{"id":120898,"date":"2021-12-04T17:07:40","date_gmt":"2021-12-05T00:07:40","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=120898"},"modified":"2021-12-04T17:08:32","modified_gmt":"2021-12-05T00:08:32","slug":"the-economic-woes-of-today2021-go-back-to-1977-when-we-followed-the-neoliberal-policies-laid-down-by-the-imf","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2021\/12\/04\/the-economic-woes-of-today2021-go-back-to-1977-when-we-followed-the-neoliberal-policies-laid-down-by-the-imf\/","title":{"rendered":"The Economic Woes of today(2021) go back to 1977, when we followed the neoliberal policies laid down by the IMF"},"content":{"rendered":"

By Garvin Karunaratne \u00a0<\/em><\/span><\/h2>\n\n\n

The IMF has successfully taken Sri Lanka\nto its grave.  <\/p>\n\n\n\n

In 1976, Sri Lanka did not owe a single dollar to\nanyone. In 1977 Sri Lanka held SDR 170 million in its foreign exchange budget.\nThat was the last year we held a credit. Since then it is not a credit but a\nforeign debt.  <\/p>\n\n\n\n

Today, five decades later, the banks hold no dollars\nand importers are finding it difficult to obtain dollars from their banks. The\ndollar shortage has created a shortage of goods of all types and with the\nGovernment easing control of prices, the sky is the limit even for essential\nfood. Bakery owners have voiced that they cannot obtain flour etc. The earnings\nof people have not increased and therefore \npeople will be unable to buy essential supplies. I am sad to be aware\nthat many families have to depend on one meal a day. Pauperization is very\nsevere.  <\/p>\n\n\n\n

The causes for the present\u00a0 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. \u00a0<\/p>\n\n\n\n

When President Jayawardena sought the help of the IMF\nin 1977, the IMF insisted that funds would be given only on the condition that\nthe country would follow the Structural Adjustment Programme provisions. The\nprovisions laid down were that Sri Lanka had to liberalize the spending of\nforeign exchange- allow those who could afford- the rich to spend dollars as\nthey wished,  free imports without any\nrestrictions and the IMF readily provided dollar loans. The foreign funds\nloaned to us was in this process, shunted back to the donors- the Developed\nCountries, fattening their banks with profits, \nleaving the debt saddling our country. The IMF even provided grace\nperiods where the loan instalments and interest need not be paid- the IMF\nactually ‘bribed’ the then leaders as they could freely spend and leave the\nburden of repayment to their successors! That is truly what the IMF did! <\/p>\n\n\n\n

The IMF also laid down that the Public Sector should\nnot attend to any commercial tasks. With this dictate the Government had to\ncall off all public sector work on development. It was the Public Sector that\nbrought about development   To mention a\nfew-the Marketing Department activities- its Cannery that made Sri Lanka self\nsufficient in all fruit preparations was closed down and imports took its\nplace. The Vegetable & Fruit Purchasing & Sales Scheme that assured\nhigh prices to producers and also made available goods at low prices to\nconsumers was abolished.  The textile\nmanufacturing units \u2013 96,000 handloomers, powerlooms and textile mills were\nprivatized or abolished and a country that produced all its textiles came to\nimport instead.  In the pre 1977 period\nwe never imported a single rail carriage or bus or lorry. We imported the\nchassis and built them ourselves. Local enterprises closed down because the\nbank interest rate was jacked up to 25%, which made enterprises uneconomical to\nrun. I am not exaggerating as I was a key administrator attending to\ndevelopment tasks in the pre 1977 era, working in the Marketing Department, in\nthe Agrarian Services and in Small Industry. .  <\/p>\n\n\n\n

Going on this path the foreign debt\nincreased to $ 6 billion  by 1994, when\nthe UNP rule ended. There was no going back because Sri Lanka had abolished or\ncrippled the infrastructure  that had\nushered in develoment. Stalwart administrators who brought  <\/p>\n\n\n\n

about development were confined to the\nbarracks. . There was unemployment and poverty.  <\/p>\n\n\n\n

The foreign debt increased to $ 20 billion\nby 2009, to $ 30 billion by 2012, to $ 42.9 billion by the end of 2014. <\/p>\n\n\n\n

Following the IMF advice the foreign debt is at $ 56\nbillion today to service which  the\ncountry has to find $ 4.8 billion a year. The country does not earn that amount\nand is forced to obtain foreign loans to service the debt, which means that the\ndebt is immediately increased by another $4.8 billion. Upto now Sri Lanka has\npaid up its dues but the day is not far when it will be forced to default and tell\nthe IMF that we have gone on the path you told us to follow and have lived on\nloans and this is why we have built up the foreign debt. It was your wrong\nadvice that led us to this predicament. <\/p>\n\n\n\n

The IMF has been told again and again that\ntheir structural adjustment provisions only serves any country that follows it\nto become further indebted.  <\/p>\n\n\n\n

In 1992, in an \naddress to the South Asian Forum at the University of London I happened\nto point out that foreign aid, if accepted in a non-developmental manner\u2026\ncan lead to a situation of  chronic debt,\nwidespread poverty”<\/em> .I pointed out that a country that did not owe a\nsingle dollar in 1976 had a foreign debt of $ 5 billion by 1989, with high\nunemployment due to flooding the country with imports, allowing the rich to\nspend dollars, that the country did not have and totally dismantling the\nadministrative infrastructure we had to bring about development. This warning\nwent unheeded.  <\/p>\n\n\n\n

In 1997, my book: Microenterprise Development:\u2026 The\nWay Out of the World Bank & IMF Stranglehold, the first book to\ncriticize the IMF, detailing how Sri lanka got into debt  playing poodle to the IMF,  was published by Sarasavi. It proved that the\nIMF was taking Sri Lanka to its grave. This \ndocuments a presentation by me to the economic dons at Peradeniya, my\nfirst and last assignment as a Visiting Lecturer! To them,  I was talking nonsense. Till now(2021) our\neconomic dons have sidetracked teaching the neoliberal economics of the IMF\nthat has taken Sri Lanka to its grave. It is time that our President rules\nthat our premier universities should undertake detailed studies into the\npredicament that Sri Lanka’s economy \nfaces today and find remedies. .  <\/p>\n\n\n\n

In 2000, the foreign debt was $ 9 billion,\ndefinitely on the increase. In 2006, I have proved that the IMF ruined Sri\nLanka\u2019s economy in my book: How the IMF Ruined Sri Lanka & Alternative\nProgrammes of Success(Godages). George Axinn, Assistant Dean of\nInternational  Studies at Michigan State\nUniversity, in his Foreword stated: It is hoped that this timely book will\nenable international organizations  to\narrest the trend of failures.\u201d <\/em><\/p>\n\n\n\n

Not an outsider \nlike me, but authoritative capitalist sources like the Wall Street\nJournal and the Economist have also been pointing out that the IMF\u2019s\nadvice to our countries was actually taking poor countries  more into debt and ushering poverty and\ndestitution…  <\/p>\n\n\n\n

The Wall Street Journal of\n22\/2\/2001 comments: <\/p>\n\n\n\n

The IMF drill is as follows: A Third World poor\ncountry  with a pegged currency is\nworking towards taming its inflation.  .\nInstead of a growth formulae it gets the IMF’s old austerity dosage which slows\ndown the economy. The Banks begin to falter in paying their old debts. The\nIMF  recommends yet more medicine-\ndevaluation,  making the bank predicament\nand capital flight worse. The currency slumps and the banks are now in real\ntrouble\u2026 Is this anyway to run an international monetary system?\u201d <\/em><\/em><\/p>\n\n\n\n

This warning by the Wall Street Journal\nwas in 2001, when Sri Lanka\u2019s debt was around \n$ 9 billion. The IMF went on heedless.  <\/p>\n\n\n\n

The Economist, the epitome of\ncapitalist journals hauled the IMF over the coals in 2002: <\/p>\n\n\n\n

Over the years these institutes- the\nIMF and the World Bank have often handed poor advice and squandered many\nbillions of dollars on loans that helped Governments to postpone necessary\neconomic and political reform\u2026. The World Bank has achieved little for its $\n500 billion loans during the past half century, besides saddling very poor\ncountries with huge debts  that should\nnow, mostly be forgiven\u201d(The Economist: 18\/24, May 2002) <\/em><\/p>\n\n\n\n

Two decades have passed since this warning\nwas made by the Economist.  <\/em><\/p>\n\n\n\n

In fact President Nestor Kirchner of\nArgentina in his address at the United  <\/p>\n\n\n\n

Nations General Assembly on 21\/9\/2004,\nsaid: <\/p>\n\n\n\n

An urgent tough  and structural redesign of the IMF is needed\nto prevent  crisis and help solutions.\nThe IMF must change that direction it took from being a lender for development\nto a creditor demanding priviledges\u201d  <\/em><\/p>\n\n\n\n

The immediate reply he got  from the seven  superpowers \nwas a firm warning  that Argentina\nhad to come to  an immediate debt\nrestructuring agreement with creditors and President Kirchner was forced to\nabide. Nestor Kirchner and the next President Christina Kirchner fully paid the\ndues to the IMF and subjected people to austerity. Christina Kirchner was\ndefeated by Mauricio Macri who followed the IMF policies in 2015 and  was rewarded by loans of $ 44 and $ 57\nbillion, the latter obtained even without Parliamentary approval.  Mauricio Macri was defeated in the 2019\nelections but his successor had to agree to repay the loans taken by Maurico\nMacri later on in 2022 and 2023. <\/p>\n\n\n\n

In short the IMF actually ruins the economies of Third\nWorld countries. My 2017 book: How the IMF Sabotaged Third World\nDevelopment  documents how the Third\nWorld countries that had self reliant economies and were not in debt were made\nindebted.  <\/p>\n\n\n\n

In fact FullSpate says:  <\/p>\n\n\n\n

these two agencies have become two of the strongest\nproponents of today\u2019s form of globalization process whereby all the countries\nof the world are forced  to open their\nmarkets, thereby maximising  the\nopportunities for the largest  and most\npowerful companies  in the world. This\nmeans an  insistence upon free markets\nthat disregard the consequences for local communities  and their traditional ways of life. The poor\nAfrican countries  that previously\nsubsidized  agricultural activities  in remote rural areas When they needed help\nfrom the IMF  they were forced to stop\nthese subsidies  and let the local\nmarkets operate without  government\nintervention.\u201d  <\/em><\/p>\n\n\n\n

This also encapsulates what has happened to Sri Lanka\ntoday. Sri Lanka has allowed the  rich to\nspend foreign money  it did not have and\nhas been living on loans given by the IMF and its associated creditors since\n1977. Since 1977 Sri Lanka  has been\nruled entirely by the IMF dictates and in the process has run up a debt of $ 56\nbillion, to service which in 2021 the Government had to obtain  $ 4.8 billion on loan. <\/p>\n\n\n\n

Already the leaders have said that they would not\ndefault on debt payments. The next payment of some $ 4.8  billion will be due in 2022 and the\ncrucial question that crops up is as to whether it is morally right  for further loans to be raised to pay up the\nnext of $ 4 to $5 billion and to place the burden on the people- for them to go\nthrough austerity, when the fault lies with the IMF and not with the people.  <\/p>\n\n\n\n

Certain Cabinet Ministers have suggested that the\nGovernment should go to the IMF for funds but this has been shot down by the\nmajority of Cabinet Ministers who had said that the IMF will insist on the\nGovernment following further restrictions, which will be non developmental.\nMinister Cabral had rightly stated that if we seek the help of the IMF they\nwill insist on increasing interest rates, depreciate the Rupee, reduce\npublic servants, sell State Assets, curtail pensions, which action are not\nnecessary”(CeylonToday:26\/11\/2021<\/em>) This will take the country further\ndown to destitution.  <\/p>\n\n\n\n

I have had to point out that since 1977, the\nGovernment has failed to control its foreign \nexchange. The Central Bank voiced that it does control only the local\nRupee. The Central Bank was actually forced to make this statement when on\n25\/1\/2001, the two State banks- the Peoples Bank and the Bank of Ceylon had to\npay a large oil bill and their collection of dollars was insufficient. They had\nto go hat in hand to the foreign banks that had collected dollars and strangely\nthat foreign bank had increased the price of dollars to as much as Rs 106 to\nthe dollar when the price had been only Rs 86.00.that morning The State banks\nhad no alternative other than to buy the dollars at the higher price. This\ncaused an immediate devaluation. <\/p>\n\n\n\n

Getting back to today, it is important to note that\neven today the Government gets into the Treasury only the foreign funds\ncollected by the Bank of Ceylon and the Peoples Bank which is only a fraction\nof the foreign exchange that comes in. \nThe dollars collected by other banks and the private exchange dealers do\nnot get to the Government Treasury. Instead the other banks and private dealers\nfix their own rates of purchase and sale prices. Importers are said to be  buying dollars at rates like Rs 275 to the\ndollar! The Government instead of collecting all the dollars that come in,  allows the banks and private dealers to\ncollect the dollars sell them, profiteering as they wish, and go begging for\nforeign fund from Bangladesh- from the Middle East and Minister Basil is on the\nrun to beg from India. <\/p>\n\n\n\n

What can be done? We have to step back to the time\nbefore we started following the IMF- that was from the day we became\nindependent- from 1948 till the IMF took charge at the end of 1976. We were not\na country in debt to anyone. We carefully collected all dollars coming in to\nthe Treasury and did not have banks and private currency dealers collecting\ndollars, fixing their own rates of exchange, and making profits as they\nplease.  We did allocate dollars for essentials\nfirst and thereafter made small allocations to import non essentials but useful\nitems life fridges, cars etc. No dollars  \nwere   given for foreign studies.\nThis was how we managed and that is essentially the blue print we have to\nfollow to get out of the current quagmire.   <\/p>\n\n\n\n

It was the IMF that advised us to spend and live on\nloans and the IMF has to take the blame and as advised by the Economist decide\nto forgive the debts we owe.  <\/p>\n\n\n\n

The country had two budgets- a foreign exchange\nbudget  and a Rupee budget.  The foreign exchange  budget was entirely fed by dollars which we\ncarefully collected from exports and tourists etc. The Rupee budget was fed\nfrom taxes and printed Rupees.  <\/p>\n\n\n\n

I happened to be in the thick of the administration in\nthe pre 1977 period as a high ranking officer of the Administrative Service.\nOnce in 1970 I was in charge of allocating foreign exchange to small\nindustrialists  and every small\nindustrialist was given an allocation to import items that were required for\nmanufacturing what the country needed. Small Industries were highly developed\nand our country produced all its textiles. When I was the Government Agent,\nsome Divisional Secretaries had to manage powerlooms.  They were adept at it and our Hakmana\nPoowerloom suiting was even sought by people from London, UK. <\/p>\n\n\n\n

What has to be done: Collect all the dollars and\nhandle the totality of development.  <\/p>\n\n\n\n

Instead of importing consumer goods that are today in\nshort supply, we should be making them. In 1971, my officers slaved for three\nmonths from six to midnight closeted in the science lab at Rahula College, to\nfind the recipe to make crayons and Member of Parliament Sumanapala Dahanayake,\nin his capacity as the President of the Morawaka Cooperatives,  under my personal supervision,  established Coop Crayon in two weeks working\non a 24 hour a day basis. Coop Crayon was equal in quality to the Reeves\ncrayons and my blood boils today when I see Crayola Crayons on sale in Sri\nLanka!. That Coop Crayon became  the\nflagship industry of the Divisional Development Councils Programme, of\n1970-1977. <\/p>\n\n\n\n

 The country has\nadministrators and politicians who can undertake this task, bringing incomes to\nthe people and making what the country needs. It will usher in an economic\nrevival which is eagerly awaited today. It is a task that can be accomplished.  <\/p>\n\n\n\n

I can vouch for success, as I did establish the Youth\nSelf Employment Programme of Bangladesh, a task which the ILO had failed earlier,  within nineteen months as the Commonwealth\nFund Consultant to the Ministry of Labour and Manpower, and also trained\nBangladeshi youth directors and youth workers in economics and extension\nmethods to manage after my two year consultancy ended. This Programme is  today the premier employment creation\nprogramme the world has known, having guided three million youths to become\nself employed.  Bangladesh does not dance\nto the tune of the IMF! <\/p>\n\n\n\n

Garvin Karunaratne, Ph.D. Michigan State\nUniversity,  <\/p>\n\n\n\n

5 th December 2021 <\/p>\n\n\n\n

Author of: <\/p>\n\n\n\n

Microenterprise\nDevelopment..The Way Out  of the IMF and\nthe World Bank and IMF Stranglehold(Sarasavi:1997) <\/p>\n\n\n\n

How the IMF Ruined\nSri lanka & Alternative Programs of Success(Godages:2006) <\/p>\n\n\n\n

How the IMF\nSabotaged Third World Development(Godages\/Kindle:2017) <\/p>\n","protected":false},"excerpt":{"rendered":"

By Garvin Karunaratne \u00a0 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 […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[57],"tags":[],"class_list":["post-120898","post","type-post","status-publish","format-standard","hentry","category-by-garvin-karunaratne"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/120898","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/comments?post=120898"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/120898\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=120898"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=120898"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=120898"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}