20 May, 2022

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IMF’s Limitations

By Ameer Ali

Dr. Ameer Ali

With $7 billion debt to be serviced this year and another $25 billion between 2023 and 2026, the government has formally written to IMF for assistance, ending there by an era of two-year self-isolation from the West. “Subsequent to my discussion with the IMF, I have decided to work with them after examining the advantages and disadvantages”, said President Gotabaya Rajapaksa when he addressed the nation. He must have obviously found the advantages weightier than disadvantages, and, without saying so, had tacitly admitted the ignominious failure of his so-called ‘alternate path’ and homegrown solution.

In the meantime, the Minister of Finance had succeeded in signing a deal with India for $1 billion credit facility with “no strings attached”, according to him. But, Ven. Elle Gunawansa Thero in a letter to GR has demanded full details of the deal be published. India’s total development portfolio till the end of 2021 amounted to $3.5 billion, of which $500 million was for grant projects. China is also reported to be considering to extend $1 billion financing facility with another $1.5 billion buyers’ credit. This is on top of an estimated $3.38 billion lent already to Sri Lanka. These help from the two regional rivals are short-term palliatives and may temporarily enable the impoverished Rajapaksa regime to import certain desperately needed consumer items and replenish at least partially the empty shelves of local retail stores. It may help to calm down the raging public anger over chronic shortages, especially when the Sinhala-Tamil New Year festivities are fast approaching.

Ironically, and in the midst all economic difficulties endured daily by the masses, including deaths caused by standing for hours in queues to buy fuel, the UN-sponsored World Happiness Report found Sri Lanka advancing from a previously 129th position to 127th among a total of 146 countries, as a land of happiness to live in! One wonders whether there is something strange about UN’s definition of happiness or in its methodology of computation. However, this finding may give some relief to a beleaguered Rajapaksa government, which could probably trumpet this index as one of its grand achievements.

Among the three sources of assistance, while India and China are more interested in advancing their own interests at the expense of Sri Lanka, only IMF at least has a theoretical duty to introduce measures that could inject financial discipline to a country that has been living beyond its means for decades. Sri Lanka joined the global neo-liberal economic order in 1977. In that order, the art of prudent economic and financial management is an essential criterion for a country’s successful competition and economic growth. In Sri Lanka, almost all governments since independence had been noted for their indiscipline in budgeting. The idea of living within one’s means or balancing one’s budget seems to have disappeared from the dictionaries of governments. Today’s public debt is the cumulative effect of a series of deficit budgets. The magnitude of that deficit increased phenomenally since 2005.

IMF’s first target therefore would be to help the country achieve macroeconomic stability in the medium to long-term. To do that it has to adopt a carrot and stick approach. IMF’s loans are usually cheaper than those from other sources, and the terms of repayment are also flexible. While extending a larger and longer-term loan, IMF can also assist restructuring Sri Lanka’s existing debt with the respective parties. In return for certain concessions, IMF’s interference would provide an official guarantee to lenders against any default by the borrower. That in turn would send a positive signal to foreign investors and credit rating agencies. In short IMF entry would help to raise international market confidence on Sri Lanka’s economy.

Against those carrots are the sticks. Tightening the country’s monetary policy to check inflation, raising taxes and reducing expenditure to improve public revenue, reducing excess burden on public sector employment, reforming public enterprises to turn them into profit making agencies and preferably privatizing them, ending corruption and removing the power of the market mafia are some of the conditions IMF would expect the government to fulfill. While insisting on these, IMF would be prepared to work out a safety net for the poorer sections of the community who would inevitably suffer from the short-term consequences of these measures.

It is reported that the government is preparing to hire an international legal firm to help negotiating with IMF. What a shame! Is the country so bankrupt of legal talent? Even then, there are limitations to what IMF could do. The toughest hurdles to cross are corruption and structural reforms. If corruption could be eradicated that would automatically kill the power of influence by the mafia, and if structural reforms could be accomplished and public enterprises start earning profit that would reduce the burden of taxes levied on the public. But it is in tolerating corruption and subsidizing loss-making parastatals the regime could expect to remain in power. They are the pillars on which the reigning political structure is built. This crony capitalism would therefore limit the success of IMF reforms.

In addition to these hurdles there is also another: Sinhala-Buddhist ethnonationalism. This poison like malignant cancer saps not only the vitality of the economy but also the entire polity. No amount of IMF engineered macroeconomic stability could remove this. Its eradication has to come from the political arena. But given the shocking silence of all political parties in tackling this issue and their preparedness to play politics with it, the long-term prospects of an economically stable Sri Lanka remain bleak. Thus, abolishing crony capitalism, eradicating corruption and influence of mafia, and eliminating ethnonationalism set the limitations of IMF reforms.

*Dr. Ameer Ali, School, of Business & Governance, Murdoch University, Western Australia

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Latest comments

  • 4
    0

    Among the three sources of assistance, while India , China, IMF

    India buy Agriculture products in future
    China Give all construction in future
    IMP Listen to our condition, ( Econimic Security Framework that inspire confidence)

    Hybrid Assistances if done year a go Stability or tackling issues would have been archived and or better than present issues.
    The essence of Being Hybrid is about balance – to keep things going steadfastly

  • 4
    0

    Dr Ameer Ali

    “The idea of living within one’s means or balancing one’s budget seems to have disappeared from the dictionaries of governments”.

    Is it a prudent act for a poor man or for a developing country?

    If a poor family invests in the higher education of their children by getting bank loans, is it a foolish act on the part of the parents?

    If a young entrepreneur gets loans to start up his enterprise is he being foolish?

    If a government resorts to deficit financing for development of the country is the government being foolish?

    On the contrary what the governments should do is to keep the deficit within manageable limits -Say within 3- 5% of GDP as IMF usually prescribes!
    Dr Ameer Ali,
    Do you want the poor to always remain poor?
    or a developing country to remain always developing ?

    • 1
      0

      “It is reported that the government is preparing to hire an international legal firm to help negotiating with IMF. What a shame! Is the country so bankrupt of legal talent?”
      The vast majority of our “lawyers” are incompetent. In general, law is seen as a field where you can make money without studying difficult stuff like chemistry or mathematics.
      Consider the “Bond scam” case, where on political pressure, the AG himself filed a case for “misuse of public property “, which has naturally been thrown out. Any 10 year old could have told him that profits made by Aloysius by lending money to the State are not “public property “.

  • 8
    2

    Dr. Ameer Ali is an Economist by profession. No one should doubt his assessment.
    .
    Is Economy the major issue. No.
    Our economic problems stem from a cancerous Sinhala-Buddhist ethnonationalism.
    The more urgent need is for the ‘patient’ to be diagnosed of the Cancer that has been spreading slowly and steadily, ever since independence.

    • 1
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      Nathan,
      I do not doubt Dr Ameer Ali, his honesty, his sincerity or his expertise in economics. His articles are always a pleasure to read, so are your comments.
      Yet economics is social science unlike physical sciences where one could make more exact predictions unlike other disciplines. There may not be one and only one solution in economics.. Economics in practice unlike academic economics has a lot of variables and there are so many actors and unpredictable events like Covid-19 or war in Ukraine.Poor economists!

      • 0
        0

        srikrish,
        Probabilities are scientific. It is the best we have.

      • 1
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        srikrish

        “There may not be one and only one solution in economics.. Economics in practice unlike academic economics has a lot of variables and there are so many actors and unpredictable events like Covid-19 or war in Ukraine.Poor economists!”

        You maybe right however when you have a primitive country, presided over by a primitive clan, still this country practice exchanging gifts (bribe), academia believes in not upgrading their knowledge and skills, ….. when 85% of the state activity is controlled by 5 or more members of the same clan, ……………. leaders still believe practice, like old tribes , into grabbing land and state wealth, the armed forces and police continue to humiliate people and violate their human rights and dignity, the media’s only job is to carry the b***s of the rich and powerful of the day, media owners and editors are the most racist members of society, … for people racism is another form of drug, …. Saffron Brigade though very primitive, bigoted but very very very stupid and self destructive, …. modelling economic system won’t work.

        Under such conditions, no advanced economic modelling will work as an analytical tool, unless of course one can design models that include values for racism, bigotry, stupidity, greed, kleptocracy, degrees of madness and sycophancy, fascist tendency, sadism, masochism, nepotism, …….

    • 2
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      N
      Like medical opinion economic opinion can differ.
      Like medical opinion economic opinion can also be wrong.
      Anyone who blindly accepts the IMF as the answer to economic woes is suspect as much as anyone who claims that vaccines are the way out of COVID-19.

    • 1
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      Nathan

      “Is Economy the major issue. No.”

      Please listen to Suma:
      https://www.youtube.com/watch?v=DPUEMI4-Wog

  • 4
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    Subsequent to my discussions with the IMF, I [! ] have decided to work with them after examining the advantages and disadvantages said President Gota……….

    A Harold Laski in the making eh!……………….

    • 0
      0

      Harold Laski was a political theorist and economist !

  • 11
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    The focus now should be on dismantling the rapacious parasitic system of governance that benefits only the influential political class, industrial class hangers-on and top sycophants who are devoid of a conscience. Grassroots movements must enable the sovereignty of the people to be recaptured from the imbeciles who destroy the very fabric of the once resplendent isle in the Indian Ocean. Pretenders elevated to positions of supreme power must be allowed to realize that they are mere mortals who are actually beneath contempt.

    • 5
      1

      Dear LP
      Who do you suppose are the enablers of such a bunch of traitors like the Rajapaksa scum?
      It was our own stupid suffering masses.
      You can see this blind psychopathic support even within CT in the person of EE, Soma and Champa who don’t see anything wrong in what these thieving unpatriotic tyrants have done.
      Sorry but the best solution is to root out these bastards and make an example of them for starters.

      • 2
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        Human Touch

        ” ….. upport even within CT in the person of EE, Soma and Champa …”

        soma should be spelt soman given his ancestor’s origin in South India.
        Champa should be spelt Champass.

      • 0
        3

        Monkey Touch
        There are only 3 Sinhala racists.
        9 out of 10 Tamils on CT are incorrigible Tamil racists who were ( are) devout worshipers of Sun God.
        What happened to your suicide jacket?
        Managed to fool Thalaivar?

        Soma

      • 2
        0

        Now the discussions start, at the time the country is set in a critical state.
        .
        https://www.youtube.com/watch?v=Nrcz3auJHuU

        Shan, if you think this GOTA would do any tiny thing towards the progress of the nothern srilankens, … it is just a mess. They the sons of bitchs would do anything and everything to paint the picture to the world. These men born and raised DA Rajakshe are real criminals. At least today, you guys should realize the truths.
        I think it is time TAMIL parties to join hand with NPP empowering them. That will open almost all doors for a better future under srilanken identity.

    • 2
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      Lasantha Pethiyagoda.-

      “Pretenders elevated to positions of supreme power must be allowed to realize that they are mere mortals who are actually beneath contempt.”

      I think you missed a crucial part of what Gota believes himself to be.
      Gota has already on record claimed to be a Sinhala/Buddhist.
      Sri Lanka to be a Sinhala/Buddhist country.
      He himself claimed to be a strongman.
      Ven. Endaruwe Upali of Asgiria blessed him being a great dictator, “ Let Gotabaya Rajapaksa prove his critics right by becoming a real Hitler.”.
      6.9 Millions who voted for him must be very very very stupid.
      His sole achievement is killing innocent people both Sinhala speaking (1987 to 1991) and between 2005 and 2015.
      Colombo University recognized his capability in killing innocent Tamil people accordingly awarded a Honourary DSc.
      His pardon absolved criminals and war criminals.
      Gota said his verbal orders must be considered as circulars.
      He was going run train on time like Mussolini.

      It was not his fault.
      It was the fault of 6.9 million, the majority of the majority.
      The only reason 6.9 million voted for him was that they falsely believed it was Gota who gave demelas a bloody nose, taught a lesson Demelas won’t forget, … and believed he was the only person who could deal with rising Islamic threat.

      Now tell me whose mistake was that, Gota behaving badly?

    • 4
      0

      Dear LP,
      ..
      Rapcious parasitic system of governance will switch on to hibernation mode, once PEOPLE will round up the mlechcha family soon. Did not you watch that video the manner, Basil (the most uneducated finance minister since independece) reacted to the questioned posed to him in that so called ” all party gathering” ?

      https://www.youtube.com/watch?v=mKhdl2hfSoI
      .
      Entire world would question – why not anything works on them yet ? What happened to the lawyers, Judges or other professionals back in our home country- Most of them seem to be on a snail walk yet today. Main stream media bring breaking news about ” melchcha family affairs ” as if tribal african states would do it.
      :
      Gota sends out twitter message about world issues, while not a single word being made about ones fall dead on day today petrol ques. These heartless buggers deserve public ” beheading cereomonies” as we heard them in history books. People s agonies could comfort to some extent, if such executions would follow soon.

  • 4
    0

    Well written article Ameer.

    The sad financial crisis SL face today was fundamentally caused by MR & Co borrowing for post war infrastructure projects that were ill conceived. They did not give any returns for the buck to the point SL got stuck with these gigantic loans.

    Idling airports, harbors and cities don’t produce wealth let alone enough to pay the loans.

    Ranil/Sirisena did follow the same path and added more billions to our debt.

    All in the name of development. Sadly millions of Lankans were in euphoria about this so called development not realizing the sheer stupidity of these non rewarding investments.

    This is where the smartness or greatness of leaders kick in. Smart leaders borrow a buck to return two bucks. Stupid leaders borrow and build white elephants. In doing so pockets a few billions too. It is clear that the pre eminent goal was to rob rather than invest for tomorrow.

    As if all this borrowing fiasco was not enough , they built a Nelum Pokuna to show off! Yet another !

    Time is up for a total change ! Bringing back SJB or UNP will be sheer stupidity. People know better.

    But before we elect a JVP leadership , they need to tell us exactly how they plan to fix our problems. We need details. Words and screaming is cheap !

    • 6
      1

      Dear Asoka
      If they don’t build “so-called white elephant projects”, how do you think they would have got commissions in billions of USD.
      Giving contracts and collecting commissions is one thing, while paying back the loans is entirely another, where the citizens are left with that burden.
      For the Rajapaksa bastards it is always win-win, they take loans and take commissions from the loans, then they award contracts against those loans and collect a 2nd commission.
      There is no risk to them, our idiots get mesmerized by ridiculous projects anyways. Most cannot think about the sustainability or the viability of so-called projects.
      If you know how to massage the ego (the weakest part of our people) then all else is forgotten.
      Just as Robert Knox had described us back in the day, nothing much has changed thus far.
      What a pity, we have people like EE, Champa and Soma even amongst us here on CT.
      I think this is an eye opener to rid our society of those types of rabid dogs.

      • 1
        0

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      • 3
        0

        “…..then they award contracts against those loans and collect a 2nd commission….”

        HT, do you know how they collect the 3rd level of commission (profit) as well?
        BONDS!
        As they have bankrupted SL to rock bottom level, SL bonds fetch only around 20% of face value. These buggers buy the whole lot at 20% of the price AND Cabraal somehow make the repayment @ 100%. So an 80% clean profit for R gang and their bone licking businessmen!
        And Deepthi Silva still talks about Ranil’s s bond scam!!

        • 2
          0

          Jit and HT,
          .
          Cabral a man similar to a condom shows no repentance today about his previous half-baked promises to the nation. He never listened to anyone – but went on paying the credits but emptying the reserves – irrespective of the repeated warnings made to them by oppostion and financial experts.

          And Wimal Buruwanse denies to make a public apology to the slaves dom. Buruwanse s justification is alone their break away from current cabinet would be more than enough. So calledJournos just stay mum not questioning further. These men behaved all along like ” bum guns” for the Rajapakshes doggy chinthanaya. shamelessness is seen as their common qualification. Now they are thrown away to ” kunubakkiya- thrash”. I have no doubt, these men would not be given any chances in a civilized society, not even booming Ethiopia. However the question remains – if ours is civilized enough ?

          In a civilized world, Wimal and Gonthadipila would have been hacked into pieces. So was the case in similar situation in like minded countries.

      • 0
        3

        Monkey Touch
        There are only 3 Sinhala racists.
        9 out of 10 Tamils on CT are incorrigible Tamil racists who were ( are) devout worshipers of Sun God.
        What happened to your suicide jacket and the cyanide capsule?
        Managed to fool Thalaivar?

        Soma

    • 1
      0

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  • 4
    1

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    • 6
      2

      Eagle ‘dumb’ Eye, how do you manage to write all these brief and brilliant comments one after the other? Did Mr. Kaputuwe teach you in school?

    • 2
      0

      Eagle Dumbo Eye

      Let’s start at the very beginning
      A very good place to start
      When you read, you begin with A-B-C

      Sound of Music

  • 10
    1

    Everyone seems to have overlooked one of the most effective ways to reduce government expenditure and earn foreign exchange at the same time. I say that we should cut down on the Expenditure for Defence from 12% of GDP to 4% of GDP in stages. As for the unemployed ex-servicemen, they should be given training to become Electricians, Plumbers, Carpenters, Masons, Bar-benders, Backhoe, Crane and Excavator Operators, Machinists and so on. They must all be taught elementary English and after providing them some work experience here, should be sent abroad as migrant workers. Once they secure Foreign Employment they can send their savings back home to Sri Lanka and contribute immensely to solve our Dollar shortage problem.

    • 2
      0

      Captain Morgan

      Good idea.
      However in the past 30 years or so the army (Rana-virus) also has become a separate political force like the ‘Pancha Maha Balavegaya’ Sangha (Clergy), Veda (Physicians), Guru (Teachers), Govi (Farmers) and Kamkaru (Workers).

      It would be dangerous to let highly trained and protected murderous on the loose.

      The most difficult part is dealing with officer class, the generals, brigadiers, colonels, ….. those who are patiently awaiting in the queue without much effort on their part hoping to be promoted to general and many to be Field Marshalls.

      A few officers could collude together, seize and hold power in bloody coup.

      Alternatively Gota/state could stir up things and in the pretext of preserving peace could opt out from demobilising security forces.

    • 1
      0

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    • 3
      0

      Brilliant Idea Captain.
      One could only wonder why no one thought it appropriate to reduce the military strength after the 2009.
      I wonder why our leaders are so dumb?

      • 0
        0

        That has lot do with our genetics HT.
        .
        Just talk to 100 and collect your own info. THat I am used to do each time back in home country.

    • 2
      0

      Thank you, Captain Morgan,
      .
      We’ve got to get this message home to the people. One of the main reasons for our Economic woes is indeed The War, and the military spending after the war was formally declared over in May 2009.
      .
      I don’t like anything military, but the existence of such forces has to be faced. No country is totally open about its military. I don’t understand much of this, but I know that our military spending is way beyond what it should be. A few links though:
      .
      https://www.macrotrends.net/countries/LKA/sri-lanka/military-army-size
      .
      All governments have been pampering the forces:
      .
      https://www.newsfirst.lk/2019/11/08/new-sri-lanka-army-headquarters-declared-open-in-akuregoda/
      .
      Even in those sanitised, areas, it is obvious that we’re spending far more than we can afford to.
      .
      https://www.macrotrends.net/countries/LKA/sri-lanka/military-army-size
      .

  • 1
    0

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