By Garvin Karunaratne
The IMF has successfully taken Sri Lanka
to its grave.
In 1976, Sri Lanka did not owe a single dollar to
anyone. In 1977 Sri Lanka held SDR 170 million in its foreign exchange budget.
That was the last year we held a credit. Since then it is not a credit but a
foreign debt.
Today, five decades later, the banks hold no dollars
and importers are finding it difficult to obtain dollars from their banks. The
dollar shortage has created a shortage of goods of all types and with the
Government easing control of prices, the sky is the limit even for essential
food. Bakery owners have voiced that they cannot obtain flour etc. The earnings
of people have not increased and therefore
people will be unable to buy essential supplies. I am sad to be aware
that many families have to depend on one meal a day. Pauperization is very
severe.
The causes for the present situation go back to a decision Sri Lankan leaders made five decades ago. President Jayawardena and my close friend, Ronnie de Mel, the Minister of Finance were fooled by the IMF.
When President Jayawardena sought the help of the IMF
in 1977, the IMF insisted that funds would be given only on the condition that
the country would follow the Structural Adjustment Programme provisions. The
provisions laid down were that Sri Lanka had to liberalize the spending of
foreign exchange- allow those who could afford- the rich to spend dollars as
they wished, free imports without any
restrictions and the IMF readily provided dollar loans. The foreign funds
loaned to us was in this process, shunted back to the donors- the Developed
Countries, fattening their banks with profits,
leaving the debt saddling our country. The IMF even provided grace
periods where the loan instalments and interest need not be paid- the IMF
actually ‘bribed’ the then leaders as they could freely spend and leave the
burden of repayment to their successors! That is truly what the IMF did!
The IMF also laid down that the Public Sector should
not attend to any commercial tasks. With this dictate the Government had to
call off all public sector work on development. It was the Public Sector that
brought about development To mention a
few-the Marketing Department activities- its Cannery that made Sri Lanka self
sufficient in all fruit preparations was closed down and imports took its
place. The Vegetable & Fruit Purchasing & Sales Scheme that assured
high prices to producers and also made available goods at low prices to
consumers was abolished. The textile
manufacturing units – 96,000 handloomers, powerlooms and textile mills were
privatized or abolished and a country that produced all its textiles came to
import instead. In the pre 1977 period
we never imported a single rail carriage or bus or lorry. We imported the
chassis and built them ourselves. Local enterprises closed down because the
bank interest rate was jacked up to 25%, which made enterprises uneconomical to
run. I am not exaggerating as I was a key administrator attending to
development tasks in the pre 1977 era, working in the Marketing Department, in
the Agrarian Services and in Small Industry. .
Going on this path the foreign debt
increased to $ 6 billion by 1994, when
the UNP rule ended. There was no going back because Sri Lanka had abolished or
crippled the infrastructure that had
ushered in develoment. Stalwart administrators who brought
about development were confined to the
barracks. . There was unemployment and poverty.
The foreign debt increased to $ 20 billion
by 2009, to $ 30 billion by 2012, to $ 42.9 billion by the end of 2014.
Following the IMF advice the foreign debt is at $ 56
billion today to service which the
country has to find $ 4.8 billion a year. The country does not earn that amount
and is forced to obtain foreign loans to service the debt, which means that the
debt is immediately increased by another $4.8 billion. Upto now Sri Lanka has
paid up its dues but the day is not far when it will be forced to default and tell
the IMF that we have gone on the path you told us to follow and have lived on
loans and this is why we have built up the foreign debt. It was your wrong
advice that led us to this predicament.
The IMF has been told again and again that
their structural adjustment provisions only serves any country that follows it
to become further indebted.
In 1992, in an
address to the South Asian Forum at the University of London I happened
to point out that foreign aid, if accepted in a non-developmental manner…
can lead to a situation of chronic debt,
widespread poverty” .I pointed out that a country that did not owe a
single dollar in 1976 had a foreign debt of $ 5 billion by 1989, with high
unemployment due to flooding the country with imports, allowing the rich to
spend dollars, that the country did not have and totally dismantling the
administrative infrastructure we had to bring about development. This warning
went unheeded.
In 1997, my book: Microenterprise Development:… The
Way Out of the World Bank & IMF Stranglehold, the first book to
criticize the IMF, detailing how Sri lanka got into debt playing poodle to the IMF, was published by Sarasavi. It proved that the
IMF was taking Sri Lanka to its grave. This
documents a presentation by me to the economic dons at Peradeniya, my
first and last assignment as a Visiting Lecturer! To them, I was talking nonsense. Till now(2021) our
economic dons have sidetracked teaching the neoliberal economics of the IMF
that has taken Sri Lanka to its grave. It is time that our President rules
that our premier universities should undertake detailed studies into the
predicament that Sri Lanka’s economy
faces today and find remedies. .
In 2000, the foreign debt was $ 9 billion,
definitely on the increase. In 2006, I have proved that the IMF ruined Sri
Lanka’s economy in my book: How the IMF Ruined Sri Lanka & Alternative
Programmes of Success(Godages). George Axinn, Assistant Dean of
International Studies at Michigan State
University, in his Foreword stated: It is hoped that this timely book will
enable international organizations to
arrest the trend of failures.”
Not an outsider
like me, but authoritative capitalist sources like the Wall Street
Journal and the Economist have also been pointing out that the IMF’s
advice to our countries was actually taking poor countries more into debt and ushering poverty and
destitution…
The Wall Street Journal of
22/2/2001 comments:
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 anyway to run an international monetary system?”
This warning by the Wall Street Journal
was in 2001, when Sri Lanka’s debt was around
$ 9 billion. The IMF went on heedless.
The Economist, the epitome of
capitalist journals hauled the IMF over the coals in 2002:
Over the years these institutes- the
IMF and the World Bank have often handed poor advice and squandered many
billions of dollars on loans that helped Governments to postpone necessary
economic and political reform…. The World Bank has achieved little for its $
500 billion loans during the past half century, besides saddling very poor
countries with huge debts that should
now, mostly be forgiven”(The Economist: 18/24, May 2002)
Two decades have passed since this warning
was made by the Economist.
In fact President Nestor Kirchner of
Argentina in his address at the United
Nations General Assembly on 21/9/2004,
said:
An urgent tough and structural redesign of the IMF is needed
to prevent crisis and help solutions.
The IMF must change that direction it took from being a lender for development
to a creditor demanding priviledges”
The immediate reply he got from the seven superpowers
was a firm warning that Argentina
had to come to an immediate debt
restructuring agreement with creditors and President Kirchner was forced to
abide. Nestor Kirchner and the next President Christina Kirchner fully paid the
dues to the IMF and subjected people to austerity. Christina Kirchner was
defeated by Mauricio Macri who followed the IMF policies in 2015 and was rewarded by loans of $ 44 and $ 57
billion, the latter obtained even without Parliamentary approval. Mauricio Macri was defeated in the 2019
elections but his successor had to agree to repay the loans taken by Maurico
Macri later on in 2022 and 2023.
In short the IMF actually ruins the economies of Third
World countries. My 2017 book: How the IMF Sabotaged Third World
Development documents how the Third
World countries that had self reliant economies and were not in debt were made
indebted.
In fact FullSpate says:
these two agencies have become two of the strongest
proponents of today’s form of globalization process whereby all the countries
of the world are forced to open their
markets, thereby maximising the
opportunities for the largest and most
powerful companies in the world. This
means an insistence upon free markets
that disregard the consequences for local communities and their traditional ways of life. The poor
African countries that previously
subsidized agricultural activities in remote rural areas When they needed help
from the IMF they were forced to stop
these subsidies and let the local
markets operate without government
intervention.”
This also encapsulates what has happened to Sri Lanka
today. Sri Lanka has allowed the rich to
spend foreign money it did not have and
has been living on loans given by the IMF and its associated creditors since
1977. Since 1977 Sri Lanka has been
ruled entirely by the IMF dictates and in the process has run up a debt of $ 56
billion, to service which in 2021 the Government had to obtain $ 4.8 billion on loan.
Already the leaders have said that they would not
default on debt payments. The next payment of some $ 4.8 billion will be due in 2022 and the
crucial question that crops up is as to whether it is morally right for further loans to be raised to pay up the
next of $ 4 to $5 billion and to place the burden on the people- for them to go
through austerity, when the fault lies with the IMF and not with the people.
Certain Cabinet Ministers have suggested that the
Government should go to the IMF for funds but this has been shot down by the
majority of Cabinet Ministers who had said that the IMF will insist on the
Government following further restrictions, which will be non developmental.
Minister Cabral had rightly stated that if we seek the help of the IMF they
will insist on increasing interest rates, depreciate the Rupee, reduce
public servants, sell State Assets, curtail pensions, which action are not
necessary”(CeylonToday:26/11/2021) This will take the country further
down to destitution.
I have had to point out that since 1977, the
Government has failed to control its foreign
exchange. The Central Bank voiced that it does control only the local
Rupee. The Central Bank was actually forced to make this statement when on
25/1/2001, the two State banks- the Peoples Bank and the Bank of Ceylon had to
pay a large oil bill and their collection of dollars was insufficient. They had
to go hat in hand to the foreign banks that had collected dollars and strangely
that foreign bank had increased the price of dollars to as much as Rs 106 to
the dollar when the price had been only Rs 86.00.that morning The State banks
had no alternative other than to buy the dollars at the higher price. This
caused an immediate devaluation.
Getting back to today, it is important to note that
even today the Government gets into the Treasury only the foreign funds
collected by the Bank of Ceylon and the Peoples Bank which is only a fraction
of the foreign exchange that comes in.
The dollars collected by other banks and the private exchange dealers do
not get to the Government Treasury. Instead the other banks and private dealers
fix their own rates of purchase and sale prices. Importers are said to be buying dollars at rates like Rs 275 to the
dollar! The Government instead of collecting all the dollars that come in, allows the banks and private dealers to
collect the dollars sell them, profiteering as they wish, and go begging for
foreign fund from Bangladesh- from the Middle East and Minister Basil is on the
run to beg from India.
What can be done? We have to step back to the time
before we started following the IMF- that was from the day we became
independent- from 1948 till the IMF took charge at the end of 1976. We were not
a country in debt to anyone. We carefully collected all dollars coming in to
the Treasury and did not have banks and private currency dealers collecting
dollars, fixing their own rates of exchange, and making profits as they
please. We did allocate dollars for essentials
first and thereafter made small allocations to import non essentials but useful
items life fridges, cars etc. No dollars
were given for foreign studies.
This was how we managed and that is essentially the blue print we have to
follow to get out of the current quagmire.
It was the IMF that advised us to spend and live on
loans and the IMF has to take the blame and as advised by the Economist decide
to forgive the debts we owe.
The country had two budgets- a foreign exchange
budget and a Rupee budget. The foreign exchange budget was entirely fed by dollars which we
carefully collected from exports and tourists etc. The Rupee budget was fed
from taxes and printed Rupees.
I happened to be in the thick of the administration in
the pre 1977 period as a high ranking officer of the Administrative Service.
Once in 1970 I was in charge of allocating foreign exchange to small
industrialists and every small
industrialist was given an allocation to import items that were required for
manufacturing what the country needed. Small Industries were highly developed
and our country produced all its textiles. When I was the Government Agent,
some Divisional Secretaries had to manage powerlooms. They were adept at it and our Hakmana
Poowerloom suiting was even sought by people from London, UK.
What has to be done: Collect all the dollars and
handle the totality of development.
Instead of importing consumer goods that are today in
short supply, we should be making them. In 1971, my officers slaved for three
months from six to midnight closeted in the science lab at Rahula College, to
find the recipe to make crayons and Member of Parliament Sumanapala Dahanayake,
in his capacity as the President of the Morawaka Cooperatives, under my personal supervision, established Coop Crayon in two weeks working
on a 24 hour a day basis. Coop Crayon was equal in quality to the Reeves
crayons and my blood boils today when I see Crayola Crayons on sale in Sri
Lanka!. That Coop Crayon became the
flagship industry of the Divisional Development Councils Programme, of
1970-1977.
The country has
administrators and politicians who can undertake this task, bringing incomes to
the people and making what the country needs. It will usher in an economic
revival which is eagerly awaited today. It is a task that can be accomplished.
I can vouch for success, as I did establish the Youth
Self Employment Programme of Bangladesh, a task which the ILO had failed earlier, within nineteen months as the Commonwealth
Fund Consultant to the Ministry of Labour and Manpower, and also trained
Bangladeshi youth directors and youth workers in economics and extension
methods to manage after my two year consultancy ended. This Programme is today the premier employment creation
programme the world has known, having guided three million youths to become
self employed. Bangladesh does not dance
to the tune of the IMF!
Garvin Karunaratne, Ph.D. Michigan State
University,
5 th December 2021
Author of:
Microenterprise
Development..The Way Out of the IMF and
the World Bank and IMF Stranglehold(Sarasavi:1997)
How the IMF Ruined
Sri lanka & Alternative Programs of Success(Godages:2006)
How the IMF
Sabotaged Third World Development(Godages/Kindle:2017)
