Is Sri Lanka’s hard won sovereignty being surrendered to the IMF and other money lenders?
Posted on January 30th, 2012
Ajit Randeniya
A couple of recent reports from Sri Lanka give rise to concerns that the treasured national sovereignty gained in May 2009 by eliminating the menaces of terrorism and war is being squandered through the careless or incompetent actions of certain members of cabinet and top bureaucrats.
The first of such reports refers to the presence in the country of a delegation representing the International Monetary Fund (IMF), holding ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”discussionsƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ with the Central Bank (CB) on the issue of a sum of US$ 800 million yet to be drawn of the IMFƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s US$ 2.6 billion Standby Arrangement (SBA) approved in July 2009.
ƒÆ’-¡ƒ”š‚ The second report relates to an admission by the Petroleum Resources Minister Susil Premajayantha that Sri Lanka is already looking at alternative sources of oil in view of the impending US sanctions on financial institutions that pay for Iranian crude oil, announced by Barack Obama on 31 December. Already, Minister G.L. Peiris has also approached the US Embassy in Colombo to determine how Sri Lanka could seek an exemption!
ƒÆ’-¡ƒ”š‚ The reports of these sinister US-backed efforts, as well as the reaction elicited from our government in the case of Iranian oil imports, point to a disturbing apparent lack of comprehension in certain quarters of the guises under which the US efforts to compromise the independence of the country are being imposed and to how best to respond to them.
ƒÆ’-¡ƒ”š‚ On the issue of the $800 million of the so-called ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”facilityƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢, it appears that, quite rightly, the Central Bank of Sri Lanka has reservations about drawing this amount since doing so will nearly triple the loan interest rate, from 1.1% at present to a 3.1%. This is because of the IMF ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”guidelinesƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ limit low interest facilities to 300% of its quota in the IMF.
ƒÆ’-¡ƒ”š‚ However, the IMF delegation appears to have been annoyed by the CBƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”recalcitranceƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ on the matter. They have brought in another ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”stickƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ to the discussions, expressing ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”concernƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ over the use of government funds to defend the rupee; the IMF officials are said to be ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”at a lossƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ to understand why the rupee was being defended (so vigorously) with foreign reserves! (Quite rightly again, the CB Governor Ajith Cabraal has dismissed the IMF ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”concernsƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ on the grounds that only surplus reserves were used to defend the rupee).
ƒÆ’-¡ƒ”š‚ This fraudulent effort by the IMF to lend more money to a country against its own wishes (so that it can extract higher interest rates) goes to prove the initial doubts about the so-called ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”facilityƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢, that was ƒÆ’-¡ƒ”š‚ introduced to the world back in 2005. In a nutshell, there were fears among developing country economists that the ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”facilityƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ mechanism was the new noose that replaced ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”debtƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ in the face of the much trumpeted ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”debt write-offƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ by the G7 countries back in 2005, requiring new mechanisms for maintaining their control over poorer countries.
ƒÆ’-¡ƒ”š‚ As has been pointed out by Soren Ambrose of the ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-50 Years Is EnoughƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚ Network, Washington, DC USA, (www.50years.org), the objective of the ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”facilityƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ was to limit the positive impact of any debt cancellation on developing countries and to retain the power to impose conditions on these countries, even if they were no longer officially indebted to the IMF.
ƒÆ’-¡ƒ”š‚ Frustrated by the CBƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s proper and common sense position on the draw-down of another $800 million the IMF has, astonishingly, decided to meet with the UNP! So much for their recognition of the ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”governmentƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ of a sovereign country to control national affairs!
ƒÆ’-¡ƒ”š‚ A UNP parliamentarian and economist named Harsha de Silva appears to have lent a sympathetic ear to the IMF by questioning the CB as to why it is reluctant to pay 3.1% interest when it has previously paid 6-7%? He has attempted to ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”rub it inƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ by declaring that the Governor, who is an accountant, should know better that 3% is cheaper than 6-7%!
ƒÆ’-¡ƒ”š‚ Looks like Ranil Wickremesinghe has found an economic advisor that matches his level of intelligence and competence!
ƒÆ’-¡ƒ”š‚ On the issue of the US ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”sanctionsƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ on Iranian oil purchases, the government ministers appear to have literally got their knickers in knots! This is despite the decision by countries like India, China and Russia to ignore these provocative sanctions!
ƒÆ’-¡ƒ”š‚ Eighty per cent of Sri LankaƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s crude oil requirements is said to be imported from Iran (balance is imported from Saudi Arabia) and Iranian oil is said to be the most suited for the refinery at Sapugaskande. Iran has already informed Sri Lanka that it could continue to meet the countryƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s requirements and assured that payment arrangements could be worked out. This is probably in addition to the four month credit facility Sri Lanka currently enjoys. The Saudi government has said that it will not be able to meet additional requirements
ƒÆ’-¡ƒ”š‚ Despite such compelling factors, Premajayantha has started discussions with Oman (though Omani crude does not contain bitumen when refined). In response to G.L.PeirisƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ pleadings for exemption from embargo, The US embassy has announced that the matter would be discussed when Luke Bronin, Deputy Assistant Secretary in the US Treasury (responsible for matters relating to Terrorist Financing and Financial Crimes!) arrives in Sri Lanka on February 2.
ƒÆ’-¡ƒ”š‚ In dealing with issues of this nature, the Sri Lankan government needs to spend as much time and resources as necessary to properly understand the background of, and issues associated with, the various traps the western cabal is imposing.
ƒÆ’-¡ƒ”š‚ It is about time the UNP admitted that they are more interested in serving the interests of international money lenders, of extracting the economic blood of the poor of Sri Lanka and help further the primary function of debt in the global economy, of allowing filthily rich countries to maintain control of weaker countries by assisting the implementation of IMF and World Bank tools. (The decision by the government to enter into a contract for an IMF surveillance program as required under the SBA facility has already provided such means).
ƒÆ’-¡ƒ”š‚ What is happening in Sri Lanka is additional to the IMF fear campaign being launched in richer countries that ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”the world will face a ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”1930s momentƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ (of the kind that brought on the Great Depression), unless money can quickly be found to support nations such as Italy and Spain; they are in the business of money lending and gaining control of national governments
And they know ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”fear sellsƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢.
January 30th, 2012 at 3:46 pm
Well researched article.
This hits the nail on its head (if that damn fool Harsha has one).
“Frustrated by the CB’s proper and common sense position on the draw-down of another $800 million the IMF has, astonishingly, decided to meet with the UNP! So much for their recognition of the ‘government’ of a sovereign country to control national affairs!
A UNP parliamentarian and economist named Harsha de Silva appears to have lent a sympathetic ear to the IMF by questioning the CB as to why it is reluctant to pay 3.1% interest when it has previously paid 6-7%? He has attempted to ‘rub it in’ by declaring that the Governor, who is an accountant, should know better that 3% is cheaper than 6-7%!
Looks like Ranil Wickremesinghe has found an economic advisor that matches his level of intelligence and competence!”
January 30th, 2012 at 3:48 pm
IMF FORCED this loans on us. We were actually trying to get it from China then IMF BEGGED us to get their loan.
January 30th, 2012 at 5:39 pm
Great write up – great to see you back after a long time.
January 30th, 2012 at 6:11 pm
“Umuth Eki Munuth Eki” only differance is that now the same Pizza is eaten covered in a Banana Leaf. The country is going from bad to worse.Debt burden is increasing and we are not pursuing a sustainable economy,Enviorment is permanantly damaged, cost of living is rising,the corupt rich are getting richer with borrowed money taken on behalf of all Sri Lankans majority of whom are poor Sinhala Buddhists. The statement made by Bradman Weerakoon comes to my mind. When J R Jayawardena made a statement ” let the Robber Barons come ” his very competant secretary told him ” Sir, You are making Barons of Robbers” That is exactly what is happening. Mind you this is going on since JRJ made that very pertinant statement.
January 30th, 2012 at 7:00 pm
Nandamithra !! Since you have mentioned JR, it brought back some old memories in me. I had a top Customs friend who told me that he personally went and met JR, and informed him about how some FORTY Tamils left Sri Lanka, for Italy with their full component of allowable foreign Exchange. They were going for good as per their papers. Two months later they all came back, empty handed with no money at all. When this was told to JR, you know what JR said, ” LET THE BOYS PLAY “, something akin to ” let the Robber Barons come ” Jr had a notion that he was the master in the game and no one could surpass him in duel. The irony is that the BOYS REALLY PLAYED FOR THIRTY LONG YEARS, while JR LEFT THE PLANET.
Ajit Cabral is smart in Micro and Macro Economics. He is a hard nut for IMF Green Horns. As for Harsha, his concept does not revolve on economics. It is based on politics, and ridicule.
January 30th, 2012 at 8:43 pm
All politicians must be given a crash course in economics. There is a dangerously low number of MPs with economics knowledge. Only a handful. Most rely on people like PB Jayasundara for all economic matters.
The golden rules in borrowing are the need to borrow and the ability to pay from the dividends (direct and indirect) of the projects funded by such borrowing. Unless these conditions are met, nothing should be borrowed.
IMF is the lender of last resort. Sri Lanka has little reason to keep borrowing from them, unless there is the need, the returns and lowest cost (interest and the cost of political conditions).
However, bold action by the government and the governor must be recognized. Previous govenors and governments took no interests in challenging IMF impositions. At last there is some change now.
Defending the rupee even with surplus funds is not a wise move. It hurts exporters and encourages more imports (making local produce uncompetitive) at the expense of (“surplus”) reserves. Indian economic invasion is another weakpoint of the government. Absence of a nationalist economic policy may be the biggest shortcoming of this government.
If idiots like Harsha and Ravi were running the economy, they would have robbed the increase in foreign reserves after the war and gone back to IMF with the begging bowl. In return some IMF connected institution would have awarded them a medal for expertise on economic affairs!
IMF meeting UNP is a dangerous sign. IMF has been directly involved in regime change. Confessions of an Economic Hitman describes how they do it.
January 31st, 2012 at 3:31 am
A suicide bomber jacked has been recovered from Kataragama. These Tamil Tigers are up to something. All suspects must be arrested and killed before it is too late.
January 31st, 2012 at 6:55 am
Aim for Self Sufficiency in our Basic Needs, and more if possible. Then there is less need to borrow money from anyone. This is one practical way to ease the problem fo having to borrow.
The Chinese government lends money to their local entrepreneurs even before agreements are signed with foreign companies –
they are that encouraging of local industry. I imagine that all this is done under strict govt. supervision there. For such bold & thinking, it requires great ability, honesty & integrity on the part of the entrepreneurs. And of course, China has the land mass and population (cheap labor) and can afford large scale industries, unlike small Lanka. Lanka should grow with medium and small industries.
It would be a good idea for MPs to learn basic Economics.
January 31st, 2012 at 5:16 pm
AFP reports, CBSL has rejected the second tranche of the IMF loan as it is not needed.
But using foreign reserves to butress the rupee is a disastrous decision. From July 2011 to Dcember 2011 it had costed $ 2.1 billion reducing foreign reserves from $ 8.1 billion (highest ever) to $ 6 billion in the said period. In other words our exporters have lost $ 2.1 billion and importers and those who legally and illegally send money offshore have gained $ 2.1 billion or 26% of the foreign reserves.
This gives some credence to stories that certain VVIPs imported a large stock of vehicles without duty and with the help of the artificially inflated rupee.
We saved $ 1.8 billion and interest thereupon by refusing the second tranche of the IMF loan but wasted $ 2.1 billion thanks to corruption and nepotism.
India has set up many buying houses in Sri Lanka to take advantage of easy import rules (India still has stringent import restrictions), cheap prices (Sri Lanka rupee is subsidised from Sri Lankan foreign reserves) in rupee terms and a strong Indian rupee-Sri Lanka rupee conversion rate (beneficial to India) and other associated benefits.
Good economic times hide this massive loss to the country but good times don’t last. When bad times come, we will be $ 2.1 billion short.
February 1st, 2012 at 5:19 am
The island nations economy is run by Indian colonial parasites.
They control the imports, exports and major industries of the island.
The countires economy has two faces. The economy that is shown by government figures and the real economy run by the Indian colonial parasites.
This dark economy is not visible unless you look with a forensic accounting glass.
Who runs the export, import and industrial and service sectors?
Inflated import prices and dflated export prices is one way islands wealth is moved to India and the West by these business people.
Examle is Parippu bought at 1000 Indian rupees a ton but the invoce is 4000. So the 3000 stays in a foreign country. Rubber is sold to Belgium at 4000 but the invoice ia 1000.
Asbestos fibre is one of the cheapest commodities in the world. How much do we pay for a sheet, and who makes them.
The other is the private borrowing by these business people.They borrow from foreign banks and we pay the interest.
How much have they borrowed?
The last thing is the foreign currency transfers outside the banking system.If you are prepared to pay a premium of around 25% you could buy any amount of US$ with rupees in Colombo.
This is where the island nations money goes.
No figures are available.
This may be as high as quarter of the real GDP.