IMF may be a Shylock, but Lanka should do what is right

The IMF Board of Governors meeting gets underway in 2017. Stephen Jaffe/IMF

As the global recession resulting from the COVID-19 pandemic continues, the International Monetary Fund is once again in a commanding position to reshape the world economy – also politics – and revisit those growing economies which had not so long ago snubbed it. 

Prior to the pandemic, the IMF had enough money, but not many borrowers. Sri Lanka is one of those countries which told the Fund, “No, thank you,” although today, the country has not many options left, apart from going to the IMF. 

But when the pandemic made economy after economy grasp for breath, it was the IMF which had the oxygen. Some relief was offered to poor countries, like throwing a coin to the platform beggar. The IMF is on the seat of authority to tell nations what they should and should not do. Ukraine, Lebanon, Pakistan, Argentina and a host of other nations struggling to cope with the pandemic’s blow to their economies are genuflecting before the IMF and the World Bank, the modern day Maharajahs.

Since the health of a nation’s economy was intricately linked to its ability to respond to the worst ever health crisis in living memory, it was expected that nations rich and poor will come together on a common platform to pool the world’s resources to fight the virus and prevent the economic collapse of the poor nations. But this was not to be, though the UN Secretary General made a plea for such solidarity. 

Much hope was placed on the June summit of the world’s most industrialised nations. It was expected the G7 would announce a plan to help the economies struggling to cope with the adverse impacts of the pandemic. But in the end, the G7 leaders offered 1 billion doses of free covid vaccines to poor nations. There was no major economic relief package to the struggling economies. They did not even want to waive off the patent rights of the vaccines, because the Big Pharma they support is no charity. 

Similarly, ask any IMF chief for a waive-off of the poor nations’ debt, the answer will be: The IMF is not a charity. It is the custodian of member nations’ money or capital subscription. The size of the subscription determines a nation’s quota and voting power. But since its formation in 1944, it has been the western nations which dominate the Fund’s decision making process. Although China, the world’s number two economy, accounts for about 6 percent of the IMF’s quota now, it is still a long way from emerging as a counterforce to the West’s domination in the Fund. At present, the US and its western allies account for some 40 percent of the voting share. 

At a time when some developing countries are on the verge of economic collapse, what is expected from the IMF and the World Bank is a reset or a restart by providing assistance without conditions, cancellation of poor countries’ debts, a moratorium on or restructuring of debt repayments until developing nations overcome the economic crisis.  Such a reset fits with the IMF’s mission statement which is aimed at fostering global monetary cooperation, securing financial stability, facilitating international trade, promoting high employment through sustainable economic growth, and reducing global poverty. But there is a gap between what is stated and what is practised.

The World Bank and the IMF were set up with the intention of bringing the Third World into the first, but sadly seven decades later, the two institutions are playing a part in widening the gap between the rich and the poor with their one-sided or lopsided loan conditions worked out without giving much consideration into the chaos they could cause in borrowing nations. 

That the two institutions were part of the UN system is not felt because the independence they have been given to disburse the funds with behind-the-scenes political manouevring has virtually made the two institutions the modern day equivalent of the 16th-18th century colonialists who enslaved Afro-Asian nations. 

In the early 1940s, the need to establish the two institutions was justified on the basis that they were essential to bring about global prosperity, without which the world would again sink into war. 

“We may say that world half prosperous and half starving cannot long preserve peace, and that prosperity must be achieved for all unless insecurity is to spread to all,” a UN pamphlet promoting the setting up of the two lending institutions said. 

But these noble ideals are not to be found even on the remote agenda of the Fund and the Bank. 
Perhaps, this is because of the undercurrents of geopolitics entrenched in the undemocratic weighted-voting structures and in the so-called tradition of giving the topmost post of the World Bank and the IMF to the United States and the European Union respectively. Critics say the US and the EU do misuse the privilege to pressurise targeted developing countries to accept potentially harmful reforms, probably with the aim of achieving geopolitical goals. 

Global lending is geopolitics. While Haiti got its entire IMF loan written off following the 2010 earthquake, the Fund, like a Shylock, insists countries like Pakistan which is geopolitically aligned more with China now, that they must undertake politically suicidal reforms, if they want the IMF’s low interest loans.

Sri Lanka is resisting the IMF’s gravitational pull and sticking on to its policy of obtaining currency swaps, credit lines and more loans to overcome the economic hardship, despite prominent economists’ warnings that the country would face an economic doom if it does not seek IMF assistance.  Malaysia, during the 1997 financial crisis, was in a similar situation. Malaysia’s then Prime Minister Mahathir Mohamed saw the IMF conditions as a recipe for a long-term social disruption in the country. He feared the reforms would, among other disasters, would end his ambitious affirmative action plan to bring about development-oriented national unity. Despite the advice of some of his ministers, he shunned the IMF and rescued Malaysia from the crisis by courageously introducing home-made reforms he thought Malaysia could sustain. 

But to think the pill that cured Malaysia’s headache could work for Sri Lanka is stupidity. Malaysia, for instance, did not have a foreign debt burden when the currency crisis hit. Sri Lanka’s economic crisis, like that of countries such as Turkey, is part pandemic, mostly mishandling.  In 1992, the Indian Government seeking an IMF bailout package submitted its draft budget to the World Bank for comment and later incorporated most of the Bank’s recommendations before sending it to Parliament. But India soon emerged as an economic power in Asia under Prime Minister Manmohan Singh, who as finance minister went for the IMF option. 

The Malaysian and Indian examples indicate that the question is not about the IMF. Rather it is about the leadership’s ability and the vision to
manage the economy.