Top economist, civil servant and Former Governor of the Central Bank of Sri Lanka, Deshamanya A S Jayawardena, passed away on May 29, 2018 at the age of 82. His colleague, former Deputy Governor of the Central Bank, W A Wijewardena remembers his life and contribution to the nation.
Former Central Bank Governor, A. S. Jayawardena, known as ‘AS’ to his friends and foes, is no more with us. During his long professional career spanning over half a century, he wore many hats. He was an educator, commercial banker, top bureaucrat, international civil servant and economic policy maker in addition to being an illustrious central banker.
After retiring from the Bank as its Governor in 2004, he did not stop his intellectual pursuits. On the invitation of the Government, he headed a committee of experts to examine and recommend measures to improve the country’s plantations sector in 2005. This was pretty much close to his heart, because he was an advisor to then Minster of Plantations Industry, Dr. Colvin R. de Silva, under whose care the newly nationalised plantations sector had been placed by United Front Government of 1970-77.
AS was also a leading figure in an informal group of intellectuals called‘Peradeniya Plus’ made up of those who had passed out from the Universityof Ceylon, Peradeniya, in and around the 1960s. I was the only outsider to join this group on a special invitation by AS. The topics that were discussed ranged from economics to poetry to literature to history and so on. He was a leading contributor to intellectual discussions at its meetings.
A world renowned macro-economist
He was well known as a top macro-economist both in Sri Lanka and abroad. However, only a few who worked with him closely knows about his innovative schemes to support Sri Lanka’s rural community, made up mostly of farmers and casual labourers.
Alleviating poverty through higher economic growth
After he became the Governor of the Central Bank in December 1995, I got the opportunity to work closely with him, first as the Director of Rural Credit and later as Deputy Governor overlooking that area, on his innovative rural support schemes.
As a macro-economist, he did not believe in micro interventions to help rural people to come out of poverty. His argument was that such schemes brought only temporary results and did not work to provide a long term solution. Hence, according to him, such micro interventions helped only to perpetuate poverty. To address poverty issues, he said that a country should have a high economic growth, say about 9 to 10%, continuously for over a decade. When there is high growth, it provided employment to poor people and with that employment, they could earn an income on a sustainable basis. They could be lifted out of poverty permanently only by providing employment to them.
His argument had been supported by some East Asian countries like South Korea, Singapore and Malaysia. In all these countries, in 1960, more than a half of the population had been condemned to live a life without even the basic needs of life. Their income levels had been so erratic that they could not even support their families with adequate meals.
But, in the 1970s and 1980s, they had economic growth rates of close to 10% annually. Their economies were diversified from agriculture to industry to services. The result was the gradual decline in the percentage of people living this horrific life to less than 5% by early 1990s. The experience of China in the recent past also bears evidence to this observation. China also had poor people as large as about 60% of the population in late 1960.
With economic growth running into double digits for many years after 1980s, the segment of population composed of poor people today is less than 5%. Move to convert a macro-economist to accept micro-finance Hence, AS had valid reasons to dismiss us who were all for micro level intervention to help poor people to get out of poverty. But we argued and debated with him. I was supported by the late G M P de Silva who was an Executive Director and Dudley Boyagoda, at that time, Director in charge of human resources but a micro-finance enthusiast. AS loved arguments and counter-arguments and always promoted such open discussions.
AS’s interaction with the ‘Isuru’ Project
The flagship project which we had was the Small Farmers and the Landless Credit Project, dubbed in Sinhala as the Isuru Project, that was being implemented in four selected districts as a pilot project. The districts involved were Kandy, Puttalam, Galle and Matara where the incidence of poverty was the highest in the late 1980s.
We took AS on a tour to meet the members of the project, especially the women members, who were earlier among the poorest of the poor but thanks to the intervention of the project were now earning good incomes by getting into small micro level businesses. When the women members explained to AS how they had earlier suffered from poverty without hope or goals in life and how well they are doing it now, AS was amazed.
The project had deliberately used above market rate interest rates to grant loans to members. AS was curious and he asked a woman member why. The answer which that woman gave changed AS’s mind forever. That woman told AS:
“We’re not worried about the interest rate. What we’re worried about is that we should get the loan when we need it. If we have to fertilise the field tomorrow, we should get the loan today. If the loan is given to us without bothering us to fill so many forms, we don’t mind even paying a little more interest to get the money when we need it” Subsidised credit flies elsewhere
The answer which that woman gave AS was based on pure economics. If prices do not reflect all the costs, the product involved would be sold at a subsidy and there should be someone who is prepared to pay that subsidy. Usually, those subsidies are paid by general taxpayers.
Given the resource paucity in any society, it is necessary to use such scarce funds for the best use and giving an interest subsidy to one group may not be the best use. In addition, when interest rates are subsidised,it is always the case that even the groups which do not deserve those subsidies will flock to get them.
Hence, the subsidised credit flies elsewhere rather than towards the groups for which it is meant. When there is a high demand, the more powerful will get the benefit leaving the less powerful behind. Hence,economics advocates that allocation by price is preferable to allocating by quantity or subsidies.
AS would not have got such an answer even from a graduate who has studied economics for the degree.
Supporting the ‘Isuru’ Project as Governor
That was the turning point for AS and since then, he was convinced that micro level interventions too have a role to play. Market economy will help those who are able to play the game according to its rules. If you are good, you will succeed, but if you are bad, you will be punished. Hence, there should be a mechanism to help those who are left out of the market.
AS’s new initiatives were directed to find ways to help those vulnerable groups. Within months, he was an expert on micro-finance and he could now advise us as to how we should develop sustainable micro-finance schemes.
He provided all the support to the ‘Isuru’ Project, met beneficiaries in the field as well as in Colombo and became the main sponsor of two national conventions convened by beneficiaries in Colombo. The first convention was held in Central Bank’s Centre for Banking Studies at Rajagiriya. The then,Deputy Minister of Finance, Prof G L Pieris, illuminated the event as its Chief Guest. The second convention was held at the Open Theatre of theVihara Maha Devi Park with more than 5000 beneficiaries participating from all over the island. AS was the Chief Guest at this function and delivered a moving speech outlining his vision for rural development.
Problem of price drops in a glut bankrupting farmers AS was highly concerned about the failure of farmers to get a consistently fair price for their produce throughout the year. When the production is high, prices dip sending farmers to destitution. When the production is low, prices are high but due to inadequate bargaining capacity, farmers are not able to get the best price for themselves. Hence, farmers are subject to these natural vagaries in the market. To help farmers as well as large scale buyers, AS wanted to introduce a formal contract system to assure stable prices as well as stable quantities. These contracts were known as forward purchase contracts. I was asked to implement this program as the Bank’s Director of Rural Credit.
Birth of forward purchase/sale contract scheme
To give effect to the proposal, a forward purchase/sale contract was drawn by a team led by Bank’s Legal Director, Sarojini Kadurugamuwa. They had used the Sale of Goods Ordinance enacted during colonial times as the legal backing for the contracts. The rationale and modus operandi of implementation was formulated by Priyantha Fernando who was a Deputy Director of Statistics at that time but later retired from the Bank as its Deputy Governor. The field level operations were done by the Bank’s Regional Office at Anuradhapura with the assistance of D. B. Jayasuriya, Manager of the ‘Isuru’ Project at the Rural Credit Department. It was a tripartite agreement signed by farmers, bulk buyers and bankers,facilitated by Central Bank’s Rural Credit Department. We had field meetings practically in every town in the North Central Province and AS was the leading speaker at those meetings explaining the scheme to its stakeholders and enlisting their support for its implementation.
Price discovery by farmers
The purpose of the scheme, AS explained at these meetings, was not only to assure a stable price for farmers but it also helped them to discover the prices of agricultural produce in the future so that they could decide whether to cultivate those crops or not. The prices were determined by taking into account a number of factors: cost of production, historical market prices, international prices and market supply conditions.
It was the duty of the banker to ensure the satisfaction of the conditions of the contract with respect to the agreed price, quantity and quality. Anadditional advantage was that these contracts could be used by banks as collateral when they lent to farmers as well as bulk buyers. Initially, contracts were signed for paddy, corn, ginger and a few other crops. Within about two years, the whole of the North Western Province was covered byforward purchase/sale contracts.
AS was not complacent with the success of the scheme. He wanted to go forward and make the contracts a trade-able instrument in a commodity exchange. He designed a blueprint for a commodity exchange for Sri Lanka with the assistance of another Central Bank officer, W. M. Karunarathna, at that time a Deputy Director in the Rural Credit Department but later elevated to the Director’s position.
This blueprint was submitted to the World Bank under its Development Market Place Competition for New Innovations in 2001. The World Bank agreed to fund the establishment of a commodity exchange in Sri Lanka. After AS retired from the Bank, the work was continued but a commodity exchange could not see the light of the day in Sri Lanka due to the reluctance of traders to get involved in such an outfit.
AS’s innovations can be imitated by others
These are original innovations introduced by AS to Sri Lanka’s rural sector. It would behove the present Minister of Finance, Managala Samaraweera, to take note of them in his novel enterprise to implement a new village development program titled ‘Gam Peraliya’.
The writer is a former Deputy Governor of the Central Bank.
Life sketch of AS
Deshamanya Amarananda Somasiri Jayawardena was the tenth Governor, from November 1995 to June 2004. He joined the Central Bank in 1958 and served in the Secretariat, Establishments and Economic Research Departments before being appointed as Director of Economic Research (1977 – 1980).
He served as Assistant to the Governor and Executive Director during 1980-1981 and also functioned as the Alternate Executive Director of the IMF from 1981 -1986. He served as Deputy Governor from 1986 – 1989 and was the Senior Deputy Governor from 1993 - 1994.
Rendering his service and expertise to many sectors, Deshamanya Jayawardena was on release from the Central Bank and served in several public institutions. To mention a few, during 1976 – 1977 he was General Manager (Chief Executive Officer) Bank of Ceylon and again in 1989 he was Chairman, Bank of Ceylon and Merchant Bank of Sri Lanka.
During the period 1989-1993 he was Secretary, Ministry of Industries, Science and Technology and from 1994 - 1995 he was Secretary, to the Treasury and Secretary Ministry of Finance & Planning, Ethnic Affairs & National Integration. He also served as a visiting lecturer in Economics at Sri Lanka Universities during 1965 – 1976.
A brilliant scholar, Deshamanya A S Jayawardena studied at St. Thomas’ College, Matale and Royal College, Colombo. He completed his undergraduate education at the University of Ceylon, Peradeniya with a BA (Hons.) Degree in Economics in 1957. Obtaining his MSc in Economics specializing in Public Sector Economics from the London School of Economics in 1965, he proceeded to obtain his Master’s Degree in Public Administration specializing in Public Finance from the Harvard University in 1975. While at Harvard, Mr. Jayawardena was an Edward Mason Fellow. He was awarded the title of “Deshamanya” in 2005 by the Sri Lankan Government in appreciation of his services to the country.