184. Memorandum of a Conversation, Department of State, Washington, May 27, 19581
SUBJECT
- Ceylon’s Request for Additional Financial Assistance
PARTICIPANTS
- Mr. Stanley de Zoysa, Finance Minister of Ceylon
- Mr. R. S. S. Gunewardene, Ambassador of Ceylon
- Mr. Douglas Gunasekera, Ceylon representative, IMF–IBRD
- Mr. Rajendra Coomaraswamy, Assistant Secretary, Ministry of Finance, Ceylon
- Mr. Douglas Dillon, W
- Mr. George Springsteen, OFD:ED
- Mr. Rufus Burr Smith, SOA
The Finance Minister stated that he was instructed to convey the greetings of the Prime Minister of Ceylon to the U.S. Government and to express the Prime Minister’s gratitude for U.S. assistance that has been generously afforded to his country. In this spirit the Prime Minister has felt that he could turn to the U.S. for further assistance in Ceylon’s present crisis. The main purpose of the Finance Minister’s approach is to obtain additional financial assistance.
According to the Finance Minister, the core of Ceylon’s present problem is political and the present request for financial aid should be understood in these terms. The national movement in Ceylon which produced independence, also had, as a clearly expressed objective, the economic uplift of the country. However, political freedom did not bring effective economic results and Ceylon’s early leadership in large part neglected the interest of the common man. As a result, economic issues were politically championed by younger personalities who were primarily revolutionary Marxists. As a result of dissatisfaction, in 1956 a new coalition government came into power. The people expected that promises of economic betterment made by the Marxists would be [Page 384] fulfilled. However, in the past two years the Government of Ceylon has hardly been given a chance to achieve improvements because of strikes and unrest initiated by the Communists. What little had been achieved, has been, in large part, offset by the effects of the recent disastrous floods.
As a consequence, popular demand for immediate economic development is now very strong and the government believes that its present development budget is crucial. If results are not produced, there is a strong likelihood of a further shift to the radical left in government. Further, development takes some time to become effective and if a beginning is not made now, the government will have little to show when it faces elections in two or three years.
The Finance Minister also pointed out that Ceylon has achieved a high level of social services for Asia. These services have been allowed to deteriorate in the past two years. Consequently, it is also necessary for political purposes to increase budgetary appropriations for such uses as health and education in the current year.
The over-all result in financial terms is a budget which is in deficit by some rupees 450 million of which the Government of Ceylon can cover only approximately rupees 200 million by borrowing and from existing aid sources. It is to meet this deficit that the Finance Minister is now appealing for further aid from the U.S. and Canada. The primary objective in Ceylon’s program is to keep their country from the grip of communism.
Mr. Dillon informed the Finance Minister that development aid is normally extended through loans from the Export-Import Bank and the DLF. He noted that the DLF has approved a number of loans to Ceylon amounting to more than $3 million and is also considering an application for a cement plant. He inquired whether other projects have been prepared for presentation noting that the U.S. Government is, of course, interested in helping any country to development, particularly if it has the capacity to absorb funds and is animated by a desire to maintain its own freedom. In this sense, the U.S. always considers the political justification for economic assistance.
The Finance Minister recognized that it might be difficult for the U.S. to extend substantial additional assistance at this particular time. He inquired as to the reaction of the U.S. Government to an attempt by Ceylon to float a loan with private American banks. Mr. Dillon assured the Minister of the general approval of the U.S. Government for such a course of action, noting that a number of such loans are now being considered for other countries.2
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Source: Department of State, Central Files, 746E.5–MSP/5–2758. Confidential. Drafted by Smith.
On May 23, Ambassador Gunewardene wrote to Secretary Dulles, asking him to “see that all possible steps are taken to help my Government to tide over this most difficult situation.” (Ibid., 846E.10/5–2358) On the same day, Gunewardene also transmitted a letter to President Eisenhower from Prime Minister Bandaranaike which reads as follows: “Your Ambassador here as well as my Ambassador in Washington will be placing before your Government certain urgent and critical problems that have arisen in respect of the Budget which my Government has to place before our Parliament early in July. In view of the grave importance to us that these discussions should be successful, I am sending the Finance Minister himself to represent me and to lead the Ceylon Delegation. My Government is most grateful for the sympathetic interest you have shown in the solution of our problems. I commend for your earnest consideration the request for assistance and aid which my Finance Minister will be making personally.” (Ibid., 846E.10/5–2358)
↩ - On May 28, these four Ceylonese representatives met with officials of the Export-Import Bank, along with Rufus Burr Smith of the Office of South Asian Affairs. De Zoysa presented substantially the same case to these officials that he made to Dillon. In reply, one of the Bank officials commented on the “sound basic financial situation of Ceylon,” and advised De Zoysa to first talk to private American banks about loans. (Memorandum of conversation by Smith; ibid., 746E.5–MSP/5–2858)↩