Lessons for Indebted Countries- Argentina, Greece, Sri Lanka: There lies a Way Ahead
Posted on December 6th, 2015
By Garvin Karunaratne
President Kirchner’s Era ends in Argentina, with her loss at the general election. Comes in a Conservative Maurico Macri, who vows to build an Argentina with Zero Poverty. It is a noble aim. The new leader faces a massive task with inflation at over 20%, unemployment at 30% and a debt default blocking access to global credit as well as investors.
President Kirchner did her best. She had repaid her dues to the IMF that were in default but she found the economy hedged by the hedge funds that had collected bonds at dirt cheap rates when the economy crashed in 2002 and had secured an order from the US Supreme Court that the bonds have to be honoured in full. Argentina had to pay $ 182 million on Euro Bonds and $ 450 million on treasury bonds. Bond values had plummeted when the economy crashed in 2002 and the hedge funds were aware that they were purchasing dud bonds. The values of the bonds had not gone up in the market, but somehow the hedge funds secured the order from the US Supreme Court to get full payment. It is my contention that the US Courts have no jurisdiction over Argentinian bonds, but this US Supreme Court decision has to be honoured to satisfy the international community of investors. This offers a good lesson for countries that are issuing bonds.
President Kirchner held the economy together through Capital Controls and effectively controlling the economy, trying to get it on the right path. The incoming leader Mauricio Macri has vowed to remove Capital Controls, and hopes to invite investors in.
In democracies changes take place very often. Out goes a Political Party in favour of another and generally the sky that was promised to the voters is never realized. There is always a difference between the promises and what can be achieved. It is not for want of trying, but constraints are many.
A major problem for many countries is the foreign debt that constrains development. To service the debt the country has to borrow further and in the case of Argentina the dispute with the Vulture Hedge Funds had it to debar foreign investment.
All countries with a foreign debt are caught in the IMF trap, where they have to swallow the Structural Adjustment Programme if they need help and this means that the country has to further follow free trade, liberalize the use of forex and enable people to use forex freely even when the coffers are empty and raise loans to meet the demand. In this syndrome the foreign debt has been created by allowing people to use forex freely. The debt has been created by following the IMF teachings.
Even since the Seventies, when the IMF came up with the Milton Friedman laizzez faire model where free trade and liberal use of foreign exchange is upheld and forced every country to follow it not a single country has prospered.
Greece which is in dire straits has had austerity poured down the throats of its citizens. Argentina forced austerity on its citizens since 1991. The IMF has failed to realize that austerity only creates a small saving- it is a belt tightening experiment. The basics that caused the problem of debt and no growth remain unaltered.
Take Ghana, a country that is in dire straits due to following the IMF model. It was only in 2006 that its debt was cancelled by the IMF but for that Ghana had to open up its economy for further “investment” by multinationals. This is not investment; it is exploitation. By 2011, it was again indebted to the extent of $ 13.4 billion. This foreign debt has ballooned to $ 14 .08 billion by 2014. The further opening up of the economy has caused the currency to depreciate further and in 2014 the Ghanian Cedi was vauled at 51.000 Cedi for one dollar. In 1965 the value was 1.04 Cedi to the dollar and by 2007 the value was 9,300 Cedi to a dollar. The Ghanian economy is in total distress. In the meantime, Multinationals that cashed in as investors have had large profits.
The basic tenets of the IMF Model that caused the pile up of debt, the demise of the currency values and the increase in poverty in all countries- in Argentina, in Greece and Ghana have not been altered. In fact in her address to the UN General Assembly on 21/9/2004 President Kirchner said:
“An urgent, tough and structural redesign of the IMF is needed to prevent crisis and help solutions. The IMF must change that direction which it took from being a lender for development to a creditor demanding priviledges. “
Even today a full twelve years later the IMF has not changed. It is upto the rulers of Argentina, Greece and all countries to realize that the following the IMF offers no solution to reach Zero Poverty, Full Employment and prosperity.
In view of the continued intransigence of the IMF, it may be a worthwhile exercise to ramble through attempts at development which were successful. That could perhaps offer our leaders a way to achieve zero unemployment and alleviate poverty.
The Comilla Program of Rural Development, was a creation of the Government of Pakistan, the Agency for International Development of the USA and Michigan State University. The aim was to find how development could best be done. They selected a Thana- a Division- the Kotwali Thana of the Comilla District. A research, planning cum extension institute, called The Academy, was set up to plan, implement and evaluate programmes. Cooperatives belonging to the people was the method- where plans were drafted by the people to use higher yielding varieties, use fertilizer etc., and develop enterprises to become self employed. The strategies of Community Development and Non Formal Education were used to build up the capacities and abilities of the people. Within a decade there was full employment and the alleviation of poverty. The Cooperatives opened up a Creamery and a Tractor Station. The Creamery exists till today. The Kotwali Thana is today an area of plenty and affluence within Bangladesh- a sea of poverty. Though it was a successful foolproof model to bring about development the IMF ignored the findings of the Comilla Programme when they built up their Structural Adjustment Programme.
The Divisional Development Councils Programme of Sri Lanka (1971-1978) quickly ushered in development enterprises in agricultural farms and industries which were successful. In every Division in Sri Lanka a council comprising all government officials and representatives of the people- the member of parliament, the chairmen of the cooperative and local councils were brought together and charged to find methods to find employment for the youth. In agricultural farms the emphasis was to create successful farmers and youths were trained in farming practices. Cooperatives in Craft and all types of industries were established overnight and brought in incomes.
Certain import substitution type of industries were also established. Details are provided of two industries where I was involved .
A Mechanised Boatyard, making 40 foot inboard boats that were seaworthy was established. It was a first attempt at a Boatmaking Cooperative. Though many problems were faced in getting approval, immediately the green light was given within three months a boatyard was built on the banks of the Nilwala River where machinery was installed and boats were built by youths. It was a great success and the boats were sold to cooperatives. This Boatyard was closed down in 1978 by the new Government of President Jayawardena which followed the IMF advice. Today Sri Lanka with a massive sea board right around its shores imports fish even from as far as Chile .Meantime on the coast line one can find a lone carpenter chiseling a fishing boat and meanwhile youths in fishing communities are unemployed. There is a case for boatmaking industries to be established overnight and the country can become self sufficient in fish within a year or two.
A Crayon Factory was established to make crayons. Sri Lanka was importing its total requirements of crayons and this was an import substitution industry. The Planning Officer of the District, a Chemistry graduate, with the help of science teachers experimented for three full months in the science laboratory of Rahula College after school hours to find the method of making crayons. Once we made crayons that were equal to the quality of imported Crayola crayons, the factory was set up as a cooperative and fully functioned selling crayons throughout the island till 1978 when the Government of President Jayawardena stopped it. Establishing the Crayon Factory was done within two weeks functioning on a 24 hour basis.
Though the Mechanised Boatyard and the Crayon Factory were successful industries they were closed more due to the fact that credit for both the Boatyard and the Crayon Factory went to the earlier Government which had to be discredited. It was a political vendetta.
However the fact remains that small import substitution type of industries can easily be set up. This helps because employment is created in rural areas, poverty is alleviated and also imports can be curtailed saving foreign exchange.
The Youth Self Employment Program of Bangladesh.
In 1982 the Ministry of Youth Development was providing skills training to 40,000 youths a year. Very few of the trained found employed. The ILO had tried to establish a Self Employment Programme in 1979-1981 in Tangail, Bangladesh and as this was a total failure no further attempt was thought of to create employment. At a Conference I was the lone foreign advisor present and was ordered to make a contribution to the economy by the Military Government that took over the country a few days earlier. I suggested that youths who were being trained in skills should be guided to become self employed. In that manner they would be making things required for the economy and thereby would create incomes for themselves as well as well as save foreign exchange that was spent on imports. The Minister for Labour and Manpower listened for over two hours to my oration and my arguments in reply to experts who said that it can never be achieved. Finally the Minister authorized me as the General Advisor to the Ministry to establish a self employment program where youths in training or youths who were already trained would be guided to become entrepreneurs. This involved retraining the total staff of youth workers in economics and in methods of guiding trainees as they established small scale ventures to create an income. The target was that youths should get to earn equal to the earning level of a clerical officer . . It also included expanding the skills training to help the trainees to study their local economy, finding an activity where there was a potential to create employment and earn an income. It involved making a variety of employment models where youths in training could think of how they could become entrepreneurs within their economy. The staff in the Ministry of Youth were introduced to economic development where the national economy was looked into with a view to find where employment opportunities can be gainfully created. The Ministry of Youth gradually took over the task of national planning in order to create employment opportunities as well as create the production that the country needed.
It was a new type of development activity, something unheard of anywhere and it involved re training staff and re deploying. It also involved novel features like allowing trainees to use the machinery at training institutes after working hours to enable them to make some item for sale. The Lecturers had to assess their creations and offer guidance as to what has to be done to make items better and this took off on a grand scale. Sales arrangement were made with local shops. Cooperation was encouraged among entrepreneurs to purchase materials in bulk.. The areas included all types of industries, opening up shops when there was a need, dairy farming, agriculture and rearing cattle and chicks. This Programme was expanded with loans and re training when necessary.. This Programme has had great success and by 2011 had guided over 2 million to become employed. Starting with guiding 2000 youths in 1982, today the Programme guides 160,000 a year. This is the only programme of this type in the world. It is an ongoing programme implemented in entire Bangladesh where a Ministry that attended to traditional youth work is now in charge of creating employment. (Full details of the Industries- the Boatyard and the Crayon Factory and the Self Employment Programme are detailed in my books: Success in Development & Papers on the Economic Development of Sri Lanka at Godages, Colombo)
Based on the above experiences it may be possible to work on developing new programmes to alleviate poverty and create employment overnight
No new funds are required as is proved in the Youth Self Employment Programme of Bangladesh where no new funds of any sort were made available. This was because the failure of the ILO to establish such a Programme meant to many that it would be a sheer waste of funds. I challenged this statement and argued that I needed only the ability to re deploy staff and find savings within existing budgets. This was allowed. Today it is the largest and only employment creation programme the world has known. It is an ongoing programme and Bangladeshi Administrators are hard at work every where in the rural habitat, enticing the drop outs of school to take up to training and guiding them intensively till they function in a commercially viable manner. The success of this Programme offers hope to any country that wants to go ahead.
The success of the Crayon Factory too offers hope to anyone who is really interested in creating employment, alleviating poverty and also saving foreign exchange being used for imports.. To start with the Crayons turned out after three months of hard work in a normal school science lab were of very high quality and if Crayons can be made there is nothing that cannot be made. The leading scientist was my Planning Officer a raw chemistry graduate. The method was burning mid night oil for three months in a myriad of experiments. We administrators were behind them every night cheering them up as experiment after experiment failed. Even the University Department of Chemistry refused to help us and this made us even more determined to succeed. In short many import substitution type of industries can come up within a few months. These can range from making parts for automobiles like radiators, silencers, scissor jacks, small ironmongery goods and implements. Even today Sri Lanka imports knives from as far as Brazil while smithys are under used and workers are idle.
Sri Lanka was self sufficient in fruit juice and jam till 1978 when we sold off- privatized the cannery and since then we import all jam and fruit juice. The pineapples and melon rot in the fields due to lack of sales. Why not a program be drafted to build up a few small scale juice and jam making factories. This can be established within three months. But unfortunately our leaders do not have the will to do it. The cost of establishing the three factories will be a fraction of what is spent on imports in a year.
The fate of many successful agricultural farms and the Boatyard and the Crayon Factory can be traced to changes in governments where the new government had a vendetta against the outgoing government. The baby was always thrown out with the bath water. Instead the dead wood has to be discarded and necessary changes made. . In the case of the Youth Self Employment Program of Bangladesh it started during the Military Government of 1982 and has continued as an Administrators Programme throughout changes in governments. Our Leaders have to come up with a method to ensure that local enterprises have to be created, local production has to be encouraged, incomes have to be created within the country and imports have to be stopped. Won’t it be an ideal to decide that development tasks- alleviating poverty and creating employment should not suffer due to changes in the Government leadership.
The success of the Youth Self Employment Programme of Bangladesh was entirely due to fusing skills training with guidance to be self employed. Every country has skills training programmes and if these training programmes are enhanced with guidance to enable the trainees to become self employed it will immediately create employment and incomes. It is a target that can be won.
Hope the instances of success given above will make the leaders of countries that are in the doldrums in development to commence activity. The successes are applicable in all countries in Argentina, in Greece, in Sri Lanka and anywhere. It is mine to offer advice and ensure success, if called upon. . I take on any challenge, if anyone dares.
Garvin Karunaratne, Ph.D.(Michigan State, M.Phil, Edinburgh, M.Ed Manchester
Former member of the Sri lanka Administrative Service
Former Commonwealth Fund Advisor to the Ministry of Labour and Manpower, Bangladesh.