The IMF leads our countries to rack and ruin.
Posted on September 30th, 2016
By Garvin Karunaratne, Ph.D Michigan State University Former Government Agent, Matara District,
The IMF has in its recommendation to the Government on Sri Lanka in their evaluation to grant the second tranche- $ 1.5 billion stated that they could not “ in good conscience” release the funds unless the Government passes the VAT increase to 15%. (Daily FT, 24/09/2016). In detail they state “ it is important that the Government expedites the legislative process of implementing the VAT amendments that are needed to support revenue targets for 2016 and 2017.
This amounts to an interference into the administration of a sovereign country.
Let us read the recommendation of the IMF in the historical light, when the IMF started its inroads into the economic affairs of sovereign countries in the Seventies. Till then the IMF never interfered with the manner in which the sovereign governments ran their countries. As a senior administrator we admired then how the World Bank and the IMF were supportive.
However things have changed.
Noble laureate Professor Jeffery Sachs states in his book: The End of Poverty:
“Western Governments enforced draconian budget policies in Africa during the Eighties and Nineties. The IMF and the World Bank virtually ran the economic policies of the debt ridden continent recommending regimens of budgetary belt tightening known technically as the Structural Adjustment Programme. These Programs had little scientific merit and produced even fewer results. By the Start of the Twenty First Century Africa was poorer than in the later 1960s when the IMF and the World Bank had first arrived on the scene.”
Professor Jeffery Sachs is no outsider to the IMF and the World Bank. He was an agent of these two institutions in serving several countries to implement the Structural Adjustment Programme. In Bolivia in 1985, in Poland in 1989 and in Russia in 1991, Professor Sachs was advising his “shock therapy”. How to be a success in following the market economy. Then he arranged loans for them and paved the path for them to get caught in the trap of indebtedness.
Both Professor Jeffery Sachs as well as Professor Joseph Stiglitz (once Chief Economist of the World Bank) now happen to be sharp critics of the IMF and World Bank policies. In fact Jeffery Sachs in his latest book The Price of Civilization states that free market policies implemented by the IMF do not work and has said:
“The free market system must be complemented with government institutions that accomplish three things: provide public goods such as infrastructure, scientific research and market regulation, ensure the basic fairness of income distribution and long term help for the poor to escape poverty”.
The recommendation of the IMF today to the Government of Sri Lanka has to be viewed from the points of view expressed by Professor Jeffery Sachs.
It is a fact that African countries were made poorer by the World Bank and the IMF and so is Sri Lanka a country that had a foreign debt of only $750 million in 1977(taken for project development and not for liberalized spending) when it commenced following the IMF and gradually piled up its foreign debt because the IMF advised Sri Lanka to liberalize the use of foreign exchange and when its resources were insufficient, advised Sri Lanka to borrow and spend. The IMF is itself to blame because the IMF gave loans on generous terms like grace periods of even 5 to 10 years where the country need not pay back. The leaders were enticed to take the loans and spend as they would not be there to repay. The very fact that grace periods were offered indicates complicity on the part of the IMF to make the countries indebted. The aim of the IMF was to make the Third World countries indebted so that they can be controlled. They all became ‘colonies’ once again.
In my words;
“ The Structural Adjustment Policies of the IMF are so flawed that any country that follows them is doomed to a situation of increased poverty, increased deprivation and increased indebtedness. What is necessary today is for the IMF to understand that its Structural Adjustment Programme will not function in the interests of the Third World countries.”(From Garvin Karunaratne: How the IMF Ruined Sri Lanka…(Godages)
Instead of making superficial provisions like insisting that Sri Lanka should implement the VAT provisions, it would behove of the IMF to come up with a growth strategy, a strategy that will alleviate poverty, increase production, create employment and help build a sustainable economy. Every country that had followed IMF’s advise has failed and in fact the IMF’s teachings to the Third World was the laughing stock of the Wall Street Journal
“The IMF Drill is as follows. A Third World poor country with a pegged currency is working towards taming its inflation. Instead of a growth formulae it gets the IMF’s old austerity dosage which slows down the economy. The banks begin to falter in paying their old debts, The IMF recommends yet more medicine- devaluation making the bank predicament and capital flight worse. The currency slumps and the banks are now in real trouble. Is this any way to run an international monetary system.” 22/02/2001)
That very wise statement of the IMF was a full one and a half decades ago. Is it not sad that all this while the IMF has failed to come up with a growth strategy.
It is upto our countries to understand the fact that the IMF is leading our countries to become debt ridden, to economic ruin and commence action to create employment by getting people into production- the only way to alleviate poverty and deprivation.
Garvin Karunaratne, Ph.D Michigan State University
Former Government Agent, Matara District,
30 th September 2016