Social Scientist. v 15, no. 167-68 (April-May 1987) p. 11.


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ACTIVE STATE CONTROL VS. MARKET GUIDANCE 11

economic status quo. The economy's dependence on exports of primary commodities—tea, rubber and coconut contributing over 90 per cent of exports—and on imports of consumer and other requirements was hardly challenged by these regimes. The neoclassical economic wisdom, expressed in respect of Sri Lanka at the time in a well publicised report of a World Bank advisory team (Woild Bank, 1953), supported the policy of virtual inaction of these early post-independence regimes particularly in respect of structural reform.

The maintenance of essentially the colonial status quo in economic affairs of the country during this period would not have been feasible had the global conditions affecting particularly the external sector of the econo» my been unfavourable. In actual fact, however, the export economy of Sri Lanka enjoyed on the whole extremely favourable external conditions until the mid 1950's, in spite of occasional cyclical difficulties of short duration. Essentially due to supply and transport restrictions on civilian imports necessitated by the War effort, the Colonial government in its last few years could run large external surpluses and as a result, the first post-independence regime had, in its early years, large accumulated external reserves—as much as 100 per cent of annual imports. Yet the new government maintained rigorous import and exchange controls in 1948-1949, in order to help the United Kingdom government in its management of the post-war payments problems. The global conditions changed rather drastically in the following year with the onset of the Korean-war-induced commodity boom. Although there was an export slump in 1952-3, the boom in tea prices which followed in 1954-55 made external economic conditions once more very favourable. Thus in terms of global economic trends over the entire period, the first two regimes of independent Sri Lanka enjoyed :

—improving commodity terms of trade,

—improving import capacity and

—continued favourable position in external assets. Trade policy from 1950 onwards in Sri Lanka therefore had witnessed a gradual movement towards free trade. In terms of external transactions the economic policy of the middle half of the 1950's was in many respects more "open" than even that of the post—1977 period. And in production activities, private sector dominance was more overwhelming during this period than during the period after 1977. The economy of Sri Lanka in the first decade after independence was a classic case of a foreign market dependent export economy functioning essentially through private merchant capital, both foreign and domestic.

For its political sustainability within a pailiamentary democratic system which was based on the operation of universal adult franchise and had some traditions of popular agitation, the above system of economic management, however, had to be somewhat tempered by the state. Hence the emergence of a widespread "welfare state" system characterised by



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