Economic Policy & Development
The new government of President Jayewardene in 1977 inherited a dismal economic structure. Investors were inhibited by fears of nationalization, lack of industrial entrepreneurship and foreign investment, slow moving industrial activity mainly by government enterprises with inferior products and superfluous employees who were mostly idle. A previously thriving privately owned plantation industry which had rapidly de-generated though a lethargic & irresponsible Government controlled management - process resulted in a serious reduction in Gross Domestic Product averaging 1.3%. The main concentration of the government had been on the food subsidy which absorbed 20% of the government's budget.
President Jayewardene and his government faced a real challenge indeed, which called for a radical transformation in Sri Lanka's approach to economic activity through a sharp and trail-blazing change of course if they were to revive the ailing economy. They had to free themselves from the shackles of state controlled enterprise and allow a free exchange economy inviting mass private sector and foreign investment. In addition, there were the three state controlled 'lead projects'. The accelerated Mahaweli, the Free Trade Zone and the Urban Development Program (Urban and Rural Housing) which was exclusively under Prime Minister R. Premadasa.
President Jayewardene was not satisfied with the blue prints only. He selected three acolytes who clearly understood him and were, in his view, competent enough to give momentum to his vision when translated into action: Ronnie de Mel to control Finance and negotiate with the IMF and the World Bank; Lalith Athulathmudali to be in charge of Trade and Commerce and Gamini Dissanayake to handle the mammoth accelerated Mahaweli Project. Gradually scarcities vanished; the people found even basic necessities like bread and milk foods, textiles and chillies, and such other items which were scarce or not available during the previous regime. Although the rice subsidy was cut by almost 50%, the issue of food stamps ensured that the people did not feel the pinch. The farmers had enough incentive to grow. The queues had vanished.
The first government budget contained among other proposals four major economic objectives:
(1) to revive the economy
(2) to increase the agricultural, industrial and trade outputs
(3) to encourage domestic savings and investment and
(4) to improve the balance of payment. Sequel to these objectives, price controls and import controls were eliminated. An important institutional structure was introduced by the creation of
• The Greater Colombo Economic Commission (GCEC)
(A free trade zone for foreign investors with a 100% export requirement)
• Foreign Investment Advisory Committee (FIAC)
(to ensure 51% Sri Lankan equality for foreign investment outside the free zone)
• The Local Investments Approvals Committee
• The Export Development Board
The three lead projects, the Accelerated Mahaweli, the Free Trade Zone and Urban Development commenced almost simultaneously.
One of the biggest challenges faced by the Government was the burden of the food subsidy which absorbed a considerable component of the national revenue. The Government took the bold step of cutting 50% of the rice subsidy and compensated by the introduction of a food stamp scheme among the selected poor. This resulted in the cost of subsidy in 1977 which absorbed 23.6% of the revenue declining to 10.5% in 1981.
The Foreign Investment Advisory Committee, by 1983, had approved 435 projects with an envisaged foreign investment of Rs. 18,502 million and an employment potential of 53,000 persons.
The Greater Colombo Economic Commission had approved 183 production units with a total investment of Rs 2,616 million and an employment potential of 49,513 persons.
By 1979 the multipurpose Mahaweli scheme, the centerpiece of the Government’s development program, was under way with Victoria, Kotmale, Randenigala and Maduru Oya. Today Victoria is reported to be at the peak of its generation of power and irrigation, supplying 3000 gigawatt hours free of charge to the national grid. The Mahaweli scheme was designed to bring under cultivation 650,000 acres of new land in addition to its existing 250,000 acres; to settle about 140,000 families within the irrigated areas and to provide employment to approximately 350,000 persons.
The Investment Promotion Zone initially providing for about 6,000 Sri Lankans in 14 factories, has rapidly grown into a massive industrial area.
President Jayewardene did not stop with the three lead projects. In spite of an alarmingly rising budgetary cost of Rs. 2.7 billion to Rs. 8.2 billion, the new Parliament building was coming up with the dream of shifting the administrative capital from Colombo to Kotte. Two other projects, modernization of Katunayake Airport (Colombo International Airport) and the Port of Colombo both absorbed a substantial amount of money but were economically productive and absolutely essential projects.
Whilst the major projects were financed by foreign aid, the development programmes of individual ministers were examined and passed through a Committee of Development Secretaries before the proposals reached the cabinet for final approval.
As a token of gratitude Japan presented Sri Lanka with a colour Television Network which was opened by H.E. President Jayewardene on 15th February 1982 under the name National Rupavahini Corporation. By this time the Government had already acquired the Independent Television Network on 14.4.1979 which was a private concern.
