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IMF Loan Will Not Benefit Sri Lankan People or Help Resurrect Crisis Ridden Economy

Media Release by Centre for Social Democracy

Statement on IMF – HRW correspondence on SL economy and Human Rights

We, as the Centre for Social Democracy (CSD), take it as our bounden responsibility to respond to the written dialogue between the HRW, Asia Division Executive Director, Brad Adams and the IMF Managing Director, Dominique Strauss-Kahn, which is now in public domain, on the issue of the IMF emergency support loan provided to the SL government, basically to prevent the Sri Lankan economy from collapse, as stressed by the IMF.

On Thursday 19 November, Caroline Atkinson, the Director of the External Relations Department at the IMF speaking to the media on these correspondences, further confirmed Strauss-Kahn's position of not giving credence to HRW allegations, saying its a bit of a “misleading premise” adding that, "usually the most vulnerable are most hurt by any economic collapse".

The CSD does accept the Sri Lankan economy is certainly in crisis but does also accept that it is not the sole responsibility of this government alone. It is a responsibility that both the World Bank and the IMF has to share, for their role in framing economic policy for under developed and developing nations and for sustaining those policies through numerous aid and loans backed by equally destructive programmes. All Sri Lankan governments have been towing these policies over the past few decades, while in Asia, there were countries that defied the WB – IMF recommendations and grew with strong economies.

The CSD would discuss on that responsibility of the IMF later in this response, but to begin with, first notes very clearly that the CSD does share all concerns raised by the HRW regarding war devastated Tamil civilians still kept in restricted, military controlled refugee camps in and around Vavuniya. The CSD does have concerns and reservations, as to how they are hurriedly sent out to other transit sites and camped in schools, churches and public buildings with even less facilities, on the pretext of resettlement.

The CSD is concerned too that no set policy has been outlined on and a resettlement and rehabilitation programme with measures for social reconciliation for Tamil IDPs, has yet been brought to parliament and discussed for approval and adoption, as a responsible government should do.

Finally, the CSD is concerned very much that to date, free access has not been given to civil organisations and the media, to monitor developments on what the SL government says and the IMF accepts, as improvements to IDP living conditions in camps and their resettlement.

Thereafter, the CSD also agrees in principle with the IMF and its MD Strauss-Kahn that the SL economy should not be allowed to collapse. For, as in all collapsed economies, it would be the poor, the socially marginallised and the vulnerable that would suffer most and is often left uncared for.

Therefore, one issue the CSD wishes to raise and stress very much, is the issue of transparency in negotiations, so that all stakeholders and beneficiaries here in SL, the citizens of SL, would have the right to know what conditions are negotiated and what they are strapped to, in accepting a foreign loan.

With that fundamental right of the citizens stressed, the CSD wishes to raise reservations and concerns in how the IMF interprets its case in providing the SL government with an emergency support loan and its second tranche of US $ 2.6 billion.

The letter written by Strauss-Kahn as MD of IMF explains,

1. an emergency support loan was provided explicitly to prevent the collapse of the SL economy,

2. the loan as a programme contributes to reconstruction efforts and sustain social spending aimed at protecting the poor

3. the IMF has no issue putting in place necessary "safeguards needed to ensure that the resources provide are used correctly.

4. the government has committed to creating a social safety net for the displaced as quickly as possible.

5. program includes considerable reduction in military spending in the 2010-2011 period, and these savings will be used to finance expenditure that will help the most vulnerable people.

6. The IMF is certain/assured the government has begun redeploying resources previously allocated to military spending toward reconstruction efforts in the north, such as de-mining, basic infrastructure and other activities essential for the reintegration of the Tamil people as spelt out in the initial letter of intent signed by the government.

The "initial" letter of intent was duly signed in July 2009, before the first tranche of US $ 322 million was provided to the SL government. Therefore the CSD wishes to stress here, had the IMF monitored properly, it would have to accept the accusation of the HRW that the SL government, continued to disregard the rights of the displaced, in violation of its own letter of intent.

Almost 04 months after signing the letter of intent in July, there is no “safety net” for the displaced, no programme to sustain social spending aimed at protecting the poor apart from the already existing Samurdhi programme, that during 12 years in existence had not been able to alleviate poverty in any way and no “safeguards” the IMF has put in place since the first tranche of the loan was provided in July, to ensure the right use of its loan provided, as mentioned by Strauss-Kahn in his letter to BradAdams of HRW.

Very plainly, by 09th October this year, this government has shredded its 2009 budget approved in parliament, with over LKR 77 billion borrowed to cover heavy overspending by numerous ministries, through 23 supplementary estimates subsequently brought to parliament. The highest over spending had been in the army, navy and the air force, for which supplementary borrowings has totalled a sum of LKR 29.8 billion.

Such irresponsible public finance management all through its tenure left this government in a balance of payments crisis that was faced with a LKR 200 billion worth of currency printing, approved by the IMF itself and thus is proof that this government is in no position to honour any that is included in its letter of intent.

This is also reason why the government was unable to budget as it should, for year 2010 and all promises for reduced military spending and diverting them for reconstruction efforts in the North, as Strauss-Kahn wants others to believe, holds no water.

Thus the government has avoided its total inability to spell out its development programme and income sources in a detailed annual budget for 2010 and instead presented a “Vote on Account” which is only an expenditure sheet for the first quarter of 2010. Yet the government's very abstract explanation that, “In order to ensure this strong fiscal performance continues in the run-up to Parliamentary elections due by April, we have opted to pursue a vote-on-account budget covering the first four months of 2010, limiting our spending during this period to about one-third of 2009 approved budgetary expenditures."

(Letter of intent – 30 Oct. 2009) has been accepted by the IMF without comment.

The government has thus proved it has absolutely no sense of what it had written into its own “letter of intent” sent on 16 July, 2009 to the IMF addressed to its MD, Strauss-Kahn and also that it had no capacity what so ever to honour any of those that Strauss-Kahn says the government is now doing or intends to do.

The CSD therefore wants every one to take note, that this emergency support loan provided by the IMF for relief and reconstruction especially in the North, with very vague understandings between the GoSL and the IMF to channel “savings” to social spending with supposed “safety nets” and “safeguards”, will not in any way avert the economic crisis Sri Lanka is facing, although Strauss-Kahn makes that his strongest argument for ignoring human rights concerns.

For any real resurgence of the SL economy, it needs a paradigm shift in its total approach in development planning with all democratic institutions given their full life to rid corruption, waste and inefficiency. People of SL needs to have full access to the governing processes at every level of social life and space for participation, with the State restructured for plurality and inclusivity. What has been provided by the IMF does not address any of these fundamental necessities and is no answer for any economic revival.

This also proves that the prescriptions written by the WB-IMF combination for the underdeveloped and developing nations have absolutely no relevance to the ground situations. That they have thus not been able to assist any country to emerge with sustainable growth.

The CSD would therefore take up the issue of responsibility now, that was left for later explanations, holding both the WB and the IMF as equally culpable for most conflicts in our development hemisphere.

It is common knowledge, the WB and the IMF work in tandem and have been fashioning economic policy for development in poor countries and providing assistance for restructuring of their economies and for supposed stability. The WB policy in all their interventions had been to date, in pruning down

State expenditure and promoting privatising of State owned businesses, within a neo-liberal market economy. The IMF has always stepped in to sustain such policy, with their own financial programmes.

The CSD is convinced such policy compelled governments in these poor countries to fall prey to vested interests, become more and more dependent on WB and IMF dictates in terms of both policy and financial aid, while having to face continued economic crises. This neo liberal model of (non)development has also given legitimacy to governments in poor countries to adopt stringent measures in curbing democratic structures that would provide space for people's agitations for economic benefits and continued State welfare.

Thus, right across the globe, local conflicts that challenged such States on different political platforms emerged and grew, all at the end wanting either to move out of the State for not respecting the people they thought they have a right to represent or, wanting to oust the ruling regime to take control of the

State into their hands. Conflicts that thus grew into extremism of different shades and types, resulting in socio-political instability at a heavy cost on democracy and human life.

It is also common for the WB and the IMF to return thereafter, with new packages of solutions, but not different either, except in rhetoric. This is reason why Strauss-Kahn on behalf of the IMF does not want to accept a return to democracy and he spells it out thus. “The Sri Lankan economy is facing a serious crisis and regardless of one’s opinion of the human rights situation in that country, the collapse of the economy cannot be considered a reasonable outcome.”

Therefore the “reasonable outcome” of the IMF intervention by way of a two tranche emergency loan would be, to see this government bailed out for now, despite its role in curbing democracy, violating human rights and moving ahead without any commitment for accountability and transparency and with no adequate plan(s) for development that would yet again create instability in society. Instability that would require the government to further suppress the democratic life of the people, whom the IMF claims to save from a collapsing economy.

The CSD therefore takes this opportunity to say, all these interventions by the IMF that leave concerns about human rights violations and re-democratisation of society on the wayside, will not be interventions on behalf of the people, but simply, strategic interventions to have their continued authority over a government that continuously struggles to be in power, at what ever cost to the people the government claims, elected them to power.

In conclusion, the CSD wishes to stress with responsibility that any form of intervention in Sri Lanka that does not provide improved and more space for democratic life of the people, will not bring any benefit to the people and therefore this IMF loan in two tranches will not help resurrect the SL economy in crisis. It would only push the crisis into the future and would certainly help this government to tide over difficult times, till the speculated elections in April 2010 could be over.

Sgd / Kusal Perera

Sgd/ Mahinda Ratnayake

On behalf of
Centre for Social Democracy


The granting of the IMF loan seems to be aimed at ensuring the survival of the IMF rather than helping Sri Lanka, its people or IDP's for that matter. Taken in the backdrop of a declining dollar it seesm the IMF has taken these measures to palm of the huge losses they foresaw to our fools at the CB. Now we are saddled with a huge dollar reserve which is daily declining in value and our Pundits are buying Gold at a time when it has hit a record high. So much so for our claims to be the best in the world. Mr NC should admit that he has been diddled by the IMF and resign forthwith.

Posted by: SriLankan | November 24, 2009 07:41 AM

There is a serious problem of transparency here. That the details of the “conditions” of the IMF loan are hidden from Parliament and the people is bad enough. But worse is the deliberate misleading of the economic sector by the high priests of the Central Bank, until recently men of honour and integrity.

The latter tell the Cabinet (most of whom cannot understand the ramifications) and the country “the economy is quite robust” and they invite local and foreign investors to trust them. This is like Lalith Kotelawala that “man with a heart” - after ruining thousands of the middle class and upper classes by defraud - appealing to the public to invest their life's savings with him.

But the truth is WB/IMF are generally considered the lenders “of last resort” – a polite way of stating the borrower has little solvency and no where else to go. So the much hyped IMF loan, in the implied language of Dominiquel Strauss-Kahn, is to “prevent the collapse of the Sri Lankan economy” It is only the general ignorance of the people that has prevented a total siege on the Govt and its leading men.

Equally – or perhaps more – culpable are the economists, academics and the more initiated who have a duty to inform the country of the real nature of the dire straits of our economy as at date. Like the Opposition they too have failed the people. The admirable initiative the CSD has made here should be grasped and a transparent public discussion should follow forthwith in the interest of the entire nation.


Posted by: Ilaya Seran Senguttuvan | November 24, 2009 07:28 PM
IMF has sold 10 tons of Gold to Sri Lanka at 1170 USD per ounce. Our Central Bank Pundits must be bonkers to buy when the prices are at a all time high. Also People have no money, Businesses are down, Taxes are high and in such circumstances must we invest in Gold which has no utilitarian value.
Sri Lankas exports fell by 12.8% and imports by 62.2% in September. Are these signs of economic recovery or decline? Economic activity is slowing down as per these indicators. Therefore following IMF proposals blindly and building up FC reserves is not working. FC reserves would be good if generated by us and in excess of our requirements. Not to display someone elses money as a reserve. Loans should be utilised for development not as a smoke screen to lure investors.

Posted by: SriLankan | November 25, 2009 07:36 PM

"Expenditure on imports declined by 36.1 percent to US$ 789 million in September 2009, reflecting lower demand across all three major categories of imports," the Central Bank said.
Imports are down 36.1 percent not 62% as per my previous comment.

Posted by: SriLankan | November 25, 2009 07:54 PM

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