Untitled Document

The Sunday Times Economic Analysis

By the Economist

Beggars must be choosers
Whenever we get foreign aid we deem it a great achievement. The recent decision of the IMF to give us US $ 60 million was no doubt hailed as an achievement. What's more we are told it is given because of our good conduct! The government has got a good report from the IMF, presumably owing to the budget proposals. The government has therefore been successful in getting two tranches of the Stand-by arrangement that was withheld owing to the inability of the previous government to fulfil the conditions, the " non-management" of the economy in 2001 and the political uncertainty that enveloped the nation in the fateful year.

What have we got from the IMF? A mere US $ 60 million. Even as the government was informed of this credit, President Bush's actions had ensured that we would be losing much more than this in the way of higher crude oil prices. In these circumstances, the IMF credit will add to our debt, but hardly provide any substantial relief for our balance of payments. A four dollar rise in a barrel of crude oil would mean an additional increase in foreign exchange expenditure of the same magnitude as this credit. In case oil prices reach US 32 per barrel, as it did in 2000, our balance of payments would be severely strained and our foreign exchange reserves seriously eroded.

Whenever the IMF gives any credit, it imposes conditions that it calls "conditionalities". (An English mistake made by a high up in the IMF has been also probably been imposed on the Queen's English!) True any credit organisation has a right to ensure that the money it lends should be returned.

Yet the " conditionalities" that the IMF imposes have now gone to such extents as to compromise the sovereignty of poor borrowing nations. No longer do the elected representatives decide how to run the health service or its educational system. It is the IMF and the World Bank that decides these. After all, beggars are not choosers. We are not arguing the merits and otherwise of the proposals, but the principle of these institutions insisting on determining basic national policies.

These institutions have gradually extended their conditionalities from financial conditions, such as the containment of budget deficits to social and economic policies. The insistence on the privatisation of government enterprises is best known.
At present, administrative reforms, educational reforms and health reforms, among others, have become a part of the conditions imposed by the IMF to get even a pittance. The danger is not only to the sovereignty of people and the principles of democracy. The fact is that the prescriptions of these institutions lack contextual relevance and ignores social and political realities.

Their adoption often leads governments into great difficulties. Governments are known to have been overthrown owing to the adoption of policies imposed by these institutions. Sri Lanka has a very rich history of democratic politics, socialist and welfare measures and complex patterns of social behaviour. To ignore these would be at the peril of governments.

Social upheavals caused by ill considered IMF policies could ultimately defeat the IMF's objectives too. The government must tread prudently in following IMF policies despite the stringent financial and economic conditions that the country is placed in. Even beggars have to be choosers.

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