Foreign Relations of the United States, 1958–1960, South and Southeast Asia, Volume XV

185. Memorandum of a Conversation, Department of State, Washington, May 28, 1958¹

Washington, May 28, 1958

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
• Mr. William M. Rountree, NEA
• Mr. Rufus Burr Smith, SOA

The Finance Minister said that in general financial terms the problem Ceylon faces is a deficit in its forthcoming budget of approximately $50 million. The Government of Ceylon does not believe that it can reduce its expenditures because of the political pressures now evident.

The people of Ceylon at the time they were conducting their struggle for independence, expected that freedom would produce substantial economic improvement. This expectation has been disappointed in the succeeding years, with a result that revolutionary Marxists have seized on this discontent and produced a powerful Communist opposition to the present government.

Nevertheless, the people of Ceylon were not prepared to put Marxism into full control of the government at the time of the last election. Instead they expected the present government to produce a measurable improvement in economic conditions. Unfortunately, the government has not been able to achieve a great deal in economic terms in the two years that it has been in power. This has been due to two causes: deliberate Communist harassment through strikes and other disturbances, and the disastrous floods of the last year. As a consequence, the present government can, at this time, show very little in the way of economic improvement.

Because of this background, the present budget is considered as crucial. It is impossible to postpone economic progress any longer and the government must have a record of solid achievement by the time of elections three years hence. Failure on the economic front will, in the opinion of the present leaders, produce a turn to the left and a failure of democratic government in Ceylon. This problem is believed to be so crucial as to be of concern to friendly foreign governments as well as to Ceylon’s leadership. The history of past relations between Ceylon and the United States has, therefore, led the Prime Minister to expect understanding and sympathy from the United States in Ceylon’s present crisis.

Mr. Rountree assured the Finance Minister that he would find American officials aware both of the economic problems of Ceylon and of their political implications. The United States has long recognized the importance of concrete economic results as a foundation for political stability. It has been a source of satisfaction to the U.S. Government that it has been able, in the past, to make a contribution to progress in Ceylon. He expressed pleasure that Ceylon is among the first nations to receive loans from the Development Loan Fund and also noted the usefulness of PL 480 in meeting the current problem.

Mr. Rountree pointed out that the American Government is now in the process of presenting its foreign aid requests to Congress. Although we do not know the exact results that will be obtained, it seems clear that some resources will be available next year to carry forward our aid program in Ceylon. He assured the Finance Minister of a sympathetic response for additional Ceylonese applications for DLF and PL 480 assistance as such requirements emerge from future technical discussions. Such applications will also be considered in the context of the political background and justification given by the Finance Minister.

The Finance Minister expressed his gratification for the assurances given by Mr. Rountree and it was agreed that additional discussions might be desirable as technical talks progressed. The Minister noted that U.S. Government funds are somewhat restricted at this time, and inquired as to the reaction of the U.S. Government to an attempt by Ceylon to raise loans in the private sector. Mr. Rountree assured him that we would encourage such an approach, noting that Ceylon’s credit rating is high.

The Ambassador of Ceylon inquired whether money might be available either this year or next from the special assistance fund.² Mr. Rountree informed him that this year’s appropriation was exhausted and that we do not know as yet the amount that will be appropriated for the coming year.

The Finance Minister informed Mr. Rountree that the rioting now taking place in Ceylon³ was not as serious as had been reported in American newspapers. Most of the difficulty, in his opinion, was due to hooliganism rather than to political dissatisfaction.

1. Source: Department of State, Central Files, 746E.5–MSP/5–2858. Confidential. Drafted by Smith on May 29.
2. Apparently a reference to the President’s special assistance fund authorized by Section 400 of the Mutual Security Act of 1954, as amended. (71 Stat. 360)
3. On May 23, a series of severe Sinhalese-Tamil communal disorders began. The Government of Ceylon imposed a state of emergency on May 27. In a report on the rioting, the Embassy in Colombo noted that much of the violence was “pure hooliganism carried out by irresponsible elements in orgy of lawlessness.” (Telegram 771 from Colombo, May 27; Department of State, Central Files, 746E.00/5–2758) As a result of the disorders, “and consequent uncertain political developments to follow,” the Embassy recommended that no additional commitments be made to the Government of Ceylon for the time being. (Telegram 789 from Colombo, May 31; ibid., 746E.5–MSP/5–3158)