IMF bailout : Sri Lanka’s troubles only beginning

The IMF was created at a conference in Bretton Woods, New Hampshire in 1944. IMF is accountable only to the 188 countries that compose the IMF. IMF’s role is a conduit to bail out countries dishing out loan packages tied to strict conditions (known as structural adjustment programs rechristened of Poverty Reduction Growth Facility (PRGP)) and thereby exerting leverage over the economies of these countries. Has the World Bank or IMF raised a single developing nation to a developed level to date through their policies and formulas? NO. World Bank’s president is always an American, IMF director is always a European one dollar – one vote / more dollars – more votes!. All preconditions for loans and debt relief have been to benefit only the rich shareholders that they represent.

The West has mastered the art of keeping the developing nations divided by catering to the weaknesses of politicians from the Third World who put their excesses before the needs of the people. The media that the rich owns ensures people are kept ignorant. NGOs and human rights organizations also in the hands of the rich solidifies the future of a handful of powerful and greedy people desiring to make rich-poor divide wider and thrive on people’s suffering.

‘Liberalization’ of the economy is nothing but cutting welfare and creating export-oriented open markets. Bribing politicians is a piece of cake and easy passage to reduce role of state in governance by privatizing thereby killing domestic industries. Once currency is forced to be devalued interest rates increases, regulations, standards labor laws are made flexible so that foreigners can ‘invade’ a nation and manipulate the weakened labor laws with few benefits to workers. We can recall how Koreans brought in by the Premadasa government ran off with the profits leaving thousands of garment workers in the lurch.

What happens to countries thereafter?

  • Countries end up exporting to pay off debts. Countries forced to abandon local agriculture to grow cash crops to earn foreign exchange to pay off debts.
  • In turn governments end up having no choice but to spend less, reduce consumption, decrease financial regulations which make capital flows volatile ultimately leading to social unrest by which time investors are quick to scoot off with the profits enabling IMF and world to introduce more stringent conditions for bailout.
  • IMF and World Bank are quick to suggest nations sell off local banks to foreign banks
  • Puppet corporate governments are installed 

IMF has been forcing a number of countries to grow the same crops resulting in the decline in world prices and when countries rely on this single cash crop dire consequences have occurred – Ghana and cocoa is best example. The other example is that of Vietnam where lenders were not interested in Vietnam’s manufacturing industry but their own profits for loans given. Joint ventures resulted in takeover of Vietnam’s gas, natural resources, oil and mining and Japan benefitted.

Argentina was asked to sell of its assets and privatize all public assets. Argentina’s water was sold for a song to ENRON and the pipeline through Argentina and Chile was also sold to ENRON. ENRON’s assets were transferred to a dummy company and ENRON declared itself bankrupt and politicians became rich helping the transfer. High unemployment was not a factor when IMF insisted Argentina cut off unemployment benefits, remove pension funds, cut education budgets. Argentina’s loan package insisted on cutting doctors & teachers’ salaries and decreasing social security payments. Ghana was told to cut farming subsidies if it wanted more loans and Ghana ended up importing rice from US and has to use the money taken as loans to import the rice!

Somalia a nation that was self-sufficient in the 1970s despite droughts fell victim to IMF’s food ‘aid’.

IMF forced Haiti to open market to imported, highly subsidized US rice while prohibiting Haiti from subsidizing its own farmers. US corporation Early Rice sells 50% of rice consumed by Haiti. Haiti was told to remove statute that mandated increases in minimum wage. IMF has caused 200m ‘newly poor’ from South Korea, Thailand, Indonesia and other countries in the Asian world.

Greece is the most recent example of an IMF ruined nation.

With what moral stature can IMF stand when its loans are given on the conditions that governments cut aid state subsidies for education, health, transportation, food and even devalue national currency so as to make exports cheaper and to privatize national assets. While a handful serves to merit from privatization the majority ends up reduced to poverty enabling that handful to exploit workers further with the state removed from coming to their assistance.

Anyone who pictures this scenario will immediately realize that the IMF is representing only the rich & elite and the sustenance of their wealth. It is always the rich countries that dominate decision-making in the IMF because the nations with money gets a bigger say. US, Germany, UK, France and Japan control 38% of IMF’s decisions. This invariably means that the corporates that steer these powerful nations are the one’s dictating how the IMF is run. So much for democracy! In essence what happens is the world’s poor are feeding the rich and having to pay to feed the rich too! All the loans given come with interest and nations taking loans are trapped for eternity.

The uselessness of IMF can be better understood in comprehending how IMF insistent on export production has created more malnourished children in the countries that IMF gives loans to because these nations have been forced to give up growing food for local consumption and produce crops to export to wealthy nations. Removal of education subsidies always end up affecting the females as the first casualties are girls who have to stop attending state-run free schools as they cannot afford to go to fee-levying schools.

It doesn’t get any better. IMF also insists that developing nations eliminate assistance to domestic industries but provide incentives, tax holidays for multinational companies that wish to set up shop in these countries. IMF in so doing creates worse situations for countries. IMF also insists that countries sell of forest land, state utilities like electricity, water, phone companies for dirt cheap to multinational companies. Therefore, IMF is all about promoting corporate welfare and attracting foreign investors by weakening labor laws so that foreign companies can do as they like and leave with the profits.

What more can be said when IMF refuses to be publicly scrutinized and independently evaluated!

Loan terms for low-income countries Loan terms for more established countries
  • Extended Credit Facility (ECF) - Financing under the ECF currently carries a zero interest rate, with a grace period of 5 and a half years, and a final maturity of 10 years – Armenia / Benin / Burkino Faso / Burundi / Comoros / Congo / Ivory Coast / Djibuti / Ghana / Grenada / Guinea Bassau / Haiti / Kenya / Lesotho /Liberia / Malawi / Mali / Mauritiana / Moldova/ Nicaragua / Niger / Sao Tom Precipe / Sierra Leone / Tajikistan / Togo / Yemen / Zambia /
  • the Standby Credit Facility (SCF) - Financing under the SCF currently carries a zero interest rate, with a grace period of 4 years, and a final maturity of 8 years. Honduras / Soloman Islands
  • Exogenous Shock Facility (ESF) - ESF loans carry a zero annual interest rate until 2011, with repayments made twice a year, beginning at 5 and a half years and ending 10 years after the the loan was issued. The Fund reviews the level of interest rates for all concessional facilities every two years. Maldives /

 

  • Stand-By Arrangements (SBA) - The length of a SBA is typically 12-24 months, and repayment is due within 3-5 years of disbursement. The majority of Fund assistance to middle-income countries is provided through SBAs. – Angola / Antigua & Barbuda / Bosnia & Herzegovina / Dominican Republic / El Salvador / Georgia / Greece / Honduras / Iceland / Iraq / Jamaica / Kosovo / Latvia / Maldives / Pakistan / Romania / Sri Lanka / Ukraine
  • Extended Fund Facility (EFF) - Arrangements under the EFF are longer than SBAs usually 3 years. Repayment is due within 4-10 years from the date of disbursement. – Armenia / Ireland / Moldova / Seychelles
  • Flexible Credit Line (FCL) - The FCL is for crisis prevention or response purposes. The length of the FCL is one or two years (with an interim review of continued qualification after one year) and the repayment period the same as for the SBA but unlike SBA, this loan is available in a single up-front disbursement rather than phased. Colombia / Mexico / Poland /
  • Precautionary Credit Line (PCL) - The PCL can only be used for crisis prevention and countries with a good track record of recovery. It can have the length of between one and two years – Macedonia

 

Is BRICS the solution? Hungary asked IMF to leave, protestors in Peru wanted the IMF kicked out. Iceland has found another option. After the 2008-9 financial crisis, Iceland jailed top banking executives telling the world that bailing out ‘too big to fail’ banks wasn’t the solution. Iceland allowed the banks to fail resulting in $85billion defaults and justifying the jailing of bank executives on fraud related charges. The gamble paid off.

That the Sri Lankan Government has officially requested to be bailed out by the IMF means that the IMF will be bailing out the Government in power but the people are going to in turn have to face the music to what the government has agreed to sacrifice for the hand-out given. 

What has the government agreed to cut as exchange for bailing out the government?

Shenali D Waduge

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