The forked tounged IMF
Posted on March 15th, 2022

by Garvin Karunaratne 

The IMF warns Sri Lanka of its unsustainable foreign debt. It is sad that the IMF forgets that it is the IMF itself that paved the path for the creation of this unsustainable debt. That happened in 1977 when the IMF imposed its Structural Adjustment Programme(SAP)on Sri Lanka. Till then Sri Lanka had no foreign debt.

Dr Gamini Corea, a celebrated son of Sri Lanka- the one son who held the high position of the Secretary General of UNCTAD, has castigated the IMF for laying down stringent conditions euphemistically called Structural Adjustment Programme in return for concessional loans to the World’s poorest nations.” (quoted by Thalif Deen in NoComment)

President Jayawardena when he won the general election in 1977 need not have gone on knees begging for funds from the IMF because when Prime Minister Sirimavo handed over the country to him there was no foreign debt and the country had up to that date been managed with the funds that Sri Lanka earned. This was achieved through effective import controls and restricting the use of foreign exchange.

The International Monetary Fund and the World Bank were established by the United Nations to help countries and up till the Seventies they did perform that task well helping the poorer countries. The countries were developing new programmes of creating production and finding incomes for their people. There was a change in the late Seventies- President Ronald Regan and Prime Minister Thatcher accepted the neoliberal economic model- the Structural Adjustment Programme, propounded by Professor Milton Friedman. As stated by the SAARC Report- The Report of the Independent South Asian Commission on Poverty Alleviation): The Industrial Countries for the first time since World War !! are in need of markets for their products just as the economies are made vulnerable by the international debt crisis. So they have put into effect the Structural Adjustment Programme(SAP) The Main prescriptions of the SAP is therefore a reduction in government expenditure… often accompanied by devaluation, increases in the prices of public utilities and import liberalization. Studies of these programmes show that they are regressive, that they adversely affect the poor.”

The neoliberal SAP insisted that the countries should abolish import controls and also provide foreign exchange to be used freely by citizens. . Earlier, the use of foreign exchange was carefully managed to ensure that the country could meet the expenses out of its earnings. Under neoliberal SAP. the IMF provided loans and our leaders were happy to spend. The IMF also provided grace periods and long repayment contracts so that the leaders could enjoy and leave the task of repayment for future leaders. The money was thus squandered on unnecessary imports and free use by the rich of the country to live in luxury, go on holidays and educate their children abroad all done on borrowed money. It is this process that has taken us unawares to almost bankruptcy today(2022). Further the IMF insisted that the government departments that attended to development should be abolished which meant that there was no real development. It was this process of depending on loans importing instead of producing, and not paying back the loans which sent up the foreign debt of the country to as much as $ 54 billion today.

While the real culprit for this is the IMF, the educated experts in the Central Banks should have warned the Government that living on loans would bring bankruptcy someday. Instead of warning the Central Bank Reports sang hosannahs and our educated dons in the universities never addressed the subject.

Former leader of the Communist Party DEW Gunasekera, a true patriot, has rightly stated that Sri Lanka should deviate from the neoliberal strategy that it has followed since 1977, which policy has ruined a country that was not in debt to anyone till 1977. He has said emphatically that 44 years of experience from 1977 to 2022 is more than enough.” (The 03032022) He adds we must embark on a strategy of planning and State intervention. The strategy of import and consumption should make way for export oriented domestic production,” His are words of wisdom.

Incidentally it so happened that when my book: How the IMF Ruined Sri Lanka & Alternative Programmes of Success” was published by Godages in 2006, a book that deals with how the economy of Sri Lanka was ruined by following the IMF dictates, I took a few copies of this book to Mr. DEWGunasekera and requested him to hand over copies to parliamentary leaders. That was when our foreign debt was around $ 15 billion. He happily undertook that task stating that it will be difficult to find leaders who world read it. My book details how the IMF has taken our country to a situation of bankruptcy. Though we were bankrupt, yet the IMF gave us loan after loan so that we would not feel the pinch. But later on the IMF backed out and our country had to find loans from banks, bonds and continue on the same path because the loans could never be paid back- we had to actually get into further debt to service the loans- not to default. In fact I have written two other books on the subject:

How the IMF Sabotaged Third World Development , Kindle/Godages 2017

How the IMF’s Structural Adjustment Proigramme Destroyed Sri Lanka, Godages, 2022

Sri Lanka embraced the IMF teachings as far back as 1977, while other countries were more careful and did delay the process. In fact Bangladesh commenced structural adjustment with the IMF only in 1986 and they realized their mistake and backed out of the IMF in 2007.

Almost all Third World countries have had to have dealings and draw loans from the IMF. In the IMF process of liberating imports and the liberal use of foreign exchange all countries have run up their foreign debt. Bangladesh, the country that recently came to our Aid by giving us a loan of $ 200 billion has a foreign debt of $ 44.2 billion. India has a foreign debt of $ 570 billion. However these countries have managed avoid to food queues and shortage of essential supplies like fuel and gas by carefully restricting imports and careful use of foreign exchange. In this respect Sri Lanka should have taken action to restrict imports of non essential items, restricted the use of foreign exchange and not engaged in fanciful projects like building flyovers etc . far earlier.

Today, the situation that Sri lanka is facing is severe hardship for the people. The only solution is to follow the policies that were adopted before 1977, namely very strict control over foreign exchange use. It was a case of allowing foreign exchange for essentials- food, medicines etc and no funds were allowed for foreign travel or foreign studies. There were very effective import controls and price controls. . The development work in the country- , payments of subsidies for opening up land or for building roads etc were all done with locally printed money. Foreign exchange was so guarded that when I went abroad in 1973 for studies, I had to find employment and study. I was not given a single dollar or pound. Though strict controls were placed on the use of foreign exchange there was tremendous action in the development field, all done with printed money. The Marketing Department Cannery made Sri Lanka self saufficient in all fruit juice and then 8% of the pineapple tinned was exported- all done within three years 1955 to 1958. The Small Industries Department was very active with handlooms, powerlooms and the country produced all the textiles it needed. The Divisional Development Councils Programme of 1971-1977 made many items that were imported and provided employment to 33,200 youths. Since 1977 as advised by the IMF we have opened our gates for imports and all above programmes were abolished or sidelined.

Today(14/3) it is reported that 180,000 economic development officers are on strike. Divided into districts there should be 800 economic development officers in each of our 22 districts. In my District, Matara in the days when we implemented the DDCP, I had some 25 such officers. In my paper The Way Out of the Economic Abyss besetting Sri Lanka:( Lanka Web 12/3/2022 ) I have pointed out that the Government Agents have no work now. They last worked on the DDCP of 1971-77.Since then they have found some work to do, work that they handed over to the Additional GA in 1967 when Premier Dudley wanted the GA solely for his paddy cultivation programme. However today the GA have a very busy role as Assistants to the political authorities that chair the District Coordinating Committee.

Is it not sad that there has not been a single programme of creating employment and creating production since 1977. Is it not a simple task to create a new programme of economic development and there lies the task for the Government Agents( who have no proper job now) and the 180,000 strong economic development officers. The production they can create will wipe out the food queues and also save the foreign exchange that we spend on food imports. But will the IMF who ruled us from 1977 and rule us very indirectly but effectively today, approve it?

Garvin Karunaratne, Ph.D.Michigan State Uniuversity,

Author of:

How the IMF Ruined Sri Lanka & Alternate Programmes of Success, Godages, 2006

How the IMF Sabotaged Third World Development, Godages/Kindle 2017,

How the IMF’s Structural Adjustment Destroyed Sri kanka, Godages 2022Further


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