The Press FRIDAY, FEBRUARY 15, 1963. Ceylon And U.S. Aid

Press, Volume CII, Issue 30057, 15 February 1963, Page 8

The Press FRIDAY, FEBRUARY 15, 1963. Ceylon And U.S. Aid

The United States Govern* inent’s decision to cut off economic aid to Ceylon from February 1 because of the Ceylon Government’s failure to compensate oil companies whose installations it has taken over does not mean that the erratic, muddling administration of Mrs Bandaranaike has been singled out for drastic action. It just happens that Ceylon is the first defaulting nation to feel the weight of the penal clauses attached by Congress to last year’s foreign assistance act These required the suspension of aid to any country if, after six months’ grace, it had not paid adequate compensation for American private property seized or nationalised. Ceylon was duly warned, the six months’ grace has passed, and aid has been stopped, exactly as United States law provides. The action will warn not only Ceylon but other countries which might be of similar mind that they would be wise to take seriously the Congress’s resentment of abuses of American aid.

Congress and the oil companies both have reason to feel aggrieved. The Ceylon Government took over about a quarter of the filling stations in the country, together with storage and bunkering installations, to set up in business a State corporation that would buy oil from Russia and sell it in competition with the people whose property had been expropriated. The Ceylon Government improved its competitive position by reserving to the State corporation the choice of the filling stations it wanted and by giving it exclusive powers to set pump prices. As the American aid administrator points out, the United States does not contest the right of

Ceylon as a sovereign State to nationalise private property. It does, however, expect its nationals to be compensated when their property is taken from them. The Ceylon Government probably did not intend to withhold compensation altogether. It has made one or two gestures towards negotiating with the oil companies. The most likely explanation for the delay is that the Ceylon Government would find it difficult to find enough foreign exchange to pay the heavy compensation bills. Policies similar to those applied in the oil industry have brought foreign banking and insurance to a standstill in Ceylon. The external reserves have fallen to a low level in spite of heavy borrowings from the International

Monetary Fund. Mrs Bandaranaike’s doctrinaires have also threatened theoverseas owners of the tea and rubber plantations; but the threats have so far been unsupported by action which might damage, temporarily at least, the principal earners of Ceylon’s foreign earnings. The cessation of United States aid will exacerbate Ceylon’s economic troubles. As elsewhere among the “ developing” countries, foreign aid has long been the breath of Ceylon’s economic life. The American aid administration has generously agreed to continue the food-for-peace programme under which Ceylon receives milk and flour for a school lunch programme benefiting 1,847,000 children and a nutrition programme for 70,000 mothers and children. But aid exceeding a million dollars for the current year will now be withdrawn. The Ceylon Government had no lack of warnings. They fell on deaf ears.