Crashing economies and the South’s narrowing foreign policy options
For the majority of the troubled economies of the global South, it will be a case of narrowing foreign policy options. For many of these countries, the IMF is ‘the banker of last resort’ and this generally means that they would need to be ‘in the good books’ of the chief financiers of the IMF; that is, the principal powers of the West. To be more specific, their foreign policies would need to have a pro-US orientation, since the US pays the highest financial quota to the IMF.
This foreign policy option is forcing itself on Sri Lanka currently, as it literally struggles to stay alive. The country’s application for an IMF bailout is being considered by the financial institution and the delivery of the expected moneys would depend crucially on whether Sri Lanka will opt to be in the Western camp, in terms of foreign policy outlook, and distance itself from those powers that are seen as antagonistic to Western interests.
Just a few other economically vulnerable countries of the South that could be expected to be in Sri Lanka’s tight situation with regard to foreign policy options are: Argentina, Tunisia, Kenya, Ethiopia, El Salvador, Pakistan, Lebanon, Suriname and Zambia. If these countries are opting for financial dependence on the IMF and the World Bank, the corollary of that decision is foreign policy alignment with the chief funders of these global institutions.
Needless to say, all countries that seek the financial help of the IMF would need to abide by their lending conditions. Very often these conditions, as is known, undermine some of the basic tenets of the welfare state. For example, state subsidies in a number of areas would need to be pruned or done away with. In the case of Sri Lanka, if it is the demand of the IMF that welfare assistance to the poorer sections of society is restricted or done away with in the name of ‘economic efficiency’, the Sri Lankan government would need to abide by it.
One recalls that in mid-1977, when the UNP stormed back to power, it was obliged to do away with the rice ration scheme, which was one of the mainstays of Sri Lanka’s poor, at the behest of the Western lending agencies, which the UNP government turned to for succour. State Owned Enterprises were expected to prune down their operations and restrict job recruitments, purportedly for the sake of financial efficiency. These are just two areas wherein IMF intervention has been pronounced over the decades. The pros and cons of such policy decisions which are taken by Southern governments in deference to IMF dictates are continuing to be debated nationally and internationally.
It need hardly be said that the incoming Ranil Wickremesinghe regime in Sri Lanka would be compelled by the IMF to take policy decisions that could prove socio-economically costly for the country in the days ahead. However, such is the price of seeking the assistance of Western global financial institutions. But considering Sri Lanka’s over dependence on the IMF, it would have no choice but to say ‘Yes’ tamely to the latter.
Besides the considerable socio-economic costs for the countries concerned, it is the foreign policy fallout on these countries from dependence on institutions such as the IMF that needs watching as well.
As Sri Lanka’s post-independence history has proved, countries that have got into a relationship of financial dependence with the West would have no choice but to sacrifice their autonomy in foreign policy decision-making to the latter as well. For instance, such financial dependance on the West on the part of the J.R. Jayawardene regime in the seventies and eighties, obliged it to follow a pro-West foreign policy.
At present, the pursuit of a pro-West foreign policy by Sri Lanka could carry with it some worrisome implications for its relations with the rest of Asia. For instance, an overly pro-West policy could have China worried. Such moves could invite increasing Chinese involvement in the internal affairs of Sri Lanka, aimed at counterbalancing the influence of the West in the latter.
Interestingly, the Indian centre has just concluded all-party deliberations on the situation in Sri Lanka. The talks were apparently aimed at looking at further ways of helping Sri Lanka materially. Reportedly, Tamil Nadu Chief Minister M. K. Stalin was particularly keen on the project of continuing humanitarian assistance to the island.
While such overtures are in keeping with the Narendra Modi government’s broad, ‘Neighbourhood First’ policy, the concern for continuing the help line to Sri Lanka is also dictated by the consideration that extra-regional powers that are seen as inimical to India’s interests should be prevented from exerting too great an influence on Sri Lanka. It stands to reason, that unstable conditions in Sri Lanka could invite the involvement of anti-India, extra-regional powers in Sri Lanka’s internal affairs.
However, it is not only Sri Lanka that could face foreign policy quandaries at this juncture. It applies to almost all those economically-vulnerable Southern countries that are compelled to seek IMF and World Bank assistance. The fact is that economic conditions in the West, particularly those of the Eurozone, are not conducive to Southern development as well.
Recessionary conditions are fast spreading in the Eurozone, particularly in the wake of the war in Ukraine, and the indications are that those Southern countries that are dependent on European export markets could suffer an economic downturn to the degree to which European demand for Southern exports dips. Besides some countries in North Africa, South Asian countries, such as Bangladesh, Pakistan and Sri Lanka, with a high export dependence on Europe, could thus suffer economic setbacks stemming from Western recessionary trends, Fitch Ratings indicated this week.
As often argued in this column, there need to be efforts on the part of the global South, to initiate and strengthen economic cooperation within itself. A failure to do this would compel the weaker Southern states to seek the assistance of the IMF-WB duo, which help, as indicted, comes at a considerable cost to the countries concerned.
In terms of development experience, Sri Lanka could indeed be considered as offering some lessons for most Southern states. It is a living example of how development should not be pursued. It has coupled economic liberalization with a corrupt political class and is today in ruins. With such debilitation have come foreign policy debacles. The rest of the South should aim at avoiding Sri Lanka’s blunders and look at ways of truly combining growth with re-distributive justice.
