Page 1
赋 h Ë $
 

ECONOMIC REVIEW
July/A

Page 2
Sri Lanka
Money supply (M1) Gross foreign exchange reserves annual % growth in months of imports 30 5
25 4.
3.
2O
2
s 1
89Aρα O
Source: Central Bank - FINANCIAL TIMES THURSDAY MAY 1 1989 :
RUPEES "OC
- I -
COMMERCIAL
LOANS
次○
RUPEES OOO MILLIONS 240
22O
2OO
180
160
14 O
FOREIGN DEBT 120
1OO
8O
60
4 O
2O
O 1985 1986 1987 1988 1989
PUBLIC DEBT (GROSS)
Monthly
RUPEES OOO MILLIONS TT 24
TOTAL EXTERNAU
ASSETS Y
COWT |---- FUNDSS---
1985 1986 1987 1988 1939 1935
EXTERNAL ASSETS Monthly
1985 1986 1987 S
COMPOSITION FOREIGN DE
Monthly
RUPEES "OOO
TIME 8, SAVINCS DEPOSITS
NARROW MONE SUPPLYN y
.." féMAND DEPÖsts .
1983 1987 S88 MONEY SUPPLY
Monthly
 
 
 
 
 
 
 
 
 
 

O MILLIONS 140
2O
100
80
60
40
20
1989
OF BT
O 1989
U NEM PL0 Y fi ENT (M ALE) (As a percentage of population)
42.2°) 81/82 '%2%86/87
" UNEMPL0Y MENT (FEMALE) (As a percentage of population)
须
须
貓
LEVEL OF EDUCATION ] 81/82 , 86/87
UNEMPLOY MENT (MALE) (As a percentage of labourforce)
30
2O
10
O
C. 81/82 EE 86/87
UNEMPLO YMENT (FEMALE) (As a percentage of labour force)
40
30
20.
TION
EA81/82 İzzZZ) 86/87
UNEMPLOYMENT BY SEX & EDUCATION 1-No Schooling 5-G.C.E. (A/L) HSC 2-Primary 6-Under Graduate 3-Secondary 7-Passed Degree 4-G.C.E., (O/L)SSC 8-Total
Source: Sri Lanka Socio-Economic
Data 1989, Central Bank of Sri Lanka

Page 3
eeee
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-
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oc
- is consens see are e es e
seeing on and c | -
in ene
aos en co no represeni e
che a Sna concis is e es SeSLS S S S S S S S S S S S
a conec VV is is
is available to subscription and en direct sale
Volume 15
Diary of Event
Finance
Commodities
Housing
The Economy
S. Tilakaratne
G. S. ChatOOr
David Houseg
An ADB View
Sunimal Ferna Willie Gamage
Klas Sandell
Sriyami Huluga
NEXT ISSUE
* China in fe economic * Incomes in * Sri Lanka’s * Falling tea
COVER ART Sepalika Fern
TYPESET Sumathitypes
 
 
 
 
 
 
 
 
 
 
 

Numbers 4 & 5 July/August 1989
CONTENTS
COLUMNS
S 2 July 1989
15 Commercial bank deposits
16 Coconut: Production - exports increase
Spices: Prices fluctuate
17 Women and housing in India
19 A case for an Open Economy
and need for right policies
SPECIAL REPORT
3
11
13
14
21
26
30
SRI LANKAS ECONOMY IN CRISIS
Some factors in the current economic crisis
Steady slump in growth unfortunate -
Sri Lanka faces hard economic decisions - painful battle on another front
The outlook for Sri Lanka's economy
FEATURES
Some socio-political aspects of Janasaviya
Development and Ecocrisis
The exchange rate policy of Sri Lanka
and it implications on the export Sector 1981-1988
rment: assessing the impact of new
and social reforms Sri Lanka: small holdings sector
investment climate production - likely repercussions
'IST ando

Page 4
11
DIARY C
July
The Colombo Consumer's Cost of Living Index for July 1989 was 824.5 the Department of Census and Statistics announced. In June 1989 it was 823.07. while in July 1988 it was 745.7. The average rate
for the last 12 months was 7805 as agains 665.4
in the previous 12 month period, indicating a 85.1 point increase in the index over the last 12 months or a 7.1 average monthly increase.
UNICEF handed over dry rations worth nearly Rs 300,000 to the Department of Social Services for distribution among the recent flood victims in the Sabaragamuwa area. In addition, the organisation also released various types of drugs worth about Rs 200,000 to the Health Ministry to combat any water
borne diseases that may break out in these areas
following the heavy floods. The dry rations include rice, sugar, dhal, green gram and canned fish.
The French Government will donate Rs 1.7 million
towards flood relief in Sri Lanka, according to the newsagency Lankapuvath. This money will be utilized to purchase milk foods, water pumps, water tanks, asbestos sheets and other building materials from State Corporations for distribution among the flood victims 翼 二ー -
Capital expenditure amounted to Rs 21,212 million
as compared to Rs 27,017 million provided in the approved budget estimates for 1988. In comparison to the previous year, capital expenditure in 1988 showed a decline of seven percent. As a proportion of GDP it declined from 11.6 percent in 1987 to 9.5 percent in 1988, according to Lankapuvath. The decline in capital expenditure during 1988 was largely
- due to the under expenditure on account of rehabili.
tation and reconstruction work resulting from unset tled security conditions.
An agreement was signed between Sri Lanka and Australia to provide an interest free loan of
1,735,000. This loan will be utilised to provide sola
energy to Pansiyagama a housing project undertaker by the National Housing Development Authority The well known firm of BP Solar Australia will be
supplying the technical know how and equipment.
Japan will pledge US $ 30 billion in aid from 199
to developing countries according to a decision take
at a Paris meeting of major industralized nations, : leading economic newspaper reported. The curren aid package was designed to recycle some of Japan huge trade surplus with developing countries, whic amounted to US $ 95 billion in fiscal 1988. This ai package is intended to support the debt reduction plan for developing countries proposed by US Treas ury Secretary. **** -
 
 
 

15 The Tokyo government pledged Rs 7 million of emergency assistance for the flood and landslide relief effort, the Japanese Embassy in Colombo said. This assistance would comprise ten mechanised boats, 1000 tins of skimmed milk,5,000 packets of biscuits. 5,000 cans of fish and 2,400 blankets valued at approximately Rs. 5 million. Japan will meet the cost of transporting these goods and the total cost of the contribution has been valued at Rs 7 million.
20. The European Economic Community responding to an initiative of the Ambassador of France, who represents the EEC under Spanish Presidency, granted Sri Lanka an emergency aid package amounting to $ 225,000 (almost eight million rupees). The French Embassy in Colombo said this aid disbunement will be implemented by the League of the Red Cross | and by “Medecines Sans Frontieres - France".
The Government approved in principle measures taken to set up a centre for Entrepreneurship Development and Consultancy Services encompassing the present Management Development Division of the Industrial Development Board and the UNDP sponsored Intergrated Entrepreneurship Development Programme. Among the objectives of this Centre will be to organise and conduct training programmes for entrepreneurs, trainers and motivators; and undertake documentaiton and research in the field of enterpreneurship and smalenterprises development
1 The Government approved a proposal to implement the Finance Commission recommendations regularising provincial council finances for 1989 and their presentation before Parliament. The recommendations are that funds allocated under Heading 431 Provincial Councils programme I project 102; grants to provincial councils for capital works of a local nature (Rs 840 million) for the financial year 1989, be apportioned among the provincial councils on a pro-rata basis, taking into account the number of members of each provincial council and that funds allocated for Integrated Rural Development Projects for 1989 be apportioned among the respective provincial councils for implementation. 愛
22 Treasury Bill auctions by the Central Bank resulted in average annual interest yiedls of 15.71 percent on three month bills, 16.63 percent on six month
bills and 19.41 percent for one year bills, the Central Bank announced. జ్ర 愛
23 Australia is providing A $100,000 (Rupees 2,734,000)
in relief assistance to the victims of floods and landslides in South Western Sri Lanka, Australia's contribution will be dispersed through community aid abroad (A S 80,000) which will focus in the Kegalle district, and the Red Cross Society (A S 20,000). The funds will be used mainly for providing food and shelter.
ECONOMIC REVIEW, JULYIAUGUST 1989

Page 5
GOVERNMENT EXPENDITURE (Percent of GDP)
CHANGES IN MONEY SUPPLY (
(Percent per annum)
20- o o
o -
o () () 0 10 , , o
ܕܘ݂
SSLLLLaL LE BBBLL SS LLLLLL aLLS LLLLL GLG SLLLLLLLJLS LLLLLLLEL H - rh
Country
<" th چچ-4۔
(Percent of GDP)
VO r-4
s ↓ܗܝ
OVERALL BUDGET SURPLUS/DEFICIT OF GOVT
t −T−
(N (v) s tý) - nins
- শু? PrP 이요
Country
LAO
LOr• r r
ECONOMIC IN OOMPARATIVE
SRI LANKA AMONG 17 *
pNewly Industria
1 - Hong Kong 2 - Korea Rep. 3 - Singapore 4 - Taipei Chi
Southeast Asia
5 - Indonesia 6 - Malaysia
7 - Philippines 8 - Thailand
South Asia
9 - Bangladesh
10 - Burma 11 - India 12 - Nepal
13 - Pakistan l4 - Sri Lanka
15 - China, People Rep. of
South Pacific
16 - Fiji 17 - Papua New G.
Souzce Asian Deve Outaook-79
SR
The current crisis in the Sri Lankan economy reached its gravest point by the first week of September 1989. Following months of dislocation of essential Services in the country came a month long
August, followed by a week long hold up of economic life from August to September.
The extent of today's dramatic crisis is clearly manifest in the virtual collapse, fully or partial, of many production and serivce sectors. The disruption of economic activity during the previous twelve months had contributed to a weakening of the general economic environment; while aggravating rising levels of inflation, cost of living, unemployment and consequently malnutrition and overall poverty.
LANKA's ECONOMY IN
The economy is r to preliminary
recorded a grow zero during the this year; the f being only slight
Many depressir expressed recent social and politic seriously it affe Of significance a helpless cries of til typical being the from an address ( on pages 10 — 11 till recently, the Ceylon Chamber
“The past twe surely been the period which Sri
ECONOMIC REVIEW, JULYIAUGUST 1989
 
 
 
 

CATORS
POSITION
B COUNTRIES
izing
uinea
éopomēnst
CRISIS
sported, according figures, to have 7th rate close to third quarter of rst two quarters ly better.
g views have been y on Sri Lanka’s al crisis, and how ts the economy. re the vocal and le business sector, following extract carried more fully by A. S. Chator, Chairman of the of Commerce:
ve months have most traumatic Lanka has experi
enced in this century. The ethnic troubles of the past six years were compounded by political and social turmoil. Most serious of all, there was an alarming breakdown of law and order, and for the first time in our experience there were prolonged periods when the writ of the Government did not seem to apply even in the city of Colombo. I need hardly elaborate on the near impossibility of satisfactory economic development in such conditions. The growth figures from 1987 Sounded an unmistakable warning. The 1987 growth rate was 1.5 percent, the lowest since 1971. The 1988 figure was 2.7 percent. One shudders to even hazard a guess at the 1989 figure.”
This quote, from the paper in
this issue on pages 7-9, by Professor of Economics of Sri Jayawardenapura University Dr S. Tilakaratine adds a further perspective to the impact of the dislocations: “The crisis that Sri Lanka is passing through is one of the most complex in its recent history, both politically and economically. The country's economic problems have grown to serious proportions. The rate of increase in the country's overall
production (Gross Domestic Pro
duct) had sharply deteriorated to an average of a mere two percent during 1987-88, the lowest level recorded in the past 15 years. The economic performance in 1989 is unlikely to do any better; probably it could deteriorate further in the wake of the political turbulences and uncertainities. Three successive years of virtual economic stagnation has no parallel in the post-independence history of the country. The economic crisis has manifested in
many forms such as growing macro-economic imbalances, increasing unemployment and
under-employment and worsening poverty.”
Business Sector
Opinions on why the business sector finds it extremely difficult to operate in this climate were expressed to the “Economic Review by Ajit Jayaratne the

Page 6
Deputy Chairman of the Colombo Securities Exchange and also the new Chairman of the Ceylon Chamber of Commerce in the following informed comment:
“The business Sector in the coun
is operating under extremely difficult and trying conditions. The essential pre-requisites for a conducive business environment are law and order and political stability. Without these basic factors the business community cannot indulge in any forward planning and without forward planning it is obvious that there could be no development. There has been a total breakdown of law and order and an apparent absence of political stability in the country now for a long period and under these circumstances no forward planning has been possible. In fact most business establishments
in the recent past have put their
existing forward plans into abeyance, at least for the time being, and spend most of their
time in merely ensuring day to day
operations. Some of the factors that have led to this situation are Sudden work stoppages, absence of public transport for carriage of goods and people, early closure of government offices and slow cargo handling at the Port. Needless, to say, under these conditions, productivity is seriously affected resulting in loss of exports, increase in unemployment, further inflation due to decrease in production and loss of tax revenue to government. In the meantime under theSe cOnditions prospective foreign investors naturally are having second thoughts and are awaiting more stable conditions before they make any significant investment.
In addition to the problems mentioned above, certain fiscal disadVantages have also arisen recently so far as the business community is concerned. Perhaps with a view to curbing inflation and a drain on foreign exchange resources, the Central Bank has insisted on a 100 percent cash margin on most imports. Overdraft facilities have
also been restrict tain key areas, to
at a previous d
were reports tha were not happy ir opened in Sri La the high rates of by banks and gov are also driving
away from devel Ventures into the interest bearing
urities.
All these facto nificantly shown activity in the Col ket and the poor public to new sh;
Growth Rate
The Governor
Bank has express
foreign news de GNP would rise | cent this year fro1 growth in 1988; reflecting the mo expect growth to cent. The growth 1.5 percent; which with the Central
estimate of 3.5
year, the average the three years
M.
TTTTT
- 1988
-
\ိစ္ဆ၉၅
F M A M
TEA PROE Mont
l

ed, except in cerD what they were ate. Also, there at banks abroad confirming L/C's nka. In addition, f interest offered 2rnment Securities investment funds lopment oriented 2 safety of fixed deposits/ and sec
/
IrS are being sigup by the drop in lombo Sha - marresponse by the are issues.
of the Central ed the view, in a spatch, that the by about 3.5 perm the 2.7 percent although others Jod of the times be below 2 perrate in 1987 was means that even Bank's optimistic
percent for this : growth rate for
1987-1989 would
LION KILOGRAMs 一厂─丁─30
25
ヘー
----- O A S O N O
DUCTION ihly
be at a low of 2.5 percent as compared with an average growth
rate of about 6.6 percent over the
three years 1978-1980. The "growth' momentum gained with the introduction of the Open Economy could not be maintained in the 1980's and the crisis of recent years contributed towards bringing down the economy to unprece
dently low levels of growth.
Plantation Agriculture
The commanding heights of the economy appeared to be in disarray. For instance, the agricultural sector which accounts for approximately 25 percent of the GNP recorded a drop in production at all levels, in both the plantation and domestic agricultural sub-sectors. In the plantation sub-sector tea production was heading for one of the lowest levels of annual production on record and was expected to be over 30 mn kgs below the 222 mn kgs produced in 1988. Tea exports were also falling far behind and in value terms were expected to be at least Rs. 1 bn below the RS 12.3 bin earned in 1988.
Making the situation more critical
was the fact that the two State
Corporations which account for nearly two-thirds the country's tea
MILLION NUTS
T-I-I I-I-I - I -1-260
e -2. O
མཁ-1220
-2OO
N1989 18O - ܒܓܡ
f ၆၉၆ `\
160-N أنسي.
- - |40 0 أو بللولبلبليبيا
J F 4A、霹4 J J A S○ j D
COCONUT PRODUCTION Monthly
s
ECONOMIC REVIEW, JULYIAUGUST 1989

Page 7
production and one-third of total rubber production today face severe crisis conditions. A 16 member official core committee which recently reported on this crisis indicated that the two leading estate agencies, the State Plantations Corporations (SPC) and the Janatha Estate Development Board (JEDB) were “heading for virtual bankruptcy. Both the SPC and JEDB were in desperate financial straits last year having recorded Yosses of over Rs 300 million each. These losses and other expenditure were financed with borrowings from a leading
state bank, the Bank of Ceylon,
which has given overdrafts of Rs 725 million to the JEDB and RS 543 million to the SPC; and the position deteriorated further in the first four months of this year with the overdraft limits rising to Rs
900 million and Rs 850 million,
respectively'.
The disruptions to cropping, transport of manufactured teas, tea sales and exports from ports have intensified in recent months. Also it is inevitable that with the average cost of tea production being pushed to levels much higher than the nett sales average obtained for tea that is sold, large trading losses will result and the liquidity position of
MILLION LTR:
the two estate a to worsen. Furth rowings from the have exceeded Rs it is feared by so this debt could b ble, thereby jeopa Own financial Sta the core groups in the 'Sunday this view.
Womestie Agric
Another area that of the dor sector. Paddy p current year is totalled 99 min b recorded in the 1984 paddy pro record of 127 mr the ethnic violen and Eastern pro was affected an tinued to declin disturbances ha paddy growing country and thi production of lower than even yielded 101 min new agriculture: “take-off”. Apa unrest both drou, contributed tow production anc
ECONOMIC REVIEW, JULYIAUGUST 1989
000 METRICTONs 60
1 T | | | | | | | 1 - T-I I-I-I-I-I - T- – —
- 1988 -50
40
-30 1
20
- O - I
- 2 )_ܘܘܘ
[3< o *鼻 、リ。 ()
F M A M J J A S ON D F M A M J J A S ON D
A
MILK COLLECTION PADDY PURCHASES
Monthly Monthly OUTPUTC
 
 

gencies is bound ermore, their borRank of Ceylon 1,000 million and me observers that ecome irrecoVeraardising this banks bility. Extracts of report, published
Times, support
evitvre
of concern Was
mestic agricultural roduction for the reported to have ushels, the lowest past 12 years. In duction reached a bushels, but with ce in the Northern Dvinces cultivation d production cone. Since then the ve spread to all provinces in the s year's estimated 39 min bushels is that of 1978, which bushels, when the al drive began to rt from the civil ght and floods have
ards the drop in
to the lower
PONTS IN lo)=X ଝୁ)
- - - - -255.
十2G0
-50
988 A... I
-100 A
- 50 ,
0
DF STATE INDUSTRIES
1977s: 100 Monthly
acreages under cultivation. This fall in paddy production has also necessitated higher rice and flour
imports.
How serious the situation is may be observed from the fact that in 1984 Sri Lanka was only 8 percent below self sufficiency in paddy production, but in 1989 the country is expected to be about 25 percent short of self sufficiency, according to a \Day News report quoting a Ministry of Agriculture and Food document. ܪ
Other domestic food crops have similarly been affected. Due to frequent tension prevailing in the agricultural producing areas and uncertainity of purchase from producers the output of crops such as potatoes, onions, chillies and vegetables is reported to have decreased in some cases upto nearly 50 percent.
Consumer Prices
There were three basic factors precipitating the upward push in prices. Firstly, official agreement on Some IMF conditions that subsidies on essential consumer items such as flour, bread, sugar and milk be lifted in order to keep the Government's budget deficit within control.
Over the past three months basic food items have experienced more
than one price increase. The price
of a kg. of flour has been increased by nearly Rs 1/50 over this period, while bread has increased by 55 cts per kg loaf, and sugar has increased from around Rs 16/- per kg to Rs 25/- per kg. and is expected to move up further. Milk foods have experienced a 25 percent price increase in recent months. The second factor is the break down in production and transport of most agricultural crops which has also contributed to the rise in consumer prices of many of these items.
The month long transport strike in August and the subsequent total week long strike upto September 1 paralysed transport, bank and

Page 8
port services. The third factor is a rapid depreciaiton of the Rupee against most other currencies which had also pushed up local prices of all imported items, as a large part of the country's flour and sugar requirements are imported.
The has also been pressure on
fuel prices and shortages of pet
roleum due to disruptions in supplies. As a consequence the prices of many essential commodities have increased significantly and the majority of traders who belong to the large and medium scale categories suffered heavy reductions in their margins.
Government Budget ܗ
The Government Budget, particularly its revenue measures are in jeopardy as a result of the regular disruptions in normal business activity. The monopoly cigarette manufacturer, which provides over Rs 10 mn of revenue per day to the government budget (estimated Tobacco Tax in 1989 Rs 4,802 min.) has experienced regular work stopages. Business Turnover Taxes
expected from most traders, small,
medium and large may not materialise as business gets more constricted and the entire trading sector has continued to experience difficulties.
In most areas of the Government Budget the revenue shortfall is
PONTS IN INDEX OO
TH-6
interscore - COCOS -- 550
EsR - ᏣᏅᏅᎠ5 | * -- -5GO
./'] |9 M 雄
ALL TEMS لا شیرسے۔ یہ -
ஐ 一十4GG
H350 A.
- 30 Ο
S86 1987 1988 1989 WHOLESALE PRCE INDEX
1974=OO
Monthly
expected to be instance a tax a to holders of made official di amnesty was eX Rs 100 million Government b tember 1989 ( was reported t million has com in revenue are context of the c by the IMF fc further US S
adjustment faci containing of
realising of rei the government required that th contained to 10 as against the
Government es Sri Lanka's Ov was 16 percer second highest
Asia member
only to Laos.
Together with icy the IMF h slowing down ( sion (MI) to 1 though it was percent. But statistics, Sri La (M1) was 29 pe was again the member counti exception of La contain the mo manifest in th which was close of nearly 20 pe have been ris bilis of one ye a rate of 19 pe attempts at a tig
Poverty Allevia
The Governn in its Poverty to assisting I families (appro
with a monthl
2,500 per mo: was to extend years commenc ment Budge | this year. An i billion was vot in the current
 
 
 

considerable. For mnesty was offered,
black money, who
sclerations, and this pected to contribute
in revenue to the udget. Upto Sepafter 7 months) it
hat less than Rs 1
e in. Such shortfalls unfortunate in the onditions laid down r the release of a 87 mln Structural lity which required expenditure and renues expected in budget. The IMF he budget deficit be -12 percent of GDP 16 percent of the timates. In 1988 too erall budget deficit it, which was the among the 19 ADB countries, second
in this budgetary polad also required a Df monetary expan8 percent this year running at over 20 according to ADB nka's Money Supply rcent in 1988 which highest for 19 Asian ties, with again the los. The inability to ney supply was also e rate of inflation er to an Official rate rcent. Interest rates ing, with Treasury ar maturity offering rcent, reflecting the ht monetary policy.
tion ܤܝ
nent was committed Allevation Program early 1.5 million x 6 million people) y allowance of Rs nth. This Program Over the next two ng with the Governresented in March hitial Sum of Rs 10 ed for this purpose budget. According
to published reports the program
could not et off the ground, due
to (a) a lack of funds; (b) the demand from those employed in the lower wage groups for a minimum wage of Rs 2,500/- a month; (c) administrative unpreparedness, and (d) the very insecure law and order situaliton in the country which posed a threat to field personnel involved in this program. There are several other factors that have caused a stalling of this programme, while the foreign aid agencies are more interested in the investment component of the prog
ae.
However, the concluding part of the first phase of the programme saw the distribution of printed Janasaviya Entitlements to all food stamp receiving families throughout
the island, on June 29 this year.
A total of 2.3 million Entitlement Certificates were distributed in all districts of the island.
According to a note from the Janasaviya Commission "the first round was due to start in July 1989, but could not due to civil and economic unrest. Now, it is rescheduled to start in September 1989. This phase will go on till the
۔۔۔۔۔۔۔۔۔۔۔۔۔
year-end. It will form an invaluable
pilot and learning phase. Phase III will begin in January 1990 with the second round of Janasawiya distribution. The largest possible number will be covered in 1990 depending on the actual first hand experience of the first round, the availability of Budgetary resources and the impact on inflation.'
In October this year, of the 1.5 million families eligible for
12 percent are due to be the first receipients of the consumption component of this Program. It will cost a little over Rs 3 billion, of the RS 10 billion voted in the Budget this year, to start off the 181,740 selected families on the Janasaviya over a 12 month period. The first round will include exactly
181,740 families in 28 AGA Divi
sions in 25 Districts. The distribution of goods will be carried out by 30 Multi Purpose Co-operative
ECONOMICREVIEW, JULYIAUGUST 1989

Page 9
Stores in these areas. The balance
88 percent of the families are expected to be covered over 10 more rounds.
Once the eleven rounds are completed, the Janasaviya Programme would embrace all the AGA DiviSions in all 25 Districts in the island. At the end of the 24 months the consumption component of Rs 1,458 per family per month is expected to cease when the investment component of Rs 25,000 will be made available to generate employment. When the last round in the Program is due to end, however, is not certain. Foreign Reserves
In the area of international payments, private remittances from the Middle East and other countries employing Sri Lankans had declined from SDR 270 million in 1984 to SDR 234 million in 1988. Exports too have continued to lag far behind imports and in the first 4 months of this year the deficit in Sri Lanka's merchandise balance of trade was RS 8.6 billion, as against Rs 6.9 billion in the same period last year; in the 1989 period while export earnings were Rs 14.9 billion the value of imports reached RS 23.5 billion.
The Current Accounts Deficit of the Balance of Payments was widening and it appeared that the government would find it increasingly difficult to finance much needed imports of rice, flour, sugar, fuel and cement unless agreement was reached with the IMF for balance of payments support.
Foreign exchange reserves were low and had come down from Sufficient to finance 3 1/2 months of imports to sufficient for (according to reports) a much lesser figure. With this depletion of foreign exchange reserves foreign banks had also become reluctant to provide needed guarantees on credit
lines for Sri Lanka. It had at times
become necessary to finance essential imports on 180-day letters of credit, while a few suppliers were demanding that off-shore foreign banks independently confirm that payments will be made. Meanwhile, importers of 'non-essential goods
ECONOMIC REVIEW, JULYIAUGUST 1989
have been asked percent cash mar tation of these p could compell th come tO terms Wi of the IMF’s cor complied with si ences of having t cial credits to fina mean a more pair tages and higher
Other aspects tive to larger pe Sri Lankan econ up by the ADB comment on the recent annual rej
“Sri Lanka curi difficult economi macro-economic economic growt debt-service ratic ment, large inte) government debt account deficit, savings. The in assistance, which levels during the not likely to inc addition, / the pri massive investme) taken in the pa below expectatio
Prospects
Overall prospec
for 1989 are one
forecasts indicate
1986 1987
INDEX OF CONSTRUCTI

to put up a 100 gin. One interpreressures is that it
he government to
ith the IMF. Most hditions are being nce the consequO obtain commernce imports would iful round of shor
inflation.
of the plight rela}rspectives of the omy are summed in this concluding
economy, in its port:
rently faces a very ic - Situation. The
constraints to h are a high high unemployrest payments on , a large current and low domestic flow of external was at very high : last decaded, is rease further. In oductivity of the nt program underSt has fallen far
ஒ3
S
its of the economy of gloon and all
that if political
POINTS IN NOEX 32O
“ / -|300
- 280
-260
24. O
- 220
খ্রিঃ"স্ট্র, 0
' COST OF
ON-HOUSES
(especially diamonds),
and social conditions continue to remain as unsettled as at present
the economy would deteriorate
further. In all major sectors there were signs of donward trend. As noted at the outset prospects for agriculture are uncertain. An Overall growth rate of 2.1 percent was recorded for this sector in 1988, but the same level of performance could not be expected this year.
Industry and industrial exports, particularly rapidly growing product groups such as garments and new lines such as jewellery and gems are nOt expected to achieve their original targets. Other key sectors affected are Mining, Construction and Economic and Social Overheads. Cement manufacture, for instance, had come to a standstill at the two major factories for some weeks and both the mining and construction sectors which normally make a subStantial contribution to the GNP are expected to turn in a poor performance in 1989.
Under Economic Overheads are sub-sectors such as banking and financial services, internal trade, tourism, roads and transport, communications and other infrastructure facilities.
The Social Overheads cover sub-sectors such as education, health and housing but every one of the Economic and Social Overheads have felt the damaging impact of the social and political upheavels over the eight months of this year.
The unrest has been at its highest in Aug-Sept. and in recent weeks the targets of anti government activities have turned out to be economic / administrative targets such as Government installations, tea factories and other public buildings and property.
The Crisis facing the business sector is but a reflection of the economic crisis. The economic crisis is but an epiphenomenon in the breakdown of the fabric of the socio-economic system that we are witnessing today with the legitimacy of the very social order being ques
tioned.

Page 10
Some Factors in the Current
Economic Crisis
S Tilakaratne
Professor of Economics, University of Sri Jayawarden
The crisis that Sri Lanka is passing through is one of the most complex in its recent history both politically and economically . The country's economic problems have grown to serious proportions. The rate of increase in the country's overall production (Gross Domestic
Production) had sharply deterior
ated to an average of a mere two percent during 1987-88, the lowest level recorded in the past 15 years. The economic performance in 1989 is unlikely to do any better; probably it could deteriorate further in the wake of the political turbulence and uncertainities. Three successive years of virtual economic stagnation has no parallel in the post-independence history of the country. The economic crisis has manifested in many forms such as growing macro-economic imbalances, increasing unemployment and under-employment and worsening poverty. It is the poor and the vulnerable who tend to suffer most, since they have the least economic 'fat' to absorb the blows such as frequent interruptions in economic activity, reduced employment and rising prices of consumer goods.
Natural Factors
Undoubtedly, natural factors beyond the country's control, have aggravated the worsening economic problems of the country. Adverse weather has made a substantial dent on the agricultural production levels for three successive years. Rubber production recorded a sizeable decline during 1987-88. Coconut production in 1988 fell to its lowest level in the decade. The prolonged drought in major paddy growing areas has caused a decline in the Maha crop of 1988/89 leading to a higher import level of rice this year as well as enhanced governmental expenditure to provide relief to the drought-affected populaiton.
According to about eight lak been affected b
ticularly in th
North-Western
Vinces. The Sevi slides in June th an estimated fa in the Western
provinces; caus and household destruction of and resettlen thousands dislo slides. The vict disasters must poor (who live and flood-affect the least ecol
Ministry
1. Finance
2. Defence
3. Public AC
4. Educatio
5. Lands & 6. Health
7. Transpor
8. Power &
9. Labours
10. Agricult
11. Posts &
12. Housing
13. Higher E
14. 12 Other
Total Expendi

ipura
newspaper reports, hs of people have y the drought pare North Central, and Southern pro:re floods and landsyear have affected ur lakhs of people
and Sabaragamuwa
'd damage to crops
assets (including ver 15,000 houses) ent of Several cated by the landims of such natural undoubtedly be the : in drought-prone ed areas) who have nomic reserves to
absorb the shocks. Such natural factors are however short-term in character. Return of good weather leads to a recovery of agricultural output. Rehabilitaiton and reconstruction could take care of the damage caused to physical assets.
Political Factors A more important cause of the country's economic crisis has been the ethnic conflicts (since about 1983) and the widespread political turbulence and violence of the past two years (following the Indo-Sri Lanka Accord). The cost in terms of human lives lost is incalculable. Among the economic costs is the diversion of a substantial amount" of fiscal resources for security purposes pre-empting investible resources for welfare and development. Expenditure on maintaining public order, safety and defence which had absorbed no more than about one per cent of the Gross Domestic Product historically, shot up to around five per cent by 1987;
ESTIMATES OF GOVERNMENT EXPENDITURE 1989
Expenditure %
(Rs. Mn)
47,239.1 440
8,917.8 8.8 ministration. 6,797.5 6.3 l 6,359.5 5.9
rrigation 5,370.2 5.0 5319,3 . 50
& Highways 5,285.4 4.9
inergy 5,015.2 4.8 Social Welfare 2,928.2 27
re & Food 2,716.5 2.5
elecom 2,338.5 2.2
& Construction 1,653.7 1.5
lucation 1,539.7 - 1.4
Ministries 5, 769.9 5.3
TE 107.250.5 100.0
ECONOMIC REVIEW, JULYIAUGUST 1989
拳

Page 11
and defence-related imports
reached about US$ 100 million, equivalent to five per cent of the country's import bill.
The allocation for defence expenditure in the 1989 budgetary estimates is nearly Rs. 9000 million,
allocation for either education or health. A drop in agricultural and fisheries production in the North and East, decline in tourism, disruptions to trade and commerce, destruction of capital assets and the erosion of the investment climate were among the more important economic consequences of the ethnic and political conflicts. The Overall result was a slow down in economic growth. The loss to the * economy caused by the ethnic conflict has been estimated at Rs. 50-55 billion (by the World Bank) upto August 1987. To this figure must be added the economic losses that the country suffered on account of widespread violence and political instability of the past two years for which no estimates are available. The transport strike in June this year led to a general disruption of economic activity for more than one month. Some of the output losses (such as closure of schools and universities and loss of work-days in government departments and ministeries) would not 醬 recorded in the Gross Domestic roduction as the output of governmental Services is valued on the basis of costs incurred (e.g. salaries paid) irrespective of whether the
services were actually performed
or delivered. On the other hand, increased expenditures on defence get added to the GDP although they do not contribute anything to the production process (civilian godds).
Structural Weaknesses of the
Economy
The above mentioned factors
namely the adverse weather, and the ethnic and political conflicts explain only some parts of the process that created the current economic crisis. The roots of the
crisis go much de structural weak
| economy. A cris
less inevitable ili economy evolved (about, ten years failure to adopt e correct its course.
The main sour growth in the past
vices rather than
duction (that is ind tural production). the services secto for more than 60 overall growth in tion (Gross Doi Utilities, transport merce, public ad defence were an growing activiti
liberalised economi the services hav
more than 50 per i the share of indus at around 14-15
GDP throughout situation is in shá many other deve in a comparable ment where the in GDP exceeds 2( of a decade of lib Lanka's industrie, disappointingly generating growt ment. Sri Lanka h the transition fro ducing and
economy to an
substantial degree tion. Given this f ture the economi has not emerged
growth process expansion.
Nature of Industr
Virtually the or duct category whi tained growth wi
this industry is ch
relatively low dom (less than 30 per ( value), being heav imported inputs
kages with the res the local textil
ECONOMICREVIEW, JULYIAUGUST 1989

eper, that is the lesses of the is was more or n the way the in the past, ) and given the arly measures to
ce Of economie I decade was Sercommodity pro
lustrial or agricul
The growth of
br has accounted
per cent of the domestic producmestic Product). ... trade and comministration and nong the fastest es under the nic regime. While 2 accounted for cent of the GDP, try has stagnated per cent of the the decade. This arp contrast with loping countries stage of developshare of industry ) per cent. Inspite beral policies, Sri S have played a modest role in h and employ
as failed to make
m a primary-promercantile-biased economy with a s of industrialisaailure to restrucy, a viable base
for a Sustained
and employment
ial Growth
hly industrial proch Showed a Susas garments; but aracterised by (a) estic value-added sent of the export vily dependent on and (b) low lint of the economy; e manufacturing
industry having failed to develop the capacity to supply the materials needed by the garments industry. Moreover, the continuing growth of the garments industry was itself hampered by the import quotas
imposed by the developed coun
tires.
The disappointing performance
of the
Public
Manufacturing
Eneterprises (PMEs) has been
another important cause of low
industrial growth in the country. The PMEs which number about 40 and account for close to half of
the
manufacturing output has
recorded an average growth rate
of only about one per cent per
year over the past decade. Employment has also increased only mar
ginally.
Sri Lanka failed to evolve a
clear-cut
industrial policy
and
strategy. It was only in 1987 (that is, ten years after the liberalisation) that an Industrial Policy Statement was issued; but then it was too late, for, political instability had led to a deterioration of the investment climate. ܒ
Rise in Unemployment 를
An important manifestation of the
poor performance of industry has been the failure to arrest the growth of unemployment, particularly over the past five years or so. Industrial growth has failed to provide a dynamic source of employment generation. In 1986, only about 19 per cent of the employed population
of the country was engaged is some
form of industrial activity. Official of unemployment of over 1.2 million, that is 18-20 per cent of the labour
estimates
force. Most of the unemployed are
indicate a level
youth with at least middle-school education, and hence receptive to training and adaptable to modern
enterprise
environment.
The
aspiraitons of most unemployed youth are also for industrial, technical and professional employment of some type. It is the growth of industry that can serve as an important means of meeting such aspira
tions.

Page 12
On the other hand, the governments have over the years attempted to deal with the problem of unemployment by expanding the agricultural frontier with emphasis on irrigated paddy agriculture. Heavy emphasis was placed on capital intensive irrigation and settlement projects. The Accelerated Mahaweli Development Project was the lead project of the government
over the past decade. Whatever its
other benefits, the new employment generation that came out of this Project compares very unfavourably with the massive investment that Was incurred. No doubt the Construction phase of this project (in the late 70's and early 80's) created a large volume of employment; but these were temporary jobs that phased out with the end of the construction boom. The permanent employment that resulted from the Accelerated Mahaweli Project has been estimated (by the World Bank) to be no more than about 55,000 by 1987 compared with an investment expenditure of about Rs. 44,000 million. Thus new employment had come at very great cost; each new job entailing a total capital investment of about eight lakhs of rupees. Moreover, new employment created represents less than five per cent of the estimated unemployed population of the country, Hence, Mahaweli was a costly exercise in terms of alleviating the unemployment problem.
Apart from costs, the scarcit places a sharp li employment exp gation, land de tlement project unemployment rise further in industry could sector providii dynamism to th
Foreign Resour Another import the structural
economy is th resource gap tha the years. Exp trialisation wa being more or
garments indus
Debt Service Payments 1984 - 1988
low domestic va make a signific the alleviation resource probl ments (on im capital repayme the foreign rect services and p
by an average
per year durin ge, payments at more than
of receipts. T this gap was fi to borrowings
he outstanding ountry to Rs. nd 1988 (a f USS 5000 milli to 3.5 times t
SDR Milli
tem
1984 1985 1986
1. Debt Service Payments 308.0 340.6 356.8 1.1 Amortizatiantin 32.3 165.5 213.5 To IM 22.7 35.8 58-6 To Othets 109.6 129.7 154.9
1.2 Interest Payments 175.7 175. 1 143.3 To IM 31.4 27. 1 21.3 To Others 144.3 148.0 122.0 2. Exports of Goods & Services 1,756. 1,619.0 1,352.6
3. Receipts from Goods, Services
and Private Transfers 2,049.6 1,906.6 1,622.4
4. Debt Service Ratio: (1 as a % of 2
P:S: Բաio : (l as a % of 2) 17.5 21.0 26.4 Excluding NF 14.5 17.2 20.5 5, Debt Service Ratio : (1 as a % of 3)
Overall ( % 15.0 17.9 22. Excluding IMF 12.4 14.6 17.1
(a) Revised. (b) Provisional,
2.
10
 
 
 
 
 
 

the heavy capital y of land resources mit on the possible ansion through irrirelopment and set... In this context, an be expected to future years unless 'merge as the lead g the necessary è eCOnomy.
е Сар ant manifestation Of weakness of the e sizeable foreign ut has persisted over ort-oriented indusis narrowly-based, less confined to the try, which given its lue-added could not ant contribution to of the foreign em Foreign payports, services and
ints) have exceeded spits (from exports.
rivate remittances) of over Rs. 33.000
USS 1000 million) : 1985-88. On averhave been running 1.5 times the flow he greater part of hanced by resorting which had raised external debt of the 162,548 million by gure very close to on). It is equivalent he export earnings
1987 (a) 1988 (b)
383.3 399.2 253.5 250.7 69.3 64.1
84.2 186.6
129.8 148.5 18.3 23.4 111.5 125.1
1,384.4 1,386.9
1,648.5
1654.7
27.7 28.8 21.4 22.5
23.2 24.2 17.9 18.9
Central Bank of Sri Lanka,
and over 70 per cent of the Gross Domestic Product of that year. In per capita terms, the external debt has amounted to nearly Rs. 10,000 compared with a per capita income level of less than Rs. 12,000 in 1988. The liberalised economic regime has been sustained more by resort to foreign borrowings than by a capacity build-up for expanded exports. The fact that this situaliton is unsustainable over the long-term became evident when by 1988 debt-servicing reached a record high of nearly 29 per cent of the export earnings. A sizeable outflow of foreign resources (through debt-servicing) had been created running parallel to the inflow of foreign loans and aid. D Irvicing has begun to reach a level almost equivalent to the foreign
net addition to the external resources of the country through foreign aid flows has drastically declined over the years.
It was inevitable that the country's external assets came under heavy pressure resulting in a decline of external assets for four consecutive years (1985-88). The gross external assets which were adequate
to finance four months of imports
in 1986 fell to an equivalent of only 2 1/2 months of imports by the beginning of 1989. The pressure on external assets appears to have continued in the first half of 1989. In March this year, the IMF suspended outstanding credit supplies in view of the failure of the government to adopt corrective measures to deal with the macro-economic imbalances. Given this chain of events, speculation ran high about the the possible devaluation of the Rupee to an anticipated level of Rs. 40-45 per US Dollar. According to newspaper reports, such speculaiton had led to a flight of capital and delayed receipt of
export proceeds, thereby aggravat
ing further the external financial crisis. These events are basically manifestations of the underlying structural weaknesses of the economy compounded by political instability.
ECONOMIC REVIEW. JULYIAUGUST 1989

Page 13
Steady Slump in Growth U
G. S. Chatoor
Chairman, Ceylon Chamber of Commerce
Traumatic period
The past twelve months have surely been the most traumatic period which Sri Lanka has experienced in this country. The ethnic troubles of the past six years were compounded by political and social turmoil. Most serious of all, there was an alarming breakdown of law and order, and for the first time in our experience tinere were prolonged periods when the writ of the Government did not seem to apply even in the city of Colombo.
I need hardly elaborate on the near impossibility of satisfactory economic development in such conditions. The growth figures from 1987 Sounded an unmistakable warning; the 1987 growth rate was 1.5 per cent, the lowest since 1971. The 1988 figure was 2.7 per cent. One shudders to even hazard a guess at the 1989 figure.
During the past eleven years there have been three plateaus of economic growth levels. In the period from 1978 to 1983 growth averaged a satisfactory 6 %; from 1984 to 1986, despite ethnic conflict, it was a creditable 4% to 5%; but from 1987 onwards it has averaged a poor 2%.
This steady slump in growth is unfortunate, because it is economic growth that creates more employment, more earnings, better nourishment, more savings for further investment, and, as a result of all these things, a happier, more contented society. While we fully appreciate that the alleviation of poverty is a national priority today, it is an inescapable fact that poverty can be alleviated only through a growing economy.
Economic development requires investment, the commitment of funds, the taking of risks. So far
Sri Lanka’s effo investment have on providing These are impo the exclusion of requisites.
In 1988 t Chamber of Con vened a Confer the central econ need for more in productive ent and international were illuminating Sri Lanka, whic Some of the fun
I shall quote Annual Report fo ditions which are attracting foreig ment. The princip a stable politica govenment which of business; an ef i bureaucracy; risi education, health infrastructure; sou fiscal policies; m personal and co flexibility of relati market signals; framework for t clear, stable anc flexible to adapt mercial operatior
of private propert
rights in intellec impartial judicial hibited access to ress wrongs and
Alarming deterio tructure
You will see th; can be grouped headings of poli economic infru include Some iter much attention authorities. To pu
ECONOMICREVIEW, JULYIAUGUST 1989
 

nfortunate
its at encouraging been concentrated fiscal incentives. rtant, but not to more fundamental
he International merce (ICC) conence to consider omic issue of the rivate investment erprise, nationally ly. Their findings g, particularly for sh has neglected damentals.
from the ICC yr 1988. **The COinmost effective in n private investDal Conditions are: I system with a respects the role ficient and honest ng standards of care and Social und monetary and oderate levels of rporate taxation, ve prices to reflect a legislative usiness which is yet sufficiently to modern coms; the protection y rights, including ual property; an system; and uninthe courts to redsettle disputes.'
ration in infras
it the ICC factors under the broad Iical, social and Structure, and is to which not S paid by our t it plainly, the
A.
basics - not only of the economy but of society - must be right. It would be a salutary exercise, and a chastening one, to examine the ICC conditions and see how though Sri Lanka has put together an attractive package of tax incentives, their effect has been undermined by an alarming deterioration in the political, social and economic infrastructure.
I have chosen to stress infrastructure at the beginning of my speech, instead, as in the past, towards the end, because it has become of such over-riding importance. I now move on to other matters, and you will notice that many of the problems that exist have their roots in shortcomings in the infrastructure.
Garments continued to be our largest export in 1988. Unfortunately, the events of the past few weeks, when production has been seriously disrupted by regular work stoppages, may impose long-term damage on the industry because Sri Lanka's reliability as a supplier has now been called into question. It is sad that the biggest success story in the export field may falter due to self-inflicted wounds.
Tea prices have continued to be depressed. Due to the large wage increases granted in times of high prices, without provision for adjustment if prices fell, several plantations are operating at a loss. That is not all. In many speeches to you at the previous two Annual General Meetings I warned that continuing indiscipline in the tea plantations would have the most serious consequences if it went on unchecked. Not only has there been no improvement; there has been the added trial of external threats and sudden stoppages of work. To quote the Chairman of the ColOmbo Tea Traders’ Association at their Annual General Meeting last month, "... one must sympathise with the producer who suffers threats to life and limb. We have some of the finest planters in the world, but many have lost their motivation and interest. The Superintendent bas lost his author
11

Page 14
ity, many promotions have been politically motivated rather than earned and the trade is suffering for it.' The long-term future of the tea industry must now be considered uncertain.
Question mark over largest exports
It is a tragedy of the first magnitude that large question marks hang over our two largest exports, garments and tea, which between them accounted for 55 percent of the country's export earnings in 1988. The consequences of their collapse would be too horrendous to even contemplate.
However, there is a ray of hope for the tea industry. The new Minister for Plantation Industries, the Honourable Gamini Dissanayake, has shown an uncommon grasp of the needs of the industry, and has enlisted the help of the private sector in the form of a newly established Tea Council, on which most sectors of the industry are represented, which is to serve as ar, advisory body to the Sri Lanka Tea Board.
The Minister of Plantation Industries has also agreed to set up a Rubber Council/Board to serve as an apex body for the rubber industry. These new bodies will equip the tea and rubber industries with the best institutional framework they have ever had, and I hope that the expected results will 3CCTUC.
The gem industry's exports have been increasing over the years, but it is still not operating anywhere near its potential. According to the trade the purchase of geudas by Thai gem merchants and their conversion to sapphires in Thailand has helped greatly to build up
Bangkok as one of the world's
great gem centres. The agreement between the Sri Lanka and Thai governments about the purchase of geudas has channeled some of the trade into legitimate exports, but the long-term answer is to develop the technology to process geudas ourselves, and the internal market
ing system to på price. The wor reported to be pr neither the trad ment has come tive which will of quantum leap occurred in the introduction of The Sri Lank Association, wh the Chamber, wi a report which v als for the devel industry.
Manufacturing whole also rem veloped sector, made in Some fi mention a few p icap local indust locally manufac subject to pric imports are not. locally manufa required to com "Standards, th imported articl industry also h some cases, with who dump infer in Sri Lanka at
Search for an ir tinues
The search fo icy continues. duced by a com in March 1987 depended too proposal – til Transferable T. In November addressed a m Minister of Fil drawing attenti
. TTC Scheme W
and which req The Chamber
that the TTC S. be complex a number of var ceeded anywhe would be in the iment with Our guinea pigs. It problems wit indulge in the
ically elegant prove unwork
A

the miner a fair done So far is
mising. However,
nor the Governp with the incenproduce the kind in exports which
1970's with the he CRA schemes. Gem Traders ch is affiliated to 1 soon be releasing il contain proposopment of the gem
industry as a ains an under-deespite the progress elds. I shall briefly roblems that handry. Although some ured products are e control, similar Again, while some ctured goods are ply with Sri Lanka e corresponding es are not. Local as to contend, in overseas suppliers ior quality products very low prices.
idustrial policy con
)r an industrial pol
The document promittee and released was a start, but it much on one key le introduction of x Credits (TTC's).
1987 the Chamber
emorandum to the ance and Planning on to aspects of the hich were not clear ired careful study. was also concerned heme, which would d dependent on a ables, had not sucte in the world, and nature of an experindustrialists as the ink we have enough out venturing to uxury of a theoretcheme which might ble and harmful in
practice.
The industry which has suffered most due to the problems of the past few years is tourism. Until the return of normalcy, the impressive tourism plant built up in the good years should be given every support. The authorities are to be commended on all the relief measures they have already agreed to.
In the field of taxation I would like to spotlight the thoroughly unjustified taxation of provident funds, which are taxed not just once, which would be bad enough, but twice. Firstly, provident fund balances to the credit of private sector employees are taxed at up to 15% of the employer's contribution on retirement, although inflation has already taken a heavy toll of the real value of the balances. Secondly, there is the iniquitous taxation of provident fund incomes introduced in the Budget Speech of November 1987. Although the tax was reduced from 20% to 10% by the Budget Speech of March 1989, the relief to employees was more than outweighed by the simultaneous emoval of the exemption of interest on Government securities in computing provident fund income. I strongly urge, on grounds or equity and humanitarianism, that the state should cease to regard provident funds as a source of 1feᏙᎾ1Ꮑu1e .
For eighteen years the Chamber and other private sector bodies have urged the repeal of the Business Undertakings (Acquistion) Act of 1971. We were therefore relieved that the Act was repealed by Parliament on 25th November, 1988. But even before the repealing Act had been certified, a senior Chamber member was taken over under Emergency Regulations in much the same manner that enterprises had been acquired under the Business Undertakings (Acquisition) Act. The Chamber protested strongly to His Excellecny the President against the take-over and pointed out the damage caused to the business climate.
ECONOMIC REVIEW, JULYIAUGUST 1989

Page 15
OREIGNPRESS VIEWS
Colombo faces a painful
battle on another front
(David Housego looks at the country's ailing economy)
Continuing terrorist conflicts in the north and south of the country, strikes and shut
downs imposed by Sinhalese and Tamil
extremists, vote-catching spending in both the presidential and general elections - all have taken their toll on the economy. Inflation, which has risen to 15 per cent at the end of last year has probably passed 20 per cent and is still climbing.
The budget deficit which should have
come down to 10 per cent of gross domestic product this year under the existing structural adjustment programme agreed with the IMF, surged last year to 15 per cent and
will reach 12 — 14 per cent this year on .
the basis of budget estimates.
Monetary growth was still a high 22 per cent on an annual basis at the end of March though down on the 29 per cent at the end of last, year.
Most indicative of the government's lack of space for manoeuvre is that with the current account deficit still rising (an expected 9 percent of GDP this year) and Sri Lanka's high debt service ratio virtually barring it from further commercial borrowings, the foreign exchange reserves have dipped to a low for the decade of the equivalent of six weeks imports.
Interest rates which had been raised to absorb inflation were abruptly reduced
before recently resuming their upward trend.
The currency which was depreciating at the beginning, was briefly revalued before resuming a downward slide. Price controls were imposed on pharmaceuticals though the President's real instincts appear to be market-oriented,
Against this background economic growth has remained low, particularly by comparison with the rapid expansions that followed the initial opening up of the economy in the late 1970s, Real GDP has risen at only 2-3 per cent over the last two turbulent years. Unemployment, which is at the root of the frustrations that have allowed the extremist Sinhalese JVP movement to build up its strength, is around 18 per cent.
The bright spot in the economy, demonstrating Sri Lanka's potential if ever it can get back on the rails, has been export-oriented manufacturing and services. Aitken Spence, a large, diversified, local group with interests in shipping, garments, container traffic and tourism says it had record profits last year in spite of their hotels being closed down in the peak winter holiday period.
A new Taiwanese S exported $ 3m of gar last year, and is expe this year while also to make sweaters. investment is waitin deterred by economi tainties.
The task Of the IM on what terms Sri I make an overdue SD drawing on its three ment loan. On the Fu the release of conces donor nations.
Until recently the hoped the Fund woul in its demands. But t and the Bank officia has now twice post stabilisation measures
difficulties.
Because of governn hold down inflation l; was allowed to appre real terms (as adjust measured against that trading partners).
Sri Lanka fad
David Housego (in
With the trade a deficit continuing to exchange reserves h
peard. A sign of S.
that the government imports of wheat, s on 180-day letters are demanding tha banks independentl ment will be made. I sential goods are t up a 100 per cent
As business circle of payments sque irresistible pressure to come to terms Wi Monetary Fund. Or 10 days ago Witho and another arrive IMF is withholding on a structural adju Sri Lanka enters 1 Payment on this w more in balance of from the Fund and ern donor nations.
Some hard decis been taken. The Prs programme, involv month (E44) payme families, has been sl
ECONOMIC REVIEW, JULYIAUGUST 1989

Lankan joint venture ents in its first year, ing a $ 14m turnover onstructing a factory Substantial Japanese | to pour in but is
and political uncer
mission is to decide anka will be able to 66M second tranche ear structural adjustd's approval depends ional aid by western
new government had i not be too pressing e mood among Fund is is that Sri Lanka oned much needed
because of political
ent determination to st year, the currency ciate by 5 per cent in ed for inflation and
of Sri Lanka's main
This year's depreciation in nominal terms has not begun to make good the loss of competitiveness caused by Sri Lanka's soaring inflation rate. A substantial devaluation (10-20 per cent) would boost export earnings, but the immediate rub for the government is that it would further exacerbate inflation - with the risk of unrest spreading from students to industrial workers and public employees.
To contain the inflationary consequences the Fund is expected to insist on tight fiscal and monetary policies - possibly a budget deficit limited to 10 per cent of GDP and a target for monetary growth of 10-15 per cent. This would require bringing down government expenditure as a proportion of GDP from 34 per cent to about 28 per cent and sharply raising interest rates.
Austerity policies are never popular. President Premadasa's government can be expected to put up a tough fight over the details. But the dwindling foreign exchange reserves leave the country little choice but accept the policy changes that the Fund will propose.
Excerpts from "Financial Times' May 11, 1989.
zes hard economic decisions
Colombo)
ind current account widen, the foreign lave virtually disapri Lanka's plight is is having to finance ugar, rice and fuel of credit. Suppliers t off-shore foreign y confirm that payimporters of non-eseing asked to put cash margin.
see it, the balance Ze is putting an on the government h the International e IMF mission left ut an agreement, in 10 days. The a $87m drawing tment facility until Lew commitments. ould unlock $60m payments support rew aid from west
ons have already
sident's Janasaviya ng a Rs. 2500 a nt for the poorest elved for this year,
(M1) to 18 per cent this year — which
of monetary policy.
along with another welfare programme for mid-day meals. The two would have cost Rs. 4 bin for 1989.
But the most difficult decisions remain. The removal of subsidies on wheat and flour could push up the cost of a loaf of bread by over 40 per cent to about Rs. 5.
Overall, the IMF wants to contain the budget deficit to 12 per cent of GDP, as against the 15 per cent in the government estimates. This marks a softening on its original goal of 10 per cent of GDP.
Parallel with this the Fund is seeking a slight slowing of monetary expansion
allows for an optimistic 2.3 per cent real growth in GNP and 15 per cent inflation. Interest rates have been rising, with one year Treasury bills now at 19 per cent, reflecting the tightening
The influence of Fund thinking is already being reflected in the accelerated depreciation of the rupee over the last two weeks.
Excerpts from “Financial Times” August 10, 1989.
13

Page 16
The Outlook for Sri Lanka’s
- an ADB view
The Asian Development Bank in its annual survey of the Sri Lanka's economy comesto the conclusion that by the end of 1988 the country faced a very difficult economic situation. In the ADB’s view the major constraints to economic growth were a high debt service ratio, high unemployment, large interest payments on government debt, a growing current account deficit, and low domestic savings. It saw two other unfavourable prospects for the economy, namely, that the earlier heavy flows of external assistance could not be maintained at the same pace and the productivity of the massive investment programme undertaken over the past decade had fallen far below expectations.
The ADB also warned that though the pursuit of very drastic austerity programmes would be difficult for Sri Lanka, in view of the already difficult political situation, there was a need to bring down
TABLE 1.
CHANGES IN MONEY SUPPLY (MI) (percent per annum)
14
1986 1987 1988 Nelly Industrializing --------------------------- ECOnonies
Hong Kong 23,6.阅 85 Korea Rep, of 66 14, 202 Singapore 1.8 12.3 8.4 Taipei, China 5, 4 37, 8 94.4
Southeast Asia
Indonesia 56 86 7. 9 Lao People's Democratic Rep, 69, 9 80.5 77.3 33Si3 2,$ 3. $,领 Philippines 博,1 22, 14,4 Thailand 涧,28,12,2 Yet Nam, Socialist Rep.of 215, 472.5
South Asia
Bangladesh S. 20, 9 8, 2 BU fina 1, - {(), , India 16, 13.8 12.6 Nepal 23, 24.9 12.7 Pakistan 博,博,廿,岁 Sri Lanka 捻,48,29,售
China, People's Rep.of 25, 3 252 30
South Pacific
Fiji 22, 6 -34 61.6 Papua New Guinea 4. 8,8 4.
the budgetary : ments deficits, efforts at fiscal c promotion.
The survey I 1985 economic down as both ( repurcussions o bances in the N the country perc economy. These TABLE 2. - CHANGES IN MC
(percent
Newly industrializing
Economies
Hong Kong Korea Rep. Of Singapore Taipei, China
Southeast Asia Indonesia tao People's DeRocratic Malaysia Philippines Thailang Viet Nam, SCCialist Rep,
Bangladesh Buffa India Nepal Pakistas Sri Lanka
China, People's Reo, of
South Pacific
Fiji Papua New Guinea
aggravated the nal pressures o escalating expe and internal attempts of the lise the econor tural adjustme) economic per ously effected which reduced tion to low leve ery recorded i a significant i performance. comparative cators (see d show that in a

Economy
■
nd external payhrough sustained t backs and export
scords how since rowth had slowed irect and indirect
the civil disturorth and East of Dlated through the disturbances only
NEY SUPPLY (M2) . per annum)
9. 1987, 1988
32.8 30, 21.8 18,19,21,5 10, 9.8 3.5 25.3 26.6 17.9
19.5 22.5 25.2 Rep. 70.0 9.0 9.0.
1.1 S.O 5.
9.5 链,24,阅
13,20.2 6, G f 212. 482. O
16.6 220 S. 31.3 -23, 9 S.9 18. 16.4 6,3 博,22.4,21.5 枋,邯 5.3 8,6 S. 14.7 6.5
28.2 25.6,15.3
16.7 3.8 20, 6 6.0 8.3 12.6 domestic and exterthe economy. The ditures on defence ecurity hampered government to staby and effect strucES. While the 1987 ırmance Was SeriI a servere drought, gricultural produc, the modest recov1988 did not have pact on economic Ome Of the ADB's erformance indigram on Page 3) least four of these
TABLE 3.
GOVERNMENT EXPENDITURE
Bangladesh 3 4s 38
Burma 1,3 14.3 3.6
India 捻,5 6.7
Nepal 183 19, 19.5
Pakistas 246 26.7 - 25.2
Sri Lanka 343 34.1 35.2
China, People's Rep.of 32,28,2
South Pacific
Fiji 0.8 31*ց 30.5 Papua New Guinea 33, 31, 29.3
(percent of GDP)
Newly Industrializing
ECOñ0hies
Hong Kong 13.3 12,的 11.7 Korea Rep. Of 恪, 16.6 Si Agapore 43, 34, Taipei, China 14, 13, 13,
Southeast Asia
Indonesia 22.8 23.5 22.5 Lao People's Democratic Rep. 36.8 38.9 Malaysia 3 O 30, 29.8 Philippines 14,邯,16,】 Thailand 伶,码 17.2 15.4
Viet Nam, Socialist Rep, cí
South Asia
economic indicators Sri Lanka was near the bottom of the league.
With regard to changes in Money
Supply (M1) there were only 2
countries namely, Laos 77.3% and
Fiji 61.6% that had higher rates
of money supply change in 1988 than Sri Lanka's 29.1% (In terms
of M2, however, there were nearly
7 countries of the 19 ADB members
ahead of Sri Lanka) See Tables 1
and 2.
In Sri Lanka, Money Supply (M1), increased by 29 percent in
1988. The ADB survey states that
this excessive growth in liquidity, together with the decline in domestic availability of some basic goods after the sharp drop in agricultural production in 1987, and the upward adjustments in business turnover taxes, wage increase and higher incomes earned from improved prices of exports, have contributed to the acceleration in inflaiton during 1988.
Another important indicator was Government expenditure as percent of GDP and here Sri Lanka headed the list for 1988 with 35.2%, closely followed by 34.7% of Singapore. (See Table 3).
ECONOMIC REVIEW, JULYIAUGUST 1989

Page 17
TABLE 4.
GOVERNMENT TAX REVENUE (percent of GDP)
1986 Se:
Newly industrializing
ECOnonies | Hong Kong ട്ട 1, 11.2 钴载
Korea Rep, of 6.15, Singapore 恪,鼠 13. 3. Taipei, China - 7.5 7.妮 鹦,算
Southeast Asia
Indonesia 15,t,1$鹉 Lao People's Democratic Rep. 2.4 2,6 Malaysia 20.6 5. 5.9 Philippines 10.5 11.7 11, 6 hailand 4. 邯,箕、
,
*iet Nan, Socialist Rep, of 2.
South Asia
Sangladesh : 7. G i. 6.9 Burma 7.4 莓、 署、 irdia 浣、德 kepal , 7. 2.5 茨,5 Pakistas 11.5 0.8 i. Sri Laska 恪。崔、 筠,霄
China, People's Rep.of 22, S3
Si South Pacific
Fiji 18.618 . 6. Papua New Guinea - 7.9 18, 18.6
In terms of Government tax revenue as percent of GDP. Sri Lanka s 16.7% was ony second to Papua New Guinea's 18.6%. (See Table 4).
Sri Lanka's budget deficit was also about the highest for the 19 ADB member Asian countries, (apart from the exceptional Laos 49.1%). In spite of the high tax
Government Expenditure by Function
Per Cent of GDP 15
Economic Services
social services
segregate Services
1981 1983 1985 1987
Source. ADB, Key Indicators (July 1988).
revenue and GD
1987, the highest year, and 16.7% only to 18.7% Guinea), Sri Lank deficit has contin tively high 15.7 main reason was ratio of capital e GDP was reduce TABLE 5. OVERALL BUDC
FICIT OF CENTR
percent Oi
Nelly industrializing
ECOsories
Hong Kong Korea Rep. Of Singapore Taipei, China
Southeast Asia IndoneSia Lao People's Democratic Re Malaysia Philippines Thailand - yet kan, Socialist Rep, of
South Asia
angladesh Era ກd ໔ e Pkista Sri Lanka
China, People's Rep.of South Pacific
F Papua New Guinea
a rapid growth in ture. Defence exp tinued to take up large amount of since 1984. (See because of defen security associate turbed civil cond position has conti ate. Throughout
1988 Sri Lanka’s deficit as a perce been one of the Asian countries.
The survey emphasi
resource gap is weakness which pos problems for macroe in Sri Lanka. investment rate di 22-23 percent in resource gap remail domestic saving, desp fell far short of inv
ECONOMICREVIEW, JULYIAUGUST 1989
 
 

ratio of 19% in
for Asia in that in 1988 (second of Papua New a's overall budget ued to be a rela% in 1988. The ... that while the (penditure to the d there has been
ET SURPLUS/DE.
AJ GOVERNMENT GDP)
-6, -, -.
), -11.3 - 2.5 - 49.
一律的。一】、时 -6, O -5,0 -3.0 -2,6 -38 -O, 2.3 -5 ༤4.9
一l,一懿,4、 -2.6 -2.3 -4.6
-54 - 4.5 ਨੂੰ -76 -8.8 -7.
-12.7 - 11.7 - 157
-0.7 -0.
-5, 7 -6.3 - 4
-11.3 -7, 9 -6.3
current expendi
enditure has con-.
an increasingly Iotal expenditure liagram). Mainly ce and external d with the disitions the fiscal nued to deterior1986, 1987 and overall budget 2nt of GDP has highest for the See Table 5).
Ses that a Wide a key structural es some difficult COnomic management Even though the clined to about 1987 and 1988, the led large because ite some increase, eStament -
Commercial Bank Deposits
In 1988 the total resources of Commercial Banks increased by nearly Rs 19 bn or 25 percent over that of the previous year. As much as 42 percent of this
resource growth was by way of deposit mobilisation.
The growth in bank deposits consisted of increases in time and savings deposits of Rs 3.5 bn and demand deposits of Rs 4.5 bn. In 1988 substantial increases in other liabilities, and paid up capital and reserves also contributed to the increasing resource base of Commercial Banks.
The Central Bank's latest quarterly
Survey of Bank Deposits and Advances
shows that total bank deposits stood at Rs 42.3 bn by the end of June 1988; and of these deposits the indigenous banks held 77 percent and the foreign banks 23 percent. Of the total deposits the States Banks held 66 per cent and
the other indigenous banks 11 percent;
while of the 23 percent held by the foreign banks the old foreign banks and
the new foreign banks each held approx
imately 11.5 percent.
The total number of deposit accounts with the Commercial Banks at the end of June 1988 stood at 5,888,683 indicating a decline of 173,379 during the first
six months of 1988.
However, the total number of accounts
held by foreign banks increased by 5,144
during the period under review.
In the case of indigenous banks, the
average balance of an account increased slightly by Rs 284 to reach Rs 5,639 as
at the end of June. Meanwhile, the
average balance of an account with
foreign banks stood at Rs 94,870 as at
the end of June, reflecting an increase
of Rs 2,093 during the first half of 1988.
Following the trend observed in recent years, these changes indicated that the indigenous banks were more oriented
towards retail banking through their large
network of branches, while the foreign
banks were mostly concentrated in
wholesale banking.
Amount in Rupees Million.
19SS Junc
No. of of Amount % of
- Accounts Total Total
1. Indigenous Banks 5,786,962.98.3 32,630.3 7.1ך
1. State Banks 5,494,35793.3 28,004.9 66.2
1.2. Other indigenous 292,605 5.0 4,625.4 10.9
Banks
2. Foreign Banks 101.721 17 9,676.8 1$2.9 2.1 Old Foreign Banks 79,670 1.4 4,849.6 11.5
2.2. New Foreign Banks 22,051 0.4 4,827.2 11.4
5,8SS6S3 iO3.0 42,307.1 100.0
Source: Central Bank of Sri Lanka
15

Page 18
COMMODTIES
Coconut - Production Exports Increase
Sri Lanka had a favourable .
coconut harvest during the first four months of 1989. The result
recorded a Sub the four mon
doubling from 7.2 min) in the 596.9 mn (SDI
was that coconut production 1989 period. increased by nearly 30 percent in 1989, to 784.5 min nuts, over that Tables 2 of the Jan - April period in 1988. Mainly responsible for the better crop was improved weather conditions.
Coconut oil Kernal Products Desiccated
Copra - Coir Fibre Coconut kernal products exports FOB Price increased by 70 percent in both
Source:
volume and value. Among the ker
inal products, the largest increase
in export earnings was in the DC category.
Production of coconut oil and
desiccated coconut also increased substantially. DC up from 1,711
mt. tons in the 1988 period to
11,143 mt. tons in the 1989 period; while coconut oil production moved
up from 10,600 mt. tons in 1988.
to 23,023 mt tons in 1989. Export
1. Cocount D 2. Departmen
Though pro producers col maximum bene in prices in the price of Copra 38 percent. In prices both in t naitonal markets
between April 1
as seen in the
earnings from all coconut products as
- in the table ab
Table 1
EXPORT OF COCONUT PRODUCT
(Rupees Million)
Kernal Products 1988. 1989
I (Jan.-April) (Jan.-April)
oil 291 * 52.92 Desiccated 63.98 230.69 Copra 1262 39.27 Nuts 24.69 22.99 Cream 2.08 5.37.
Total 351.24 106.28 ܡܢ. Non Kernă
Fibre 130.38 258.91 Shell 158.41 180.87 Other 92.02 100.66
Total 380-81. 540.44
Grand Total 487.09 891.68
Source: Coconut Development Authority
 

stantial increase in h period, almost Rs 304 min (SDR 1988 period to Rs 13.7 min) in the
April 88 April 89
International
Prices (Mt) US$ 1,006.00 713.00 Local Market - Prices (Kg) Rs 23.00
16.75
However, Coconut oil prices in
the local market were up from Rs
12,885 per mt in April 1988 to Rs
20,735 per mt. ton in April 1989.
Local Market Prices of Coconut Products
(Rs. per Kg)
1987 1988 1988 1989 . (Jan.-April) (Jan.-April)
。1675 30.80 34.78 23.24. 18.35 23.04. 24.52 18.48 12.53 19.79 24.29 15.15 7:44 9.27
evelopment Authority t of Commerce
duction increased ld not receive
fits due to the fall
local market. The was down nearly
the case of DC
he local and interwere down heavily 988 and April 1989
DC market prices
DVC.
Change /
95
68 --07. 61.
50 2
30
46
Non Kernal Products
An interesting trend was that in the first four months of this year export earnings from non kernal products went up to Rs 540 mn; which was well over the Rs 351 mn earnings of the 1988 period. Among the non-kernal products the largest export earnings were from Fibre products with export earnings in this sub-sector amounting to Rs 259 million for the first four
months of 1989; this was a 50
percent increase over earnings in the 1988 period. Meanwhile, earnings from Shell products reached Rs 181 mn in Jan.-April 1989, a 12
percent increase over 1988 export
earnings.
SPICES
Earnings from some spices continued their upward trend of 1988, particularly cinnamon and nutmeg. In 1988 cinnamon and cloves showed substantial increases in export earnings over those of the
previous year, while quantity-wise too there was a heavy increase in export of these two items.
Cinnamon
Cinnamon is the biggest export earner among the minor agricul
ECONOMICREVIEw. JULYIAUGUST 1989

Page 19
EXPORTS OF SELECTED MINOR AGRICULTURAL PR
(IN METRIC TONS)
Year Cinnai. Change Carda- Change Cloves Change
f2O % momOS % 1987 7,505 - 1.1 192 -29.4 492. -33.5 1988 6,811 -9.2 139 -27.6 2.251 +357.5 1988 线、 (Jan.-Ap.) 1,805 66 1,173
1989
(Jan.-Ap) 1982 +9.8 77 +16.6 153 -86.8
Source: Trade Statistics, Dept. of Commerce
tural export crops; its share being around 26 percent of the total in value terms. Since 1984 cinnamon export earnings have increased despite a lower volume of exports in recent years. The highest recorded quantity of exports for a year was 8,682 mt tons in 1981, and though it was 6,811 mt tons in 1988 in the first four months of
1989 exports had exceeded those
of last year. There is also a better price for cinnamon at present due
to the high demand in the world
market and earnings for the first quarter of 1989 reached Rs 195 mn as against Rs 99 mn in the first quarter of 1988.
象
Nutmeg
Exports of nutmeg and mace also recorded a significant rise over that of the previous year - Rs 14 mn in the first four months of 1989 as against Rs 8.9 mn in 1988. In terms of quantity, during this period exports went up. from 69,800 kgs in 1988 to 130,700 kgs in 1989.
Cardamoms
Cardamoms have recorded the
highest unit price among all minor agricultural products. However, the
level of earnings and volume of
exports have beer since 1986. In 1 28 percent over the first four mo the volume of e marginally. The price of cardam four months of 1 per kg, but this to Rs 235.67 per
Pepper - The annual ave of pepper has decreasing trend from Rs 115 per kg :: this year. B quantity and exp pepper has record drop, with earning Rs 152.5 mnim the of 1988 to Rs 43. period of this ye; Cloves
Export of cli recorded a very h first four months down from 1,173 1988 period to 153 of this year. Me dropped from Rs. 1988 period to Rs Average market however, had im
AVERAGE MARKET PRICE
(Rs. per Kg.) Commodity 1987 1988 1988
。 Јат.-Apr Cinnamon 60.97 111.05 52.26 (quills) i ܬ * - - Coves 103.56 127.18 彗02.笃0 Cardamoms 270.55. 241.88 26548 Pepper 129.20 87.26 8 11:553
Source: Trade Statistics Department of Commerce
ECONOMIC REVIEW, JULYIAUGUST 1989

ODUCTs
Pepper Change
%
2.015 +58.5 2,692 +33.5.
1,241
569 -541
on the decrease 988 its drop was 1987; although in
nths of this year
xports increased I annual average oms in the first 988 was Rs 265.48 year it was down
kg.
rage market price shown a sharp
; coming down
kg to Rs 83 per oth in terms of ort earnings also ed a considerable is decreasing from
2 first four months.
1 min in the same ar.
oves have also leavy drop in the of 1988, coming | mt tOns in the tons in Jan.-April anwhile, earnings 120.8 mn in the 10.4 mn in 1989. prices of cloves, proved in 1989.
1989 Jan.-Apr
149.40
110.93 235.67
83.18
HOUSING :
wOMEN AND HOUSING IN INDA - Humanising Housing
In India there is a struggle to empower women in the housing process. This has become an issue for open debate and in a paper titled “Humanising Housing” Lalita Das, a practising architect and member of the Women's Centre, Bombay, has highlighted the difference in design and use of space, in social status and thereby decision making powers of women, especially in the communities where women design and build houses as against those communities where men do so. This paper also gives reasons why the system is changing more and more in men's favour and makes proposals on how and why changes should be brought about. The follwoing are relevant
excerpts from the paper by Das.
Women are the primary users of housing which for the majority of them is a work-place as Well as a residence. Yet, they have been and are more and more marginalised in the housing process. Housing programmes calculate the requirements on the basis of family as a unit and the design, location and details are planned to suit the needs of the head of the household who in India is always assumed to be a man. Yet, according to UN micro-studies, one third of the households are women-headed - a fact that is not reflected in either designs or in women's participation in the process. In fact, the degree of women's involvement in the housing process is a clear indication of women's position in society. 三* -
Women designed and built housing
In many communities in India, women have been designing and building their own houses and still do so even though the numbers of these Communities have shrunk grėatly. These communities today mostly Con
sist of rural communities who still aice
17

Page 20
or were herders, tribals and seminomads.
Men designed and built housing
On the other hand, when women are totally excluded from the housing process, different social structures and design patterns become obvious. * Men design for themselves as primary users and Women as secondary users. Thus the prime areas such as front otlas (platforms) and rooms are demarked as men's areas and women are relegated to back rooms and the rear courtyard - if any: * Economics and building methods: When women built their houses, it was with materials that they had easy access to such as stone, bamboo, tree branches, mud, grass etc. Moreover, they used their traditional skills such as weaving, plastering with cow-dung etc. with these natural materials either depleted or getting commercially exploited, Women's access to these has got limited. Now these materials need to be
bought, not gathered. At the same .
time, a need for pucca (permanent)
houses involves the use of materials
such as burnt bricks, tin sheets, cement etc. which are all man-made and need to be bought. With women being
: considered more and more economi
cally non-productive, men control all i
the finances and therefore buy the building materials. Eventually, the house and decision-making regarding it come to be seen as men's rights.
Thus it becomes obvious that the difference in housing design and construction methods is not a difference only in physical structure but involves a fundamental change in attitudes, living patterns, men's and women's roles in family and community and in women's value as human beings. Further, empowering women in the housing process also helps bring about a fundamental change in society. Struggle to empower women in the housing process
As seen before, housing is major
instrument of control in a society. In
18
cow-dung, thatch,
India, traditiona voured not only others and State
also innen over
change in housing required to bring in response to th family. The Dra Policy published with legal admi cial problems ir construction acti Many non-go tions and indivic social perspectiv people's particip ment's programr under the bann paign for Housir take another lo means in relatio
The central aim
People's Bill of get it passed th its definition of 'Housing is not
be complete is na
basic things the housing is a vit. citizens to builc tionships - amon! turn to build cul ciety itself'. It right to housing human right - '' dignity".
Precisely beca the significance issues involved paign and that different areas O. varied group of ple including mɛ tions all over th realised the imp housing issue at ven it priority i searched and st of gender and ding relief to V change the sys roach Paper (D Legal Working centrated on prC

ly housing has fa property Owners Over Over individuals but Women. A drastic policies is therefore about social change. ne UN Declaration of ift National Housing in 1987 deas mostly nistrative and finannvolved in increasing vity. vernmental organizaduals felt the lack of te and the lack of
lation in the govern
me and joined hands er of National Camng Rights (NCHR) to ok at what housing in to our total sytem. of NCHR is to draft a Housing Rights and to rough parliament. In housing, NCHR states just the buildings. To hust have access to the at sustain life. Good at base in society for | free and equal relag themselves and in tural identifies and Soconcludes that the is a fundamental and the right to live with
ause NCHR recognises of many different in the housing cam
housing touches many
F life, it has attracted a organizations and peoiny women's organizae country. NCHR had ortance of gender and an early date and giin the issues to be reudied. Yet, the focus nousing was on provinomen rather than to em. The Draft AppAP) prepared by the Group of NCHR conblems such as:
* property rights for women - inheri
ted and matrimonial; - * provision of plots for women’s hou
sing in town-planing;
来 resettlement primarily to suit wo
men’s needs. When the DAP was presented for national discussion and a National Consultation (NC) was held in Bombay in May 1987, the focus suddenly changed. The discussion at NC was very lively and as points started coming up, it was obvious that it was necessary to break out of the framework in which housing and rights to housing are seen and raise new con cepts on what housing means to men and women in our social context. Here one can go back to the differences observed between Societies in which women designed housing and those in which men did so and pinpoint some of the differences în context: * that women consider the requirements of the whole of the households as of equal importance. When women design and build, it is for the household. Men always give primary importance to their own needs when designing and constructing; * that the housing process has continued according to this value system, thereby empowering men and oppressing women; * that community support and sharing is more pronounced when women participate in the housing process;
social
* there is more tolerance of other
religions and different life styles in these communities: * single, aged and inform persons are integrated in and cared for within the community.
From these it becomes obvious that just giving more rights to women in the same system will not change the system but may even strengthen it. What is required is that the proposed Bill act as a catalyst for changing the man-woman relationship which at present continues to be that between oppressor and oppressed as well as
ECONOMICREVIEW, JULYIAUGUST 1989

Page 21
creating a stratified and intolerant society.
To many of the men who attended NC, it was a shock to realise how entrenched was the value system whereby man and his needs are considered superior to women and their needs and how it spreads to create an oppressive society. It was realised that the first priority is to humanise the manwoman relationship and that the whole concept of the Bill needs to be re-examined from the perspective of 'Humanising Housing'.
Humanising housing is a very wide concept and many of its implications are just beginning to come to the force. Much more study, thought and discussion are required to transform the concept into a viable proposal. Some of the areas proposed for the study are: Realisation of non-material value of housing: - * Realisation of emotional involve
ment of women in housing. * Giving value to physical labour involved in making a house into a home. * Understanding insecurity and fears in women due to homelessness Such as physical violence, brutality, child-rearing problems, etc. Removal of artificial limitations inposed on women. * Granting of equal rights to women to ancestral as well as matrimonial property. * Removal of the division of social
roles by gender. * Removal Of demarkation of men's and women's interests and activities within and without housing. De-nuclifying family. * Removal of isolation and thereby
control of women in a nuclear
family. * Re-generating communal living structures whereby community
support and sharing can be achieved
without eliminating privacy and in
dividuality.
Though interim reliefs are certainly required, the thrust of the required change needs to follow the above mentioned guide-lines.
DISCUSSING
A case for an
There was no choose an oper Lanka were to economic and en was the conclus Jayawardena in 1989 Annual Organisation ASSOciations hel
The CPA dev Sion to Sri Lanka the two main s A. S. Jayawarde) nor of the Centr man, Bank of C Governor of the N. U. Jayaward
Mr. N. U. Jay was restoring c. sound econom where he emph strategy would tion of several pC ing infrastructur these policies as policy; right e right fiscal poli policy; and last reSOUCe a involving above the most impo humans.
Dr. A. S. Ja on what he the appropriate eca Sri Lanka at th veyed the vast taken place in since independ economic regin - 30 years, he sai and an inwari policy was purs WaS SOIme pl period, Sri Lay other countrie of economic gr
ECONOMIC REVIEW, JULYIAUGUST 1989
 

SRI LANKA’S ECONOMY
open economy and need for right policies
lternative, but to
economy if Sri - achieve a rapid ployment growth, on of Dr. A. S. in address at the Sessions of the Of Professional in September.
ted an entire Sesseconomy, where beakers were Dr. ta, Deputy GoverBank and Chairbylon; and former Central Bank, Mr.
ea.
awardena's subject onfidence through hic management asised that such a require a conjunclicies with supporte. He summed up right development Kpenditure policy; :y; right monetary but not least, right agement policy, all management of rtant resource of
awardena focussed ught was the most nomic strategy for s juncture. He sur
changes that had ri Lanka's economy nce under different es. During the first , a welfare oriented
looking economic ed. Although there gress during this (a fell behind most
of Asia in terms with and living stan
dards. The next 12 years saw a change in policies towards an open economy. There was an acceleration in economic growth and diversification, but with inadequate attention paid to welfare considerations. Divisive tendencies in the socio-political sphere have been aggravated and, this has created instability and uncertainty. He emphasised that widespread consensus on the appropriate economic strategy for Sri Lanka appears to be lacking.
In his view the current economic perspectives in Sri Lanka could be categorised into three groups;
(a) Persevering with Open economic policies, with adequate concern for welfare and employment.
Reversion to a controlled economy, with strong emphasis on welfare and employment.
(b)
Large scale socialisation of the economy, on the lines of the now abandoned Soviet and Chinese models.
(c)
Sri Lanka is a small island economy with a narrow domestic market. Adoption of inward-looking policies in such a context will inevitably result in low growth, low incomes and high unemployment. On the other hand, the experience of the Soviet and Chinese economies has demonstrated severe limitations of the traditional socialist strategies. Therefore, he concluded, that if Sri Lanka wished to achieve a rapid economic and employment growth with diversification, it had no option but to choose an open economy.
19

Page 22
He maintained that an open
economy would mean integration with world markets, not isolating oneself from them. It would necessitate the adoption of a highly flexible exchange rate policy, the exchange rate being the price at which we trade with the rest of the world. It would also be necessary to create internationally competitive domestic
tion of over-protection of domestic economic activities. We will have to remove ultra-national blinkers’ on the question of foreign investment. The objectives of income distribution could be best achieved by the government's tax - expenditure process.
Adoption of any other strategy will have disastrous consequences. In the ultimate analysis, he said, problems of economic management are the same, whether we choose a market-oriented or a command type economic strategy. Experience the world Over shows that these problems are more easily solved under a strategy which leaves the economic decisions to an open competitive market.
Industrial Development
Another connected issue was the
subject of industrial development
which was analysed and discussed by Industries Ministry Secretary, Mr. Vincent Panditha. Looking at the current scenario he argued that after forty years of independence and various plans for industrialisa
tion, Sri Lanka was still a predomin
antly agricultural country with a very small industrial base. Industry contributed only 15 percent to the GNP as against an Asian average of 32 percent. Another significant factor was, that at the time of independence, Sri Nanka ranked second in living standards in South and East Asia, only next to Japan. Today our average income was estimated at $375 and was surpassed by Pakistan $400, Indonesia $520,
2O
economic activities, by a progressive reduc
Thailand st South Korea
Singapore $9 and even M
An analys private and
showed that the producti
which was
private sect
changed to percent and percent. A industry is d intermediate sector (with exceptions) h a weak exp make a relat
to GNP whe
of the Asia developed in the constrain ment, he list problems of of dispersal Sequential pr that the pi economic de the achieve growth, the
dards of the of employm quickly as po the unemplo shown that a
labour force
level anong was a high a GCE (O/L) c in 1986/87.
under-gradual
there is still
agricultural stitution of f and other fo economic gro a dynamic inc ermore, due 1 tive capacity
ket, producti oriented, whi tries have to possibilities development
agriculture ha

195, Malaysia $1920, $3910, Taiwan $6053, 1455, Hong Kong $9605 aldives S470.
is of the structure of public sector industry over the last 12 years, on of the public sector 66 percent, and the or 34 percent had the public sector 34 the private sector 66 large part of existing ependent on imported S. Also the industrial one or two Sub Sector as continued to display Ort performance and ively low contribution 1 compared with many 1 countries that have hore rapidly. Among ts to further developed cost of funds and credit; and also a lack of industries and Conoblems. His view was
rimary objective for
velopment has to be ment of economic raising of living stanpeople and generating ent opportunities as
issible. An analysis of
yment situation has s a percentage of the
the unemployment
GCE (A/L) qualified
is 34.8% and among
ualified it was 28.5% Unemployment of
tes was 61.7 %. While
some potential for growth, import subbod grains, milk, fish
od crops, substantial
with has to come from lustrial sector. Furthto the limited absorpof the domestic maron has to be export ch means that indus
be competitive. The of linking industrial
with expansion of s also to be explored,
these objectives,
particulary if 60 percent of family budgets went on food.
The policies and strategies required in the immediate future should be directed, he said, to providing greater employment and income opportunities for the growing population; towards strengthening Sri Lanka's Balance of Payments; towards transforming the
primary domestic market Oriented
industry to an export oriented one; and to ensuring a more equitable distribution of income and wealth, and thereby improving the quality of life of the people. To achieve he advocated specific policy instruments among which were:
(i) Complete neutrality between public and private sectors and ownership.
(ii) Complete neutrality between import substitution and export orientation among industries.
(iii) The active promotion of lin
kages between big investors and small producers.
(iv) Adoption Of prudent macro-economic policies in
order to stablise the economy,
contain inflation and promote productive economic activity.
(v) Removal of administrative bar
riers.
The short term strategies required, he concluded were: an Exchange Rate policy which is realistic and flexible, since it was the exchange rate that fixed the prices at which we dealt with the outside world; a tariff Policy which would not over protect and would help existing industeries to become internationally competitive; a Fiscal Policy which would not contribute to inflaiton; a wage Policy which relates wages to producitivity; an Industrial Policy that would facilitate development rather than regulate or control it; and finally peace and security which would bring about social cohesion and a stability required for development.
ECONOMIC REVIEW, JULYIAUGUST 1989

Page 23
FEATURES
SOME SOCIO-POLITICAL ASPECTS OF
| Sunimal Fernando - Director IRED
Willie Gamage - Senior Research and Programme Officer IRED - Development Innovations and Networks
(Development Support Service - Asia Colombo )
This paper tries to highlight some of the critical socio-political aspects of the Poverty Alleviation Programme (PAP) of the Sri Lankan government known as 'Janasaviya". In doing so, it identifies a number of Processes and issues critical to the success of the programme, which, in the view of the authors, should be sensitively and qualitatively monitored through the period of implementation. The views expressed are those of the authors and not necessarily those of any group, committee or organisation of which they may happen to be members.
The paper deals with Processes and Movement, and not with Events and Statistics. It largely ignores the Theories Concepts and Frameworks that are often imposed on the reality by Academic Elites. It avoids not only the Stifling Jargon but even the Indicators' of both Poverty and Development that continue to be fashionable in International Development Dialogue. It offers no Schemes or Packages in Support of Janasaviya. It tries to unfold processes, highlight issues and provide insights into the concept of Janasaviya. Put in a different way, the authors try to grasp the reality of poverty and the challenge of its possible Alleviation from the Vantage point of Communities of the Rural and Urban Poor With whom the organisation to which the authors belong identifies its own work.
The Socio-Political Processes Through Which Poverty Has Found Itself Defined
The policy thrust of every government since Independence has been to place primary emphasis on uplifting the socioeconomic conditions of the Poor. This soon became a cornerstone of Our political culture. Policy Makers, Administrators, Politicians and Academics comprising various sub-sections of the "Estab|ishment continuously developed Policies, Strategies, Programmes and Projects to uplift the socio-economic conditions of the Poor'. Those planning and implementing the numerous programmes addressed to the Poor, used diffe
rent indicators to the Poor.
Some Programme.
the Poor with refer ship; others identifi of Nutrition Levels of Family income
Levels of Employm
the poor in terms Amenities; some Housing Standards the nature and emp programme. Likewi actors on the develc Economists, Soc ACCountants, Cult gious Thinkers, Soc developed their o Works and definit the Poor.
What is important rural and urban Po Wed and perceived intentioned Actors scene as Constitutin Poor perceived the cy' which controll ces which they wer to the Poor throug rammes and projec tal Actors continu Poor as a They a 'We'. They were p cy' or 'Establishme (and often also e sources which wer The political, cul processes that alie ta Actors from th scope of the prese
Despite the effo be made to develo Society into a Par the socio-cultural between the The mental Actors in vernment Funci Academics etc.) a ple) by and large unbridged. While Within their often
ECONOMIC REVIEW, JULYIAUGUST 1989

ANASAVIYA
define and identify
sought to identify nce to Land OWnerd the Poor in terms Sti || Others in terms
Some in terms of ent; some identified of Access to Social with reference to etc, depending on hasis of each specific e, the various other pment scene such as ologists, Bankers, ural Activists, Reliial Activists etc also wn specific frameions for identifying
to realise is that the or, for their part, vieall these often wellon the development g another Order. The m as a kind of "Agen2d numerous Resoure ready to hand-out' h their various progts. The Developmen2d to be seen by the nd not as a part of a erceived as an "Agennt' that had access to joy the use of ) reneeded by the Poor. ural and economic ited the DevelopmenPoor are outside the t paper.
ts that continued to o Sri Lankan Political cipatory Democracy, and political distance
" (Viz : the Developuding Planners, Goonaries, Politicians,
Id the "We' (the peoContinued to remato he They operati
arrow Compartmens
continued to apply various thclicators to define and identify the Poor, the 'We' in Our Wisdom continued to apply 'Our' creative skills to get more and more of 'Ourselves" (Viz : the People) included under one or other definition of the poor so that increasingly greater numbers could benefit from programmes designed for 'improving the socio-economic conditions of the Poor'. To get included within categories defined by Developmental Actors as those qualifying to benefit from programmes designed for the Poor', people were not slow to manipulate local power structures for their benefit. The socio-political process through which Poverty came to be defined was further strengthened by the growth of Patronage Politics. Those development practitioners functioning in the political sub-sector of the Development Scene, – in other Words 'Politicians', -COmpeted with one another within the ethos of patronage politics to have more and more of their 'clients' (i.e. Supporters, Voters) included within the category of “The Poor''' So that thay may share the benefits of programmes addressed to the poor.
In the circumstances in which they were placed, the People can be seen to have acted very sensibly in getting greater and greater numbers included within the category of 'The Poor'. To start with, the dominant Political Culture focused on the poor - so to get the attention of the State, it was imperative to place oneself within focus - i.e. to be seen as Poor. Then again, the People were dealing with what they perceived to be Development Agencies' which not only controlled resources but were also drawing up plans and programmes and inviting the People to Participate' in the development programmes formulated by them instead of moving close to the people, understanding the People, understanding the People's Development Plans and Processes and applying the resources that they control to support the mainstream processes of the people. In such a set of circumstances, the People responded sensibly by applying their creative genius to manipulate the "Development Agencies' and draw more resources to themselves. Their strategy of manipulation, within the Poverty-focused Political Culture in which they were operating, resulted in greater numbers presenting themselves as falling below the Line separating the Poor from the Non-Poor. As a result, nearly 50 percent of all Sri Lankan families are seen to
21

Page 24
have family incomes of less than Rs.700/- per month according to the Food Stamps Scheme - a near preposterous position.
What Constitutes Poverty
Within their own societies, rural communities and urban garden communities define and identify their Poor in terms of a few broad qualitative criteria. These criteria are casually inter-related one "with the other :-
Families whose basic needs are not adequately satisfied are considered to be Poor. This includes families without proper shelter; families
which are not able to send their
children to school; ill-clad families;
those who cannot adequately feed
themselves; families that cannot af. 1 ford minimal medical attention for
the sick etc.
lar/secure/assured Source of income are seen as being Poor. This includes familjes of labourers who cannot befsure of a regular number of days of work per week; families of small highland farmers whose income is critically related to rains which have proved to be uncertain; families of artisanal fishermen whose fishing days get severly constrained by weather conditions or of fishermen whose resources have been seriously depleted through
over-exploitation; families of Crafts
men and other small producers whose products are being competed out of the market by substitutes that are mass-produced in factories etc.
Families which are not well integrated into the development process - i.e. families on the fringes of the development process - are seen as being Poor.
Families which often as a result of their economic deprivation have lost courage, hope and initiative are seen to be Poor. This reflects a state of mind in which have families concerned, oppressed by an overwhelming sense of failure, resign themselves to a hopeless future one in which there seems no chance of overcoming their Poverty; A state of mind which nullifies any interest in the political process the develop
Families which do not have a regu
ment process ( change, becaus Poverty is so c they entertain ing their situa pation in eithe or in a proces: change. Powel Strength and C initiative of t lessness, resign the statusquo, possibility of i effort - these : external signs c
Families which Support - a he more integrally lopment proces their socio-ecor seen as being PC
In all past ...progrant
and impleme removed fro
Assessment of P. Poverty Alleviation of the Janasaviya Co
The Janasaviya Co innovative approach
tion that is qualitat
Poverty Alleviatio hava been followed same time, in prese parameters of the Culture of the post od. A culture that from time to time
verty as a serious pr Ses the Alleviation
the prime respons
Society. To this ex mainstream politic has evolved within
litical culture of the period. Whether thi that the political ci exists, actually do another matter. M. of Poverty is a Rela Absolute State; Or Poor in relation to
while being almost
ed in mainstream po that is why no poli oppose the Conc
 
 

r in the processes of their experience of 2ep and intense that no hope of improvtion through particithe political process of development and ty has sapped the rushed the hope and hese families; hopeation, acceptance of lack of faith in the mprovement through ire thus often seen as f Poverty.
need some externas Iping hand - to get
linked to the deves and thereby uplift omic conditions are
O r.
pproaches.
were planned
the poor.
ast Approaches to and the Emergence bncept
ncept constitutes an to Poverty Aleviaively different to all in Approaches that in the past. At the ints itself within the dominant political t-independence perire-affirms to itself the existence of pooblem and recongniof poverty as being ibility of Political tent, Janasaviya is a a programme that the mainstream po2 post independence 2 extent of poverty ture likes to think es exist or not, is ore over, the State tive one and not an he is seen as being someone else. But aggressively anchorlitical culture -(and tical party can dare ept of Janasaviya
without risking alienation from mainstream politics) -, the concept, strategy and Approach of Janasaviya reflect a series of radical departures from the Strategies and Approaches of the past.
폴
Past approaches have viewed the Poor as Objects of Development for whom programmes were planned and implemented by others.
In all past approaches, the Authors or Subjects of Development were Politi
cians, Planners, Government Functiona
ries / Administrators and Expatriate socalled Experts; Programmes were planned and implemented at levels removed from the Poor. A socio-cultural distance separated those who planned and implemented programmes for alleviating poverty from those whom the programmes were meant to benefit. Government functionaries or administrators who constituted what is defined in jargon as the 'delivery mechanism of development for the poor', often reached the poor at community level through a better off (non-Poor) villager or urban garden dweller with whom the functionary would socially and culturally feel more comfortable. Such persons could be teachers, government functionaries, traders and owners and reducated persons be
longing to the community. These are
also usually the people who hold office in Community Organisations, thus giving legitimacy to their role as intermediaries between the Government Delivery Mechanism' and the Poor.
The socio-cultural distances separating these different actors on the traditional poverty alleviation scene are reflected in the stereotype images each has been known to have of the other. Most government functionaries / administrators
and the non-poor through whom they
reach the Poor, and also many politicians see the Poor as lazy (alasa), lacking initiative (udaseena), lacking confidence, negatively pulling back (pasugami), needing to be taken by the hand and helped along indefinitely, irrational in the use of money, prone to alcohol and to other items of 'wasteful expenditure, unreliable in financial transactions, generally dishonest and unreliable etc. The Poor see the non-poor as people with whom linkages of dependence can be forged: The Poor do not generally perceive the non-poor as Exploiters' or 'Class Antagonists' except in some exceptional instances. The Poor perceive government functionaries/administra
ECONOMIC REVIEW, JULYIAUGUST 1989

Page 25
tors and politicians as persons functioning in a kind of "Development Agency" that has distanced itself socially and culturally from the Poor: An "Agency' that is powerful in that it controls resources needed by the Poor: An 'Agency' that the Poor have to manipulate in order to draw some of their resources for themselves. The social, structural, cultural and attitudinal distances separating the administrative system, the political system and the non-poor sections of the community from the Poor are such that programmes for alleviating poverty have been 'delivered from above in the absence of a Willingness to trust the Poor to make a success of them on their own. Built into these programmes, therefore, are structural ties of dependence linking the Poor to the administrative and political apparatus Which Continues to thWart the initiative and innovativeness of the Poor, even after linking them into the process of development. The Janasaviya Concept provides a dramatic break with the past. Janasaviya is paradoxically also a top-down programme: But a top-down programme that immediately stands the old-type top-down approach on its head. Janasaviya evolves on the premise that the persons most concerned with Poverty Alleviation — Viz : The Poor themselves - should be the Subjects and not the Objects of a Poverty Alleviation Programme : And those who are seen to Constitute a someWhat alienated "Development Agency for the Poor' should re-Structure them Se|Ves intO a kind Of 'Support Organisation at the Service of the Poor'.
a fundamental re-structuring of the relationship between the People and the Development Organs of the state : This calls for alterations in povver relations and changes in control over developmental resources : It calls for major attitudinal changes on the part of planners, government functionaries, politicians, academics, the non-Poor and the Poor.
The Success of Janasaviya requires capacity-building among the Poor to undertake the responsibility for Poverty Alleviation as the Authors or Subjects of the process itself rather as the objects of someone else's programme: This in turn requires State. Intervention to remove the existing constraints to a Peoplebased Process of Poverty Allevia
The Success of Janasaviya requires.
tjon: It also Cal || of appropriate S the Poor for Strer based Process o tion.
Strengthening the M of Development a Another Way of Look
In any community urban poor, individ risen to overcome po own efforts and im tions of life. There is ban garden communi small - degree of soc the ranks of the Poor intervention of the S tes the Mainstream P ment among the PoC no doubt, is small. which have come out cating a child who th job and brings to the ding in society: It it percons who have d terprises through th their own skills to a source: it includes who, having tempo|| another part of the have invested their in income-generating ludes families of pers oped a profitable b initial investment, et cess in overcoming be usually associates tion of tWo or mor factorS:-
* À desire to impr posed to an ove hopelessness and
Some types of s ly available in m
Access to smal for starting-up a
A feeling of fre sions unconstrai dependence.
* Ability to ider either by onese ing information.
Accessing appr technologies wh ble with the peo
ECONOMIC REVIEW, JULYIAUGUST 1989

for the provision pport Services to gthening a People
Poverty Allevia
ainstream Process nong the Poor: ing at Janasaviya
of the rural or ua families have erty through their prove their condiin any rural or ury a certain - albeit a mobility out of without the direct late. This constiturocess of Developr. The mainstream t includes families of poverty by eduen obtains a SeCure family a new stancludes families of eveloped small en
he application of
small material reamilies of persons rarily migrated to country or abroad hard-earned savings activities: it incons who have de Veusiness on a small
c. Mainstream Suc
poverty is seen to d with a combinate of the following
ove oneself (as oprwhelming sense of
failure).
kill (which is usualost poor families)
material resource n activity
edom to take decined by linkages of
tify Opportunities for else by access
ropriate low cost ich are often availaple themsel Ves.
폴를
A feeling of confidence in one's own abilities (which is usually associated with a feeling of freedom from dependency linkages that bind one to others for one's sustenance).
Janasaviya can be seen as a programme for strengthening the Mainstream Process of Development among the Poor. Viewed from this angle, Janasaviya projects a two-pronged strategy:
Strengthening the factors associated with Mainstream Success through clearing the Access Channels and providing Support Services.
* Weakening and even uprooting those politico-social, cultural and attitudinal factors which are seen to conscribe the mainstream process.
The mainstream development process of the Poor is presently a small one. The aim of Janasaviya is to stimulate it to become broad enough to provide large numbers of presently poor families with sustainable income and a livelihood. The degree of success in achieving this objective will depend - among other factors - on the resolution through praxis of the following inter-related conditions intrinsic to the Janasaviya Programme itself:
* Selection of Janasaviya Beneficia
ries:
The guidelines are clear. The thinking is unambiguous. Each hamlet of around 100 houses meets and selects 4 members for its Support Group (Sahaya Kandayama) to Which the AGA adds one government functionary to make the group 5. Together with its own Support Group (4 members of which are selected by the hamlet itself), the hamlet families select the beneficiaries at a public meeting. No hard and fast indicators of Poverty are imposed on the hamlet by the guidelines. In fact, the hamlet is free to apply its
own qualitative criteria to identify
its poor. The power to define, identify and select the Poor has to all intents and practical purposes been completely devolved on the people living in hamlets and rural garden clusters. The strategy is to trust the people and devolve responsibility on them. With what degree of
23

Page 26
responsibility will the hamlet identify its poor? It depends on the way the hamlet perceives the Janasaviya Programme. If it is perceived as a traditional-type Government Programme - i.e. where decisions are taken by government functionaries and politicians outside the community and benefits are 'delivered to the people from outside, it is likely that the people's response
will be the same as that given to
any traditional top-down programme. In such an environment, the hamlet can be expected to include as many names as possible in their |list of beneficiaries. People's perception, in turn, will be conditioned by the response of government functionaries and politicians to the decision making powers that have been devolved on the hamlet community. For instance if an M.P. or a Provincial Council Member or the
Grama Sevaka or AGA or even the
Government Functionary serving as a member of the Hamlet Support Group ties to intervene either in the appointment of the Support Group
or in preparing the list of beneficia
ries, people will perceive Janasaviya
as yet another government prog
ramme and respond to it as they would to any other top-down pro
gramme. For a hamlet community
to be activated to act with responsibility in identifying their Poor, there should be no outside-political or administrative — interventions at hamlet level. The extent to which this will be possible is another matter. In practice, it is likely to vary from area to area depending on the calibre of local political and administrative functionaries on the one
side and the level of empowerment
of the people on the other.
Structural Integrity of the Support Group:
The Support Group of Five has a critical role to play in the Janasaviya Programme at community level. Their task is to stimulate and actiwate the beneficiaries and access Support for them to become economically self-reliant in two years. Their structural role is that of Hamlet level. Resource Person cum Link between Janasaviya Beneficiaries and External Agencies supportive
of Janasaviya. As it is very likely
that the Janasaviya Programme - in
24.
Praxis - despite all training will general of structural tensic Socio-cultural-politic external agencies an Communities in the sible empowerment,
that the structural
Support Group doe promised by tilting onto the side of th cies with whom the lish contact throug Janasaviya and fro have much to gain
Wer and influence fc. the Janasaviya Proc
a fully managed - as
context in which a activity is launched short period of tir Groups at least in evolve into new grc level oppressors who thority from their cts.
Awakening the P.
Future:
A common charact Poor is their overidir lure and hopelessne also a state of mind:
that accompanies ( deprivation: A frame is not conducive to
innovation: A deep se
tion born out of the hopelessness for th major thrust of Jai
offer a different exp
Poor, and by doing si mental state into one hope, initiative and ir new experience pres the form of Consum to the value of Rs.15
th regularly for 2 yea
to satisfy basic need ment Support of Rs. expected that this offer of hope will Poor, galvanise their initiative and innova economic activity of will also provide then lar and secure income success in 'awakening activating them into self-reliant economic be conditioned by ot that will have to wo out through praxis. Pr

tS planning and Be a certajn level
n between the
all interests of those of local process of posit is imperative integrity of the S not get Comtheir allegience external ageny would estabin their role in m whom they in terms of por themselves. If ass is not careis possible in a nassive scale of
within a very
ne - Support
One areas Can pups of hamlet
draw their auexternal conta
por into the
eristic of the ng sense of faiiss. Poverty is A mental state png period of of mind that initiative and ense of resignaexperience of he future. A nasaviya is to erience to the o change their that generates novation. The sents itself in ption Support 500/- per monirs with which ls, and Invest25,000/-. It is very material 'awaken the latent skills, tiveness into * a leve that in with a regu... The level of the Poor and a process of activity will her processes rk themse|Ves oviding finan
cial resources - by itself - cannot activate the poor into the mainstream of socio-economic development.
The attitudina structures of the administrative and political systems which feel impelled to make decisions for the Poor, impose programmes on them and make the Poor dependent of them, have been a major obstacle to the human development of the Poor. As shown earlier, the existing attitudina stances of most administrators, politicians and the non-poor towards the Poor are antithetical to the very Concept of
Janasaviya. Existing attitudinal structures are the result of decades of training and practice. Unlearning and Re-learning, though an integral part of the Janasaviya strategy, are usually slow processes that take years to accomplish. But Janasaviya cannot wait: it has to accomplish itself within two years.
The Unlearning and Re-learning Process (i.e. Attitudinal Change)
cannot be accomplished on such a
massive Scale through Training Programmes alone. A change of attitudes and values of the scale expected in the Janasaviya Programme can only be achieved through a determined National Effort, spearheaded by the political will and Determination of the President and galvanised into action with the political clout of his entire government. And for such a national effort to succeed in a big way, the socio-political environment should be so conductive as to enable the nation to focus on Janasaviya. The level of Success will increase if the socio-political environment of the country improves.
The Janasaviya Approach recognises the need to uplift the Poor morally ans psychologically if they are to be activated into participating in the mainstream of socio-economic development. But it seems ironical that some of the key words of the Janasaviya Vocabulary are themselVes Somewhat dehumanising rather than uplifting. For example, to be called 'Poor' (duppath) and especially to be called 'Estremely Poor' (dugee duppath) or to be described as one who has nothing and can do nothing' (nethi-beri) is not by any means Uplifting - morally and
ECONOMICREVIEW, JULYIAUGUST 1989

Page 27
psychologically - but demeaning and almost oppressive. It could be helpful to re-examine the basic Janasaviya Vocabulary and develop new Words to reflect the new attitudes to an old reality.
Hand-outs have in the past always reinforced the mental state of poverty among the Poor. When handouts are received, the nethi-beri (have nothing and can do nothing) mentality gets further reinforced. Food Stamps have had this effect on many families. The impact of hand-o s o n t he recepi ant r uns
hand-outs on the recepient runs Counter to the very objective of Janasaviya. It is in this context that one has to reflect on how the Consumption Support with a value of Rs.1500/- per month vill be per
ceived by the Poor. Will it be per
ceived as another hand-out 2 Will it
reinforce the 'nethi-beri" feeling and
serve to negate the process of Awakening the Poor to the Future? The Consumption Support Component has to be very intelligently comprehended and very skillfully presented at all levels if tis psychological impact is not to contradict the primary objective of the Janasaviya Programme.
Capacity-building and Empowerment:
兴
The ability of the Poor to integrate themselves into the mainstream of economic development and thereby broaden the mainstream process is a function of their Capacity to do so, which in turn is a function of their level of Empowerment. Capacity and Empowerment are related concepts. The main aim of Janasa
viya is to build-up within two years
the capacity of the Poor to join the mainstream of economic development by developing their own income-generating enterprises and activities. Families of the Poor have resources of Labour and Skills
Janasaviya provides them with Consumption Support to satisfy basic needs, with a Start-up investment capital f Rs.25,000/- and - hopefully - a socio-cultural environment that weakens the processes that bind them on the one hand to their poverty and on the other hand to structures of dependence. Within a two year period the Janasaviya
Concept aims at empowering the
Poor by :
- Weakening th dence on opp
- Motivating th wards a better
- Accessing -
Support Grou sional distri levels - the technical, ma tional and ma productive ecc
- Providing a s capital of Rs.2
- Operating in
numbers of share each ot lems and exp de strength t( shared process
Will the external St which have normally ductive and undesirak Poor, respond with St Sed? Will their attit such that they are supporting the Poor? ners of patronage pc direct support only ted families? Since ac the Poor Wii || be til tiresome, will the me let-based Support G. spend much time o Services While atten economic and domes same time? Are there or provincial institu accessed by the Jana for information and mercially viable m both agro-based an If Various facets of a nity level investment wiya beneficiaries W. non-viable by the o cies of the governme contradiction be resc the two year period, Janasaviya beneficia dent of their capacit their future into the will happen to thos ciaries who, at the e period, fail to su themse|Ves intO the nomic development |lenges of Janasa Viya what is presented in a mass movement O ment.
ECONOMIC REVIEW. JULYIAUGUST 1989

ir links of depen}ssive structure.
em to Work tofuture.
hrough chains of Os at hamlet divi:it and nati Sana ecessary financial nagerial, informa keting support for nomic activities.
art-up investment 5,000/-.
scale so that large poor families may her's hopes, proberiences and provione another in a
upport Institutions
thought it unproble to deal With the upport When accesudinal changes be more amenable to Will the practitioolitics intervene to Io politically seleccessing support for me-consuming and mbers of the hamiroups be able to n these Voluntary ding to their own tic activities at the divisional, regional tions that can be saviya beneficiaries support on comcro enterprises - non-agricultural? emerging commu
pattern of Janasa-re to be rendered pen economy polint, how will such a Ved? At the end Of what proportion of ies Wii || feel confiand power to take r own hands? What Janasaviya benefihd of the two year cessfully integrate mainstream of ecoThese are the cha
The challenges of onceptual terms as popular empower
some Possible Political Implications of
The
Janasaviya Concept
|n nost developing countries, the State is distanced from the People. The socio-political and cultural distance separating the State from the People is sometimes so great that there is a serious lack of the dialogue and understanding between the State and the People. In such circumstances, radical political movements move into empower the people: To make the people aware of their potential and capacity to make them aware of their own power: To make them conscious of the failure of the State to alleviate their living conditions and provide them with at least, their basic needs. While radical political movements of the Poor are known to undertake popular empowerment on a mass scale, radically-oriented NGOs also empower small communities of the Poor almost always on a very small scale and in a few isolated pockets. Empowerment of the People results in the sharpening of the contradiction between the State and the People, leading in most instanCes to Confrontation and Conflict: Although in Sri Lanka the distanc
ing of the People from the State is
not as large as in most developing countries of the World, a sizeable socio-political and cultural distance does separate the State especially from the poor. Before this contradiction can mature into confrontation and conflict, and before any radical political movement of the Poor could empower the Poor and mobilise them for a confrontation
with the State, Janasaviya moves
into resolve the contradiction before it can mature into conflict. The Janasaviya Concept has within it the potential for attempting to resol We this contradiction in advance. On the one hand it seeks to mobilise and empower the Poor before any radical political movement
were to attempt to do so. On the
other hand it seeks to transform the administrative organs of the State from being institutions that impose their decisions - top down - on the People, into becoming Support Organisations that give a helping hand to the initiatives, decisions and mainstream processes of the Poor.
Political Society in Sri Lanka is

Page 28
DEVELOPMENT AND EC
Klas Sandell
Ecology is often defined as “the study of plants. and animals in relation to their environment.” (Hagget 1975:116). In this study the organism is man. Eco- thus indicates that the man-nature relationship is in focus, as in human ecology. This means that ecostrategies are strategies used by individuals or groups of individuals for the
broadly stratified in three layers. The top layer is composed of the minority of 'Affluent Families'. It is a small layer. Its families are well integrated into the Development Process from which they draw many benefits. They are well satisfied with the existing order and naturally do not desire changes in the existing politico-economic system : The bottom layer is the largest. It consists of the Poor: The families that are only marginally integrated into the Development Process. Though they have least to gain from the existing politico-economic system, they are overwhelmed with such a feeling of defeat and failure that they take no interest in the Economic order and the political process as well. This large stratum consisting of the poor are politically silent and inactive. The middie layer, though small, is restless and dynamic. It consists of families that are neither poor nor affluent: Neither so poor as to be politically dormant and inactive, nor so affluent as to be satisfied with the existing order. Middle stratum families are fairly well integrated into the Development Process: But they are not integrated well enough as to satisfy many of their social and economic aspirations. Generally they want a change in the existing order: One that will provide them a better chance of satisfied chance of satisfying their social and economic aspirations. The middle stratum proVides the active elements of the Political process: Elements tha struggle for political and economic change. Political dynamism on the one hand and challenges to the existing order and threats to the stability of the State on the other, originate in this middle layer of Political Society.
26
utilization of na to note that ma his ecological b different strateg
Man, Nature an
Environmenta source depletiol technical proble come of huma1 strategies. Thre trategies' ('do adaptation’ anc tion') were elab case study was Lanka to investi
The Janasaviya C
tegrating the large layer of Political Development Pri them with hopes
improvement anc shaking off their
activity and resig ting them into the
Enrolling the larg Political Society tively in the Pol no doubt, alter t balance in Societ less middle layer actively campaign the existing politi order to remove being barriers to mic improvement ted bottom layer the next few yea in actively defer order that is gi break in life. If the Janasaviya ceeds, it is likely of the middle lay ts in the Politica creasingly negate few years — by pt vism that can be newly activated the other hand, tice lags far behin
tice lags fari behin king and the pr successfully inte layer into the D. tream, there ca political unrest the Janasaviya be end of two years.

DCRISS
ure. It is important alone can change
'haviour and adopt
ies at will.
Development
1 problems and feare not mainly a m but are the outperspectives and e principal “ecosmination', 'active l “passive adaptaorated upon and a carried out in Sri gate to what extent
ജ്ഞത്തബ
oncept aims at ina dormant bottom
Society into the ocess, motivating of socio-economic a better future, mental state of innation, and activa
Political Process.
e bottom layer of to participate acitical Process will, he political power y. While the restfamiljes continue ing for changes in co-economic
what they see as their socio-econo, the newly activawould at least for rs - see an interest hding the existing ving them a new
a Programme sucthat the influence er political activisOrder will be ind - at least for a Co-Status-Ouo actiexpected from the bottom layer. On if Janasaviya Pracd Janasaviya Thind Janasaviya Thintogramme fails to grate the bottom 2velopment Mainsn be widespread — especially after inefits cease at the
this conceptual framework was reflected in this physical and social reality. -
Alarming reports about contaminated waterways, polluted air and deterioration of natural resources reach us with increasing frequency. The need for a sustainable man-nature relationship appears as one of the most crucial questions for future development. A recent example of this concernis the report “Our Common Future''bythe World Commission on Environment and Development (1987). Although the problems discussed in that report look insurmountable, the authors believe in a “new era’ in which the environmental resource base could be sustained and even expanded. The report noted, however, that: “The world must quickly design strategies that will allow nations to move from their present, often destructive, processes
In the longer run, however, the Janasaviya Process, through praxis could result in greater political unrest. Once the large botton layer of Political Society - presently dormant – is economically and politically activated, if it is found that there are not enough resources to meet their rising aspirations, the political price to pay will indeed be high. This could happen - if at all - in the longer run.
The Development Strategy for rural Communities and small urban Communities implied in the Janasaviya Concept is the development of large numbers of small privately-owned enterprises for income and employment generation. With State Institutions transformed to pay a supportive role (rather than a dominant part) in a privatised small-enterprise type economy that could develop out of a successful Janasaviya, the Concept implies an independent privatised small-enterprise oriented development model free òf State patronage and State control: A model that will enable increasingly greater numbers of people from rural communities and urban garden communities to enter the mainstream of capitalist production.
ECONOMIC REVIEW, JULY AUGUST 1989

Page 29
of growth and development onto sustainable development paths.' .
Environmental problems exist in both industrialized countries and the
Third World, albeit in different forms. In industrialized countries, for example, toxic discharges in air, water and soil; over-consumption and short-term speculations at the expense of non-material values and forethought are common. In the Third World, on the other hand, it is above all a question of a senstitive balance between population pressure and natural resources, bearing in mind such risks as soil erosion, desertification and declining ground water supplies. The declaration of the UN Stockholm Conference (1972:83) on the Human Environment states: “In the developing countries most of the environmental problems are caused by under-development.” International dependency, for example, via transnational companies and export of natural resources is also an important aspect of under-development and the environmental problems.
So far, these perspectives of the natural resource base have to a large
extent been neglected in the discus
sions of different development theories and strategies. Abroad sur
vey of development research and
thinking indicated that: “Due to this neglect of the natural base of human societies, only widespread fear of global ecological crisis could bring social scientists, and others dealing with development problems, to analyze development as a processinvolving both society and the environment' (Hettne, 1982:91).
The point of departure for this research project could be formulated
concerning the man-nature relationship underlying the industrialgrowth-society are not compatible with the demands of a sustainable relationship with nature.
The problems concerning man's relationship with nature are not
ECONOMICREVIEW, JULYIAUGUST 1989
solely
technologi measures such as t methods of waste rial smoke, alt techniques, more s may prove effectiv as short-term solu long run, they ar more profound approach requires tive On environn involving value
goal orientations. tal crises, both in and in the 'devel is to a large eX inadequate und orientation of mar dependence of na
Agricultural p Lanka and especi green revolution :
importance. Yapa
the follwoing thre of the “ecopolitica green revolution: landlord bias an problems. The pri lights the first and pects, including strategy for man's ture and its linkag ence perspective. " could be tackled laboration with ar research team.
Water availabil nutrients were Suc as focal points for These inputs are nized as being sca areas. The farmers
 
 

cal. Emergency better purificaton water or indust2rnative energy tringent laws; all e and may suffice tions, but in the e inadequate. A and realistic a broad perspecnental problems judgements and The environmenthe 'developed, oping” countries, tent, due to an erstanding and l's utilization and tural resources.
ractices in Sri ally those of the are of significant (1979) ídentified
e main problems.
| economy' of the material bias, d environmental esent study highthird of these asthe underlying relation with naes to a natural sciThe latter aspects hanks to the colinterdisciplinary
ity and supply of cessively selected the investigation.
generally recogrce in the studied views of the sup
ply, use and need of water and nutrients in agriculture, were analysed and compared with their practices and with the conceptual framework of man-nature relations elaborated upon in the theoretical part of the present study.
Knowledge and information in
such a time-tested System is an im
portant research area. To some extent information concerning this system could be traced in the current physical arrangements, practices, tools, social organization and the views, perceptions and knowledge among the present farmers. With the ongoing ecocrises it is necessary to gain all the inspiration and informa
tion possible concerning the potentiality of a sustainable man-nature relation. Or as Chambers (1983:92) argues: “In most countries of the third world, rural people's knowledge is an enormous and underutilised national resource.”
Knowledge about man-nature relationship in Third World countries is of interest not only in that context. Commoner (1972:xxiv), among others, pointed out that it is a false idea that the modern Western World should be less dependent on nature then other groups of people. “The
truth is tragically different. We have
become, not less dependent on the
balance of nature, but more depen
dent on it'. This indicated the potential of a reverse flow of information from the 'developing countries to the 'developed ones. The results should hopefully also be valuable for the region studied. This means that even if the case study is carried out in a developing country, it is not primarily conducted with the common perspective for such a study, i.e. trying, from an industrialgrowth perspective, to formulate recommendations for the process of further development of the Third World country. Instead, this case study was primarily carried out with the assumption that it is fruitful to
try to explore some aspects of the
views and practices among Third World farmers as a source of insight
and inspiration, not the least for the necessary process of further de
27

Page 30
velopment of the industrialized world.
To what extent the villages traditionally have been an example of an independent, locally adapted system is difficult to say. It is clear that during long periods in ancient times, many of the villages in various ways were tied to extensive social structures. Subsequently after the 13th century, during the Kandyan kingdom and especially in the early British period, the villages were probably quite isolated, lacking means of communication and with only little trade with such things as pots and metal. (Hettige, 1948:53, Farmer, 1976). It is even more difficult to ascertain the standard of living, but examples of famines and
malaria epidemics indicate some of the problems. Some of the basic features discussed above have probably been in existence for up to 2,000 years. For at least during some periods, the villagers have been solely dependent on an ecostrategy adapted to local conditions.
A Deteriorating System
The system briefly discussed
above is disintegrating today (or more accurately changing). As pointed out by Ellen (1982:22), “the stable and apparently conserVationist strategies of many smallscale societies are largely an illusion.' The farming system described above is currently changing for the following reasons.
(i) As a response to population pressure (incl. “village expansion schemes') the houses of the villages Were dispersed along the roads. This dispersion diminishes social coherence and interpersonal contact and blurs the differences between chena and homegarden cultivation. Even if the villagers try to keep up the traditional pattern of cultivation, the
size of their gardens has increased and the highlands now occupied are on average drier compared to their previous gardens, which were close to the tank bunds where the water table was high.
28
(ii) Market pe aspects of exte the evolution C privately lease of the old “sh difficult to m within the Vil more and mo labour, which oided. This, iu ficult to, for e. village irrigatic
(iii) Populatio cultivation of the chena cycl could be cleare only two or thr
The “tradit trated above c present and f the area with : The shortening in chena cultiv a threat to as of chena lands
During the tigation the int ely focused or as inputs in ag range of mode puts (such as and draft powe aspects of the Even if most tO uSe more (
- due to the pc
yields, they we the impact on and the quali duced. Out selected for th terviews, only females did about the heal effects of the this is probabl interview situ cerning negati ably were influ drinking pesti a COnnOn net in Sri Lanka.
Many villag dustralized in effects, and th of paddy rice

netration and other rnal influences (e.g., f new paddy rice land i or freeheld instead ure” system) make it aintain cooperation age. Cooperation is 'e replaced by wage was traditionally avturn, makes it difample, maintain the bn StructureS.
n pressure and the :ash crops, speed up e and the same plot dand used again after ee years ofinon-use.
ional system illus
an hardly 'carry the uture populations of a reasonable welfare. regeneration periods
ation is, for instance,
ustained productivity
first part of my invesTerviews were not solnutrients and water griculture. The whole rin and traditional in
pesticides/herbicides r) were discussed as farmers ecostrategies. of the people wanted of the modern inputs tential for increased re also worried about long term soil fertility ty of the foods proof the 10 persons he semi-structured inI three, fairly young not express anxiety th and environmental industrialized inputs; y a consequence of the ation. The ideas conve health effects problenced by the fact that cides and herbicides is thod to commit suicide
ers claimed that the 1nputs had negative sideat: “The various kinds
have adapted them
selves to chemicals (6:3,xi).” They also said that “When pesticides and herbicides, tel, and chemical fertilizers are applied the earth gradually becomes infertile, nisaru venava (c:5,18).” In an investigation among farmers in Talgodapitiya in Kurunegala District by S. Hennayake (pers. comm. 1984) the perception of pesticides and herbicides making the paddy rice poisonous was also found. Similar they believed that the land will get used to the agro-chemicals, including. the chemical fertilizers. These findings
were surprising (a more positive at
titude toward the industrialized inputs had been expected, with the exception of the problem of getting money to buy them), and were fol
lowed up during the latter part of
the investigation which was focused on nutrients.
A part of this scepticism concerning the industrialized inputs was the perception that the different inputs were dependent on each other. “The new varieties need the chemical fertilizers” (4/3-85.15). The perception was often expressed in terms of the soil and the paddy rice becoming adapted to, huru wenawa, or used to heda gehenawa, the chemical fertilizers. This adaption was often expressed in terms of a soil degradation. “There will be a decrease in the fertility for some time after the chemical fertilizers have been used' (21/3-85,9.3).
The reasons for a decline in precipitation given by the villagers was: (i) deforestation; (ii) less respect for the Gods and rites; and (iii) bad behaviour among people in the village and the country.
Deforestation
The most frequently given reason was the clearing of forests: “There is no rain because the jungle has been cleared. If there is jungle , even a passing rain cloud tends to stay” (a:13, iv.1). Some people said that increased chena cultivation was not a major reason for these problems, since no large trees were felled for this. It was the large trees which blocked the rain clouds.
ECONOMICREVIEW, JULYIAUGUST 1989

Page 31
Others did admit that chena culti
vation (which mainly occurs in young forests) was partly responsible for deforestation, and some
said that there had been a three
fold increase in the areas for chena cultivation during the last 15-25 years (e:5,iii&11, v&b:3iii). There seemed to be a vicious circle: less rain-less paddy rice-need for more dryland cultivation-deforestation-less rain...! According to Madduma Bandara (1987:6) the forest covered 70% of the total land area in Sri Lanka in the year 1900. By 1953 the forest coverage had diminished to approximately 50% and in 1982 it had come down to 25%.
With regard to the clearing of high forests it could be noted that the 1935 Land Settlement report from the single village stated: "Small isolated patches of high forest occur in the north and South
-east.’
It was also reported that at a locaton a few km away there "is a large tract of high forest.' Nowadays almost no high forest is seen in the area. According to Ten nakOOn (1986:144) 70% of villagers considered forest destruction as a cause for drought, followed by excessive use of water (29.2%) and acts of God (24.9%). Colonists in this same region placed deforestation third on their list of causes (16.9%), preceded by acts of God (20.5%) and “don’t know’ (38.8%; ibid).
The difference between the villagers and the colonists in the same region, supports the perception that the apprehensions of the villagers concerning deforestation was genuine, and not mainly a result of external information concerning such things as environmental pro
tection. Very few persons men
tioned or referred to external information when they argued that deforestation was a reason for decreased precipitation. However, it is difficult to know to what extent the origin of these ideas was modern and external and to what extent they stemmed from older beliefs
ECONOMICREVIEW, JULYIAUGUST 1989
ration.”
which now to a into modren ideas
Reasons given f the area under c were population i increased demand “Due to higher desires the jungl (b:21,3). Even if against jungle cle tivation is a neces farming system a Leach (1971:61): ment opposition 1 tion... Of all sorts to the beginning of The Vil aware of these there is great resources, and, a Wrote with regar “practice is very f the legal theory’
The lack of larg out as crucial fo precipitalion: "If against that tree, and there it stops in the sky, and to rain.” (e:5,ix. blamed the exten schemes for a la deforestation in th persons pointed O' forest companies
Scientifically it that on a large cover influences the Amazons, 74 is transpired fron the informtion co kage between the the atmosphere is in the attempts climate models in tion (T. Rosswa 1986). To what cover influences distribution of rai that the farmers cl:
Gods and Rites
Gods and religi second main ex decrease in precip

large extent fit
or an increase in shena cultivation increase and the s of individuals: demands and e gets cleared
there are laws aring, chena culsary part of this nd according to "Formal governO chena cultivagoes back almost i British administlagers are well restrictions, but pressure on the S Leach already d to the 1950's, ar removed from
(1971:62).
e trees is pointed r the decreased the wind dashes it rises directly, the rain clouds then it will start ). Some people sive colonization rge part of the he region. A few ut the role of the in the past,
is well known scale, the forest precipitation. In % of precipition the forest but incerning the lin; vegetation and the weakest part to build global :luding precipital, pers. comm. xtent the forest the local spatial nfall in the way im is not known.
Dus rites Was the planation for a tation. Because
we do not pay attention to the Gods, they pay no attention to us.' (a.10, iv.1). Almost all of the villagers participated in the Ordi
nary cermonial rites, but One VII
lager said that: “even if the ceremonies are performed, they are not done with any faith in them.” (19/3-85.14).
Bad Behaviour
Bad behaviour among the villagers was the third reason given for the percived decrease in rain, without explicity linking this to religious rites and Gods. The country in general was mentioned as being involved; “It could be the government, it could be the people” (22/3-85, 13.3). When asked what was the main type of bad behaviour, the villagers gave examples of general Social misbehaviour such as "crimes, murders, threats’ (d:18,iv1); or “the fact that children do not even look after their parents” (b:3/211,iv 1). The parallels between human behaviour and environment could be traced back in various ways. A villager could, for example, quote his old schoolbook, subashithaya: “Like paddy rice fields and gardens grow in proper rain and wind, would people be protected by a proper king and intellignet ministers. Like the forest is destroyed by the gusty winds, everything will be destroyed by kings and ministers of bad behaviour.’’
These links between the behaviour of people (not the least rulers) and phenomena in nature (e.g. favourable weather conditions for agriculture) constitute a common and ancient element in Asian
philosophy. Nakamura (1985:150)
referred to examples from China and Said the Buddhist and Indian ethical systems teach that good human behaviour causes favourable natural conditions, and vice versa. The general linkage between bad human behaviour and not performing rites as a reason for decreases in precipitation is a common feature in similar contexts elsewhere (cf. Knutsson, 1968:92).
29

Page 32
THE EXCHANGE RATE POLICY O
AND ITS IMPLICATIONS ON THE EXPORT SECTOR 1981 - 1988
Sriyani Hulugalle Assistant Director, Economic Policy, Sri Lanka Export Development Baord
(The views expressed in this article are those of the author and in no way represent the views of the EDB.)
Introduction
With the collapse of the Brettonwood system in the early 1970's exchange rate policy has been considered an active instrument in the management of the economy by many a Government. For instance Professor Lakshman points out in his study that prevailing systems vary from independent or managed floating to single currency pegging or basket of currency pegging. The Sri Lankan Rupee since 1982 has been linked to a major currency and adjusted according to the developments in the foreign exchange market. (Lakshman 86:2)
The exchange rate has been considered a vital policy instrument in the development of the export sector. From a theoretical perspective, a depreciation of the Rupee will result in an increase in the price received by exporters in local currency. In a "small country' case, it is assumed that the changes in the exchange rate will not affect the international prices of the exports or the imports. This is due to the fact that the market share of a small country is marginal and cannot have an impact on the aggregate supply or demand.
Therefore, a depreciation is a market signal for exporters to increase their volume of exports. Invariably, with a depreciation, foreign exchange in terms of Dollars will decline unless and otherwise the supply is responsive to the changes in rupee returns of the exporters. The favourable effects of the depreciation will have to
trickle down to the producers or
30
trade
the manufactu is to take p
exchange rate'.
ing exchange r:
pre-requisite fo
conducive inve the export sect developing cou
More than Exchange Rate the officially c the Real Effect (REER) that i of an exchang exports. The vis-a-vis the tr;
the net subsid
Taxes) will hav account.
The deprecia indicates that fo Currency more should be paid. exporter who exchange will re of Rupees when ciating and co have to pay Rupees for or Therefore, a result in an inc1 bility of the e couraging the i
The effects of be Viewed in te The traditional tained in the Ma dition which st of elasticities of try's exports a its imports has unity' for a di a positive effe balance Nevertheless in try like Sri La that the dema products is elas the internationa whatever amou supply levels a

F SRI LANKA
rers if this process lace. A “realistic that is, a depreciatate, is considered a r the creation of a stment climate for or, specially in the ntries.
the Nominal (NER), which is leclared rate, it is live Exchange Rate ndicates the impact ze rate policy on rate of inflation ading partners and y (Subsidies minus 'e to be taken into
tion of the Rupee r one unit of foreign units of rupees In other words the earns foreign :ceive more in terms 1 the rupee is deprenversely importers more in terms of le unit Of Dollar. lepreciation would 'ease in the profitaxporters while dismport sector.
a depreciation can brms of elasticities. approach is conrshall-Lerner Conates that “the sum demand for a counind of demand for to be greater than preciation to have ct on a country's (Sodersten:279)
a developing coun
nika, it is assumed hd for our export Lic. In other words, market can absorb ht we supply as our e insignificant.
However, the favourable effects of the depreciation will be eroded by inflationary trends. If domestic inflation is comparatively higher than the inflationary trends of the trading partners, the desired results will not be achieved.
Scope, Methodology and Limitations
The scope of this paper is confined to the movements of the real exchange rates and the behaviour of price and volume indices of exports and imports. Therefore, in order to evaluate empirical evidence of exchange rate policy in Sri Lanka, the real exchange rate indices and the trade indices have been analysed.
Due to the inability to obtain information pertaining to subsidies and taxes, the effective rates have not been computed. The reasons being that some of the subsides granted by Government agencies are product specific and the taxes are often applied on an individual basis. Therefore, a generalisation will conceal the actual situation.
The period under review is 1981-1988 and the base year for the computation of all indices is 1981.
Real Exchange Rate Movements
According to the real exchange rate indices (Table 1A) for the trading partners, the Sri Lankan Rupee had appreciated drastically from 1981 - 1984 against all major currencies; that is the US Dollar, the Sterling Pound, the Deutsche Mark, the Yen and the French Franc. However, since 1984, they had shown a positive depreciation and after 1986 they have exceeded even the 1981 level. The rate of depreciation with regard to the French Franc, the Deutsche Mark and the Yen are notably higher than for the two major currencies, the Dollar and the Pound.
The real exchange rate vis-a-vis some of our competitors, (Table IB) that is, India, Pakistan, Philippines. Singapore. Korea and Thai
--محصبر
ECONOMICREVIEW, JULYIAUGUST 1989

Page 33
land, too had taken a dip since 1981 and reached the lowest in 1984 indicating an appreciaiton of the Sri Lankan Rupee against the major competitors. As a result, the profitability of the Sri Lankan exporters vis-a-vis the competitors would have eroded. However, since 1984 they too had recorded a depreciaiton. Yet except for the Philippines peso, others had not reached the 1981 level.
As discussed earlier, the depreciation is indicative of the fact that the Sri Lankan exporters get more Rupees for their foreign exchange earnings, provided the Dollar price or the price in terms of foreign currency remains the same.
In the Short terr will be increased tedly be a signal to increase their
Export Price Ind
If the internatic the same, theoret is an appreciation index should shot a depreciation, index should re
trend.
However, accor ical evidence, at appreciaiton, the had reached a pea in respect of t
Table 1A
INDEX OF REAL EXCHANGE RATE
(1981 = 100)
USS UKE DM J. Y.
1981 100.0 100.0 100.0 1OO 1982 100.3 90.3 99.3 100 1983 95.4 78.9 819 87 1984 81.3 56.6 61.3 62 1985 99.4 83.4 84.3 88 1986 102.9 103.1 118.8 118 1987 117.7 112.5 133.5 125
Source: IFS, Central Bank
Table 1B -
INDEX OF REAL EXCHANGE RAT
(1981 = 100)
Indian Korea Pakistan Philip pines Rupee Won || Rupee || Peso
1980 108.0 90.0 94.3 97.9 1981 100.0 100.0 100.0 100.0 1982 94.8 96.7 79.4 97.4 1983 89.6 86.7 76.2 69.4 1984 69.8 700 61.7 69.7 1985 90.1 81.0 73.7 98.3 1986 98.1 83.3 80.0 103.3 1987 94.8 84.0 77.1 103.5
Source: IFS, Central Bank
ECONOMIC REVIEW T TYIAUGUST 1989
 

, the profitability It will undoub
or the exporters
supply levels.
ceS
hal prices remain cally when there
the export price r a decline. With he export price lect an upward
ding to the empirihe height of the Xport price index k in 1984;specially ea, rubber and
EN FRENCH
FRANC
O 100.0 O 93.5 77.6 5 64.3 3 90.3 7 122.3 1. 135.8
Singa- || Thai
pore Dollar l Baht
94.5 105.5 100.0 100.0 89.7 99.2 80.5 95.1 65.1 65.1 77.7 84.5 68.4 84.8 73.3 93.2
coconut. (Table 2). This is an indication that the international prices were very favourable during that period. -
In spite of a depreciation, the price indices had declined for precious stones, coconut products, and tea in 1985 and 1986. The price indices of minor agricultural products, and the industrial products had shown an upward trend throughout the period under review, indicating that the exchange rate had not shown much of an impact on the price even when the Rupee was appreciating. It is evident that Sri Lanka is a price taker.
However, some of the exporters claim that when there is a depreciation they reduce the prices to be more competitive. If this measure is not coupled with an expansion in the supply level the depreciaiton will result in a decline in foreign exchange earnings. This is not desirable considering the chronic Balance of Payment problems the country is confronted with at present.
Export Volume Indices
With the depreciation of the Rupee the desired result should be an expansion in the export supply levels. This trend has not been reflected in product sectors such as rubber, and minor agricultural products during the period as they had depicted a continuous decline. Even in tea, the increase had been marginal. The supply of agricultural products are more dependent on the weather patterns of the country.
The supply position had reflected positively an upward trend in the product sectors, such as precious
and semi precious stones and in
industrial sector products. However, precious stones being high value items, it is the price index more than the volume index that should be considered an indicative factor. (Table 3)
Analysing the real exchange rate,
export price and volume indices, we could deduce that a depreciation
31

Page 34
Table 2
EXPORT P
1981
Categroy 1979 1980 1981
1. Tea 89 95 100 2. Rubber 89 97 100 3. Coconut Products 90 104 100 4. Minor Agricultural Products 85 93 100
5. Precious and Semi
-precious Stones 111 105 100 6. Industrial Products 80 89 100 7. Petroleum Products 55 76 100 All Exports 82 92 100
Source: Central Bank of Sri Lanka
does not necessarily mean an improvement in the export prices. If the depreciation is not reflected in the prices, the benefit of the depreciation would have been transferred to the buyers abroad. In the alternative there is a possibility of exporters under-valuing their invoices in order to retain foreign exchange in the importers country or transfer it into an account in another developed country. Either way, it will definitely be a strain on the foreign exchange earnings of Sri Lanka.
With a depreciation in the Rupee, if the supply of export goods remains inelastic, the desired results would not be achieved in the long run. In fact, the Balance of Payments problem will further deteriorate.
Import Indices
If the rupee is appreciating, imports will be comparatively cheaper while a depreciation will
cause the prices o late. This trend is rent when examin rate indices and i ces. During the Rupee was app major Currences 1 price indices for
and investment
upward trends. (TI
The import pi increased at an ac all import product due to the depreci an exception in intermediate good a downward trend of the depreciation been caused by th national price trer Products, Which c portion of the inter
The volume in pertaining to cons intermediate good a continuous incr
Table 3. - EXPORT VOL
(1981
Category 1979 1980 1981
1. Tea 85 100 100 2. Rubber 97 93 100 3. Coconut Prodits 131 83 100 4. Minor Agri
Cultural Products 76 70 100 5. Precious and
Semi-precious Stones 147 144 100 6. Industrial Products 58 74 100 7. Petroleum Products 116 130 100 All Exports 89 95 100
Source: Central Bank of Sri Lanka
32

RCE INDICES
= 100)
1982 1983 1984 1985 1986 1987 1988 99 147 218 167 123 146 155 81 101 119 97 108 125 169 80 | 101 171 127 | 89 116 163 110 130 137 141 148 154 180
95 83 84 99 43 53 31 111 122 123 140 - 203 222 263 96 120 1311 43 69 92 71 98 125 160 142 126 146 166
imports to escanot quite appaing the exchange mport price indiperiod when the eciating against n 1981-1984, the the intermediate goods reflected able 4)
ice indices had celerated rate for Sectors after 1984 ation. There was the case of the s which recorded - in 1986, inspite . This could have 2 declining interlds of Petroleum onstitute a major mediate goods.
dices (Table 5) umer goods and s, has recorded ease during the
period under review. Even the depreciation since 1984, had not been able to arrest this upward trend. The decline in the Volume index of investment goods may not necessarily have been due to the exchange rate depreciation. It can be attributed to the deceleration of the development activities in the Mahaweli and construction sectors.
These observed trends, the volume increase combined with the depreciation, would undoubtedly have brought about a leakage in foreign exchange from the country. Furthermore, the depreciation since 1984 is not reflected in the volume indices of imported products. The volume indices in respect of intermediate and consumer goods indicate a general upward trend. It is an indication that the increase in import prices is not a curtailing factor.
Import Intensity
According to the Government's
UME INDICES = 100)
1982 1983 1984 1985 1986 1987 1988
99 88 112 111 117 113 123 99 98 96 91 84 80 75 130 132 86 165 171 123 61
92 - 81 71. 61 68 72 98
240 376 280 292 1,385 1,424 3,954 107 123 188 173 148 173 168 102 74 84 87 114 85 113 105 99 116 120 128 130 130
ECONOMICREVIEW, JULYIAUGUST 1989

Page 35
programme document "PUBLIC INVESTMENT 1988-1992 the dependence on imported raw materials in the manufacturing sector in 1985 was 89 percent, (page 62). The policy-makers or the economists who advocate the depreciation/ devaluation for the development of the export sector may have to bear in mind the import intensity of the non-traditional export product sector, which is approximately 65 per cent.
If we consider certain fiscal incentives, namely the Duty Rebate Scheme, the Manufacturing-in-Bond Scheme and the Machinery Exemption Scheme for exporters, it has been accepted that imported inputs are quite vital to the production of export goods. Therefore, a depreciation will make such inputs more expensive, thus increasing the cost of production.
Table 4
Category
1. Consumer Goods
1.2 Food and Drink 1.2. Other Consumer Gooc 2. Intermediate Goods 2.1 Petroleum 2.2 Fertilizer 2.3 Chemicals 2.4 Wheat 2.5 Textile and Clothing 3. Investment Goods
3.1 Machinery and
Equipment 3.2 Transport Equipment 3.3 Building Materials All Imports
Source: Central Bank of Sri
Even the Term very favourable i the best for th review. Therefore more concerted e. ernment agencies the development review the presen nate Some of the ( of the present po
IMPORT PRICE INDICES (1981B = 100)
Category 1979 1980 1981 1982 1983 1984 1.
1. Consumer Goods 65 85 100 96 91 93 1
1.1 Food and Drink 53 81 100 87 80 75 1.2 Other Consumer Goods 94 93 100 118 118 137 1 2. Intermediate Goods 62 83 100 105 112 119 1 2.1 Petroleum 43 77 100 103 105 108 1 2.2 Fertilizer 69 85 100 91 121 138 1 2.3 Chemicals 84 94 100 113 115 121 2.4 Wheat 61 76 100 101 102 114 1 2.5 Textile and Clothing 74 84 100 113 137 141 1 3. Investment Goods 90 98 100 11 117 120 133 1
3.1 Machinery and
Equipment 93 101 100 111 117 117 1 3.2 Transport Equipment 84 96 109 116 113 123 3.3 Building Materials 76 82 100 117 122 127 All Imports 68 86 100 104 109 114
Source: Central Bank of Sri Lanka
It should also be noted that the Conclusion
escalation in petroleum prices will cause an increase in the general price levels of the country. It would erode the profit margins of the exporters.
In analysing the Trade Balance, inspite of the movements in the real exchange rate with regard to the major currencies, the value of imports has reflected a persistent upward trend. Ironically the Trade Balance had recorded a vast improvement at the height of the appreciation. Since 1985, with a depreciating exchange rate, there does not seem to be an imporvement at all.
In this paper, the hypothesis th exchange rate v improvement in
1. Lakshman W.
2. Sodersten B. 3. Bird G.

Table 5
IMPORT VOLUME INDICES
(1981 = 100)
1979 1980 1981 1982 1983 1984 1985 1986 1987 1988
150 149 100 94 142 125 147 156 144 163 197 165 100 77 136 175 174 154 183 S. 84 116 100 124 151 113 115 136 133 136 81 97 100 101 96 - 108 105 129 136 151 85 109 100 114 78 113 98 96 105 109 83 129 100 43 35 53 73 80 73 134 96 94 100 98 113 130 194 166 177 26 39 100 70 85 77 140 99 83 134 81 83 100 84 88 95 107 199 220 340 82 117 100 103 127 125 90 94 99 79
73 108. 100 93 19 119 98 92 94 66 133 177 100 147 147 131 56 124 126 121 83 137 100 90 174 126 118 77 73 90 94 111 100 100 110 114 109 124 127 130
Lanka
ls of Trade were in the year 1984, e period under 2, it may require fforts of the Govconcerned with of exports to t policies to elimi:onflicting aspects blicy package.
985 1986 1987 1998
01. 107 126 149 75 80 96 117 64 173 202 229 28 98 111 126 13 63 78 71 40 113 132 114 32 130 149 165 10 108 91 117 66 114 128124
73 187 265
29 168 191 293 45 159 202
36 207 203 219 23 114 129 157
I have examined at a depreciating vill result in an he export perfor
mance in terms of prices and VolUC.
However, the empirical evidence suggests that either an appreciation or a depreciation does not have a significant impact on the demand of imports or the supply of exports in the case of Sri Lanka.
Moreover, due to the high dependence on imported inputs, the cost of production of export goods escalates. Furthermore, more than 75 percent of the imports comprise intermediate and investment goods. Considering the limited resource endowments of our country, the curtailment of these goods would retard development efforts.
An exchange rate policy may not be the vital factor in the development of the export sector. A vigorous export marketing programme coupled with a concerted development effort of the supply base may improve export performance. A cohesive and a realistic export policy at the national level and a subsequent strengthening of the institutional structure may ensure better performance.
BIBLOGRAPHY
D. and Athukorale P. Economic Implication of Exchange
Rate Movements in Sri Lanka since 1977 - 1986. International Economics The International Monetary System and the Less Developed Countries. Public Investment - 1988 - 1992 National Planning Division, Sri Lanka 1988. Central Bank Annual Report 1988.

Page 36
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