Committee for the Abolition of Illegitimate Debt

The IMF IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org has set benchmarks for budget making, new laws including for public finance management and banking, revisions to taxes, lifting of import restrictions etc. The World Bank World Bank
WB The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

’s four-year framework pushes many laws for liberalization during the first 18 months, and privatization during the remaining 30 months. The Wickremesinghe-Rajapaksa regime is complementing these regressive legislations on the economic front, with a range of repressive laws to attack dissent and protests, including the Bureau of Rehabilitation Act, Anti-Terrorism Act, Online Safety Bill and the Broadcasting Authority Bill.

As we approach the national budget season, the citizenry is kept on the defensive with the bombardment of such laws and brutal attacks on protests, by a parliament and president who are illegitimate and will not stand the test of elections. The ruling regime does not have a social base of support, and is merely relying on the repressive apparatuses of the state; the military whose “war hero” President Gotabaya Rajapaksa fled the country last year is now in desperate need of a patron. The other source of backing for this discredited regime are powerful international actors who find it expedient to carry through their neoliberal and geopolitical interests. There will be no relief to the people nor stimulus to the economy, and only be the further strengthening of the repressive arms of the state, in the upcoming budget.

What about all the reports of the tremendous suffering of the working people? I discuss below one prominent instance of the ridiculous explanations given by those setting the economic agenda for the country.

Lies or ignorance

At the end of the IMF Staff visit last week, the IMF Resident Representative in Sri Lanka, Ms Sarwat Jahan, had the following to say during the press briefing:

“On the question regarding the situation of the poor, I have been in Sri Lanka now for almost a year and I’ve witnessed how the economic crisis have impacted all Sri Lankans, especially the poor and the vulnerable. … How the IMF programme can help? Well, we can help through multiple ways. First is when there is economic stabilization in the economy that means that it’s good for all Sri Lankans, including the poor and the vulnerable, because this means that inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. will go down, as it has been during the first six months of the programme. And therefore this helps the poor, as we know, because inflation is the worst form of tax.

It also helps through reduced interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation. , and we have seen interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. rates also coming down. And then the programme that the IMF has designed, the tax that is in place, is actually quite progressive. So the poor and the vulnerable are excluded from it. Only those who are able to pay, do pay. But in addition to this, the one point that I would like to highlight is the IMF programme places a lot of importance on social spending. In fact, this is one of the core pillars of the programme. Under the programme for 2023, we had discussed with the authorities to have a spending floor on four major cash transfers, which would be about Rs. 187,000,000,000 or equivalent to 0.6% of GDP GDP
Gross Domestic Product Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another. .”

I quote the IMF Representative at length because it betrays either the lies or the ignorance of those making economic policies for Sri Lanka. I unpack below the false logic and assertions of the IMF.

First, Ms. Jahan claims inflation has come down because of the IMF programme during its first six months. Inflation rose in the first place because of the one-time price hikes due to the massive devaluation Devaluation A lowering of the exchange rate of one currency as regards others. of the rupee – on the recommendation of the IMF – and the rise in global commodity prices due to the war in Ukraine between February and August last year. Since inflation is calculated year on year, or known as the base effect, it has declined to single digits by September this year. In fact, I have written in this very column, about this dynamic of inflation, in November last year and March this year, claiming it will come down to very low levels after September. The key point is that the cost of living has not come down, as wages did not rise during the last 18 months, with real wages now between 40% and 50% lower than before the crisis. Indeed, the year-on-year inflation reduction has little impact on working people’s purchasing capacity.

Second, she claims that interest rates have reduced with the IMF programme. Rather, it is on the recommendation of the IMF and claiming to fight inflation that the Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx policy rate was raised drastically from 6% to 16.5% in the year leading to the agreement, resulting in the tremendous economic shock causing the collapse of many businesses and the loss of hundreds of thousands of jobs. The worst thing to do during an economic depression is to raise interest rates, but that is what the IMF wanted done to ensure its deflationary stabilization programme. The IMF pushes such policies for its free market agenda, claiming it is needed for competitive exports and to attract foreign investments for developing countries in the long-term. However, if an economy continues to collapse, such long-term possibilities are meaningless, and it is certainly no consolation for people suffering from the crisis. Furthermore, the damage is done, and once the economy is on a downward spiral reducing interest rates alone will do little to stimulate growth of jobs.

Third, a significant proportion of the tax revenue in the country continues to come from the regressive VAT which was increased back to 15%, and has a disproportionate impact on working people whose incomes are largely spent on consumption goods. While the IMF is rushing to implement various policies, on the issue of redistributive wealth taxes, it is lukewarm, and only considering it in 2025. In this context, the attack on working people’s retirement funds with domestic debt restructuring, is one of the most regressive austerity cuts to date in this country, amounting to almost a 47% reduction of their savings over sixteen years.

Finally, the IMF programme and its austerity measures came with much talk of social protection to the vulnerable, and it is the same discredited platitude that is repeated again. The meagre 0.6% of GDP allocated for social protection in 2023 and in future years, was already allocated for the same programmes in 2022 and was around 0.4% in the previous seven years, though went up to about 1% with the onset of the Covid crisis. With the economic depression where poverty levels have doubled to over a quarter of the population and those considered multi-dimensionally vulnerable over a half of the population, should there not be a much higher allocation for social protection?The claims that better targeting through a newly named programme will somehow improve the situation of the poor has been clearly rejected by the overwhelming protests against the new ‘Aswesuma’ programme.

The IMF could be blatantly lying or inherently ignorant about Sri Lanka’s political economy. It has not studied or does not care about the history of universal social welfare in this country since Independence. The IMF’s ideological commitment to austerity and targeted social protection are not going to change. It is high time to reject such targeted social protection policies and formulate universal social welfare measures drawing on our own experience of free education, free healthcare and universal food subsidies.

The Wickremesinghe-Rajapaksa regime is fully complicit in this attack on working people. Confronting the IMF and changing the political economic trajectory in the country has to begin with struggles against the repression of the ruling regime.