Working People, IMF and Regime of Repression Ahilan Kadirgamar

Sri Lanka’s economy is now on autopilot. The Government – emasculated of making any economic policies – is merely following the IMF and the World Bank. Sri Lanka’s Finance Ministry may as well sit in Washington, or all the same it can be in Colombo following what is printed in the IMF agreement of March 2023 and the World Bank Country Partnership Framework released in June 2023. Indeed, a close reading of both these documents makes it clear there is no role for the Government in economic policymaking in Sri Lanka, and the only role left is to use brute repression to discipline the citizenry into the straight jacket of austerity.

The IMF 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’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 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, and we have seen interest 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.”

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 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 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.

(This article was originally published in The Daily Mirror on October 2, 2023)