INTERVIEW It is time for the nations of the global South to build their own way, to self-organize, Gary Dymski, a well-known economist and Professor of Applied Economics at the Leeds University
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The Ceylon Chamber of Commerce congratulates the Government on securing the Extended Fund Facility (EFF) with the IMF. We appreciate the efforts of the Government led by the President, the Governor of the Central Bank of Sri Lanka, Secretary to the Treasury, other key officials and independent experts who have assisted in this process. We also appreciate the bilateral and commercial creditors for providing the necessary financial assurances towards debt restructuring. Along with the initial proceeds from the IMF program, we expect multilateral agencies to also support the country by unlocking fresh financing.
We acknowledge and hail the difficult steps taken by the Government in the lead-up to securing the EFF, such as cost-reflective tariffs for utilities, tax regime changes, legislation of the new Central Bank Act and the move towards a flexible exchange rate, to name a few.The country cannot afford to revert to an unsustainable subsidy driven economy and a fiscal deficit that is financed by the Central Bank. We believe this is a crucial point for the economy, with the implementation of long overdue economic reforms acting as a vital impetus towards sustainable economic revival.
We urge the Government to prioritize focus on reforms such as tax administration, State-Owned Enterprises, trade and competitiveness, labor and land reforms, which need to be unlocked in order to pursue a sustainable growth path. The country will need to prioritize these reforms in meeting its fiscal targets, which will be central to the IMF program and debt restructuring. In focusing on revenue, the State should look at overall productivity improvement and curtailing of government expenditure where possible. These can be achieved by ensuring data driven and evidence based policymaking that will incorporate technology and digital tools.
The country must prioritize these reforms in order to ensure a successful 17thIMF program which will complement the macro stabilization efforts undertaken. The country cannot afford any pauses in the program, or returning for an 18th program with the IMF,where similar reforms will eventually and unavoidably need to be undertaken. In this regard, we request all political parties, civil society, trade unions and the public to view this IMF program positively and support the reforms process so that the country can move towards greater prosperity with a stable economy for all its citizens.
The Chamber recognizes that the Private Sector is an equal partner in ensuring an accelerated economic recovery, and to this end will continue to support the Government in implementing progressive reforms.
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It was with great satisfaction and sincere hope that I welcomed the announcement made last Tuesday by the Managing Director of the IMF, Kristalina Georgieva, that an IMF Executive Board meeting will be held on 20 March 2023 to consider and hopefully approve the Extended Fund Facility (EFF) arrangement we requested as part of our efforts to restore macroeconomic stability and debt sustainability.
I would like to praise your diligence and express my gratitude to the Paris Club creditors and Japan in particular, and to India and China for enabling the cooperation required to arrive at this point and explicitly delivering IMF compatible financing assurances as well as the other creditor countries which answered the Paris Club creditors’ call to join them. I would also like to thank the Paris Club Secretariat for supporting these efforts.
Since taking office last July, my government and I have been engaging in good faith with all of you, providing all the necessary information to enable you to make a proper assessment of our debt situation, and the required efforts to close our funding gap and restore debt sustainability. My government also deployed all efforts to demonstrate our commitment to the EFF program and relentlessly engage on the path to reforms. Our administration has already implemented major reforms by way of prior actions agreed with the IMF.
In the 75 years of Sri Lanka’s independence, there has never been a more critical period for our economic well-being and future development. That is why we have introduced a robust reform agenda aimed at achieving debt sustainability, strengthening governance, widening the social safety nets supporting the most vulnerable and ensuring we can grow an inclusive economy attractive to international business. This is how we will improve the lives of our people and ensure they are first in line to benefit from improvements in our economic conditions.
The IMF-supported program will be critical to achieving this vision for our country. Hence, this new era starts with the full implementation of IMF-supported program and the resolution of our debt situation with you as longstanding partners, as well as with our commercial creditors. There is still a lot of work to be done together. I encourage you to maintain and even enlarge and strengthen official bilateral creditor coordination in the context of our forthcoming engagement. It is the best way of achieving an efficient, transparent and equitable implementation of our debt treatment exercise. For that, I call on the Paris Club bilateral partners, in particular Japan, together with all our other official bilateral partners, including India and China, to gamer and foster coordination as you best see fit.
We also understand and acknowledge that we must ensure that appropriate safeguards are in place to ensure equitable burden sharing and comparability of treatment. To alleviate any legitimate concern in that regard, there are commitments that we can make to those of you willing to take action ahead of the others.
The first of these commitments, probably the most important one, is transparency. We commit to communicate transparently with all of you on any debt treatment terms that are agreed with any creditor or group of creditors, before being formalized. In the same vein, we commit to report regularly on our indebtedness, ensuring no financial liabilities incurred by the country are undisclosed.
Second, we commit not to resume debt service to any creditor unless that creditor agrees on a comprehensive debt treatment in line with IMF-supported program parameters and the comparability of treatment principle.
Third, we reiterate our commitment to a comparable treatment of all our external creditors, with a view to ensuring all-round equitable burden sharing for all restructured debts. To that end, we will not conclude debt treatment agreements with any official bilateral creditor or
any commercial creditor or any group of such creditors on terms more favorable than those agreed under any multilateral platform put forward by our official bilateral creditors. Offering a debt treatment outside of the perimeter set by the debt targets under the IMF program would risk making Sri Lanka’s debt unsustainable again. To this end, we also confirm that we have not and will not make any side arrangements with any creditor aimed at reducing the debt treatment impact on that creditor.
I sincerely hope that these clarifications will provide comfort to all of you and enable us to progress swiftly to the next stage of the debt treatment negotiations. This is paramount for our country. Just as my administration and I have committed to do, we rely on all of you to do the right thing.
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by Our Economic Affairs Correspondent
“The IMF’s emphasis on fiscal austerity has proven to be misguided and has resulted in economic stagnation, high levels of unemployment, and increased poverty in many countries.” – Noam Chomsky
Sri Lanka is eagerly anticipating change. Sri Lankans are tired of being robbed by many parties, be the local or foreign. Recently, politicians who were on the run have been now secured their safe houses, while innocent people are being targeted with usual measures. This has been attributed to the International Monetary Fund (IMF), a well-known international financial institution that relies on the support of others. Even those in rural areas who previously showed little interest in the IMF are now discussing its role in the country.
However, the IMF is not a charity, and it is not expected to resolve Sri Lanka’s crisis. Instead, it will provide guidance similar to an accountant overseeing the accounts of a struggling company. Unfortunately, neither the IMF nor the power-hungry politicians in Sri Lanka seem to genuinely care about the country’s crisis. We must thank Gotabaya Rajapaksa for unmasking, knowingly or unknowingly, the issues that Sri Lanka faces, and for forcing Sri Lankans to acknowledge the country’s state. If the IMF is honest in its efforts, it should explain why their interventions failed the last 16 times Sri Lanka sought assistance. Could Sri Lanka become the next Jamaica, with the IMF taking control? We must take a closer look.
No doubt, the International Monetary Fund (IMF) has been a key player in the global economy since its creation in 1944. The IMF provides loans and technical assistance to countries facing economic challenges, with the goal of promoting economic stability and growth. However, there are many examples of IMF policies and loan conditions that have had negative consequences for the countries they were intended to help. One of these examples is Jamaica, where IMF policies have been blamed for exacerbating economic inequality and hindering long-term development.
Jamaica is a small island nation in the Caribbean, with a population of just under three million people. Like many other countries in the region, Jamaica has faced significant economic challenges over the years, including high levels of debt, inflation, and unemployment. The country has received multiple loans from the IMF over the past few decades, with the most recent loan approved in 2016. However, many Jamaicans feel that IMF policies have only made their economic situation worse.
One of the key criticisms of IMF policies in Jamaica is the focus on austerity measures, which often require the country to reduce public spending and increase taxes. These measures have been particularly harmful to the poorest sections of the population, who are most vulnerable to economic shocks. In Jamaica, the government has implemented a series of austerity measures over the years, including cutting social spending and increasing taxes on essential goods such as electricity and fuel. These measures have contributed to an increase in poverty and social inequality, as well as undermining the country’s long-term development prospects.
Another criticism of IMF policies in Jamaica is the focus on privatization and liberalization. These policies have led to the sale of state-owned assets, such as utilities and transportation, to private investors. While these policies may lead to short-term gains, they can have negative consequences in the long run. For example, privatization can lead to higher prices for essential services, as private companies seek to maximize their profits. This can further exacerbate the economic challenges faced by the poorest sections of the population, who may not be able to afford these higher prices.
In addition to these specific policies, some critics argue that the overall approach of the IMF is too focused on short-term fixes and not enough on long-term development. IMF loans often come with rigorous conditions that require the borrowing country to implement specific policies or undertake specific reforms, but these conditions may not address the underlying structural issues that have contributed to the country’s economic challenges. This focus on short-term fixes can make it difficult for countries like Jamaica to build a sustainable and resilient economy that benefits all its citizens.
Well, Jamaica is not alone. There are several other examples of countries where IMF policies have been criticized for their negative impact on the economy and society.
If the IMF fails in Sri Lanka, it will be just a case study for them, but it is the fate of more than 22 million people. Who will take note of this seriously when those in power are playing modern-day Nero?
One such example is Argentina, which has a long history of economic instability and has been a frequent borrower from the IMF. In 2018, Argentina received a $57 billion loan from the IMF, the largest loan in the organization’s history. However, the loan came with strict conditions, including austerity measures and cuts to social spending. Critics argued that these policies exacerbated economic inequality and contributed to a deepening recession in the country. Consequently, according to Xinhua, “Argentina recorded 98.8 percent year-on-year inflation in January, after starting the year with a monthly price increase of 6 percent, the National Institute of Statistics and Censuses (INDEC) reported Tuesday, 14 February 2023.”
Another example is Greece, which received multiple loans from the IMF and other international lenders during the debt crisis that began in 2009. These loans came with conditions that required the Greek government to implement austerity measures and structural reforms. However, these policies were deeply unpopular with the Greek people and contributed to social unrest and political instability in the country. Many argue that the IMF’s focus on austerity measures delayed Greece’s economic recovery and hindered its long-term development.
A third example is Zambia, which has received multiple loans from the IMF over the past few decades. Critics argue that the conditions attached to these loans, which often require the government to reduce public spending and increase taxes, have contributed to social inequality and undermined the country’s long-term development prospects. For example, the IMF’s requirement for Zambia to reduce public spending on healthcare led to a decrease in the availability of essential medicines and equipment, making it harder for people to access healthcare services.
These examples illustrate the complex and often controversial role that the IMF plays in the global economy. While the organization’s loans and technical assistance can be helpful in promoting economic stability and growth, there are concerns about the impact of its policies on the poorest sections of society and on long-term development prospects. As such, it is important for the IMF to take a more comprehensive and long-term approach to its lending policies, one that prioritizes sustainable and inclusive development over short-term fixes.
True, it is difficult to predict whether Sri Lanka will become another Jamaica, Greece, or Argentina, but there are certainly concerns about the impact of IMF policies on the country’s long-term economic and social development. Sri Lanka has received loans from the IMF 16 times in the past and is currently negotiating its 17th bailout, with the aim of addressing the country’s ongoing economic challenges, including high levels of debt, inflation, and unemployment.
To avoid the negative consequences of IMF policies seen in other countries, Sri Lanka could consider adopting some of the recommendations put forward by top economists and experts in the field of development economics. One key recommendation is to focus on sustainable and inclusive economic development, rather than short-term fixes and austerity measures. This could involve investing in infrastructure, education, and other long-term development initiatives, with a focus on creating jobs and promoting economic growth in a way that benefits all citizens.
Another recommendation is to address the underlying structural issues that have contributed to the country’s economic challenges, such as corruption, inefficiency, and poor governance. This could involve implementing reforms to improve the business environment, increase transparency, and reduce bureaucracy, which could help to attract investment and create a more vibrant and dynamic economy.
In addition, Sri Lanka could explore alternative sources of funding and technical assistance, such as regional development banks or partnerships with other countries. These alternatives may offer more flexibility and a more nuanced approach to development challenges, which could better address the specific needs and priorities of the country.
Overall, Sri Lanka has a challenging road ahead as it seeks to address its economic challenges and promote sustainable development. To avoid the negative consequences of IMF policies seen in other countries, it will be important for Sri Lanka to take a comprehensive and long-term approach to economic development, one that prioritizes the needs and interests of all its citizens.
Sri Lanka, a beautiful island nation in South Asia, has been facing severe economic challenges for decades. Despite multiple interventions by the International Monetary Fund (IMF), the country’s economic crisis has not been resolved. In fact, Sri Lanka is currently seeking its 17th loan from the IMF, but there are doubts about the effectiveness of this latest effort to address the country’s economic woes. Why Sri Lanka has not been able to solve its economic crisis, and why the ongoing 17th IMF loan may lead to social turmoil without producing a lasting solution?
Sri Lanka’s economic challenges can be traced back to the country’s long-standing civil war, which lasted for nearly 30 years and ended in 2009. The conflict caused significant economic damage, and the country’s post-war economic recovery was slow. Moreover, the country’s high levels of public spending, corruption, and lack of investment in key sectors such as infrastructure have contributed to a sustained economic crisis. These challenges have been compounded by the COVID-19 pandemic, which has further weakened the country’s economy.
The IMF has been a key partner of Sri Lanka in its efforts to address its economic challenges. The IMF has provided loans to Sri Lanka for 16 times in the past. However, despite these efforts, the country’s economic situation has not improved significantly. There are several reasons why the IMF’s interventions have not been successful in addressing Sri Lanka’s economic crisis.
First, the IMF’s loan programs often require the borrowing country to implement strict austerity measures, such as reducing public spending and increasing taxes. These measures can have a significant impact on the poorest sections of the population, who are often the most vulnerable to economic shocks. In Sri Lanka, the government has been reluctant to implement these measures, fearing the political backlash that could result from public protests and unrest.
Second, the IMF’s loan programs are typically focused on addressing short-term economic challenges, such as balancing the budget or reducing inflation. These measures may not address the underlying structural issues that have contributed to Sri Lanka’s economic crisis, such as corruption, weak institutions, and lack of investment in key sectors. Without addressing these structural issues, any short-term gains achieved through IMF programs are unlikely to be sustainable.
Third, the IMF’s loans often come with conditions that require the borrowing country to undertake significant economic reforms, such as liberalizing the economy or privatizing state-owned enterprises. These reforms can be politically challenging and may not be implemented effectively if there is insufficient political will or capacity to do so.
Given these challenges, the ongoing 17th loan from the IMF may not produce a lasting solution to Sri Lanka’s economic crisis. The loan program is expected to include conditions that require the government to undertake significant economic reforms, including reducing public spending and increasing taxes. These measures are likely to be politically unpopular, and the government may face significant public protests and unrest if it attempts to implement them.
Sri Lanka’s economic crisis is a complex and multifaceted challenge that requires a long-term, sustainable solution. While the IMF has been a key partner in Sri Lanka’s efforts to address its economic challenges, the organization’s loan programs may not be sufficient to address the country’s underlying structural issues. Without addressing these underlying issues, any short-term gains achieved through IMF programs are unlikely to be sustainable.
Sri Lanka needs a comprehensive, long-term strategy that addresses its underlying economic and social challenges, including corruption, weak institutions, and lack of investment in key sectors. The government must prioritize addressing these structural issues and work towards building a more resilient and sustainable economy that benefits all Sri Lankans.
While the IMF can be a valuable partner in this effort, the government must take a leadership role in driving the necessary reforms and ensuring that they are implemented effectively. Without a sustained and comprehensive effort to address its economic challenges, Sri Lanka’s economic crisis is likely to persist, causing further harm to its people and undermining its long-term stability and development. Consequently, no wonder if Sri Lanka becomes the IMF’s new Jamaica.
Nothing better than take the sage words of a well-known economist, Joseph Stiglitz, “the IMF has a history of imposing harsh economic policies on developing countries, which often lead to social and economic turmoil, and are designed to favour the interests of wealthy creditor nations and international corporations over those of debtor countries.” If the IMF fails in Sri Lanka, it will be just a case study for them, but it is the fate of more than 22 million people. Who will take note of this seriously when those in power are playing modern-day Nero? Real Nero never did that, but in our time Neros, certainly will.
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At a gathering of women for a home cooked meal at Thai Pongal, a Hindu harvest festival, in the Eastern Province of Sri Lanka, a Muslim woman remarked that last year 65 young girls in her community were married-off before their O’ Levels. The women listening knew that the economic crisis was driving families to take desperate measures. They questioned as to why the law was unable to protect these children from early marriages. The conversation quickly turned to the lack of reform of the Muslim Marriage and Divorce Act (MMDA), which still permits the marriage of Muslim girls as young as 12 and even younger with the permission of the Quazi.
Meanwhile, we were told of meetings across the country led by certain Muslim religious leaders calling for communities to reject any forthcoming reforms proposed by the Government. One preacher had ferociously defended the position that girls should be able to marry even at the age of nine and claimed that women becoming Quazis (judges) was dangerous. A woman celebrating Pongal asked me with concern, “Can’t you talk to your religious leaders and explain to them that it’s good for children to finish their education?” Her question sparked a feeling of solidarity but also a hopelessness that Muslim women feel about the harm that continues daily under the MMDA hung heavy in the air. “No one listens…they do not care,” I replied, feeling frustration and sadness.
The road to reforms has been frustratingly long
For over 40 years, Muslim women and men have worked towards reforming the Muslim Marriage and Divorce Act (MMDA). Muslim women’s organisations have been in the forefront of calling for reforms, as they have borne witness to the devastating consequences of failing to reform this law. After thousands of individual testimonies have revealed experiences of injustice and cruelty, several government and non-governmental committees repeatedly suggesting reforms and countless meetings with successive Presidents, Prime Ministers, Ministers of Justice, religious administrators and clerics, the long-awaited reforms appear to be precariously moving forward. However, what could be the last mile of this long journey, is facing every challenge that can be thrown its way.
Progressive reforms will strengthen MMDA’s adherence to Islamic values
Values attributed to any religion are always historically situated and the practice and application of fundamental values are constantly evolving across time. With this understanding, it is important to acknowledge, at the outset that the MMDA is a colonial piece of legislation. It is based on the Dutch-introduced “Special Laws relating to Moors or Mohammedans and Other Native Races” and was maintained and codified into statute under the British. Contrary to claims, it is far from divine in its words, procedures and the official positions it creates. In fact, it is a mélange of some Batavian Islamic rulings as codified by the Dutch, Tamil custom (Kaikuli) and English procedural rules.
The MMDA also fails to mention the uniquely Islamic practices of a marriage contract, mata’a (alimony), Mubarak (divorce by mutual consent) and Khula divorce regimes and legal protections for property of the wife.
The MMDA as it stands now is far from Islamic. In its current form, the ways in which it is misused, and its implementation, it is a departure from the radical thinking that Islam championed, of equal and sometimes preferential status afforded to women. Women’s testimonies about their treatment under MMDA are a depressing account of how distant from the core Islamic values of justice, compassion and kindness the law actually is. The proposed reforms address many of these issues and in fact steers the law towards a more Islamic, and democracy and rule of law compliant system.
Reforms are caught between a politics of misogynistic power, fear, hate and non-interference
The process of reforming the MMDA contends with pressures from multiple sides. A fear of women holding office, gaining opportunities to assert financial rights and to hold husbands accountable when they enter polygamous marriages without caring for the existing family is palpable in the debates.
The deeply un-Islamic and unconstitutional practices and injustices perpetuated under this law have benefited men in the community. They do not want to give these up. They use the platform of identity politics to say that making changes to Muslim personal law is an erosion of rights afforded to ALL Muslims. They want to keep the arbitrary and unsupervised power of the MMDA untouched by declaring it ‘divine’. These constituencies that are male-led and often anti-women keep the Muslim political elites afloat. As such, historically, we have seen Muslim political leaders resisting reform of Muslim personal law.
Political elites, with privilege and education, sometimes know better but will not provide strong leadership for betterment of their communities. Controlling the discourse of ‘Muslim family’ is their ticket to power. Thus, they continue to employ this discourse at the cost of the rights of women and children of Muslim society. Repeatedly, during election time when the major parties are courting the Muslim vote is when these ‘community’ and political figures amplify their demands.
This is why Muslim women activists face vicious attacks when they try to shed light on the ugliness they encounter within their families and communities, because it threatens power structures. Most recently, we have seen activists labelled as ‘working against Islam’, ‘masterminds’ conjuring sentiments of criminality, ‘the threat from within’, a comment about gathering 6,000 women to demand for the need for reforms was recast as a threat to the state. Sharing photographs and using this language targets individuals and gives permission for ‘righteous’ violence. Muslim politicians have been silent for too long. They must care more about their power and voter bases than the welfare of the communities they represent.
Simultaneously, consecutive Sri Lankan governments protect power-holds by deploying a language of non-interference. A language of ‘leave it to the community’, ‘my hands are tied’, ‘your people don’t want change’, ‘it’s too sensitive’. All of these statements are but masks for racism and misogyny. This dynamic has permeated everywhere – into professional, academic and civil society spaces. Muslim women are doubly marginalised by this language, as it shuts the door on the faces of Muslim women raising grievances.
Consecutive Sri Lankan governments have engaged in destructive majoritarian politics of outright racism, fear mongering and terrorising of minority peoples. Doing away with personal laws is a constant and easy threat deployed by majoritarian agendas. Community gatekeepers also use this threat to keep their people, particularly Muslim women, from asking for change. It is this politics of fear that contributes to silencing of and sometimes retaliation against ordinary Muslims for talking about their grievances openly.
More generally, Muslim reformists must contend with the fact that since independence, successive Sri Lankan governments have failed to maintain a strong commitment to pluralistic policies and have engaged in non-participatory and opaque law-making processes. Similarly, all political parties are guilty of a scant commitment to securing substantive, structural change for women including that of political representation for ALL women. Any advancements in the law have been elite-led often seems to happen only when the stars align! This deeply divisive, patronage-based, discriminatory and opportunistic political culture creates an almost impermeable barrier to any advancement of Muslim women’s rights and for that matter of advancement of the rights of any marginalised group in the country.
Wedged between this politics of hate and fear being played by the majoritarian state and the self-proclaimed representatives of the Muslim community, ordinary Muslim families are struggling to cope with the economic crisis, like all other ordinary families in Sri Lanka. They face increasing daily concerns about money, food, livelihoods and overall economic security for themselves and their children. The emotional labour of worrying about it all alone is crippling. Meanwhile, the State continues to crush avenues to complain and protest for justice. People are also dealing with the electoral shenanigans that prey on vulnerabilities and the making afresh the same old promises.
Token bills promising women’s equality are charging ahead of law reforms that have been struggling for state recognition for decades, including the MMDA. It is amid the growing complexities of daily struggles that Muslim women activists continue to nurture the call for MMDA reforms. It is precisely because of these complexities and the odds stacked against Muslim women that all citizens who want change and believe in equality and justice ought to support Muslim women in their call for progressive reforms. It is only by coming together as citizens of this country that we can ensure the inalienable fundamental rights of Muslim women and children without being appropriated either by majoritarian state agenda or by conservative Muslim community agenda.
Everyone should support MMDA reforms
To support these reforms is to protect little children from being ‘given away’ in marriage and accords equally able adult women the same right to be proactive and full members of society in their public and private lives as the men in their community. If, as peoples of this country, we cannot find it in ourselves to make the time, effort and commit to this, we not only fail Muslim women and children but we fail to understand what system change really means. Nation-wide support for Muslim women activists, for their just demands, at this time will pierce through a politics of elite power that we as Sri Lankans are trying to reject. Even at the on-coming local government elections choose candidates that care about marginalised communities. Perhaps one day, together, we can change this feeling that all of us have about many issues, that “No one listens, they do not care”.
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Here we go again. The International Monetary Fund (IMF) is in command of Sri Lanka’s economy, barking orders and making demands in an effort to restore macroeconomic stability. The pattern is a familiar one. Back in April 2022, Sri Lanka’s currency collapsed, having depreciated by 44 percent against the U.S. dollar since President Gotabaya Rajapaksa took office in 2019, and, according to our measure, inflation reached a stunning 74.5 percent per year. Sri Lanka even suspended payments on its external debt. Then the IMF fire brigade arrived.
On September 1, 2022, the IMF reached a staff-level agreement to support Sri Lanka’s economy with a 48-month lending arrangement of roughly $2.9 billion. Now, the IMF is withholding the cash until Sri Lanka raises corporate-income and value-added taxes, cuts government spending, and reaches a debt-restructuring agreement with two of its largest creditors, China and India. The IMF is confident that these measures, among others, will stabilize Sri Lanka’s economy.
There’s just one little problem. This is Sri Lanka’s 17th IMF program. In fact, Sri Lanka has been on IMF life support nearly continuously since 1965. None of the previous IMF programs have permanently stabilized Sri Lanka’s economy. Why should the 17th? As the famous, often-misattributed, quote goes: “Insanity is doing the same thing over and over again and expecting different results.” By this standard, both Sri Lanka and the IMF crossed the threshold of insanity long, long ago.
There’s little empirical evidence to suggest that Sri Lanka’s shiny new IMF program will be any more successful than the past ones. A recent working paper by researchers at the Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise analyzed the effect of IMF loan programs, in the three years following the adoption of a program, on macroeconomic indicators from 2000 to 2010. The authors found that IMF lending arrangements resulted, on average, in a 5.8 percent increase in the unemployment rate, while control-group countries — countries that faced similar economic circumstances but did not implement IMF programs — experienced an average 7 percent decline in unemployment.
Other indicators tell a similar story. Countries with IMF programs fared worse than control-group countries in terms of real GDP growth, real export-value growth, and in the reduction of government debt. This research suggests that many countries would have been better off without any IMF assistance at all.
Sri Lanka’s economy is still in bad shape. Since Gotabaya Rajapaksa was elected in November 2019, the Sri Lankan rupee has shed 52 percent of its value against the U.S. dollar. Using purchasing power parity, one of us (Hanke) accurately measures inflation in Sri Lanka at a roaring 106 percent per year as of January 12. Since May 2022, foreign reserves have officially hovered around $1.8 billion, but a reported $1.4 billion of those reserves are locked away in a swap with the People’s Bank of China. So, if Sri Lanka’s economy needs stabilizing and a positive confidence shock, and another IMF program is not the answer, what is?
It’s time for Sri Lanka to mothball its central bank and replace it with a currency board. A currency board issues notes and coins convertible on demand into a foreign anchor currency at a fixed rate of exchange. It is required to hold anchor-currency reserves equal to 100 percent of its monetary liabilities.
A currency board, unlike the Central Bank of Sri Lanka, has no discretionary monetary powers and cannot issue credit. It therefore imposes a hard budget constraint on the fiscal authorities. Its sole function is to exchange the domestic currency it issues for an anchor currency at a fixed rate.
Currency boards require no preconditions and can be installed rapidly. They have existed in some 70 countries. None have failed, including the one that one of us (Hanke), designed and installed in Bulgaria in 1997. It immediately smashed a hyperinflation, caused interest rates to plunge, forced the fiscal authorities to balance the budget, and, with its positive confidence shock, spurred economic growth.
Today, thanks to its currency board, Bulgaria has the second-lowest debt-to-GDP ratio of any country in the European Union. Even the IMF heaped praise on currency boards a year after the installation of Bulgaria’s. A 1998 IMF publication noted that “currency boards in many countries have achieved impressive economic results, both in achieving lower inflation than other exchange rate regimes and in stabilizing expectations after prolonged hyperinflation.”
As it turns out, Sri Lanka (formerly Ceylon) had a currency board from 1884 to 1950. In 1884, the largest financial institution in Ceylon, the Oriental Bank Corporation, experienced an acute liquidity shortage due to bad loans to coffee plantations and subsequently failed. This sparked a run on two other banks, the Chartered Mercantile Bank and the Bank of Madras. With the crisis escalating, the colonial government quickly established a currency board, issuing fully backed, convertible-on-demand government notes — paper money. With that, the crisis was history.
It’s time for Sri Lanka to do the one and only thing that will permanently remove it from the IMF’s intensive-care ward. It should revert to a currency-board system, like the one it had for 66 years.
Courtesy: National Review. Click here to read the original version of this article
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INTERVIEW
It is time for the nations of the global South to build their own way, to self-organize, Gary Dymski, a well-known economist and Professor of Applied Economics at the Leeds University Business School in UK, said in an interview with Sri Lanka Guardian.
Who will lead them? Not Modi, nor Jinping. Who is the Kwame Nkrumah or Julius Nyerere or Sekou Toure of today;” he asked.
Gary Dymski is an excerpt on monetary economics; macroeconomic theory and policy; banking and financial institutions; economic development; political economy; urban economics; inequality; stratification economics. He has been a visiting scholar in universities and research centers in Australia, Brazil, Bangladesh, Colombia, Greece, India, Italy, Japan, Korea, and Mexico.
“Sri Lanka’s situation has to be widely publicized; there are other countries too – less prominent globally, smaller – who have unpayability problems, but none with the tortured contemporary history that your country is now living,” he observed.
“We need a repurposed set of development banks, controlled by progressive forces willing to move past the capitalist system. This does not yet exist,” he suggested.
Being a member of the council of the Post Keynesian Economic Society (UK), Prof Dymski also is an advisor to the Debt and Development division of the United Nations Conference on Trade and Development (UNCTAD) in Geneva.
Excerpts of the interview;
Question: Are we passing through a period of the worse global recession that could lead to an unprecedented catastrophe? If yes, what is the way out?
Answer: We are in a global recession that could develop in an alarming way. There is already an emerging debt crisis that is catastrophic in many developing countries, and will likely get worse. The slowdown of economic activity as such is unlikely to degenerate into a collapse. But the stagnation will most likely continue. So it is more like strangulation of the economies of countries that are lower in the currency hierarchy. Businesses will fail; financing arrangements will either be sustained on a pretend-and-extend basis or will lead to default. India and China have somehow managed to sustain positive growth rates, but this is offset by the damage that Russia’s Ukrainian war is doing to supply chains and agricultural exports.
Q: Collective action and collective responsibilities are two sides of the same coin which will help us to overcome present challenges. But, I wonder, how we can advocate for all countries to come together in a deeply polarized global society. Give us some food for thought, please.
A: Only when an acute crisis emerges, with the mechanisms for leading out of that crisis prove to be broken, will we see a global consensus for a new global framework toward cooperation emerge. The success of right-wing nationalist movements looking backward to conditions for economic reproduction that no longer exists is a huge barrier now; as those seeking softer ways forward look like naïve idealists, and those wanting to put up barriers to the outside world look like defenders of national honour.
The hope I can give you is this: we must see a renewal of impetus – the broad participation in – the ‘global social forum’ movement when it first began. A global generational mobilization, I think, which is pro-equality and pro-sustainability, critical of capitalism, and esp of financial globalization in the way its developed to now – feeding hyper inequality. I think it’s possible. But this bottom-up, across-the-globe aspect has to be there, I think.
Q: You are one of the signatories who called for Sri Lanka debt cancellation. Do you think it is a realistic approach where all stakeholders shall come to a common platform to execute your demand?
A: The stakeholders have diverse interests; they must be forced to the table. Sri Lanka’s situation has to be widely publicized; there are other countries too – less prominent globally, smaller – who have unpayability problems, but none with the tortured contemporary history that your country is now living. I think it has to be framed in terms of the ‘harm and loss’ debate that is now linking climate-change damage to legacies of colonialism and imperialism, not to mention the greater energy/non-renewable consumption of the elite global-North nations. This can be the basis of a common cause for debt forgiveness, I think. But the nations of the global South have to build their own way, to self-organize. Who will lead them? Not Modi, nor Jinping. Who is the Kwame Nkrumah or Julius Nyerere or Sekou Toure of today?
Q: Why do you think the case of Sri Lanka is essential to rethinking and reshaping the global economic order?
A: As answered earlier – the unique conjuncture of colonial-era imperialism, debt crisis, political instability and ethnic violence are a unique toxic mix, leading to unparalleled challenges.
Q: You have raised a vital point by alleging that International Financial Institutions of not living up to their responsibilities at a time when they are most urgently needed. Do we have an alternative?
A: There is no alternative now. We need a repurposed set of development banks, controlled by progressive forces willing to move past the capitalist system. This does not yet exist. The alternative can be imagined in a post-capitalist framework, in which nation-states are led by progressive leaders – enough of them – to force a global transfer mechanism for supporting the financing of the SDGs and climate sustainability on a world scale. I wish I had a different answer. For now, we must attempt to understand the scale of changes in systems of provision, supply chains, in localized production and consumption, required around the world.
The entities that have the capacity to support this are either too tied to capitalist priorities or they are not seeing the need to think holistically. It is not – it is never – too late. But we have to think beyond the limits that have prevented us from being strong enough to see the required planning framework clearly.