IMF policies: Ammunition for political protests
The multiplicity of
conditions attached to the granting of IMF aid is not unexpected.
There has been a growing expansion in such conditions over the years.
National economic sovereignty has become a myth. Nations that have
to rely on IMF aid must accept a broad range of conditions. A broad
range of economic reforms or restructuring is a precondition for
the IMF aid package of about US$ 517 million. Since the conditions
laid down by the IMF could be difficult to implement there is a
real risk that the final disbursement of aid could be only a fraction
of the promised amount.
Among the required
reforms is the privatisation or commercialisation of the People's
Bank, the restructuring of loss-making public enterprises including
in the words of the IMF " the unbundling" of the Electricity
Board (CEB). Already the government has met the condition with respect
to the privatisation of the Insurance Corporation of Sri Lanka.
The list of
other enterprises to be privatised has been decided and agreed on
with the government. This is clear from the statement of the IMF
that says: "We
have decided on the list of enterprises to be privatised in 2003
(in addition to the sale of SLIC and the bus companies). Key items
include the sale of CPC assets and market network, sale of 8½
percent of government shares in Sri Lanka Telecom (SLT), the Hilton
Colombo hotel, and CWE's retail business."
These are not
the only envisaged reforms. A highly controversial issue would be
the changes in labour legislation. The IMF states: " To increase
labour market flexibility we will implement the recently enacted
time-bound labour dispute settlement law, the redundancy compensatory
formula and other laws relating to working conditions by April 2003."
is expected to phase out the 20 per cent import surcharge, simplify
the tariff structure and reduce the import surcharge to 10 percent
by January 2004, and eliminate it by January 2005. These changes
are expected to be announced in the 2004 budget. There may be sound
economic reasons for these reforms. In the case of some of the reforms
there could be considerable controversy on broader economic and
However it is
not the economics of these reforms that are crucial. It is the perception
of the people in general and particularly of the working classes
and trade unions backed by political parties.The privatisation of
some of these may not face intense resistance, but others will certainty
result in political protests and political actions. The controversial
question is whether the government would be able to proceed with
these reforms. It is certainly giving ammunition to the opposition.
without a firm and substantial majority could face severe difficulties.
The opposition parties may seize the opportunity to topple the government.
That would perhaps end the Poverty Reduction and Growth Fund (PRGF)
aid. It is not only these funds but other donor assistance could
also be affected as many countries follow the IMF-World Bank lead.
The IMF logic in placing these conditions is that these reforms
are vital for economic growth. Without them they contend rapid growth
is not possible. It is through the envisaged rapid growth that poverty
is expected to be reduced.
No real dent
in poverty is expected without such growth and no rapid growth is
possible without the envisaged reforms. This is a position that
may be described as a half-truth. Yes, there is no doubt that economic
growth is the bedrock on which poverty could be reduced in poor
countries. On the other hand, there is enough evidence on economic
growth not necessarily leading to a significant reduction in poverty.
The kind of
economic strategy proposed by the IMF often even increases hardships
and poverty. The IMF itself admits this: " We recognize that
some of the proposed policies that are committed to in this MEFP,
such as public sector restructuring, may have short-term costs for
the poor. The government is committed to taking countervailing measures,
such as voluntary retirement schemes and a possible unemployment
protection plan, to ameliorate the impact of policies on the poor."
on the basis of the strategies adopted by the IMF could mean only
a "trickling down" of the benefits of growth. That would
be quite inadequate to reduce poverty of the magnitude we face in
the country. The pertinent question to ask is whether the primary
interest of the IMF is to change the country's economic structure
to suit them or a genuine interest in the reduction of poverty.
The general perception is that the IMF interest in poverty is mere
rhetoric, the real intentions are perceived to be different.