17 June 2024 12:05 am Views - 2801
The International Monetary Fund (IMF) delegation addressing the media in Colombo
The IMF after much fanfare released its third tranche from its Extended Fund Facility program for Sri Lanka amounting to US$ 336 million. These tranches that are released every six months after excruciating reviews and much trepidation in the media are peanuts! For example last year the remittances from Sri Lankan migrant workers on average was about US$ 500 million per month, compared to the IMF’s US$ 336 million every six months. Furthermore, Sri Lanka’s foreign earnings, whether it be remittances or export earnings, don’t have to be returned. However, the IMF funds are a loan that has to be paid back in foreign currency, and as I have shown in my previous column, for the US$ 3 billion IMF program over four years, we have to make interest payments alone of US$ 2 billion over the next ten years.
IMF analysis
In this column, I address the IMF analysis and approach towards Sri Lanka’s economy. Furthermore, its 159-page document released last week is not just about the economy, but rather betrays a political push. The IMF’s mask is coming off as Sri Lanka approaches the presidential elections later this year, and parliamentary elections next year. The IMF is backing Sri Lanka’s authoritarian regime, which is uninterested in negotiating in the interest of its people and bending over backward to embrace the policies of the IMF. Worse, the IMF’s rhetoric betrays a blatant disregard for the democratic rights of the Sri Lankan people.
Free trade, attack on labour and privatization
The statement last week following theIMF Executive Board’s Second Review of the Sri Lanka programme had the following to say:
“The economy is starting to recover, inflation remains low, revenue collection is improving, and reserves continue to accumulate. Despite these positive developments, the economy is still vulnerable and the path to debt sustainability remains knife-edged.”
While, the IMF programme with its devastating austerity measures were sold in Sri Lanka as the only assured path of recovery, we are now told that the path is “vulnerable” and “knife-edged”. In effect, there is the real possibility of another IMF program, which would be Sri Lanka’s eighteenth, and second default on its external debt.
Worrying policies
The threats to the economy they outline, in my view, are now more and more created by the IMF policies themselves; but such a situation in turn is used to justify further worrying policies. The statement goes on to push for more drastic measures:
“Key priorities include steadfast implementation of the governance reforms; further trade liberalisation to promote exports and foreign direct investment; labour reforms to upgrade skills and increase female labour force participation; and state-owned enterprise reforms to improve efficiency and fiscal transparency, contain fiscal risks, and promote a level playing field for the private sector.”
The IMF, while characterising the crisis in Sri Lanka as a problem of corruption that can be dealt with in governance, advances the global system of free markets that itself promotes a corrupt elite. Furthermore, it is such free markets that create repeated and deeper crises around the world, as with the seventy countries around the world like Sri Lanka that are in debt distress.
Explicit language
In this context, the IMF has become bolder in its explicit language on Sri Lanka, as in the quote above calling for trade liberalization, labour reforms and privatisation. What these processes will do to aggravate the economic and social landscape of the country, as imports flood and destroy local production and livelihoods, workers and particularly women workers lose their rights and protections, and privatisation leads to unaffordable public services are of little concern to the IMF. The IMF’s main priority remains one of creating markets and profits for global capital.
If the IMF’s cynical agenda of pushing Sri Lanka into the precipice of neoliberal cycles of crises is all too clear from its Executive Board at the beginning of its long report, the statement by the IMF Executive Director for Sri Lanka at the end of the report, speaking apparently for the country is even more worrying:
“To mitigate any risks to the program posed by upcoming elections, our authorities are dedicated to protecting the hard-earned gains and frontloading measures in government revenue mobilisation and reserve accumulation. The key elements of the economic adjustment program supported by the EFF arrangement have been incorporated into the Economic Transformation Bill, which was submitted to Parliament in May 2024.”
In my column two weeks ago, it is precisely the incorporation of the IMF targets, including the exact numbers of total public debt of 95% of GDP and external debt servicing each year of 4.5% of GDP, into Sri Lankan law with the Economic Transformation Bill that I critiqued. And here, the statement above is congratulating Sri Lanka for those very measures. The IMF is clearly on the side of a government without legitimacy seeking to make laws without a mandate that reify the IMF’s targets into law.
The political opposition in Sri Lanka has a clear challenge before them. The opposition parties in the running to win state power claim they will renegotiate the IMF agreement, but they are yet to articulate how they will do that. If the political opposition does not articulate the concrete measures they will renegotiate or an alternative path altogether, they will be stuck with the baggage of a stagnating economy under the IMF straight jacket. But first they must realise that when the IMF says Sri Lanka’s economy is on a knife-edge and speaks of the “risks to [its] programme posed by upcoming elections”, it is in fact holding a knife to the throat of Sri Lanka’s democracy.