IMF can keep their blood money: independence is too important for Sri Lanka
Posted on June 24th, 2009

Ajit Randeniya

It is obvious that the Americans are attempting to exploit the promised IMF loan to Sri Lanka to achieve their own strategic and political ends. As has been suggested by the Central Bank Governor Ajith Cabraal, Sri Lanka should not kneel down before the US for assistance on loan approval: after all, US is the world’s largest debtor nation, staying afloat thanks to China!

Confronting the “ƒ”¹…”loan sharks’ who run the IMF will be an appropriate starting point for Sri Lanka’s quest under President Rajapakse to reoccupy its traditional role as a leader among developing countries engaged in introducing some civility to international relations. Staying away from the IMF in any case, is likely to serve Sri Lanka’s interests in terms of economic progress as well as political independence.

The IMF, being one of the so-called Bretton Woods institutions (the other being the World Bank), was founded in 1944 at the end of the imperialists’ war, not to develop us, but to assist operations of international money lenders under a new banner: it has showed throughout its vampire-like history that the developing country interests are not its priority. The IMF has always been an instrument of money lenders from the US and Europe, interested in lending to poor countries in order to keep them “ƒ”¹…”on the leash’, interfering in their economic and political affairs.

The richer countries who lend through the IMF generally avoid the IMF like the plague; one of the rare occasions when any developed country borrowed from them was in 1976 and 1978 when the UK and Italy obtained “ƒ”¹…”Stand-By Arrangements’ to manage the shock of high oil prices and floating exchange rates. Iceland, in 2009, became the first Western country to obtain IMF funding since Britain in 1976.

The use of the IMF by the US to achieve its geopolitical goals is also well known: former Prime Minister of Australia, Paul Keating noted in 2002, that both Bretton Woods institutions are fiefdoms of the US, and the IMF is an “ƒ”¹…”arm of US foreign policy’.

Despite being managed by the guardians of democracy throughout the world, the IMF, like the UN system, is not operating under democratic principles. The voting shares of China, India and Brazil do not approach the weight they carry in the global economy; on the IMF board, Belgium has the same amount of votes as China, 3.66 percent of the total voting rights even though it accounts for nearly 10 percent of the world’s economy.

Through the combined voting power of the US and EU countries, they have imposed over the last 30 years, the so-called “ƒ”¹…”Washington Consensus’on borrowing countries, requiring to implement neo-liberal, “ƒ”¹…”market-friendly’ policies and reduce the role of government in their economies.

During the 1980s, many developing country governments faced with recurrent payments’ imbalances, pressures for currency devaluation, and macroeconomic instability turned to IMF credits and “ƒ”¹…”stabilisation plans’, as the “ƒ”¹…”lender of last resort’. Taking advantage of the Third World desperation caused by the debt crisis of the early 1980s, the IMF launched its radical free market reforms via “ƒ”¹…”structural adjustment programs’ that demanded economic policies including deregulation, privatisation, cuts in government spending and emphasis on exports from developing countries.

The “ƒ”¹…”structural adjustment programs’ routinely required increased “ƒ”¹…”transparency’ in government finances and national banking laws, tougher bankruptcy laws and greater inflow of foreign capital to re-capitalise banks and “ƒ”¹…”stabilise’ the local financial system. These measures, disguised as measures aimed at creating a new global financial architecture to reduce “ƒ”¹…”volatility’, enabled foreign banks to freely buy up local institutions and to set up fully owned subsidiaries. Countries like Zambia descended from their relative prosperity to abject poverty under the weight of IMF prescribed structural change.

Poverty and inequality in most adjusted economies increased. Beyond that, structural adjustment institutionalised stagnation in the Third World. A study by the Center for Economic and Policy Research shows that 77 percent of countries saw their per capita rate of growth fell significantly during the period 1980-2000. In Latin America, income expanded by 75 percent during the 1960s and 1970s, when the region’s economies were relatively closed, but grew by only 6 percent in the past two decades. When these results were beginning to show the results of IMF cruelty, in 1999, it renamed the Enhanced Structural Adjustment Facility (ESAF) as the “ƒ”¹…”Poverty Reduction and Growth Facility'(PRGF), promising to make the elimination of poverty the “ƒ”¹…”centerpiece’of its programs. There have not been any successes to report!
By the early 1990s, with the availability of alternative sources of funding, many countries began to shun the IMF and look for other solutions such as regional reserve pooling and financing arrangements, building up international reserves, and relying on bilateral swap lines for foreign exchange liquidity as answers to their balance of payments needs. In 1995, the IMF reacted by launching its drive of “ƒ”¹…”capital account liberalisation’ that required poor countries to remove all restrictions on inflows and outflows of capital, creating the so-called “ƒ”¹…”Asian economic crisis’ of 1997.

East Asian economies with average growth rates of 6 to 8 percent, heralded as the leaders of the global economy whose growth would continue, became near bankrupt; some 21 million people in Indonesia and a million people in Thailand were impoverished in just a few weeks. The IMF was also responsible for worsening the economic contraction, by demanding cuts in government spending (despite the slow down), plunging the poor countries into depression.

Throughout the developing world, the January 1998 picture of Michel Camdessus, then the IMF managing director, arms folded, standing over Indonesian President Suharto signing an IMF agreement mandating harsh conditions of stabilisation became an icon of Third World subjugation to a much hated suserain.
In Malaysia, Prime Minister Mahathir Mohamad defied the IMF by imposing capital controls, a move that raised a howl from speculative investors such as George Soros, but stabilised his economy in serious crisis. In Thailand, Thaksin Shinawatra won the 2001 election largely on an anti-IMF, expansionary policies platform that ultimately revived the Thai economy.
The Fund’s close association with the interests of the United States – it is often viewed as a vassal of the U.S. Treasury Department. In reflecting the US position, the IMF resisted a Japanese proposal for the creation of a $100 billion “ƒ”¹…”Asian Monetary Fund'(AMF) for defending Asian currencies during the Asian financial crisis. Predictably, they saw it as a threat to America’s influence in Asia and argued that the AMF, by serving as an alternate source of financing, would subvert the IMF’s ability to secure economic reforms from Asian countries in financial trouble, leading Japan to abandon the proposal that might have prevented the collapse of the Asian economies.
The IMF also opposed Dr Mahatir’s capital controls that sought to stabilise the Malaysian economy by taxing capital inflows that did not remain in the country for a designated period of time as a means of preventing volatile capital movements that could destabilise the economy.
The IMF is currently battling to emerge from severely reduced demand for balance of payments financing due to its disgraceful treatment of poorer countries and the recent increases in availability of finance globally, up until the latest “ƒ”¹…”crisis’. The lack of demand prompted the IMF to adopt, in 1998, a “ƒ”¹…”Clinton Plan’ to provide “ƒ”¹…”rescue loans’ to developing countries; no country asked for a loan before the program was killed in 2003. The IMF attempted to remain relevant by offering ongoing advice, monitoring and endorsement of economic policies to countries that no longer require IMF financial assistance due to economic stability and other reasons.

The “ƒ”¹…”Global Financial Crisis’ of 2008 provided the latest opportunity for the IMF to resuscitate itself: it promised as much as $100 billion to help ease the world credit crisis, without the imposition of the usual demands for severe changes in economic policies. It is as part of this new campaign that the IMF offered loans to Iceland ($2.1 billion), Ukraine ($16.5 billion) and Hungary ($15.7 billion). All have accepted the offer reluctantly; Iceland went to Moscow first while Pakistan approached Beijing, declaring the IMF to be “ƒ”¹…”Plan C’.

With Sri Lanka, they are playing a game of “ƒ”¹…”hard to get’: the US Treasury and State Departments are colluding to delay the promised loan, while throwing political demands at Sri Lanka. The latest demands of the State Department official Gregg Sullivan are very specific, and relate to such issues as “ƒ”¹…”free and unfettered access to the North’ and NGOs freedom to operate “ƒ”¹…”effectively’. He would like the NGOs the US is funding “ƒ”¹…”access to the areas where the IDPs are screened, registered, sheltered, or held. Also, (if you don’t mind!), change the management of the camps from military to civilian. There are many other demands.

The first thing Sri Lanka needs to be doing is to ignore such uncivilized behaviour by the Yankees. Forgive them, they are uncivilised; but ignore them.

The end of the war will, gradually, revive the economy when the savings of billions that went in to war related expenditure begin to show up. Imports will decline, foreign currency inflows, export earnings will increase, improving the balance of payments situation. The signs and trends are there now.

What we need is the courage to hang on.

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