A tax haven country may also attract retired persons as residents, and their presence provides employment opportunities and helps bring in foreign exchange.
The existence of a large financial sector has other important effects too. It may help a country maintain a free and open foreign exchange and payments System. In
The problems straints imposed status vary accor gree of develop try, the size an
its tax haven sec
of benefits grante general terms, th Some problems a countries where t tOr COntributes a ant share to the national product.
At first glanc paradoxical. The haven sector is tantially to GNP neW eCOnOmic a( place, which is di true, but the pri
Hature Of tax hav
main purpose is ance. tax haven very little invest assets; therefore, neSS is extremely ing in Stability.
“Taac hallen Countries tend to be more ulnerd
factors tham de?)eloping Countries that
addition, the advantage of having a
readily accessible financial market
is considerable. Government bond
issues may be underWritten or Sub
scribed to by foreign banks, thereby making funds available for public investment and economic development.
Finally, the tax haven. Sector is a source of revenue to the government. However, liberal the tax system of a country may be, there will always be Some form of tax Or. fee for which the foreign investor will be liable. These contributions range from a simple annual fee payable by all corporations established in the country to income tax on profits considered to be of domestic Origin. For example, in the case of banks that do both domestic and foreign business, profits from domestic sources may be tax
able while income from foreign sources is exempt. Moreover, in most tax haven countries indirect
taxes. Such as customs duties, sales taxes, and others are fully applicable.
The drawbacks
Is there a price to be paid for all these advantages? Yes, and it is generally not fully apparent when countries set out to become tax havens but may become burdenSome later.
26
The One sect age in real econC financial sector dent On What OC the tax haven se eign business disa tic activity will n retain the large insurance compar ganizations that Sector of a tax h.
Tax haven
Sensitive to nati tional developmer haven country it whiff of financial prominent bank
obligations-is eno tors in Search of
that offers more S such as these air vent, as One Of til
Ook for in tax Secrecy and a S lil Sible by governir affairs. Secrecy
do not go well te
èrally the latt haven countries; not surprising wh or other financia OCCU.
Another Ci may frighten aw Suspicion that a

created and conby the tax haven iing to the deent Of the cOuincomposition of Or, and the kind to this Sector. In e most trOUbleise in developing he tax haven Secrelatively importcountry's grOSS
(GNP).
2 this may appear fact that the tax Ontributing SubSshould mean that tivity is taking Sirable. This is blenn lies in the en activity. As its hat Of taX aVOidactivity generates ment in tangible tax haven bu Sivolatile and lack
ܓܠ
ble tO easternal
are mOt”
Or that does engmic activity -the -is heavily depencurs in the rest Of ctOr. If this fOrppears, the domeslot be sufficient to number of banks, hies, and other orform the financial aven country.
activity is highly onal and internatS. Within a tax 2Self, the slightest Scandal-Such as a defaulting on its ugh to send invesanother tax haven ecurity. Situations e difficult to prehe things investors havens is absolute title prying as p0Sment into their and Supervision ogether, and genSr suffers in tax accordingly, it is en bank failureS al problems do
rcumstance that ay investors is the country's leaders
are considering important changes that may include nationalization of Other radical measures. Even the Smallest indication of this may precipitate a flight of depositors and Other investors. A tax haven government must also be cauti Ons ab0Uut hinting that it may change its policies to meet revenue demands. for such hints may destabilize the tax haven sector. This seriously constrains the formulation of a coherent domestic tax policy, as there is a natural reluctance among authorities to jeopardize the tax have sector by any changes, however necessary, in the tax System.
International factors
Internationally, One Of the factors that can influence tax haver investment is the attitude of developed countries toward this activity. The measures against the use of tax havens already taken by the have all had some impact. Future measures are already being studied. by some developed countries that Will make the use Of tax havens more costly and complex than it is at present.
Fluctuations in the World economy and disturbances in international financial markets also affect tax haven activities. Competition among tax havens trying to outdo one another by offering more stability, lower taxes, and better commercial facilities accentuates the volatility of tax haven investΩηent.
Tax haven countries tend to be more vulnerable to external factors than developing countries that are not tax havens. Not Only are they sensitive to changes in international commodity prices like other developing countries, as well as to international economic fluctuations, but they are also directly affected by the tax policies of developed countries, which are beyond their control. Accordingly, the greater their dependence on tax haven activities, the more unstable is their economic situation. These considerations together with the constraints that the tax haven status places on
the formulaion of national fiscal
policies, Suggest that developing countries should think twice before aspiring to become tax havens. Meanwhile, those that are already
tax havens should try to diminish
their dependence on the activities of
this sector.
Econoxic REVIEw, JANUARY 1978

Page 29
waras the ena of the month, but
Some notes on the in capital formation
R. Suntharalingam
Capital formation takes many forms in a country, drying with its level and Style of depelортетt. Soте of the Days in Dhich, the banking Sector could help in Sri Lanka are discussed here by R. Suntharalingiam, Uhio haS practical ecperience aS a manager in the People's Bank.
Political freedom to be a reality must be accompanied by economic freeedom. To achieve economic freefreedom, there must be all round economic development of the country. Economic development is the result of turning Out of goods and services for the people of the country, utilising available natural and human reSOurces coupled With capital.
One of the most pressing probiems of the third world countries is the lack of capital, i.e. finance to produce the necessary goods and services by utilising the available
abour and raw-materials.
in the existing pattern of life incorne earned is utilised in three different ways: that is, it is consumed immediately; set aside for consumption in the immediate future
(deferred expenditure), and set aside for a rainy day Or Savings. More enlightened, and may be,
affluent Sections of the population Ilay consciously save a certain percentage of their income. By and large the average man settles outstanding bills and consumes a major portion immediately, sets aside a substantial portion for consumption in the immediate future, but little or nothing for a rainy day.
One of the characteristics Of money is that it is received at a point of time but is spent over a period of time. For example, a paid employee's receives his salary to
his expenses are spread out. The money that is received at the end of the month has to be kept and or spread out and evenly utilised till the end of the succeeding month. The money that is in the hands of
the people during this period is
EconoMIC REVIEw, JANUARY 1978.
role of bal
idle funds. It is C body. This type intrin Sic value ex who receives men by the Imere posses has derivative val it is of hardly an
More important mobilising of th pOOling Of all these make Substantial able in the hands titutions for theil tions and for pro fixed and Workin the economy.
Take the case of õ á)I16፲ ̇. Suppose 500/- today; on may have to set bills with the gro 100/-, rent anothe immediate require R.S. 50/-. He has balance R.S. 275/- : Small installments penses till next pa income group Wage earners in t amount, that is hoarded amounts t If this amount h into the banking Will have at least 7 amount at their C ing activities. earners have ban individual debts all individual credits result is that the be With the banki. if there are withd. diture the average expected could be
Savings Depo
SaV.
End of ConamPeriod ercial S
Banks: 1973 1,043.2 1974 1,244.1 1975 1,623.7 1976 1,678.9
1977 Nov. 1,413.7
*Figures of coCurrent, Savings
At December, 1975 ES. 2,214.3 mrλ.
 
 

nks
f no use to anyif money has no 'ept for a miser tal Satisfaction Si On of it. Money lle. If it iS idle
lSe. -
therefore is the ese Savings. The idle funds would amounts availOf banking inslending operariding necessary g capital within
an average Wage he receives R.S. the Same day he tle Outstanding Ceir Of Say IRS. r RS. 75/-, and mentS another then to keep the and dole it out in for daily exly day. If in this there are 300,000 She country the being temporarily o RS. 82,500,000/- as been brought Sector, the banks 5 per cent Of that lisposal for lendIf all these wage k accounts their e set off against and the ultimate full amount Will ng Sector. Even awals for expenthat could be at least 50 per
cent. Thus the amount which otherwise would be worthless idle funds would serve as a foundation for credit creation by the banking Sector.
One of the most important steps therefore that should be taken is to popularise the banking habit. More and more people should be encouraged to channel all their transactions through the banking institutions of the country.
What are the impediments to the development of the banking habit in the country? Generally, with the exception of the State banks, most of the Commercial Banks in the island cater to the developed sectors of the economy. They have not ventured to make banking a popular habit. The table below gives a general picture Of the Situation. -
However the banking habit has
not gone deeeper. It is still the privilege of the 'Big Business', GOvernment Departments, Public Sector Corporations and Co-operatives who have perforce to transact their business through the banking institutions.
The Small man treats the bank as a Source of loans and not as a medium to channel his transactiOnS.
The Government, Co-operatives and Corporate Sectors are statutOrily expected to channel their transactions through their bank accounts except for petty cash payments. "Big Business', managed by paid employees, channel their transactions according to their own systems of proper accounting and control. The government Sector is exempted from debit tax. CoOperatives and the Corporate Sectors are also Semi public sectors, but
sits, Fixed Deposits and Savings Certificates R.S. million
ings Deposits Fixed Deposits
National National Comm- Savings Grand
savings Total Savings ercial Total Certi- Tota.
Bank Bank Banks: * | ficates
749.6 1,792.8 100.3 662.2 762.5 97.9 2,653.2 857.4 2,101.5 167.6 803.4 971.0 106.9 3,179.4 947.4 2,361.1 243.1 780.8 1,023.9 112.9 3,497.9
1,216.1 2,895.0 1,627.5 3,251.2
3.07.6 975.3 1,282.9 114.9 4,292.8 728.8 1,744.3 2,473.1 100.9 5,825.2
mmercial banks include deposits of Government and Fixed Deposits, Provisions for Taxation and other Accounts of the People's Bank
At December, 1976 FRS. 2,687.3 mrn.
27

Page 30
Small trader.
they bear the main burden of this tax. The country is full of Small traderS, artisans, public servants, wage earners and Similar categories WhO dO nOt, tranSact their buSineSS through the banking system.
A typical case is that of the For instance, when he wants to make a payment he draws a cheque for Rs. 5,000/- he gives it, to the payee, the payee say credits his account and draws one of his cheques for one of his payments for R.S. 5,000/- Likewise say five Such traders go on depositing and drawing cheques. As it is, if each trader has to pay Rs. 5/- per transaction as debit tax all five traders would have to pay R.S. 25/-
What they do now to avoid the debit tax is that the first cheque is endorsed by the payee and handed: over to the second party and SO On till the fifth man receives the
cheque. Suppose the fifth has dealings with the first man the cheque goes back to him. All five
transactions have been done withOut any. One of them losing by Way of debit tax or even the handling of
cash. The banking instrument is used without going through the banking system; it circulates
amongst the traders. It serves as a negotiable in Strument Without going through the banking System, The account holder may have issued a number of cheques, transacted business for hundreds of rupees without any of his cheques reaching the banking Sector. The cheques are in circulatiOn fOr an un– due length of time and retired by the drawers at their convenience.
The debit tax then serves as a deterent to expansion of the banking habit. These transactions bypass the banking system. Here the business community uses banking in StrumentS tO transact business amongst themselves without permitting them to pass through their accounts. They may at any moment withdraw their cheque in circulation and give out money instead.
Bank accounts ae Sparingly used and cheques are drawn only when absolutely necessary say for purchase from an institution where they insist on a cheque.
Before the debit tax was introduced, account holders would draw cheques to obtain Drafts, Mail Transfers, Telegraphic Transfers etc. from the BankS. NOW instead of drawing from their accounts they
28
are depositing c instruments. By taxation does n revenue to the rather Serves as development of
The time invo business in the ages banking h ed countries, in lopment of the necessity for a heavy cash train reduced. Moreov and computeriza banking transac and di Screet, e The long hours try is due to la nery and equipm aVareneSS On th number Of cu their responsibil rights.
The hard core cheques as a me payment rather of exchange is : With. If a Sales to a Shop tO Se the shop-keeper the items, iSSue the representati certain number will indicate the verse Of the che tice amOng t sometimes recall pay money from the transactions Small account h.c. Will be seen that VeS Obtained, all ach the bank. are asked they che ques have be be so to an ext iS that in Seve) have been used ation and for
' cheques to be
of cash.
Certain concr be taken to dev habit. One of could be adopte On Current Acc( a certain minim the Current AC, the customer is terest. The b: a position to interest is paid a certain Stipula is done by ce wOuld en COurag retain funds i

ash to obtain the 7 and large this Ot bring in much Government, but a deterrent to the banking habit.
lved in transacting BankS tOO di SCOurabitS. In advanc
View Of the devebanking habit the large number . Of Sactions has been er, mechanization
tion has ΙΥlade tions more Subtle fficient and fast.
taken in Our counck of Staff, machilent and lack of an he part Of a large stomers regarding ities and their
practice of iSSuing dium Of deferred than as a medium also to be reckoned representative goes all his merchandise
WOuld purchase a cheque and tell we to present it a
of days later. He date on the reque. This is a pracrader S. He IIlay the cheque and his sales too. If
and books of a older are analysed it of the che que leacheques do not reIf and When they would say that the
en ‘Spoilt”. It may ent. The position rall CaSeS cheques
for private circulissue as postdated retired on payment
ete steps have to felop the banking the measures that d is to pay interest OUnt balances above Lum. AS it is When COunt is Overdrawn liable to pay inanks would be in attract deposits if for amounts above ited minimum. This iritain bankoS. This
e the customer to. In his account ra
ther than withdraw for expenses in the immediate and near future.
Another measure that could be adopted is to credit Salaries to the accounts of officers instead of paying them cash.
The direct debiting System introduced by People's Bank would take a Way the burden. Of keeping track Of payments and thus help customers to concentrate on their other duties. This type of 'factoring” services would help in development of the banking habit.
The Insurance Corporation , gives a rebate of 5 percent on all premiums paid through Standing Orders. If this practice is extended to other Corporations and Instituti Ons more and more people will channel their transaction through the bank.
Certain banks levy Service charges. This could be dispensed with if more deposits are received and more accounts are serviced. The cost of Servicing accounts will be more than covered by the deposits left with the Banks, which would also serve to expand the lending activities of the banks without recourse to refinance.
The loss in revenue, if the debit tax is withdrawn, could to a certain extent be covered by the stamp duty earned by fostering and encouraging the banking habit. There will be more cheque leaves issued and more savings withdrawal used.
The very high standards expectied of Current Account holders it. the form of very high initial depositS, Should be relaxed to enable the low income group to open current accounts. A regularly operated. Current Account if properly analysed would enable the bank to
study the customer more deeply than his balance sheets. Or tag return.S. When the bank shows
personal interest the cuStOmer tOG responds by maintaining high standards of behaviour.
What is possible at this juncture is not to enforce savings or wait for the people to save but to encourage them to leave their idle funds in the hands of the banks and not in a their till boxes; in pots, underpillows, behind rafters or in the numerous other secret enclaves. The hoarded money must be brought into the banking system to serve as an essential base for credit creation for
development purposes, both short term and long term.
ECONOMIC Review, JANUARY 1978

Page 31
WORLD FOOD SUPPLIE
"How can there be a shortage?' asks Joseph
Joseph Collins who with Frances Moore Lappe, , For a Small Planet’ apas in Sri Lanka in January and it REVIEW interviewed him on the subject of food Supply a Dorld food situation, a subject he has been researchin
pɖSi Severall yearS.
His latest book, Dith co-author F,
Lappe; is “Food First” up here these tavo young Americans there is no such thing as an absolute scarcity of food in
cepts from our intervie20.
E.R.: A popularly held view is that world population is outstripping food production and that SOOn there would be too many people in this world in relation to Our food and agricultural land base. Haye you, in your years of researching the problems of World food supply, found evidence that would lead to contrary conclusions?
COLLINS: Most people believe there is just not enough food to go round. Yet, despite the tremendous wastage of land and the 'food crisis” of the 1970s, the world is producing each day two pounds of grain, or more than 3000 calories for every man, woman and child on earth. 3000 calories is about what the average American consumes. And this estimate is minimal. It does not include the many other staples such as beans, potatoes, cassava range-fed meat, much less fresh fruits and vegetables. Thus, on a global scale the idea that there is not enough food to go around just does not hold up.
Moreover, we have found “acre
to-person' comparisons to be pool measures of food Scarcity. TG many, the size of a plot of land is
obviously the most important determinant of how many people it can feed. We have had to learn, however, that much more important than size are four other factors:
First, the level of human investments made to improve productivity.
Second, how many people an acre can feed depends on whether the land is used to feed people directly or to feed livestock. In the Andean region of South America and in the Caribbean nearly four times as much land is used for extensive grazing of cattle as is devoted to crops. Cattle ranches often occupy the relatively flat land of the river valleys and coastal plains while food crops are relegated to poorer soil on erosion-prone slopes. a world where many people, are too
poor to buy all the plant food being
1978
EconoMIC REVIEw, JANUARY
Moreover, in
produced, livestock has service to rid the ecor grain that might d Livestock consumes ov all the World's grain result is that the four ings on earth, a fig use to measure the cropland, aren't four b at all.
Third, how man, measure of land Carl f whether it grows luxu port or food for the lo Americans think of as “ caused by the press lation are often 'food because much of the goes to Small urban ported. Worst of all, frequently made in t lopment.
Here are SOne fO pOnde:
Africa, is a net ex) beans, peanuts, fresh cattle (not to mention ports such as coffee : it has a higher incid calorie malnutrition al dren than any other
In Mali, peanut e increased notably duri: drought while produc domestic consumption to one quarter of wha 1967.
Mexico now supplie tes with over one half several winter and ear ables while infant with poor nutrition a
Fourth, agricultura course, feed no one ai cultivated. This fact ous to state, and yet 1 in Africa, and Latin An land is left unplanted ᎤᎳᏂerᏚ. A study of C showed that while farm about thirteen acres fa of their land, the larg
 

S
Collins
althored “Diet e ECONOMIC ld the current om for the anCe8 MOOre
argue that his Dorld. Eac
been put omy of “surplus" ive down prices. er Othe third of annually. The billion human beLure many would burden on Olt illion equal units
y people a given eed depends on ry crops for excal people. What, food-deficit areas' ure of over popu- deficit areas'
food produced elites or is exthe exports are he harme Of deWe
Od paradoxes t0
porter of barley, vegetables, and luxury crop exand cocoa), lence of proteinmong young chil
ontinent.
xports to France ng the years of
tion of food for
declined by 1974 it it had been in
is the United Staof its supply of ly spring vegetleaths associated “e C0mm0n.
li land will, Of all unless it is
seems too obvimany forget that herica much good
by large landcolumbia in 1960 ers owning up to timed two thirds est farmiers, con
into
yet
trolling 70 percent of the agricultural surface, actually cultivated only 6 percent of their land.
The relationship of hunger to land turns out to be less a question of quantity than of use. We discover that the amount of land has less to do with hunger than Who controls it. .
E.R.: Possibly there may be enough food-producing resources to go round but aren't there heavily populated countries like Bangladesh that cannot feed themselves and where hunger is growingly widespread among the increasing population?
COLLINS: One sees so many maps with the “hungry countries' coloured in a darker Shade and reads so many references to the “hungry world' that it is hard to escape thinking of hunger as a place- usually as a place “over there'.
But think for a minute. Hungry people live in a country with the greatest food Surpluses in history. Over 15 percent of all Americans are eligible for food stamps. Yet nutritio
nistS have testified that even with
food stamps it is impossible to buy nutritionally adequate diet.
IS it true, that the most densely populated countries are also the hungriest countries? Surveys around the world show no such pattern. Some nations, very dense in people per acre, also have adequately nourished populations. Three comparisons come to mind. France has just about the same number of people for each cultivated acre as India. Taiwan, where most are adequately nOurished, feeds twice as in any () gople per acre a S familineendangered Bangladesh. And China Where Starvation was eradicated in only twenty-five years, has twice as many people for each cropped acre than India. -
29
ബ

Page 32
On the other hand, countries with relatively few people per cultivated acre nevertheless are often Ones where most of the people are malnourished. In Africa, South of the Sahara. One of the Worst famine areas in the World, there are almost two and a half cultivated acres per inhabitant, more than in the United States or the Soviet Union and Six to eight times more than in China. As long as food is something bought and sold in a Society with great in| come differences, the degree of hunger tells us nothing about the density of the population.
E.R.: The prices of food have been rising throughout the world and isn't this clear evidence that We have now entered an age Of scarcity. How is it then that you maintain that this global trend is not, in large part, a reflection of the growing numbers of people trying to exist on a limited agricultural base?
* COLLENS: As Strange as it may sound, what we are taught to view as scarcity is actually a product of efforts to cope with the problem of I over-production in a world where most hungry people cannot buy the food that is produced.
The crisis of over production spawns Scarcity-creating Solutions: production cutbacks, the planting of nonfood and animal feed in Stead of food crops, and built-in inefficiencies in the use of What is produced. There is scarcity, but it is not a Scarcity of food. The Scarcity is of people who have either access to the means to grow their own food or the money to buy it.
What Americans know as the “food crisis of rising prices' starting in 1972-1973, was largely the direct and intentional result Of United States “Food Power" poli
cies that hit upon scarcity as a
way to increase both the volume and price of agricultural exports. Against the backdrop, United StateS Officials started to manOeuvre. By devaluling the dollar (thu,S making Our grain cheaper abroad), by rescinding a law requiring that half Of Our grain going to the Soviet Union and Eastern Europe be carried by American ships, and by offering the Soviet Union financing for its grain
purchases, the United States set the food bait. Other countries began to bite. The notorious So
viet grain deal was the first catch. Nineteen million tons of grain
30
went not to feed to feed Soviet liv 1973, when expo) to cool down the valued the dollar Suddenly making 15 percent cheape The Japanese jur new cycle of Scal by the decisions ment policy make that world grain stood at ninety grain in 1961 W. low thirty days. rapid depletion imore than any contributed to increase and vOl ces. Scarcity, h. problem; the WO grain per capita scarcity year 19 pounds) than it 1960, not conside
E.R.: YOU. Se blem is not the lati Oin. But th
answered the ful of: Why can't selves? As Sena nihan put it bra Sing him Self tO
“Food grouping is do phen you co trees. The q the United Stat and you can’t?
COLLENS: question “Why them Selves?” Imu Understanding actively prevente ing just that. to replace food crops that were t very low rates; i agricultural lan countries for exp and then force workers to leav Work for low WE it encouraged a ported food; an
peasant cash cr
competing with ed by settlers C
The Suppes agricultural devi colonising powe direct competiti cient native prO CrOOS.
Rather tha ants, colonialism grammes Only r production. Brit built in-19th Ce

Z
the hungry but to increase production, but the exfestock. In early pansion was for spring export crops, rt sales had started at the expense of millets and legulUnited States de- mes which were grown as the basic for a second time local food crops. In many cases the American grain people living on these lands, would 2r for the Japanese. not go against their natural and adnped at the bait. A aptive drive to grow food for city was generated themselves, and colonial powers of a few govern- had to force the production of cash erS. The result was CropS. You had this situation in stocks that had your own country in 1815 when the five days worths of British designated vast parts Of ere now down be- your central highlands as crown This planned and land. When it was determined of grain reserves, that coffee, a profitable export Other single factor, crop, could be grown there, the the unprecedented Kandyan lands were sold off to attility in food pri- British investors and planters at a Owever, was not the Inere 5 shillings per acre. The govrld produced more ernment even defrayed the cost of ,
in the so-called Surveying and road building.
72-1973 (about 632 The introduction of the planhad in the year tations meant the divorce of agrired a crisis year. culture from nourishment as they ay the hunger pro- notion of food. value was lost to the result of over popu- Over-riding claim of “market value" en you have not in international trade. Crops such as Indamental question Sugar, tobacco and cotton were people feed them- thus Selected not On the basis of tor Daniel P. Moy- how Well they feed people but for shly, when addres- their high prices. In fact stagthe Third World, nation and impoverishment of the the first thing you food producing sector was not the me down out of the mere by - product of neglect or unintestion is hop come tended consequence of the Over 2s can group food emphasis on export production. Col. Onial administrations deviSed variThe answer to the 9S tactics to undercut. self-providcan't people feed ing Or Subsistence agriculture and ist begin With an made rural populations more deof how colonialism pendent on. plantation wages and 2d people from do- the plantation system. GovernIt forced peasants ment Services and even the most
crops with cash minimal infrastructure Such as hen expropriated at access to Water, roads and agrotook over the best service such as Seeds, credit ds of the colonised and disease COintrol Were Systematibort crop plantations cally denied, while plantations the able bodied usurped much of the good land and
e village fields to fields. . ages Oil plantations; Perhaans the most insidious to otić dependence on im- to "lure" the peasant away from dit blocked native food production-and the One With top production from profound historical consequences - cash crops produc- was a policy of keeping the price ir foreign firms. of imported food low through the - - - removal of tariffs and subsidies. Sion of indigenous The policy was double-edged: first, elopment helped the peasants were told they need not rs by preventing grow food because they could alon from fore effi ways buy it cheaply with their ducers of the same plantation wages; second, cheap food imports destroyed the market Lin helping the peas- for domestic food and thereby inn's public works pro- poverished local food producers. einforced export crop. Many colonial governments th3S 5ish irrigation works succeeded in establishing dependntury India, did help ence on imported food stuffs
EconoMIC REVIEW, JANUARY 1978

Page 33
E.R. EBult With mOSt Ulin Clero veloped countries independent around 15 to 25 colonialism dead! So why cannot people now feed themselves?
COLLINS: Colonialism may be dead. But it, left, an indelible imprint on every society it touched. The effects of colonialism could not be wiped clean Simply by a proclamation of independence. The colonial enforcement of export agriculture handicapped future development by Orienting indigenouS production and trade patterins to Serve rary OW export interests. Internal trade that might have served as the means for autonomous development was disrupted Or even destroyed in the Wake of allen-compaSSing colonial cash crop systems geared to the needs of foreign interests.
The irony is that development “experts' see the aSnwer to underdevelopment in thrusting Third World economies wholesale into the very international market System that was initially structured to keep them in submission.
E.R.: You seem to argue that the under developed countries are faced with what appears to be a choice between continued “dependence' and “isolationism', but wouldn't isolationi Sm, be a step backward .
COLLINS: It is not i SOllationi Sm but a constructive inter-dependence that is required and this can only come from a position of Strength and Security. Basic food self-reliance is the Sime quia nom of that security; Without it, “interdependence” becOmies a SmOkeSCreen for food control of one country by another. One example will more fully what I mean.
The history of Cuba, during the last twenty years, particularly in contrast to a country such as the Dominican Republic, reveals that,
defO years now isn't
once the basic food needs of the
people are being met, trade need not work against the welfare of the majority. At the beginning o Cuban Revolution, the revulsic against the elite-controlled sugar economy was so strong that not
only were food crops promoted but
sugar production was actively neglected. In time, however, the Cuban people learned that they could produce food for local consumption and
still earn considerable foreign ex
change by exporting sugar.
The impact of export agriculture depends on whether or not food for local consumption has been made the first priority and whether the export income earned (continued om page 22)
Economic JANUARY 193
REVIEw,
explain
the revu. soດ
R. E. W. E. W.
RALPH PERIS
Prof. Ralph Pie lopment Styles t above quotation Ralph Pieris who Professor of So University of Cey published two
Social Organisai Studies in the SC lopment (1969). O reviewed here is i collection of 30 e different times an different places spanning Over tw second is a sh. examining various lopment followed
Sociology Can: subject to Sri Lal 1950's. It Was product removed place frOm itS gé the systematisa thoughts Of Seve Comte, Pareto, V pondering On the economic changes Europe of the century. The “soci transplanted in S course in other the European cent with it closely a
- Social thought,
pology. In additio) atiOn Of SO-C3 societiles, the Su various the Qries ( that began to 1950's and 1960's, important third sociology in Sri La
The growth oj Lanka has beer unSuccessful depi various criteria t measure this. If the employment the country, socio
 
 
 
 

S
ZE
(1) Social Development and Planning in Asia,
(2) Asian Development Styles, (1977 125 pp.)
Abhinav Publications, New Delhi.
if a professor thinks uph at matters most
to hape gained.- ат асаdeтic post here he can earn a livelihood, and then eglect research, let controversy rest, e's but a petty tradesman at the best, elling retail, the workc of other mem.”
riS’S ASidam Dei)e- egins with the from KalidaSa. Was One time ciology in the lon had earlier }OOks, Sinh,0.]eSe Οη (1956) and ciology of Deveif the two books the first is a ssays written at ld published in
in a period enty years. The Ort monograph
styles of deve in Asia. le as a serious nika, in the early a transplanted
in time and 2neral Origins in tion of the rial writers like
Weber and Marx dramatic sociooccurring in the 18th and 19th Ology' that was ri Lanka and of countries Outside re had associated nother strand of namely, anthroin the transform|lled **primitive” bject matter of of modernisation Sprout in the formed also an leg on which nika, reSted.
f sociology in Sri SUCCeSSiful Or ending on the hat One uSeS tO
One measure is
of Sociologists in
logists, Over m0st
Of the last twenty five years or so have obtained entry into respectable professions like the administrative Service, faring relatively better in contrast to other disciplines in the humanities and social sciences. This is perhaps largely due to the fact that in the early years, the study Of Sociology was restricted to. Only .
a few. Another criterion of “Success' Would be the number Of Sociologists, who going into an
academic career in the University, Obtained teaching posts in sociology (Or allied subjects like anthropology) in Western countries. . In fact, in no other discipline taught in the Sri Lanka university campuses (whether in the hard Sciences, social Sciences O humanities) has there been, in relative terms, such a concentrated brain drain. Sri Lanka. Sociologists are busy in America, Australia, Canada. Or Great Britain explaining Sri Lankan Society (with of course
Occasional references to other developing countries) to natives of Western countries. However,
On the more important anvil of real and fundamental contributions to the subject (meaning for our purposes a systematic and insightful understanding of the social processes we are undergoing in the manner in which the Western classical “sociologists' such as Comte, Marx or Weber attempted to do for their societies), Our expatriate sociologists have been relatively unsuccessful, Further, their raw material and laboratory (to use a metaphor from the physical sciences) are in Sri Lanka, while their audience is elsewhere, a strong contrast to the case of physical scientists who milligrate to righ countries with considerable intellectual and pro
31.

Page 34
fessionali
rewards in search of laboratory facilities and raw material.
Prof. Pieris stands Out aranOng
the senior Sri Lankan sociologists not to have left permanently the Asian region for an academic career in a Western country. He has remained within the region and has participated actively in
the attempt to Scientifically examine the SOcio-econ OmniC processes that are transfiguring
the entire region.
Professor Ralph Pieris’s collection of essays is not only a commentary of the growth of the subject and its protaganists in Sri Lanka, and the region but also of the subject matter of study, namely Sri Lankan and other regional Societies and their Ongoing transformations. His canvas is large; his interests vary from the epistomological to existentional, from the past of the Western
societies to the future of Asian chapter
ΟΥιeS. (Some sample
headingS: The Para Sitic Involution
of Capitali Sm; Development: Termirable Ö፫ Interminable, Insiders and Outsiders in Asian Development Studies; The
Implantation of Sociology in Asia,
The Hardening of Soft States; A Note on Styles of Development in Asia).
Writing on the implantation Of ociology in Asia, he notes that as the "changes which took place
32
in colonial tim triggered by all good deal of S
implanted, and tion of the col
the feat
industrial societ studied the pec govern out of desire to know was dictated
practical requir ing an alien literature did e grOduct, and
impact on the in Further, the di
DO OU lati OinS for Ο ΕΥΑ). Science
corresponded by Hedie Val “dich into Christian
to the contem between develd developed'. In
significant that ized forms ec0nomics gai colonial universi they had no
ASia
Study of this intellectual
nued in the independence. I hugged these
because they t aC Ceting aims Universa validi
In the Professor Pier consciously as with the basic
 

es Were eXOgenOUS ien i domination, a ocial thought was direW the attenOnial intelligentSias res of Western y. The colonizers bple they were to necessity. Their f' colonial society originally by the ements of governpeople. A Scholarly Bmanate as a byhad an indelible indigenous intellect.' Livision of human the purpose of the of anthropology and large to the tomy of mankind and heathen, and pOrary di StinctiOn ped and “underaddition, “it is the most dehumanof Sociology and ned Currency in ties, although they relevance for the
y
n COnditi OinS and
dependence conti Ewo decades after ndigenous scho]
intellectual chai hought they were
and methods of
鸥y” lifferent chapters, is grapples unwell as consciously problem of trying
made in
to understand Socio-economic prOcesses that are changing Sri Lankan and other Societies whilst at the Sanne time questioning in fact the ba Sic i tOOIS Of his Science. He comments archly on the mistaken views of Western writers who had a simplified view of the unchanging "Eternal East'.
Pieris's essays have a sense of immediacy as well as of conceptualisation at a depth often lacking in the writings of outside commentators (or of their local imitators). One of the foremost of the former was Myrdal with his massive work Asian Drama published nearly 10 years ago. Prof. Pieris’s essays are Often more insightful and have a greater tangibility than Myrdal’s (although the latter's work for rather obviOuS reaSOinS is better known). Pieris refers to the latter 'obvious factors' When he writes of the Western oriented academic establishment that has ignored the Work of writers like Radhakama Mukherjee who had worked on institutional economics long before Myrdal. Pieris regrets the fact that Myrdal makes no mention of the sociologizing mode pioneered by Mukherjee whilst this mode now re-enters its country of origin, India, through Myrdal’s Asiam Drama by what - Pieris terms the “pizza effect'.
These two books are by no means the ultimate analysis of Asian SOCiO-ecOn Omic Systems. Several points of departure could be found for debate and di SCUSsion on some of the positions taken by the author; thus, for example, his use of the concept "post industrialism' its definition
and application to various – socie
ties. But to my mind, the issues that Prof. Pieris has brought forward (specially on the nature of the social sciences and their relevance to countries like ours) are of fundamental importance to the development of the subject. The social sciences in the region, ihether it be economics, socio
logy or political science, are yet to
f perception and Western Social
transformations. that. Prof. Si Pieris haS - these sets of essays perhaps the most tangible 'analytical effort among our still very small breed of Creativė
professional Social scientists.
Susantha Goonatilake
EcoSOMIC REVIEW, JANUARY 1978

Page 35
Paddy - the high yielding varieties. This experimental plot has yielded in the region of 80 bushels per acre.
Chillies-the ban. On imports encouraged domestic production heavily over the last decade and today the emphasis is on increasing yields as illustrated by the extension officer in the picture seen explaining to dry zone farmers.
- Groundnuts have also become an important Sub
sidiary food crop for small farmers.
The act of the agricultura Was Spur Sri Lanka ance of p. difficulties the need down on of food Subsidiary C Ir Ꭴ p S most by th
Sure al country rapidly self suffici items su chillies, on ions cereals. T sent empl this secto on the of yields, pictures s)
 
 
 

ivisation domestic a sector red by a’s balayments a in di to cut imports supplies. food gained his mead the moved towards iency in Ich als potatoes, a in di he prehasis in r too is increase as the
OW.
Sugarcane harvesting at Haldumulla. This has become an important domestic crop in recent yearS.
Sorghum - one of the two most important staple foods of the 400 million people who live in the world's semi arid tropics. This robust, hardy, drought resisting plant has grown to be a thriving crop in Sri Lanka in recent years.
భక్ష
Onion cultivation in the dry zone, particularly in the North, has been gaining ground. The picture shows a. Successful new Crop. just harwested.

Page 36
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