CEYLON: OUTLOOK FOR THE NEW GOVERNMENT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001100090032-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 17
• Document Creation Date: December 20, 2016
• Document Release Date: August 28, 2006
• Sequence Number: 32
• Publication Date: June 23, 1970
• Content Type: IM

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Secret
,-D)C e,5
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
Ceylon: Outlook for the New Government
State Dept. review completed
Secret
?U
23 June 1970
No. 0521/70
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
23 June 1970
INTELLIGENCE MEMORANDUM
Ceylon: Outlook for the New Government
Introduction
On 27 May, the Ceylonese electorate turned out
the moderate, Western-leaning government of Dudley
Senanayake and installed in power the United Front
coalition presided over by Mrs. Bandaranaike. Her
previous government (1960-1965) was characterized
by some turmoil and a radical bent, both of which
helped to turn the electorate against her. Before
the recent election, many political observers pointed
to her prior term of office as an unhappy precedent--
for Western interests, at least. While it is still
too early to tell which direction her new government
will take, some indicators are provided by her cam-
paign platform, much of which was reaffirmed in the
traditional Throne Speech of the new government,
delivered on 14 June. A review of the highlights
of her campaign promises suggests that Mrs. Bandara-
naike's course may not be as completely injurious
to Western interests as had been feared.
Note: This memorandum was produced solely by CIA.
It was prepared by the Office of Current Intelli-
gence and coordinated with the Office of National
Estimates and the Office of Economic Research.
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Domestic Policy
We seek your mandate to permit the Members
of Parliament you elect to function simuZ-
taneously as a Constituent Assembly to
draft, adopt, and operate a new Constitu-,
tion. This Constitution will declare
Ceylon to be a free, sovereign and inde-
pendent Republic pledged to realise the
objective of a socialist democracy....'
1. At present, Ceylon, like Canada and Aus-
tralia, is an independent self-governing nation
recognizing Queen Elizabeth II as its sovereign as
well as the symbolic head of the Commonwealth of
Nations. The proposal to establish a republican
form of government, supported also by former prime
minister Dudley Senanayake's United National Party
(UNP), would probably not have a great effect on
government policy, but could change significantly
its administrative operation, particularly if there
were to be a president on the French model. Mrs.
Bandaranaike easily has the two-thirds vote needed
to amend the constitution.
The present administrative set-up ...is
inherited from the colonial days. It is
not only bureaucratic and inefficient but
also thoroughly unsuited to ensuring the
speedy fulfillment of today's needs. We
shall transform the administration thor-
oughly, make it more democratic and Zink
it closely with the people through
(i) Elected Employees' Councils;
(ii) Advisory Committees in Govern-
ment offices;
(iii) People's Committees on a terri-
torial basis.
2. Although Senanayake lashed out at this
proposal as totalitarian, it may have appealed to
'This and the following excerpts from the United
Front Election manifesto are taken from the 21 April
1970 issue of the Ceylon.Obseryer Magazine.
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the average Ceylonese voter, who, like the "common
man" in many other countries, feels he is being
cheated by a corrupt, inefficient bureaucracy. Ac-
tual implementation of such committees, however, could
result in considerable confusion and delay in gov-
ernment programs. It might also lead to amateurish
bungling in such fields as economic planning, which
was a serious weakness during the last Bardaranaike
government. Although many plans were then proposed,
some of them apparently sound, ministerial con-
flicts and feuding resulted in indecisiveness and
a failure to implement specific courses of action.
The same problem might again arise if a plethora of
local plans presents too wide a range of conflicting
possibilities.
We shall implement the Official Language
Act and the Tamil Language (Special
'Provisions) Act fully and fairly. We
shaZZ ensure that no citizen will suf-
fer any disability or discrimination
in the matter of employment, in his rela-
tions with the state, or in access to
public institutions and places, on the
grounds of race, religious belief, or
caste.
3. Communal relations between Ceylon's major-
ity Sinhalese and minority Tamils were relatively
peaceful under the recent Senanayake government.
Tensions between the two groups have flared up in
the past, however, and have caused considerable
violence, most notably during the tenure of Mrs.
Bandaranaike's husband (1956-59) and during her own
rule. To a certain extent, the Bandaranaikes them-
selves were responsible, since they exploited com-
munal feeling to achieve their political ends,'only
to discover they had unleashed forces that could not
easily be controlled.
4. The present election manifesto, however,
is more conciliatory to the Tamils than was the
Common Program of the United Front coalition in
1968. The earlier document was more severe in tone
in its treatment of the language question, a key
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element in the communal problem. it also called
for the repeal of regulations adopted in 1966 that
provided for the administrative use of their native
tongue in areas inhabited predominantly by Tamils.
No such threat is contained in the election mani-
festo, which also calls-for the establishment of
two universities in Tamil areas and appears to
promise much-needed improvement in the Tamil
schools situated in the up-country tea estate
region.
5. The more moderate note struck in the mani-
festo probably stemmed partly from a desire to win
Tamil votes in what had been expected-to be a close
election. Mrs. Bandaranaike did not make signifi-
cant use of communal issues in her campaign. It
appears that the United Front did not obtain sub-
stantial support from the Tamils, nor did such sup-
port prove necessary. Mrs. Bandaranaike has in-
cluded a Tamil in her cabinet, however, and it is
possible that the relatively balanced manifesto in-
dicates a genuine desire on her part to avoid domestic
strife the second time around. Moreover, one of the
parties in her coalition has a relatively favorable
image among Tamils because of its past promotion of
communal harmony, and Tamils might regard the naming
of a leader of this party to the Plantation Industry
portfolio as a good thing (Tamils furnish the bulk
of tea plantation laborers). Furthermore, when some
Tamil stores were burned following the announcement
of the United Front victory, Mrs. Bandaranaike acted
firmly to keep the scattered disorders from spreading
or intensifying.
The Indo-Ceylon Agreement of 1964...wiZZ
be implemented fully both in letter and
spirit.
6. The 1964 Tamil Repatriation Agreement be-
tween Ceylon and India aimed at settling the problem
of the million or so stateless Tamils in Ceylon.
Unlike "Ceylon Tamils," whose ancestors have lived
on the island for generations and who have full
voting rights, the forebears of the "Indian Tamils"
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were brought over from southern India in the second
half of the 19th century to work on the plantations.
In 1948, approximately 90 percent of these people lost
their franchise through discriminatory legislation
and they have remained stateless since. The 1964 agree-
ment, signed by the Bandaranaike-government, provided
that India would accept 525,000 of-these-Tamils over
15 years; that Ceylon would grant citizenship to
300,000 over the same period; and that the future
of the approximately 150,000 others would be re-
solved subsequently. The latest available figures
on implementation of the agreement date .prom mid-
1969, by which time India had granted-citizenship
to only 44,000 Tamils, almost 10,000 of whom had
reportedly left Ceylon. About 2,000 stateless Tamils
had obtained Ceylonese citizenship. It is likely
that Mrs. Bandaranaike will step up the repatriation
process and might even forcefully expel some reluc-
tant Indian Tamils.
The freedom of the press will be ensured.
Independent newspapers will be encouraged
as a means to end the present domination
of the daily press by capitalist monopolies.
7. The "capitalist monopolies" referred to
are primarily, but not exclusively, the Asso-
ciated Newspapers of Ceylon, Ltd., often referred
to as the Lake House papers. These newspapers were
generally very critical of Mrs. Bandaranaike's
previous administration, which was committed to
some form of press control.
8. In 1964, members of Mrs. Bandaranaike's
government, apparently prodded by their more leftist
coalition colleagues, obtained permission from the
prime minister to introduce a bill providing for
the takeover of Lake House. This bill touched off
a vigorous reaction from the press and contributed
to Mrs. Bandaranaike's fall at the end of the year
when several moderate coalition members of parlia-
ment deserted her over the press bill in particular
and in general. over the increasing leftist influence
on her government.
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9. Shortly after Mrs. Bandaranaike's recent
electoral victory, a mob of her supporters, possibly
led by some union leaders from the more radical
element of her coalition, stormed the offices of
Lake House and were allowed to ransack them before
the police took action. Mrs. Bandaranaike subse-
quently issued a firm radio appeal for order and
took steps to halt further violence. The board of
directors of Lake House submitted letters of resig-
nation and offered the corporation to the govern-
ment. She refused the offer, however, claiming that
her government favored freedom of the press and sug-
gesting that Lake House resume publishing.
10. Her conduct indicates a desire to avoid
the accusation of suppressing a free press, but she
has other means to attack her journalistic bete
noire. Towards the end of 1969, allegations were
made that the Lake House directors were guilty of
income tax evasion and circumvention of governmental
foreign exchange regulations. The charges, which were
under investigation by the Senanayake government,
may be true. In any case, Mrs. Bandaranaike has
declared that she will set up a new commission of
inquiry, and this could-provide her with relatively
unassailable legal grounds for controlling the most
important segment of Ceylon's independent news-
papers. Perhaps realizing its precarious position,
at least ogle of the Lake House papers has been
noticeably warm in reporting Mrs. Bandaranaike's
victory and the initial operations-of-her adminis-
tration.
Economic Policy
11. The coalition's economic pronouncements
in the election manifesto foreshadow a continuation
of the socialization pursued during Mrs. Bandara-
naike's earlier tenure, during which she-nationalized
domestic banks and the life insurance business. This
program, however, discouraged private investment,
which declined from nine percent of gross domestic
product in 1961 to six percent in 1965 (in absolute
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terms, private. investment declined about 20 per-
cent). By the end of Mrs. Bandaranaike's last term,
Marxist leaders from the Trotskyite Lanka Sama
Samaja Party (LSSP) had gained a considerable in-
fluence in cabinet deliberations, and LSSP leader
N. M. Perera--appointed finance minister in June
1964--called for additional restraints on private
businesses and continued nationalization of key
enterprises.
12. In general, the pledges concerning state
control could be viewed as a compromise between the
moderate and the more extreme wings of the coali-
tion. Some of the statements are phrased in broad
terms that could refer only to extension of control
in an area where the state already has a role. In
such cases, the question of degree becomes important,
and at present it is impossible-to-foresee how much
of a giv.v'3n sector or industry will be-placed under
state inanagement. Apparently, however, Mrs. Bandara-
naike has allowed herself some leeway.
The banking system will be nationalized.
13. Because of the nationalization of Ceylonese
banks under the previous Bandaranaike government, only
eight foreign commercial banks remain: five British,
two Indian, and one Pakistani. In a press confer-
ence on 4 July, however, the new finance minister,
N. M. Perera, said there were no immediate prospects
for nationalizing these banks since other matters
required prior attention.
The import trade in all essential com-
'rrrodi-ties will be handled by the state.
The share of the state in the export
trade will be progressively expanded...
14. The reference to control of imports prob-
ably means that more commodities, primarily indus-
trial and consumer goods, will come under the pur-
view of the state. The statement about export trade
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is vague and could mean anything from increased state
regulation to ultimate nationalization of the impor-
tant trade in tea and rubber, Ceylon's largest
earners of foreign exchange.
State Agencies will be established to
guide and direct the plantation industries
in the interest of the nation.... The Agency
Houses, which are a major vehicle through
which imperialism dominates plantation
economy, will be controlled in order to
thwart the malpractices that now take
place ...
15. These pronouncements about State Agencies
and Agency Houses are of considerable importance, be-
cause they indicate that-Mrs. Bandaranaike's govern-
ment is planning to intervene in the-plantation in-
dustries,-'the backbone of Ceylon's economy. The
Agency Houses, which are primarily British-owned
and managed banking and marketing centers acting as
intermediate export agents, are an important factor
in the plantation industry. Extensive meddling with
them could add greatly to Ceylon's already serious
economic problems.
The heavy and capital goods industries
and other suitable basic industries will
be state-owned.
The policy of Cey,Zonisation of ownership
in the private se:tor will be actively
pursued.
16. Most large-scale industry is already state-
owned. A policy of "Ceylonisation" probably means
that pressure will be applied on foreigners, who own
40 percent or more of the tea and rubber estates, to
sell part or all of their holdings to Ceylonese na-
tionals.
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17. On balance, therefore, the economic por-
tion of the United Front manifesto is leftist in
nature but allows for a measure of moderation in
implementation. Crucial points could be the role
of the state in controlling the tea and rubber
plantations and the Agency Houses. An LSSP leader
has been appointed to the new cabinet post of
Plantation Industries, but it is not yet clear how
much of a free hand Mrs. Bandaranaike will permit
him. The trade minister, from the more extreme
wing of the coalition, was a driving-force behind
the Nationalization of US- and British-owned oil
distribution facilities during Mrs. Bandaranaike's
previous reign. His degree of influence in the
present government cannot yet be determined,
however.
Foreign Polio
We shall pursue an independent foreign
policy guided by Ceylon's national inter-
ests and based on: (a) nonalignment with
any military or power bZoc;...(c) opposi-
tion to imperialism and colonialism, both
old and new, and racism; ... (e) solidarity
with and support for all national libera-
tion struggles against imperialism and
colonialism....
18. In all probability, Ceylon's nonaligned
foreign policy will take on anti-Western overtones,
and criticism of US foreign policy in the Middle
East, Southeast Asia, and the Indian Ocean area can
be expected. The old nuclear capability declaration
for foreign naval visits, largely disregarded while
Senanayake was prime minister, might be enforced
again. Under this policy, introduced by the previous
Bandaranaike government, Ceylon would deny access to
ships and aircraft carrying nuclear armaments or
equipped for nuclear warfare.
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19. Mrs. Bandaranaike will probably be recep-
tive to Soviet influence, should the USSR decide to
court the new government. The Soviets enthusiastically
welcomed her victory and might, in exchange for in-
creased aid and trade, be tempted to seek the use of
Ceylonese port facilities in con=section with their
naval program or their space tracking exercises in
the Indian Ocean. Should such a request be made
however, it is unlikely that the Ceylonese Govern-
ment will alter its long-standing policy, upheld
previously by Mrs. Bandaranaike, against any foreign
bases in the Indian Ocean.
We shall extend full diplomatic recogni-
tion to the German Democratic Republic,
the Democratic Republic of Vietnam, the
Democratic Peop Ze 's Repub Zic of Korea,
and the Provisional Revolutionary Gov-
ernment of the Republic of South Vietnam.
Diplomatic and other relations with Israel
will be suspended until such time as the
Government of Israel either conforms to the
Resolutions of the United Nations Security
Council of 22nd November, 1967... and with-
draws its armed forces from the territory
of the UAR, Syria, and Jordan...or arrives
at any solution acceptable to the Arab
States concerned.
20. These pronouncements, which were not speci-
fically contained in the earlier Common Program, are
largely self-explanatory. East German newspaper
coverage of the Bandaranaike victory was jubilant.
Both a congratulatory telegram from the East German
Government and an interview with a leader of Mrs.
Bandaranaike's party expressed "certainty" about
further development of relations between the two
countries. At present, East Germany and North Korea
have consulates general in Ceylon, while North Viet-
nam is represented through its consulate general in
New Delhi.
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ALL subversive imperialist agencies which
operate in Ceylon will be wound up.
21. This pledge could serve as a catch-all to
force several US agencies out of Ceylon. The Peace
Corps, the Asia Foundation, and the Smithsonian
Institution's programs might be construed by Mrs.
Bandaranaike's government as "subversive" activities.
At present, there are about 20 Peace Corps vol-
unteers in Ceylon. Although some newspapers have
speculated that the new government is studying the
Peace Corps closely, there has been-no ind.cation
yet that the volunteers will be expelled.
In return for a Loan from the World Bank
and the IDA of 29 million US dollars...
the Government has agreed to allow these
financial agencies of the USA the right
for 30 years to interfere in and deter-
mine the economic destinies of nearly
2/3rds of Ceylon. It has agreed to the
World Bank having veto powers over all
appointments and dismissals to major
posts in the MahaweZi scheme....
The agreements that the UNP Government
has entered into with the World Bank
and the IDA to finance Stage 1 of the
Mahaweli Ganga (River) Diversion Scheme
as well as the continuation and power of
the Board appointed to administer the
scheme will be reconsidered.
22. The Mahaweli River project is, designed to
irrigate about 900,000 acres (enough to double
Ceylon's cultivatible acreage) and to generate 900
megawatts of hydroelectric power. It became a cam-
paign issue in the recent election when Mrs. Bandara-
naike's coalition charged that the World Bank agree-
ment represented a "tremendous sellout" of national
sovereignty because of the conditions that had been
attached. Obtaining this assistance, however, has
taken years of effort on the part of Ceylon, and it
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is doubtful that the new prime minister would termi-
nate the project. After the election, she told a
foreign diplomat that the main emphasis on her gov-
ernment's development program would be on agricul-
ture, expecially new irrigation projects, which was
probably an oblique reference to the Mahaweli scheme.
Presumably, however, in line with the specific
statements on this subject in the manifesto, Mrs.
Bandaranaike will at least insist on a full re-
examination of the terms of the loan.
23. In general, economic considerations could
temper Mrs. Bandaranaike's treatment of the West.
Ceylon's serious economic problems will not disap-
pear overnight, and the need for Western foreign aid
will continue. Although the new prime minister might
hope to increase Ceylon's assistance from the Soviet
Union, she would also want to keep her options open
and will probably try to avoid over-antagonizing ac-
tual or potential Western donors.
The new government might terminate some
loans granted by Western nations and could make it
more difficult for Western aid projects to operate
in Ceylon, but it is most unlikely that it would
deliberately try to end all Western aid.
24. Besides her expressed hope for continued
Western assistance, there are other tentative indi-
cations that Mrs. Bandaranaike may have decided to
improve her image in Washington. Early in 1970,some
of the more moderate leaders of her party made seri-
ous efforts to improve their communication with the
US Embassy in Colombo. During the campaign, the US
was not treated as a scapegoat by the United Front
and the Cambodian issue was avoided.
Outlook
25. The United Front election manifesto, as
well as the new government's Throne-Speech, contains
both moderate and extreme policy statements. Domes-
tic proposals seem to lean generally to the moderate
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side, although some parts of the economic platform
could lead the country into serious trouble, depend-
ing on the degree and manner in which they are ex-
ercised. The foreign policy segment contains some
proposals that are more extreme, but implementation
of these might be tempered by pragmatic considerations.
26. There is certainly no assurance that Mrs.
Bandaranaike will fulfill all her campaign promises.
It is important to note, moreover, that with her
own party holding a majority of seats in parliament,
the new prime minister does not need to rely on the
support of her leftist allies. She has-no absolute
need, therefore, to implement all of the-more extreme
campaign promises, some of which were probably in-
cluded in the manifesto to placate her Marxist allies
when their support seemed essential.
27. The composition of her cabinet is mixed.
It includes three Trotskyite members and one Com-
munist leader, as well as some extremist members of
her own party, but moderates appear-to comprise about
half of the total, Control of the police is under
the jurisdiction of the Ministry of Home Affairs,
headed by Felix Dias Bandaranaike, an anti-Communist
and a relative of the prime minister. Th:~.s important
ministry supervises all government personnel as well
as the country's administrative structure. Control
by a moderate should make it difficult for Marxists
to organize within the government.
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