Presidential Secretary says IMF not the answer, but it is the answer

By Hema Senanayake

“Dr. P.B. Jayasundera is destroying the Government.” So said and reiterated many times by Venerable Muruththetuwe Ananda in recent past. I was reluctant to believe it, given his experience and more over due to his qualification as a senior economist. After reading his recent interview published on 25 July in the Sunday Times, I was convinced of how true the Venerable Ananda’s assertion is.

Sri Lanka is in a dire economic crisis. Technically Sri Lanka is facing a serious Balance-of-Payment (BOP) crisis. The gravity of crisis is so severe that China cannot or not capable enough to bail us out. If China could have done it, Sri Lanka would not have gone to India to borrow money, especially Sri Lanka would have not borrowed from Bangladesh. In fact, China does not have internationally designed mechanism to bail out countries that faces temporary BOP crises. 

However, economic thinkers who created international payment system after World War II knew that free trade would not be possible if there is no proper international mechanism to support the countries that face with temporary BOP crises either due to the shift of terms of trade or due to some natural disaster. Therefore, they established a formal international organisation with participation of many member countries just to do this job. That organisation is the International Monetary Fund (IMF). Sri Lanka became a member of IMF in August 1950. 

IMF’s primary mission is to ensure the stability of the international monetary system – the system of exchange rates and international payments that enable countries and their citizens to trade with each other (see IMF website). This goal is achieved by supporting countries whenever they face with temporary BOP crises. 

It is true when IMF bails out countries IMF advises those countries to make structural reforms/adjustments that would provide lasting solution to BOP situation of those respective countries. It is also true some of these economic adjustments proposed by IMF are in line with the neoliberal thinking which is not popular among some nations. 

But IMF correctly thinks and as a member country Sri Lanka too agrees that no country should be bailed out continuously as such measure would allow an irresponsible country or corrupt government to live on other countries’ wealth. Therefore, the conditions imposed by IMF is very similar to all countries and there is no secret about it. Yet, the IMF does not demand the exact pound of flesh. The IMF is open for negotiations in line with theory and well-set country plan.

This is a time we are facing a severe BOP crisis with foreign remittances shrunk, tourism down and Foreign Direct Investments not forthcoming even after passing and enacting the Port City Bill. So, Ranil Wickremesinghe declared in Parliament that the country must go to the IMF. Dr. Harsha de Silva, an economist and a parliamentarian of the Samagi Jana Balawegaya, reiterated the same idea in many press conferences. Even Communist Party Leader D.E.W. Gunesekera recently expressed that the Government should go to IMF on the basis of the situation created by COVID-19 pandemic. 

Rejecting all those ideas, PRESIDENTIAL SECRETARY Dr. Jayasundera says that “Sri Lanka has no immediate plan to seek financing from the International Monetary Fund (IMF).” He questions whether ‘going to IMF would bring tourism and will IMF bring exports back’. If this is his opinion that should be the President’s and the Government’s official view. This is complete madness. If it is just a madness of some official it is fine. But this madness makes citizens, businesses, farmers suffer enormously and makes banks vulnerable. 

The IMF’s mandate, ratified by Sri Lanka as a member country is not to bring exports or tourists to any country but to stabilise any country’s BOP situation enabling the country to do regular businesses and attract Foreign Direct Investments. And, yes, if IMF supports to resolve BOP problem and supports to contain COVID-19 under emergency financing instruments, the suffering of people including farmers, self-employees, businesses, and the stress on banks, etc., will end soon. 

The official website of IMF says: “In response to the COVID-19 pandemic, the IMF temporarily increased the access limits under emergency financing instruments and the annual overall access under non-concessionary resources.” Dr. Jayasundera rejects this opportunity. What is his alternative suggestion?

“The alternative was to consolidate projects already on the ground, for which funds are secure, and to make use of them. If you execute those projects, you can get the money,” he says. He further says: “The World Bank/Asian Development Bank project portfolio covering such sectors as water, irrigation, highways, education and health is around US$ 3bn with utilization spanning three to four years. So, if you fast-track them, remove the bottlenecks for implementation and focus on those, the disbursements are a money flow… Last year saw the highest ADB disbursement at $ 750 m (Rs. 149 b).” 

This is an amazing but awful solution. For the first time I am hearing from a senior economist that BOP crises can be resolved from project loans provided by World Bank/Asian Development Bank. Interestingly, the IMF which is the international organisation that is mandated to help in resolving BOP crises, has different set of financial instruments but it has never listed project financing of World Bank or Asian Development Bank as mechanisms that support resolving BOP problems.

Instead, what the IMF says is this: “The IMF’s various lending instruments are tailored to different types of balance of payments need as well as the specific circumstances of its diverse membership.” Also, it says: “In the absence of IMF financing, the adjustment process for the country could be more abrupt and difficult. For example, if investors are unwilling to provide new financing, the country would have no choice but to adjust—often through a painful compression of government spending, imports and economic activity.” That’s what the country is experiencing right now.

It further states that “IMF financing facilitates a more gradual and carefully considered adjustment. As IMF lending is usually accompanied by a set of corrective policy actions, it also provides a seal of approval that appropriate policies are taking place.” 

If Sri Lanka gets the above said seal of approval from IMF, we will be in a position to rollover our debt in foreign currencies much easily and perhaps much better rates of interest given the reduced global interest rates prevailing as of now. 

What I cannot understand is why Dr. Jayasundera thinks that his alternative and seeking IMF help must be mutually exclusive. Instead, seeking IMF support will be much more favourable for the Government to ‘fast-track’ the disbursement for projects identified by the World Bank and Asian Development Bank. Both can happen together. Lying to people is a crime or he must be hiding something.

(The writer can be reached via [email protected])