Editorial

There can always be a slip between a verbal agreement and a formal one, but by all accounts, the long-awaited, eagerly anticipated International Monetary Fund (IMF) bailout for Sri Lanka seems a fait accompli.

There is no ‘free lunch’ on the table by the IMF for their US dollars 2.9 billion package and the political will shown by the Government to adhere to the stringent IMF demands for reform seems to have paid dividends. The Extended Fund Facility (EFF), different from a mere Standby facility, is a bailout package to be doled out over four years. This means that the Government – and future Governments, will have to stay the course during such a period of the promised reforms if Sri Lanka is to continue to receive the support of the IMF to emerge out of the deep hole it has dug for itself to the point of bankruptcy.

Opposition parties that are laying claims to run future Governments have to be stakeholders of whatever reform programme and they must make their positions clear because it is not just the IMF, but the people of this country who must know if the underwriting, done at the behest of the IMF, is going to be secure over the next few years.

Having flip-flop policies, one in Opposition and one when in office, taking electorally popular but economically unwise positions, especially on the hugely obese SOEs (State Owned Enterprises) like the CEB (Electricity) and CPC (Petroleum) etc., are going to defeat the purpose of an IMF programme that wants the excess fat cut off the public sector. The losses among these SOEs make all the revenue collected by way of PAYE and related taxes a ‘drop in the ocean’, nowhere close to the expenses incurred by them.

Neither can the President rest on his laurels and say he has “fulfilled his obligations to the country” by all but clinching the IMF bailout. ‘Mission Accomplished’ is when he puts the complete IMF reform programme into play. He will have trade unions and undergrads to contend with. He has an Inland Revenue Department that has a faulty tax collection system riddled with bribery and corruption. This week’s Rupee appreciation is creating a positive buzz, but it is not good news for exporters already hemmed in by taxes, electricity price hikes and higher labour costs. Exporters have been the bulwark of foreign exchange earnings even when times were hard, and an overvalued exchange rate is the worst possible thing to happen to them. In the process, he must look at some kind of US-style Rescue Plan Act to protect those who were hit by the double whammy of the COVID pandemic and the forex shortage. Priority must be given to those in the export sector. He, therefore, has promises to keep and miles to go.

The challenges for Sri Lanka come from all quarters. The recent salvo from the Clean Clothing Campaign for instance, the largest alliance of labour unions in the global garment industry, like some NGOs that have their own political agendas, is targeting the large foreign exchange earning apparel industry, with fresh allegations of non-compliance with ILO Conventions. They have asked major buyers and those in the supply chain to exert pressure on the local industry, a veiled call for a boycott.

Then there is the anti-Sri Lanka Sri Lankan Diaspora continuing to undermine the efforts at home, and in Geneva, the UN Human Rights Council preaches selectively to countries of its choice. If and when the IMF bailout is finally signed on the dotted line, it will only be the beginning of Sri Lanka’s painful economic recovery and not the end of it, but yet, by any stretch, it has been quite an achievement so far.

Central Bank “Independence”

 Another of the 15 conditions laid down by the IMF appears to be its standard requirement to make a country’s Central Bank an independent entity – independent of the Government, meaning to ensure a ”hand off’ policy for politicians.

The proposed law will do away with the Monetary Law Act that was established to govern all the functions of the Central Bank. In a curious way, a Monetary Board was expected to be independent of the Central Bank itself, but the new law will repeal it, and replace it with another set-up. The Treasury Secretary sitting on the Monetary Board dictating terms to the Central Bank has been done away with in a bid to depoliticise policy decisions originating from the Finance Ministry.

Calling upon Central Banks around the world to be “independent” is an IMF mantra – a ‘one size fits all’ approach to distancing political interference from a country’s fiscal policy decision-making. Little does it know that not all Central Banks are apolitical.

Sri Lanka has had its share of Governors at the helm of the Central Bank who added lustre to the office, and those more recently who behaved worse than even politicians. There were outdated ideological misfits or those arrogant with power; responsible for Bond scams, the liberal use of foreign exchange to buy properties in New York and Brasilia, who gambled in hedging scandals and dumped employees’ savings in the stock exchange, hired seedy lobbyists in America, and partied all night in the Caribbean islands on the pretext of competing for the Commonwealth Games, then stubbornly misled the then President not to go to the IMF when the country was tottering on the brink of bankruptcy. Central Banks under such Governors, independent of all and sundry, can be a disaster in the making. Will the Central Bank in the wrong hands of a reckless Governor be a law unto itself? Who then guards the guards?

It is good that Governors under this proposed Act are subject to Parliamentary scrutiny – even for what little that is worth, and the Auditor General for the first time will audit its accounts. But Clauses 5 & 6 of the proposed law say autonomy of the Central Bank is guaranteed, and the Governor “shall not seek or take instructions from any person”. Will that include independence or instructions from the IMF? Is the IMF trying to create mini-IMF offices in countries like Sri Lanka independent of sovereign, elected Governments through these new-look Central Banks? How independent would such a Central Bank be from the IMF will surely be a moot point.