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ONOMC IREVIR
 

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The Technologic
98% of the world's technological researc development is located in the developed
leaving just 2% for 70% of the world's p
K_లe<ప్రక్ర The United Notions
in terms of providing technical assistance to the Third World, the UN Development Programme is the most important of the UN agencies and has been given the key role in the TCDC conference in Buenos Aires this September. During 1974, 2,557 out of 6,834 fellowships awarded by UNDP were for study in developing countries: (about 37%). In the same year, 6798 out of 9809 experts serving in developing countries were from the industrialised nations (nearly 70%). Also in 1974 UNDP purchased nearly $47 mition of equipment of which $6,587,000 came from developing countries (about 34%). Of the $28,219,000 in sub-contracts awarded by UNDP, $2,166,000 or about 8% went to the developing world.
The Technological Gop
Developed countries Africa Asia. A (not including Soviet Union and E. Europe)
Scientists and Engineers per 10,000 of
population 112 5.8 22 6
Technicians per 10,000 population 142.3 8.3 23.4 72.7
Scientists and Engineers engaged in Research and Development per 10,000 population 10.4 0.35 1.6 1.15
Expenditure on Research and
Development as percentage of GNP || 1.2 0.6 0.3 0.2
Professionals and Technicians as percentage of econorn ically active
population in manufacturing 11.1
5.7
 
 
 
 
 
 

to seeur few Of th *nting local "anufactu: -- - *stence. : :07 Patents
o grante b or less than Πονν η that 6: five Y develo, g C 6% have to foreigne out of si ave ountries Of is or "Կ"tination: : granted
rms.
1 Technical Co-operation
Stote of the Art
in preparation for the TCDC Conference a 'Directory of Services for Technical Cooperation. Among Developing Countries' has been published, listing over 900 organisations in 67 countries which offer technical cooperation to other developing countries under 16 different headings of technical expertise,
A survey in 75 Developing countries showed that
9 28 of them were providing technical cooperation to 55 others.
Providing experts was the principal way of providing technical cooperation
e The cash value of the technical services was $60 - $75 million
The Providers The Receivers What kind of within the group within the group Technical Cooperation
61% Middle Eastern &
16% Asia
ཡོད།།
32%
Africa
1.2% Africa 1%. Middle Eastern & Europe
The Broin Droin
A flow of know-how from the poor south to the rich north.
From the early 1960's up to 1972, 300,000 trained and skilled people migrated from developing to developed countries. Over three quarters of them went to the US, the UK, or Canada. The table below compares the value of this brain drain to the rich countries compared with the aid they give to the Third World (early 1960's to 1972).
Country Value of aid given Value of aid received in
form of trained immigrants
U.S.A. $39.6 billion s33.9 billion ای
Canada $ 2.3 billion $11.5 billion
U.K. S 4.4 billion S 5.5 billion
Total is $46.3 billion $50.9 billion
Source: Ney Internationalist

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ΕΟΝΟΜΟ RAVNAVAY
Published by the People's Bank Research Department. リeac Office。
LLLL S SSSSS S S S S S S S S S S S S SSS S S SSSSSSJ SSS
CCGG 2
LLS S S S S S S S S S S S S S S S S S * ο οποίο κιον εασε ο επα πετες η με
ECCM - economi development process By a many sided presentation of Vievs 3 reportage, acos and debate THE ECONOMIG REVIEW is a Con un service project of the People's Bank.
is contents, however, are the rest of
considerations only and do not necessary refect an policies or the official viewpoint. Signed feature LL S S S S S S S S S authors and do not represent the institutions to vic they are attache Similar contributions es ve as Conents and points are Viveconne HE ECONOMIC REVIEW is թԱվելիտից: non hy and is available both on | subscription and on direct sae
Volume 4
Lionel Siriuardene
I. D. Mohile
Cyril Gq/mage
NEXTET ISSUE
O Co-operati OneSent st; COmpariSC
9 Marketing
The future
SB The Oil ric CaSe Of KU'
COVER
A symbolic Site of the inte Woods With a di and Pallitha Kaj
 
 
 
 
 

Number 1 April 1978
C O N T ENTS
FEATURES
25 Basic delivery services in underdeveloped c O unt ri e S - the Bangladesh experience
29 District Credit Planning
31. An international rubber agreement - key to price
Stabilization
SPECIAL REPORT
3 THE IMF CHANGES
A Second Amendment
COLUMNS
2 Diary of Events March 1978 18 The Economy The in estment
promotion 2 One. 20 Commodities TEA - production fluctuates, prices fαίι, ί 1ι γ η ου e η deficit
R U B EB E R brighter prospects; SPICES - prices rise but le SS div0ilCible. 22 Development FiSherieS bank:S. 23 Energy Small hydro power
plants.
24 Agriculture Foodgrains output
conflicting reports.
ves in Sri Lanka - a historical Overview, their atuS and possible future ; With relevant international
of spices in Sri Lanka.
of Sri Lanka's desiccated coconut industry.
h States and their economies Since the Oil boom. The
Wait.
representation of landmarks in the IMF's history. The rnational Monetary Conference in July 1944 at Bretton ollar as the backdrop. Artists D. Nanda Sena of the IDB Innangara of the People's Bank.

Page 4
10
11
DIARY O
The dollar plunged to its lowest level in history of money, going below two West C man marks and throwing international curre. exchange markets into a state of crisis.
The Reserve Bank of India, lowered its intel rates for deposits as well as advances, While ke ing the bank rate unchanged at 9 per cent. T measure was intended to Stimulate investm and production, the Governor of the Rese Bank said in Bombay. The Government invited proposals from repu airlines and financial houses interested in vestment participation, for management servi and the provision of aircraft for the establi ment of a new international airline for Lanka. These proposals are expected to come before March 31, 1978. Vietnam's Prime Minister Pham Van Dong rived in Sri Lanka, on a four day good-will n sion. The Maldivian Government has decided award a $ 11-million airport construction c tract to India's Government-owned airport thority, Stated a Reuter report. The number of passports issued by the Depa ment of Immigration and Emmigration ] gone upto about 12,000 a month, the Contro told the press. Over the whole of 1972/73 O. 12,000 passports Were issued.
A ministerial - level meeting of the Trade a Development Board of UNCTAD opened Geneva to tackle the issue of generalised d relief. UNCTAD has pointed out that de loping countries would save more than $ 600 in lion a year in debt service payments if develop countries would convert all official debts ow by 29 of the world's poorest countries into gra. and would increase the grant element for other Most Seriously Affected countries. The appointment of a Board of Directors the Agricultural Development and the obje of the Authority were formally announced. Prime Minister Fukuda of Japan has as his ministers concerned with economic affairs move fast to save the Governments reflation programme from the havoc being caused by rising yen, reported the Indian Firmamicial E ργΘ88. The World's industrialised states, at the c clusion of an UNCTAD meeting in Geneva, dertook to try to help poorer developing cotries to solve their debt problems by easing ter of loans they had already granted countr
India has agreed to supply Vietnam with a lic of 300,000 tons of wheat, valued at US $ 56 in lion together with a credit for US $ 50 mill for the rebuilding of the country's transport s tem, following the recent visit of the V: namese Prime Minister to India, according
East/West Nels. India, has also offered h

F EVENTS
to rebuild Vietnam's railways, establish textile
་་་་་་་་ factories and other industrial plants and aSSistոCy ance in improving dairy farming.
12 The World Bank has reached an agreement with 'est the Government of Sri Lanka for financing a ер- comprehensive integrated rural development his Scheme in Kurunegala, over a three-year period. ent The program will serve as a model for other such Iγe development schemes throughout Sri Lanka, according to a Ministry of Plan Implementation ted briefing note. in- The assessment by ESCAP of the Asian and ces Pacific region in 1977 presented at the annual Sh- sessions in Bangkok stated that “the region reSiri corded satisfactory economic performance in in 1977, although it continued to be vulnerable to agricultural uncertainties and dependent on de3蕙= veloped country markets where protectionism is nis- Spreading'.
13 The Ministry of Industries and Scientific Affairs to has decided not to allow any more factories Os Within the city limits of Colombo. This deci3)Աe sion has been taken in order to disperse industries outside the metropolitan area, states a press rt- announcement. aS West Germany has doubled the amount of credit ler it has extended to the United States to US $ 4 nly billion, the German Finance Minister said in
Bonn. und 17. The Greater Colomo Commission announced a in Series of investment incentives for licenced enept terprises Setting up within the area of authoVe= rity of the investment promotion zone. nil- A crop inprovement project for Sri Lanka valued ped at 330,000 Canadian dollars was among the over Wedi 25 development research projects approved by ntS the Board of Governors of the International 16 Development Research Center (IDRC) at the inauguration of its policy Sessions which began for at the BMICH in Colombo.
ectS 21. A record price for tea was fetched at the Colombo Auctions when a kilogram of tea from Miyanavita State Plantations fetched Rs. 495.
3ed
tO India has decided to set up a Coconut Deveary lopment Board the Union Minister of Agriculture a told the inaugural meeting of the Coconut Deveac- lopment Council in New Delhi.
28 The Seventh SeSSion Of the Third U.N. COnΟΙΩ-3 ference on the Law of the Sea, opened in U- Geneva,
- 29 The Government approved a proposal of the 'S Ministry of Plantation Industries to set up a ieS. Palmyrah Board to develop palmyrah plantations 33. Ω and industries in the Jaffna, Mannar and Trinnil- Comalee districtS. ion 30 A three member Special Presidential CommisyS- sion of Inquiry, to inquire into and obtain inforiet- nation in regard to the misuse or abuse of t0 power during the period May 1970 to July 1977, elp Was announced.
ECONOMIC REVIEW, APRIL 1978

Page 5
THE I
A Second Amendme
The Second Amendment to the International Monetary E"Un d’S Articles of Agreement which came into force from April 1 this year is regarded as One of the most maSSi Ve and intricate revisiOnS Of a major treaty that has ever been undertaken. The Amendment entered into force for all 133 members of the IMF, including Sri Lanka, following its acceptance - as required under the Articles - by three fifths of the Fund's members representing four fifths of the total voting power. This Second Amendment represents a complex revision of the Articles which was intended to modernize the entire organisation and provide for the Operation of the Fund in present day conditions of the World economy. It therefore introduced new and flexible proviSions for the IMF to deal With ex
ECONOMIC REVIEW, APRIL 1978
change arrangementS for a gradual reducti of gold in the interr tary System and als in the characteristics SiOn Of the uses of S Rights (SDR) with til hancing the SDR's
international reserve
The amended set Agreement of the IM) ding on all members Whether they have Or not. The formal the amended Arti Lanka, Was accompli passing of the E Agreement (Special II by the National S1 during the first Week final enactment in th aS La W NO. 10 Of 19'
 
 

NY
★ / S. S
S
nt
, and provided On in the role LatiOnal mOneO for changes and expanpecial Drawing le hOpe Of enStatus as an
a SSet.
Of Articles of " are nOW binOf the Fund accepted them acceptance of 3:lles by Sri hed by the rettOn WOOds rovisions) Bill ate Assembly Of April and e statute book 8. This brings
Sri Lanka in as an active: participant in the “New International Monetary System' that the IMF's Second Amendment expects to establiSh.
In Order to understand more closely the characteristics of this Second revision of the Articles and appreciate their general significance it is useful to examine the events that led to the collapse of the Bretton Woods System and the need for amendments in the Original Articles Of Agreement.
The WOrld under Went a fundamental Shock in its economic Structure during the Second World War. At the end of the War a realignment of economic relations for the nonSocialist world was apparent; the most obvious aspect of realignment being the emergence of the United States as the leader Of the Western World . All the European economies had been largely exhausted or destroyed after the War and only the U.S. economy seemed to be in a position to provide essential reconstruction aid. The memories Of mOnetary turm Oil Of the capitalist countries in the twenties and thirties was still fresh and concern about a possible recurrence was widespread. These memories and concerns prompted the major Western nations to convene at Bretton Woods, New Hampshire, in 1944, in Order to design a
Workable international monetary System.
The Outcome Of this confer
ence was a comprehensive blueprint of an International Monetary System which sought to combine certain features of the old gold standard with a greater degree of flexibility and Some measure Of cOntrol Over international liquidity. The organisation to be responsible for the new monetary System was the International Monetary Fund Which Was established. On December 27, 1945 when representatives of countries whose quotas amounted to 80 per cent of the Fund’s resources had deposited their ratification of the Bretton Woods Agreement. The original Articles of Agreement of the IMF was signed by 44 nations. (Socialist nations being non-memberS).
At Bretton Woods the principle that the international monetary System must facilitate unrestricted trade and investment Was affirmed. It WaS agreed that nati Onal Currencies WOuld be defined in terms
3

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of gold parities, and exchange rates would therefore be fixed. Only in case of fundamental disequilibrium in its balance of payments would a country be expected to change its exchange rate. Also, international liquidity would be made available in Sufficient amounts to tide countries over periods of temporary (rather than fundamental) balance of payments deficitS.
The role of a SSisting COuntries in temporary balance Of payments difficulties thus fell to the International Monetary Fund. The principal feature of its organization was to create a fund or a pool of many different currencies on Which individual countries would be able to draw in times of need.
The essential features of the original Articles of Agreement can be Summarised as follows:
(i) Establishment of a new permanent institution, the IMF, to promote consultation and collaboration on international monetary problems, to administer the Articles, and to lend to member CountrieS in balance of payments deficit.
(ii) Establishment Of a par value system whereby the value of each member's currency is expressed in terms of gold or the US dollar. Gold was treated as common denominator and the primary reserve asset of Bretton Woods system.
Countries freely buying and selling gold in settlement of international transactions Were deemed to be adhering to the requirement that they maintain exchange rates within a narrow band of One per cent around par value. Thus, the United States - the only country that met this condition — was not expected to intervane in the foreign exchange markets; rather, other countries would intervene mainly by buying or selling dollars against their own currencies to keep their rates within one per cent of their parities with the dollar.
(iii) Introduction of obligations on the members to maintain market exchange rates for their currencies within one per cent of the declared par value. Except for transitional arrangements permitting one-time adjustment of up to 10 per cent in initial par values, members would change their par values only after having secured Fund appro
4
brium”.
val; and such app) only if the count ments Was in 'fl
The term quilibrium' was, h. defined by the IMI gement, temporary ances Were to be the resources or from the Fund and ed by policies Othe) adjustment.
(iv) After the members were req vertibility of their Sense that membe to redeem balance acquired by other tions on current at all discriminatory were discouraged.
(v) The Fund dity to countries ir ings of gold and from subscriptions relation to their “c
(vi) The mem to adopt exchange and other current from a surplus co ter's currency had
Thus, for the tOry a Central m Which covered th countries in the Was established Set of rules of n Was formulated. the international (also known as System) created ted Without dis] experience upto cated the sinher the System.
By the 1960s replaCed the Ste numeraie Of the cipal reserve as intervention cur] dollar was even ri:Or tO gOld beca in handling and
heavy reliance C
rency - the US root cause of the gan tO emerge 2)
ment of the Bret
This reliance C also related to t in the political
World War II pe
One of the of the Bretton that though it w mote internatio:

oval would be given y's balance of payindi mental disquali“fundamental diswever, not officially T. Under this arranand cyclical imbalfinanced by drawing through borrowing Were to be correctthan exchange rate
transitional period, 1ired to permit concurrencies, in the rS Would undertake s of their currencies memberS. ReStriccscount payments and currency practices
would provide liquideficit, out of holdcurrencies arising by its members in [uotas”.
libers were permitted controls on imports account purchases untry, when the lat
become 'Scarce'.
e first time in hisOnetary institution he majority of the (capitalist) WOrld and a universal nonetary behaviour Until the 1960s monetary System the BrettOn WOOds by the IMF operaLocation. Yet, the the 1960S al SO indient Weaknesses Of
the U.S. d'Ollar had cling pound as the system, the prinSet and the main cency. In fact, the considered SupeIuse of convenience interest yield. This on a national curdollar - Was the 2 defects which beafter the establish5ton Woods System. on the dollar is he US's dominance sphere in the post eriOd.
major WeakneSSeS Woods system was as intended to pronal nnOnetary CO
Operation and the expansion of internatiOnal trade it failed to provide explicitly for a Systematic means by which World reserves could grow With World trade and the World economy. In practice, the growth Of international reserves became a by-product Of the balance . Of payments deficitS eXperienced by the US. The US created international money by exparading her liquid liabilities to the rest of the World. Of course, during the period upto the 1960s, the rate of interest in reserves could not be treated excessive, considering the rates of growth of income, output and trade.
Nevertheless, the world's dependence on the US balance of paymentS deficitS fOr reSerWeS , WaS not considered to be a healthy arrangement. It was argued that if the process continued the US reServe liabilities WOuld lead to a decline of net reserves of the US and this would provoke the Suspension Of covertibility. Such a situation could cause a disintegration of the world economy. On the other hand, if the US corrected its deficit the inadequacy Of liquidity Would strangulate WOrld trade and economic activities.
Another Weakness of the System
Was the ambiguity with regard to the balance of payments adjustment responsibilities. Problems of deficits were dealt with on an indi Vidual baSiS. No One WaS reviewing the adjustment process from a systematic stand point, inquiring whether the balance of payments policies and the aims of individual countries were compatible with each other and with a stable international monetary Order.
Further, the Bretton Woods System could not offer a Solution to the movement of speculative capital... (Capital movementS Was a serious problem by the 1970s). Although the Fund's Articles had assumed that controls would suppress Such flows, it was neither posSible nOr desirable to control flows Without controlling all international transactions.
The changing circumstances of the world economy from the 1960s onwards began to lead to serious difficulties in the Observation. Of the rules Of conduct Of the BrettOn Woods system. The US balance Of payment deficit in the early 1960s caused concern an Ong European countries, and hence ideas. On the
ECONOMIC REVIEw, APRIL 1978

Page 7
need for reform of the internationall monetary System began to emerge as early as 1962 when the British were considering far reaching reforms. The need for reforms were further endorsed by President Kennedy when he stated in July, 1963: “One of the reasons that new sources of liquidity may Well be needed is that, as we close our payments gap, We Will cut down our provisions of dollars to the rest of the World'. Consequently, the Group of 10 deputies were appointed in October, 1963 to study the “functioning of the international monetary System and of its probable future needs for liquidity'. The report of the deputies stated that gold Will continue to be the ultimate international reserve asset, though it is not possible to expect new gold promotion to meet all liquidity needs of the future. AS far as the international reserve currency WaS COncerned, it Said that with the shrinking of the US balance of payments deficit the contribution of dollar holdings to the growth of international reserve currency Was unlikely to continue as in the past; and cautioned that there WOuld be a need for the Search Of SOIme additi Ohal kind Of international currency. This was followed bv * the establishment of a Study Group under the Chairmanship of Rinaldo OSSOla. Of the Bank Of Italy to study the creation of Reserve Assets.
In June, 1964, 32 non-governmental economists from eleven countries, under the leadership of Professor Fritz Machlup completed
another study on “The International Monetary Arrangements. The Problem of Choice'. This re
port covered three main areas: (1) adjustment (of imbalances), (2) I liquidity, and (3) confidence (or the problems of instability arising from pOSSible COInversions from One reserve asset to another). The Study offered Various alternative ways of dealing with the problems Such as centralisation of international reserves in the IMF (or another institution); multiple CUrency reserves Which Would involve diversifying the reServe currency function among a number of countries and agreeing to rules on the
ratio in which various reserves would be held; and flexible exchange rates. There were Other
policy proposals on which there was no unanimous agreement among the 32 countries.
ECONOMIC REVIEW, APRIL 1978
An internatiOna sis began to develo 1960S particularly weakening positions sterling and the US tain had to Struggle foreign exchange Val beginning from all The Weakening po pound in foreign ex culminated in a dev pound by 14.3 per C ber 18, 1967. Despi tion and the introdu ent mOnetary and Í aimed at improving payments, sterling in exchange market The devaluation. Of Undermined the vie" ed upto the early S. exchange rates Of powerful countries c ed as fixed. The e British devaluation, ed thS VieW. Bretton Woods
System Disintegrates
FrOm 1966. Om Wal pressure began buildi ecOnOmy. One Of the that contributed prices was the e created by the inc expenditure conseque involvement in the The US President fai gressional approval es to finance the ( During the 1970-71 balance of payment. ed crisis point. Fu rate of unemployr rapidly. Against ments in the United Germany and Japa: countries with large ments Surpluses. T ties considered that tion of the US trad early 1960s to 1971 increased trade Surp and Germany. He expected those tWO initiate the adjustm revaluing their May, 1971, the Wes thorities abandoned and let the mark if Netherlands guilder ever the currencies European countries mained unchanged. August 15, 1971 the the convertibility of gold, and imposed : per cent Surcharge ( questing other count

Il mOnetary CrD from the mid becauSe Of the
of the pound S dollar, Brito maintain the ue of the pound Olund midt 1964. SitiOll Of the change markets
aluation of the
ent. On NOwente the deValuaLction of stringiScal measures the balance of remained Weak is during 1968. Sterling in 1967 W that prevailxties that the economically Ould be regard}xperience Since tin fact, shatter
s rds, inflationary ng up in the US a major factors to the rising Xcess demand reasing defence 2nt to the US Vietnam War. lled to get Confor tax increaslefence budget. period, the US s deficit reachurthermore, the nent, also rose these developStates, West in emerged as balance of payhe US authOrithe deteriorae position from WaS due to the lus of Japan ince, the US countries to ent process by urrencies. In t German aluthe par value loat; and the followed. HOWOf most other and Japan reFinally on US suspended the dollar into temporary 10 n imports reries to revalue
their currencies. Thus, for the first time since the inception of the IMF, the gold exchange Standard broke dOWn and the par Value System ended. This was the final stage in the disintegration of the Bretton WOOds System. It Was the SuspenSion of Official convertibility that trigged the reform negotiations over the international monetary System, during the ensuing period.
The upshot Of the US action was a widespread floating of currencies by other countries. By the end of August, 1971, all the major currencies except the French franc Were floating. The US Was mOst cOncerned about the Weakening position of its dollar which could be restored only by realising a trade surplus in 1972. This Shift could be brought about by a realignment of exchange rates, trade liberalisation and sharing of America's defence budget; and from August 1971 Onwards the US negotiated with European leaders With the hope of achieving these objectives. These negotiations culminated in an
- agreement reached on a realign
ment of currencies, including a devaluation of the dollar at a meeting of the Group of Ten at the Smithsonian Institute in Washington during December 17-18, 1971.
In the six years from 1966 to 1971 the Fund created a new reserve asset, the convertibility of the dollar into gold or other reserve assets Was terminated, and the Bretton Woods system of par values collapsed. Though these fundamental changes in the international monetary system were going on, the Fund's financial operations continued on a large scale, with aggregate drawings of U.S. $11.7 billion in this period.
The events of 1966-71 had their Origin in earlier years and they extended into later years. The creation of special drawing rights (SDRs) for example, was the fruition Of discuSSiOn.S inside and outside the Fund that began as far back as 1958. In December 1971, the large industrial countries had just agreed on a new pattern of exchange rates which they hoped would restore a more flexible system of par values. That did not happen.
After the Smithsonian Agreement in December 1971 attentiOn of the monetary authorities in the developed world Was turned to
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long-term reform of the international monetary system. For this purpose an “ad hoc' study group, the COmmittee Of 20 (C-20), Was created Within the framework of the IMF. The composition of the Committee was determined by the twenty constituencies of members of the Fund that appointed Or elected Executive DirectOrs to the EUnC.
Meanwhile, pressures from the Third World were also mounting. At the third UNCTAD COnference, held in 1972 at Santiago, a resOlution. On monetary reform WaS responsible for the creation of a “Group of 20'. The New Group undoubtedly increased the bargaining power of the poor countries Within the IMF, though this really came only in the 1970's With the shift of financial pOWer to OPEC. Earlier, in the 1960's the Compensatory Finance Scheme sponsored by the IMF were generally unacceptable to the poorer countries aS conditions seemed too stringent. For instance, the Compensatory Finance Scheme inaugurated in 1963 stipulated that if a country's export earnings are lower than the average of the earnings of the present and last two years, the IMF will allow the country concerned to draw up to 25 per cent of its IMF quota. The scheme applied Only to earnings from merchandise exports, and the IMF allowed a country to benefit from the scheme only if it Were convinced that the decline in export earnings had not been deliberately created and was of a relatively short-run nature. Repayment was expected Within three to five years. At the instigation of UNCTAD, the IMF extended the Scheme to allow an additional compensatory drawing of another 25 per cent of the members quota. However, this facility could be availed of only if the IMF Was Satisfied that the Country concerned WaS strictly following the recommendations of the IMF to deal with the problem of export instability. The developing countries have generally refrained from making extensive use of the IMF's Compensatory Finance Scheme, though the situation has improved Since 1966 when the Scheme Was liberalised. There Were two major reasons attributed to this lack of enthusiasm. First, there was a link between Ordinary drawings and compensatory drawings; although the revised
6
IMF Scheme p. Satory financing the structure of it was neverthel practice a use ( jeopardised the future requests ings granted. important, the C strongly resent IMF interferenC ecOn Omic mana Si On-making prO
After Sever discuSSiOinS the First Outline O tember 1973. By completed its the developme ecOnOmic Scene changed the k forum. The oil initial Oil pric Arab nati OinS teffect on both developing COU accompanied by the inflation ra WOrld. These cl: CeS Warranted approach adop international Thus the Outlin, leased by the Series of 'imme Would be take evolutionary a and to help Wit blems faced and developing immediate imp was the establi terim COmmitte Governors. On Monetary Syste)
During the ber 1974 to Interin COmmi Cutive BOard Concerned mair financing of I. payments defici in IMF quotas rate regime; a ment of gold. the Executive With the revis of Agreement
A Series Of by the Interim their final stag in Kingston, J 1976. At this range Of iSSU qu'Ota increa Ses System, treatm Trust Fund. We ment On theS

aced the compenfacility outside Ordinary drawings, eSS true that in if the CFS facility chances of getting for Ordinary drawSecond, and more eveloping countries ed an increa Sed in their domestic gement and declCeSS€S.
all meetings and C-20 released its f Reform in Septhe time the C-20 WOrk in June 19'74, its on the World
had completely ackground to the embargo and the increases by the had a traumatic developed and IntrieS. This was an acceleration. Of ze in the developed langed circumstana review of the ted to reform the monetary System. e Of Reform releasC-20 included a 2diate steps' that in to COmmence an pproach to reform h the current prOby both developed g countries. The act of the report Shment of an Ine of the BOard of the International
l.
period from OctoJanuary 1976, the ttee and the ExeOf the IMF Were lly with: (a) the hassive balance Of tS; (b) an 1ncrea.se (c) the exchange ind (d) the treatAt the same time, Board Was involved On Of the Articles of the Fund.
negotiations begun Committee reached 2 at a meeting held amaica in January Conference a Wide es including IMF. the exchange rate 2nt Of gold and a ce discussed. Agreematters Was to
provide the basis for the amendments to the Articles of Agreement.
Increase Real Resources Transfers
Even so, what was achieved at the Jamaica meeting cannot be underplayed. One achievement was the agreements reached. On the increased access to conditional liquidity. These included establishment of the Extended Fund facility, renewal of the oil facility for a second (and final) year, liberalisation of the compensatOry financing facility, an average increase in the size of quotas by 33.6 per cent and an agreement to increase temporarily (until quota increases become effective) the size of each credit tranche by 45 per cent. As for developing countries, which expressed their views as a bloc under the Group of Twenty-four (G-24), the Jamaica agreement could not Offer much. The main thrust of the arguments put forward by these
countries was on the need to increase transfer of real resources. Developing countries primarily
aimed at establishing a link between SDR creation and devel Opment. However, mainly because of US opposition this proposal WaS nOt aC Cepted. - NevertheleSS, the increase in conditional liquidity and the establishment of the Trust Fund benefitted the developing countries in general.
The Executive Board completed its Work on the amendments on March 24, 1976 and the Board. Of Governors (which had Succeeded the Committee of Twenty) approved the amended Articles on April 30, 1976 after which they were preSented to the members for their acceptance.
All in all, what has emerged after a long Series Of negotiations and deliberations is not exactly
an international monetary “system” in So far as the term implies but a Well defined and
precise Set Of rights and Obligations. Furthermore, in many important areas there was no agreement. For instance, on the rules for assigning adjustment responsibilities, the lack of which was one Of the basic Weaknesses of the Bretton Woods system. There was also no agreement on a design of a viable adjustment mechanism: and the meaning and content of *firm Surveillance' Was not adequately defined.
ECONOMIC REVIEw, APRIL 1978

Page 9
These failures are the result Of a number of factors that were in operation during the period in which moves for reforms were in progress. The economies of the industrial and developing countries Were in a state of turmoil. Inflation, oil price hikes, current account deficits and the breakdown of the par value system brought an unsettled State to the world economy during much of the period when this Amendment was being discussed. Furthermore, at the Stage of negotiation the conflict of national interests often
prevented unanimity in agreement
On the i SSuleS di SCUSSed.
The main modifications to the existing System, brought about by the Amended Articles, can be summarised as follows:
(1) New Exchange Arrangements and
Surveillance by the Fund. (2) A reduction in the role of gold, including disposition of the Fund's own holdings of gold. (3) Changes in the characteristics and expansion of the possible üSes of the Special Drawing | Right so as to assist it to become the principi reserve asset of the International Monetary System. Simplification and expansion of the types of the Fund's financial operations and transactions particularly those conducted through the General Department. (5) The possible establishment of the Council as a new organ of the Fund. (See pages 8 and 9 on Major Changes).
Perhaps the most important aspect Of the Second Amendment was the provision of exchange arrangements. In the view. Of Joseph Gold, the General Consul of the IMF's legal department 'in legalising freedom for members to choose their exchange arrangements, including floating, the second A amendment represents a complete departure from the central feature of the original articles, namely the par value system, The emphasis in the new provisions are intended to bring about a shift to 'Orderly economic and financial conditions that will promote a stable system of exchange rates'. In Order to achieve Such a stable system, however, members are subject to certain obligations in relation to their external and donestic policies and the Fund is re
(4.
)
Economic REVIEW, APRIL 1978
Quo
götig W
ggrgi filligā Meaber (currey) SDS
Afghanistan (afghani) 37 Algeria (dinar) 130 *Argentina (peso) 440 Australia (dollar) 665 Austria (schilling) 270 Bahamas (dolar) 20 * Bahrain (dinar) 10 'Bangladesh (taka) i25 "Barbados (dollar) 3. Belgium (franc) 650 Benin (franc) 13 * Bolivia (peso) 37 'Botswana (pula) 5 Brazil (cruzeiro) 440 Burma (kyat) 6Ꮎ Burundi (franc) 19 Cambodia 25 Cameroon (franc) 35 Canada (dollar) 1,100 Central African
Empire (franc) 13 Chad (franc) 13 “Chile (peso) 158
China, Republic
(new Taiwan dolar) 550 "Colombia (peso) 57
Comoros' (franc) 19 Congo, People's Republic
(franc) 13 Costa Rica (colon) 32 Cyprus (pound) 26 Denmark (krone) 260 Dominican Repubfic
(peso) 43 " Ecuador (sucre) 33 Egypt (pound) 188 "El Salvador (colon) 35
Equatorial Guinea
(ekuele) 8 * Ethiopia (birr) 27 * Fiji (dollar) 13 'Finland (markka) 190 France (franc) 1,500 Gabon (franc) 15 Gambia, The (dalasi) 7 Germany, Federal Rep.
(deutsche mark) 1600 * Ghana (cedi) 87 Greece (drachma) 138 Grenada (East
Caribbean dollar) 2 Guatemala (quetzat) 36 Guinea (syli) 24 Guinea-Bissau (peso) 3.2 Guyana (dollar) 20 *Haiti (gourde) 19 *Honduras (lempira) 25 'lceland (króna) 23 "India (rupee) 940 Indonesia (rupiah) 260 * Iran (rial) 92 Iraq (dinar) 109 Ireland pound) 21 * Ísrael (gotifici) 30 *İtaly (Fira) 1,000 Ivory Coast (franc) 52 Jamaica (dollar) 53 japan (yen) 1,200 Jordan (dinar) 23 Kenya (shilling) 48 Korea (won) 80 * Kuwait (dinar) 65
Lao People's Dem.
Rep. (kip) - 13 Lebanon (pound) 9
* Mamber had consented to quota increase as
Country became a Fund member after Sixth C. includes installments to be paid not later th Due to rounding, components may not add to
IMF quota, increa, on March 31, this of total Fund quo in the Fund, with 98 million. SEDR's
increases; while 0.03 per cent of 1 had 6,700 million creases and 8,405
Sixth Review ac
quired to maintain the compliance of their obligations.'
The rOle Of th Centre fO GOllao Or national monetary not depend on the exchange System. Ir
 

as in the Fund. With and Without Sixth Review increases
thout Qugt2 yiti Quht Wilhgut Gusta With se acrease increase increase Per cent Máis in Per cent fillion Per cent Align Per cen of total Sps ef total Meader (esfregacy) SDRs of total Sos of total
0.13 45 0.12 "Lesotho (rand) 5 0.02 7 0.02 0.44 285 0.73 Liberia (dollar) 29 0.10 37 0.10 1.51 535 1.37 * Libya (dinar) 24 0.08 185 0.47 2.28 790 2.02 Luxembourg (franc) 20 0.07 31 0.08 0.92 330 0.85 Madagascar (franc) 26 0.09 34 0.09 0.07 33 f.08 * Malawi (kwacha) 15 0.05 19 OO5 0.03 20 O.05 *Malaysia (ringgit) 186 0.64 253 0.65 0.43 152 0.39 Maldives' (rupee) 0.7 0.002 0.7 0 002 0.04 17 O.04 *Maii (franc) 22 O.08 27 O.O7 2.22. 890 2.28 Malta (pound) 6 0.05 20 0.05 0.04 16 0.04 Mauritania (ouguiya) 13 0.04 17 0.04 0.13 45 0.12 *Mauritius (rupee) 22 0.08 27 0.07 0.02 9. O.02 Mexico (peso) 370 1.27 535 137 1.51 66S 1.70 - "Morocco (dirham) 113 0.39 150 O 38 0.21 73 0.19 Nepal (rupee) 142 0.04 9 005 0.07 23 0.06 Netherlands (guilder) 700 2,40 948 2.43 0.09 3i 0.08 New Zealand (dollar) 2O2 0.69 232 0.59 0.12 45 0.12 Nicaragua (córdoba) 27 0.09 34 0.09 3,76 1.357 3.48 Niger (franc) 13 0.04 16 004 * Nigeria (naira) 135 0.46 360 O92 0.04 16 0.04 * Norway (krone) 240 0.82 295 O 76 0.04 16 0.04 Oman (rial Omani) 7. 0.02 2O 0 05 0.54 217 0.56 Pakistan (rupee) 235 0.80 285 0 73 Panama (balboa) 36 0.12 45 0 12 188 550 41 *Papua New Guinea (kina) 20 0.07 30 0.08 0.54 93 0.49 * Paraguay (guaraní) 19 0.07 23 OO6 0.01 1.9 0.01 "Peru (sol) 123 0.42 164 0.42 *Philippines (peso) i55 0.53 210 0.54 0.04 17 0.04 * Portugal (escudo) 117 0.40 172 O44 0.11 事鲁 0.11 * Qatar (riyal) 20 O.O7 40 O 10 O.09 34 0.09 Romania (leu) 190 0.65 245 0.63 0.89 310 0.79 Rwanda (franc) 19 0.07 23 0.06
São Tomé and Principe* 0.15 55 0.14 (dobra) 1.6 0.01 1.6 0.01 0.11 70 0.18 "Saudi Arabia (riyal) 34 0.46 600 154 0.64 228 0.58 "Senegal (franc) 34 0.12 42 0.11 0.12 43 0.11 Seychelles' (rupee) O.003 0.00 Sierra Leone (leone) 25 0.09 31 0.08 0.03 10 0.03 Singapore (dollar) 37 0.13 箕0 0.28 0.09 36 0.09 Somalia (shing) 19 O.O7 23 0.06 O.04 8 0.05 South Africa (rand) 320 1.10 424 109 0.65 262 0.67 'Spain (peseta) 395 1.35 557 1.43 5.13 919 4.92 Sri Lanka (rupee) 98 0.34 119 0.30 0.05 30 0.08 "Sudan (pound) 72 0.25 88 0.23 0.02 9 0.02 Swaziland (lilangeni) 8 0.03 2 0.03 *Sweden (krona) 325 111 450 1.15 5.48 2,156 5.52 Syrian Arab Republic 0.30 106 0.27 (pound) 50 0.17 63 0.16 0.47 185 0.47 Tanzania (shilling) 42 0.14 55 0.14 *Thailand (baht) 34 0.46 18 0.46 0.01 3. O.01 *Togo (franc) 15 0.05 19 0.05 0.12 51 0.13 Trinidad and Tobago 0.08 30 0.08 (dollar) 63 0.22 82 0.21 0.01 3.2 0.01 *Tunisia (dinar) 48 0.16 63 0.16 0.07 25 O.06 Turkey (lira) 151 0.52 200 0.51 0.07 23 0.06 Uganda (shilling) 40 0.14 50 0.13 0.09 34 0.09 United Arab Emirates 0.08 29 0.07 (dirham) 15 0.05 120 0.31 3.22 1,145 2.93 "United Kingdom - 0.89 480 1.23 (pound) 2,800 9.58 2,925 7.49 0.66 660 1.69 *United States (dollar) 6,700 22.93 8,405 21,53 0.37 141 0.36 Upper Volta (franc) 13 0.04 16 0.04 0.41 155 0.40 *Uruguay (new peso) 69 0.24 84 0.22 O.44 205 0.53 *Venezuela (bolívar) 330 1.13 660 1.69 3.42 1240 3.18 Viet Nam (dong) 62 0.21 90 0.23 器 袭。器 Western Samoa (tala) 2 0.01 3 0.01
1659 4:25 Yemen Arab Republic 0.08 `36 0.08 (rial) 10 0.03 13 0.03 0.16 69 0.18 Yemen, People's Dem. 6:2? 160 Rep. (dinar) 29 0.10 4甘 0.11 0.22 235 0.60 Yugoslavia (dinar) 2O7 0.71 277 0.71 Zaïre (zaïre) 113 0.39 i52 0.39 0.04 16 0.04 *Zambia (kwacha) 76 O.26 141 0.36 0.03 12 0.03 Toe 29,213 100.00 39,041.4 100.00"
of March 31, 1978 Seneral Review of Cuotas
an 30 days after the Second Antwindment of the Articles of Agreement
totals shown
Oata. IMF Treasufer's Department
ses under the Sixth General Review were consented to year, by members who together held over 75 per cent tas. The above table reveals the position of the quotas in and without Sixth Review increases. Sri Lanka had or 0.34 per cent of the Fund's total without quota after the increase it went up to 119 million SDRs or the total quotas. The U.S.A. the largest quota holder, SDRs or 22.93 per cent of the total without the inmillion SDRs or 21.53 per cent of the total after the reases.
surveillance of its responsibility is greater with members with floating exchange rates than with par values. The Second amendment e Fund as the States that the Fund shall Oversee ation on inter- the international monetary System problems does in Order to ensure its effective Opernature of the ation and the compliance of most respects, members with their obligations of
7

Page 10
exchange policies. This is a mandate to the Fund to play a more active rolle than it did under the System of par Values.
Senior EUnd OfficialS OOIΥ1menting on the significant changes at a Press Conference, shortly before the Second Amendment entered into force, emphasised that "it was now possible for a virtually full range of free choices for members as to the exchange system they Would adopt. But it also gives the Fund powers of surveillance Over the COInduct Of exchange rate policies by members. So for the first time in some years now, it puts us in a position to declare the arrangements of all members fully consistent With the Articles of Agreement of the Fund and enjoins us to exercise firm surveillance over their conduct in applying those arrangements and gives us additional powers.
It is useful to note that One of the powers of the Fund, over time, Will be to make recommendations With respect to general exchange arrangementS. Therefore, although new exchange arrangements cannot be imposed. On menbers, and they always will have freedOm Of Choice - even if in future a par Value System Were restored under the new Articles - the Fund can make recommendatiOnS fO general exchange arrangements. Because a very high proportion of voting power is necessary for those decisions, the likelihO d is that much Of the membership of the Fund would switch to exchange arrangements of that kind. The understanding of what One means by “general exchange arrangements' is, of course, flexible; there is no precise formulation in the Articles. This technique ls, in a Way, typical Of much Of the new Articles. The spirit of the Articles will change from a rather rigid code, full of formulae, full of closely defined obligations, to a Set of what has been called “enabling powers'. As a result although One might not be able to point to an immediate and striking change the next day, on April 2nd, that will make headlines, over time there are adequate and quite important powers to modify the international monetary System and to bring about changes, incidentally, without further amendment. That is indeed a big change in the spirit of the Fund and its possibilities for the future. Amend
8
ment is no easy taken, in all, years to bring The Fund. year agO, the Ir that cOnne intO Sri Lanka, and
The Second Fund's Articles tered intO 7 fC acceptance by Fund's membe per cent of the AS Stated at the ed ArticleS Wen) 133 memperS ( means that. ea quired to disc that arise fi Articles even i. not accepted not be possible under their exi for this reason State Assembly Woods Agreeme sions) Law, NC legislation ena Government to Olulit and di Scha, tions which W( forcement of t. ment.
This law h by way of a BrettOn WOOdS 20 of 1950, Lanka to becon Fund, and to Act of 1949. ments effected are Summarise (i) Section Woods Act as Of the Bretto (Special Provis 1978 enables S Subscription accordance Witt Section 1 and the Fund Agre CUIYenCy, Or Rights Or Such may be speci According to t 25 per i cent member had except under CeS.
(ii) Sectio: La W introduce. to the Bretto Ille W Se Citi On IT ensure that it Lanka rupees IMF by anoth exchanged at (Continued on
 

ta' Sk... This One haS some five Or Six about. adopted, almost a les fOr Surveillance ffect next week." the Amendments Amendment to the of Agreement en*ce following its 50 per cent of the S representing 80 total voting power. outset, the amendinto force for all f the Fund. This ch member is reharge obligations On the amended the member had them. This may for SOme members sting laws. It was that the National passed the Bretton Ants (Special Provi10 of 1978. The bles the Sri Lanka accept and to carry rge all the obligaDuld follow the enhe Second Amend
Las made provisions mendments to the Agreements Act No. Which enabled Sri ne a member Of the the Monetary Law The main amendto these tWO Acts
bellOW. 3 of the Bretton amended by Section Woods Agreement Ons) Law, No. 10 of ri Lanka to pay its O the Fund, in h the provisions of 4 Of Article III Of ement, in Sri Lanka Special Drawing other currency as led by the Fund. he previous Articles, )f the quota of a O be spent in gold special circumstan
6 of the Amended a new Section 8B WOOds Act. This quire.S Sri Lanka, tO le balances Of Sri purchased from the er member Can be he time of purchase ра9е 14)
The Second Amendment Brings Major Changes
in Practices of the Fund — the IMF Viewpoint
(a) Exchange Arrangements and
Surveillance by the Fund
Members undertake a general obligation to collaborate with the Fund and with other members in Order to assure orderly exchange arrangements and to promote a stable System of exchange rates. Members must perform this obligation by observing certain undertakings of a general nature with respect to domestic and external economic and financial policies. These undertakings require each member to endeavour to direct its economic and financial policies toward the objective of fostering orderly economic growth with reasonable price stability, With due regard to its circumstances. Each member is required to seek to promote stability by fostering Orderly underlying economic and financial conditions and a monetary System that does not tend to produce erratic disruptions; each member must avoid manipulating exchange rates Or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members. Members must follow exchange policies compatible With these undertakings. Although the obligations are general in Scope, the differing circumstances, needs, and - problems of members will be recognized.
The general obligation and specific undertakings apply to all members at all times. Members are free to apply the exchange arrangements of their choice, except that they may not maintain a value for their currencies in terms of gold.
They are required to notify the
Fund of the exchange arrangements they intend to apply and of any SubSequent changes in these arrangements. The Fund is required to oversee the international monetary system in order to ensure its effective operation and to oversee the observance by each member of its obligations. Members are required to provide the Fund. With the information Ynecessary for Surveillance, and, when requested by the Fund, shall
ECONOMIC REVIEW, APRIL 1978

Page 11
consult with it on their exchange rate policies. In essence, the amendments give members freedom of choice in their exchange arrangements, but not freedom of behaviour, in the sense that all members are bound by certain obligations and subject to surveillance by the Fund.
(b) A Reduction in the Role of Gold in the International Monetary System
The most important changes in this respect are as follows: (1) the function of gold as the unit of value of the SDR has been eliminated and gold could not again become a common denominator for par values of currencies even if at SOme future time par velues Were introduced; (ii) the official price of gold has been abolished and members will be free to deal in gold in the market and among themselves without reference to any official price; (iii) obligatory payments in gold by members to the Fund and by the Fund to members have been abrogated, and the Fund will be able to accept gold only under decisions taken majority of the total voting power; (iv) the Fund Will be required to COmplete the announced program of disposing of a total of 50 million ounces of gold, and Will have powers to make further gold sales both on the basis of prices in the market and at the official price in effect before the Second Amendment (SDR 35 per ounce) ; (V) profits beyond the former official price on any such further sales of gold will be placed in a Special Disbursement Account for use in the ordinary operations and transactions of the Fund or for other uses, including balance of payments assistance for the benefit of developing members in difficult circumstances; (vi) the Fund, in its decisions on gold, will be required to avoid the management of the price, or the estab
lishment of a fixed price, in the
gold market, and (vii) memberS will undertake to collaborate with the - Found and - With Other members in order to ensure that their policies with respect to reserve assets Will be consistent with the objectives of promoting better international Surveillance of international liquidity and of making the SDR the principal reserve asSet in the international monetary system.
ECONOMIC REVIEW, APRIL 1978
with a high
(c) Changes in the and Expansion of th of the SDR.
The modificatio visions relating to intended to contribu tainment of the making the SDR the serve asset in the monetary System. U ended Articles (i) waluing the SDR I mined by the Fund rities; (ii) participa to enter into tran agreement without for general or speci. the Fund, and tran in Such transacti subject to the requir tO Se reSeIVe a SSe Fund may, subject safeguards, autho involving SDRs b pants that are not vided for by the the Fund may broa goties of other holl although not beyond ties, and the operati actions in which ti gage; (v) the Fun the rules for reconst ticipants' holdings of time and may adop abrogate the rules majority of the tota than has been nec past; (vi) the SDR. in certain paymefits to the Fund and by members, and its p( operations and tran ducted through the ral Department ( General Account) panded; and (vii) th currencies held in ReSources Account rall Department in tained in terms of t cordance with exch: termined for the pu: actions in SDRS.
(d) Simplification a of the types o Financial Open Transactions
TThe E*undʼS ho1( currencies of all me. usable by the Fund tions and transactic ance With its policie the Fund's general ri is no longer provide of a particular CᏓ for making payment
墨

Characteristics ne possible uses
ns in the prothe SDR are te to the atobjective of e principal reinternational nder the amthe method of may be deterby high majoints are able Sactions by the necessity all decisions by sfers of SDRS OnS are not 'ement of need ts; (iii) the to appropriate ize operations etween particiOtherWise prOArticles; (1ν)
der the cateders of SDRS, L official entiOns and transhey may eld may review itution of parSDRs at any t, modify, or
by a lower l voting power essary in the replaces gold by members the Fund to ossible use in
sactions con
Fund's Geneformerly the will be exle value of the
the General
of the Genemust be mainhe SDR in aCange rates derpose of trans
and Expansion f the Fund's sations and
dings of the mbers will be in its operaDnS in accord= S. For use of esources, which di for in terms
urrency needed
is in that cur
rency, the Fund will select the currencies to be sold on the basis of policies that take into account the balance of payments and reserve position of members and developments in the exchange markets. This change in the Articles is in accordance With established Fund practice, but the “operational budgets' established on the basis of these policies Wilh now have an express legal basis comparable to the legal basis of the designation plans in accordance with which participants are designated by the Fund to accept transfers of SDRs at the request of a participant. Members purchasing other members' currencies from the Fund can be certain that they will be able to use them, directly or indirectly, to meet their balance of payments needs oecause of the assurance that the currencies are either freely usable or will be exchanged by the issuing members for Such currencies.
The Fund's policy on repurchase, i.e., the repayment of credit transactions, which is designed to ensure that the use of the genes ral resources will not extend beyond three to five years unless a longer period is permitted under a special policy on use, has been incorporated in the Articles. The detailed formulas of the original Articles on repurchase and on the calculation of monetary reserves that governed the accrural of repurchase obligations and the determination of the media, of payment have been deleted from the Articles. There is, however, a new provision under which a member is expected to repurchase in the light of improvement in its balance of payments and reserve position even before the fixed date for completing repurchase.
The Fund will be able to provide a participant with the currencies of other members in return for SDRs or with SDRs in return for the currencies of other members.
The Fund. Will have more extensive authority to permit members to engage in transactions under Special policies, for example, the Fund's buffer stock facility, without at the same time foregoing their reserve tranche positions (formerly called gold tranche positions), which they regard as reServe assets.
Source; IMF PRESS RELEASE.

Page 12
The Bretton Woods Agreements (Special Debate in the National State Assembly
the first week of April.
Nallur.
The Bretton Woods Agreements (Special Provis Sented in the National State ASSembly and was pa It was a bill “to make Satc.) magy be mecessargy bgy nu)agy of amaeʼmdmeʼmit of the B7 ments Act and the Monetary Lau) Act in order to g to the decision of the Government of Sri amendments to the Articles of Agreement of the Int Fund of Dhich Sri Lanka is a member'.
Lank:0
We reproduce below from Hansard excerpts of given by the Minister of Finance and Planning Mr. the opposition view as given by Mr. M. Sivasit
THE GOVERNMENT WIEW Mr. R. J. G. de Mel :
This is a Bill to make such
legal provision as may be necessary by way of amendment of the Bretton Woods Agreements Act and the Monetary Law Act in Order to give force and effect to the decision of the Government of Sri Lanka to accept further amendments to the Articles of Agreement of the Internațional IMOneary Fund of which Sri Lanka is a member.
These are amendments to the Articles of Agreement Of the International Monetary Fund which all members of the fund Will subscribe to in order to continue the International Monetary Fund aS an international financial and :: Ornetary institution in the world. One hundred and thirty one countries who are members of the International Monetary Fund have already accepted these amendments to the Articles of Agreement of the International Mone
tary Fund, and the Government of Sri Lanka being one of the members has accepted these
amendments. I now introduce this Bill to make legal provision for the Government to accept these amendiments to the Articles of Agreement.
The Bretton Woods Agreement, as you are aware, was the foundation of the international monetary and financial system which took effect after the Second World War, in 1945. Sri Lanka along with 131 other countries are signatories to this Agreement. This Agreement came into existence in 1945 when 45 countries originally signed the
10
Agreement at Agreement als national MOrne manent in Stit Agreement. T. the Agreement bility in the tary and final increasing traf Which in turn COne and en Within countri Carne a memb accepting the Today there : the Internatio including socia Yugoslavia, V; nia.
This syste WOOdS la Sted
The fir St Crac gan to appear The reform. O mOnetary syst urgent necessi yearS Or SO du have appeared need arOSe fact that the tem which g economic an ships since be too rigid face of rapid) stances in th Manifestations Were the pe the latter 19 and the insta, rangements devel'Oped cou individual cris ad hoc arra: the breaking of financial r August 1971

Provisions) Bill
OnS) Bill was preSed after debate in legal provisi OmS as 2tton Woods Agreeive force and effect to accept further 2rnational Monetary
the Official view as Ronnie de Mel and hamparam M.P. for
BrettOn Woods. This D Set up the Interairy Fund as a perLtion to enforce the he main purpose of | Was to ensure stainternational mOne(cial system thereby ille among members would promote inImployment Creation eS. Sri Lanka, beer of the Fund by Agreement in 1950. are 131 members of nal Monetary Fund, alist countries like letnam and ROma
m based on Bretton for over 35 years. ks in the system beabout ten years ago. f the international em has become an y for the past Seven e to the cracks that in the system. The principally from the Bretton Woods syslided international financial relation945 was found to Ind inflexible in the 7 changing circum2 World θCOInOIY1y. of this shortcoming lodic gold crises in 0s and up to 1971, ility of exchange arparticularly among tries. Although each S WaS met With SOme genents or other, oint for this system lationships came in when the United
States suspended convertibility of the dollar into gold. It signified formally the collapse of the BrettiUn WOOdS - System aS We knew it from 1945.
Since then, under the auspices of the I.M.F., which is entrusted With the responsibility for the proper functioning of the International Monetary System, an effort at the reform of the International Monetary System has been under way. The oil price rise of 1973, Which occurred before the reform effort had a chance to bear fruit, had the effect of reordering the priorities in the reform exercise aS well as underlining the urgency
for reform. The culmination of this process is the document entitled “The Second Annendiment
to the Articles of Areement of the International Monetary Fund', the text of which I am tabling. This is a text which had already been acceped by 131 countries, all members of the I.M.F.
The Se armendinneints are paot a total revision of the existing Articles of Agreement of the I.M.F. which Sri Lanka has already accepted way back in 1950 when she subscribed to membership in the I.M.F. In this SenSe it d'OeS not constitute a new International Treaty. But as the revisions are fairly extensive and affect a number of provisions, a complete set of Articles is submitted for approval by member countries.
The principal modifications to the Articles relate to four aspects.
These are - firstly, exchange arrangements among member countries; secondly reduction in the
role of Gold in the International Monetary System; thirdly, simplification and modernization of Operations and transactions through the General Resources Department of the I.M.F.; and fourthly; improvements in the characteristics and usability of the Special Drawing Right.
The amended Articles legalize the existing de facto situation of floating exchange rates by enabling the country to declare to the Fund any exchange arrangement of its choice with the exception Of a par Value expressed in terms of Gold. Within a broad commitment to assure orderly exchange arrangements, member countries are obliged to direct their economic and financial policies tOWards the objective of fostering orderly economic growth with
ECONOMIC REVIEW, APRIL 1978

Page 13
reasonable price stability and with due regard to circumstances. Tne Fund for its part is empowered to exercise Surveillance Gwer eXchange rate policies of members - this is a function which the Fund has performed for the last 30 years - but in evolving and applying the principles, the Fund is required to respect the domestic social and political policies of members.
This is an amendment which countries like Sri Lanka insisted on. This is something which did not exist in the earlier arrangement. The Fund has now been compelled to take into account the domestic social and political policies of all its members. If international ecnonic COnditi OinS So permit, there is provision to permit the re-establishment of exchange arrangements based on stable but adjustable per value.
The amended Articles terminate the official role of Gold in the International Monetary System and establish the Special Drawing Right as the corner-stone of the System; the value of the SDR in terms of Gold has been eliminated; instead the Fund is empowered to determine its basis of valuation. Currently this is related to 16 principal currencies. There will no longer be any obli: gatory payments in Gold by members of the Fund as for instance
when subscription to quota in
creases or in paying interest and
other charges. ای
The amended Articles also
authorize the I.M.F. to dispose of one-third of its Gold Stock amounting to 50 million ounces. Profits from the sale of half this amount are earmarked for distribution among low income developing countries for Balance of Payments assistance on very concessional terms. This is through what is known as the Trust Fund. The Trust Fund did not exist under the old IMF. This is a special fund created from the sales of gold to help the low-income developing countries like Sri Lanka. This is also an added advantage in the present Articles when compared With the earlier Articles which did not take into account the needs and aspirations of low-income developing countries at all. There is also provision to empower the Furd to dispose off the remainder of its gold stock in a manner it deems appropriate.
Towards the objective of making the SDR the principal re
EconoMIC REVIEw, APRIL 1978
serve asset of the monetary system, th tics of the SDR han ened and its uSabili flexible. It is pro! greater freedom to engage in transac by agreement amor Unlike under the p When a nerber
Drawing Rights, is prove the balance need, this i expecta dira. With in respect O by agreement bet This also is a COn poor developing cou the use of SDRS in ration S and tranSa Cità tended, for example Stitution Of SDRS fc pect of that part of scriptions hitherto COintrieS, like Sri
had hitherto to pay in gold. Now it can cription in SDRS O2 local currency. Ther greater scope for off Other than Cerni Authorities to hold and they will be ab. a Somewhat broad transactions than at
The main impro visions governing th Sources Account Of lates to the usability holdings of currenci court. Under the an member's currencies in Operations and t. the Fund. But befor Cide’S On Which Curre the particular memb: payments and rest and developments in markets are taken The amended Article for assistance from Obtained for a larg reaSOinS. ThiS OO like Sri Lanka. W such assistance de balance of paymer the allmeded Article vision to obtain te tance on grounds of ance of Payments : due to developments expected unfavour ments in Reserves.
Therefore, there vantages to Sri La ing the ameinded have already been countries who are r IMF.
(1) Sri Lanka. can tion of any i

international e characteriS
We been brOa.d—
ty made more posed to give
members to
tiOnS in SDRS ng themselves. resent Articles using Special expected to of payments tion is withf transactions Ween memberS. CeSSiOn to the intries. Further, the Funds Opeions will be ex, through SubDr gold in resthe quota sub: payable for Lanka which its subscription pay the subin their own e will also be icial entities in tral IMOnetary and use SDRS le tO engage in der range of
present.
vemęnt in prole General Re= the Fund, re7 of the Fund's eS in that a Cmendments, all will be usable ransactions of e the Fund de*ncy to include, ) ers' balance Of eVeS position
the exchange into account, es also provide the Fund to be er variety of helps countries hile at present !pends on the its need, under S, there is promporary assisf not only Balneeds but also in Reserves or able develop
afe Several adnka in acceptArticles which accepted by 131 members of the
pay that porincrease in its
quota in SDRs of currencies of another member instead of in gold as in the old system. There is even 3. possibility for the whole amount to be paid in Sri Lanka rupees if the Fund so decides. This is a tremendous advantage as against the old Articles which stipulate that the contribution of the subscription be paid in gCld.
(2) Sri Lanka has considerable flexibility in determining its exchange rate system.
Under the old agreement every change in Our exchange rate systen had to be approved by the IMF and there was no flexibility at all. There is real flexibility allowed under the present Articles of Agreement.
(3) The IMF will respect the domestic, SOCial and political policies when reviewing the exchange System. n
Under the old Articles of Agreement the IMF took no account of the domestic or internal, social and political policies of a country. In future the IMF has to take account of the domestic needs and aspirations of each country.
(4) Sri Lanka can seek Fund
assistance not merely O grounds of balance of payments Or reserves position, but also due to anticipated developments in its reserves; as for instance, due to a bunching of import paymentS.
(5) Under present rules, assistance from the IMF under its regular and other facilities has to be settled within 5 years. The amended Articles permit an extension of this limit for settlement of dues for all countries if conditions so warrant.
This is a great advantage to a country like Sri Lanka in re-paying diues to the IMF.
There is also provision for individual countries to obtain an extension of the maturity period if it is subjected to particularly difficult circumstances. This, too, helps countries like Sri Lanka.
(6) Subscribing to the amended Articles and continued membership in the Fund would qualify Sri Lanka to obtaiń concessional assistance from the Fund. While the monies in the existing Trust Fund
1.

Page 14
are distributable among eligible members, who were members on 31.08. 75 like Sri Lanka, there are possibilities for additional such funds to be channelled to needy members as ConcesSional aid on the Sale of the balance gold left with the IMF.
The proposed Special Disbursement Account can make this pOSsibility operational.
I might tell you, Sir, that apart from standby support which the IMF has given us and the Trust Fund support from the sales of gold, we have also been assured of considerable support from what is known a.S the Extended Fund Facility and from the Supplementary Fund facility which is also known as the Witteveen facility.
Therefore, the amended Articles are a great improvement on the Original Articles to which we have been Subscribing for the last 30 years and it is because it is a great improvement that we are Subscribing to these amended Articles along with 131 other members of the IMF, including SOcialist countries like Vietnam, Yogoslavia and Rumania.
While there are advantages of Specific interest to Sri Lanka what is of broader significance is that the IMF, Once termed the rich Iman’S Club Or the rich natiOnS” club, is now steadily turning its attention to the pressing problems of poorer countries. In fact all the recent decisions which increased the variety of assistance from the IMF, the Oil facility, the Extended F'Undi facility and the proposed Witteveen facility, are all meant to assist poorer countries like Sri Lanka.
The amended Articles become law for all members when threefourths of the members with fourfifths of voting power have passed the necessary legislation to accept the amended Articles in their own countries. This point is expected to be reached any moment now. Also Sri Lanka, on the basis of the 6th quota review in the IMF, is entitled, to a higher quota Of SDR 119 million than the Current quota of SDR, 98 million. To this extent, therefore, the amount of assistance that Sri Lanka can obtain, from the IMF will also proportionately increase. The proposed new quota will apply to Sri Lanka, only after Sri Lanka Sub
12
scribes to the and it is the Sri Lanka. Sub Annendimenti i
Then, Sir, gency of this add that the or not; it is berS Of the II irrespective Oi members paSS lati On Or InOt. When 80 mem! voting power ments. This s any mOment haS not passes lation to accel cles Within 30 ed ArticleS be IMF, Sri Lank for the highe million as agai Of SDR 98 mi quota, the h. Of assistance get from the reaSO for the
THE OPPOSIT Mr. M. Sivasi
Undoubted of Finance h; new Articles the Committe had sat since continuously f brought the ments. I Only little and Say when the first ed. One of the Fund was th; expansion wO1 of internation Would make a promotion of ployment and development reSOU1}. CeS Of Was One of t of the Fund started 30 yea 30 years it is the developing rate of growt Or slow and Monetary Fun ing to their their share ir CreaSed Vhi World trade O. tries increase perience Over all developing
As a rest the Fund, wh took drastic S. the effect of

second Amendment, efore essential that cribes to the Second (mediately.
aS regards the urBill, I would like to necessary legislation inding on all memIF, all 131 of them, whether individual the necessary legisIt is binding on us ers with 80 per cent accept the amendage will be reached ΩOW.
the necesSary legiSt the annended Artidays of the amendoming law in the a will not be eligible quota of SDR 119 inst the present quota lion. The higher the igher the maximum which a country can IMF. This Was the urgency of the Bill.
'ON VIEW
hamparam:
ly the Hon. Minister as told us that the were the product of e of Twenty which 1972 and Sat almost or three years and necessary amendWant to look back a that thirty years ago Agreement was signaims declared by the at the thought that ld balance growth all trade and this COntributi On to the high levels of emreal income, to the of the production all members. That he solemn objectives When the Fund Was rs ago. Over the last
the sad experience of
countries that their h has been sluggish the International d contributed nothgrowth. Furthermore, the World trade dee the share in the the developed coun... That was the exthe last 30 years of countries.
It of membership of in the United States eps in August 1971, those steps was felt
If Sri Lanka
by almost every developing, country, more so by countries which had direct trade agreements and so on with the United States. Certainly it was felt by most countries. -
The experience of the last 30 years has shown us that the I.M.F. has certainly not contributed to the economic growth of developing countries, and certainly our share in the World trade has not increased as a result of this international monetary system.
The Hon. Minister of Finance seems to think that the amended rules are a little better than what the earlier rules Were. UIldoubtedly, there are certain improvements of course improvements, which, if I may say SO, were not calculated to help the developing countries but Were brought because of the change of circumstances in the developed Countries, for instance, the going away from the gold standard. In 1945 the United StateS insi Sted On the gold standard because it had all the gold. Practically the entire gold of the world had gone into U.S. hands and they were anxious that they should have some control Over countries which during the war were managing their cconomies on a managed basis and therefore they insisted on the gold standard.
At the time they insited on the gold standard, the Dollar was almighty. It was one currency in the world which commanded respect throughout the world. Today the situation has changed. The U.S. is holding the gold reserve for different reasons. Currencies like the Yen and the Mark have become stronger than even the Dollar. Therefore, the relaxation of the Se rules is not so much a result of their interest in us, the developing countries, but rather as a result of changed circumstances in World trade and SO on that have taken place in developed countries.
But, of course, to our advantage I must Say that the going away from the gold standard is certainly an advantage to the developing countries and to that extent we certaintly welcome the new rules of the Agreements that have been framed. But the Hon. Minister of Finance will appreciate that one of the difficulties that we, a developing country, faces, is to find a market for our goods. That is the principal concern of any de
ECONOMIC REVIEW, APRII, 1978

Page 15
veloping country, whether we can find a market for our goods at the best possible price. Unfortunately there are no Solutions that these Agreements offer to that province, while, undoubtedly, during the deliberations of this committee there have been pious hopes expressed that developing countries should have a market for their goods and
SO Ol.
Our second problem is to find
capital for development. Undoub
tedly there are some new rules about the tie-up or link between aid and the SDRs. This is certainly a new development as fai as the new agreement is concerned, but it is not sufficient - the Hon. Minister of Finance will agree – to find the capital resources that all developing countries would require for their development.
The third problem that developing countries have had to face is the rise in the prices of petrol and other energy-producing COmmodities. That too was considered by the Committee of Twenty when they went into this question. They thought of ways and means Of cushioning the difficulties the developing countries will naturally have to face as a result of the rise in the prices of petrol and other energy-producing commodities, but unfortunately they have not chosen to meet the Situation and to fiind any remedy for the problems that have arisen.
So there are two or three main problems that are facing the developing countries for which no solution is available in the new agreement of the new rules that have been framed under the International Monetary Fund or other funds. Therefore, our problems are still there and a Solution to those problems does not lie within the framework Of the International Monetary Fund's donations or allocations even under the new rules. We must be alive to that situation.
There is a sort of a complaicency that is spreading among all concerned that we can get all the money we need to finance our development, projects from the International Monetary Fund or the World Bank. We speak very glibly of these matters. We say that, if we are on the good side of the I.M.F. and the World Bank, all the rescurces that we need for the development of our country are just there for us to take and use.
EconoMIC REVIEw, APRIL 1978
That situation is n the Ille W ruleS Or U that situation is n
The other ques Way S raised is tha' poses conditions W. keeping with the tical a:Spirations O countries. That is ters that We gE against the I.M.F. amples Of this. Or a Way from the fac is politically moti United States Sti
- decisiOis Of the I.
controls, even tod Of the votes of th the classic exam I.M.F. was politic, OcCu.IrIred dilui.Iing '' During the Suez and Frace had Port Said and the and England want tion from the large sum of money States which was the side Of Egypt, accommodation to that time political have agreed with point is that even fu Sed a CC-Omm Odat badly needed from cause Of political II
Since then as
The Minister “Bretton Woods A "I agree with my Member for Nallur M param) that in the Chairman Mao Tse-T rely on our o Win eff resort, nobody will h house in order. We tinne to time for ba Support for SOme Of Schemes like the Ma. last resort it is only country who can he better their own llo! Chere are one or
mentioned by my ho
I must refer. First strength of the I.M. strength in the I.M.F it used to be in the 4 in the early 60s whe ments both U.N.P. members. The pres is as follows:
The United Sta which has the larges subscription, controls of the votes today. countries not only over the most impo

Dit there. Under nder any rules it there. ion we have al; the I.M.F. imnich are nOt in social and polif the recipient Dne Of the natnerally raised We have exe Can Ot Ī , that the I.M.F. rated and the Il controls the M.F., because it ay, 22 per cent e I.M.F. One of ples that the ally notivated the Suez crisis. Crisis England almost invaded Suez Canal area, ed accomOdaRAF in a fairly 7, but the United at that time On refused to give England. At tly We may not England but the England was reiOn that they so the I.M.F., be"e2SOS. far as Our coun
try is concerned we have had the experience of the I.M.F. asking for COnditi OinS Which are not in keeping with our social aspirations. That has been seen. Over and over again. Their point of view as to how social objectives should be reached is different from Our ideas of how Our Social objectives should be reached. Therefore, as far as
that question is concerned, their attitude tOWard S. Certaisi Social problems that we face has not
changed although there is a. change of rules. Of course, there are provisions that the Fund shall take into consideration the political, Social and economic COnditions of the recipient countries. All these pious hopes are there but When it comes to their actual translation one finds that they fOllOW the Same Old methOd as far as the developing countries are concerned.
Mr. Speaker, while we well appreciate the necessity for this Bill, We Only wish to strike a note of warning that we should not think that the leopard has changed its spots; that the IMF has suddenly become a benevolent association to Work for developing countries; may be that some of the spots are not as clear as they used to be but still We must be careful in dealing With the leopard.
of Finance Mr. Ronnie de Mel replying in the debate on the greements' Bill made the following concluding remarks:
7 hon. Friend (the Ar. M. Siva,Sithamlast resort, as "ung Said, we must OrtS. In the last elp us to put our may get help from lance of payments Our development haweli, but in the the people of this lp themselves to 5.
two other matters n. Friend to which , about the voting F. The voting ... is no longer what 0s or in the 50s or in previous Governand S.L.F.P., were ent voting strength
tes of America, t quota, the largest only 19.6 per cent The developing have a veto power rtant decisions of
the I.M.F. but they have a combined voting strength of 35 per cent - almost double the voting strength of the U.S.A. So, the U.S.A. by itself can no longer dominate the I.M.F. Those days are over. So we need not fear that the I.M.F. is a stooge organization of the U.S.A. or a rich man's club any more. More and more account is taken of the needs of the poorer countries.
Then my hon. Friend referred to the oil price increase. I must say in fairness to the I.M.F. that the I.M.F. was one of the first institutions to respond to the acute difficulties faced by developing countries like Sri Lanka caused by the oil price increase. They instituted a special facility, which they called the Oil Facility, in 1974 to help countries like Sri Lanka, whose balance of payments had been completely upset by the oil price increase. Sri Lanka has already received nearly 80 million S.O.R.S. That is about Rs. 1,600 million.
So we must accept the position that the IMF is taking more and more into account the difficulties of the poorer countries like ours.
13

Page 16
(Continued from Page 8)
for a freely usable currency selected by Sri Lanka. According to the definition adopted by the Fund a currency may be treated as freely usable if (a) the currency is widely used to Settle international transactions; (b) it is widely traded in principal exchange markets.
(iii) Section 8 of the Bretton Woods Agreement (Special PrOvillSi Qin S) Law is a Substitution for the Section 3 of the Monetary Law Act. Under Section 3 of the Monetary Law Act the par value of the Sri Lanka rupee is expressed in terras of gold in keeping with the Original Articles of the Fund. With the termination of the role of gold as the common denominator of the international monetary system, under the Amended Articles the expression of the par value in terms of gold is no longer possible. Furthermore, under the ameridied Articles the maintenance of a par value System is also terminated. When the Fund determines, by an 85 per cent majority of the total voting power, on the adjustable par values, they can be expressed only in terms of either Special Drawing Rights O Such Other common denominator prescribed by the Fund. The common denominator Will, hOWever, not be gold or currency.
Accordingly the amendiment effected to Section 3 of the Monetary Law Act empowers the Monetary Board to make a recommendation, by unanimous decision, to the Minister of Finance to desist from declaring a par value at present. However, provision is made to enable the Monetary Board to recommend to the Minister of Finance to restOre the par value of the Sri Lanka rupee in accordance with the amended Articles of Agreement of the Fund.
Under the original Articles of Agreement, a change in par Value was permitted only to correct a “fundamental disequilibrium” in the balance of payments of the member country; and each member was expected to maintain Orderly exchange arrangements. This obligation was built into the Monetary Law Act. In terms of Section 65 of the Monetary Law Act “the Monetary Board should endeavour to maintain par value of the Ceylon rupee'. As the par value system is inoperative at present under the amended Arti
14
IMF Direct
Witteveen: . be a balance 3. Sures on the Oil Cin the other Savings so tha take place. It sighted to incr Stilfe:S tOs Sulch a is no savings : Cannot be incr
In every c. to be made bet Sumpti On aridi That is really t I think. Some Welfare mea, Sui far as they ca taxation. Taxat on higher inco is a pOSSibility Of the 10Wer in out an unfavol velopment.
BUlt Of COüio
is limited. To g damage develop InfavOurable f( the future. So tant because Inoving in that late the people attractive rates is, the pOSSibilit Savings Banks
SLBC: Why tional Monetar establish a pel tive in this Would be his f
Witteweera: resident represe ber of countri rather close is Of course or government of S assist in the W
The final 1 Dayananda di
teveen in C
cles, Section 6 Law Act is nov stituted with a States that the shall maintain ments which a the underlyin country. This SOne degree regard to the arrangements authorities.
The Other BrettOn WOOdS Law Act consti of the term Right for the

or's views on Welfare, Savings, Consumption
think there should tWeen Welfare meahand and neaSures hand to acrease development can s I think 'too short ease welfare neain extent that there O that consumption 2sed.
untry a choice has Ween preSent -- COINfuture consumption. he point. Therefore, balance is needed. es are possible as in be paid out of ion can be heavier mes, so that there to increase Welfare conne claSSes Withrable effect on de
se, the hope for this O beyond that would ment and Would be Dr. consumption in I think it is importhe Government is direction, to stianu2 to save more by of interest; that pies to Save, through
and SO On.
has the Internay Fund decided to manent representacountry and what unctions? Well We have these entatives in a numes where have CO-Operation.
the request of the ri Lanka in order to orking out of these
Waye
This
policies. This is such an important shift in policies and many points present themselves, and therefore we are ready to provide this asSiSta. In Ce.
S.LBC: Finally, your Excellency, are Special Drawing Rights on the way to becoming an international currency in their own right and if so how?
Witteweesh: Well they are already an international currency. As I explained, every member government of the IMF has been pro
vided With a certain amount of
Special Drawing Rights and they can be used to make interinational payments, So it is internatioal imoney. The demaid is stili rather relatively a very small part of the total of international liquidity. We have agreed in the amendments to Our Articles of Agreement that the Special Drawing Rights should become in the future the principal reserve asset, the principal international money. So we have to work for that in the coming years.
part of a radio interview conducted by the SLBC's e Silva vith, IMF Managing Director, Johannes Wit
OlOmbO
in February, 1978.
5 of the Monetary v repealed and Subnew Section which Monetary Board exchange arrangere consistent with 奖 trends in the section provides of flexibility with choice of exchange by the monetary
amendments to the Act and Monetary tute the SubstitutiOn Special Drawing term gold as the
CQri:Tirion den Orniiri3tOF Of the international monetary systern.
The amendments also enable Sri Lanka, to legalise the current exchange practices which were inot consistert With either the Original Articles of the Fund or the Monetary Law Act of Sri Lanka. Now Sri Lanka is free to apply an exchange arrangement of her own choice; and in the event the Fund decides that the international economic conditions are conducive to the maintenance of a System. Of Stable but adjustable par values, Sri Lanka can opt for the introduction of a par value for the
EconoMIC REVIEw, APRIL 1978

Page 17
rupee. Moreover, when a par value
system is introduced under the amended Articles, Sri Lanka can fix margins for spot exchange
transactions with other currencies upto 43 percent on either side of parity, as compared with the 1 per cent margin allowed under the previous Articles.
Another advantage in subscribing to the amerided Articles is the access to the rawing facilities which are liberalised under the aneided Articles. The balance of payinents assistance is now extended even When a member experiences an unfavourable development in her reserve position. Further, the amended Articles have simplified the repurchase obligations of the members.
As a developing country, Sri Lanka has become eligible for a SSistance Under distribUiOn Of prOfits from the gold sales conducted by fund. These resources are held in the TT u St Fund administered by the IMF, and are made available to a limited number Of developing COuntries with low per capita in COnline.
As a consequence of the acceptance of the amended Articles Sri Lanka is also required to fulfil certain obligations. Under the amended Articles in embers are Obliged to inform the Fund of their current exchange arrangements and also any changes as and when introduced. Further, Siri Lanka is now expected to ensure that the balances of Sri Lanka rupees purcha.sed by another member from the Fund are convertible into a freely usable currency. Although this is a legal requirement under the new Articles, it seems unlikely that Sri Lanka will face this obligation in the near future as her balance of payments and reserve position are yet not strong enough to reach this stage.
Further implications of this Amendment were listed in a speech by the Minister of Finance, Mr. Rorainie de Mel in the National State Assembly when the Second Anaeidnent was debated; while, possible negative effects were highlighted by Mír. M. Sivasithamparam on behalf of the Opposition (See pages 10-13).
The IAAF in the popular mind is an institution that not merely influences operation of the international monetary system but equially important is regarded as an in
ECONOMIC REVIEW, APRII, 1978
stitution that come countries in great What appears to h reputation, howevel that the IMF' SetS conditions for gra with underlying p ti OinS.
The developing cularly have been p for the MF to rel imposes on loans rain grouse of the tions is that many indiscriminately a their growth rate tionary reSSures C check. An argume) policy has been th; loging countries inf Sures, dira W = strengt commodity short: frr:Garai gi:Gwyth in In OR Ofte theSe coun have no other alter resort to deficit fin eral bank credit po ing their reSOUrce S łą, šiol to the finan their growth progra IMF Conditions hav the recipient cour growth of its econd inflation, even the
have meant an inc: ployment.
These conditic
i:give extended even ed ations that hav tance from the IMF ports in the Weste indicated.
FOr instance the TIME commenting LENDER OF LAST September last year since the eacplosion 1973-74 combined recession, Witteeen a busy fireman, dam. of inflation here, a economies there, a times as if he were Supranational centro this year the IMF billion emergency J uphich uvas strapped Dith an enormous t ments deficit. The Rome to negotiate milliom to the Italia Uhlich uvas om the v overth roun because ( tion and an inability imports. “What up pened Uithout the E international banker, to contemplate.’

s to the aid of financial straits. ave damaged its , is the notion
rigid economic inting of loans plitical implica
Inations partiLushing for years 3x COnditionS it to them. The
developing na
of then are sked to reduce so that inflaGuld be heid in ht against this at in the develationary presa more frOnn geS and leSS ley Supply. Also, tries generally native buit, tO ancing and liblicies, considerhortages in recial needs of names. At times e required that
try slow the Dmy to reduce bugh it would
rease in unem
}{S, however, to the developPe SOUight a SSiS', as even rern press have
US newsweekly On 'IIMF THE RESORT in Stated 'Ejer of oil prices in Dith nDorldnDide has been like ping the flames Essisting dying nd acting at the head of a El bank. Earlier provided a $ 3.9 oan to Britain, at the time balance of pay77 i Das on to u loат of 8 530 tin Government, erge of being of chaotic inflay to finance oil Duld have hapund’, says One
'is too ghastly
But in return for those loans the IMF prescribes the kciind of medicine that most governments de test, reduction din public Spending, targets for louder inflation rates, tightening of credit, in effect, a reduction in the standard of living. Wittelleen, to be sure, denies that the IMF impOSe8 its uvill on creditor countries; “consultation” is i all that it asks, he claims. The distinction is largely semantic: IIMF may not tell a borrouping country hout much to cut its budget or hould much to raise taaces, e-ee- but it can keep refusing a loan until officials come up with budget-balancing measures that satisfy Fund directors. Says one official of the West German Finance Ministry: *°Vheqre it apoquld be impossible for us or the Americams to bring real pressure on Italy, the IMF can do a good bit more, as an international body, Uithout rousing patriotic fervour against us.'
The IMF brand of discipline, when imposed, has helped to touch. off riots in Cairo and intra-goerm, ment disagreeme mits im Peru. When the dictatorial Peruvian regime refused to impose IIMF restrictions last month, both the head of the Central Bank and the Finance Minister resigned in protest. NO doubt the IMF and the private banks upill reach an accommodation agith Peru, possibly by stretching out debt repayments.”
“The IMF's stern discipline has a darkc side: it could have a pernicious effect on DOrld economic groupth. When countries are required to reduce or eliminate their balance of payments deficits, there are feaper customers for the products of industrialized nations and feuer buyers of basic Third World commodities such as battacite and copper. The end result could be a vicious cycle that would dampen investment and louder incomes.’
The London Economist has consistently reported on what it regarded as hard conditions of the IMF in granting loans to developing countries which in turn had repercussions in the countries concerned. Referring to an IMF loan to Turkey in March this year under the caption “TAKING THE IMF's AEDICINE, SLOWLY' the Economist commented -
“Mr. Bu lent Ecevit's neu) coalition government devalled the Turkish Lira by 23 per cent this upeek, and has thereby taken its first step towards agreement with the IMF.
15
the

Page 18
With inflation already running at 50 per cent a year, the devalutatiom Uill pose domestic political problems for Mr. Ecevit - the left ving of his party describes the IMF as “an instrument of financial imperialism.” - but he got his budget through Parliament on February 28th.
The de?)ũluation is larger tham the figure that Mr. Ecevit's advisers were hoping to get auddy Dith a feu) ueeks ago. It meets the IMF's prescription, and the neact round of negotiations between Turkish eacperts and the IMF's representatives in Washington ujill start within a fenU, day/S. The IMF is likcely to be less happy about last month's autsterity mini-measures: an attempt to discourage importers from financing their business upith overseas borroupings, and a limit of one foreign hOliday every tubo years.
The budget debate passed smoothly, largely because Mr. Ecevit's government, confirmed in pOver only SiC uveeks ago, had to adopt its right-wing predecessor's fiscal frameDork Dith a feud political trimmings.
All nond hangs on uphether there Dill be agreement with the IMF. Turkey is being pressed into such an agreement by America and the EEC. It might eactract S 10 million from the IMF in tuvo stages - mot much, with foreign eacchange reserves at around $ 500 million and debts running into several billions of dollars, but a seal of approval for intermational bankcerS”.
More recently it reported as follows On an IMF loan to Peru. “The monetariSt:S in the Saddle and the riot police are standing by. But the generals are retreating from the Finance Ministry. Last Sunday eveînting Peruvians learned im Special television and radio flashes about the medicine the neu) government of President Francisco Morales Bermudea is doling out in a lastditch effort to get more loans from the IMF and foreign banks, uhose reluctance to lend theatens many factories upith closure. The prices of basic foodstuffs are going up by 50-110% (as subsidies come off) and petrol prices will rise by tapo thirds.
Within the U.S. itself there have been pressures in Congress that the living standards of people in developing countries should not be affected as a result of conditions imposed by the IMF. When the bill for American participation
16
An Outside
Yuri N
The Intern Fund was establ Of the U.N. RAMO held at BrettOn an inter-governm With a view to st relations among stability was to fixed exchange fixed price of gC Thus, along with lar became an in Curren Cy.
Stability was anteed by the S. members in the difficulties. The money from the need is very te: governments. Me Fundi enables tih need of external cing their ecOr long-term credits organizations clí
in the IMF’s $1 “Witteween credit for debate in Ma resentative TOIn Iowa pushed thi ment instructing executive directO Oppose l'Oans frc facility that W0 the “deprivation needs' or 'the human rights'. ' ector will also . the U.S. Congr trea Sury, ea Ch y of Witteveein - living Standards of poor people) countries. The all tried to apply tr conditions to all but it, WaS I ply only to the Schene (n3.ned managing direct
The socialis the membership always expressed on the IMF's inf mic policies of it lends. A typic ed here by Yuri commentator in aims does the IM ed frOn the Times.’

r’s Comment - a Soviet Vieuppoint What Aims Does the IMF Sere'
Techayev
ational Monetary ished by declSiOn netary Conference Woods, in 1944, as Lental organization abilizing monetary its members. This be guaranteed by rates based on a bildi ilin Ü.S. dollarS.
gold, the U.S. dolternational reserve
also to be guarystem of crediting event of payment possibility to draw IMF in ca. Se Of mpting for many 2mbership of the
he states in acute
Sources for finannomies to obtain and loans in the osely linked with
facility' came up irch, Congress repHarkin from rural rough an amendthe American re at the IMF' tO on the Witteween huld contribute tO of basic human yiolation of basic The executive dirhave to report to 8SS through its ear on the impact facility loans. On (especially those in the borrowing mendments at first nese congressional IMF loans, but re-written to apeW Witteveen after the retiring or of the Fund).
it countries outside Of the IMF have Stronger ViewS luence over econ Ocountries to which all view is expressNechayev a Soviet the article “What AF serve?' extract
Moscow
*Ne14)
the IME' - the International Bank for Reconstruction and Development (World Bank), the International Development Association, and regional banks, Such as the Asian Development Bank, the African Development Bank and the InterAmerican Development Bank.
THE DOLLAR HEGEMONY
The pegging of the IMF currency system to the U.S. dollar has made the former dependent on Washingtonos economic and financial policies. The United States took advantage of its monetary hegemony to Squander dollars On the militarization of the economy,
the building of bases, the mainten
ance of troops on foreign territories, and on aggressive wars, as in IndoChina. The dollar was a sort of master-key with which the Wall Street, barOS unlocked the dOOIrS tO the economies of other countries - by exporting capital and granting high-interest credits and loans.
By the late 1960s dollar injections into the capitalist monetary System assumed such proportions that the U.S. currency virtually lost its gold and commodity backing and the value of the dollar began rapidly to decline. The dollars deposited with foreign banks today exceed the U.S. gold reserves roughly ten times over and the U.S. annual exports, five times.
In an effort to preserve the position of the dollar aS the chief reserve currency and the leading currency in international business transactions, Washington adopted in the early 1970's the policy of demonetizing gold, of ou Sting the universal world money from the system of settlements between states. The IME introduced SO-galled Special Drawing Rights (SDRs) as a substitute for gold in international payments.
At Washington's bidding the IRAFF agreed post factum to the introduction of floating exchange rates of currencies which fluctuate On the money markets depending on supply and demand. The at
tempts of other leading IMF members, above all the Common Market Countries, to restore the
fixed exchange rates are being resisted by Washington. The United States “concluded that its interests would be adversely affected by the
ECONOMIC REVIEW, APRIL 1978

Page 19
restoration of a par-value system in which it was obliged to maintain a fixed value for the U.S. dollar', writes Joseph Gold, Director of the IMF Legal Department. At present, the United States can pay its trade partners not only with the sagging dollar. It can also make use of the declining rate of the dollar to pro
vide competitive advantages for American exporters.
Monetary instability, unbridled
speculation, imbalances in the financial settlements between states. disarray in international trade and the glutting of money markets with depreciated dollars which make for inflation, such are today the features of the IMF currency system.
QUOTAS AND WOTING POWER
The principles underlying IMF activity rule out the adoption of decisions in the interest of all members. The votes in the Fund are distributable according to the amount of capital subscribed and the political weight of the members. Each of the 133 members has a voting power proportional to its contribution (quota) to the Fund's assets. For instance, the United States with its 20.7 per cent of the votes can virtually control the entire activity of the IMF, as a majority of 85 per cent is needed for adopting decisions on the more important questions. ܐ ܓ Special Drawing Rights whic are considered the IMF unit of account, are also all'Ocated in proportion to the quotas. In 1970, when the SDRS were issued for the first time, the United States receiv- ed. 24 per cent of the total Sum, while 39 African countries received a mhere 4.7 per cent.
In the first place, tough rules for granting credits have been devised. Under these rules, each member rust, submit to the IMF detailed information about the State of its economy, foreign trade and currency, budget expenditures, and domestic econOrnic and SCcial policies. The Fund agrees to grant a credit only after this information has been analyzed and the country concerned has accepted its recomInendations.
Many examples can be given to illustrate the political and class character of the approach to recipients, not only developing but also leading industrial States. For instance, having agreed to grant Britain a credit in 1976, the IMF demanded that the Labour gov
ECONOMIC REVIEw, APRIL 1978
ernmment, SlaSh bu( for Social needs, re Sumption, and ref. nalizing a number
The Liberian
some time ago th: recOmended to Li Leone to revise the tal investiment With complete “liberali
Lent, a representat insisted on privileg ded to foreign countries.
IMF experts of eCOC
in
ters of the
measures planned and brazenly medic mal affairs of One try. Small wonder the IMF diktat leal to the aggravation situation in recipie: devising by IMF ex terity plan for Egy ged higher price goods, can be cite of such interferenc rity measures, it СаUSedi na SS distul and other cities a put down by the S. The political it rialism, U.S. simple: first place, are cases When the IM plays generosity country. In the pa instance, South Af more credits from the Other Africain ! Zaire and the Pij Chile are given p. ment by the Fund zations linked With tries are granted IMF experts cons economically inexp case of Zaire. Th
 

iget expenditure duce public conrain frOm natio
Of factories.
press reported at the IMF had beria and Sierra bir laws on capia view to their zation”. George ive of the Fund, ges being extenWestors in those
ten becOmne arbi
mic
and Social
盖见-片 bin SDRg
W 20 blin ----
3. bfn SDRs
3.2,
O
by a government ile in the interOr another coun, therefore, that ds now and then of the political nt countries. The perts of an auspt, which envisaS. Of consumer as an example 2e. The Se au Stewill be recalled, bances in Cairo ind Were brutally adat government, Interests of imperiali Sm in the also evident in MF suddenly dis
towards SOe st two years, for rica has received the Fund than sountries. Israel, nochet clique in referential treatand the organiit. These counaid even when ider this to be edient, as in the e attitul de chan
ges when a Left government comes to power in a developing country. In this case (as in Chile under the Popular Unity government) the IMF denies creditS.
WHOM THE IMF AIDS
The IMF's subordination to Washington's foreign-policy aims and the selfish interests of the Wall Street bankers becomes increasingly evident. The U.S. Administration regards the Fund not only as an instrument Of financial preSSure on the governments whose policy is unpalatable to the American mono
This is how Moscow's "New Times' illustrates how the IMF's main currency reserves (in SDRs and U.S. dollars) are distributed among its members. On top it shows reserves of the capitalist “North' with the reserves of the OPEC in the middle and of the other developing countries at the bottom. It maintains that the data released by the IMF show that last year alone the “North' accounted for two-thirds of the overall increase in the official currency reserves. At the same time, it says, that a deaf year is being turned to the insistent demand of the developing countries for additional IMF i credits in SDRs to help promote their economic programmes.
polies. The Fund is now a sort of guarantor - of capital investments and loans granted by American banks to foreign governments, mainly to Third World nations. According to the data of the U.N. Conference on Trade and Development (UNCTAD), the debts of Third World nations to private Western banks, the IMF and the World Bank amount to $250,000 million and continue to increase. The indebtedness of these countries is increasing at the rate of 22 per cent annually, and their expenditures on repayment of debts, by 25 per cent. In a number of countries new foreign credits have been less than what they spend to repay debits.
Concern about its profits from the high interest credits and loans issued to developing countries, Wall Street urged Washington and the IMF early last year to take prompt measures to guarantee debt repayment. To help the debtors overcome their difficulties in paying the interest rate, former IMF executive director Witteveen has proposed establishing a fund (named after him) and $10,000 million have al
17

Page 20
"ŠTae Ecos ao Emmy
The investment Promotion Zone
in March this year, the Greater
COlOmbO ECOnOmic – COmnimiSSiOn annOUn Ced a l'ange Of incentive:S tO investors in the Investment Promotion Zone to be located in Katunayake - the first of Several Such zOne:S that Will be eStablished unCer this Commission. Shortly afterwards it was announced that the applications of 20 investors had received approval and 4 enterprises had signed agreements with the Commission. A total of 70 applications and inquiries had been received for setting up projects in the G.C.E.C.
The idea of establishing an Export Processing Zone was also mooted in the early 70s but for reasons not divulged the then Government abandoned it at a later stage. The present Government however, at the general elections of
1977, obtained a to establish an ZOne or a numbe Within the COur than a year the completed the required to establ in an area, north
This Invest Zone is approxim eXtent, and is lOca 18 miles from the adjacent to the tional Airport at
The main O Greater Colombo mission are to e investment, to ind commercial enter. export earnings employment and ment of the entir authority. The est
ready been raised for this purpose, With regard to Portugal, the IMF merely guarantees the loans to be extended to that country. The Fund is providing only $50 million of the $800 million requested by Portugal, the remaining $750 million to be granted by banks in the United States, West Germany and Other Western countries.
The IMF can no longer play the role of a rich uncle for its members also because its reserves in 'strong currencies - West German marks, Japanese yen and Swiss francs — are limited as a result of monetary instability and, above all, the weakness of the U.S. dollar. 'Do we need an IMF', the Conservative London Weekly, the Economist asks.
It is not surprising that the activity of the IMF as a frank champion of the U.S. interests is a source of increasing annoyance to the trade and monetary rivals of the United States - the Common Market countries and Japan - who are demanding that the IMF chiefs prevent Washington from using the nonetary hegemony in its own interests. Bonn is reported to have been hastily devising a monetary stabilization plan for the EEC, to protect the community against the doliar sway in the IMF currency System.
18
The mOre tha ty of the Fund sh. not boast of a p the light of the g laimed. The mc remains unstable. nic imbalance in : tlementS. The World nations cont an alarming rate, progress being na nomic developmen
This explains Of the IMF and as: tion S is critici Sed often in the West ling countries. In 1 of newly-independ Out in the United establishment of truy dem Ocratic that would be free ence s Of individu groups of countries was advanced at t ence Df Non-Align in Colombo in the
International credit relati Ons Sh(
a dem O Cratic baSiS
to be expandred an Third World Na. They should rest of universatility, in and the sovereig member of the int munity to determ and social policies,

popular mandate xport Processing of such ZOneS try. Within less Government haS preliminary work sh one Such zOne of ColombO.
ment Promotion tely 600 acres in ted approximately port of Colombo, Colombo InternaKatunayake.
ojectives of the Economic Comncourage foreign Jce industrial and rises, to enhance and to facilitate general develope area, within its ablishment of an
in 30-year actlviiows that it canositive record in Oals it has procnetary Situation There is a chrointernational Setdebts of Third tinue to mount at with very little tde in their ecot. why the activity sociated organisamore and more and in develop971 a large group ent State:S came Nations for the a Worldwide and monetary system from the influall countries Or 3. The same idea, he Fifth Confered Nations, held summer of 1976. Monetary andi ould be placed on if World trade is d the progress of tions accelerated. on the principles nutual advantage in right of each jernational COmiine its economic
Investment Promotion Zone under this Commission is considered one of the key strategies for solving the economic problems of the country by the present Government; it is also a step towards an "outward looking' development strategy in accordance With which the Government haS already liberalliSed exchange and import controls and opened up the economy for greater export-import trade transactions.
The concept of an Investment. Promotion Zone is analogous to terms Such as Export Processing Zone and Free Trade ZOne. ACCOrding to the United Nations Industrial Development Organization (UNIDO) definition, Such zones involve “the establishment of modern manufacturing plants inside an industrial estate by offering a suitable package Of investment incentives to both foreign and domestic
entrepreneurs'. In general, the
goods produced in such zones are
meant for export.
In a number of countries
around the developing world, there are instances where Free Trade or Export Promotion Zohes are established. Asian examples are: India (2 Zones), Korea, (2 Zones), Indonesia (1 Zone), Taiwan (3 ZOnes), Korea (2 Zones), Philippines (1 Zone) and SingapOg (almost entirely a Free Trade ZOne). The objectives of
these different countries in setting
up these Zones have, generally been the same, as indicated with respect to the Obiectives of the Greater Colorbo Economic Commission.
From an economic point of view the success of a Free Trade Zone would depend basically on the ability to attract a substantial amount of investment into the Zone. It is for this purpose that various incentives such as tax holidays, concessionary import duties and other infrastructure facilities are provided for the investors. In this context, the Greater Colombo Economic Commission announced the following in centives to investors in the Katunayake Investment
Promotion Zone:
(1) Industrial sites within the Zone will be made available to investors on a 99 year lease basis on the paymet of a, initial premium plus 8n annual nominal quit rent. -
(2) The Commission will provide adequate and modern infrastructure facilities to the area
EconoMIC REVIEw, APRIL 1978

Page 21
(3)
(4)
(6)
(7)
(8)
(9)
(10)
(i)
(12)
demarcated as the Zone. This would, in addition to services like water, power and roadWay include an air-cargo terminal and container marshal ling yard for sea going containers, a rapid and sophisticated telecommunication system and special banking facilities. Investment incentives will be offered on a graded scale, i.e. according to the siting of the factory in the Zone, creation of employment, export orientation, capital investment and development of technology.
All imports of equipment, cons
truction materials and other materials and other imports (except general transport
vehicles) would be free of inport duty while import and export, activities would be free fron control.
A five year tax holiday will be granted from the date of commencement of commercial production. After the expiry of the tax holiday period, income tax on the turn-overs will be at 2 per cent on sales to other countries, and 5 per cent on sales to Sri Lanka.
There will be a 10 per cent withholding tax on all remittances of royalty and technical service payments after the tax holiday period. All foreign personnel attached to the projects would be exempted from all taxes for the period of tax holiday of the particular project.
All dividends paid to non-resident share-holders of the projects would be free from further taxes and all exchange control. Investment agreements would include guarantees for the free transfer of capital and returns as well as all the proceeds of liquidation. The shares of incorporated companies could be transferred to residents or non-residents and such transfers would not be subject to any tax or levies in Sri Lanka.
Foreign banks will also be permitted to operate within the area of authority and will be entitled to a 5 year tax holiday period and a tax rate of 5 percent on profits thereafter;
ECONOMIC REVIEw, APRIL 1978
and off shor and approxim on general ba
The range of f SiOns and financial above, as extracted package deal Spell Greater Colombo mission, indicates willingness of the attract investors i. ment PrOnn Oti Oll Z export Oriented inc ment in Sri Lank: this range of incen has acted on the the key factor that inveSOrs is the fiSC incentives extende country.
There are howe than the tax conce: cial incentives that ence the deciSiOnS t location of investm political and econo the host country is tant factOr. AlsCŮ, S Trade Z Ones have r efficiency of the at the Zone could be than the package in by the host count flow of foreign inve proposed Investme Zone in Sri Lanka. enced by the impr Lanka has created world with respect capacity to sustair and ecOn Onic Sta country's ability to Free Trade ZOne word 'stability' in hitherto meant in p ditions in Such COu Korea, Taiwan, Phill gapore which are no democracies.
There are sever, that enter into the foreign investors in making. One of ciples of locating a Free Trade Zone O country by a foreig comparative advant cing a particular c relatively lower cost range of fiscal and tives granted by th to foreign investors at contributing to t) advantage. Howeve ment in securing lo tion, especially in air ed - prOduct, is the av latively cheap but sk

e banking profits Lately 25 per cent Linking profits.
acilities, concesincentives listed from the total 2d out by the Economic Comthe extent of host country to Into the Investone to promote lustrial developa. In offering tives, Sri Lanka assumption that attracts foreign all and financial i by the host
ver factors other SSiOn and finantend to influO invest and the ent. The Sociomic stability of One Such imporstudies on Free evealed that the iministration of Im Ore important centives offered
Ty. Thus, the stment into the 2nt Promotion
WOuld be influeSSiOinS that Sri
in the outside to the country's Socio-political bility and the administer a efficiently. The this context has ractiSe the COnintries as South Lipines and Sinbt Western style
all other factors calculations of their decision the basic prinin industry in a If a developing gn firm is the age Of produommodity at a In fact, the financial incene host country is also aimed his comparative er, the key - ellew cost producexport Orient'allability of reilled and semi
skilled labour required for production. Another similar element would be the availability of raw material Or SOme other input that is essential for a given product at a relatively low price.
To the extent that industrialists are attracted to the Investment Plomotion Zone due to the availability of cheap labour and raw materials in Sri Lanka, the expansion of industry in the Zone Would benefit the country in terms of employment creation; that is, if
- investment in the ZOne is not at
the expense of investment elsewhere. Similarly, the spread effects and the backward linkages of industrial grOwth Would also be greater particularly, when local raw materials are used.
As of this date, there have not been any estimates made available by the Greater Colombo Economic Con
mission with respect to the cost of pro
viding infrastructure facilities, anticipated flow of investment, expected number of job opportunities and projected export earnings associated with the Investment Promotion Zone. As such, it is difficult to evaluate the targets and the prospects for achieving these targets. For instance, the employment potential within the zone has been variously estimated at numbers ranging from 100,000 to 15,000. The capacity of the zone to generate job opportunities, however, would depend partly on the volume of total investments attracted and partly on the volume of capital required to generate each job opportunity. There is also the crucial factor of technologies adopted by the investor which is not easy to control.
However, it can be judged by the statements of Government spokesmen that great faith has been placed in the Investment Promotion Zone to act as a major project in Sri Lanka's economy so that rapid industrial growth, higher export earnings and a greater number of employment opportunities will be faciliated by this strategy. The socio-political as well as economic costs of this strategy, however, are yet to be identified.
Questions such as the impact on national sovereignty, the intervention, in the local economy by multinationals and giant foreign firms, the environmental pollution resulting from industrialisation also have not been a dequately examined. The most fundamental issue raised is how far this concept effects self-sustaining and independent development.
19

Page 22
ΤΕΑ
Production fluctuates
World tea production by the end of April this year was lagging slightly behind that for the same eriod last year. Among the major producers North India recorded the biggest drop in crops - nearly 5 million kgS. less than in the first four months of 1977. Crop figures for Sri Lanka indicate a 2.5 million kgs, deficit for the first four months of this year. The adYerSe Weather COnditi OinS i Were largely responsible for a heavy fall in production in the local tea, crop in April and this situation was likely to continue into May with a
further shortfall in production be
ing anticipated.
The only significant increase in crops for any country was recorded in Kenya where production continued its upward trend of recent years and was up by 4.2 million kgS. during the first four months of this year. Kenya's rise in production of 24.3 million kgs. in 1977 was the largest increase ever recorded by a new producing country; production increased from a total of 53.5 million kgS. in 1974 to 62 million kgS. in 1976 and 86.3 million kgs in 1977. Kenya's share of the U.K. market rose to over 20 per cent last year frOm about 15 percent in 1976.
they were durir. of last year. A recorded in the prices and Rs. : average prices April this year. ed falling of p year and the ge of teas appea Medium grOWI) most and Canne 28/48 in April 10/32 this year percent. Low G. ed the Smalles With a drop of ture may not the conditi OinS * April are consid last year repres boom period for teaS Out fOr te comparison of first four mont are given below Gross Sales at the Colom ead
High Grown Medium Grow Low Grown Total Sales ave Turnover deficiť The Gross for April in res) of tea shows a The total Gross Shortfaill of app
CROP PRοDUOTION OF MAJOR PRODUCING
Sri Lanka, upto April North India, up to April South India. up to April Kenya, up to April MalaWi up to April Uganda up to April Tanzania upto March Indonesia up to February Bangladesh upto April
Total
Prices fall
By the end of April it was ap
parent that tea prices at the Col
Ombo Auctions were not as firm as
1977 m.kgs Percen 72. 33.7 31.9 重4.9 39.0 18.2 29.7 13.9
19.2 9.0. 4.6 2.2 4.4 2. 9.7 4.5 3.4 1.6 2琪4.0 100.
million with H the list at R.S.
by Medium an
R.S. 45.5 and R.
Gross Turn over (approx.)
Jan/April 1977 kgs RS. M. High Grown 20,030,730 396 Medium Growa 17.887,555 311 Low Grown 19,071,031 338 Total 56,991,316 1,045
20
 

ng the early months drop of Rs. 2.60 was grOSS Sales average 3.35 in the net sales up to the end of There was a mark
rices in April this 2neral performance red disappointing. teas Suffered the 3 down from R.S.
last year to Rs.
- a drop of 175
rown's have recordt decline in prices 72 percent. The piclook too gloomy if that prevailed last Lered. This period of ented the peak of a * not only Sri Lanka as of all origins. A gross prices for the hS Of 1977 and 1978
Average Prices nbo Auctions upto
of April
1977 1978 19.78 14.92 17.43 11.25 17.70 20.19 rage 18.35 15.75
Turnover recorded
pect of all categories very striking deficit. ; TurnOver ShoWs a
proximately Rs. 140
COUNTRIES
1978 t mkgs Percent
69.6 32.8 27.0 12.8 39.4 18.6 33.9 16.0
19.1 9.0 3.8 1.8 5.9 2.8 10.9 5.
2.3 1.1 O 211.9 100.0
igh Grown's topping 62.8 million followed di LOW Grown’s at S. 32 million respec
an/April 1978
kgm RS. M. 19,732,688 296 17,775,395 200 21,475,427 437
58,987,510 933
have recorded deficits of R.S.
tively.
When the figures for January to April 1978 are considered, High and Medium Grown's are seen to 100 million and Rs. 112 million respectively while Low Grown's have done extremely well to record a. surplus of approximately Rs. 100 million compared to the S28 period of last year, thus reducing the total deficit to RS. 12 million.
RUBBER Brighter prospects
Prices for rubber at all auction centres continued their upward trend through April this year and were expected to show more favourable trends in the coming months. Closing prices at the Colombo auctions at the end of May of RSS No. 1 had moved up to RS. 6.68; per kg. as compared With Rs. 3.98 at the same time last year. On May 26, a record price of RS. 6.673 per kg. WaS recorded for RSS No. 1 Infact this was the highest price recorded for sheet rubber since Rs. 6.67 per kg. was touched on March 10, 1961 at the height of the Korean boom.
In all other grades too prices Were far above those recorded during May last year. (This data has been made available at time Of going to press).
The improvement in local auction prices on all grades of rubber is seen in the table below.
Closing Prices
per kgm at
end of month Grade May 77 May 78 RSS No. 1 3.98 6.68 Latex Crepes 4.93 7.01. Scrap Crepes 6.25 8.50 Sole Crepe 3.69 6.23 Froth &
Cuttings 2.67 4.75 Scrap No. 1 Curly & Shell 1.75 3.00
Further, the Overall Steady market conditions in ColombO were attributed to short covering demand in the face of reduced
arrivals at the public auctions. In the international auction centres too prices were moving strongly. In Singapore values were channelled on an upward path on strong speculative buying following reports that a Rubber Producers draft had been completed for UNCTAD's rubber Stock Pile scheme. Also, reports were out that the US Senate Armed Services Committee had approved the Stockpile Scheme and a Purchase Bill on commodi
ECONOMIC REVIEW, APRIL 1978

Page 23
ties. In New York too, following these schemes, rubber prices continued to hold steady with information that the US General Service Administration intended to implement further rubber stockpile purchases of 5,000 pounds of sheet rubber monthly from October onWards.
SPICES
Prices rise but less available
Once again Sri Lanka's commodities are failing to gain maximum advantage from buoyant export commodity prices. The most recent example is that of spices where, despite an almost 100 percent increase in prices for several of the local spices, production as recorded during the first quarter of this year has shown a drastic fall. Despite the fact that a total of 1,787 metric tons of six different spices was exported in the first quarter of this year as against 1,960 metric tons in the same period last year, earnings during the first quarter of this year have reached Rs. 75 million as against Rs. 42 million in the same period last year.
An annual review of the spices situation for last year however, ShoWS that in 1977 the total volume of spices exported increased by nearly 1,000 metric tons over that of the previous year. This situation was primarily due to a considerable increase in exports of pepper and cloves. Pepper exports amounted to 632 metric tons in 1977 compared to 10 - metric tons in 1976; whilst cloves recorded an export volume of 978 metric tons as much as 603 metric tons more than in the previous year or an increase of over 160 percent. Exports of other spices however, recorded a decline in 1977; nutmeg and mace reaching a level of
of earnings
only 40 percent an percent Of COr) figures. Cinnamon marginal decline.
In terms of va. earnings from Spic ed a marked inc. in 1977 reached from Rs. 99 millic increase of nearly spices, except nut contributed toward mainly due to high ed by them in 197 of this increase W.
mOn Which earne
TTABLE II - EX
Vo (Metri
Pepper Oinina.mΟΥ Cloves Nutmeg & Mace Cardam Oms
Total
Rs. 73.6 million, most 50 percent of from export earning fro moms and nutmeg Rs. 57.9 million, and Rs. 1.8 millic pared to earnings lion, Rs. 17.4 milli million respectively most significant in of pepper exportS; contributed Only 8 total Spice earnin performance was that it increased from a low of Rs. 1976 to RS. 13.82 m
Greater Overse prices, and highel Colombo auctions the factOrS respc
TABLE I - EXPORTs (
1976
Volume Av. yearly price value (Metric tons) (Rs, per kilo) (Rs... m.)
Pepper 10.00 38.17 0.23 Cinnamon quills -
& chips 5,801.95 9.80 68.94 Nutmeg 15.87 Mace 372.29 31.98 3.39 COVes 375.11 80.16 1742 Cardamoms 121.48 137.29 8.85
Total 6,680.83 - 98.83
ECONOMIC REVIEW, APRIL 1978

di cardam Oms 60 "esponding 1976 recorded only a
ue, total export es in 1977 ShOWfease. EarningS R.S. 156 million } n in 1976, arı
60 percent. All meg and mace, S this increase ter prices receiv
increased earnings. Average Colombo market price for cinnamon, cloves, nutmeg and mace and cardamoms moved up in 1977 over 1976 levels, (see table I). Despite a fall in the average yearly price of pepper from Rs. 38.17 per kilo in 1976 to Rs. 28.31 per kilo in 1977, export earnings from this commodity Were significantly higher due to a greater volume of exportS.
While 1977 on the whole had
I. A major share been a good year for spices, the tas from cinna- performance of this commodity 2d the country during the first quarter of 1978 PORTS OF SPICES FIRST QUARTER, 1977-78
1978
lume Value % of Volume Value % of 2 tons) (Rs... m.) total (Metric tons) (Rs. m.) total 21.47 .16.1 54.8 க்க ܡܚܘܿ 1,481.50 18.1 42.89 992.70 32.8 43.73 376.70 18.3 43.36 198.54 15.5 20.6
66.20 1.0 2.37 50.90 0.9 120 35.60 4.8 11.37 30.54 9.7 12.93
1960.00 42.2 100.00 1,786.86 75.0 100.00
contributing althe total share Spices. The m clOves, cardaand mace, Were Rs. 9.8 million, on in 1977 comof Rs. 68.9 millon and Rs. 3.4 r in 1976. The crease was that though pepper percent to the gs, this items remarkable in it's earnings 0.23 million in illi On in 1977.
as demand and
prices at the last year, were insible for the
presents a less promising picture. The volume Of exports of all spices has dwindled during this period in comparison to the same period in 1977. (Table II). Higher prices again have been the major factor for increased export earnings from Cardam Oms and cinnamon during the first quarter Of 1978, resulting in increased total export earnings during this period from R.S. 42.2 million in 1977 to Rs. 75 million in 1978.
It is unfortunate that the country is not in a position to take advantage of such favourable market prices due to fluctuations in our production. What is required is greater planned production and building of buffer stocks to exploit favourable market situations.
F SPICES 1976-1977
197"
% of Wolume Av. yearly price Value % of total (Metric tons) (Rs. per kilo) (Rs. m.) total
0.23 632.22 28.31 13.28 8.49
69.76 5,739.37 14.95 73.56 47.02
30.74 3.43 153.29 36.21 1.83 1.17 17.62 978.21 88.04 57.93 37.03 8.95 71.48 19927 9.84 6.29
100.00 7,574.48 -- 156.44 100.00
21

Page 24
DEVELOPMENT
F1 SHERIES
BANKS
With the diversification of the People's Bank activities the need to develop Specialised Services to meet particular requirementS Of significant customer grOUlpS has been increasingly felt. In the ca. Se Of the Itural farmer and the artisan the Bank's strategy has been largely to promote Cooperative Rural Banks. Through such agencies a full range of loan and deposit facilities have been
made available to meet the needs
of these two groups. As a further step in this direction the Bank decided early this year on a Scheme forj the establishment Of Specialised Fisheries Banks with a. view to popularising the banking habit and raising the Socio-econOmic Standards Of the pO,Orer Segments of the fishing community. These Banks are a corollary to the Rural Banks inaugurated in 1964 which provide a comprehensive credit scheme to th agricultural and artisan sctor. They aim at servicing the less privileged fishermen more effectively than the existing Fisheries Co-operatives.
On the Whole most Fisheries Co-Operatives have not ben able to cope adequately with the demands and requirements of thier memberS.
These Fisheries Co-operatives were expected to develop into financially strong and viable Oraganisations and play the vital role expected of them. Unfortunately most of them failed to live up to expectations
The failure of these Fisheries Co-Operatives to provide a comprehensive credit structure for those engaged in the fisheries industry made it necessary for the People's Bank to evolve a scheme which would be beneficial to the fisherman and at the same time maintain the essential characteristics of the Co-operatives.
The proposed Banks would be housed as far as possible in the buildings presently used by the Fisheries Co-operative Society and the Banks would maintain a close liaison with the Co-operative Society. The staff will consist of personnel who are expected to maintain a close dialogue with the
22
fishermen, prov financial, SOcial Support that t traditional
pected that the
able to perform these functions Bank's Develop expected to sp time maintainil With the fisher the beach and Will look into credit requirem
men but also S.
facilities to cov Of problems fa C including their ches, Storage a
A first step gramme Was la when the C Manager and the Bank visite let at Dharmap nia. The Bank cuSSed With th problems and t the Bank could an hour names Seconded for th Co-Operative. C fered his compC building and t reed to share t building which One room. Nan and the boat O and it was foun ly 150 only fiv in One of them One of the mai fishermen was have the means ΥΥ1ΟΙΩSOOIn Sea SOI) tice for the f areas was on Il OISOO OI O to another coa involved capit beyond the ca, fishermen and usually underta, lali (middlemmar visits the fishin up individuals ran advance Wh free payment t commercial re fishermen agree their families p. advance paymen their catches to fixed prices. RO and advances f

de them the broad
and psychological hey had from the ldalali. It is ex: Banks would be L at least some of For instance, the ment ASSistant is end most of his ng close contact men literally On in the market. He not only the pure ents Of the fisher2ek ways to provide er the total package ing the fi Shermen problems. On Catld marketing.
tOwards this proLunched in February Chairman, General Other Officials Of d a fishing hamala Road, Mt. Lavi's Chairman dise fishernen thier he solutions which Offer. Within half were proposed and ne formation of a )ne person even Of) und to put up the he fishermen aghe expenses of the will consist of only es Of the fishermen Winers were listed d that of the neare OWned boats and Were mechanised. in complaints of the that they do not to live during the S. The usual pracSherfolk in certain the advent of the e coast to migrate st. However, this al and Organisation pacity of individual this function is ken by the muda(). The mudalali g village and signs to whom he pays
ich is an interest O consolidate the lationship. The
to migrate leaving "Ovided for from the it and they give over ) mu dalalis at preLugh accomm Odati On or provisions and
dirinks are provided by the mudalalis and accounts are settled at the end of the SeaSOn.
This contract system is generally viewed with alarm, as Sheer exploitation by the mudalali who takes advantage of the poverty of fishermen to extract all Surplus value for himself. This factor haS been attributed to the chronic indebtedness Of the fishermen. HOWever, due to the lack of support financially they are not able to Organise themselves to carry out this type Of Operation. In this particular hamlet at Mt. Lavinia they have not migrated to other areas. One purpose of the proposed “Fisheries Bank' here Was to evolve schemes which could provide credit facilities for these fiShermen to tide Over the monSOOn SeaSOn.
Another aspect which the FisherieS BankS WOuld lOOk into is providing technical know-how to fishermen for repairing their mechanised boats.
The Bank has also realised that a network of 'Fisherman's Banks' would no doubt help the
fishermen not only in their day to
day Operations but also in the long run by providing them with incentives to Save.
As a general rule fishermen are not used to the savings habit, and the opening up of these Banks is a first step towards providing institutional arrangements for disbursement of credit to a sector of the community that has been long neglected. This scheme basically attempts to improve the Small boat sections of the fishing industry in teaching and handling of fish.
In siting Fisheries Banks preference is being given to areas where fisheries harbours are functioning, or where there are heavy concentrations of resident fishermen, or where fisheries co-operatives are situated. Hours at these banks will be adjusted as far as possible to suit the convenience of the fishermen in the particular area.
Among the facilities to be provided are:
(a) Maintenance of savings, in
Vestment S a v li n g s accounts and fixed deposits accounts.
(b) Pawn-broking. (c) LOans for production, pur
chase of Small boats and fishing gear, housing, redemption of debts, emer
gencies and eSSential (20Îì= Sumer need S.
EconoMIC REVIEw, APRIL 1978

Page 25
(d) Facilities under the Bank's “Athamaru Loans' Scheme. (e) Facilities for diversification into other fields of gainful employment during off-seasons. Under this scheme, a fisherman could obtain a loan up to RS. 7,500/- for the purchase of small boats, traditional crafts, nets, fishing equipment, outboard engines etc. He could also obtain loans for house construction up to R.S. 5,000/-, redemption of debts up to Rs. 5,000/- and for emergencies to assist a member of the immediate family in case of illness, marriage or death.
Repayments of these loans will be in easy instalments, according to the income pattern of the bor
rower. Thus a fishermen could opt to pay his loan instalment, either weekly, monthly, quarterly
or half-yearly, and the period for repayment could be extended up to five years, depending on security provided. Consumer loans and loans for emergencies have to be repaid in one year, while loans for house construction could extend up to a maximum period of 15 years.
The Fisheries Bank has also relaxed the rules regarding Security for loans to fishermen. TWO fellow fishermen could guarantee a
loan up to Rs. 1,000/- and in cer
tain situations up to Rs. 2,000/-. So as to encourage fishermen in the savings habit, a condition precedent for the grant of a l0an is that Suoh. fishermen should maintain a Savings or Investment Savings. Account. Presently, the People's Bank is conducting a detailed survey of the progress made by the Fisheries Banks, its impact on the fishing community, and the response of the fishermen to the Bank. It is still too early to assess the impact of this experiment on the fishing community; but one thing that emerges clearly is that in course of time the fisherman could reduce, or break off altogether from his heavy dependence on the nudalali.
For a Start a net Work of Fisheries Banks are being opened On the Southern Coast, and the five Banks opened so far are located at Moratuwa, Panadura, Welligama, Ambalangoda and Tangalle. These Banks are functioning as separate units attached in the Peoples Bank and more such Banks are due to the opened in coastal areas to serve specific needs of the fishermen.
ECONOMIC REVIEW, APRIL 1978
the
Such as
ENERGY
SNAA HYDR Utilising Wate
The concerted production and pr oil from late 1973 fears that most of reserves may be e the end Of the cen much interest in a ces Of energy. In despite the availab hydro-electricity Other possible ener increasing depender major Source Of en growing concern. T Oil' Wells Will be rul to be more a caus that it does for g Who have faith in logy and alternative plant W2 warmth, rushing W water. The researc tive renewable ene. been stepped up in and one area th wide attention is of Small hydroElectricity can be Small scale for turbines adapted lower, volumes of Once again gainin. the West; and Sm for units under been installed in thousands for villa
The Small hyd and its wide use come into promin times With the intention to send engineers to study experience in this survey of the cur: reveals the existen number of turbine in several countrie small hydro-electr outputs as Small as COuntries such as manufacturers ha hydro-electric unit as Small as manufacturer in th offers suitable “pa electric units off electrical outputs 0.5 KW to 10 KW. Output, Several til are Offered, to Suit from 8 feet to 2.

O POWER PLANTS r Release from Irrigation Tanks
cut backs in ice increases of and Subsequent the world's oil xhausted before tury has excited lternative sOurSri Lanka tOO, ility of a high potential and gy SOurceS. Olur: nce On Oil aS a. ergy has cau Sed he fact that the aning dry Seems Se for Optimism loom for those simple techno2 energy SOur CeS stes, the Sun's rind and falling h , into alternargy sources has most countries, lat is receiving the exploitation DOW er SOUlloC€S. generated on a local use with to slower, or water. They are g popularity in all generators 50 KW, have China by the ge uSe. tro-power plant in China has lence in recent Government's out a team of the Chinese regard. A brief rent technology Ce Of a large manufacturers S Which offer ic units with KW. Even in U.S.A., turbine ΥΘ. developed s with outputs KW. A turbine e United States ckaged' hydrothe shelf with ranging from For each power
Lurbine , designs varying heads 5 feet. These
packaged units employ propellertype turbines with fixed blades and are directly connected to the electric generator. In addition to these packaged units, the same manufacturer offers the traditional type of Francis' turbines. One model available develops 15 KW at 294 r.p.m. under a head of 10 feet. Its low speed requires a belt or gear connection to the electric generator. The Soviet Union builds fixed-propeller units very similar to those described above. A firm in England offers Small units of capacities even as low as 10 KW operating under heads of 10 feet and above. There
are several firms in Canada, West
Germany, France, Switzerland, Hungary, Japan and India that manufacture Small hydro-electric
units for outputs from 3 KW upwards at heads ranging from 4 metres and above.
Published information indicates a rather widespread and reliable technology of small-scale, low head hydro-electric plants in the People's Republic of China. The literature has also indicated their growing popularity in rural areas where thousands of units Of less than 100 KW capacity have been installed, including One WOOden turbine for a 10 KW hydro-electric plant.
South of the 24th parallel; China is a country of heavy rainfall and sharp relief suited to the development of hydro-electricity. By 1975, some 60,000 small hydro plants had been constructed. Over 95 per cent being located in the Wet, Southern part of the country. - Most of these plants are very Small. averaging about 42 kilowatts - enough to provide energy for four North American cooking stoves. The Chinese do not use this precious energy for cooking. Instead, it is husbanded for household lighting (one or two 15 to 40 watt bulbs per house) for irri
gation pumping (12 kilowatts can
power local irrigation and drainage facilities), and for rice husking and milling — all labour intensive activities. One county in South China reports one million work days a year saved by
23

Page 26
mechanised grain processing from locally generated hydro-electricity.
Following guidelines of selfreliance and self-sufficiency, the majority of small hydro plants are COinStructed by local peasants from local materials. A particular interesting use of an irrigation canal has been made in Linhsien, in China, where a series of 26 Small hydro-electric plants have been built along the 12th channel of the No. 1 Branch canal of the Red Flag Canal irrigation system, taking advantage of the progressive drop in elevation. plant, capable of generating 250 KW is located at the bottom of a 15 metre drop, at the top of which is a sedimentation basin, to remove the Sand and silt. Thereafter, at every 5 metre drop in elevation, one 40 KW turbine has been installed, each one preceded by a sedimentation basin.
Small scale hydro-electric units lend themselves to significant cOSt reductions through local enterpriSe.
The technology On Small hydroelectric plants has been developed in most countries and such units are being made with Outputs even as low as KW. The technology for power units in the range Of 250 KW to 3.000 KW is even more developed. For instance, typical mini-hydro plants producing 300 KW under a head of 13 feet and a flow of about 250 Cusecs are now available in the market. The production Of Small Standardi,Sed turi bine unitS in the range Of 500 KW to 3,000 KW at heads ranging from 20 feet to 75 feet is being undertaken by several manufacturers On countries Such as SwitZerland, India, Japan and France. There are numerous examples in Japan where irrigation water releases are being used to Operate Small hydro-power plants Of capacity 1000 KW and upwards at heads ranging from 20 feet to 70
feet. The unit COStS Of the Se plants now compare very favourably with those of the bigger schemes.
Most of the major irrigation tanks in our North Central Province have water releases of 200 Cusecs and Over at heads ranging from 20 feet to 50 feet. For example, the Minneriya tank has a mnaXlimum di Scharge Of 525 cusecs and an average discharge Of 230 cu.Sec.S. The Parakrama Samudra has an average discharge Of 300 cusecs with a maximum
24
The first
discharge of 51 ing the present field, it would b. sible to install plants Operatil release of the
As far back initiated by Development E partment of Go Undertakings to hydro-power p. The design env 550 KW capa ( specifications w tenders invited received. HOWe the proposals fo the hydro Suppl. area from the project for the Small hydro-pov neriya has no With.
With the Mahaweli Water Central Province this plant have ThiS additi Onal of Water to th WOuld improve head at the
WOuld mOre tha
tallation of a pl: City, Say, 1000 appreciated tha COuld generate million units of
depending On th irrigation purpos
The Minner could serve as : it should be pc Similar Small at the other SOme of the ta Studied for t Such hydro-pd Kala Wewa, Raja. Samudra, Pad Hurulu Wewa, an
In addition tanks, there are
tion tanks of n
Small hydro-pow able capacity co In conside Options for Sri necessary that potential in th from the irrigat utilised by the able Small hy Action could exploit similar Small streams O Which until a f harnessed On Se Operate Small h

) cuSec S. COnsidertechnology in this e conveniently poSsmall hydro-power ng On the Water irrigation tankS.
as 1963, action WaS he then HydroBranch of the Devernment. Electrical construct a small lant at Minneriya. isaged a plant of
sity. Designs and are prepared and ... Bids were also
Ver, perhaps due to r the extension of y to the Minneriya, National Grid, this
installation of the ver plant at Minit been proceeded
diversion of the S to the North , the prospects for further improved. controlled Supply he Minneriya tank the conditions of outlet sluice and in justify the insant Of bigger capaKW. It has to be t such a plant approximately 4 energy per annull, e Water releaSes fOr
SeS. iya, power plant a pilot project and SSible to construct hydro-power plants irrigation tankS. nks that could be he installation of }wer plants are ngana, Parakrama aViya, Kaudulla, d Nachchaduwa.
to these major almost 300 irrigaOderate size where ver plants of Suituld be in Stalled. 'ring the energy Lanka, it is very the hydro-power he Water released Sion tanks be fully installation of suit
dro-power plants. also be taken to potential in the
if the hill country, eW yearS agO, Were veral tea, estates tO ydro-power plants.
A G | R | C U L- IT U IR E
Food Grain Output Conflicting Reports
The FAO foresees a comfortable food availability situation the world niver this year. It expects a rise in the combined World wheat and coarse grains output in 1978 and hopes that even in the case of that expectation not materialising carried over stocks of cereals, estimated at 176 tonnes, could act as a buffer and ensure minimum World food, security in 1978/79, albeit at higher prices.
FAO's first tentative estimate of combined Wheat and coarse grain production in 1978 is for 1,120 million tonnes, which is slightly higher than in 1977 and includes a five per cent higher wheat crop of 405 million tonnes and one per cent higher coarse grains crop at 715 million tonnes.
An FAO survey has also indicated that there were 45 'seriously affected' countries where food production per person decreased by 0.4% during the period 1970 to 1976. Although there was food in the World to feed everybody, inadequate distribution increased world's food hungry by nearly 14 per cent since 1970. The number of under nourished people in the world has risen from 400 million in 1971 to 455 million in 1974.
A recent Study of the rice situation in the ASEAN countries shows that Indonesia was most in need of imported rice; severe drought and pest attacks in the past two years have resulted in considerable depletion of her rice Stocks in 1978 too. Despite an expected harvest of 15.3 million tonnes of milled rice Indonesia, anticipates a demand shortfall of 1.5 million tonnes and would need to import annually two million tonnes. Singapore would be looking into the possibility of buying rice from the Phillippines this year; while Malaysia would be in need of regular imports of glutinous rice “estimated at 25,000 tonnes this year from Thailand'. Philippines annual production is es timated at 4 million metric tons with a projected surplus over domestic conSumption of 650,000 tonnes at the end of June 1978. Thailand is expected to have a surplus of 1.2 million tonnes but a major part of this has already been committed on a Government to Government basis for shipment in 1978, mostly to other Asian countries. There are still serious food shortages and nutritional deficiencies in Several areas of the Asian region. One cause for concern is that one-third of last year's entire world trade in rice (over two million tonnes) went to Indonesia.
EconoMIC REVIEW, APRIL 1978

Page 27
FEATURES
Basic Services Delivery in Underdeveloped Co.
- the Bangladesh experience
i0ne Siri Wardena
The FAO's Freedom. From Hunger Campaign/Action for Development unit organised a programme for “Change Agents' in the South-east Asian region over an eight week period from March this year where together they discussed and analysed informally the major issues and problems faced by rural change agents and learnt of Social and human skills necessary for initiating a participatory development process. Mr. Siriwardena, a Research Officer from the People's Bank, who participated in this programme gives his impressions here of a case of participatory development in action. He acknowledges the assistance of Dr. Zafrullah Chowdhury and Mr.S. Greetha Chakra Warthi Who provided him with much of this information and assisted him. during his field visits to this project in Bangladesh.
Development cannot be brought to a people, it must come from within them, if we accept that development is basically a process Of liberating people - liberating them from paralyzing tradition and exploitative systems, from want and deprivation. The development referred to here is What is known as “participatory development” - a development that Will involve men and WOmen directly in the prO'CeSS of change, that will give them the opportunity to participate in those decisions that affect their lives and also in the implementation of these decisions. Many developing countries have made genuine attempts at this type of development but Several more have only paid lip Service to it.
Development in the country's of the Third World, which are largely agricultural, must actively involve the rural people. But even in development of these rural areas basically two different types of approach have been Observed. One is the "participatory' approach and
ECONOMIC REVIEw, APRIL 1978
the Other a 'd
proach.
The participato We have Seen, foll broad objective of velopment of peopl
' ential. It should b ed a “bottom-up' : cularly in Our
Where people are Source. It is clear t
endous potential and their energies realised the pace can then also be Though centralised nOt be d'Orne a Way cipatory developme Ima:IndS a great dea Sation.
In the more di, the rationale is to jobi; to get it dOne Sible tO beat the ClO
tiiOn is that if the
vered”, the COIndi Will automatically ready-made plans be somehow in tempts are made to but nOt aS an int Of the programme. cipation is merely a means to get 'San COOlsed, pre-packagi tion.
Both these ap velopment are in parts Of Asia. SOn functiOl in a “dire Others prefer a mo: approach, and SC Ween theSe tWO cat
A recent region gramme for “Chan ganised by the FA Development, for p Bangladesh, India, Lanka, gave us the observing both ty ment in action. A of the participator ing adopted in Bal Of the GOnOShdSthC impressions set Ou tended to give ar. effectively the cor put into practice.

Intries
irective' ap
ry approach, as OWS from the the over-all dee and their pot
e What
is call
approach; partiAsian countries the biggest re
hat, if t, can be
heir trereleased,
and motivations Of development Well acellerated. planning canWith the partint approach deLl of decentrali
rective approach
get On
With the
aS SOOVI a. S OOS
ck. The 'goods tions of
aSSնIՈՕare delipeople
improve. So, are sought to ilemented.. AtD involve people,
rinsic
People looked
objective ’S partiupOn aS
ction' for a pre
ed plan
of ac
Droaches to de
USe in
different
le Organisations
stive W.
ay while
e “participatory”
me fall egOries.
in bet
al training proge Agents”, OrO's Action For articipants from
Nepal,
and Siri
Opportunity of
es of
gOOd
developexample
apprOa, Ch begladesh is that
ya Ken
dira. The
t below are in
idea, cept is
Of how being
The morbidity rate among the under privileged Sections Of Our developing countries is so high that the curative a Spect Of medical Care is naturally demanding greater attention. Most of these rural people who live in remote villages are cut off from the towns and cities Where modern health facilities are available. Among such communities even a very basic health service could bring about a vast inprovement. The extension of urban patterns of health services, however, will not solve these rural problems; and ideas derived from curative medicine in the context of developed countries are unlikely to be appropriate for preventive work in the rural villages, for most of their health problems have gOt aggravated due to a lack of attention and do not require the services of highly trained physicians or facilities of modern hospitals. Hospitals and doctor Oriented “developed county' type curative medical care systems have helped to foster a strongly urbanbia Sed medical education and health Service. Such training has also been found to be not quite relevant to health care needs of rural communities. Bangladesh is a clear case in point.
In Bangladesh a group of its OWn people and Some of their OWn young Bengali doctors came to realise that an integrated approach to the development of the community was the best means of providing a basic health Care Service in an under developed country such as theirs. The idea of GOnOShasthaya Kendra or people's health centre Was thus born. These doctors had Worked with the Bangladesh hospital during their “war of liberation' in 1971 when it served refugees and liberation forces On the Indian front. At the end of the War they moved back to Bangladesh and into a rural area, covering nearly 300 villages, With a population of about 200,000, where they found that there wasn't even a health centre. In this area, called the thana or administrative unit, they found that the practice from British times had been to appoint One Sanitary Inspector and a few assistants to provide the entire health education and immunisation services of such a vast area.
25

Page 28
A significant finding they made Was that these Central government employees were given no supervision, were poorly paid to Operate their programme and had no ideas Or intention for community involvement. The result, was that most of what they put forth was ineffective. These doctors, led by Zafrullah Chowdhury, coming into this thana (Savar) in 1972 started by holding meetings with villagers and students in the area in Order to find out how they could best
bring health services to the peo
ple of the area. Initially they recruited Over 100 part-time volunteers from amongst the students who were to carry Out vaccination and health education programmeS. They needed a base from which to organise their activities and land was donated for setting up their main centre at Savar. Then their programme moved into operation.
In their early meetings with the villagers these doctors found that the allied groups in the field who were the more vocal members Often dOminated and tried tO. impose their ideas of health servicing On the entire project. Thus at the Start a decision was taken to charge a flat fee for all families of two taka, which is the equivalent Of about tWO Sri Lanka, rupees. It was later realised that the poorer Sections of the population were unable to pay even this and SO fees had to be modified making a differentiation between the rich and poor villagers. After nearly One year's operation it was realised that part time volunteer workers could not fulfil the demands this project's work was making on them. It was therefore decided that a full-time paid Worker was necessary and here came into being the concept of their paramedic which has continued to evolve While retaining the basic characteristic of a worker who brings community development Services to his village.
An Integrated Approach
The Gonoshasthaya Kendra, team now realised that a strict medical approach would not produce a healthy community. Moreover, without the involvement of the community anything that was produced may have questionable value. What started as a health centre in the village therefore came
to include community development
as well, and also family planning, vocational guidance, agricultural extension and human development
26
programmes. . could be consi point” to thes tO lift the COn the villages h Would not Sufi that the villag connected SOC problems and it pose dealing W of their proble medies Were til areas of healt tion and hygie immunisatiOn and post-natal ning and delix fOlOV up; but cology, record pathology and cedures to be ing female Ste tion they were Vice in regard livestock proble veterinary Serv tant, they dev Standing and S Of the village.
They did A capsules, bu vegetables. Unl doled out two eim tablets (a, testinal infesta WOirm) to be paramedic had required treatn being aware t be hesitant to dOSe Of medici) time.
It was also questiOned the na tal Clinic.S. being served in (15,000 to 20,00 approximately a year. Out o
more than 15 be “at risk' . Women requiri. Gathering all having them S neither an ef time nor of th nati Ve WaS tO pay regular vis pregnant Won have difficult 1 nancy problem necessary instr tion. The resu maternal deat
Further, ej work of the p education was ation team re

The health Services dered a. “entry e rural areas, but ditions Of living in ealth Services alone fice. They realised erS had malny intertial and ecOnOmiC WOuld Serve nO plurith Only One a Spect m. Thus the pararained not Only in n education, nutriene, curatiVe Care,
PrOgraMMeS, Pre
care, family planvery services and alSO ba Sic pharmakeeping, elementary minor Surgical procapable of perform
rilisations. In addi
trained to give adto agricultural and em S and Offer baSiC rices. MOSt imporeloped an underensitivity to the life
nOt preach Vitamin t rather local green like the doctor Who to six large piperachild's dose for intion With round taken at home, the the child take the lent in front Of her, hat. a. mOther WOuld give Such a large ne to a child at One
the paramedic who WisdOm Of the anteFor the population One Sub-centre area, )0), there would be 800 pregnancies in If this numbero i nO tO 20 per cent would pregnancies, that is, ng special attention. of the Women and it unnecesarily Was icient use of their ne clinico S. An alterhave the paramedics sits to these at risk hen most likely tO abour or other pregS and give then the uction and Observalt was generally no n in the area.
fectiveness of the aramedics in health Seen When an evalucently visited the
learтітg carpentry from a Gonoshasthaya
Kemdra, 2UOrkcer.
Village Domen
area, and found virtually no skin disease, nor did they come across any diarrhoea. This did not mean that there iS nO lOnger any incidence of diarrohoea, rather now the mothers know how to mix the dehydration fluid, and will use it. When diarrhoea. OCCurS.
The Selection of the paramedics involves the villagers. This leads to a greater responsibility for the programme, on both sides. Members of the community chosen to interview the new recruits are older villagers, but from among the wider mass of the poorer class. Cla.SS.
The Subcentre: a Community Centre
At communicating distance from the main or referral Centre, the Subcentre serves as a graSS rootS, COmmunity-centered. balSe, which generally renders all those services available at the main centre: Curative medicine, pathology, minor surgery, including tubal ligations and facilities for obstructed labour. The Subcentre also serves as a storage place for poultry vaccine as well as general drugs, and vaccine for immunization of the general population. It is a Centre for Vital Statistics, information, records, the place of payment for Services and Women's VOcati Ornal training. A gathering place for the local community it would eventually become a general educational resource.
The subcentre is meant to serve an area of 10 to 15 villagers, with a population of from 15,000 to 20,000. There Would be an average Of 3,000 population per paramedic at the subcentre, and one dai (traditional Village midwife) per 1,000. Also One female Village Worker, per 1,000 population. The village worker and the dai toge
ECONOMIC REVIEw, APRIL 1978

Page 29
ther Would cover the following areas of activity: Deliveries, basic child care, family planining (Service and follow-up). tubeWell maintenance, directing children to School, livestock immunization, WOcational training of women, food and seed processing and storage, preservation of Surplus fruits and vegetables, and the planting Of fast-grOWing trees for fireWOOd and compost. Each Subcentre would also have One Supervisor for the Overall community O’Ogia.IIlIIle. They have Six Sub-centres beside the main centre. Every week there is a clinic. For the rest of the week, the paramedics go to the villages. One paramedic stays at the SubCentre all the time. -
Paramedic's Perception
A qualified doctor might well know to treat a patient. He will diagnose the disease and duly administer treatment, but the ill health of the villagers is of a different type which medicine alone Will not cure. It is necessary to know not only what disease they suffer from, but also what causes their ill health; their lack of food and sanitary conditions and their generally grinding deprivation. In many CaliSeS, parentS in these Villages gave up all hopes for their children in case of any serious illness. They did not have the money to See a doctor and to seek treatment. The gap is indeed great between urban dwellers and the people of these villages; it appeared to be even greater between the educated and qualified doctors and the poor illiterate villagers. TTO many villagers the paramedics still appeared to be these same doctors from the city, who, in the words of one poor villager “has come like God to save our lives”. The paramedics themselves realised that many mistakes had been made initially. According to one “perhaps the greatest initial Weakness of the GOn Oshasthaya Kendra was that its leaders came from the city and many mistakes Were made from doing things through an urban resident's point of view. To many of them, at the start a big imposing building, a beautiful modern hospital seemed to be the best. But it was realised that Such buildings would only alienate the leaders. Since then, we have built Our Own Sub-centres Out of mud and thatched roofs like the village houses', said. One paramedic.
ECONOMIC REVIEw, APRIL 1978
The Doctor Myth
“For better tre a qualified doctor all hOSpital' - these formally embeded i
the average villa regions, according ence Of the para
Gonoshasthaya Ken
One paramedic idea to us in the f “fOr a baSiC eSSent Service nO formal e necessary”. One fer in the GO12OShOS Who could barely w performed tubal lig as Simple Surgery Another educated us that her educa gap between her ar. They did not alw; what she said, becal had a different ki. Way of looking at
One of the m children die Of in diarrhoea. There is tion. Which can be house, that can S patients. Paramedi mothers how to ma, - One glass Of Wa spoonfuls of Sugar ( half a teaspoon of
A para medic i mother of a Sick prepare oral diary αιγίηρ α hιοηιe υι.
The GO7,08ha.S also showed concer gation of children i To then education trUCtion Which WOl to do impossible Or It Was SOmething V gerS WOuld feel the of and know to be Situati On. Their thus practically a needS Of the inn ment; for the c.
 

atment, cOn Sult nd go to a good are the myths in the minds of ger in these to the experimedics in the dirdi.
explained this OllOWing WOrdS: ial health care education Seems male paramedic 3th Olya Kendra, Write her name, gations as well for four years. paramedic told tion created a ld the villagers. ays underStand use the villagers ind of life and
things.
lain SickneSSes Bangladesh is a Simple solumade in any ave almOst all Cs teach the
ke thiS mixture
ter to tWO tea
Dr mola SSes and
Salt.
eaching the
baby hou) to rhoea micture 5法。
thaya Kendra in for the eduin these villages. Was not in Suld equip then useless things. which the villaey have a need possible in their education was ttached to the ediate enVirOnhildren of the
pentry,
able problem.
very poor (landless) a “functional school' was begun. The need for education to cater to their practical needs was emphasised by One paramedic With the following statistics.
'Bangladesh government statistics indicate that 56 per cent of the nation's school-age children do not attend school. Surveys show that Only 14 per cent Of those attending continue after five years and Only One per cent go on. to college Or university Studies. On completion of the higher education students generally remain jobless. In the case of girls, 14 per cent complete 5 years Of schooling and boys 33 per cent, 2. CCOrding to a Survey Conducted in Salvar.”
Initially the School at the GOnOSIhdSihaya Kemdra Was limited to an enrolment of 50, but expanded to 100 after the first year. Students accepted are betWeen the ages Of 4 to 10. As the parademics who surveyed the villages have access to them, a careful study was possible, and Only the very poorest were chosen to attend. The site of the School is at the project's land in Savar. A mud building has been erected, along with bamboo, Swings, slides, see-saws, etc. The areas of health, hygiene, physical education, carmachine shop-work, agriCulture, music, arts and crafts are included in the curriculum.
indebtedness
Indebtedness among these villagers is no different from that in many Asian rural communities. In these areas of Bangladesh particularly the farmers find themSelves often short of money for food and Other , ba Sic neceSSities and are forced to borrow. The money lenders charge them exhorbitant rates of interest - for each 100 taka they must pay back an interest of 30 to 40 kilograms of paddy, in a three to four month
period; an equivalent of 250 per cent interest. The GOn OShasthaya Kendra has initiated action to
relieve What seems an in SurnOuntThey started the following Small project to see more clearly what the difficulties were and how they could be overCOme. ShareCrOpperS and pOOr farmers living in villages surrounding the project who had relatively close ties with the G-On Oshasthaya. Kendra Were given loans upto 200 taka each, during the difficult
27

Page 30
period when food is particularly scarce, at half the regular interest rate. The interest is used for creating revolving capital. The reaction Of the village money-lenders WaS
not hard to predict.
A further attempt to assist the farmers of the area has been with the experimenting in the line of agriculture on the project site. In 1974 an attempt was made to find someone who could head this agricultural work. But to get someOne With the knowledge and willingness to integrate with the villagers seemed impossible.
Family Planning
The demand for family planning services always existed in these villages, and almost from the beginning Of the programme the Gonoshasthaya Kendra began offering family planning service, but always within an integrated OrOgram IIle. Without real efforts at assuring parents that their children would reach adulthood it was felt they could not be denied the right to sons and daughters of their OWn. The programme, therefore, has directed its efforts into providing the needed health care, educating parents in birth control nethods and family planning in Order to properly motivate them, and, Once the method Was chOSen, to carefully follow up each client With house to house visits on a regular basis.
The traditional birth control attendant, or 'dai', has also been Successfully incorporated into the program Ine. Remaining in the village she works on a part-time basis, distributing pills, checking for side-effects, assisting where possible and referring to the centre or sub-centre where needed. She is also taught to spot preeclamptic patients and other possible labour and birth difficulties, and to instruct the mothers in regard to child care. Because she is village based, her drop-out rate in regard to family planning acceptOrS is loWer than that Of the paramedic.
Since the beginning of the programme in 1972, a steady pattern was noticed of clients moving towards a more permanent method of contraception, once family planning has been accepted. In 1974 the GOn Oshasthaya Kendra began tO offer female sterilization performed by the paramedics, and found that a relatively large demand existed for this method.
28
A paramedic
scene of em
bicycle.
The Sterilizatio under local a sub-centres and Paramedics, tr. these Operatio themselves to villagers prefer nedic to the r. it had Deen nC tion rate for
1OWer than th:
The reason for
the
the doctor is SiOnal OperatO d'OU, Otle SS a te assume the tas cult cases for medics, too, m to pass over t night promise plicated Operati
Another Reality
“Health e C Only go. So far. them about goC fOr brea St feed not available' It is merely a appropriate edu you telling me When, as good is impossible'? Face to face wi GOnoshasthaya to realise more pOSSible and W
The directic Dr. Chowdhury innumerab. paramedics hav breaking throug and exploitativ counts a particl
“Nizam was had been With paramedic Sin Ce When a parame be set up at S One arranging the land. It
 

arriving on the ergency On her
nS are performed naesthesia, both at the main centre. ained to perform S have proved be duite skilled. The the female paramale physician, and hted that the infecthe paramedics is at Of the doctors. this may be that generally an OccaI, and there is indency for him to k Of the more diffihimself. The paraLay be more prone O the doctor What to be a more COm
O).
Eucation alone can You cannot teach )d nutrition (except |ing) when food is said one paramedic. lother form of in|cation. “Why are to do something, as it is, I know it a Sked a Villager. rith the village the Kendra has come
and more What is hat is not. r Of the project, drew attention to e obstacles these e to encounter in h the traditional è SyStems. He relar caSe thus:
25 years old. He the project as a its inception, and lic Subcentre Was to imulia, he was the he final details of WaS felt that the
coming of the centre to Shimulia Would threaten the fra Udulent pactices of a good many people, including illegal pOSSession of government lands, Smuggling, and selling health centre drugs. Among those involved in the illegal activities was a qualified physician in the area, Who Was making a handsome profit. Nizam did not realise just how great a threat the new centre was. In collaboration with local Officials, i.e. the union chairman and a union member, the physican is said to have hired a group Of thugs to have Nizam murdered, confident that he could make the necessary payments to the proper people, allowing him to continue his illegal work, along with his cohorts, and ensuring that the centre would not become a permanent fixture in Shimulia. Nizam lost his life, and now an almOst in Credible struggle fOr simple justice Seems to be availing nothing. We have come face to face With the village. We have reached, it seems, our limit. Do we carry On With Our Small struggle Or are We Sustaining a System that WOuld (and should) crumble Sooner Without our gallant effort.S. And even if we choose to work on, can GOn Oshasthaya Kendra last in its present form? How viable can a body remain. When it is alien to this System in which it Operates? These are questions may be others can help us answer. An
example Which prOVeS Very strongly that preaching people's participati On” and their inV OlVe
ment in development is quite easy, but for those personnel who help to put it into practice the task is almost impossible'.
An Assessment
The GOn-OShasthaya Kendra project has received funds from Outside sponsors, but depends
partly on local financial support, and it hopes to ultimately become totally dependent on local income. Some funds have been spent On unnecessarily grandiose buildings (at the wish of the sponsors). The funds received from Outside have mainly been used for setting up the centre; while the actual village community development work being undertaken is largely Self funded.
Intended initially to be only a health care service in a typical rural area, it was soon realised that in response to the real needs encountered in the course of medical work that the project must
ECONOMIC REVIEW, APRIL 1978

Page 31
supplement its health work with programmes in family planning, agriculture, nutrition and education and vocational training. More important is that the original team that came into Savar to set up the project in 1972 found the need to absorb into the staff of the project (especially as paramedics) the people from this area; and there
fore, co-operation has been sought
and received readily from people of all levels in the local community. As a result of this close relationship between the project and the local community there has been all along an interchange of ideas; the project staff listen as well as Speak. Thus, the aims and methods of the project are Subject tO cOnstant revision.
A final judgement Of this prOject cannot be made at this Stage as it is still in the process Of creation. But it has evoked a favourable response among Other projects in various other parts of the country. The mere fact that local Women, locally trained, are SucceSSfully perfOrming tubal ligations and other skilled work, indicates clearly the potential of ordinary local people as opposed to “qualified specialists', for solving local problems, if only they are given the Opportunity to be active
participants in the development
prO CeSS.
The entire programme has
brought into focus One definite
lesson and that is before one can find and preScribe a Solution tO a problem. One should understand the problem fully; if not one might find Oneself fighting the Symptoms rather than the – Causes of a prO— blem. People involved in rural development work should nOft only try to understand the local Situation With its ecOnOmic, political and Social structures (the micro situation) but also the COnnections Of this situation. With the macro situation, the power structures at the national and international level. The micro and the macro Situation, One Would find are intricately bound together. One must be able to see and comprehend these links and cOnnections for in such links may also be found the causes of as well as the solutions to poverty. Those behind the GOnOShasthaya Kendra project of Bangladesh have shown a keen awareness of these links
and it is perhaps this which accounts a great deal for their a Chievement.
ECONOMIC REVIEW, APRIL 1978
District Cre
incentive packa cific area, develop Various forms in again. Several Such iĩa this Comtext Trì grated projects fo fully in India, a a Scheine that Sej the State Bank's I Department, in th) need for chanelling regions on the ba plementing such st agencies.
For getting quic results from plann the initial developm in a developing COu to be concentrated i the necessary infra Even, in India, a SO ohen Omaera On ha:S OC
Genesis of the Prob
Du,ring the Br inomic development centrated mainly in towns to which the Served as an hinte inter and intra-regi in economic growth the many lega Cie:S rule in India. Even dence, for the reaso. outset, the tendency quite Sometime. In “Approach and Pol: Fourth Five Year F ning COmniSSiOn no
“In terms of regio there has been a natt new enterprises and gravit te towards the ed metropolitan areas better endowed with social infrastructure. been done to restrain While a certain meas has been achieved, effort is necessary greater dispersal of in The approach paper Five Year Plan also
Spite of the achiev overall grOWith in during the precedil
Year Plans and three the benefits of this g filtered down to larg country. The paper,
phasised the urge taking StepS tO rem gional imbalances a

dit Planning
ges for the development of backward areas and spement schemes have been discussed and carried out in Sri Lanka, though not with much success. There are proposals and projects before the Government and dia’s experience can prove useful. Several such inter the backward areas have been implemented successld the State Bank of India has also launched on rves the basic needs of such projects. J. D. Mohile, Deputy Chief Officer, Economic & Statistics Research is article to the Relied discusses the rationale and resources of the banking system to various sectors and sis of well conceive plans; and the possibility of imchemes if a sincere effort is made by all participating
k and Optimum ed inveStinentS, nental efforts Lntry are likely in areas having Structure baSe. mewhat similar Curred.
Lem
itish rule, ecoin India, conthe presidency } rest Of India, Irland. Extree Onal di Sparity Was One of of the British after Indepenin Stated at the continued for the Chapter on icy’ in India's Plan, the planbited : inal development, Ural tendency for investments to already developbecause they are economic and Not enough has this process. sure of dispers
a much larger to bring about Edustrial activity'. ' to the Fifth noted that in ement of an the country ng four Five 2 Annual Plans, growth had not ge partS Of the therefore, emnt need for Ove these reS SOOn aS p0S
Sible. As We shall. See in the follow
ing paragraphs, district Credit planning is One such step, which can help Canalise the develOp
mental efforts to remove regional disparities.
It is common knowledge that credit is an important and necesSary input in any developmental process. And because till recently developmental efforts were mainly concentrated in metropolitan and urban areas, institutional credit also mainly flowed to these areas. The Gadgil Study Group of the National Credit Council observed in 1967, that the spread of institutional credit Was uneven in different parts of India, that the branch network and credit disbursal were concentrated in metropolitan and urban areas, while large pockets of the country had very Sparse coverage in these respects. Apart frOm regional imbalances in credit disbursal, the Group also obServed Sectoral imbalances in the matter of credit extension. It noted that the credit needs of farmers, Small scale industries and Weaker sections of the society in general, did not receive adequate attention from commercial banks. It was to COrrect these regional and Sectoral imbalances in credit disbursal that the concept of the Land Bank Scheme was evolved in December 1969. Under the Scheme, all the districts in the country except a few Metropolitan cities and Union territories were allotted to the 22 public Sector banks and three private sector banks, which were called Lead BankS.
Strategy Evolved
Though under the Lead Bank Scheme the lead banks were asked to adopt an 'area approach', it
29

Page 32
was not quite clear at that time how they Were to go about it and it is through some experimentation that the lead banks arrived at the concept of district credit planning in July 1972. To start With, the lead banks had identified growth centres for opening bank Offices and prepared district SurVey repOrtS fOr their lead di Strict.S. Whe district survey reports were quite informative and contained a wealth of data about the physiographic, agro-climatic and Socioeconomic conditions of the districts.
However, the reports did not contain specific development SchemeS Which could be Straighta Way financed by the commercial banks and Other financial agencies. AS Such, SOme lead bankS Started undertaking depth studies of Small compact areas such as community development blocks in their lead districts With a view to preparing action plans Which COuld be im– mediately implemented by them. However, at the behest of the Regional Consultative Committee for the Central Area, they decided in July 1972 to prepare district credit plans instead of the action plans for the blocks.
The credit plans prepared by the lead banks contain development Schemes in the various Sectors of the economy, which can be financed by the commercial and CO-Operative banks and Other financial agencies operating in the districts concerned. The Schemes are evolved on the basis of study of the agro-climatic and physiographic conditions of the area, available natural resources and felt-needs of the local people. Development plans of the Government and other agencies are al SO taken into account while formulating the schemes. It is ensured that the Schemes contained in the credit plans are technically feasible and economically viable. The credit planS, inter alia, give estimates of the physical programmes and financial and credit Outlays in respect of the various schemes and projects that are included in them. Wherever possible, suitable
locations of the projects and areas
where the schemes can be profitably implemented are also indiCated. - Rationale for the Strategy
The credit plans prepared by the lead banks are now in the process of implementation. They are yet to have any dent on the local
30
eCOnOmieS. Bu are likely to
penefitS:
(i)
(ii)
(iii)
(iv)
The dis
clude based the na felt nee technic:
ΘεCOί2OIΥ1 Scheme: ed The scheme: to yield While plan, it various grated backWa: ages of COn:Side] For ex SCale
nent posed, viding On the lities fo ing an C produce also re Schemes plement ing in Which II Strength included Margina Other f: the pu: AS Such Can tal €ՈՏԱՐe not aris tation It has backWa] ral do herent capacity sent th nand if di StrictS e2, SOI)S pOSit ra regiOinS Sent. plans backWa: Will col
leS CON Of the e study and fel people. thus ht absorpt backWa: help br of “no

in due course, they yield the following
rict credit plans inlevelopment Schemes in careful study of ural resources and ds of the areas. The l feasibility and C viability of the are duly establishfinancing of these is, therefore, likely Optimum resultS. preparing the credit is ensured that the Schemes are intein nature, i.e., the d and for Ward linkthese Schennes are 'ed and provided for. ample, if a large agricultural developprogramme is prOmea.Sures for prOfertilisers, seeds etc., One halınd, and faciDr Storage, marketl transportation Or on the other are commended.
Which Can be im– ed. Within the existfra Structure and/Or equire only marginal
hening thereOf are
i in the credit plans. all infrastructure and acilities necessary for rpose are estimated. l, the Government Ke Suitable StepS tO that problems dO Se at the implemenStage. been observed that cd districts in genenot have much incredit absorption 7. Therefore, at preere is not much deOr credit from these . That is one of the why the credit-detio in the backWard is very low at preHowever, if credit 8.ᎵᎾ prepared for rd districts, they ntain bankable Schefering all the SectOrS conomy, based on the of natural resources it needs of the local The credit plans will alp to induce credit ion capacity in the rol districts and will eak the ViciOUS Circle demand for credit,
consequently, no extension of credit, and therefore, no development and therefore, again nO demnand for Credit”. (v) If credit plans are prepared fOr - all the di Strict:S in the country, they will help reduce the inter-district imbalanCes beCa'USe the hitherto neglected and backward districts will also start progreSSing. (vi) The schemes included in the district credit plans are expected to benefit all the area.S, rural as Well as urban, of the district. Locations Of Various Schemes and projects included in the credit plans are Carefully selected SO as to yield maxinunn returns, as also to benefit as large an area, as possible. Therefore, credit plans will help reduce disparities between various areas within the district, i.e., intra-district diSparities. Thus, the preparation Of Credit plans is useful even from the point of view Of developed districts. (vii) As the Schemes included in credit plans cover all the sectors of the economy, district credit plans will help channel credit to the various sectors according to their need and thus reduce SectOral di SparitieS. (viii) Last, though not the least, the investment directed to increase the credit abSOrption capacity of the backWard regions will have the effect of drawing into the process of production the hitherto unexploited and under-exploited productive I`eSOUII°C0S of the region. This will obviously go a long Way in accelerating the rate Of grOWith in the economy of the country as a whole. It will be seen from the above di SCUSSi On that it Would be in the larger interest of the country if the resources of the banking System are channelled to the variouS Sectors and regions on the basis of Well-conceived district credit plans. The preparation of the credit plans no doubt presents Some methodological and other problem S. There are also a number of problems in implementing these plans but they can be overcome if sincere efforts are made by all the participating agencies.
ECONOMIC REVIEW, APRII, 1978

Page 33
An international Rubber Agreen Key to Price Stabilization
Cyril Gamage
The need for price stabilization in the export commodities of the developing countries has been an important subject of discussion and international action over the last decade. Signs of major agreements now appear to be in sight for a few such commodities, with rubber about the nearest. Cyril Gamage, Senior Asst. Secretary of the Ministry of Plantation Industries, discusses here the potential and connected issues in such an agreement.
The prospect for an international agreement to stabilize rubber prices appear brighter than ever before. The United NationS COnference on Trade and Development (UNCTAD), one of the foremost and significant Organs of the UN, whose particular concern is tO help developing countries expand their trade and thereby obtain increasing resources essential for their Self-sustained growth, is hopeful of very soon achieving one Of the goals it has WOrked towards over the last few years. The stabilization of prices seems in sight for this commodity, which can go a long way to strengthen the economic situation of many countries of the Asian region. There appears to be a very strong chance of clearing all ground for price Stabilization in the field of Rubber at the forthcoming UNCTAD meeting to be held in Geneva later this year.
HOW did the need to Stabilize priceS ariSe in Rubber? What factOrS and circumstances COnditioned the demand for developing countries to bid for a Commodity Agreement in Rubber? What are the ingredients of the Commodity Agreement that are likely to emerge at the meeting of the UNCTAID?
The answer to these questions must necessarily be found in the Vicissitudes and fluctuations that the rubber market has faced from its inception. The Rubber Industry is a 19th century creation which grew mainly from the invention of the masticator and the Vulcanization process; and the need to
ECONOMIC REVIEW, APRIL 1978
fugirother
Open up plantations raised COuntries to material requiremen du StrialiSed WOrld. Winich grew in Bra gave Way to a m plantation in Asia Such as Sri Lanka the early 20th cen
growth of plantations; modern industries based on U.S.A. and Western ) grO Wing resultS Of r. ber production. Thes the factors Which growth.
The unique positi rubber held in the W challenged by Synthe World War III. The U. launched a massi for synthetic rubb and in 1945, the U. much as One millio thetic rubber for a pansion of Syntheti tinued una bated, share of natural world today to as li cent.
What is the pa erges from the foc natural rubber and ber in the World U.S.A. and the Euro account for 75 perce production of Synthe ther, the synthetic iS OligOp Olistic in Inat national corporatio d'Ominating the Sce) price competition fo ber is concerned t is limited to a few who produce Synthe
In the natural areas production. On is COncentrated larg COuntries. Malaysia, Thailand account f Cent of the World natural rubber. Sri tribution is le SS tha this production. Tho" developed as an es natural rubber later holders' crop - 100 80% in Indonesia, 6 and 53% in Sri Lan ber production (tak as the cut-off poi

hent
in the coloupply the raw tS of the inWhile rubber Zil and Africa. Dre methodical in countries and MalaySla
jury saw the natral rubber zation of the
rubber in the Europe, and the search in rube Were Some Of Incouraged this
on that natural Orld market Was tic rubber after S. Government ye programme er production S. produced as n tOinS Of Synyear. The exc rubber COnreducing the rubber in the little as 31 per
ttern that enall positions of Synthetic rubtoday? Japan, opean countries nt of the World tiC ruoteer. Fourrubber market iure With multinS and firms nie. AS fair a:S : Synthetic rubhe competition large combines tic rubber.
rubber growing the other hand gely in Asian Indonesia and Or Over 80 perproduction of | Lanka”S COrain 5 percent of Jgh it originally state-type crop, became a small% in Thailand, 5% in Malaysia ka, Of the rub — ing 40 hectares ht) remains in
the hands of Smallholders. So that in comparison with synthetic rubber, natural rubber is largely in the hands of Small holders and consists of Small units. It has been calculated that there are more than One million of such small units in the natural rubber industry; whereas in synthetic rubber production it is controlled by a few more than 100 firms. Parenthetically it may be asked:- Is the Smallholders system of production in any way inferior to and less effective than the estate Ownership production? The following quotation from P. W. Allen - (Natural Rubber and Synthetics) shows the versatility of natural rubber in both estates and small holding operations. “There is no question Of rubber being better produced by estates than by smallholdings or vice-versa. Both sectors have their distinctive attributes and both are Capable Of prOdlu Cing rubber economically, while providing their owners with fair returns. Estates because of their size and Organization tend to be the innovat Ors, risk-takers and trend setters; they posses the appropriate managerial skill and may be able to take some advantage of economics of scale (though these economies are nowhere near aS prominent as the case with the synthetics). Smallholdings, ESpecially when of adequate size, and when provided with proper support (advice plus perhaps central prOcessing and marketing facilities) can nake a vital contribution to the nati Onal Well-being”.
HOW haS nati Ural UOber and Synthetic rubber fared in the game Of competition? The rapid expanSiOn Of mOdernizatiOn in Western EurOpe and Japan as well as in the other areas of the WOrld in the 1950s and 1960s created a demand for elast Omers; this demand increased at more than 9 percent per annum and Was unable to be Satisfied by natural rubber production which during the same period was increasing at less than 3 percent per annum. This gap Was filled by synthetic rubber which grew at abOut 9 per cent per annum. Natural rubber has thus been Steadily losing ground to the synthe
tic version in the international rubber market.
The natural rubber industry
was obviously under great presSure. It WaS shrinking, but it showed its elasticity (like rubber
31

Page 34
WORLD PRODUCTION OF NATURAL RUBBER,
(in metric tons)
1966 1976
Malaysia, 972,837 1,639,440 Indonesia, 736,675 847,500*. Thailand 207,535 392,465 Sri Lanka. 131,015 152,134 Wietnam 48,841. 32,500 Cambodia 51,330 20,000* India, 53,195 147,758 China, 25,000's African Continent 176,928 203,353: Brazil. 24,347 20,298 Other S. America. 7,000* 17,000*
World 2,392,500 3.560,000
Asterik indicates estimated figure.
Source: International Rubber
Study Group
itself) in different ways. Research into high yielding varieties of trees and replanting continued. On an accelerated Scale in certain key producing countries in Asia, such as Malaysia and Thailand. The natural rubber industry moulded itself to the changing requirements of the market by introducing technically specified block rubber which provided savings in transportation, handling and stOrage. Another technical innOVatiOn in the 1970s, of high significance to natural rubber, Was the use of chemical stimulants to increase the yields; which was really the result of long years of research on the use of natural stimulants for the same purpOSe.
Trade aid Price Trends
There are a few di Stinctive characteristics of natural rubber in World trade circles which are useful to bear in mind in any attempt to understand moves to stabilize prices. Rubber is a typical export commodity. 90 percent of natural rubber is exported, whereas only 25 percent of synthetic rubber is exported. Sri Lanka's exports incidentally account for only 4.5 percent of the export market. In the post-war period Malaysia, and Thailand - the chief Asian exporters - increased their export share at the expense of Indonesia and Sri Lanka, while Asia. On the whole produced 94 percent of the total natural rubber in the World.
The Second characteristic of the rubber trade is that the main
32
importers of n the developed co another example
pendency relat lOping countri countries, accord
Of dependency. Tl Sumption Of Syr the detriment O by the developed lly Seen in the si ral rubber conSU cent dring the from 1955-57 to
In Ore re. ever, particularly II, natural rub; bOOm periOdS - Korean War and the Oil crisis. Th Critical COn Strai tion of synthetic pended heavily Cessing and Quadrupling Of ( Sulted in the dic Synthetic rubber Ween 1973 and ) had the effect stantially, the tion held by S. the WOrld marké then playing the Setter.
This raises
question for that cing countries su What i S the futu ber? A study of ber utilized in n OuS; prOducts in t non tyre-related cidentally provic ferentiation of there are a mul] Which determine types of rubber are technical
technica. In t field political f intO COnSiderati and security rea pOrtant a part a ΟΥ θVθΙΩ Ώ 1ΟΥθ.
There are, factOrS WhiCh fa rubber industry apart frOn the rubber receive “events' referred are certain circ Synthetic rubbe faWOur Of natur, Stance, the ava. Of chemical fee growing pressure tion of the env caused by healt

atural rubber are untries. This is yet perhaps of the deionship of deveES OI developed ling to the theory he in Crea Sing COlhithetic rubber to If natural rubber countries is clearharp dirOp Of natuImption by 15 per
20 year period 1972-74。
3ent times, how
y after World War ober enjOyed tWO - One due to the the other due to e Oil crisis imposed Ints on the producrubber which deOn Oil for its promanufacture. The 3rude oil prices republing of costs of production bet1975. These 'events' Of changing Subpredominant posiynthetic rubber in at, which was upto role of price trend
the most sensitive ural rubber produIch aS Sri Lanka. „re fOr natural rub — the types of rubmanufacturing varihe tyre-related and areas (which inles a broad difJSe) indicates that tiplicity of factors the use of various - factors which a.S Well a.S nOn— he nOn-technical actors which take on self-sufficiency Sons, play as inS technical factors
however, certain VOur the natural at the moment, bOOst that natural di frOm the AtWO tО abОye. There umstances facing er Which are in all rubber. For inilability and price distocks and the eS against pollu7ironment, concern h hazards through
long eXpOSure Of Workers to cheInical prOdu CÜS Such a S benzene which is now being investigated by the U.S. GOVernment are SOme of them. On the other hand, natural rubber is reaping the benefits of long-term research and technical innovation in production and processing. For instance, the biologically based cis-polyisoprene has been proved to be technically and eCOn Omically Superior to its synthetic counterpart.
International Action
The action now being taken On a multilateral scale to establish a world-wide price stabilization scheme, that would be beneficial both to producers and consumers, is One of the most fruitful and meaningful measures taken in recent times to ensure fair market prices for commodities. The produCer-COnSUlmer con Sultations Which have begun in the context Of UNCTAD'S Integrated Programme for Commodities and the Agreement among the producers which is being worked out by the Association of Natural Rubber Producing Countries (ANRPC), which incidentally held one of its sittings in Colombo in April this year, have prepared the ground for a significant break-through in the attempt to stabilize prices for rubber. The ANRPC is in fact the child. Of the tumultous situation created by declining prices in natural rubber. In 1967, natural rubber producing COuntries met in Kuala, Lumpur for the first time to decide On the need for co-operation among the producing countries in the marketing of natural rubber. It is notworthy that within a short period of less than a year, UNCTAD held six meetings on this Subject.
An International Rubber Agreement on prices could briefly take the form of building a Buffer Stock with contributions from
the natural rubber prOdlu Cing countries as well as consumer countries, as it is an agreement
that is intended to safeguard the interests of both parties. The Agreement will decide on the quantum of contribution from each country and also the location of stocks. It will also provide for an Administrative Account to meet the costs of administering the Buffer Stock, while stipulating the basis Of vOte-entitlement Of members to the Agreement and the
ECONOMIC REVIEW, APRIL 1978

Page 35
mode of liquidating the stocks if necessary. The producing countries discussed a draft of the Agreement prepared by the UNCTAD in Colombo in April this year and have thereafter come up with a revised version of the draft at the meeting Of the Inter-Governmental Task FOrce Which WaS held later in Kuala Lumpur. There are obviously a few areas on which the natural rubber producing countries have to agree and the forthcoming UNCTAD Preparatory Meeting in August would hopefully provide a forum for this.
Price Stabilization alOne hoWever is not a panacea for the problems of natural rubber producing countries. There is much to be done in expanding rubber production if the future demand for rubber is to be met by the natural rubber producing countries. This underlines the need to adopt a dynamic rubber production programme - a need that has been already realised as One of the essential strategies by member countries Of the ANRPC. The development of the smallholder is a most crucial point in the plan Of development and in this regard there is a Whole range of activities that are possible from the adoptiOn Of technical inn OvatiOn and provision of adequate incentives Such as Subsidies to economic consolidation of holdings and strengthening extension WOrk and the establishment of a Rubber Industry Smallholders Authority as has been done in Malaysia.
In this entire spectrum of activities, however, the stabilization of international prices for rubber plays a key and critical role. The forthcoming meeting of the UNCTAD, to be held towards the end of August this year would be considered yet another milestOne On the road to an International Agreement on a commodity that WOuld Spell Out not Only an assured income to millions Of SmallholderS. in Asia, but could stabilize the flow Of foreign exchange particularly for a country like Sri Lanka which gets as much as 20 per cent of its foreign exchange earnings from this commodity.
Se
Please enters I enclose, pa
Name. ACddres
 

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Department, People's Bank, Head Office, Impalam A Gardiner Mawatha, Colombo 2. Sri Lanka.

Page 36
Registered as a Newspaper at the G.P.O
PEOPLE'S BANK
Established in 1961 Cooperative Rural B. Cooperative & Commercial People's Bank Branc
Bank Fisheries Banks
The People's Bank offers the public a wide range and facilities unrivalled by its competitor
: Bankers to the Cooperative Movement & State Co.
: Agricultural Credit for cultivation of paddy, tea, rub cinnamon, citronella, tobacco & subsidiary Crops.
:: Financing Industrial machinery for Public & Privat
& Corporations.
: A variety of banking services, including individual
Accounts, Fixed Deposits, (interest up to 15%) Savil and the exclusive Investment Savings Account scher
: Import & Export facilities, Documentation, Market
services.
: Finance for Hire Purchase of Motor Vehicles, Refrige
and Electronic equipment.
: Non-resident Foreign Currency Accounts for Sri Lan
abroad.
Daily Loans scheme for small traders (Atha-maru)
Special facilities for Fishermen and Carpenters. Financing of rural electrification.
Aid to Higher Education, Arts & Crafts.
:
Tourist information and finance for the tourist ind
Fisheries Banks to cater to the seeds of the Fisheri
Financing of Handloom and powerloom industry. Financing the local film industry. Financing Housing schemes for the public and Bank
Pawn Broking.
:
:
Services available in all parts of Sri Lanka through of Branches.
OVER 1.2 Million Customers can't be wrong in
business with the
PEOPLE'S BANK
No. 75, Sir Chittampalam A. Gardinar Mlawal
Colombo 2. P. O. Box 28. -
The contents of Economic Relieu) may be
reproduced with due acknowledgeme
Printed by the Associated Newspapers of Ceyl
Iake House, D. R. Wijewardene Mawatha, Col

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Tel: 27841-9.
Price 2/25
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