Giving IMF the hindmost
Posted on June 22nd, 2016

Dr Kamal Wickremasinghe Courtesy The Island

The title of this commentary is derived from the 16th century proverb “Every man for himself and the devil take the hindmost”. There are at least two versions of the real meaning of the relatively obscure expression, the “hindmost” contained in the proverb: as per its usage in PHILASTER or “Love Lies a-Bleeding” –– a play about a dispute to the Calabrianthrone, performed by William Shakespeare’s theatre troupe, The King’s Men in 1610 – but not written by Shakespeare -the “hindmost”refers to those who would beat the very rear in a scramble to escape from the devil – the old, the sick,the children -who would likely fall victim to the devil.

A simpler and a more plausible description of the word “hindmost” however, involves boneless,no fat-containing, large cuts of meat harvested from the round area of cattle,referred to as ‘rump’steaks in North America and ‘sirloin’ in Britain and Australia;The proverbial advice to protect the precious rump at all costs arises from the supposed liking of the devil for it and his strong claims for it.

Either of the possible origins of the “Devil take the hindmost” seems to aptly describe the ethos behind the recent economic advice offered by the Resident Representative of the International Monetary Fund (IMF)in Sri Lanka, Dr Eteri Kvintradze.

In a recent interview with The Island, Ms Kvintradze has offered what appears to be an economic prescription designed by the IMF to pull Sri Lanka out of the current economic morass.Upon close examination however, it becomes clear that the package of advice has been the ‘string’ attached to the latest $1.5 billion loan provided by the IMF to the yahaplana government;The government’s reliance on begging as the only fix for the economic dire straits appears to have already forced it to comply with the key demands of the IMF, and is appearing to be conditioning the citizenry to ‘stomach’ the remaining measures.

Ms Kvintradze has emphasised that Sri Lanka’s economy is now in crisis, and needs salvaging through the harbouring of a “liberalised” business environment.This in fact is shorthand for the IMF plans to fashion the Sri Lankan economy to meet the demands of the international loan sharks represented by the IMF. The plan is concealed in a recommended tax “reform” program aimed at attracting foreign investors; Ms Kvintradze reduces the reform required to removing tax concessions (to the local poor) and creating a predictable tax system that is fair (to international money lenders); She demands a Sri Lanka with a “simpler” tax system in a fully “liberalised” trade environment, with no assistance or protection provided to domestic industry or agricultural producers.

IMF advice is regressive and anti-poor

There is nothing new in the type of IMF advice offered by Ms Kvintradze: since its inception, IMF lending to poor countries has been subject to such oppressive and inhumane demands that ruthlessly ignore the suffering of the poor in such countries. The sole interest of the IMF is to provide the rich in their member countries to buy national assets in cash-strapped countries and speculatively invest (lend) money in the short term.

The interview with The Island is not the first occasion of Ms Kvintradz’ enunciation of these demands: she had earlier announced this same prescription at the annual general meeting of the National Chamber of Commerce of Sri Lanka (NCCSL) on 20 Jan 2015, and at the annual general meeting of the Industrial Association of Sri Lanka on 30 Aug 2014.

In both previous occasions, Ms Kvintradze had highlighted an alleged deterioration of tax revenue in Sri Lanka as the primary concern for the IMF. Pointing out that Sri Lanka has completed the first phase of transition process by removing infrastructure bottle necks through modern road and port infrastructure systems, she has pressed the need for tax reform as a “soft infrastructure” system needed to face the new realities.

Ms Kvintradze also barged in to the domestic politics by pointing out that “historically, annual budget cycle in Sri Lanka is preceded by annual lobbying cycle when business communities try to carve out special tax regimes to grow their businesses”. This not-too-subtle warning that local businesses should not be granted any tax concessions is an indirect way of telling the government to extract as much tax as possible from the people in order to be able to meet interest payments on IMF loans.

It is clear that the IMF could not care less about the well-being of poor Sri Lankans: the economic policies recommended by the IMF are designed to ensure that the economy would have a faint ‘heart beat’ just adequate to collect the interest payments on the monies they lent. The second objective is to control inflation (by putting controls on government expenditure) in order to ensure that the value of money they earn is retained when they take away the loot; Keeping a careful eye on tax collection, and controlling expenditure by the government are the means through which these twin-aims are achieved.

IMF has been asking for the hindmost since its creation

The vile nature of IMF demands from poor countries requesting financial assistance is rooted in its origins: the IMF was created by the winners of the Second War who drew up the blueprint for a post war international monetary system to replace the colonial economy they had lost despite the war victory.

The 45 countries which met in July 1944 at the Mount Washington Hotel in Bretton Woods, New Hampshire, US, did not include Austria, Germany, Italy and Japan. The powers that be- essentially the UK and the US – were almost exclusively preoccupied with designing a financial hegemony to go with the military and territorial gains they had achieved as the ‘winners’ of the war. Interests of developed countries in terms of their economic development or social needs were not in the minds of the IMF architects.

The IMF lending conditions have become notorious due to the imposition of a pervasive package of demands known as the “Washington Consensus” – a set of 10 economic policy prescriptions considered to constitute the “standard” reform package – on all developing countries seeking assistance from the World Bank or the IMF.The use of the word “consensus” in this context is a dangerous misnomer because it only refers to a consensus among the International Financial Institutions (IFIs) such as the IMF, World Bank, and the US Treasury Department, with the borrowers given no other option than to accept the terms.

The package including privatisation, total reliance on trade and fiscal austerity, curbs on government expenditure on health and education aims to impose the “neoliberal” agenda on poor countries.The agenda rests on two main planks: the opening up of domestic markets, including financial markets, to foreign competition, and to vastly reduce the role of the state through privatisation of government owned assets and limits on the ability to run fiscal deficits.

The primary objective of these requirements, presented as the dreaded ‘structural adjustment policies’ (SAPs) or ‘belt-tightening measures’ of the IMF,is to ensure debt repayment capacity through measures such as: reducing expenditure on education and health; eliminating basic food and transportation subsidies; devaluing national currencies; privatising national assets; and freezing wages. In effect, the IMF demands that poor nations lower the standard of living of their people.

History since the inception of the IMF has shown that these measures increase poverty, reduce countries’ ability to develop strong domestic economies and allow multinational corporations to exploit workers, resources and the environment. All such negatives are ignored before the altar of‘export growth’ that is vital for the earning of hard currency to pay back loans

The “conditionality”of IMF loans that turn the loan into a prescriptive neoliberal economic policy tool compromise the economic and political sovereignty of the receiving countries by intruding on such issues as banking regulations, government deficits, and pension policy.The IMF’s “market fundamentalism,”- a blind faith in the free market – ignores the impacts of private ownership of water and electricity etc on the poor, causing worse economic stagnation; When crises recur as a result of such harsh policies, the IMF blames the governments, and offers “rescue packages” that impose even harder conditions.

Economic options for Sri Lanka

With foreign debts of more than US$ 55 billion, with a further loan from the IMF being added at the time of writing, Sri Lanka is in the unenviable position of ‘a beggar who can’t be a chooser’. With a government debt to GDP ratio of 76 percent in 2015, the country is in precarious economic straits. It is obvious that a sustainable solution to the country’s economic needs – outside of approaching the ‘donors’ with the begging bowl, cap in hand, needs to be found.

But if the comments by the Enterprise Development Deputy Minister Eran Wickramaratne are anything to go by, he seems to be fully ‘sold’ on relying on the Value Added Tax (VAT) as the only tax, that would replace various other taxes. Disturbingly, he has referred to VAT as a ‘progressive’ form of taxation, a view contrary to the universal view on consumption-based taxation and that VAT is the most regressive of all taxes: Research has consistently proved that the poor pay a higher share of their income in VAT than the rich due to what is known as the ‘Marginal Propensity to Consume’ in economic jargon. In simpler terms, poor people spend a higher proportion of their income on consumption and rich people save a higher proportion, making VAT regressive. It is clear that the government’s aggressive implementation of the VAT without considering its effects on the poor is the direct result of IMF compulsion.

The government needs to recognise that it needs an economic plan to rebuild and resuscitate the economy in the medium to long term. It also needs to be recognised that there could be alternative pathways to economic salvation, outside the so-called neoliberal, market-based path dictated by the West.

Sri Lanka will be much better-off implementing a locally developed economic model aimed at housing, feeding and educating, and providing decent health services to our people, rather than “…’performing’ up to the IMF and World Bank indices.

Looking at alternative pathways, the remark by the former Australian Prime Minister Paul Keating at the time of the 2008 financial crisis that: “World leaders should do away with US Treasury-run institutions, like the IMF to overcome current financial woes; The G7 is made up of debtor countries, like the United States, Britain, France, Italy – these are all borrowers. We’ve got to bring the surplus countries into the political framework” appear highly relevant.

While the IMF continues to exert a high level of influence over the economic policies of developing countries, particularly those in crisis, their influence over the international economic system seen as a whole, is limited.The current mission of the IMF appear to increasingly involve putting together ‘rescue’ packages to subsidise the private lenders that hold the sovereign debt of crisis countries (such as Greece), in effect, socialising their investment risks.

Acknowledging that it was only recently that our leader had a much-celebrated attendance at the borrowers’ club, otherwise known as G7, and continuing on the theme of devil taking the hindmost, it is worth remembering that “He who sups with the devil should have a long spoon”.

Continued reliance on the IMF advice and such regressive taxes as VAT will make the poor in Sri Lanka go hungry.

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