Page 1

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Page 2
SECTORAL COMPOSITION OF GROSS NATIONAL P.
Vall
SECTORS
1977
1. Agriculture, Forestry Hunting and Fishing 4.299 1.1 Agriculture ... - - - 3,977
1.1.1 Tea ... - - - (416) 1.1.2 Rubber - - - (213) 1.1.3 Coconut - - - (423) 1.1.4 Paddy - - - (990) 1.1.5. Other ... - - - (1935) 1.2 Forestry - - - - - - 143 1.3 Fishing - - - - - - 179 2. Mining and Quarrying - - - 515
3. Manufacturing - - - - - - 2,357
3.1 Export processing - - - 823 3.2 Factory industry - - - 1,227 3.3 Small & other industry ... 307 4. Construction - - 619
5. Electricity, Gas, Water and - - - 131
Sanitary Services - - - 6. Transport, Storage and Communications 1,498
7. Trade - Wholesale and Retail ... 2.999 7.1 Imports - - - - - - 513 7.2 Exports - - - - - - 663 7.3 Domestic - - - - - - 1,823 8. Banking, Insurance and Real Estate 295
9. Ownership of Dwellings - - - 475
10. Public Administration and Defence 791
11. Services not elsewhere stated (n.e.s.) 2,099
12. Gross Domestic Product 16,078
13. Net factor income from abroad 79
14. Gross National Product 15,999
NATIONAL PROD
The Gross National Product at constant (1970) fact by the Central Bank, to be Rs. 18,38) million. This inc that of the previous year. The rate of increase in th that of the previous year. According to the Central B recorded an impressive growth rate of 8.2 percent in to the 1977 economic reforms, had slowed down sor cipated growth of 6 per cent during the period of 197
The mid year population of 1979 has been provision: cent, which represents a slight reversal of earlier tr per capita of Rs. 3,378 or US $ 217, indicating a rise
A number of factors contributed to the slower growt The most important of these was the relatively poor that the performance of plantation agriculture was s domestic agriculture was uneven. While paddy produc put of minor food crops, particularly of cereals, was s
The most significant feature of the sectoral compo ing, construction and trading sectors. This trend, the through 1979. Available data on projected investment continue to be major growth sectors in the future. lic sector investment program in the Accelerated Mal Construction.

ODUCT AT CONSTANT FACTOR COST (1970) PRICES
e added in Per cent increase
- - Per cent share in G.N.I S. Mn.) Over preV1Ous year
1978 1979 1977 1978 1979 1977 1978, 1979
4,532 4,623 10.4 5 2.0 26.9 26.2 25.1 4,176 4,240 11.4 5 1.5 24.9 24.1 23.1
(398) (412) (6.1) (-4.3) (3.5) (2.6) (2.3) (2.2) (225) (223) (–8.2). (-5.6) (-0.1) (1.3) (1.3) (1.2) (488) (519) (-7.0) (15.4) (6.3) (2.6) (2.8) (2.8) (1116) (1132) (37.5) (12.7) (1.4) (6.2) (6.4) (6.2)
(1949) (1954) (9.2) (0.7) (00.0 (! (11.3) (10.6)
155 166 -6.5 8.4 7.1 0.9 0.9 201 217 5.3 12.3 7.9 1.1 1.2 1. 615 652 9.8 19.4 6.0 3.2 3.6 3.5
2,541 2,659 –0.1 7.8 4.6 14.7 14.7 14.5
840 877 -45 2.1 4.4 5.1 4.9 4.8 1,362 1,417 1.1 11.0 4.0. 7.7 || 7.9 7.7 339 365 3.0 10.4 7.7 1.9 2.0 2.0 794 960 9.6 26.3 20.9 3.9 4.6 5.2 158 190 7.4 20.6 202 0.8 0.9 1.0
1,607 1,716 5.1 7.3 6.8 9.3 9.3 9.3
3,267 3,551 2.4 8.9 8.7 18.7 | 18.9 19.3 702 864. 28.3 36.8 23.1 3.2 4.1 4.7 701 709 - 7.4 5.7 1.1 4.1 4.1 3.9 1,864 1,942 0.6 2. 4.2 11.4 10.8 10.6 318 350 19.9 7. 10.1 18 1.8 1.9
499 518 1.7 5 3.8 3.0 2.9 2.8
6
O
4.
9
4.
9
4
9
854 || 905 || 4.1 8
2,212 2,378 7.0 5
6.
5
13.1 12.8 12.9
17.401 18,501 4.2 8.2 6.3 100.5 100.5 100.6
-90 - 12 - - -0.5 -0.5 -0.6
17,311 18,389 4.3 8.2 6.2 100.0 100.0 | 100.0
UCT AND INCOME
Or, cost prices in 1979 has been provisionally estimated, licated an increase of Rs. 1,100 million or 6 per cent over e growth of the GNP, however, was 2 percent less than ank it was apparent that the Sri Lanka, economy which 978, largely as an immediate and spontaneous reaction newhat during 1979, yet remaining on path of the anti8 to 1983. ally estimated to be 14.5 million, an increase of 2 per ends observed in Sri Lanka. This would yield a GNP of 19.5 per cent in 1979. 1 of the economy in 1979, according to the Central Bank, erformance of the agricultural sector. Although it appears lightly more favourable than in 1978, the performance of tion in 1979 was 1.4 per cent higher than in 1978, outignificantly below 1978 levels. Sition of GNP was the increased importance of the minbeginning of which was evidelt in 1978, continued in manufacturing and construction indicate that they will Of Special significance in this connection were the pubaveli Project and in residential and non-residential

Page 3
|(O):(OM|( RAVNIA volume 6
Published by the People's Bank
Researc Department.
Head Office.
LLLY0 LLLL 0 Y Y S 00L0 L L 0 S L S 00000S -
|2} Lionel Siriu) ar
Sri Lanka
John DiandaS
Adnan Al-Jana
SS SLSS SLLS SL S S SSSSSSSSSLSSSSLS LLLLLL L LLLLLL L0 L L L L L L LSL Y l L LLLLLS economy and economic development process by a many sided presentation of vievs e reportage, facts and debate.
E ECONOMO REVIEW is a community Service project of the People's Bank.
LL 00 L SL J L S L S LS S L J L L L SS editorial considerations only and do not niecessarily refect Bank pocies or the officia viewpoint. Signed feature LLL L S L S 00 S LLLL SS L Y Lttt authors and do not represent this Institutions to which they are attached Similar contributions as well as
NEXT ISSUE
:
COVER ARTIS
LL aCCL S L L S L L L L L L SSSSSLS L LS LLSLLLLLLLL L S
HE ECONOMIC REVIEW is published monthly and is available both on
 
 

sܒ
Number 3 June 1980
CONTENTS FEATUREs Ôleጎጌe 22 Wellinnada's vegetable cultivators reap
Dwindling returns
29. The Electrification of Railways-financial,
economic, operating, social, environmental and functional considerations
Itე# 32 world Inflation: Who's in the dock?
匾
SPECIAL REPORT
3 SRI LANKA'S ECONOMY - A MID 1980
REVIEW -
COLUMNS
2 Diary of Events : April 1980
14 Finance : Globαι Ιη fιαίίοη
17 ReSources : Fisheries-signs of
- һOpe
18 Agriculture : Paddy production, pricing and selfSијјісіетсy
19 Science and Society : UNCSTD and after
2 Commodities : COCON UT" - Heavy
- - - fall in kernel
products eacports
ri Lanka's Graphite Industry gro-chemicals: can controls help.
ffshore banking centres (carried over)
"rends in Sri Lanka's fisheries industry
ir Palitha Kannangara

Page 4
April
10
12
4.
17
Diary of
The US dollar continued to rise sharply against other major currencies in response to increases in US interest rates and pushed the dollar upto its highest level since summer 1978 against the Deustche Mark and the Swiss franc, stated a London Financial Times report. Air Lanka signed an agreement with the Lokheed Air Company to purchase two L-1011-500 TRI STAR aircrafts for delivery in August and September, 1982 at a total cost of around $92 million, stated a press report. The government has decided to do away with numerous controls placed on the coconut industry, particularly the 50-60 percent export duty on desiccated coconut, stated the Minister of Coconut Industries.
US President Carter broke diplomatic ties with Iran and imposed economic Sanctions against that country.
The value of the Sri Lanka rupee slumped in the floating basket to less than 50 Indian paise, stated a report from India.
The world tea crop in 1980 dipped sharply during the first quarter of this year, with an approximate production drop of 18 per cent, a new firm of Colombo tea brokers reported.
A revised set of floor prices for selected subsidiary food crops were announced by the Ministry of Agricultural Research and Development. The crops included maize, black gram, Sorghum, ground nuts, soya bean, gingelly, chillies, turmeric (cured), cowpea, and green gram.
Sri Lanka and the OPEC Fund signed a Rs. 100 million agreement in Colombo for financing rural electrification projects.
The Ministry of Fisheries announced details of a Master Plan aimed at doubling local fish production to 300,000 tons by the end of 1983.
India nationalised six more commercial banks with combined deposits of $ 2.8 billion or approximately RS. 200 croes each.
The main member countries of the 24 nation OECD pledged US$ 1.16 billion of aid to Turkey this year to help finance this country's economic recovery programme, Stated a. London Financial Times report. The Central Bank had reported a sharp rise in the money in circulation during the preSinhala, and Tamil New Year, stated an evening Observer report. It said money circulation which is usually around Rs. 4,000 million had increased by Rs. 500 million. The Board of Directors of the IMF, voted to admit the People's Republic of China to IMF membership and in effect to expel Taiwan, according to a report from Washington.

F Events
19
20
2.
22
24
28
29
30
A Bill is to be introduced in Parliament to provide for the licensing of pesticides, regulate their imports, packing and labelling, storage, formulation, transport, sale and use; while sale of grains on which pesticides have been used will be controlled, according to a Cabinet decision announced officially.
The fifth and final session of the Interim Conmittee of the UNCTAD Common Fund ended in Geneva concluding its efforts carried out over
seven months to draft Articles of Agreement for
the proposed institution. This meeting focussed on a number of key issues concerning the financial structure and operations of the Fund.
Wheat flour consumption in Sri Lanka hit a new low with draw-offs from the Food Department stores in March this year being around 24,000
tons against last year's monthly average of 50,000.
tons, stated a press report. The Central Bank raised the bank rate by two per cent to 12 per cent per annum. Simultaneously, interest rates at which the Central Bank accommodates commercial banks above a stipulated amount, were raised by 5 per cent to 20-30 per cent per annum The bank described its increase in the bank rate and other lending rates as “an essential snort-term anti-inflationary measure.'
At the Colombo tea auctions a parcel of 75 kgs. of flowery fannings super silver tips was sold at Rs. 700 per kilo.
A set of principles and rules for the control of restrictive business practices that adversely affect international trade, especially that of developing countries, was adopted at a UN Conference held under UNCTAD auspices in Geneva,
Finance Ministers and Central Bank Governors meeting in the interim committee of the IMF in Hamburg reiterated statements that the inflation and recycling of huge amounts of US dollars paid to oil producers continue to prove to be vexing problems. The Income Support Scheme under which an unemployed person is paid Rs. 50 a month will be discontinued from June 1, the Secretary Ministry of Plan Implementation announced.
The two State commercial banks, the People's Bank and Bank of Ceylon announced new rates of interest applicable to their savings schemes.
The Minister of Trade and Shipping who returned from the United States, following talks on Sri Lanka's ready-made garments exports, stated that of the 17 items that Sri Lanka exports to the US, quotas will be applied on 7 items.
The Food Department has contracted for the purchase of five million jute gunny bags from a Chinese Supplier on terms official sources described as "extremely advantageous', stated a press report.
ECONOMIC REVIEw, Jun E, 1980

Page 5
Gross National Product
Exports and Imports
闇 “ጀና፻፹፪£ë ዄ∂፭ ፩፥፪„tíöኦ፰፮
3. ශ්‍රී
སྒྱུ་མ་ཏཱཙང་མ་མཐོང་བ་
- - i j. 3.
ONS OF RUPEES
芸ー22000
须 貓 须 须 须 貓 须
Economic indicators
ECONOMIC REVIEw, Ju NE 1980
V أص
Tine achiever and rapid ecOnOj central objective ecÚnomic refOrinn the government
timports were li were done away fiscal ircentives private enterpris räising di Omestic to achieving an
Hic growth in t
The object ( it has been state then production limiting the Gov the economy and were perceived a di Storti OinS. In Since late 1977 i cation. Of the exc the adoption of a rates with an eff (b) restructuring to reduce substar rates; (c) decont most products a greater freedom terprises in adjust (d) ending of lice and government types of imports free distribution into a food Stam tember, 1979) to lic and raising the p Sidized gOGds an levels; (f) the remunerative pric cultural products. and coconuts, an reform, involving Ward revision in råteS.”
Si Lanka h use of Internation (IMF) resources programme of ec Stand-Þy arrange covering 1978, and ed by an extended ering 1979-81. T
 
 
 
 
 

rent of sustained mic growth is the of the various s implemented by since late 1977. beralized, controls with, and liberal were offered to e with a view to productivity and export-led e COPNOhe long term.
of the new policies od Was “to strengand investment by Ternment's role in by correcting what s the major price (portant measures include: (a) unifihange system and floating exchange ective devaluation; of import tariffs tially import duty rol of prices on İndi provision of to government enting their charges; nsing requirements monopoly for most ; (e) limiting the of ice (changed p scheme in Sep)wer income groups rices of most Subdi Services to cost, establishment Of es of Several agri, including paddy d (g) interest rate a Substantial updeposit and loan
ad recourse to the al Monetary Fund in Support of its Onomic reform. A ment Was agreed this was Succeedarrangement COVhe new package of
NKA S ECONOMY
1980 REVIEW
economic policies has been termed 'liberal, outward looking and growth oriented'. In this review, the economic performance of Sri Lanka in 1979 will be evaluated in the light of the above objectives,
ECONOMIC GROWTH
According to the official estimates, the Gross National Product in real terms recorded annual rates of growth of 8.2 percent and 6.2 percent respectively in the years 1978 and 1979. These represent considerable improvements on the growth rates of the previous years of the 1970's which averaged only 3.2 percent per annum. Thus, from an overall macro-perspective, the performance of the economy in the past two years has shown a clear break with the past.
TABLE
SR LANKA's ECONOMIC GROWTH
RATES (%). IN THE 1970's
(Two Year Averages)
G.N.P. Pe
Capita
1970-7 2.3 0.5
1972-73 3.5 0.5
1974-75 3.3 1.6
1976-77 3.? 2.0
1978-79 7.2 5.3
Based on Central Banic data.
What were the main sources of the higher growth performance in 1978-79? Which sectors of the economy contributed most to raise the growth rate? A break-down of the growth rates of different sectors in the economy is given in Table II Overleaf.

Page 6
TABLE .
growth. Rates
1978
1. Agriculture
(including forestry
& fisheries) 5.4 1.1 Plantation. Agr. 5.6 1.2 Domestic Agr. 4.8 1.3 Fisheries 12.3 2. Mining and Quarrying 19.4 3. Manufacturing 7.8 4. Agriculture and
Industry (1+2+3) 7.2 5. Construction 28.3 6. Electricity, Gas
& Water 20.6 7. Transport and
Communications 7.3 8. Trade 8.9 9. Banking, Insurance
and Real Estate 7.8 10. Construction, Utilities,
Trade and Corn
merce (5 to 9) 10.9 11. Other Services 5.9 12. Gross National - Product 8.2
SECTORAL GROWTH RATES
(%) is
Percenta
share i
GNᏢ (1
1979
2.0 25. 3.9 6.2 0.7. 16.8 7.9 1. 6. 3.5 4.6 且4.5
3.0 43.1 20.9 5.2
20.3 1.0
6.8 9.3 8.7 19.3
10. 1.9
10.1 36.7 6.6 20.6
6.2 100
SOURCE: Central Bank of Ceylon.
As seen in this table, the Sectors which contributed mOst tO the higher growth performance were Construction. Trade and Conmerce, Transport and Utilities. These sectors which together have a weight of about 37 percent in the GNP grew at an annual rate of 10-11 percent during 1978-79. Nearly 58 percent of the GNP growth in 1979 originated in these sectors. The highest contribution to the GNP growth came from trade (over 26%), followed by construction (15% and transport (10%). These three sectors together accounted for over one-half of the GNP growth during 1979.
In contrast, agriculture and industry have failed to record high growth rates and this was particularly so in 1979. These two sectors which have a weight of 43 percent in the GNP grew at a rate of only 3 percent during 1979. The contribution of these two sectors to the GNP growth during this year was only 22 percent, which was substantially lower than the contribution of the trade sector (which was over 26%). However,
within agriculture and industry, two activities showed sustained output increases during 1978-79.
4
These were (a) nn rying and (b) fish other hand, the the agricultural low and domestic particular (which 17 percent in the only a marginal g) percent. In fact, th culture (excluding record any growth manufacturing sect than 5 percent. It here that had agr dustry recorded rates, the output i tors - trade and Uther services - ponded and grown than they actually
Thus, althou growth in 1978 an racterised by prog front (trade, COm tion etc.) the two tive sectors in the culture and indus ShOW strong grow thills sense, the grO appears somewhat that it is heavily trade, constructi transport etc. w and industry has growth process

8-9
ge Percentage
contribution L979) to the
GNP growth
rate (1979)
3.0
0. 26.3
3.0
57.8 2.0
100
1ming and (quar--; nerieS. On the performance of Sector remained agriculture in has a weight of GNP) recorded Owth rate of 0.7 he domestic agripaddy) failed to in 1979. The tor grew by less may be noted iculture and inhigher growth In the other seccommerce and would have resat a faster rate did.
gh the GNP di 1979 Was chas ress on a broad merce, construc-s
major produce economy (agritry) failed to th impulses. In with performance “unbalanced in biased towards On, commerce, hile agriculture agged behind. A of this nature
must necessarily generate substantial inflationary pressures in the domestic economy. Moreover since laggling agricultural and industrial growth has also meant lagging export growth, the growth process has falled to make a significant contribution to narrow the trade 9a).
TRADE, TRANSPORT AND CONSTRUCTION
What factors lay behind these diferentia sectOral growth rates? The high growth in the trade sector was primarily a result of the import liberalisation. A significant part of the higher growth rate in most growth sectors, specially in trade, have been due to an import led growth. The total import bill which rose by 23 percent (in SDR terms) in 1978 moved up further by 45 percent in 1979. The import volume index rose by 37 percent and 23 percent respectively in these two years. Commercial activity, in general, showed a higher level of activity as a result of import and exchange liberalisation. The growth of tourism (tourist arrivals rose by 30 percent in 1979), increased travel abroad by Sri Lankans, the expansion of the banking System, Setting up of Foreign Currency Banking Units and the establishment of three new foreign banks in the growth of commerce. The sharp increase in the imports of all varieties of motor vehicles (the total vehicle population in the country rose by 12% in 1978 and 18% in 1979) was the major factor in the higher value added recorded in the transport sector.
In the field of construction, the public sector investment programmes in the Accelerated Mahaweli, New Parliamentary Complex, and in housing and office complexes were the most important factors in the higher level of output recorded in this sector. Private sector construction in residential business and hotel complexes was also characterised by a higher level of activity. However, it appears that within the construction sector there was competition for the limited resources of building materials (e.g. cement) and skilled labour, and larger construction projects attracted the limited resources at the expense of the Smaller projects. As a result, private house building activity, in particular, appears to have suffered a dampening effect during the year.
ECONOMIC REVIEW, JUNIE 1980

Page 7
MANUFACTURNG
The growth of manufacturing output (which was 8% in 1978) slowed down to less than 5 percent in 1979. In manufacturing, the year 1979 was a period of consolidation following the liberalization of the economy. Liberalization proved a double-edged weapon in the manufacturing sector. While some industries expanded under the impetus of liberal economic policies (freer availability of raw materials, machinery and spares, and tax incentives) some others suffered under competition from imported goods. The main development can be summarised as follows:
Small scale and cottage type industries such as those producing handloom textiles, wood and paper products, glassware, chemical products such as paint, hardware and metal products appear to have suffered heavily from strong import competition. These industries were in general inefficient and the prOduct quality was poor. Once the shelter of heavy protection provided by import controls was removed many of them could not survive. There were also clear signs that some of these small scale industrialists moved away from
industry in ties such a
truction W.
prospects p. sing. On th small scale those malk tiles, those cle body repair act. significant
Producti also seen i. indulStries S ducing fab ducts, Inac port equip) paper. Man tries such trical goods decline in of strong imports. So port subst lists appear doned thei duction an
Yn Ore lucrai As a result diversion of production-( to trade-ori important which felt POirt Compeii ly was tex production OvWinedi mill; percent an tralised pOv by 18 perc
TABLE BK. WALUE OF NEDUSTRIAK, EPRODUCT)
Wage of Production
(Rs. Million) ristia. Sector
፲977 - ፲978 1979
1. Food, Beverages and Tobacco 2,294 2,609 2,8: 2. Textiles, Wearing Apparel and
Leather Products 698 1,008 1,12 3. Wood and Wood Products,
including Furniture 2 24. 4. Paper and Paper Products 270 376 4مجھ 5. Chemicals, Petroleum, Coal,
Rubber and Plastic Products 2,469 3.276 晏,5【 6. Non-metalic Mineral Products, 41 592 7
except Petroleum and Coal 7. Ea Sic Meta. ProductS 132 29 34
8. Fabricated Metal Products,
Machinery and Transport
Equipment 57. 590 5 9, Products nes. 34. 55 s
Tota 7,006 8,852 10,78
Provisional SOURCE: Central E
ECONOMIC REVIEw, June 1980

to Other activiS trade and consPhere the profit
roved more promie other hand, some industries such as :ing bricks and engaged in vehiconstruction and ivities showed a expansion.
On declines Were in Several factory such as those pro= ficated metal proninery and trans(nent, textiles and y assembly indusas radio and elec
have suffered a .
output in the face competition from me Of these imitution industria
to have abanr industrial prodi reverted to the tive import trade. there has been a resources from Oriented activity tented activity. An industrial sector the impact Of imition mOSt Severextiles. The textile in the government S dropped by 'f i that. in decenver looms dropped :ent. The overall
ON 1977-1979
Percentage
xaceErea.se/ Decrease (-)
1978
重9曹9 ※ Ονθη Vyeo
1977 盘9?8
56 13.7 9.5
8 444 11.9
56 -2.4 33.9 |5 39.3 卫8.4
8 32.8 37.5 O 440 19.9
9. 65.9 59.4
※9 3.3 -3.6 0. 6.8 -9.1
:1 264 21.8
Bank of Ceylon.
textile production (both private and public sectors) at 106 million meters showed a decline of nearly 9 percent. The principal reason for this production drop was the marketing problems caused by freer availability of imported textiles. At the end of the year, the unsold stocks of local textiles amounting to , over 40 million meters valued at Rs. 355 million had accumulated in the hands of manufacturers. This situation resulted in severe liquidity problems in textile mills.
Another industry adversely effected by import competition WaS paper. The paper production at Embilipitiya mill dropped by as much as 26 percent and the paper board production at Valaichchenai dropped by 11 percent. Import competition also led to a drop in the production of mammoties and cast iron products of the Hardware Corporation,
On the other hand the output of several factory industries showed a significant growth during the year under review. The cement output continued to expand and the total production at 660,598 metric tons was 15 percent higher than in 1978. Despite this increase, however, the local production was found to be inadequate to meet the expanded demand and imports filled the gap in sup
ply.
There was also a notable expansion in the output of export-Oriented textile garments Sector. The value Of garments exported in 1979 amounted to Rs. 950 million (nearly US $ 60 million) representing in 1979 amounted to Rs. 950 million nearmillion) representing a jump of 116 percent over the 1978 level. However, in view of the high import content in the final product, the value added (and hence the contribution to the national output) by the garment industry would be only a fraction of the export value. The domestic value added has been estimated at about 25-30 percent of the value of the final product.
AGRICULTURE
The relatively poor perfornance of the agricultural sector was a notable feature of the eco
5

Page 8
nomy of 1979. The overall agricultural output grew by a modest 2 percent and even this growth came largely from , the plantation sector rather than from the domestic agricultural sector.
In the plantation sector, tea production is estimated to have increased by 4 percent; and coconut production recovered further (from the all-time low level of 1977) by recording an increase of
8 percent Over the the production sti low the average le. past). Rubber prod other hand is esti shown a decline ( cent. Minor export evenly with SOme cardamon, cloves improvement and pepper) showing & In the domes
Experience demonstrates that a successful export drive depends crucially on easy access to dutyfree imported inputs, through, for example, special export-processing zones or efficient systerns of bonded Warehouses and tax rebates, and on the maintenance of export price incentives that are com
tion for the domestic market. An existing industrial base is also a
such as the Republic of China, (Taiwan), Israel, the Republic of Korea, and Singapore began to compete successfully in the world market for manufactures when their industrial sectors were quite Small. In the Republic of Korea,
(at 1975 prices) in 1964, and yet this was the year in which the highly successful export drive took off. A significant number of Low Income countries already have industrial bases of comparable size and are therefore in a position, to embark on their own export drive.
Regional economic integration offers an alternative means of participating in the benefits of trade, but international experience with such efforts has been mixed. While member contries enjoy access to each other's domestic markets, they forgo the possibility of purchasing extra-regional commodities that may be cheaper than those available within the region. A potentially more significant field for regional co-operation is the phasing of large-scale investments so as to avoid excess capacity. The ASSociation of South East Asian Nations, for example, has recently enbarked On the construction of regional nitrogen fertilizer plants in Malaysia, and Indonesia.
parable to those accorded produc
prerequisite, although countries .
for example, industrial value added was only about US $1 billion
How to liberalise p -World Bank
Transition t Looking TT The Repub wan), the Rep Singapore SWit. motion relativ industrializatio other countrie limitations of on import Sub redressed, at le against exports Suggests that more outward« Cies increaSes i duration and e stitution polici are still in the of inport Subst - vised to initiat Siti rin before politically voca trenched, vest tries that have later stages tiona behind face mCre Seve ring a smooth at the same t perience of nat Colombia, and success is feas resulting bene: In Brazil, for tured exports i. US $300 millic US$2 billion i. ces) deSrite a, most exclusive substitution.
The range Na have now movi
regime less ports indicates can be conte variety of econ and policy en SUCCeSS ha. S be and rich coun large countrie well advanced
函

1978 level (but remained bey el of the recent uction on the imated to have of about 2 percrops fared uncrops (mace, ), showing an some (COCOa, a decline. tic agricultural
醚
prudently Advice
o an Outwardrade Regime
lic of China (Taiublic of Korea, and ched to export prorely early in the In proceSS. Many S, recognizing the prolonged reliance stitution, have also :ast partially, a bias Their experience the transition to liooking trade polin difficulty with the xtent of import-Subes. Countries that preliminary phases titution are well ade their policy tranthe emergence of til, and strongly ened interestS. Counalready entered the of import Substituprotective barriers re problems in secutransition. But, ime, the recent extions such as Brazil, Spain indicate that sible and that the fits are substantial. example, manufacincreased from about }n in 1967 to about n 1974 (at 1975 priprior history of alreliance on import
of countries that ved to Ward a trade biased against exs that such a step mplated in a wide nomic circumstances vironmentS; export en achieved in poor tries, in Small and S, and in countries
in import Substitu
sector, paddy crop which attained a record level in 1978, showed Only a marginal improvement of 1.4 percent in 1979. This was a result of the p00r Yala, harvest (reflecting adverse weather conditions). The fertilizer use in the paddy sector declined by as much as 37 percent and there Was also a sharp decline in the credit use following the more rigorous terms imposed on the issue of credit facil
tion as well as those still in their initial stages. This range of experience, including a number of failures, constitutes an important empirical basis for the development of policy guidelines for countries yet to embark on the transition.
Although the basic ingredients of the policy package-devaluation, inducements for exports and reduction of quantitative restrictions and of tariffs on imports - are reasonably well understood, their imrlementation poses many problems. Frequently, such a policy change has been initiated in the midst of a foreign exchange crisis, sometimes it has been a direct response to pressure from aid donors. Absence of a strong mati Onal commitment to export promotion has sometimes meant that export incentives have been un ratisfactory, and inadequately maintained. This, compounded by a lack of adequate external financial support over a difficult transitional period, appears to have hampered some devaluation efforts, such as those of Brazil in 1957 and india, in 1966. In several countries engaged in trade policy reform, in lation-induced erosion of international concetitiveness has constrained the expansion of exports. This, together with the improved access to, and consequent growth in, imports has often led authorities to reinstate quantitative restrictions and increase tariffs to defend a deteriOratin X trade b2lance. In SOne cases the policy reforms have been thwarted by a lack of adequate external financing to support the balance of payments during the transitional period before exports restr. Ond to the new tra de incentives.
Although policy changes introduced in response to crises are apt to run into difficulties the adjustment to a more . Outward-looking trade policy will perforce often have to be initiated in unfavourable circumstances - expecially in
ECONOMIC REVIEW, JUNE 1980

Page 9
lities. These factors
would have
caused a drop in the paddy output if not for the considerably improved paddy production under the major irrigation schemes. The decline in minor i food crop pro
duction continued into 1979. decline was most pronounced
The
in
chillies and cereals (maize, kurakkan etc.) this sector Was a direct
victim of the of maintaining buffer stocks
government policy
by
the importation toes, onions, chil a dampening e production. Sug lined by 26 per 1argely a resul water supply an The estimated in showed a drop ᏩᎾnᎿ.
It appears t tor in the poor
countries that are already far along the import-substitution route and have highly distorted trade systerns. Experience Suggests that in such cases a gradual approach is most appropriate; giving initial semphasis to expanding exports rather than reforming the import regime, except to the extent that the latter directly inhibits exports. Strong incentives to expand and diversify exports are particularly important where a shortage of foreign exchange is res
training industrialization. Devaluation is usually essential for this purpose. In addition, ex
porters of manufactures must be aSSUred of access t0 duty-free imported inputs and convinced of official commitment to export promotion. Export-processing zones have been important in the early expansion of exports in a number of countries. Resort to certain tentiorary expedients also merits consideration: for example, it may be useful to tie the distribution of import licenses and access to foreign exchange to export performance even though the ultimate goal is the removal of import licensing and exchange controls. It is more important, however, to ensure that over the long term, production for export remains as profitable as production for the donestic market; for this purpose, the exchange rate may need to be adjusted frequently in order to offset differential rates of domestic and international inflation.
As exports rise, attention can be turned to import liberalization. Remaining quotas can then be eliminated and tariff structures rationalized with less fear of a foreign exchanre crisis, although even here a gradual approach may be most at propriate. Israel, for examrle, began liberalization by reducing tariffs on imports that did not compete with domestic industries; the additional step of eliminating quotas and reducing tariffs on competing imports took another seven years.
Reforming a tr change rate regime of a crisis runs the sion. Apart from caused by the loss employment, the e. tion to efficient a manufacturing acti tards industrializati ance of recession is unless exports are sive, or sufficient cing is made availa alry measures - f ticht monetary cor interest rates - Avoiding the prem zation of imports, e mestic SavingS, and port from additiona tal inflows can hell) risks of recession Sc so, the transition f) distorted trading e a more outward-loo gime will involve a cult redistribution o from Some of the e Substituting activiti newly emerging e These difficulties importance of ret4 over the timing of beginning the polic a position of streng riving from good h proved terms of tra the commitment to tution has become é ers the transition cally more feasible more palatable.
Industrial License
Controls
Even if a Succes is made to a mo: regime, the competi foreign trade sector nished if administre industrial licensing gulations - hinder ing of domestic m leaSeS are Sla for specific purpose ties of implementa, quently prevented
ECONOMIC REVIEw, Ju NE 1980

of cereals, potalies which has had ffect on domestic ar production deccent and this was it of inadequate d cyclone damage. ilk production alsO of about 7 per
hat the main f3Cperformance of the
ade and exin the midst 2 risk of recesthe hardship of output and insuling dissoluhd promising vities also reOn. The avoiddifficult since, highly responexternal finanable, deflationiscal austerity, atrol and high are required. lature liberaliincouraging doobtaining supil foreign capip to lower the Dne What. Even rom a severely nvironment to king trade repolitically diffif income, away xisting importes toward the XpOrt SectOrS. inderScore the aining control the transition: y switch from tih perhaps dearveStS or imde, and before import Substixcessive, rends both economi.-- and politically
is and Price
sful transition e Open trade tiveness of the may be dimitive controlsand price rethe functionarketS. Such lly introduced S, but difficulZion have frehem from at
be made to minimize uncertainties
agricultural sector was the inadequate producer margins. Adverse weather conditions were also a contributory : factor. In many Crops the rise in producer margins has not kept pace with the increase in production costs. The average costs of production in the plantation crops, for example, have moved up by anything from about two-thirds to 100 percent during 1977-79.
taining their immeduate objectives, and have often imposed severe costs on other sectors of the economy. Industrial licensing: schemes, for example, frequently fail to consider issues of plant location and size, the tinning of investments, or the choice of technology, while they have rarely achieved their main objectives of regional balance and control of monopoly power.
Price controls on industrial products have also had many unintended results and often have proven costly to the economy.
Countries that have a long his tory of direct controls can rarely abandon them immediately; the transition is likely to be faciliated, if, as in the foreign trade sector, it is initiated in favourable economic circumstances and the controls are dismantled progressively over a specified period. Prior announcements of the forthcoming administrative reforms could also
and delays. The loosening of price controls and industrial licensing and their replacement, where necessary, by appropriate fiscal incentives, may best be commenced in low-priority sectors and then extended to the more strategic sectors. The achievement of regiona balance and the control of monopoly power can be sought through taxes and subsidies and the provision of infrastructure, rather than lieensing systems. The alignment of domestic prices and real economic costs following price decontrol will usually improve the allocation of resources and make the reforms of foreirn trade policy more effective. Since these transitions, entail significant adjustment costs, countries may be well advised to limit their reliance on administrative controls during the earlier stages of industrialization.
Source: WORLD DEVELOP. MENT REPORT 1979. The World Bank, August 1979.

Page 10
Similar cost increases have Occured in most other crops given the higher costs of fertilizer, tractor charges, other inputs and the higher labour costs. However, the high export taxation (levied along with the Devaluation of 1977) has kept the producer margins relatively low in the plantation sector; the guaranteed price of paddy at Rs. 40 per buShel is lc.wer than import cost of rice by as much as one-third to one-half; and the buffer stock scheme for Subsidiary food items has depressed the producer prices of these items. In this context, the terms of trade (between agriculture and industry) would have clearly moved against the agricultural sector. Compared with the sharp price escalation of industrial goods, the rise in the agricultural prices was modest indicating that the terms of trade have turned against agriculture. It should be noted, however, that measures to improve producer margins in the agricultural sector involves some difficult decisions given the long standing tradition of protection of consumers and the Substantial sacrifice of government revenue (lower export tax revenue) that these measures would entail.
NCOME DISTRIBUTION
If Sri Lanka's economic growth record during 1978-79 represents a clear break with past performances, available evidence also indicates a reversal of trends in the field of income distribution. Over the years Sri Lanka, has moved in the direction of a more egalitarian society by successive reductions in income disparities. The Gini ratio (the commonly used indicator of relative income in equality) declined from 0.49 in 1963 to 0.41 in 1973. While the percentage of total income received by higher income brackets declined, that of the lower income brackets improved. The preliminary data of the first round of Central Bank's Consumer Finance and Socioeconomic Survey (1978) indicates that while the average income level has improved and all income classes have made appreciable gains, there has occurred an increase in income inequalities. These data indicate that in 1978 the Gini ratio moved up to 0.49 and the percentage of total income received by the top 10 percent of the income receivers had moved upto 39 percent (compared with 30 percent in 1973) while the share of the bottom 40 percent of the income receivers had dropped to 12 percent (compared with 15 percent in 1973). In fact, the only decile that improved its share of the
8
total income in 19 est one. In all ] trends would have 1979. These devel curred against the withdrawal of col sluggish real Wages tation and constru proved income ea) for profit earning g text of liberal eco the government a {3X reliefs affOrde trepreneurs. Growt parities is probab. the context of the
inic policies pursue years. But the cont
WHATT TETH
Priyat
The Survey the Private Set the Ministry of tation, through the advertisem job opportuniti the Lake Houst papers during 1977, 1978 and the up ward tr ration of emp private sector half of 1977 wa ing the year number of job
vertised in 19' against 16,469 in 1977. (See
NO OF
DU)
Year High
1977 1,08 1978 2. 1979 28
This data
crease in the level persons 14,074 in 1979) the exodus of jobs abroad a age of such sk evident that ul quired to exp for training in level opportuni report of the Implementation positive respon' sector conseque tion of a pack

78 was the highprobability these accelerated in opments have ocpackground of the sumer subsidies, Outside the planction sectors, im"ning possibilities roups in the connomic policies of ind the generous d to private enh Of income di Sbly inevitable in particular econod in the past two inuation of these
trends over the long term could have serious social reperculsions, for economic growth by itself will not be meaningful to the masses unless it is accompanied by an equitable sharing of fruits.
EMPLOYMENT
It is not possible to obtain a clear and unambiguous picture of the trends in employment due to the absence of reliable data. However, all available evidence suggests a distinct improvement in employment opportunities in the organised Sectors of the economy, that is the government departments, Semigovernment institutions, and the Or
E EMPLOYMENT SURVEY'S REVEAL
e sector
of Employment in :tor conducted by Plan Implemena monitoring of ents relating to es published in 2 Group of Newsthe three years 1979, reveals that end in the geneloyment in the Since the latter S maintained dur1979. The total opportunities ad79 was 34,955 as in 1978 and 9,154
table below).
EMPLOYMENT OPPORTUNITIES
RING THE YEARS 1977, 1978 & 1979
nic policies, liberal, outward looking, and growth oriented, has enabled a dent to be made even in Small measure, in the unemployinent situation of the country. It is also significant that such a growth in employment generation has taken place in a situation of general wage rise in the country."
Polic Sector
The Central Bank's annual survey of employment in the public sector indicated that employment in Government Departments increased by 33,713 or by 5 per cent in 1979. Of this increase, 39 per cent was in subordinate grades, 29 per cent in teaching,
ADWERTISE)
Level Middle Level
5 3,153 5.24 30 9.965
Skilled Level Unskilled Total
Leve 3,607 359 9,154 Ꮾ,Ꮽ18 2,985 6469 14,074 9,636 34,955
shows a steep inemand for skilled (3,607 in 1977 to caused largely by such personnel for hd also the shorttills locally. It is rgent steps are reand opportunities skilled and Craft ties. The survey Ministry of Plan concludes “the se from the private int to the introducage of new econo
and 24 per cent in minor grades. In Semi-government institutions (Public Corporations and Statutory Boards) employment increased by 89,385 or by 14 per cent. Of this, 83 per cent was in minor employees grades and 14 per cent was in subordinate grades. There was a substantial increase in employment in public sector plantations of 61,000 or 13 per cent. More than two-thirds of the increase in employment in the semigovernment sector occurred in the state plantations.
ECONOMIC REVIEw, JUNIE 1980

Page 11
ganised private sector. Tentative estimates prepared by the Central Bank reveal incleases in 2illployment of the order of 145,000 in 1978 and 136,000 in 1979 in the above sectors. In 1979, the highest increaSe in employment took place in the state-owned plantation sector which recorded an increase of 61,000 persons or 13 percent. The net increase in employment in the organised private sector has been estimated at around 23,000 persons, though vacancies advertised in the press in 1979 by the private sector amounted to 34,955. (See BOx). No estimates are available On the enployment expansion in the noninstitutional unorganised private sector and in the domestic agricultural sector of the economy.
The expansion of trading and commercial activities raised the demand for personnel in clerical and allied grades and the demand for skilled workers in engineering and construction trades also remained high. The exodus of skilled workel's to Middle Eastern countries, which accelerated in 1979, created shortages in some occupational categories, particularly in the construction sector, Statistics collected by the Ministry of Plan implementation reveal that as against 16,469 job vacancies in the private sector advertised in national newspapers in 1978, the corresponding figure for 1979 was 34,955 indicating an increase of over 100 percent. ACcording to the preliminary findings Of the Central Bank Consumer Finance and Socio-Economic Survey the level of unemployment in 1978 was 874,000 as against an estimated figure of Over One million in 1973. These findings reveal a significant decline in unemployment, from 24 percent of the work force in 1973 to 15 percent of the work force in 1978. However, unemployment, continues to be a major problem in the economy.
NLATION
Available evidence also suggest a sharp acceleration in the rate of inflation during the year. The rate of inflation appears to have been particularly high during the second half of the year.
ECONOMIC REVIEw, JUNE 1980
The Official dex (Colombo Cc dex) showed an cent during the t ended December this index is def pects and actual rise in able evidence su ing Cost incre: probably in the Ceilt. The imp hind this living the withdrawal dies for rice, s and keroSene, l. the prices of bread, secondly roleaian price inc: in the prices of tables due to pr The effects of the tensified by the the money supp 1979 as against 1
In regard to of internaediate goods, the only fr6ir inē Geitra, Price Index. Th termediate goods and the sub-ind rose by 15 perce Creases in pape. products and fue from 26 to 30 pe
On the basis derica, what could haviour of the g (that is the aver; in the economy) " comprehensive ir rage price level, gu, eSSes are pOSS. mate would be price level rose (perhaps 20-25 against 15-20 p
Using the a price changes, could be made O the domestic plu
|g 1978 1979

cost of living inbnsumers' Price Inincrease of 15 perwelve month period , 1979. However, ective in many reslderestinates the living costs. Availggests that the liv8ᎸSᎾ Ꮃ8S higher, region of 25 perportant factors becost increase were of the price subsiugar, milk pOWder pward revision of wheat, flour and effects of the petreases and the rise coconuts and vegeoduction shortfalls. ese factors Were inhigher growth in ly (29 percent in .1 percent in 1978).
the price behaviour
and investment, available data are 1 Bank's Wholesale e sub-index of inrose by 21 percent 2x of capi goods :nt. The price inir products, metall el and light ranged :rcent.
of the above evilbe said of the begeneral price level age price behaviour ? Since there is no adex on the aveOnly some rough ible. A rough estithat the general by over 20 percent, %) in 1979 as ercent in 1973.
bove evidence on a rough estimate
the Rupee (i.e. by deflating the Rupee by the price increases). Alternative calculations are Shown in 'Table IV, and the Se calculations show that the domestic purchasing power of the Rupee has fallen by 20 to 30 percent during the period 1977-79, although rupee incomes had of course increased among certain groups.
The expansion of employment opportunities, the rise in the average money income levels and the Food Stamp Scheme operated for the poorest segment of the population would have mitigated Sonewhat the impact of the rising prices for a substantial Section Of the population. However, in an inflationary situation, all those persons whose money incomes fail to rise as fast as the rising prices are bound to suffer a reduction in real incomes. Generally, profit earning groups benefit by an inflation since rising costs lag behind rising prices thereby ensuring higher profitS. In the case of wage earners, however, it is generally the case that the rise in money wages lags behind rising prices causing a drop in real wages. In the case if Sri Lanka, the minimum wage rate (money wage) index of Central Government, employees rose by 19 per cent, that of workers in plantation agriculture rose by 28 percent, and the index of workers in private Sector industry and commerce rose by 17 percent. When discounted by the ColOmbo Consumers Price Index (which rose by 11 percent on an annual average basis and 15 percent during January-December 1979) these minimum wage rate indices show increaSes Of varying degrees in real terms. However, given the fact that the Colombo Consumer's Price Indiex grossly underestimates the actual rise in living costs, the real wages may have declined in 1979 except perhaps those of the plan
in the behaviour of tation aid skilled construction rchasing power of workers.
TABLE IV
PURCHASING POWER OF THE RUPEE
Based on the Based on Based ora Based on the Colombo Cons Wholesale GNP estinated rise surner's Price Price defator in the general Index Index price level
1.00 00 "100 100 0.89 C86 0.87 0.85 0.69
(0.80 0.79
0.76

Page 12
FOREIGN TRADE AND PAYMENTS
An inevitable nitial consequence of import liberalisation is the creation of vast trade gap resulting from the sharp rise in the import level without a corresponding rise in export earnings. Until Such time that exports could rise sufficienly to match the rising level of imports, the country has to depend on external loans and aid to finance the trade gap. Hence, a significant growth in exports, to be achieved relatively quickly, is Crucial to the successful maintenance of a liberal import regime.
Following the import liberalisation of late 1977, the rate of flow of imports accelerated in 1979. The import expenditure rose by 54 per cent. (reflecting a volume increase of 23 per cent and a price increase of 52 per cent). The export value, on the other hand, rose by only 13 per cent, the bulk of this increase was an account of a rise in export prices rather than in the export volume (which rose by only 1 per cent). The resulting trade gap was of the Order of Rs. 7,287 million - a near fourfold increase over 1978 .
The disappointing performance of exports and the widening trade gap is a matter of serious concern for an economy pursuing a liberal import policy since the very objective is to achieve an export-led growth in the long term. The crucial question is how long will Sri Lanka take to achieve a significant breakthrough in the export field SO that the liberal trade regime could become viable. The longer this transitional period takes the longer will be the dependence on foreign grants and loans to finance the trade gap.
In the case of South Kore a and Singapore (the two success stories of outward-looking trade regimes) the time taken to achieve a major breakthrough in exports was fairly short, a matter of four to five years from the commencement of the liberal trade regime. In Singapore, for example, exports which had been stagnant for several years began to increase from 1967, the year in which the country positively turned to an export-oriented strategy. During 1967-72 the exports recorded an average growth rate of 11 per cent per annum. The bulk of this export growth was on account of foreign investment. In South
Korea, the switch over to an ex
port-oriented strategy took place in 1963-64 and since then the export
O
growth had been ports grew at an a per cent per * annu 7U. The GNP grev of 11 per cent pe the same period.
On the other export growth hac poor during 1978volume index rose 1978 and 1 per ce export volume (in by 2 per cent in cent in 1979. The appears to be tha ports, which accol per cent of the t( failed to register a crease. On the ot trial exports (whi for about one-qua export value). ha' nificant increase f lion in 1977 to SC 1979, an increase cent. This increas two main Sources. and garments anc ducts. In the case ducts the increas value (over 70% 1977-79) was larg the higher export of an increase in t In any case, the change earnings exports are quite l import content in duction
TABLE W
Plantation Pr
1. 2. Minor Agricul
crops 3. Gens 4. Industrial Ex
of whic
(a) Textiles (b) Petroleum 5. Total Exports
(Average value 1979=Rs, 2013).
In the case of ments, the export terms) rose by C during 1977-79 : these exports în earnings of the 2 to 7 per cent period. Garments most significant g total expOrtS, anc are projected to Crea Ses in the nex

phenomenal. Exverage rate of 38 m during 19647 by an average r annum during
land, Sri Lanka’s i been relatively 79. The export by 6 per cent in ent in 1979. The SDR termS) rOSe 1978 and 13 per main problems it traditional exunt for about 75 otal exports have ny significant inher hand, indusch nOW accOunt rter of the total ve shown a Sigron SDR 88 nil)R 185 million in of over 100 per 2 haS come frOIn namely textiles i petroleum proof petroleum proe in the export increase during ely on account of price rather than he export volume. net foreign exfrom petroleum ow given the high the export pro
; ' ' '. MONEY SUPPLY
MILIONS OF RUPEES MONS OF RFEES, 3000
<ه* 7000 ? نہ یہ نا
for At. MONEY
600 6000
5000 5000
&000 DEMAND DEPOSIs #g
3000 3000
2000 2000
CURRENCY
1000 . 1300
63 70 η2 και 1975 1976, 1977, 1979, 1979
Source: Central Bank of Ceylon.
With the upsurge of private sector activity since 1977, the role of monetary policy in regulating the level and composition of demand has expanded. The main feature of monetary developments in 1979 was a significant reacceleration in the rate of monetary expansion following the substantial moderation observed in the previous year. The money supply, narrowly defined as the sum total of currency and demand deposits held by the public, rose by Rs. 1,733 million or 29 per cent during 1979. This same level of expansion continued upto the first quarter of 1980. The main factors contributing to the increase in monetary expansion were the rise in net external banking assets and the Operations of the government sector.
COMPOSITION OF EXPORTS 1977 - 78
Value in SDR Million
Percentage of total
exports 1977 1978 1979 19, 1978 99
oducts 495 95 49艺 75 73 tural
35 38 42 6 6 6 30 27 24 垒 垒 3 ports 88 99 185 14 15 24
&z Garrments 13 25 55 2 4. 7 in products 56 48 96 9. 7 13 I 659 674 759 100 100 100
' of SDR 1977=Rs. 10. 42, 1978= Rs. 1958,
Source: Central Bank of Ceylon
| textiles and gart value (in SDR. over 300 per cent and the share of the total export 20untry rose from
during the same
are clearly the rowth item in the i garment exports
show further inkt, few yearS. HOW
ever, there are sharp limits to the possible future expansion of the garments industry in view of the export quotas imposed by developed countries. The EEC countries. Norway and Sweden have already subjected Sri Lanka's exports to quote restrictions. US authorities who cautioned Sri Lanka against a sharp rise in exports to the US market have now decided to impose quotas on selected items. Once quotas are
ECONOMIC REVIEW, JUNIE 1980

Page 13
MONS OF-RUPEES
MILLIONS or RUPEes 800Յ 8000
7000. It 7000
6000 6000 - TOTAL MONEY
5000 5000
4000 goo
3ሴûû 300'
FINANCE 2000 2003
EXTERNA
1000 1000
τυξε 泾臀
● 0.
1000 نسبلسلسل 1000
“ß8 ኃ70 '”72 .”7ሄ 1975 1976 1877 1978 ' t979
Source: Central Bank of Ceylon.
This chart indicates the origin of
Money Supply in Sri Lanka,
(a) “Government Finance' shows the claims of the banking system on the Government net rupee cash holdings of the Government,
(b) “Credit to public' shows the claims of the banking system. On the private sector met of time and savings deposits.
When net external banking assets were negative, the total money supply line is below the line limiting Government, finance and when the Government’s contribution is negative the total money supply line is below the line limiting credit to public.
Changes in external assets attributed to exchange rate changes with contra entry in the International Reserve Revaluation Accouiat have been excluded commencing January, 1977.
In contrast to the experience in 1977 and 1978, when the government fiscal operations led to a substantial nonetary contraction, the government Sector's operations with the banking systerm in 1979 resulted in a significant expansionary impact of Rs. 1,057 million. This was the Combined OutCOme of a considerable increase in bank credit to the government and a decrease in government deposits with the banking system.
in posed, the possible annual rate of export growth for garments would be sharply curtailed. At present, apart from garments, there are no signs of any other new export item making a Significant upward trend, Following the experiences of countries Such as Singapore and South Korea the next export candidate for promotion is likely to be electronic goods. But as yet, there are no signs of a clear progress in this direction.
ECONOMIC. REVIEw, JUNE 1980
There were developments ho to Offset, at least export performal increased earning increased remitt: and (c) increasec vestiments. Gros tourism increased reach a level of 1979. This incre, result of higher ti in Crea Se Over 19" fers received frol of which consti made by Sri abroad, have in cent to reach R.S. There was also a the net inflow capital largely a the Investment ) the GCEC. Priv ments which hac nificant, ilin Sri past three decade in 1979. They ros lion (about SDR. 1978 to Rs. 769 million) in 1979. items together cc million in foreig was equivalent to the trade gap. Al be expected to g. future years.
The country pend heavily on grants and IME" ance a SubStanti trade gap. How
Futu
Several assess nate of the futu economy; we quote forecast, by the A the IMF in its for lished in June 198 the Outlook of the ble mea,Sures in the Government of Sri to continue its effc Subsidy and trans addition to the me: it is expected to the number of foc from the current by checking incom thoroughly, Export ed to be rationali View to ensuring to growers of tea, ruts. This increas gether with enhan puts and extension tribute to higher
 

three important Wever, which Went partially, the poor ce. They were (a) s from tourism, (b) inces from abroad flow of direct ins earnings from by i 40 per cent to Rs. 1,053 million in ase was largely a )urist arrivals (30% 78). Private transm abroad, the bulk tuted remittances Lankans working Creased by 48 per 935 million in 1979. , sharp increase in of private foreign s investments in Promotion Zone of ate direct invest| been quite insigLanka, during the es recorded a jump Se frOnn Rs. 23 millOne million) in nillion (SDR 38 The above three Intributed Rs... 1474 in resOurces Which nearly one-fifth of l three items could row further in the
continued to delong-term loans, drawings to finall portion of the ever, some relief
Was provided by the fact that outright grants recorded a substantial increase during the year. As against Rs. 959 million in 1978 the grants received rose to Rs. 1,933 million in 1979, an increase of nearly 102 per cent. IMF's External Fund Facility arrangement for Sri Lanka, which was approved in January 1979, permitted Sri Lanka to borrow upto Rs. 5,200 million (SDR 80 million) during the three years 1979-81 for the purpose of providing balance of payments Support needed to effect structural adjustments in the economy. These credit facilities are subject to periodic negotiations and mutual agreement on Sri Lanka's
overall economic policies. In 1979, Sri Lanka drew Rs. 1,592 million under this facility. Beside, the
country has also obtained longterm loans amounting to RS. 2,903 million during the year. These reSources flows proved sufficient not only to finance the external reSource gap but also to generate a Surplus in the Overall balance of payments and to augment the external assets of the country by Rs. 2,175 million or 28 per cent. The level of external assets at the end of 1979 (RS. 9,652 million or SDR. 475 million) was adequate to finance about 3 months of imports projected for 1980. As against this, the outstanding level of external debt at the end of 1979 stood at a level Of RS. 18.5 billion (or SDR 906 million).
The debt-service ratio (capital repayments and interest on foreign
tre Directions - An IMF Assessment
ments have been e directions in the here from one Such sian Department Of tnightly survey pub0. It's comment on economy, and possifuture states: 'The Lanka, is expected rts to economize on er expenditures. In Sures already taken, reduce significantly d stamp recipients 7.3 million persons e declarations more taxes are expectted further, with a an adequate return rubber, and cocoed profitability, toCed Supplies or imservices, should congrowth in the agri
culture sector in coming years. pects for higher growth in the manu
marketS. The construction and servi
Overall, real GDP is projected to in
PrOS
facturing sector are also bright, given the recent emphasis on seeking export
ces sectors, led by the growth in public sector investment and tourism, are also expected to show healthy growth.
crease by 6 per cent a year over the medium term. Inflation is expected to taper off as the need for official price adjustments diminishes and budgetary controls are tightened. The Government's policy of maintaining realistic interest rates should also help to dissipate inflationary pressure, These measures should also strengthen the balance of payments, which would otherwise be subject to great pressures because of the heavy public investment expenditures expected during 1981-82'.
1.

Page 14
FOREIGN AD TRENDS
By 1979, the relative importance of outright grants in financing Sri Lanka's external resources had increased considerably. Since the latter part of 1977 outright grants, long term official borrowings, private direct investinents and drawings from the IMF were taking a more important place in the inflow of foreign resources than that of short term credit and bank borrowings. This trend is seen clearly over the wears 1978 and 1979. Of the entire foreign aid receipts in 1978 as much as 75 per cent were loans and only 25 i per cent grants; while in 1979 the position had changed to 52.7 per cent loans and i 47.3 per cent grants. The grants in 1979 included commodity grants of Rs. 1,167 million (SDR 58 milion), project grants of RS. 998 million (SIDER, 49 milllion) and profits distributed by the IMF under it's gold sales programme of Rs. 74 milion (SDR 4 million). Suppliers' credits which dipped sharply in 1978, rose substantially to Rs 609 million (SDR. 31 million) in 1979. Long term loans consisted of commodity aid of Rs. 1,464 million (SDR 72 million), project aid of Rs. 840 million (SDR, 42 million) and a loan of RS. 599 million (SDR 30 million) from the Trust Fund of the IMF. Although the disbursements of long-term official loans declined from Rs. 3,680 million (SDR 188 million) in 1978 to Rs. 2,903 nilion (SDR 144 million) in 1979, this decline was more than offset by the substantial increase in outright grants. Details in the table below give a further view of the changing aid picture,
generated a surp accout. "This Sl than sufficient current account external resource fore, additional Over to external
T"#7,6 Sc201770}, assistance to c
reveals; and t} ment Of did to
Netherlands. G been running C of Gross Nation
provement in S. nal assets during has also strengt
SER LANKA’S AD RECEPTITS 1978-79
(Rupees Million)
Hoans Grants
ig 78 1979 1978 1973
Project Aid 1,221.7 67.1 241.6 1,067.5 Commodity Aid 1,134.7 1,266.5 - 272.2 558.5 Food & Other Aid 535.5 274.2 444.9 3.07.
Total 2,891.9 2,157.8 958.7 1,933.3
SOURCE: External Resources Department, Ministry of Fi
try's credit-worth
tional capital m.
Among the
assistance in th
The greater inflow of longterm official loans, drawings from the IMF, private direct investments and the allocation of SDRs
12
 

us in the capital rplus was more to finance the deficit and the gap and, thereresources spilled aSSets. This im
was almost 100 per cent were Australia, UK, Japan, Sweden and Norway. With the chaning pattern in the manner of financing the country's external resources gap there was also a decline in the debt service ratio (i.e. the capital repayments and interest on foreign loans) as a percentage
inavian countries have increased their level of foreign leveloping countries in recent years, as the diagram his is also evident in the present high grant eleSri Lanka from Saveden, Norway, Denmarke and ijze enerally, holyeler, the did from OECD cott tries has at less than half the declared target of f.7 percent
géill Product.
ri Lanka’s exterthe last 2 years hened the COUN
nance and Planning.
iness in intera
arkets.
countries, YAYİOSe
e form of grants
野
of foreign earnings and repayments. Excluding i IMF transactions the debt service ratio fell from, 12 per cent to 8 per cent in 1978 and the actual debt services repayment declined in 1979 by 16 per Cent.
As the Minister of Trade emphasised sit a recent Seminar: “Sri Lanka has done mich hetter than many other develocing countries in external debt management. Many non-oil developing countries had to borrow heavily just to cover payments deficits caused by higher oil costs. It is estimated that on average these countries' medium and long-term debt increased from 1973 to 1979 by 21 per cent per year, compared with Sri Lanka's foreign (medium and long term) debt
EconoMIC REVIEw, JUNE 1980

Page 15
TABLE W.
FOREIGN RESOURCE
FLOWS (KEY ITEMS)
(In SDR milion) 1977 1978
Exports 651 675 2. Services of which 89 99 Tourism 29 39 3. Private transfers 18 31
(Remittances)
4. Direct foreign investment - ബ 5. Grants 47 46 6. Long-term Loans 14 188 7. IMF drawings 55 38
loans as percent of earnings from exports and Services) which had shown a decline in recent years, declined further to 13 per cent in 1979. This reflects in part the more favourable terms on which borrowings have been made in recent years. (See Box on pages 12 & 13).
SUMMARY OF TRENDS
The economic growth, as measured by the rise in the GNP, has shown a distinct upward trend during 1978-79. The growth rate in 1979 (6.2 per cent) was however lower than that of 1978 (8.2 per cent). The higher level of economic activity has led to a substantial reduction in the level of unemployment and an increase in the average income levels. It appears, however, that the growth process has been accompanied by a rise in relative income inequalities. The top 10 per
which increased by a lesser amount. Sri Lanka has been prudent enough to ensure that her debt service ratio is brought down over time. Thus, despite the growing oil bill which was purely on account of rising oil prices and not on account of increased oil imports, the country has done reasonably well in her foreign debt management'. (see table below and chart on page 16).
FOREIGN DEBT (1972-79)
(In millions of USS)
total Repayments Year Foreign (Capital &
Debt, Interest).
1972 508 79 1973 553 99 1974 665 102 1975 730 且46 1976 770 127 1977 843 136 1978 1,055 51 1979 1,262 146
Source: Central Bank of Ceylon.
ECONOMIC REVIEw, JUNE 1980
cent of the inco shown a clear i come share. Mo proceSS appears anced' in that tribution to the came from trad ece and COS contribution Of a dustry (the maj tors of the ecOn ed relatively lo impulses are no the Se two SectOrS growth process nied by a relativ inflation which lerate particular] middle Of 1979. employment, risi comes, rise in the Food Stamp : contributed tC) m. of the rising pric line in the real v of the wage eart tied.
Another disq the poor perform sector specially v ditional exportS. exports textile g tO make rapid pli port quotas imp countries have on the possible f pansion. At pres Signs of the eme ther new export make a significa. Overall export lev exports, if COI: future, could hav, the economy of has adopted a path. On the oth from tourism, abroad, and priv, ment irlflOWS ShOV trends during th these proved inad

1979
7.59
149 53
46
38
144
80
Dme earners has increaSe in itS inreover the growth
somewhat "unbalthe principal conhigher growth rate e, transport, comtruction while the griculture and inOr productive secOmy) has remainW. Strong growth it yet evident in . Furthermore, the has been accompafely high rate of has begun to accey since about the The expansion in e in average innOney Wages, and Scheme would have litigate the impact es. However, a dec
wages for a portion
hers i S also indica
uieting feature was ance of the export
with regard to tra
Among the new arments continued .
*Ogress but the exposed by developed laced sharp limits uture Scope for exent, there are no rgence of any furitems which could ht, impact on the el. Slow growth of tinued into the a serious effectS on a country which export-led growth ter hand, earnings remittances from ate foreign invest7ed distinct upward e year. However, 2duate to make up
EXTERNAL ASSETS
穹属“75 76 77 7ኝ ”፲9 8፬ Source: Central Bank of Ceylon Despite the initial fear of a balance of payments deficit after liberalisation, the overall balance of payments recorded a surplus in both 1978 and 1979, with foreign exchange receipts from various sources (other than trade) rising sharply during the last two years.
FOREIGN LOANS
RUPEES '000'MLLIONS
"ష్టి ". *馆 “ገ7
I F-I-T-I-Te
COMMOÖTYe ÖANS 6 PROJECT LOANS S: STERLING LIOANS
*78 *7g 'aე Source: Central Bank of Ceylon While the quantum of foreign loans increased sharply over the last two years, Sri Lanka's debt profile also showed improvement. The proportion of debt with a maturity of ten years or less fell from 7.2 percent of the total in 1977 to 2.5 percent in 1979. Reflecting this decline, the debt-service ratio fell from 12 to 7 percent during the same period,
13

Page 16
for slow export growth and the balance of payments had to be managed by a heavier recourse to foreign loans and aid. Some relief was, however, provided by the fact that a substantial portion of the inflow of foreign resources took the form of grants rather than loans. However, the emerging world recession could slow down the inflow of foreign resources in future years and this is a further factor which underScores the need to reorient policies to foster the export sector, if an export Oriented policy is to be maintained.
PROSPECTS FOR 1980
What are the prospects for 1980? All indications are that the record of the relatively high growth rates that characterised the past two years, would continue to be a feature of 1980 as well. The main Sources of the higher growth rate would continue to be more or less the same as in the past year. Trade, transport, commerce, and construction are likely to be the main growth sectors. There are no clear indications of a substantial output expansion in the agricultural Sector. The domestic agricultural sector (excluding paddy) is unlikely to show any major improvement from the depressed level of the past two years.
The indications are that inflationary pressure in the economy is unlikely to show a marked reduction. Given the recent increases in the prices of major consumer items such as Sugar, wheat flour and bread, and the possibility of a further upward revision in the prices of petroleum products and energy (except perhaps petrol where unSold stocks have begun to accumulate), the average price level would clearly show a marked increase during 1980. In this context presSures for higher money Wages are tyound to arise.
The widening trade gap, as a result of sluggish export growth and the growing import bill Would continue to be an important feature of the economy during 1980. In this situation, the country will have to continue its heavy dependence on foreign loans, and aid to finance the growing foreign resource gap. The race seems to be between bridging the gap with foreign grants and loans till the trade gap is closed by increased exports.
14
FINANCE
Global II
Persistent inf World Wide phenon 1970's and by the e }} ot evegn the Centro: nOmies, where pric regulated, have bee estimate cited in a titute publication I. fiati C. at ab Ott 5
um in the first há What is unique a Wave Of inflation first One in histor truly world-wide. economies of the however, that are and am Ong the två 3fflicted are Britaii
For Siri anka. of global inflation ous repercu SSiOn, S, 1 it haS pe Conne decl policy to remove price subsidies Gir: dicts and COin in country’s majOr di grammeS n'OW l'Inde dependent on imp inflationary trends a result, are alre: On the city built alone costs have C months. A recent ted that the built Lanka. Customs, to COSf. S. 25 rii: R.S. 125 raillior - ; fold increase. The ance was reported, saying that World day Sri Lanka’s and that it had r government’s dieve beyond recognition of the development ciuding Mahaweli) to RS. 120 billion lion in 1978. Citing creases on specific jects he listed the
Kotinale Scheine
Maduru Oya,
Project
Victoria, Scheme
100,000 Houses
Programme
Kotte Develop
ment Project
Ruhunu Camplis

ation became a enon during the İndi Qof the decade ally-planned ecoes are generally in free of it; (Oxhe Worldwatch Ins3.S Set Sovie, jinpercent per anlf of the 1970's). Glt tiS Clet is that it is the y that has been It is the larket Western World, } Worst affected to most Seriously
and the U.S.A.
too the probieri
can have Seriparticularly when ared government the cushion of limported prOOdities and the evelopment proWay are heavily Drted inputS. The in Sri Lanka, as a dy vell known. iing programme oubled in recent press repOrt Staiing for the Sri earlier Scheduled ion will now cost a staggering fiveMiji Kio Of Fijiin late June, as inflation Was togreatest problem aised the cost of lopment schemes - the total cost programmeS (inhad now gone up from RS.: 47 bilexamples of indevelopment profollowing:
1978 1980
(R.S. million)
3.200 8.000
1,200 2,200
3.482 6,000
1,772 6,079
680 i, 150
flation - Who's Paying
How deep has been the recession so far? In the early months of 930 a reduction in orders and COnsegüent cut back in prGaduction schedual 2s was reported in Some of the major Western industrialised countries. (Sales of US-made cars in May '80 tumbled 37% below a year eariier and new orders received by US factories in April fel 5.5% from the onth before). The US and UK ave been the first to be hit by the recession but predictions 3,3'e that export cuts will follow in Europe and possibly Japan, though these couitries are not expected to experience recessions Of the Same degree (SOme reports indicated that by mid-June Japan's inflation rate was only half that of the US and Japan's growth rate was on par with that of West Germany's).
In the US inflation reached 13 percent in 1979, and the price spiral in many major Western countries was moving closer to this level. The recession in the US economy has been accompanied by rampant inflation. The total output of goods and Services, as measured by the Gross National Product (CNP), startedi to decline during the Second quarter of 1979 while prices kept moving up. Most of big industrial corporations in the ITS were tinus caught up with enormous inventories of unsold goods, as in the case of the automobile industry. Many of them have reSOrted to di SCounts and rebates în order to increase sales, These, however, were only temporary sales promotion devices and their 1980 models had to reflect the price increases. Policy makers and businessmen were both fearing that a prolonged period of rising prices Would en gen der I m On enttiin Of its own.
One commentator analysing this situation in the US Stated
“What are prices for many sellers are costs for buyers, so that price increases end up as higher costs; and labour costs go up to the extent that workers are successful in their unending struggle to keep their real wages from being eroded. And so the scene is set for another round of price hikes, with each additional round planting the seeds for still another one, providing only that the government and financial institutions are ready to sup
ECONOMIC REVIEW, JUNIE 1980

Page 17
1979 TIME Chart by Nige Holmsa ,
The Nati Omic Rese mally ann.0 *the US is The US ec its high, poi and gone ( (is this Tigi, ly. In ni Board of E i mniaced e 2)iil procee ijze reSi of
juanped to aDork force, April and
March, the rżSe in dat le of US made bled 37 per earlier to AWe?p 07*dé?’s factories in cent from the sharpes
COURTESY:
than five ge
Time, the Weekly Weavsmagazine.-16.680
ply enough funds, through the expansion of debt, to sustain the higher priceand-wage structure. But this too feeds the flaines, because of the rising costs of financing the debt".
It is against this background that the upsurge of prices in the US during the 1970's and in 1980, together with growing unemployment and the downturn in economic growth rates in recent months must be viewed.
The continuous diminishing in the value of any country's currency can cause anxiety and harm to that country's economy. In countries like Argentina, ard Israel, where the current runaway prices have approached the level of hyperinflation, the situation has been viewed as serious. As a result of such "hyperinflationary' situations, states one commentator, "the economic information required for intelligent decisionmaking is also muddied and lost,
EconoMIC REVIEw, Jun E 1980
ard investments research and devi diminishing 3, SO renew itself'.
Mfany compan compelled to issu financial reports impact of inflatic {Ià31). Ce. -
A Vei”
North Anne Japan and Western an Europe All industri glnties
* Estimates
** Forecast
 
 
 
 
 
 
 
 
 
 
 
 
 

onal Bureau of EcoLirch, im, the US forCed il mid Jie 2deed in reCeSSiOm”. nomy had reached t in January, 1980, Ounhill ever since, 2C2,6(irt Sh.Oʻ?u)s celedirJune the Time 2onomists rendered dict the dottir, at least through this Jear, and On the phole upili not be quite dS 2) i Olemit dS the one in 1973 - 75, f though it may be 709rse in sотe specific respects - nOtablu] ጊዜገዉ– етрloyтетt.
The US rate of unemploy?nent in May 7.3 per cent of the from 7 per cent in 5,2 per cent in teepest tuo-month aSt 32 years. Sales cars in May tumсетt belои, а year eSS thậm 500,000. received by U.S. April fell 5.5 per the month before, t drop in more ars, reported T’IAE,
**
and fundamental slopment all Suffer, ciety's capacity to
ies in the US were e a Second set of
to illustrate the in on their perfor
Again, in Britain wage rates
have been rising far more rapidly than in Other industrialised COuntries. Meanwhile, tough government policies now include high interest rates and painful cutS in public speinding, which would have to be sustained until inflation is checked, but prices keep going up. The British Central Bank (IFBank of England) has followed up its gloomy assessment of the country's economy with figures, in mid June, showing that while average ea inings were rising at 21.2 percent, Britain's price inflation was nearly 22 percent and unemployment was at a post World War III record of 1.5 million and was expected to go much higher.
In the existing global economic order the growing inflation in the industrialised economies and the overall economic health Of these countries have generally turned out, to be a key determinant in the growth prospects of the developing countries. The pattern is now repeating itself. These industrialised countries have been the principal markets for exports from the developing countries and also their main sources of external capital and modern technology. In the late 1970's the industrialised countries purchased between 60 and 70 percent, Of the primary commodities and manufactures of the developing countries; but prospects for the future are by no means bright. (see table below).
The slow and erratic growth in industrialised countries in recent years, combined with disruptive influences such as increased protectionism, exchange rate instability and international inflation has led to a reduction in the volume growth of world trade from about 9 percent a year between 1965 and 1973 to just over 4 percent a year between 1973 and 1977. In the Same periods, the growth of developing
Industrial Countries: Growth of Gross Domestic Product, 1960-90
ge annual percentage growth rates, at 1975 prices),
1960-70 重9?登_雷8* 1970-80 1980-90**
&፰å 4.0 3.4 3.3 翠.翰 }ceania 9.4 5.1 5. 5.9
Northern
垒。7 2.8 2.9 3.8 lized
4.9 3.邻 3.4
墨.2
for 1978 are based on Preliminary data,
“World level 3pment Report, 1979”
5

Page 18
country exports declined from 6.4 percent to 3.6 percent a year (Source: World Development Report 1979. The World Bank). The final aSSeSSmenti lin this WOrid Bank document is that.
"the joint attainment of rapid growth, full employment and price stability has remained elusive in recent years in the industrialised economics. In several countries, strong inflationary pressures and volatile external payments situations have hampered sustained recovery from the recession of 1974-75. FProjections for 1979 and 1980 diio not indicate any significant improvement over the 3.4 percent &nual growth achieved in the previous decade. The outlook for the next decade is uncertain, but it seems reasonable to assume recovery to an average growth rate of 4.2 percent a year, with Japan's economy growing at nearly 6 percent a year while the economies of North America, and Europe grow at or below the average rate for the group', a less gloomy view than the IMF's prognosis issued about the same time.
Many leading economic adviSers in the Vestern industrialised countries are hoping, however, that a continuation of relatively strong growth in West Germany and Japan will help to avoid a recession similar to that of 1974-75. There are fears that in the present mood many of these nations may try to counter the threat of a price-wage spiral by a tightening of fiscal and monetary policies, precipitating slump-'an actual fall in World output, not just a cut-back in its rate of growth'. It is, in fact, apparent that the current emphasis in the industrialised world is on economic policies geared to combating inflation rather than slump.
LOANS TODEVELOPING COUNTRIES * in bilions of డ్డపై
160.5
130.3
108.4
89.8
74.2
64.
Estimates Sources: World Bark; international Aostasy fund; Morgan Guaranty Trust Co,
TOTALEXTERNALDEBT
F’Or NMOSt Thail On the Other hand flationary and re in the market ec are posing a thre: development progr international finar For naily Of the is becoming incre pensive and diffic many struggle wi home and try to c( Of the receSSiOn ab being compelled appetite for larg loans. The non-pro ting countries, par pl’Übem on two ] meeting their risi maintaining paym ternational debts. A analysis Showed th developing countri had tripled to an billion (see chart) Vate bankers Wer even unable, to e credit. It concludes tion
"had placed bürd en On Official le1 as the International The IMF plans to pool from $23 billion year, but the harsh poses as the price o' many LDC's relucta - - - - - - Many LDC's tail economic growt cannot get the new to finance deficits - result could be deep greater social and ty’’.
Compounding problem is the ant in world trade bo next. TO COmbat
in bili of dol 1979
Xe* ང་
\
COURTESY: Nenisceek, The International Newsmagazin
16
 

World nations, the growing inessionary trends nOmy COuntries t to their maj Or mmes for which cing is essential. foreign capital singly more exlt to get. While h inflation at unter the impact oad they are al S0 o control their er international ducing oil imporicularly, face the major fronts - g fuel bills and ints on their inrecent NeUSU 62ek: at Since 1974 the es debt burden estimated $325 — and many pri: unwilling, or xtend any more that this Situa
a relatively greater lding agencies such Monetary Fund, increase its loan to $30 billion this - conditions it imf its largesse make int to request aid will have to curh sharply if they loans they seek - and the eventual pening poverty and political instabili
the payments icipated slowdown th this year and growing inflation
CS DEBT SERVICE ars || || . RATIO4
978
379.
As percentage of expafi earnings
—வைாகை"
. {0ت. 226.5.سسسسس .e ?
in their countries the major industrial nations have adopted restrictive fiscal and monetary policies that have the effect of slowing down their economic growth. Adds NewsWeek:
“Government banking authorities in Switzerland, West Germany and Japan, for instance, have already imposed restrictions on new loans to developing countries. And American banks, which had a staggering $ 5.7 billion in LDC paper have begun to bump up against Self-imposed constraints'.
There is at present a great
strain on the existing international financial system, as we can See; and in such a situation, the Smaller developing nations have little leverage, while they face financing requirements that are larger than ever before and in relation to the size of their eCOmOmiles.
One result of the recessionary and inflationary situation, as we observed, is that many countries aire registering price increases considerably above the average. Most Asian countries too are reported to be experiencing a 20-25 percent annual inflation rate just now and in countries like South Korea, the inflation rate was over 30 percent. Another current report states that in the Philippines the consumerprice index was now at an annual rate of 25 percent. Peru and Ghana, however, provide striking examples of how the damage could be more devastating for a developing nation than implied by the average rates of inflation.
Robert, Fuller of the Worldwatch Institute, taking an environmentalists overview of global inflation in a recent paper thus comments
“Peru provides a striking case in point. In the last four years, workers real buying power has been cut in half. The price of bread has jumped tenfold. Per capita calorie and protein intake is but two thirds of that listed by the UN Food and Agriculture Organization (FAO) as the lecommellded minimum. According to an observer, the number of infants in Lima, who die during their first year has gone up by an estimated 30 percent. During a recent teachers' strike, the instructors stressed that they could not teach students who were on the border of starvation.
The current situation in Ghana provides another example, one that illustrates the potentially disastrous chain of events that can result from inflation once it gets rolling. In Accra, the impoverished majority spend about one quarter of their daily wages just getting to and from work. They must spend three days' wages for a kilo of
Ecorroric REVIEW, JUNE 1980

Page 19
meat, and one days' wages for a tin of condensed milk or a kilo of fish or poultry. Even on the rare occasions when they are available; sugar, flour, tinned fish and soap are beyond an unskilled workers' income. During the 1970's, the price of food in Ghana rose 40 percent mure than the general price level did,
It is in the countryside, however, hat the lethal consequences begin to unfold. It is there that farmers produce cocoa, the sin le commodity that provides two thirds of Ghana's foreign exchange and is the major income source of small farmers. The world price of cocoa, is not keeping pace with domestic inflation. Therefore, the cocoa, farmers' incomes are falling in real terms. They are being forced to cut down their cocoa, trees, along with the forest cover that the cocoa bushes require, in order to plant the food crops that they can no longer afford to buy.
The widespread cutting down of forest cover along with the cocoa, trees could lead to an ecological as well as an economic catastrophe in Ghana. It takes 20 years for a cocoa, tree to reach the point of highest productivity. The shade canopy recessary to cocoa growing takes about the same period to grow. Without the trees, the topsoil will be washed away or depleted. Within 10 years, some of Ghana’s most productive agricultural land could become clay'.
To environmentalists like Fuller “these are clear signs that the world is faced with exploding demand, rising costs of essential commodities, stagnating productivity and a levelling of (if not actual decline) in the real standard'. He sums up “the current global inflation is more than an ecOn Omic di SeaSe that can be cured by the clever use of monetary and fiscal policy. The problem is misunderstood when it is viewed simply as a malady of the economic system'.
Spokesmen for the Western market ec0n OmniCS and the Westerni based media have Succeeded in placing the entire blame for the inflationary crisis on the OPEC price hikes, though OPEC spokesmen argue that this is not so (Sea pages 32 and 33) as the upswing in global inflation was well under way in 1978 without any oil price movement.S. The Cau. Ses Of the Current wave of inflation are far more deeprooted than only the actions of OPEC Or OECD. Just as there is no simple cause of inflation, there is not likely to be a simple cure. InflatiOr is not So much a di SeaSe aS it is a symptom of the growing imbalances in the world economy.
ECONOMIC REVIEw, JUNE 1980
RESOU
Fisherie
POSSibilities crease in World plies have a discovery in th Norwegian rese: searches by thi ered a potentia of fish in the , COLld in CreaSe V by 10-25 per c
The tiny
from the deepe known Scientifi phid' and popu. terin fish”, has b of the three in resources' (the
and Squid), and the Oceans of th
With the Sional catcheS b fishing industry the 'lantern fish recently. Wast the species have the Arabian Se: research ship II as part of the eries Program involves 30 cou ported by the velopment Prog the Food and A tion Of the U.N
A two-year tion by that shi proved very suc at the annual erning Council proposed a $1.5 help make the available to dev other fishing re
During the ies have und change' accordil istrator, Bradfor mended that th cil approve the
“A C0Hn Sein SuS the Third Unit ence On the La CLOS) that, CO exercise greater living resources shores', said M. tries have now mille EXclusive (EEZ's) in place jurisdictions tha: decade ago.”

RCES
s Resources-Signs of Hope
for a substantial inmarine protein Suppeared through a e Arabian Sea by a rch yeSSel. – The revessel have uncovof 100 million tons Arabian Sea, which forld supplies of fish ent a year.
phosphorescent fish st layers of the Sea, cally as a "myctoarly called the "lan2en described aS “One lajor latent marine Other two being krill it is found in all le WOrld.
exception of occay the South African , the potential of h' was ignored until cOncentrations Of now been found in a by the Norwegian Dr. Fridtjof Nansen, Indian Ocean Fishe. That programme intries and is SupUnited Nations Deamme (UNDP) and griculture Organiza
(FAO).
exploratory expedip in the region has cessful. The UNDP, meeting of its Govfrom June 2-13 million project to Dr. Fridtjof Nansen eloping countries in gions.
1970's, world fisherergone a “radical ng to UNDP Admini Morse, who recome Governing Counproject.
has emerged from di Nation.S ConferW Of the Sea (UNStal States should control over the lying off their ). Se. Many counestablished 200Economic Zones Of the 6-to 12-mile t were common a
"As a result oi this many developing countries have new opportunities for utilizing the fishery reSources within their coastal waters.'
The classic method of assessing fishing potential, which uses data, based on the activities and catches of commercial fishing ships is generally insufficient to uncover Such opportunities. What is needed are ac Olustic Survey S. These determine the kind and quantity of fish with commercial potential, as well as their distribution and migration. But such technologies are not available to all developing countries.
In five tours of the Arabian Sea, from Pakistan to Somalia during 1975 and 1976, the Dr. Fridtjof NanSen employed the most Sophisticated a coustic technologieS. AS a reSult, it found important concentrations' of both Small "pelagic' (openSea) fish, Such as Sardinella, horsemackerel and anchovies, and also “demersal' (bottom-dwelling) fish, including ponyfish, treadfin bream, catfish, hairfish, croaker and grunt.
Both groups of fish are already being tapped commercially in the region to a certain extent. But research surveys show that the four major countries concerned — Pakistan, Somalia, Oman and the People’s Democratic Republic of Yemen - could gain millions of dollars in income from these resources each year. The potential annual production could be several hundred thousand tons, the surveys found. (The annual global fish catch hovers around the 70-million-ton mark).
Theoretically, the lantern fish can be processed like Sardines. However, reports based on the 197576 exploratory cruises indicate that fish meal (for animal food) and Oil are the most profitable immediate uses of both pesopelagic fish of the Arabian Sea.
The Norwegian Agency for Development (NORAD) has agreed to make the Dr. Fridtjof Nansen available for an additional 18 months to expand the Arabian Sea project and include other fishing regions such as the South Western Indian Ocean, the South China Sea, the West Coast of Africa, the Mediterranean and the Black Sea.
17

Page 20
AGRICULTURE
Paddy Production, Pricing and Self-Sufficienc
The consumption of flour in Sri Lanka registered a marked diecline of 37 per cent during the first guarter of 1980 when compared with that of the corresponding period of 1979; although consumption in the 1979 period was 14. per cent higher than the corresponding figure of the first quarter
1978 ܓܡ This dovinvard trend in flour consumption during the last few years (see table 1) is attributed to the comparative advantages of cone sunning rice rather than flour, created largely through upward revisions in the price of flour and a stabilizing of the price of rice. This trend, however, has created a new situation for the country's rice stocks as a fair proportion of the shift in consumption from flour has been towards rice.
TABLE CONSUMPTION OF FILOUR, Year Quantity
(Long tons) 466,506 496,014 566,998 443,597 1979 569,381 1980 January ... 28.167 February - 35,314 March 21,913 - جیصص۔ ig80 (1st quarter) 33,334 1979 (1st quarter) 135,534 1978 (list quarter) 118,786 Source: F'ood Commissioner's Department
But, however favourable rice production trends in Sri Lanka may have been they were not able to cope with these additional demands. (see table 2). At the same time the production of local Substitutes, such as other field crops, have not faired impressively. Thus, the quantity of rice imported during 1979 increased by 22.3 pe' cent, Over that of 1978. This tread has posed a series of questions regarding the attainment of projected rice production targets and feasibility of achieving self-sufficiency in rice in the near future; and also of passing the benefits of the iong established consumer subsidy to the local producer.
Census Department estinates revealed a record paddy harvest of 91.9 million bushells in 1979 or an increase of 1.4 per cent over that of the previous year.
i8
1975 1976 1977 1978
Furthermore,
production trends fr eei favorā, ble : the optimism on W jections of each si afficiency jew fel O. tuses per year Tಳ್ಯ? J123 jGr ate ses of action are
achiewing these targ intensification of it duction process Or t igaîìgi area in die C policies of the gov icate a combination scourses. An estinat area of 120,000 acres come under paddy 1981, resulting from 3rogramme to regula major and minor
mes throughout the theless, the recent Fic: tredis influen (2 ing inflationary Situ the possibilities of C ands, which woul Sts Of SC3Ce reSOl as therefore arise.
la. Se Out Of trader Coll:1vati6}}
cropping efficiency a A higher emphasis placed on the use sources for 'quick-re rather than project iation and atu 9, Ould be rational first, alternative of t}i paddy cultivati ands and attaining 3.32 additional 9 b. í 32 bushels per ac the requirement for This alternative wo unusually optimistic only needs a bette ganized use of va (iii putS) going into
TASELE 2 F.
Quantit
{{0}ns
975 455,2) 976 379,7t 1977 523,86 1978 602,94 7 459.4摄
1980 (ist zusrter) 149,4
* Lipto Nov. 15, 19' ** from Nov. 16,

圈
y
96 nāve and reinforces fhich the proing the Self f - 29 milliO
vāvere based native {20፲፱፫–
available in ets, that is, the he entire prohe extension Of tivation. The 7ernment indiof both these ed additional s is expected to cultivation by
the nassive te water under irrigation schecountry. Neveroverall econoed by a grOWation, restricted pening up new d require large Lurces. The need
to get maxie existing land by increasing nd productivity. is now being of available re2turn' projects, s Of l0ng geSrity. Hence it to select the intensification On on available g the target of
shels per acre -
cre) which is self sufficiency. puld not appear or illogical, as it and more Or. riOUS reSource:S paddy cultiva
tion. But possibilities of attaining self-sufficiency through these measures may be greatly affected by some of the recent unfavourable Socio-economic developments in the rural sector of Sri Lanka. The most important of these developments is the rapid rise in prices if basic inputs; (chemicals and labour) resulting in an increase in the overall cost of production. The end result is that profit margins have been trimmed down for the farmer. A further significant development arising from this situation is that it is more profitable for small farmers to offer their ghpoulo in various forms ratheroo than engage themselves in their 3 win cultivations,
TABLE 3 Average cost of paddy production per acre plots in
"Grane.gamma Maha Season
1978/79 (Mahaveli H Area)
!, Land Preparation ERS. Cleaning 80.00 Ploughing 400.00 Others 5.80 2. SOwing 且33.40 3. Transplanting 83.90 4. Fertilizing and
Weeding 39.90 5. Harvesting and
Transportation 446.80 Total 1,289.80
Source: People's Baric Research Department Survey.
The comparative cost of production of Selected districts (namely: Polonnaruwa, Kandy, Kurunegala, Colombo and Hambantota) had recorded an average increase of 139.9 per cent over the seven year period starting from 1972. A study conducted by the Research Department of the People's Bank has revealed that the cost of production of paddy in certain areas has almost reached the potential income level derived from paddy cultivation leaving no surplus for
LOUR AND RICE IMPORTITS ANO LOCAL
PADDY PERGOUCTION
Rice Imports
Four Imports local Paddy Predaction
Value per euantity Value per || Million Per 3 tashe : ) tOla Rs. (tions) tOn RS. Bushes | Rs.
8 2,296 452067 2,167 55{} 33 50 2,056 418,349 1,730 60.7 33* Sl 1,698 534,006 1,770 80.4 40.3% 皇7 3,460 158,856 3,828 90.6 40 35 3,591 208.464. 4,239 9.9 40 36 孪649 58,41ళ్లీ 4425 N.A. N.A.
77, Source: Food Commissioneros Departimemt 1977
ECONOMIC REVIEW, JUNE 1980

Page 21
the farmer. This is particularly true in those areas where large amortants of labOuir are required foi: transplanting. In such cases this abO1 haS gOne up to 2:S much a S 27 per cent of the total cost of production. (Matale, Galewela and Nalanda areas are good examples). Even in the Mahaveli H area where the average cost of production per
acre in 1978/79 was Rs. 1,289.80 (see table 3), there was a small
return accruing to the farmer but this was not sufficient in most (cases. In the latter part of 1979 and early 1980 with the increasing costs of fuel and other inputs this small profit would be hardly sufficient to meet the daily require ments of these farmers. One possible way out of this situation for the farmer would be a reduction in the cost of certain inputs like fertilizer, chemicals and mechanical ploughing. (Farmers are already receiving a 70 per cent subsidy On fertilizer). Even if these costs were owered there are certain other costs which cannot possibly be lowered in this anner. It appears therefore that the upward revision fof the price of rice purchased under Guarante e di Price Scheme haS become inevitable in order to preWeat a critical situation arising in the paddy farming section of Sri Lanka; though the inflationary sittation that could result from such a step would have to be closely considered.
A further point in support of this proposal is that upWard revisions have been nade since January 1980 in the floor prices of some of the grains coming under the field crops category. At present 10 subsidiary food crops have been brought under this new scheme. Although these floor prices are intended to be used as a hedge against the reduction of the prices of these crops, it is ironic that in the case of the G.P.S. for paddy it works as a hedge against the farmers getting a better price for their major income earner. In the latter instance the G.P.S. for paddy virtu
ally acts as the maximum price for
paddy in the open market too.
Secondly, as stated earlier, the import bill for rice seemed to be increasing both due to an increasing volume of imports as well as rising prices. The price paid for imported rice in the first quarter Of 1980, When converted On a crude basis, showed that the equivalent of a bushel of imported rice cost approximately Rs. 89.10. This
ECONOMIC REVIEw, JUNE 1980
SCIENC
UN CSTATED AF
Íi Átgl!st ựenue of the lá Conferences thé the past decade onfereiide On nology for De TD). The Confe by an array Of ingS ad atten delegates and ting 142 states, tion novernents ration Organisa Natiothal COIìgTe: and the Patri O babye) and E'ep niimber of Regi UN bodies, speci professional or governmentai bí the overall co, ence was repŪrt 1ilion. All thi; portance attacho by the Organisei is a growing SC quarters about t these large COnl TÜNCSS','D) vrgas, ing', tudies. The pa Scientific COnnrit minimal, so all éifigists to involv tail bodies. CO sponsored by thi COIne a permane panying these C UNİCS"'TD counte of the organise artid even UN put that “the NGO to have achieved exchange Of vie than did the C Apart from th shortcomings th block during the the diametrically of the develope countries, in n. nakes it difficul
disparity betwee: local costs of ri to the view tha. wards subsidizin the expense of
t“. In Other W Guaranteed Pri( bushel of paddy venting the pea getting a nuch which should market mechani

s AND SOCIETY
蚤。A鳕震
}79 Vienna vivas tf2 e st of eight Special
UN This Was the UN Science and Techelopment (UNCS"ence was preceded preparatory meeted by nearly 2,000 boServers represen3 national libera(Palestinian LibeiυΥι, the African
ss of South Africa ܓܸܠ
id: "If Ont Of Žilini.esetailives of 3. onal Commissioils, alised internatiOma ganisations, interdies and N.G.O.s, it of this confer2d to be over $ 50 reflects the ind to these sessions S. However, there :epticism in many he effectiveriess of ferences and the È free Of Such attirticipation of the tinity was saidi to be ŠQ tine Organiser:S e ini) El gOvernmenLater conferences a N.G.O.s have bent feature acconn3nferences. At the r Conference One 's was Ivan Illich blications reported effort could clain more, at least in ws and addresses, pinference proper'. Se organisational main Stumbling conference was opposite interests and developing
staged over
fairs of
Solution to the key issues and the JEinefits Ori Willich the Third World countries depend.
In preparation for the Conference the following four items constituted the agenda: 1. Science and tecnology for development, 2. Institutional arrangements and new international co-operatioi in the application of Science and technology, 3. Utilization of tiie existing UN System and other international organisations, 4. Sci&nce and technology and the future, F3ut the Action programme which came out . Of the conference called the “Vienna Programme of Action on Science and Technology for Deweiopment' was detailed under a slightly different set of headings, which probably reflected the issues that were brought up and discussed in the course of the conference, Ihe Vienna. Programme of Action consists of 3 sections: Section Istrengthening the science and technology capacities of the developing countries; Section II-Restructuring the existing pattern of iraternationali scientific and technical relations; and Section III - strengthening the role of the United Nations system in the field of science and technology and the provision of increased financial reS{}{3 :"CoS.
The Sections I and II were Ore or less included in the preparatory agerida. Section III : which talks of changing the existing relations is an item that reflects the existing unequal relationships in the world with regard to science and technology.
The existing global inequalities in Science and technology development between countries also reflects the unequal level of economic development among them.
ajor areas, which They characterize the prevailing to settle on a global structural relationships. It
imported andi Thirdly, the adverse effects of
e have given rise there is bias tothe con Sumer at he paddy cultiva'ds, the present of Rs. 40/ per ppears to be preint farinner fr0m deserved price decided by the .
inflation are felt as much by the peasant paddy farmers as the salaried earners in the Urban and eState sectors. However, steps taken So far to meet this situation seem to be inadegulate. The fact that little or no agitation for better pri(es for their produce has come from the farmers does not mean that they are less affected by the growing inflation.
19

Page 22
UNCSTD - a further meeting
A regional meeting of experts from Solith and Centra held in Colombo from 6-9, May 1980. This was a follow u CSTD recommendation on the need to develop national programmes and projects in science and technology. The mai: the meeting was to explore possibilities for regional co-ope ence and technology and to identify projects that could be be financed by the UNCSTD Interim Fund.
The meeting was attended by experts from seven coul nistan, Bangladesh, India, Iran, Nepal, Pakistan and Sri ]] vers and representatives from regional UN bodies and from lised UN agencies also attended. The country papers pres: meeting reflected the priorities of the different countries. T paper for example outlined four possible areas of coopera
(1) Providing improved and appropriate training cour universities, technical colleges and other training institutes thening the research and development capabilities of scie tes; (3) Transfer and development of technology; and (4 exchange. Specific projects were suggested under each of t.
On the other hand the country paper from Banglad elements of an overall science policy within which their sp were to be carried. The overall policy stated the governm to bring about a technological revolution in the country second five year plan which starts from July, 1980. This phasised "The main strategy of the programme will be pe the people for a break through in the technological revolutio) lieved that such a revolution has primarily to come from til
is no surprise therefore that in almost every international conference, whether it be in relation to trade, information or Science and
函
domestic technologi objectives of Such in be such that trans rations and Other
technology development, the deve- (1) DO not im loping countries have emphasised botte to th the need for changes in the exist- technology ing structural relationships. At the country. UNCSTD conference too, this key (2) Encourage question resulted in an entire new carry out section being added to the Action developmen Programme. But it is precisely countries a when it comes to the problem of this proces structures and the attempts to and technic alter them that we find the posi- (3) Give priori tions of developing and developed lOcal raw countries most far apart. mediate p.
logy and UNCSTD achieved very little (4) Organise On these basic issues. As reported ing progr in an UN publication “UNCSTID COuntries never really got away from being ( 5) Make avai a mini North-South Confrontation, propriate which ended in a rout of the informatio South'. Consider for example 3. the results proposal in the draft of the Action and devel Programme under the item “Mea- undertake sures and mechanisms for streng- sountries thening the scientific and technological capacities of developing (f) Undertake countries'. This proposal on the Schemes, mechanisms for transfer, acquisi- ventures, tion and assessment of technology countries, called for a “machinery to effect- research tively monitor, screen and evaluate ment in Stj
imported technology, including that of transnational corporations with a view to ensuring maximization of
20
This specific pr nection to the exi the Third World

Asia was 3 of the UNand regional objective of *ation in scifor Warded to
tries: Afghaanka. ObSerother specianted at the ne Sri Lanka, tion:
Ses in the ; (2) Strengntific institu) Information nese headings.
esh contained ecific projects Lent's decision during the statement en|rticipation of a, for it is behe people'.
cal inputs”. The nachinery should Snational corpo
enterprises: pede but contrie diffusion of Within the
subsidiaries to research and t in developing ind associate in S local science logy personnel. ty to the use of materials, inter'oducts, technoerSonnel. echnical amnes in concerned. able to the apnational entities pertaining to of their research pment activities in developing
trainthe
co-operative including joint with developing 2nterprises and and develOOuti OinS.
pOSal has a conting situation in ountries. While
there is much talk about appropriate and intermediate technology, the transfer of technology into the Third World countries through foreign investments is taking place very rapidly. Infact one could say that this will be the major channel of technology introduction into the Third World for many more years to come. This proposal attempts to deal with the situation for the benefit of the Third World countries. But in the final report the original prOposal was converted to a very general statement, which in reality means little, due to the objections of developed countries on various groundS.
Funding is the other area, where agreement is hard to reach at these conferences, although a transfer of financial resources from developed countries to developing is regarded by the latter as the cornerstone of any agreement for development.
The UNCSTD agreed to form an Intergovernmental Committee Oin Science and Technology for Development and this committee will seek to formulate major policies for the various UN organisations active in the field of science and technology. Specifically, it, Will establish guidelines for the fund Or - to use the Official term – “financing mechanisms”. However, until these mechanisms are set up on a permanent basis, an Interim Fund of $ 250 million, administered by the United Nations Development Program (UNDP), will be created for 1980 and 1981.
What was in fact achieved at Wienna by Way of funding was an Interim Fund amounting to only $ 250 million through voluntary contributions. But the developing countries had been hoping for far more by way of financial commitments. Truly a "diet of crumbs' was how one report described it, as this sum seemed ridiculously Small, compared with annual world expenditures of about $ 150 billion on Research and Development, (98% of which is spent in the developed countries) and the initial requests from the developing countries for $ 2,000 million in 1985 and $ 4,000 million in 1990.
Furthermore, the Group of 77 asked that these sums be collected “automatically' by taxing the Surpluses amassed by industrialized countries through trade with developing nations. However, the developed countries rejected outright, the principle of automatic contributions.
ECONOMIC REVIEw, JUNIE 1980

Page 23
COCONUT Heavy fall in kernel products exports
The exports of Sri Lanka's coconut (kernel) products registered a marked drop in both volume and prices up to the end of April this year. Exports of coconut-kernel products during the first 4 months of this year dropped in volume by nearly 50 percent when compared with that of the sane period in 1979. During the 1979 period too a drop was registered over that of the same period of the previous year - the volume of coconut-kernel product exports (in million nut equivalents) during the January-April perica being: 1978-139 million; 1979 - 120 million; and 1980 - 63 million.
The value of kernel-products exports has also registered a considerable (RS. 90 million) drop in the 1980 period from Rs. 279 million in January–April 1979 to R.S. 189 million in January-April 1980 (see table belloW).
A significant trend in the export pattern of coconut products is the shift from kernel-products towards other by-products, particularly fibre products (see table below). Kernel-products which accounted for 68 percent of the value of exports in the 1979 period, accounted for less than 50 percent of the total exports during the 1980 period. All by-products, (which include fibre, shell and ekels) on the other hand, had accounted for only 32 percent of the total value of exports in the 1979 period. In 1980 these accounted for just over 50 percent of the value of total exports, and now exceed the value of kerne exports,
The sharp drop in kernel-products exports this year is the result of a 64 percent drop in the volume of coconut-oil and a 41 percent drop in the volume of D.C. exported. Value-wise too, the fall in exports for both these kernel-products amounted to about 32 percent. International prices, particularly for D.C. were much higher than during the same period in 1979; (US$, 575 per metric ton in April 1980 against US $ 1,491 in 1979).
EconoMIC REVIEw, JUNE 1980
The short-fa duction was the the fall in the ex ducts. Low produ reason for the Of kernel produc D.C. and coconut airy-April period 1980 Were a S foll
(Production i
1979 1980
The exports however, seemed pense Of the drop exports. Fibre pr COunted for ab Ou total value of a January–April 19 tributed to 37 pe value of all expo) ducts while there
EXPORTS
Coconut oil Copra Fresh Nuts
Sub-Total
Kernel Products e
6. Mattress Fibre 7. Bristle fibre 8. Twisted fibre .. 9. Coir Yarn 0. Coir Twine
11. Sub Total Fibre
12. Coconut Shell C 13. Coconut Shell F 14. Coconut Shells
15. Coconut Shell
Activated Carbo
16. Sub-Total Shell
17. Coconut Ekels 18. Other By-produ
i9. Sub-Total NonKernel Product
20. Total Value of
 
 
 

l in crop and pro
main rea Son for }orts of kernel protion was the main all in the exports tS. Production of -Oil for the Janu -
during 1979 and
OWS :
in metric tons)
Soconut D.C.
Oil
24,354. 10,672
14,160 6,752
of fibre products, to gain at the ex
in kernel products oducts which a Ct 22 percent of the all exports in the 79 period now con3rcent of the total rts of coconut prowas an almost 60
percent increase in the value of fibre products exported in the 1980 period when compared to the same period in 1979,
The attractive international prices for coir fibre helped considerably in boosting export earnings - mattress fibre FAQ (U.K.) had gone up from US$ 175 to US $245 per metric tonne. Major increases in earnings have been recorded for mattress fibre in bales, twisted fibre and coir fibre.
Coconut shell products exports, on the other hand, registered a fall in volume and an increase in earnings. Value of exports was up by 15 percent, mainly due to an 84 percent increase in earnings (and 34 percent increase in volume) from activated carbon. Volume-wise exports of all other coconut shell products registered a fall (see table belloW).
The Overall drop in coconut production also resulted in a tighter local market situation. The transacted price for D.C. had gone up from RS. 6.50 per kilogramme in April 1979 to Rs. 9.00 per kilogramme by April 1980; while the average wholesale price per 1000 nuts which was Rs. 850 in April 1979 had gone upto Rs. 1,145 in April 1980, according to the Coconut Development Authority's Marketing Division.
OF COCONUT PRODUCTS-JANUARY-APRIL 1979/80
Volutnie (imetric tots)
Value (Rs... 000)
1979 1980 Perce 1979 1980 PerCér፤፤
Change Change
4,300 1,538 -64.2 67,883 22,219 = - 672
12,529 7,409 -40.9 211,106 166,821 .2- است} }
- - - 119.60 62.69 -47.6 278,789 189,040 -32.2
(Mn., nut (Mn., nut quivalent) equivalent)
16,954 18,895 - 11.5 35,068 65,932 十88.0
3,698 3,894 -- 5.3 23,697 24,343 +2.7 8,687 11,748 +35.24 23,890 45,603 十88.6
950 407 -57.2 6,680 3,369 49.6 ہے۔
35 216 - 517.1 280 2,500 -- 792.9
products 30,324 35,159 -- 15.9 89,615 141,747 --58.2 harcoal 13,669 11,770 -139 31.357 34,791 - 1.0 lour 326 50 -84.6 194 129 -73.6 365 335 -8.2 300 392 手30.拿
240 32量,十33.8 2,488 4,583 十84.2 Products 14,600 12,476 39,901 34,639 14.8ـسـ 十15.2 1,603 2,200 37.2 3,109 3,753 -- 20.7
cts - ബ - 3,187 5,499 -- 72.5
m -- 190,900 130,550 ܝܝܝܝ 十46.2 All products - ബ 409,339 379,940 7.2س۔
21.

Page 24
FEATURES
Welimada's Vegetable Cultiv Reap Dwindling Returns
L'io nei Si rivarden e
That the middle man exploits the small producer in several sectors of the economy, is very much a truism. He wardena, Research Officer of the People's Bank, provides St
wers why this happens to the Welimada vegetable
farme
that a better "organised' and 'motivated marketing system mitigate many of their ills of the existing system.
Agricultural marketing is all area of critical significance in the management of our marketing System. Most of the ills of this system can be attributed to the faulty marketing of the rural farmer's produce. Seasonal surpluses and consequent slumps in prices at the time of harwest, Scarcity during the lean period which tends to strengthen the harmful trade monopoly of the middlemen and a resultant rise
in consumer prices, the ultinate exploitation Of producers as well as consumers - all
these ills arise out of lack of an "organised' system of marketing. This is a crucial issue, especially in the case of vegetable marketing in the country and more so for that of upcountry grown vegetables. If only there could be an assured System of “organised marketing', the periods of scarcity and glut could be curbed and wide fluctuations in prices minimised. Several Surveys have revealed that on an average nearly 10 per cent of the monthly household food expenditure of our people is spent on vegetables. Thus, any fluctuations in the price of vegetables would naturally be felt in the living costs of the average COinSunner. On the other hand. a. very significant proportion of the farming population of the country is dependent on vegetable cultivation and, the fluctuations in prices naturally render un Stable the incomes of these producers.
Middlemen are found to be exploiting both consumers and producers, absorbing a large proportion of the price paid by consumers and at the same time depriving producers of a major share of the returns due to them. If the wide disparity between the producer prices and
22
consumer prices c then there WOuld b tation of producer merS. Effective O} ing could provide : cipal incentive for table production promoting distribut Vegetable m: provides a graphic disparities, disloca centives cau Sed by Organised marketir experience of veget the country shows twenty-five years ceeded in evolvir effective marketing The prices of veg period have show increasing trend W. un precedented rise five years (partic or “up-country” ve rots, leeks, beans : the benefits to th remained meagre. medy the situation ime to time from which has promot ti OinS to interven e System. Such inst the Marketing Coop. Marketing F fed), the Cooperat the Producer Un obiective in establi tutions has been sonable price to t. a fair price to effectiveness of th these institutions the fact that, as o On vegetable mark “the producer has to obtain a fair pri while the urban always been called prices'. It is a

ctors
this country, in ere Lionel SiriOme of the ansr and Suggests a can help to
Ould be reduced be neither exploi"S nOr Of COn Suganised marketat Once the prin" increa Sed vegeand a means Of
ory justice. arketing, as it is, ; example of the tions and di Sin7 the absence of ng Systems. Past able marketing in that for the last We have in Ot Sucng a system of g of vegetables. etable S Over this in a continuously ith a Sudden and during the last ularly the exotic getables like carand beetroot) but le producer have Attempts to re| have come from the Government, ed many instituin the existing Situtions included Department, the "ederation (Marklive Societies and ions. The major shing these insti"to assure a reahe producers and consumers'. The e intervention Of is best judged by Ile 1eSearch Study eting Summed up, never been able ce for his produce consumer has upon to pay high parent that all
these institutions need to be 'effectively linked up with the field level Organisation of farmers. The enphasis here in on effectively' which means that the interests of the farmers need to be placed above those of all others. This does not happen now as We shall see. The end result is that the vegetable farmer (of Welimada) has never been able to better his lot; the prevailing market System has provided him no incentive for an improvement of the existing practices and relationships. An objective of successive governments and development plans has been to develop vegetable production and expand acreage under vegetable cultivation. But studies have revealed that the acreage and production of vegetables have not, increased significantly over the years; a major reason being the inability of farmers to get their fair share of the retail price and the resultant lack of incentive. The description that follows from a study Of vegetable marketing in the Welimada area highlights clearly the lack Of alternatives the Wellinnada, farmer has to put up with in the absence of a marketing system that will give him a fair return for his produce.
In respect of vegetable marketing ino institution has yet been able to compete effectively with the priwate sector. Marketing, referred to here, is not merely the collection and redistribution of vegetables, it also involves packing, weighing, transport, grading and sorting, pricing, financing, retailing and many Other minor functionS. At all these levels private sources are estimated to handle nearly 80 per cent of vegetable marketing functions in Sri Lanka. Why the private sector is able to retain so large a segment of the market is simply because farmers regard this sector as the most efficient, Outlet available. This Sector On the Other and does in Ot fail to take maximum advantage of their situation.
MARKETING SYSTEM
The vegetables that move Out of the principal growing areas find their Way to the major consuming areas located in the cities and Suburban areas of the country. The marketing System or channels through which vegetables move in Sri Lanka are broadly categorised under three groupings: the private (traditi Onal) marketing System;
ECONOMIC REVIEw, June 1980

Page 25
Government or Marketing Department; and Cooperatives. These groups in turn operate at three broad levels in the marketing chain: primary or farm; wholesale; and retail. Each of these groups, however, operate through different links of the marketing chain, depending on the location in which they operate.
It was observed that in the Wellinnada area, there were three principal methods of marketing vegetables at the primary or farm level namely, through (1) Commission Agents and traders; (2) Cooperative Societies and (3) the Marketing Department, whose influence is negligible. Almost the entire trade goes from the farmers through the commission agents and their collectors.
COLLECTION OF VEGETABLES
The geographical situation of Wellinnada area and the distribution of villages have a great influence on the collection system of vegetables. For instance, though it is easy to collect vegetables in a village like Palugama, bordering the Welima da. -- Nuwara, Eliya, public highway, the collection of vegetables in areas like Karagahaulpata,
proved difficult motorable roads rain. When fa access to transp ways they are m Select the most p channel of their merS, hOWever, enough to have and are therefol particular market ther they are pro Weila d3 farm el burden in additic COmn. On an Ong I tivators such as in prices, shorta creasingly higher availability of in time, and low pro increasing cost Of Other hand, the mada, has only he the existing ma even though it h; best advantage o
It is import examine the effi and dira Wbacks of rating from the t was evident that though public Org the Marketing De
Dikkapitiya,
and BOralande
has operatives were s
Transport of Vegetables
Marketing Dept. *س===nuم Wholesale and Re- ಕ್ಲಿಕ್ಗಿ سسسس- Colomb o W tail Stalls-Color:bg སྔོ་ e
*** مه ***"
事幸* مه ه ء * * *
Transport System
Ffransport Marketing Dept. .
7^ մs 哈
, 跨
r Commiss
. * * 襄
- . 管 家 LMSMSSLLLeSeSMSMSqekSTT . . . . Marketing Dept. * Local trans
... Co-operatives
- - Private Sector '. 胸
- .
village level assembly points
[ ] [ 3 ] U DI ] [ ] |
W I.
ECONOMIC REVIEW, JUNIE 1980
 
 

ue to the lack of and the hilly termers have easy Drt through highbre independent to rofitable marketing choice. These farare not fortunate ccess to transport e dependent. On ing channels whefitable or not. The has to face this in to the problems host vegetable culSeasonal variations ge of labour, inprices and nOnDuits at the correct lucer prices despite production. On the Situati On at Welilped to strengthen rketing channels, as not been to the f the farmer.
ant therefore to 2iency, advantages
the channels opeOttom upwards. It in Welima da area 'anisations such as partment and Coet up to minimise
the adverse impact of the private trader and middle-man, for both producers and consumers, they have not had the desired impact. Cultivators are very much bound by both the private commission agents and traders and if any concessions or facilities are granted to the farmers in these areas, they get it from the private trader. Thus more than 80 per cent of the vegetables in the Welimada area are still being collected by private traders and their agents and, the entire marketing System is under their control.
As stated earlier the principal method of marketing vegetables, for the producer, in the Welimada area are through (i) Commission Agents and traders, (2) The Cooperative Societies, (3) The Marketing Department. It is the private trade, however, which dominates; the organisational structure of this sector has better links down to the level of farmers than those of the other tWO channels. The diagram below illustrates this. It was found that about 20-30 commission agents transport vegetables within the area in 40-50 lorries that are in good condition. These agents of the transport agents have links with every village. In
- Producer to Wholesaler
"egetable wholesale Market <ஊ  ைஊ  ைக ம ன் அ அ டி
- t
- Transport Systema Systeri of the Corrission Agents of the
Co-operatives
-
ion Agents of Welimada
; g VA f 赛 port System of the Commission Willa -
Agents age Level | stalis
محیے۔ " ܐ ܘܐ ܝ ملتے حصے "// ك مع ص صر '*ه میلی ܐܐ ܒ݁ܗܳܝ * صے “۔ پا
拿学、 * یه 亨 ざて ތހީ - ܘ" مي صح= . . . . * * .`` " حتی - -
算文*** 。 كمر
°*
R
* se
• محصے ہی ق*
* *
" * - . . . ۶ی
- ** چھ طه<
gé level as sembly points
Village level assembly points
J D DD DJ D. OOD DO
D. O. D. O. D J
O D D
I. A. G 防
S
23

Page 26
yiiiages difficult of access by vehicles, they collect the vegetables with the help of carts, tractors and smaler lorries and transport them Out tof the village in bigger lorries. Though the Urdapalata, Co-operative Societỹ mainatailis 22 collecting Centres they still collect a quantity relatively less than three lorry loads. Even the Uva Paranagama Co-operative Society has four collecting centres but only a very small quantity of vegetables is collected. Details are seen in the table below,
ready for collectic of some shortcom are not, ready fO time the lorry arri Sometimes the W. sold to the priva evening but are o'clock at night
co-operative lorrie higher prices. Society collects ve to in Storul Citi OinS frO On a special route vator has to bring
Vegetable Transport in Welimada Area - Number of Lo
Commission Ageints Co-operatives Marketing Department
{22) (O3)
Big lorries Sinati
40-50 3010-5 6
2-3
MARKETING SYSTEMS
-- PRWYATE RAIDERS
ANO INSTITUTIONS
Traders in lorries and tractors, having links with commission agents or wholesale traders, come to the verge of village lands where vegetables are cultivated. All that the cultivator has to do is to bring his vegetables up to the road close to is vegetable far. Even if on certai OccasionS vehicles fail to arrive at the appointed time because of a vehicle break down, or because a, sufficient quantity of vegetables has already been collected, they will Come even at midnight to take away the vegetables. Furthermore, while 2 very effort is made to collect all the vegetables as promised, if an adequate number of labourers are not available the trader himself will take up the bags of vegetables on to his shoulder and help load thern into the lorry. If room is not availa ble in his lorry for all the farmer's vegetables he makes arrange
ments to transport the balance in
another lorry. It is for reasons such as this that the cultivator has SO much confidence in the private trader even though prices are not high. In the collection of vegetables by the Udapalatha Co-operative Society, which manages 22 vegetable collecting centres, though there is an assurance about prices, the risk has become greater. According to the views expressed by certain cultiwators, they are given prior inforfrnation of the time of arrival of the Co-Operative lorries. Before the appointed time the cultivators are &xpected to have tileir vegetables
24
to that special ri trader or collecto
to the proximity
CLOSE
The Close rela the vegetable COInniSSiOn a in detail in study entitled encing Veget; Study of the Iny in Sri La by P. J. God Athula Char. ARTI in 19” from their re. 117), when th situation of tors in the B
'The co iend noney clients in Vidi gaS village in Vation purpos needs of the The amount particular far pends on the Of vegetables Send to a pá SiOn agent. agents do no mal interest they may h; hidden intere ceeds Of Sale Cing and und produce. The Of loals gra miSSiOn, agen Sometimes ex 500 / - per Sea lar cOIlmiSSi OVer a milliO

OI. If On account ing the vegetables collection at the ves, it: drives away. egetables are not te traders in the kept till 10 or 11 in expectation of is and the hope of The Co-operative getables according Iırın it,S Hea.d Office, e Only. The culti; his vegetables on
fries and Tractors
i C) î° foi es T’rdictor:S 10-15 0لمبے -8 5-10
Oute. The private
r h9wever, comes of the vegetable
TRADER PRODUCER REALATIONSHIP
ationship between
farmer and the gent is dealt with a very thorough 'Factors Influable Prices - A Vegetable EconoInka”, carried out
Dne Wardena, a di dira:Siri Off the 78f 79. To quote
port (Pages 116.ey dealt With the yegetable cultivaadula, district.
mmission agents to their farmerrupola and BOraot Only for cultiSes blit fOr Other farmers as Well. of loans that a mer could get deexpected volume that he could articulair COIniniiSThe conmission t in SiSt On a forrate. However, ave recovered a est from the proby under invoiiller-weighing the average amount hted by the comts to the farmers tends upto RS. SCn. One particuion agent lends 1 rupees per year
s
farn and takes away the vegetables. Hence the cultivator tries to sell his vegetables to the private trader even at a lower rate. Furthermore, in the matter of collecting vegetables, the Co-operative Society has no need to cultivate any link with the farmer. Co-operative officials work for a salary. If the private trader, while collecting vegetables, acts in Such a manner as to foreit the confldence of the farmer, such conduct. will result in paralysing his business. Basically the private trader always tries to conduct affairs to the satisfaction of the farmer, through the provisions of various economic services and also social relationships. (See Box below on Trader-Producer Relations'). One result is that the farmer is obliged to take whatever price he gets and not even ask questions about the traders malpractices such as underweighing.
for the cultivators at Vidurupola”,
'...... Besides providing credit, most of the traders and transport agents provide certain other facilities to the cultivators, for example, the transport agents who come to Wellinnada area transport agricultural inputs, building materials and even furniture for the farmers. The majority of the farmers know their commission agents pesonally. The commission agents are invariably invited to the social functions of farmes. On such occasions, the traders strengthen their relationships through gifts, donations etc. It was noticed during the survey that farmers who came to collect the proceeds of Sale Were treated weil in turn by the commission agentS.
Through the relationship such as credit ties, provision of inputs and consumer goods and social relationships, the traders have been able to maintain goodwill among the producers and assure a regullar “clientee'. The result is the establishment of mutual trust between groups so that one group does not bargain with the other. This, however, paves the way for the prevaence of trade abuses Such as underweighing, underinvoicing, etc.”
Economic REVIEw, Ju NE 1980

Page 27
THE CO-OPERATIVE METHOD OF MARKETING COMPARED WITH THAT OF THE PRIVATE TRADER
It is a view expressed by many that since private traders and commission agents act with efficiency in transporting vegetables it has been possible to provide the market in Colombo with vegetables on time; this gives the trader a better price and a fair return to the farmer. Transport agents who come to the Wellmada area, any evening roam in every village and having collected vegetables and duly packed then into lOrries come to Welina da tOW. around 11 p.m. Every lorry having thus come to the town is driven speedily but with apparent care SO as to reach Colombo about 6.30 a.m. It is only with regard to vegetables that are brought to Colombo on time that more satisfactory decisions can be arrived at with regard to prices and Sales. Since this activity is performed as the personal responsibility of every lOrry driver great confidence is created in the trader even if the cultivator does not get a. Satis - factory price. The drivers of the Co-operative lorries, however, do not act with the Same sense of perSonal responsibility for the 1oad of vegetables. They rather perform their service for a salary and in conformity with rules and regulations. For instance, if the collection of vegetables is delayed till 1 or 12 at night, unlike the private trader, the co-operative driver does not feel responsible for the vegetables reaching Colombo by dawn the following day. What appears most necessary is that as an official duty they bring the load of vegetables to Colombo. As a result, sometim3S when this vehicle reaches Colombo the vegetable stocks in the wholesale market in Colombo have been Sold out . The prices too have come down.
The private trader on the other hand, shows a keen desire to restore a vehicle that goes out of commission and then continue his trip. For instance, it was reported from Keppetipola that while vegetables were being transported, the transport agents realised that owing to a collision on the road there would be delay, and they did an extra 25 miles on by-roads to reach Colombo on time. On other occasions private traders whose lorries break down. On the way succeed in obtaining, from a passing lorry, spare parts or other assistance needed and run their lOrries once again within an hour. All
EconoMIC REVIEw, JUNE 1980
losses that occur are borne by th these costs do n him. Also, lorrie Stop and inquire on the road whet and thus they through such co-c But when a co-op down or meets W. Others do not W offer any help that it is not an perty, while the rative vehicles sh to get them repa pOSSible once the getting then repa the driver reaps Further, if his : rules and regulat to face punishme
What has bet lages like Bogah, gahaulipata, Ambe wa, is that many bles in Small quar cepted by a lorry ghing about on But a single farn the ability to pirc rOtS, chillies, or b On account of thi Sprung up in vill vegetables by the them over to the They can be des collectors of veg agents for the C Though a farmer i like Palugama or a minimum of 10tables, the positi farmers who cult capSicum etc. is di
In their study encing vegetable Wardena, and At also comment C which leads to a tion and imperfec ket for vegetable Badulla, di Strict. " well documented fOOWS:
“The majority Vidurulupola send ve mission agents throl Three private lorr, near monopoly in vegetables. There a port Service, (2) . Service and (3) S Service. The last a single enterprise trol Over almost & table transport fro:

on such occasions trade and Often. it matter much to that, follow often from lorries Stalled her they need help, leceive protection peration and unity. 2rative lorry breaks th an accident the llingly venture to )ecause they feel 7one’s private prodrivers of Co-opeOw little eagerness ired as quickly as y break down. By ired without delay no personal gain. |ctions contravene lons he may have nt.
In revealed at Vilakumboura, Kara-. Wela, AmbagaSducultivate vegeta|tities. What is acis bags each wei: hundred-weight. er does not have duce enough careans to fill a bag. S middlemen have ageS who collect pound and hand collecting agents. cribed as private etables who are Omm1SSiOn agentS. in flourishing areas Udugawara sells -15 bags of vegeOn of Small Scale vates carrot beet, fferent.
On factors influrices P. J. Goonehulla Chandrasiri in this situation lack of competiti OinS in the marfarmers in the The Situation is in their report as
)f the producers at 'etables to the comgh transport agents. services enjoy a the transport of e (1) P.M.T. TransB. M. S. Transport H. A. Transport Wo now Operate aS and exercise a conLl aspects of vegethe farrin level to
the wholesale level. These three services have divided the days of the week among themselves so as to restrict the competition with regard to the collection and transport of vegetables.
The outstations' truck-buyers get their quantities of vegetables through brokers who enjoy the benefit of competition among the former. This happens at Boragas village too. The commission agents and truck-buyers sometimes compete with each other for limited quantities of vegetables not through different prices, but through various other ways. At the Welimada fair, there is a competitive situation when vegetables for sale are limited and traders are many. But the competitiveness does not reflect much on price. Hğven this limited advantage is grabbed more by the brokers and other intermediaries'. (Pages 110-11).
"The insulated nature of the producer-level markets also contribute to the emergence of imperfection in village level marketing. This is associated with poor infrastructural facilities which lead to the dominance of a few buyers who could find suitable transport facilities. The producer-level markets are also fairly scattered so that price information does not nroperly flow between the markets. This enables the traders to pay different prices for the same produce offered for sale at different markets even in the same village'. (Page 114).
PRIVATE TRADE CHANNELS
On account of the fact that the private trader transports the farIner's vegetables without any delay, he reaps a surplus profit during periods when high prices prevail in Colombo, by supplying vegetables to meet particular consumer demand. The procedure adopted by these traders for the transport of vegetables is given below, as an illustration.
A SAMPLE
Farmer:- L. M. Dingiri Banda.
Vegetable trader in Colombo: D. N.
AbeySinghe
Number of vegetable market: 234.
When of an evening Dingiri Banda packs his vegetables into bags and hands them over to the transport agent, he marks his name, the name of the trader to whom the vegetables are being sent and the number of the market very clearly on the outside of the bag as shown below. This is described by the farmer as "branding' the name.
234.
D. N. A.
I. M. D. B.
Once these bags of vegetables are handed over to the transport agent
25

Page 28
he ioads them into the lorry in the Order of numbers alloted to the various traders and transports them to Colombo. After the lorries reach Colombo, the Colombo traders take Over the bags in conformity with the directions against “brand names'.
After the sale of these vegetables a letter and a bill are sent to the farmer on the evening of the same day. This bill is often decorated with various illustrations and advice to encourage the farmer. Among the matters stated therein, are the following.
1. Variety of vegetables
2. The number of pounds
3. Amount deducted as lorry hire
4. Amount deducted as wages of
labourers
5. Amount deducted as
and for loss of weight 6. The initials of the farmer 7. Method of payment (cheque, money
Order or cash) 8. Number of bags.
No inspection is made after these vegetables arrive at the Pettah market. After checking the number of bags mentioned in the letter Sent by the farmer and taking delivery of them, the farmer is informed of the wholesale prices and the prices at which vegetables were sold, once the sale is over. As the lists of prices reach the farmer Within a very short time, Bills relating to stocks handed over reach the farmer within two days. The farmers stated that as a result they were able to know the income they should receive and to plan their future activities including those pertaining to production and consumption. When vegetables are Sold to the co-operatives one has sometimes to wait longer than a week to receive the bills relating to the sale of those vegetables. In addition to the delay since the income One receives also remains indecisive, there is indifference in the farmer's expectations of the cooperatives.
FAIR AT WELIMADA
The Welimada fair is the one centre where the farmer's vegetables are sold for ready cash and are available in large quantities. It is held on two days in the week.
Many farmers now make an attempt to bring vegetables to the Welimada fair. The chief reason for this is that they can sell their vegetables at One spot and collect the money. The collection of vegetables like cabbage, beans and radish for the fair is carried out for one full day.
26
commission
On the night day' traders of va. ly frOm di Stant Welimada tOWn. TI cularly brokers a with knowledge of of the trade, er means to obtain cheaply as they vegetables for sal traders are many the competitive s on price. But this There is collusion and producers h; ti OinS On containe Weight, spoilage e have little alterna what they are off ted that upto 20 pe WeightS SOld her the containers, m Spoiled vegetables complain that th nada, fair un del duce ; and even w plaint that the here by the Marl were not Satisfact
The primary
lishing institution keting Departme: Producer's Union the disadvantage from the private trOduce an ellenne with the hope o and COinSurners : ever, the shortco) keting Departme) generally the W cultivators avoide a few COmniSSOr from this outlet. the Welimada faj chasing unit of
partment has be it prominently di
On the road COS ries, vans and tr; private traders a Marketing Depart Seen. One Official work of purchasi satisfaction prev farmerS Over thi Marketing Depa up a price list in early in the mor] tion to the priva prices. It is on rent prices in C Marketing Depar prices. But the t. the fair at W places like Mone Puttalian. In th levels of vegetabl Marketing Depa price of cabbage

before the 'fair*ious ranks, mainareas, gather in "he traders, partihd intermediaries, the various tricks Imploy all possible the vegetables as an. Even When e are limited and One would expect ituation to reflect 3 rarely happens. am Ong traders ave bigger deducrs, for OSS Of tC, and producers, tive but to accept ered. It is estimarcent of the total e is deducted for Disture, drying and 3. Producers also e traders at Weliweigh their proOrse Was the comweights adopted keting Department
Ory.
objective in estabS. Such as the Marnt, Markfed and S, was to counter S to the producer trade and to in2nt of competition f giving producers a fair deal. Hownings of the Marht Were Such that 'elima da vegetable d this outlet. Only l agentS benefitted For instance, at r a vegetable purthe Marketing De2n established and Splays a price list.
e by about 25 loractors belonging to ind a lorry of the ment also could be
is engaged in the ng vegetables. Disails among many s procedure. The "tment by putting the market place ling gives informate trader regarding the basis of curolombo that the timent prepares its a derS WhO COme t0 limada are frOm tagala, Chilaw and ese areas the price es are high. If the rtinent fixes the
at 15 cts. a pound
the trader dÖES not make an Offer of over 16 cts. Meanwhile, though prices are displayed by the Marketing Department it is often unable to purchase even 5 percent of the stock of cabbage available. Though a high price is marked on the price list, it was the view of the farmers that they could not easily sell their produce to the Marketing Department. It is only varieties of vegetables that the Department wants that they purchase and that too up to the limit they require. While no real Service is done to the farmer by the Marketing Department, what is done is to stabilise prices of the private trader at a lower limit.
According to the views expressed by Officers of the Marketing Department and some officers of the Co-operetive Department, they have to act according to instructions they receive from Colombo . If, out of consideration for the Welfare of the farmer, they act against instructions, such action will be a violation of rules and regulations. Further, however high a price rules in the market, officers cannot fix prices accordingly. Vegetables have to be bought in accordance with instructions from Colombo, at the prices Stated therein
The GOOneWardena and Chandrasiri Study also lists in detail Some other noteworthy shortcomings of the Marketing Department purchasstated therein.
1. The MD does not purchase all vegetables brought by the producers to the collecting centres, over and above a certain limit. The officials have to adhere to the orders placed by the head office in Colombo.
2. The MD buys vegetables through a few brokers in the villages, rather than from the producers themselves. The MD has been able to realise economies of scale by purchasing through the brokers, but at the expense of the small scale producer.
3 The MD lorries in certain localities, do not go to the farms or along pre-arranged routes, so that the producers are compelled to transport the produce to a far off collecting centre.
4. The producers as well as the MD are played out by Some officials at regional collecting points. They write false bills, especially in transactions with relatively less educated producers who do not ask for receipts.
EconoMIC REVIEw, JUNE 1980

Page 29
5. The IMD osten pays a lower price to the producers than that paid by the private traders.
6. The collecting centres of the MD do not pay the proceeds of sales to the producers promptly.
7. The centres often do not promptly return the containers belonging to the producers.
8. The MD does not have a loan scheme for vegetable cultivators which means it has less control over vegetable marketing.
The popularity the MD has enjoyed about 10 years back, in the areas where field surveys Were conducted, has warned because of these shortcoming. (Page 121).
“Producers in the villages conplained that the MD plurchased Grade I produce from them. But at the wholesale floor at Pettah, the vegetables are of the lowest quality. This substantiates the hidden transactions between the private intermidiaries and the MD's, officials at the producer level. It was also observed that the MD's wholesale vegetables. Some stocks were in fact floor received a day or two days old not of marketable quality. It was observed that the MD sells vegetables to private wholesalers at the Pettah Market and the latter re-sell it at a profit'. (Page 124).
"Private traders usually pay a flat rate for produce and are not concerned about grading. Therefore, the producers invariably avoid any grading and are not satisfied with the grading done by the MD. Some commission agents wholesalers at the Pettah market Sort out vegetables into several grades before selling to retailers' (Page 22).
LAND SITUATION
Land is another important factor determining the economic well being and conditions of the Welimada farmer. MOSt. Successful vegetable growers could be found in the places like Palugama, UduhaWara and Peralanda, due to good quality land and easy accessibility to transport. More than 75 per cent of the land area in such places seems to be controlled by a few businessmen and the bigger farmers. On the other hand, due to very keen competition for land among the poor and Small farmers Within these areas, land has often been fragmented, leased or rented out. But at the periphery, in areas like Pannalawela and Bambarapane, the majority of the farmers own very Small plots of lands, often only their home gardens. That the land
ECONoΜΙα REVIEW, JτσNE 1980
5te
* e * چه ه چ { =ے t3چ5
SHARES OF
ido
༤ཡོད།
eers Beef Yeart
. Net
2. Con
3. Reta
4. Was
5. Cost
SOURCE: 'Fac Vege
The share oft cent in the case cent. A major pa the various links Agent appears to margin.
The retailers from 18.9 percent percentage share tomatoes, raddish that the grOSS má are comparativey For example, the tomatoes, and ca tables.
 
 
 

'ONSUMER, PRICE TO PRODUCERS AND OTHERS
Cabbage arvot teeks Janatoes aatia kaoi apeicun 8rirja
A&kéዞ CÆ፡፡‛Higs
VEGETABLES
price received by the Producer
mission Agents' Margin
iller's operating costs and Margin
bage
of all other marketing services (Transport, handling etc.)
ors Influencing Vegetable Prices. A Study of the table Economy in Sri Lanka ARTI Feb. 1980. he consumers price which the producer gets is less than 40 perof all vegetables, and in sone cases less than even 20 pert of the costs of vegetables to the consumer are taken up by in the marketing chain. The share accruing to the Commission be the lowest and is lower than the brokers'/sub-wholesalers'
perating costs of the nargin are by no means small. It varies for bears to 63.8 percent for tomatoes. The traders' total is higher for more perishable vegetables such as cabbage, and knolkhol and capsicum chillies. It is interesting to note keting margins of vegetables with relatively higher loss ratio higher than those vegetables with relatively lover loss ratio. percentage gross marketing margins for raddish, knolkhol, page are relatively larger than those of other selected vege
27

Page 30
use system in the Welimada vegetable growing areas has a strong relationship with wealth and power is clear.
Many vegetable growers in the Weltmada area had reited or leased land for vegetable cultivation under various terms. Under this system nearly half of the crops had to go to the landlord while others pay a considerable amount for lease of the land. The majority of those who rent or lease land cannot compete with owner cultivators as far as cost is concerned. They have encroached on crown land and thus faced difficulties in getting cultivation loans or other inputs from co-opetives. High land values and the tennure System therefore create an additional cost for vegetable cultiVatOrS.
OTHER INPUTS
In addition, these farmers faced the problem of increasing costs of other inputS. For instance, more recent technology has made available improved varieties of seed, fertilizers, agro-chemicals and various Scientific cultural practices but to these Smaller farmers much of this seems beyond reach. Often such inputs are made available to him through the traders and agents and this Only binds him more firmly to the trader.
PRICES
In this situation a continuous upward trend in prices is not surprising. A more disturbing feature, however, is that the overall supply of vegetables in recent years has not kept pace with the fast increasing demand. High prices and better returns have been accruing to farmers from crops such as potatoes, chillies, cowpea, green-gram and Onions. It appears that lands under vegetable cultivation have therefore been turned over to these food crops which yield higher profits. The paradox is that despite this tighter Supply Situation the vegetable cultiwators share of the consumer prices has always remained between 20 and 40 per cent, and in eXceptional cases almost 50 percent but not over.
The Guna, Wardena, — Chandra Siri study on "Factors Influencing Vegetable Prices' has even found that "net average profits to producers are regative in the case of most vegetables. (e.g. carrot at Vidurupola and cabbage at Boragas even discounting the imputed cost of family labour. Some vegetables are pro itable (in terms of met profits) when the im
28
puted cost of famil counted. In such ca from the vegetable regarded as the net family labour. Howe profitability is a di majority of Small cli the production of v. profits decrease due prices of factors of marketing costs incl. cers, given relatively CeS'.
This Study als marketing costs C derable part of th by the consumer. gross marketing I more than 50 perc mer priceS. But 1 due to retailers m There are also th the marketing syst involved in the trade, especially those vegetables W. short market live the retailers to margin in Order til due to further Wa Spoilage, damage, left-overs. Efficien can solve many C The Overhead cOS Such as wages, m. rents, taxes etc.; a ble. In addition, fixed on the basis ference and their Producers, howeve price, it is the w cides. Thus study
'In areas where direct links With t markets, they are p Wholesale price des most Wholesalers u cers or pay the pr grades Truck-buyers sale prices prevailin they come from. assembly agents wh Salers at distant; mã prices on wholesal base for producer sale price which a of the following co
(a) Wolume of v
sale by the cular point o
(b) Number of p at a particula
(c) Quality of v

labour is not acses, the net profit cultivation can be
return acruling to ver, the decreasing sincentive to the ltivators to expand egetables. The net to increases in the production and the rred by the produlow producer pri
o maintains that Omprise a consile end price paid For instance; the largin constitutes ent Of the consuhis is not solely aking high profits. le deficiencies in em itself. The risk vegetable retail with regard to 7ith comparatively s, which compels lnark up a high O recover any loss stage in terms of shrinkage and it storage systems f these problems. its of the retailer larket levies, stall re also considerathe retail price is of consumers prepurchasing power. r, have no say in holesaler who deconcludes.
the producers have he major wholesale aid according to the pite the fact that nderpay the produCeS )f the lowest rely on the wholein the areas where The village level ) Operate for wholekets also base their price. Thus, the rices is the wholeain varies in terms Siderations.
retables offered for 'oducers at a partitime.
ducers and traders
market place.
getables.
Apart from these, the producer level price determination is affected by the following factors too, all of which weaken the bargaining position of the producers.
(a) Gluts of supply at peak harvesting
periods.
(b) Producers urgent financial needs,
(c) Socio-economic relationship betWeen the producers and the traderS.
(d) Lack of price information.
(e) High margins kept by the primary level brokers and assembly agents to hedge against risks expected at subsequent levels.
The wholesalers who have a long "experience' in this respect determine their selling prices and the prices payable to producers on the basis of previous prices and likely reactions they may caught on future prices.'
This study also maintains that marketing costs comprise a considerable part of the end price paid by the consumer. For instance; the grOSS marketing margin constitutes more than 50 percent of the con Sumer prices. But this is not solely due to retailers making high profits. There are also the deficiencies in the marketing System itself. The risk involved in the vegetable retail trade, especially with regard to those vegetables with comparatively short market lives, which compels the retaillers to mark up a high margin in Order to recover any loss due to further wastage in terms of spoilage, damage, Shrinkage and left-overs. (Efficient storage systems can Solve many of these problems).
The Wellinnada, farmer is therefore caught up in the grip of various
forces, social and economic, over which he has no influence. The arbitrary fixing of prices for his
produce is clearly the result of the market in perfections at various levels of the private narketing channe. For maximisation of their profits and ultinate Survival the middilemen-traders who are Spread out on the different links in the marketing chain work in close collusion. This Sysem canot be elradicated altogether, but an effective 'organised' System of marketing (as stated at the outset), begining from the proVi SiO Of baSic infraStructure facilities, secure tenurial conditions, essential inputs and accurate and prompt market information can help to counter some of the more pernicious features of the exising private marketing System.
ECONOMIC REVIEw, JUNE 1980

Page 31
The Electrification of
Railways
-financial, economic, operating, soci
environmental and functional considerati
J. Diandas
Following its decision to electrify the Colom Railulay Services the Government recently andard Japanese firm the tender, estimated at nearly Rs. preparing of designs and specifications for this proie ly 131 miles of track acere to be electrified under th nou), vith the increased economic activity, the propos mileage has been increased to approacimately 185
J. Diandas, a student of
tram Sport
and C)
countant by profession, analyses certain financial, social aspects of this project and comments on its si the country's transport system and the overall ecc
If we are to discuss electricfication of railways, the very first thing we have to do is to clear up the energy related questions. Thereafter we can get down to the other fundamentalities, namely:
(1) first cost of electric infras
tructure
(2) first cost of electric rolling
stock
(3) whole life cost of electric roll
ing stock (which is a function of first cost, life-span and maintenance)
(4) operational advantages (5) attractiveness to passengers (6) environmental advantages
the first maxim is that an electric train is absolutely indifferent as to the primary Source of energy from which the electricity was generated. If hydro electric power is available, well and good, because this is beneficial to the overall energy problem. But even if hydro electric energy is not available, an electric railway is equally happy with oil, or coal, or wood, or nuclear, whatever is available, and whatever the electric power station is capable of consuming.
The second energy maxim is that if oil is the primary source of energy, whether you convert it to electricity at a large central power station, or convert it to electricity on board a diesel-electric locomotive, the oil consumed is much the same, and even if you use a diesel-hydraulic, or diesel-mechanical locomotive, the oil for a given job of movement Or transport is again much the same.
It is true that a large stationary central electric generating station
On energy,
ECONOMIC REVIEw, JUNE 1980
like Kelanitissa in its combustion CeSS than is the ting diesel engi diesel train. For tiSSa in itS best something like 14 gallon of furnace ( 27 percent Of the ling capability inh whereas a diesel e Would get Only 12. 1on which is only input to the elect drive the train. H 5 percent and 10 Kelanitissa gene (say 1 kWh) will mission from the the railway's overh and another k through the ele pick up apparat and Step-down tra the same 123 kW, at the disposal of tric traction moto
These are of rather than finely intended only to i
Table
Million train-s Energy per tre Million energy Conversion ra Million gal o
“Sofre: uloba (Th Of di Way Aug Lower trai
* Source:
(NOTE:

bO Snutb nutribd ma, d a leading | ηίίίίοη, for t. Originals project but 'd total track: miles. Here
a'r terred acechnical and Inificance for IՆ011Նց.
s more efficient and turbine proelectric generale Oh bOard a example, Kelanidays would get kwh out of a billi, which is about energy or heaterent in the oil, lectric loc Omotive å kwh for a gal24 percent as ric motors which
Owever, between percent of the ated electricity
be lost in transpower station to ead contact wire, Wh Will be 10St. 2tric locomotive's Lus (pantOgraph) nS former, so that h will be placed the trains elecS. course relative, accurate figures, Ilustrate the en
ergy issues. It is said that advances in Silicon Wate, (the SO-called solid-state technology) will reduce these energy losses, more SO for the straight electric than for the diesel electric train. Solid-state devices such as thyristors are being increasingly used and developed for wheel-slip control on both dieselelectric and straight electric trains, and for regenerative braking. The latter has very limited scope on diesel-electric in combination with flywheels and batteries, but has significant scope in electic railways. For regenerative braking converts the train's traction motors into generators so that the energy of the train's momentum is generated into electricity and fed back into the overhead wires. Wimalasundera proposed regenerative braking for an electrified Badulla-Matale railway as long ago as 1918, but in fact this energy-recuperative technology was clumsy and not much used until transistors, diodes and thyristors cale along. For Suburban and mountainous rail-roading they promise recovery of upto 20 percent of the energy used to propel the train.
To put the energy part of electrification in perspective, figures drawn or derived from the Sofrerail 1974 report are set in Table 1 bellOW.
Thus railway electrification is not as much an energy-saver (although it can do a little of that) as an energy-Versificator, taking a railway Out of total dependence on oil as source of propulsive power and making it dependent only on the country’s multi-sourced electric generating systern capability.
Next to energy, the second issue that has to be cleared up is that the cost of electrification as such consists only of the infrastructure, which is to say the catenary or overhead wiring structures, (or the third rail if that system is to be
Projected suburban train service energy 1981
Diese Electric t milles* 5.29 5.06 in mile 1.7 (litre) 4 (kwih) units 9 (litre) 23 (kWh) e to gallon 4盖· 12
2 1.8
ail' 'Feasibility of the Electrification of Colombo Sub
in Railway Services'. Aug. 1974. s is regarded as the only relatively recent comparative study
esel and electric traction on the Colombo
suburban rail
. It was carried out in 1973-74 and the report issued in
st 1974).
electric train miles reflect extra accommodation in each
in lieu of diesel engine compartment),
29

Page 32
used), and the substations where electric energy is picked up from the transmission grid system, converted to the form required by the railway and fed on to the catenary.
For example, the Sofreraill study put the cost for KalutaraNegombo-Veyangoda electrification at Rs. 39 million for infrastructure, plus a further Rs. 36 million for modifications (signal, telecommunications and bridges) making Rs. 75 million as infrastructural cost. The study also estimated Rs. 257 million as the cost of initial electric rolling Stock, and it became popularly believed that the cost of electrification would therefore amount to Rs. 332 million or SO. Some later spokesmen, using an inflation factor of 5 have put today's cost at Rs. 1.7 billion. However, the Sofrerail study clearly indicates that without electrification Rs. 261 million would have to be spent in the same time frame for new diesel rolling stock.
Some of the Sofrerail figures were reviewed, and the Institution of Engineers did their own calculations in 1975. Table 2 shows a range of figures placed before a seminar in March 1978.
TTable 3
Stricture
Electric infrast Signal modifica Civil modificat
Total structure Additives
Workshop Rolling stock alt.
Electric trains Non-electric Su
cheap, but electr manufacture is S{ costs more than quence of which import its electric trolley buses from Other local chang upgrading or reh ready underway a Sten replaceme against electrical already needed a respective of elect these two items reckOnling.
Table 3 above reconstruct the tern )n assumptic externt Of electrii inaugurated in S
'Table 2 Comparative cost estimates in rupee.
GWR Sofrerai Rew an. 1974 Aug. 1974 De
Structure
Flectric infrastructure 32 39 3 Signal modification 30 26 3 Other modifications 7 10.
Total structure 69 75 6. Additives
Up grade track 70 Workshops 22 Rolling stock alternatives
Electric trains 32 25 Non-electric substitutes 26.
Source: IEE & ESLI:
ings of Seminar March 1978.
Since these figures were calculated a lot of changes have taken place. First and foremost inflation has multiplied everything somewhere between five and ten times. At the same time catenary has got cheaper and is still getting cheaper in real terms, which means that its multiplier will be less than the general inflation rate. Moreover, solid state technology advances are tending to widen the extent to which electric locomotives or trains are cheaper than diesel equipment for the same duties. This applies to most countries, but not to USA. There diesel electric locomotives are mass produced, standardised and
30
"Railway Electrification. Now or
If these figu question is whe spending about ) electrify in 1975, now Worth cOnte
ent Of near R.S. complish electrif
Table 4
Country
Scotland USA (PRR) USA (ALW) Sweden Switzerland
USA (ICG)
-— (EMU as Electric

Possible
cost for 1984 (Rs.M)
FESL Ruizier Possible 1975 1984
*ucture 44 4. 176 tion 32 -- ions O 6 60 T86 236
22 6 32 ernatives
350 5 1,750 bstitutes 294 7 2,058
ic rolling stock mum viable block of trackage. If, ) sparse that it as is recently reported, the concept diesel; in conse- has been expanded to reach Pol
USA tends to trains, trams and Europe or Japan. geS are that track abilitation is alind that signal sysht, (pre-screened interference), is nd cOmmitted irirification, so that come out of the
is an attempt to IESL cost patDn that the same fication could be
ay 1984. s milion : *****
"iew IESL. 2, 1974 1975
9 44 O 32 10 86
22
350 294
Never' Proceed
"es are fair, the ther it was worth R.S. 100 million to and whether it is nplating an invest
250 million to ac
gahawela or Kurunegala and to COver SOme proposed new suburban lines including Kotte, the sum will get bigger in proportion. However, this paper will consider Rs. 250 million as the contemplated sum.
To what extent will any or all of the following benefits of electrification, which will run far into the future (much longer than the 30 year limit of bankers” contem
platory projecting capabilities) justify such an investment. Energy
* Versatility
Oil saving (at least 2m.gal/year)
Whole Life Cost of Trains
: Lower first cost, : Longer life (in years
and in miles) : Lower cost of maintaining
Operating Advantages
: Greater availability (ie.
more annual miles) : Better acceleration
Other Advantages
: Attractive to passengers : Friendly to environment
The principal cost advantages of electric traction arise directly from the fact that an electric lOcomotive or an electric power car has less mOving parts than a cOrresponding diesel unit. This is because the electric unit d'OeS nOt carry its own engine or energy converter around With it, which engine is full not only of moving parts, as such, but also of many
cation of a mini- reciprocating parts which cause
Electric train life spans
Locomotive type Dates Life Underground EMU 1896-1979 83
GGI (Passenger) 1935-1974 45
Little Joe (freight) 1945一1975 30
Ok 1930-1979 50
Ac 4/4 (BLIS) 1925-1979 55
Chicago EMU. 1930-1975 45
Multiple Unit)
ECONOMIC REVIEW, JUNIE 1980

Page 33
much shudder and vibration. Tpylcal lang evities of electric train equipment is set out in table 4.
On the other hand, diesel electric locomotives were usually rated for 15-year lives, exter ding to 30 LLkuLLLLLSLS L0E S JJLELS a 0 L LlL S 0 00S00 S 0 LLS LLLLLL least one complete rebuild or rehabilitation.
For maintenance, a fairly recent British Railway Board (BRB) Discussion Paper (May 1978) places maintenance per train mile at: 21p'' for electric and 89p' for diesel. A more recent joint interim report "Review of Main Line Electrification' issued by BRB and the Department of Transport states on page 21:
". . . . electric locomotives are cheaper per unit, have longer operating lives, and fewer are needed to provide a given service. Electric locomotives are available for a higher proportion of the time as a result of the lower frequency and duration of maintenance work compared with diesel; this is also the reason for their much lower maintenance costs'
Using the Sofrerail study as guide for local conditions, we can make a rough conservative calculation of life-cycle cost per annum in table 5, excluding perSonnel cost.
tnillion for both the annual cash electrification WC million, or 13 per Ilent.
These must as “order of n but they do indi of Saving as we reasons why all USA, Canada a rushing ahead W trification.
The operatio. electrification ar railway transpo always wanted have been held ernments their their bankers Wh quick pay back railway operators anotive did away fire preparatio cleaning and was except for shop ling. An electric train does not { ling and, as the E needs less down shops, so it is ava tinuously for dut: Not Only this
cleaner, and so ing time.
The characte
energy from an
Table 5 Comparison of life-cycle cost per annum | on Sofrerail data and Sofre rail assumption as to
mileage per annum
Sofrerai, 1981 Multiten ബ=—
Diesel | Electric plier Diesel (3 6/- 12 4 Electricity (a -/12 3. 5 Catenary (40 years) 4 Maintenance 量4 8 6 Operating 26 12 Depreciation (20 yrs) 3 8 Depreciation (30 yrs) 8 7
39 20
In total terms, these figures show a saving in cost of Rs. 110 million per year (as against Sofrerail's Rs. 19 million) which will surely justify investing Rs. 250 million. If electric life spans is increased to 40 years for electric, the saving becomes yearly Rs. 114 million. Even in cash terms (i.e. leaving out depreciation) there is a saving of Rs. 65 million of Sofrerail Rs. 14 m) or 26 percent of the investment. Going still further into conservatism by putting electricity at Rs. 2 - per kwh (based on gas turbine fuel cost), thereby levelling energy cost at Rs. 48
ECONOMIC REVIEw, June 1980
supply On the ov wire gives the e further advantage acceleration away from Signal stops, damental impՕ1 working of sched creasing the ut train and track.
The principal passing more trai track is station straint can be e: the dwell-time at bov Smarter acce) ample, a plan ha for a third track

Liesel and electric,
cost saving of ld still be Rs. 32 ent Of the invest
be regarded Only agnitude' figures, ate the directions as some of the he world, except di Sri Lanka - is ith railway elec
Lal advantages of
such that, all tation men have to electrify, but ack by their gov
shareholders and O tend to want advantages. For
the diesel locowith the need for l and fire box available for WOrk, repairs and fuellG comotive (nr ven need refuel3ritish report said, time in the WOrk ilable almOSt cOn
W. , it is inherently needs less Wash
eristic of drawing
almost limitless R.S.M) based
train
Possible 1984
Diesel Electric
48
15
84 48
32 67 103
58
35 25
Yrhead catenary lectric train the of very smart
from stations or
This is of funEance for Smart les and for inlisation of both
constraint OI} Ls along a given ime. This consed by reducing he platform, and erati On. For eXbeen drawin Ulp etween Fort and
Ragana, for the dual purpose of increasing train throughput (presently 12 trains per hour at the busiest time) and speeding up express trains. The first of these functions could be fully achieved, and the second partly achieved by electrification. For example, Sofrerail show the timing from Fort to Ragama for a stopping train at 204 minutes for electric against 24 minutes for diesel, a saving of nearly 4 minutes. They also show 3 minute headways per electric train, which is equal to 20 trains per hour against the present 12. Thus the cost of the third track to Ragama can probably be saved by electrification, or at least postponed, and this is no mean cost. (The estimated cost of the third track is in the region of Rs. 100 million).
From the operators' viewpoint, the greater reliability of electric trains (there are less moving parts to go wrong) rem Oves ar Other' headache, that of the train which fails on the track.
Moving now from the financing, engineering and operating spheres of interest to that of the passenges, for whom at least the pasSenger trains are run, the electria train adds quality to the ride in a nanner that is difficult to describe. No Smoke, no diesel exhaust, much less noise, no vibration, less dirt and a Smoother and faster ride, All this adds up to something called the “sparks effect' which until the alm0st universal ownership of motocars and the ubiquity of motorways on which to drive them became commonplace in Europe, accounted for massive increases in train travel where railway lines were electrifies.
It is more than probable that electrification in Sri Lanka, will also draw patronage from those using bus or car on many journeys for which the electric train offers a suitable alternative.
It is beyond doubt, however, that present riders will obtain a far superior ride to what they enjoy today and especially if the quantum of train capacity opera - ted keeps pace with rising demand for travel by train.
Finally, we come to the externalities. If you stand On Mihintale’s highest point at dead of night, the diesel train can be heard throbbing for twenty miles or more afar. This is an intrusion. Likewise if you live or work adjacent to the railway, the noise of paSSing trains is a disturbance. Electric trains Will not remove all
31

Page 34
noise, but they will certainly reduce it, will eliminate the low pitch throb, and will not push visible odoferous exhaust fumes into the air. Railways are generally regard 3d as the node of transport least harmful to the environment, and electric railways in this respect are the least of the least. There is one topical energy question omitted from the above di SCUSsion, namely, what happens if there is a power cut? What happens when demand for electricity exceeds the country's capacity to generate it? The proposed electric railway Section will not likely demand more than 50 MW of power at any one moment, and it will receive this directly off the high voltage grid. Hence it is not difficult to cut low voltage distribution to consumers while keeping railway cantenary alive.
To recapitulate, electrified railways are good for energy, good for costs, good for maintenance, good for operation, good for passengers and good for the environment. F'Or what then are they bad? The only answer to this question seems to be that they are bad for those who think of investments for their financial dividends alone rather than for their functional uses; and want quicker pay-back projects than railway electrification. For this reason they impose "discount rates' of upto 12 percent which make any benefit after 30 years look like nothing at all, and which make even the benefits of the next decade look negligible, although the same people sometimes widen high
ways, build pedestrian bridges, inaugurate universities, commission new police stations without
any financial feasibility study and without any discount rates at all.
In the non-English speaking world, electric railways have always been considered investments for the future and mOSt Countries have rolling programmes to electrify so many kilometers Of line per annum. In the English speaking world the progress has been less sure, more jerky. It might go forward all the same, perhaps if realisation of human concer for future generations gave rise to the imposition of a negative di Scount rate in a SSessing investments for the electrification of railways,
32
World Inf Adnan Al-Jan
The oiltially since 1 α Sίroηρ ίηα rising price See it that OPEC's Econ much oil pri
The phenom being generally thing”, is an orp ing prices are : agement, nobody ponsibility for The easiest body since 1974 seems the biggest caus often been claim ing oil prices”.
To start Wit. out that an inc of a product d have to take pl inCrea. Ses in the Stitulent inpults ( especially true in With a high deg and well manag An increaSe in factor may resu allocation of th Other fact OrS change in the In reality, how econ Omiies have degree of struct extent that inc of any input is 1.ext cycle of thermore, inflat becoming a too redistribution of Various Segment in this struggle tribution no seg cepts a reduct share of total within this co: to view the app phen Ormenal Of coupled with i
Inflation ( fluctuations) income distril but also on a
come redistril and changes i increasingly front of relati negats. With ea the prices of

ation:
bi
Who's
in the Dock?
acploring countries have raised their prices substan
)73.
Everybody needs oil, therefore there has been
icement to regard rising oil prices as 'behind the
If everything else. ա)ն Ս.
I'm this article,
Oil producers, however, do not Adnan Al-Janabi, head Of
omic and Finance Department, eacplains just houd es have contributed to uborld inflation
non of inflation, considered a “bad han. Since increassign of misman
is admitting resthese phenomena.
to blame for this to be OPEC and e for inflation had ed to be “increas
in One has to point 'rease in the price oes not necessarily ace aS a result Of COSts of its conOr factors. This is n market ecOnOmiies gree of competition ged money supply.
the cost of one
ult only in the re
e relative prices of without a salient price of the output. ever, most market developed a high ural rigidity to the reases in the cost passed over to the 'eproduction. Furion is increasingly in the struggle of income between the s of society. Withfor income redisment of society acOn in its relative production. It is text that one has rently contradictory high unemployment
creasing wages. ind exchange rate not only a tool of ution domestically, international level. ution internationally terms of trade are eing fought on the e inflation movesh upward swing in kports of finished
goods from the industrialized countries there also occurs a reverse transfer of wealth from the deveoping countries ...to the industrialized ones, increasing the widening gap between rich and poor. In this connexion, OPEC as a group of developing countries is probably the worst tre ted within the developing world. The import price index of OPEC member countries has more than quadrupled since 1973. It is by no means an exception in OPEC countries to have costs of projects or machinery imports doubling within one year.
Within this general overview of the phenomenon of inflation it is important to have some realistic and c0ol thinking about the contribution of oil prices to global inflation. In 1977 and 1978, when oil priCes Were ImOre Or lesS COnstant in nominal terms, double-digit inflation still existed in Italy and UK and high rates of inflation were common all over the main oil-inporting countries. There is no meaningful evidence to suggest that, if oil prices were held constant, inflation would be nil. The upswing in inflation in the United States was well under way in 1978 without any oil price movements. This is not to say that oil price adjustments do not at all contribute to inflation, but it is widely accepted now by knowledgeable people that inflation as a general phenomenon has very little to do with oil price movements. But given the structural rigidity in the economies of the main oil-importing countries, increases in oil prices do tend to be passed oni tO the prices of finished goods.
The question then arises: by what magnitude do oil price adjustments affect the price of finished COmmOdities ? In SOme activitieS oil prices hardly matter at all. The energy content of agricultural products is minimal when compared
ECONOMIC REVIEW, JUNE 1980

Page 35
to the energy that is consumed in
producing aluminium. The oil price adjustments of 1979 from $17.70/bbl in 1978 to the average of $18/bbl meant an incremental increase in the cost of oil imports of the United States equal to about 0.7 per cent of its GNP. In the case of Italy (with the highest percentage to GNP in the indulStrialiZed OECD Countries) the increment represented 1.6 per cent of GNP. The maximum inflation impact of changing prices Of Oil cannot be much more than these percentages.
Some assessments of the impact of oil price changes with regard to inflation make the erroneous generealization of assuming that oil price adjustments by OPEC automatically would cause an increase in all energy inputs. There is no (obvious reason why the cost of electricity from a nuclear plant should increase when prices of oil increase. It is only the prices of imported oil that have to increase and it is this component which should be examined in assessing the contribution of oil prices to inflation. During 1979 the average price of a composite barrel of oil in Europe to the final consumer was about $54/bbl. Out of this about $22/bbl was taken as taxes by the governments of the consuming countries themselves. These taxes could have been theoretically reduced to offset the final cost of petroleum products to the consumer. What act
tually took place is that, on the whole, taxes were increased by about $ 4/bbl during 1979. This
segment contributed nearly as much to domestic inflation as OPEC price adjustments.
The increase in the taxes on petroleum products as well as the general rise in the cost level of domestic energy inputs may be insidered commendable as part of the generally welcomed policy of arcating a favourable environment for energy conservation. This does not mean, however, that one should jump to the conclusion that OPEC's oil-pricing actions are responsible for the total impact of energy costs ori inflation. It is not realsona ble for economists in OECD countries to accuse OPEC of causing inflation and applaud their governments for hiking energy costs.
In a detailed analysis of a numper of OECD countries using input/
out cut analysis, it was found that
the contribution of imported oil to inflation in 1979 varied between 0.5 per cent for France and 0.7 per cent for Italy. During the same
ECONOMIC REVIEw, JUNE 1980
year the intern: France increased Over 1978 and tha percent.
The oil price a early part of thi, from ab Out S 1 $ 2.8/bbl resulted contribution withi: 1 per cent in Italy it; expected to be year, over that O. the case Of Franc tion of the oil pr year is forecast to from oil imports ral inflation rate cent. The nighest tribution of crude gas imports to th tiCon rate was fou case of the Nethe cent for 1980). Si ports of petroleum gas take place fr( neighbouring count Europe and elsewh WaS made tO fin tion. Of imported domestic COn Sume cent). In the C deral Republic of reverse is noticed imported crude oil gas On internal ir ing less than 1 pe Offect on the cons Over 1.1 per cent. this in the Germ. this country impo ducts. Therefore, t) is more represental tribution in Germ: the average oil p countries turns o than $ 28/bbl, the Oil prices to infle COuntries will also higher.
In the case countries, the Sam Of analysis would pect also minimi from oil imports flation. In many c Ses Of Oil price, countries are mol by OPEC aid to On the Other har digit inflation frO trialized countries Overburden the im veloping countries not reflect similar
This kind of terms of trade w; the case of oil ex ing countries duri The real value O. OPEC countries w;

l inflation of by 10.2 per cent t of Italy by 15
djustment of the ; year over 1979 3/bbl to about in a forecast 1 the range of S inflation which 6.7 per cent this last year. In le, the contribuice increase this be 0.7 per cent within the geneOf over 11 per percentage COnOil, products and e internal infland to be in the erlands (2.2 per ince a lot of exproducts and om there to the Dries of Northern Lere, an estimate d the contribucrude oil to the " prices (1.2 per 'aSe Of the FeGermany the the effect of , products and lflation rate ber cent, while the Sumer prices is The reason for an Case is that *ts a lot of prohe latter number Live for the coniny. Naturally, if rice from OPEC ut to be higher contribution of tion in OECD be that much
of developing e general, frame lead us to exal COntributions to domestic inaSeS, the increa = 3 to developing e than Offset those countries. d, the doublem the induswill drastically port bills of dewhose exports do rice adjustments.
deterioration in is witnessed in Orts by developng 1974 to 1978.
Oil exports by s deteriorating
continuously, while OPEC’s imports from the industrialised countries were jumping by leaps and bounds. Even the recent price adjustments do not make up for the Steep costs of OPEC's imports from the industrialised countries. Even if we measure the imported inflation to OPEC countries by the export price indices indicated by OECD countries, rather than by the OPEC import price index, recent price adjustments just about make up for the deterioration in the real price of oil during the period of 1974 to 1978.
OPEC as a group has succeeded to some extent in arresting the deterioration in its terms of trade Other less-organized raw-materialexporting countries have not been as successful. Thus, the main offender in the global game of income redistribution through inflation has not been OPEC, but the industrialized countries of the OECD, which continuously complain about OPEC's contribution to inflation.
Direct loans from the OPEC Special Fund to least developed countries as of 15 January 1980 (amount in SUS million)
Country BOP (1) DPL (2) Total
Afghanistan. 3.75 3.55 7.30 Bangladesh 13.90 29.00. 42.90 Benin 2.00 6.10 8.10 Botswana 2.00 1.00 3.00 Burundi 6.20 2.00 8.20 Cape Verde 3.55 - 3.55 Central African
Republic 1.75 - 1.75 . Chad 2.40 2.45 4.85 Con Oros 1.00 1.00 2.00 Ethiopia. 4.80 - 4.80 Gambia, The 4.65 - 4.65 Guinea 8.85 8.85 Haiti 3.15 4.00 7.15 Laos (People's
Demo. Rep. of) 7.15 - 7.15 LeSotho 1.90 3. 4.90 Malawi - 180 1.80 Maldives 1.30 1.00 2.30 Mali 7.05 7.00 14.05 Nepal 4.15 9.30 13.45 Niger 6.75 6.75 Rwanda 6.20 2.35 8.55 Somalia, 7.05 8.16 15.21 Sudan 7.45 20.45 27.90 Tanzania 10.45 5.00 15.45 Uganda 4.55 4.55 Upper Volta 6.75 4.50 1.25 Western Samoa 3.35 - 3.35 Yemen Arab.
Rep. 2.25 8.70 10.95 Yemen, People's
Demo. Rep. 8.40 - 8.40
TOTAL 142.75 120.36 263.11
(1) Balance of payments support loans, (2) Development project loans.
33

Page 36
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