"We never allowed the World Bank to strangle us; we were not tied down by them," former Finance Minister, Ronnie de Mel said last week.
Mr. de Mel was among the guest speakers at a discussion on WORLD BANK - FRIEND OR FOE, held by the Organisation of Professional Associations of Sri Lanka.
Mr. de Mel added that he always maintained a one to one, personal relationship with the heads of the World Bank and International Monetary Fund (IMF).
Drawing from his wealth of experience during his 17 year tenure as finance minister, Mr. de Mel recalled how he had invited both World Bank and IMF heads at that time, Robert MacNamara and Wittaveen to Sri Lanka within the first six months of his term.
Their first hand experience of Sri Lanka's economic problems at grass roots level made them understand and respond to our needs better, Mr. de Mel said. Robert MacNamara visited a poor farmer in a remote village, ate a simple meal in his hut and understood our farmer's problems far better than any reports or statistics could tell, Mr. de Mel explained.
Mr. de Mel maintained that a personal relationship with the man at the top was crucial to our relations with the World Bank. Despite such strong ties, the World Bank has rejected proposals and refused funds on some occasions, Mr. de Mel pointed out.
When the J.R. Jayewardene government wanted to build all six dams under the Mahaweli Project simultaneously, the World Bank refused to fund the massive project. Mr. de Mel scored over the mighty World Bank by directly appealing to the heads of states of countries like the USA, Canada, Sweden, Germany and Japan for outright grants or low interest (1/2%) long term loans.
This is not withstanding the fact that powerful G5 and G7 nations pull the strings at World Bank. When World Bank financing was not available we went directly to private capital markets, Mr. de Mel added.
The World Bank's main problem is their fixed mind set. The younger economists of the Bretton Woods institutions seem to have a text book approach and tend to use a common model for all developing countries," Mr. de Mel observed.
In 1977, the World Bank prescribed "shock therapy" in the form of instant liberalisation to an ailing economy, a proposal strongly opposed by Mr. Ronnie de Mel.
The UNP government agreed to gradual economic liberalisation and insisted on maintaining subsidies on essentials like bread, flour, milk, dhal, drugs, fertiliser, petrol, diesel, transport, health and education, Mr. de Mel said.
Their firm stand steered them clear of the Polish and East European experiences of economic disaster in transforming socialist/marxist states to liberalised/open economy overnight.
Mr. de Mel said that Sri Lanka was the first semi marxist state to be liberalised through a parliamentary democratic system. We had no role model to follow, he said. He added that 90% of the private sector, the press, and even some cabinet ministers initially opposed liberalisation.
Mr. de Mel recalled that he had even stormed out of Sri Lanka aid group meetings, just to show the World Bank a strong hand. "What was politically feasible was our decision," he said. "Only an idiotic president/minister will allow the World Bank or IMF to call the political shots," he added.
Mr. de Mel holds the record for obtaining the maximum quantum of World Bank/IMF aid during his tenure. Approx. 38% of these loans were outright non-repayable grants. 59% of the balance, were no interest loans, repayable over 50 years, with a ten year grace period. Other loans were obtained at low interest rates not exceeding 2% per annum, he said.
Recent trends in regional groupings of nations have superseded the objectives of the Bretton Woods institutions. Therefore a critical view of the need to set up more regional lending institutions, should be taken by the World Bank, former UNCTAD Secretary General, Dr. Gamani Corea said.
He observed that Mega Blocks have been formed by industrialised economies like the European Union, and the Asia/Pacific region.
What is worrying is that these mega blocks' assistance to developing countries is selective. So far the Indian sub continent has been left out, he said.
Countries should now be categorised as integrated, less integrated and least integrated, rather than developed, developing and under developed, he said.
Taking a critical view of the performance of the Bretton Woods institutions, Dr. Corea said that they do not have a convincing record during their decade and half of existence. He said that their structural adjustment funding schemes have not been entirely successful.
Looking to the future, the World Bank should play a more decisive role in maintaining a balance between the rich and poor nations, he said. All developing countries are now recipients of foreign direct investment (FDI). However, FDIs are still selective. So the IMF and World Bank still play a vital role in providing official credit.
The World Bank's advisory role should grow into a more active role of harnessing and transferring funds from the have to the have notes, he said.
Taking a "Kennedian" approach, N.U. Jayawardena, former Governor, Central Bank said that each country should pose themselves the question, "What have you done for yourself?" Mismanagement of economy and funds cannot be blamed on the World Bank and IMF he added.
The Chairman of the National Enterprise Bank shortly to be set up and former Chairman of Sampath Bank, N.U. Jayawardena, using lenders' logic said that any borrowing country cannot expect assistance if they cannot conform to lending requirements.
Economics and politics should not be mixed, he said. Following basic economic principles, Mr. Jayawardena said that the World Bank cannot lend more money than it can raise in the market. Risk lending will lead to higher interest rates, he added.
