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IMF Budget

May 29, 2010 3:01:20 PM - thesundayleader.lk

By Paneetha Ameresekere – Business Editor

Prostituting a country’s sovereignty need not necessarily be in the form of political servility, it may even take the form of economic servility.
While the Government of Sri Lanka (G.o.S.L.) has resisted moves made by certain powerful and influential sections of the international community  who have called for a war crimes probe on the basis that that would impinge on the country’s sovereignty, in the same breath,  Colombo  has made privy to  the I.M.F. , a multilateral donor,  certain proposals of “Budget 2010,” to be presented to Parliament next month, seemingly making a mockery of its sanctimonious stance of being the defenders of the country’s sovereignty.
G.o.S.L.’s double standards were revealed by no less a person than I.M.F.’s Mission Leader to Sri Lanka, Dr, Brian Aitken.
Aitken speaking to reporters in Colombo last Friday (See last week’s The Sunday Leader business pages) imputed that he was at least aware of certain budgetary numbers, such as where the deficit was heading, but said that as those were what was discussed in Cabinet, he could not divulge those to the press. He however  added  that G.o.S.L. was committed to bring down the deficit to 5%, consonant with the original July agreement that the Fund had with  Colombo, when it signed up with I.M.F. for the U.S.$ 2.6 billion standby arrangement to tide over a balance of payments crisis.
Aitken also had the temerity to tell reporters that the recent statement by G.o.S.L. that the Budget deficit this year would be 8% and in the next7½%, were “early” statements, insinuating that those could not be taken seriously. Watch out Cabinet spokesman Minister Keheliya Rambukwella, your job is at stake!
Under the July agreement G.o.S.L. gave a commitment to the Fund that the Budget deficit would be 7% last year (same as in the previous year), 6% this year and 5% in the next.
However G.o.S.L. overshot last year’s target and ended up with a Budget deficit of 9.8%, resulting in the I.M.F. suspending the programme after releasing two equal tranches of U.S.$ 325 million each, in this eight equal instalment payout arrangement, provided G.o.S.L. honours their part of the contract.
The ostensible purpose of Aitken and his team’s visit on the eve of the presentation of Budget 2010 was to review the programme, now suspended, due to G.o.S.L. dishonouring its commitments.
A few months earlier, on a previous visit, he told  reporters  that his team would be back after the Parliamentary Elections are over, a new Cabinet in place and after Budget 2010 is presented to Parliament so that they could look at G.o.S.L.’s policy direction (see the business pages of The Sunday Leader issue of February 28, 2010) before committing itself to release the third tranche.
Elections are now over, a new Cabinet in place, but no Budget presented, yet the I.M.F. team was here, a little over a week ago.
In such a situation one cannot fault the masses in the event they suspect that Budget 2010 is not a G.o.S.L. Budget, but an I.M.F. one, to ensure that the I.M.F. programme will not fall by the way side.
Aitken at last Friday’s press conference  avoided answering a question when asked whether any new taxes such as commodity levies would be imposed to enhance revenue in Budget 2010, thereby placing further burdens on the masses.
“In the subject of tax reforms, what was discussed was certainty and not ad hoc taxes, but broadening the tax base while at the same time simplifying the tax system and not further increasing the high end of the tax system,” Aitken in reply said.
Does it therefore mean that the bottom of the pyramid stands vulnerable to more price hikes and more taxes? Only time will tell if that is to be the case.
In regard to taxation he further said that what was being proposed were revenue enhancing measures, by rationalizing B.o.I. tax holidays and ensuring certainty in the tax system.
While fiscal discipline is essential to curb inflation, spur credit growth, attract investments, create jobs and honour debts, a right balance has to be made so that the vulnerable in society will not be  harmed as a result.
Malaysia which was affected by the East Asian Financial crisis of 1997 was one of few developing countries which spurned I.M.F.’s hand of help, but was yet able to tide over the crisis (see The Sunday Leader of May 9, 2010).
Malaysia’s High Commissioner in Sri Lanka Datuk Rosli Ismail was quoted in that article of having said that this was possible because the Malaysian Government gave encouragement and assistance to the private sector to take the economy forward.
The private sector is the engine of growth, he said.
I.M.F’s alleged conditionalities, like knocking off subsidies and curbing government expenditure were too painful, said Ismail.
Let the I.M.F. prove Ismail and one former President of this country wrong- who, quoting Dante, once said, “Abandon hope all ye who enter herein,” in his reference to the I.M.F. and the World Bank.