By W A Wijewardena –

Dr. W.A Wijewardena

The pioneer of market reforms in Sri Lanka

Ronnie de Mel, best known as a former finance minister, is no more with us. During his long life, short by one year for a century, he had been to many trades. Throughout his life, he had been a student of history, having completed a first-class honours degree in history at the University of Ceylon in 1947. Had he remained at the university as an academic, he would have been one of the most respected historians of our time. But fate drove him elsewhere.

In 1948, he chose the prestigious Ceylon Civil Service or CCS as his career. There, he held many positions but the most influential one, according to him, was the post of assistant secretary at the Ministry of Agriculture in late 1950s when the Minister happened to be another political stalwart, Philip Gunawardena. He, together with a few others at the ministry, helped Philip to design the paddy lands act and prepare the blueprint for a new cooperative bank at the national level to serve the farmers. The first one was accomplished while he was at the Ministry of Agriculture. But it took some time for the latter one to see the lights of the day but not as the cooperative bank but as the People’s Bank of which cooperatives were also shareholders.

Ronnie’s talent and competency scale was much wider than that of a typical bureaucrat. Hence, in 1964, he resigned from the Government service and entered politics contesting unsuccessfully the General Election in 1965. But he entered Parliament later and remained as a Parliamentarian till 1990. But his main contribution was as finance minister in JR Jayewardene government from 1977 helping JR, together with the late Lalith Athulathmudali, in the implementation of the free-market economy system in 1977. That was a new era for economic policy strategy for Sri Lanka.

Folly of the closed economy policies

Many years later in 2020, he recalled the type of the economic system which Sri Lanka had prior to 1977 in a brief talk to the Advocata Plus YouTube channel hosted by the private sector thinktank Advocata Institute.

He said that people had been duped to sing fine songs like ‘let’s eat meals without rice or drink tea without sugar’. To implement it, everything, from rice to wheat flour to sugar to dhal to petrol to diesel, to mention but a few, had been controlled or rationed. When the British ruled Ceylon, it was not a closed economy.

He further elaborated on this point as follows: “The UNP government that came to power in 1947 continued this British policy and they were blamed for it. They were blackguarded as stooges of the British, but they continued this open policy till 1956. When Mr. Bandaranaike came to power in 1956, some of the socialist ideas that were prevailing at that time were brought into government by him. This was despite Mr. Bandaranaike not being a member of the Lanka Samasamaja Party or the Ceylon Communist Party or even the Mahajana Eksath Peramuna of Mr. Philip Gunawardena. What he brought was some mild socialist reforms like the multi-purpose cooperative societies.”

But this was not to be continued for long. The hard socialism was introduced to Government after Mrs. Bandaranaike’s Sri Lanka Freedom Party, known as SLFP, won a landslide victory in 1970 with a two-third majority. He admitted that he was also a member so elected to Parliament on the SLFP ticket. But that Government messed up the economy within the first two years. “So, I resigned and functioned as an independent MP. There were few others who also functioned as independents in Parliament. Since we were not affiliated to any political party, we could speak without following the party line. It was these MPs who delivered the best speeches in Parliament.”

About central banks, these was Ronnie’s observations: central banks in countries like Singapore and Hong Kong were much more efficient than the central banks in this part of the world, including the central bank in Sri Lanka. But the central banks in India, Pakistan or Bangladesh were worse than even the bad central bank in Sri Lanka. Why the central banks in Singapore or Hong Kong were successful was because those countries continued with open economy policies. They did not adopt socialist systems. They were going on modifying or developing the open economy systems. According to Ronnie, that was the secret to their success. What Ronnie implied was that if the country adopts a set of a good flexible economic policy package, its central bank also becomes an institution of worth.

A planter at heart

Ronnie’s specialty was history, experience was in Government service, and entrepreneurship was in planting, both tea and rubber. He owned the well-run tea and rubber estate called Geekiyanakandawatta Estate sprawling over a part of the three electorates, Horana, Bulathsinghala, and Agalawatta. Under the land reform program of the Sirimavo Bandaranaike government of 1970-77, of which Ronnie was a member, his estate was nationalised leaving only 50 acres for him. That was the condition of the nationalisation of the plantation companies: previous owners got only 50 acres. Later, Ronnie said that he handed over about 4,000 acres to the Government very willingly, because he accepted the necessity for it at that time of Sri Lanka’s economic transformation. But like the architect of the nationalisation of plantations, Dr. Colvin R. de Silva who became the Minister of Plantations Industry, he believed that the plantation sector was Sri Lanka’s national wealth and in no way, should it be destroyed by blocking out the estates and handing to villagers under such programs like ‘land to the tillers’.

His sincere wish was that that under the public ownership, they would be run more efficiently maintaining the high productivity which they had under private ownership. But the later events proved Ronnie was wrong. Instead of the nationalised estates becoming more productive, they became a burden to taxpayers owing to continuous losses they incurred due to bad management. He, therefore, developed the 50 acres left for him as a model farm for the publicly owned plantations. When he was the Minister of Finance, he used to do the finishing touches of his budgets, while enjoying the serenity and the peaceful environment at the Geekiyanakandawatta estate.

Keen interest in learning economics

Ronnie was a student of history, but he was a student of economics too. I recall that in late 1979 Governor Warnasena Rasaputra calling me to his office and telling me that Ronnie was reading all the latest publications like the Wall Street Journal, The Economist, Newsweek, Far Eastern Economic Review, etc., and discussing with Governor the latest developments in the global economy affecting Sri Lanka in particular. I was a Senior Economist at the Economic Research Department at that time. Governor Rasaputra wanted me to read through these publications immediately after they were available and brief him about such latest developments reported in them. Armed with these notes, he was able to brief Ronnie appropriately. Ronnie took these messages very seriously and orchestrated advance planning to avert possible adverse effects on Sri Lanka.

One incident arose from a report in The Economist that the grain harvest of the Soviet Union had failed in that year. Since the Soviet Union had to import wheat grain from Canada by paying in dollars, it had to sell its gold stocks in the market. There were two implications. One was that the gold prices would fall in the market due to oversupply. The other was that the prices of wheat grain would rise due to the new excess demand. Ronnie advised his Cabinet colleague Lalith Athulathmudali to buy wheat flour and run a safe stockpile of same to avert a food shortage in the country.

Financial services to the rural population

Ronnie had a good companion in the Central Bank, Governor Rasaputra, who was his contemporary at the University of Ceylon in late 1940s. Both had respect for each other. Unlike today where the ministers of finance are trying to steamroll over the Governor and senior officers of the Bank, Ronnie was willing to listen to the Central Bank. I recall that when the inflation rate accelerated to above 22% in early 1980s, the Central Bank took drastic policy actions by increasing the interest rates and imposing credit ceilings on commercial banks. Rasaputra had Ronnie’s full cooperation to implement this extremely restrictive monetary policy package to beat the rising inflation, the public enemy number one always.

To ensure credit delivery to farmers and rural entrepreneurs, both initiated a new barefoot banking system called Regional Rural Development Banks or RRDBs, an emulation of the Rural Development Banks in India. These banks were expected to operate apolitically catering to the needs of the rural population of the country. But in 1990s, they were highly politicised, and the Central Bank had to reform them in late 1990s by amalgamating them into province-based development banks. Now they have been amalgamated nationally into a regional development bank, a specialised bank under the supervision of the Central Bank since the province-based bank model did not work.

However, Ronnie’s ambition of making banking available to rural population at a level higher than the cooperative rural banks has now been abandoned creating a vacuum in the rural finance of the country. As a result, the rural people have been victims of the informal money lenders who lend money at exorbitant rates on stringent repayment conditions and the mushroom type of microfinance institutions that have stolen, with impunity, their hard-earned savings.

Establishing COPE

Ronnie, the seasoned civil servant, went on to reorganise the Finance Ministry on modern lines, as revealed by one time Treasury Official, M. Somasundaram (available at: https://www.sundaytimes.lk/981108/bus2.html). Ronnie set up the Public Enterprise Division at the Ministry to assess the performance and direct the enterprises to run profitably and efficiently. At Parliamentary level, the Public Accounts Committee or PAC was broken into two: The Committee on Public Accounts or COPA to look after the government departments and Committee on Public Enterprises or COPE to look after the public corporations. COPE was to be assisted by the newly established Public Enterprise Division at the Finance Ministry.

The management culture which Ronnie introduced to new public enterprise division was to shift from ‘control and command culture’ to a ‘partnership with private enterprises’. Ronnie also changed the mandate of COPE. Says Somasundram: “Earlier the PAC was charged only with reviewing the accounts that is of past activities as presented by the Auditor General. COPE in addition to this responsibility was to monitor (that is, review the present) and check on corporate plans (that is, analyse the future). In both these activities, COPE was to be assisted by Public Enterprise Division or PED, a distinct structural change in governance. By this measure the legislature and the executive were to work in closer collaboration. The PED was able to undertake the activities because it was the focal point for all matters pertaining to public corporations.”

In today’s governance structure in the country, COPE is the third and the fourth eyes of the President of the country requiring him to recognise at all times the useful role played by it in the governance system. However, it appears that over the years COPE’s mandate has been diluted and it has lost its due recognition as the most important machinery of safeguarding and promoting the country’s economic policy governance. On one side, COPE has concentrated on highlighting the past malpractices of public enterprises refraining from examining the current management practices and future plans of those public enterprises. On the other side, even with respect to past malpractices, its reports have not been used by the Executive to correct the lapses in the country’s economic governance. This unhealthy development was not what Ronnie expected of COPE as its pioneer.

Man behind the Ruhuna University

Ronnie was also responsible for establishing the University of Ruhuna at its present site in Matara. During the initial years of JR rule, there was a demand that a fully fledged state university should be established to cater to the needs of the people in the southern region of the country. An idea was mooted by the late Upali Wijewardena to set up this university in Kamburupitiya and he promised to make available all the needed funds for the university. But Upali and Ronnie were rivals and therefore, the latter did not view that proposal favourably. The result was the abandonment of the Upali Wijewardena proposal and set up the university in its present site. Therefore, those in the Ruhuna University are eternally grateful to Ronnie for the yeoman services he provided to establish that university.

Hold elections in time

Ronnie’s last speech in Parliament on 25 August 1988 was a confession of a repentant politician. He had supported as a member of the Cabinet the J.R. Jayewardene government to suppress the democratic rights of people, postpone elections, and violation of the rule of law. It is unfortunate that politicians gain this wisdom only after committing the sin not partially but wholeheartedly. Ronnie warned the Government about the postponement of elections, Presidential, Parliamentary, local governments, or by-elections, and the increased militarisation of the Government rule.

He said: I firmly believe that elections should be held in time. At the same time, these elections should be just and peaceful…We all have done a grave mistake. I was also a party to that. That mistake was not holding the Parliamentary elections in 1983. We made a big mistake by conducting a referendum instead of a Parliamentary election. We are all guilty of this criminal activity. If we admit it and act in the future, that will be best for the country (translation mine).

It would be for the benefit of the country if those politicians who went to pay the last respect to Ronnie learn a lesson or two from Ronnie’s last speech in Parliament.

In my view, Ronnie, the multi-talented politico, will be remembered for many more years.

*The writer, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at waw1949@gmail.com