By Garvin Karunaratne Ph.D. former Government Agent, Matara District

The IMF has more or less refused the $ 1.9 million loan that Sri Lanka has applied for. The Central Bank lives in hope and the latest is a loan of $ 2.5 billion. Two groups of officials from the IMF have visited Sri Lanka for assessment but the loan has not been approved. It was also reported that the United States is influencing the IMF not to give the loan.

As far as my information goes the last loan given by the IMF to Sri Lanka was in 2005 and that too was only given in part. The rest was withheld.

The IMF is the supreme world body for international finance and its reticence at granting this loan reveals that the IMF is displeased and it is not surprising that Standard & Poor have down graded Sri Lanka’s economy. It is the total acceptance of a country by the IMF that assures the International Banks to provide any country with loans. Our country did not listen to the Superpowers who dictated that we should stop eradicating terrorism from our own shores and the IMF is nothing but one of their institutions that does their bidding.

For a while. Sri lanka has been in distress regarding foreign incomes. The last dollar loan we got from a foreign bank was at a staggering 8.25% interest. Generally it is stated that servicing the old loans that we have taken- payment of capital and interest will take as much as 90% of our incomes.

One has to know how Sri Lanka became indebted. In 1977 when Sirimavo lost the election to the United National Party of President Jayawardena, Sri Lanka’s foreign debt was only $ 750 million and that too on project expenses and not on loans drawn for consumption purposes. At that time the World Bank and the IMF did not give loans for consumption expenses. The condition that was always followed was that any loan should be spent to generate incomes and the criteria was that the income generated should be sufficient to service the loan.

A major change took place in the way that the IMF and the World Bank handled loans in the early Seventies. That happened when Robert McNamara was the President of the World Bank. At that time the Third World countries that had recently gained independence were working on bringing about development by following the concepts of self reliance, import substitution and finding employment for t heir people. There were increases in production in agriculture and industry and ; the countries were not begging for Aid. Instead, they were standing on their feet managing their foreign exchange budgets in the national interest.. The countries imposed restrictions on imports and managed without becoming indebted. As a result the western industrialized nations- the Superpowers found that they were unable to sell their manufactures. The development happening in the Third World countries had to be stopped.

Then they came up with the Structural Adjustment Programme which advocated that the Third World should relax their control on foreign exchange use, allow free imports and foreign exchange for any purpose even if foreign funds were not available, and raise funds to meet the shortfall either through the privatization of state assets or from loans. Sri Lanka was one of the guinea pigs which followed the IMF rules to the maximum from 1977. Raising loans for consumption increased our foreign debt and it increased our foreign debt from $ 750 million in 1977 to around $ 10,000 million by the time the UNP ceded power t o the the opposition in 1995. The privatization of assets saw to it that the entire development infrastructure that we had built up- the CTB for transport, the Marketing Department, the Canning Factory, , the Vegetable Purchasing Scheme, the Paddy Guaranteed Scheme and the Rice Mills, the Cooperative Wholesale Establishment and its Fair Price Shops(for controlling inflation) and more were all privatized and this has killed our production. The IMF also imposed a high interest regime(which we yet follow) which has totally killed our entrepreneurs as our entrepreneurs have to find finance at over 25% interest while entrepreneurs overseas who supply us with manufactures can get loans at 5% interest. This process has denuded our country of our industries and agricultural production. By now the foreign debt has increased to $ 12,500 millions.

The sad reality today is that we in Sri Lanka fail to understand this process of under-development which was forced on us by the IMF. It is worse to have to state that no Universitiy does research on the IMF and its Structural Adjustment P rogramme; they yet teach traditional economics and not the economics of plunder and exploitationt so characteristic of the IMF since the Mid Seventies.

Sri Lanka is not alone in biting the IMF bait. Let us see what happened to Suharto of Indonesia and Marcos of the Philippines. They were blue eyed boys of the IMF.. They allowed foreigners to get fat at the expense of the country and followed all the dictates of the IMF. When it came to a point where Suharto and Marcos were no longer useful the Superpowers and the IMF dumped them. One is reminded of the words of Nicholas Kristof, the Jakarta coirrespondent of the New York Times, appearing in the Herald International Tribune:
What overthrew Suharto was not a guerilla insurgency. But a conspiracy of far more subversives: Capitalism, Markets and Globalization. Suharto’s security forces never figured how to handcuff them or to secure them to submission. His sophisticated military equipment c an detect a guerilla in the jungles of East Timor at night but was unable to discern bad bank loans ; or prop up a crumbling currency.( From How the IMF Ruined Sri Lanka & Alternate Programs of Success(Godages)

Sri Lanka has to now face the economy that has been devastated by decades of following the IMF policies. Sri Lanka has been vacillating in action and not taking action to re establish the Marketing Department and the Paddy Marketing Board with its rice mills, the Canning Factory which enabled us to become self sufficient in fruit juice and jam, We do not even control the use of our hard earned foreign exchange. Go to any Supermarket today(2009) and one will find all sorts of pictures, ceramicware, paper and fabric flowers, and many other inessential items imported for which we have spent our hard earned foreign exchange. We allow foreign exchange for a minority of wealthy students for studies in foreign universities- for a student body less than 100,000 while we have failed to spend and develop our state education which is imparted to over 4 million students. This process has& nbsp; made us spend more foreign exchange than what we can get and the course of action opened to us and advocated by the IMF is to go to foreign banks and the IMF begging for loans. The last dollar loan we got from a bank was at a staggering 8.25% interest. We are fighting shy of managing our hard earned foreign exchange. We yet follow the IMF advice of free markets and deregulation and do not have any controls over the use of foreign exchange. It was the UNP that started this rotten process that ended in our being an indebted country and once a country is indebted it cannot get back to be on its own feet.

It is time to resume control over our foreign exchange, use it for the sake of our own development and our own people. In Education we should have more Universities and build up our state education and not finance foreign education for a small minority. In agriculture we have to reestablish the Vegetable and Fruit Marketing Scheme that offered floor prices for all varieties of vegetables and frui ts in demand and establish purchasing depots all over the island. Today the farmers do not produce because they have to sell to the traders at ridiculously low rates. Toady we have allowed the banks that collect foreign payments to handle the money they collect and allow imports for anything other than arms and armaments. Due to the fact that the Government no longer fixes the exchange rate it has been revealed that some private banks have increased their price of the foreign exchange they hold with the result that the foreign currency is bidded upwards due to the demand created by the banks. It is the foreign banks that make money in this process. Our currency itself is reduced to a commodity that creates wealth for foreign banks!

Confronted with a foreign exchange crisis at the Asian Financial Crisis of 1997, Mahatir Muhammed the Prime Minister of Malaysia took firm control over all foreign exchange, decided the exchange rates and imposed regulations in the use of foreign exchange. That is the only way ahead. Malaysia was the first country to come out of the Asian Economic Crisis. None of the oth er countries came out of the crisis- the Superpowers and the IMF gave them massive loans($ 17.5 billion to Thailand, $ 43 billion to Indonesia, $ 58 billion to South Korea) to get out of the crisis and this made them ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”creditworthy’. It is forgotten that these countries became further indebted. The funds given went back to the the Doner Countries with profits. Once Mahatir Muhammed when asked even responded to say that any Government that does not control its foreign exchange is not fit to rule.

Today our reserves are at a low ebb- we have reserves only for about a months’ imports. Yet we are begging the IMF for Aid and begging from all our friendly countries – latest is $ 50,000 from Myanmar!. It is time that our Central Bank comes to realize that we can no longer depend on the IMF’s advice of high interest, allow free imports- liberalise foreign exchange use and allow the free use of foreign exchange. Going all over the world in search of investors is not going to work. The Central Bank will sadly realize that they cannot even recoup the money they spend on foreign travel incurred to plead to investors. Have we forgotten how investors like Kabool took away our wealth at Tulhiriys and left us unpaid loans to local banks, unpaid wages. It is sad that we have not learned from mistakes of the past. We have to learn before it is too late.

We have just been victorious in annihilating terrorism from our country in the teeth of opposition not only from the terrorists but also from the International Community of Superpowers who wanted our country to continue to be destabilized. Let that same force that annihilated terrorism be unleashed on the economic deprivation we face today. Let us be bold enough to tell th e IMF that we fell into debt due to the fact that we followed the Structural Adjustment Policy imposed on us by the IMF and in this Sri Lanka is not alone because every country that has followed the IMF is in that predicament. The IMF deserves to be told very firmly that by following their very policies we have become indebted and they are responsible for putting us on that path and therefore we need no longer pay them any of our debts.

Let us also have the ability to get away from the IMF doctrine of free markets and high interest policy and a free floated currency. Let us bring in regulations that will enable the foreign exchange we earn to be used in the national interest. There is absolutely no point in getting the loan of $ 1.9 billion from the IMF and paying out that same money back to the Creditor banks and the IMF and the World Bank as dues in interest and capital due to them.!

The ploy of the IMF and the World Bank has been revealed recently in the form of a confession by a lieutena nt of a multinational. John Perkins has confessed how he was instructed and did write reports for loans to be used in a manner that the benefits fell to the donor countries in the form of interest and capital repayments and also enriched the rich in that country to spend their money abroad, thus enriching the donor superpowers and making the country more and more indebted.(Read Confessions of an Economic Hit Man by John Perkins.
We have to act fast to reestablish control over our lost economy.

Garvin Karunaratne
Formerly of the SLAS
June 26, 2009