IMF – Eagerly Awaited – Desperation Grows!

By Rusiripala Tennakoon –

It was Samuel Beckett who was waiting for Godot, now it is Ranil Wickremesinghe as announced in his own words, on his appointment as the PM of Sri Lanka stating, ‘it is like Grusha- in the play Chalk Circle carrying someone else’s baby across the small hanging bridge unsteadily swinging in the big stormy weather”, during his long wait for IMF relief to come. The Godot in the play never showed up but we are faintly assured of hope of the IMF coming at last. So, it is no more an absurd dream, as we presumed would never materialize.

Although there is nothing new in obtaining IMF assistance to this country, with a history starting from Finance Minister Dr. N.M. Perera, with 16 bouts of IMF clouts earlier, today we are all agitated and in suspense as symbolized in the play as never before. So, at last we are hopeful it is going to happen after the new Governor of the CBSL initiated the process. The consternation surrounding the issue is mainly due to the much-debated dilly-dallying that we saw some-time back, “in deciding whether to go to IMF at that stage or not”.

But now as a result of various actions we have taken, when pushed against the wall. the only option left is to take a firm decision and all are awaiting the outcome. Let us positively hope that the IMF, in which we are a long -standing member will come to our rescue at this hour of need. Hence, hoping for the best outcome, we are summarizing our expectations as shown below.

1.We are in need of immediate assistance due to the country position, facing urgent emergencies such as commodity shocks and shortage of finances to meet the essential needs of the people.

2.The situation does not warrant the consideration of a full- pledged economic program because of the non-feasibility of waiting any longer for a detailed program due to the current fragility.

3. What the country needs is a Rapid Financing facility initially as part of a broader reform program with flexible IMF focus on the diverse needs to be covered under a wider spectrum.

4. We agree that the country should cooperate with the IMF to take all steps possible to solve the balance of payment difficulties with absolute positive commitments announced in detail regarding the economic policies the government is expected to follow.

Historical Experiences

We have to accept that the government in power cannot afford to violate any conditionalities laid down by the IMF in granting facilities to overcome Balance of Payment problems. The last facility (EFF) granted in 2016 March equivalent to USD 1.5 Bn was also for avoiding a balance payment crisis and problems associated with depleting FE balances and a volatile Bond market. But IMF released only the equivalent of USD 1.3 Bn. apparently due to our failure to satisfactorily comply with the conditionalities attached. Nevertheless, all our previous obligations have been settled without any default. Some of the vital areas included in the attached conditions such as the reforms to be made in the SOE sector were not implemented under a planned program and the situation of some leading SOEs such as CPC, CEB and Sri Lankan Air Lines went from bad to worse. Today they stand as biggest liabilities towards the two State Banks with increasing balances due to accruing interest. In the context it has to be accepted that any further borrowings from IMF beyond the immediate relief measures sought should be strictly on conditions to adhere to a clear reform program.

The basic requirement in such conditionalities should be an independent monitoring mechanism beyond the local political interference which seems to be the bone of contention related to the issue. The accountability and the responsibility for implementing such a program effectively to adhere to a corrective program has been totally unsatisfactory under all different political regimes. Therefore, an inclusive and positive role played by the IMF to effectively implement such a program should be considered a welcome move. Otherwise, the country will never get out of this mess. Governments which change every five years disregard this obligation.

The ability to enforce political thrust on the State Banks to continue to grant assistance for the maintenance of the loss- making institutions has led to a scenario of hoarding unlimited liabilities on these institutions without any form of acceptable securitizations. In fact, this state of affairs continued without arrest until lately the last Governor of the CBSL put a stop to it. WE cannot therefore blame the IMF for imposing conditions on such matters while considering facilities to overcome the financial adversities faced by member countries.

Instead of opposing we must voluntarily agree to a program which would result in correcting our BOP issues and establish a sound policy to prevent economic disruption. Specially, when a member country’s policy design and implementation capacity is limited or affected due to other negative factors such a move would be a blessing for the future generations.

In this context we urge the IMF to address the following areas with a special focus under a broader reforms program they will recommend or propose as a long- term corrective step.

• We have seen how Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies; Such discussions appear to be confined to the adherences to the conditions already laid down under the lending programs.
• We have also observed that the economic disruption has continued to aggravate despite these discussions;
• As a borrower the country should be under constant observation by a monitoring body which could oversee the implementation of the specific directives without any dilution or diversion by politicians and vested interests.
• The two State Banks should be subject to Independent International Audits which could provide a clear picture of their operations and capital adequacies;
• The accumulating debts of the large loss making SOEs which continue to soar the balance sheets of the State Banks should be absorbed into a central recovery unit and the recovery process should be implemented separately under special conditions.
• The two State banks should be directed to operate to optimize the achievement of their objectives in the development of the economy instead of relying on the interest incomes automatically generated from government borrowings.
• Conditions should be imposed to reform the CEB , CPC and the Sri Lankan Airlines identified as the biggest loss making SOEs by diversifying their operations and decentralizing the activities so that they will be segregated to smaller units each of which could operate generating profits.
• Government should be required to identify all resources that remain underutilized and convert them to sources promoting economic growth(monetization of selected assets)
• All State- owned lands under the Land Reform Commission and the District Secretaries to be identified, giving the extents and listed immediately in a Land Bank to be published with the details of their recommended suitability for various development projects (in keeping with district development plans)
• Such lands should be allocated on an open Tender basis to either local or foreign investors to be developed according to the country’s plans
• Government should be encouraged under a planned program to reactivate all abandoned production opportunities such as
  • Salt terns spread over the country
  • Eastern papermills factory
  • Ilmenite Project in Pulmudai
  • Sugar factories including Kantali project
  • Tyre manufacturing facility now defuncted

Government should be directed to introduce policy plans to estabkish;

• Wage policy for the country
• Social security scheme covering the entire population
• A comprehensive open renewable energy policy plan
• Higher education system to be opened to International universities under a uniform quality assurance and accreditation policy
• Set up an independent agricultural authority with research and policy implementation units producing and supplying seed material, agricultural equipment, fertilizers and chemicals and tissue culture products in addition to technical support and advise to farmers.

IMF reforms should include schemes to make its financial support more flexible to address the diverse needs of member countries who seek assistance under various lending programs and to provide extensive assistance to help them to overcome their laxity and lack of expertise in many areas and support them to overcome the difficulties associated with such.

Many are used to regards the IMF as a monster which imposes deadly conditions which affect the poor. But an examination of the objectives of this International Organization gives a different picture. In precise terms as expressed officially it reads as follows;

The International Monetary Fund (IMF) works to achieve sustainable growth and prosperity for all of its 190 member countries. It does so by supporting economic policies that promote financial stability and monetary cooperation, which are essential to increase productivity, job creation, and economic well-being.

Among its main objectives the I M F aims to reducing global poverty, encouraging international trade, and promoting financial stability and economic growth. The IMF has three main functions: overseeing economic development, lending, and capacity development.

It is clear that any intervention in the activities of a member country that opts to borrow and obtain financial assistance of the IMF falls within the scope of vigilance and monitoring by the IMF. The spectrum for assistance and the associated safe guards and recommendations are very wide and can cover virtually a large space of economic activities of a member country. Hence our situation demands assistance of the nature in the areas pointed out as above.

IMF being a International Organization is geared to work in association and collaboration with many recognized International organizations. In fact they are authorized to work in partnership with those. The World Bank, United Nations Office for Drugs and Crime and Stolen Asset Recovery Initiative are some important bodies that we could focus our attention in the context of the plight we are now in and seek if possible the IMF to support some of the activities undertaken by these International Organizations.

Of these the Stolen Asset Recovery Initiative (StAR) works in partnership with the WB and UNODC to help in the international efforts to detect expose and end the menace of safe havens provided for corrupt funds. It is known that the StAR helps developing countries to prevent the laundering of proceeds of corruption and to help in the recovery of those assets for the purpose of returning those to where such assets belong.

Today one of the main complaints and accusations levelled against those responsible for the economic debacle of Sri Lanka is the role played by them as politicians in siphoning and laundering funds away from the country. In fact, social media sources have divulged stunning and awesome amounts so filtered by those in power. Looking at the state of the country’s economy it would not be inappropriate for the IMF to seek the assistance of these international bodies to help the country to recover these amounts as part of the IMF program. They have all the right to impose the required conditions for the eliciting of relevant information from the sources that matter as part of the reforms to be introduced in the pending financial assistance program. The country will whole heartedly welcome and extend the fullest cooperation to the IMF in this venture. There is already a move by some quarters to request StAR assistance by sending written requests to the StAR Secretariat Coordinator, the Chief of the UNODC’s Corruption and Economic Crime Branch and the World Bank Country Director. IMF’s intervention in the matter would be a supplementary support to this important humanitarian effort.

In the context we earnestly look forward to early support by the IMF to put the country’s economy in order.

The post IMF – Eagerly Awaited – Desperation Grows! appeared first on Colombo Telegraph.