IMF standby credit facility in complete jeopardy

By Dr. S. Colombage

The main objectives of the economic progamme were to regain macroeconomic stability, start reversing the loss in official foreign reserves, while maintaining economic growth at about 4.5 percent in 2001. It is now clear that this growth target is too optimistic. The GDP growth for the second quarter of this year was only 0.4 percent. In the first half of the year, GDP grew only by 0.9 percent. The growth in the second half will be much less due to compounding problems. Therefore, the GDP growth for this year is most likely to be close to zero.

Fiscal consolidation was a key component of the programme. Under the 2001 budget, the fiscal deficit was to be reduced from 10 percent of GDP in 2000 to 8.5 percent of GDP. The revenue side deteriorates due to various tax reductions and other concessions granted under the relief package. On the expenditure side, the programme envisaged that public servants would receive no pay rise during 2001, and outlays on other goods and services would be tightly controlled. Recruitment to public service was also to be restrained. As most of these measures have been reversed now, the expenditure is likely to overshoot. With the decline in anticipated revenue and the rise in expenditure, the fiscal deficit for this year will exceed 10 percent from the target level of 8.5 percent. This imbalance has already generated considerable inflationary pressures. Wage hikes and exchange rate depreciation are fuelling inflation further. Annual inflation has exceeded 14 percent as against the programme target of 8 percent for this year. On the external front, the current account deficit of the balance of payments was to be brought down to 3.1 percent of GDP this year from 6.9 percent last year. This target too is difficult to achieve, given the downward trend in exports and tourism.

Thus, most of the targets laid down in the stand-by arrangement are not realized. The term "stand-by" means that, subject to conditionality, a member country has a right to draw the money made available by the IMF, if needed. In most cases, the members do draw the entire amount. Each programme is designed flexibly, so that, during its implementation, it may be reassessed and revised if circumstances change. So, Sri Lanka has a chance to get the balance tranche by revising its economic programme with new economic targets. Again, painful decisions will have to be taken to correct the structural imbalances and weaknesses of the economy. This is a basic characteristic of IMF policy packages. The prescription given by the IMF to sick economies, which are mostly developing countries, contains bitter medicines. If the concerned member government is keen to cure its ailing economy, it should be prepared to implement harsh measures like curtailing government expenditure, removing price controls, allowing free exchange rate movements and tight monetary controls. Most of these measures have immediate repercussions on the day-to-day life of ordinary people.

The role played by the IMF in developing countries has been subject to increasing scrutiny and criticism from many quarters including renowned economists and civil society groups. A major criticism is that the IMF often adds an element of political instability to situations of economic uncertainty. It is alleged that the Fund seeks to correct at one stroke all the weaknesses in a crisis-hit economy by applying an across the board policy package based on free market principles.

The critics say that this approach frequently weakens the political structure, thus jeopardizing the basic preconditions for sustainable reform. 

Proponents of the IMF, however, claim that it helps to resolve the economic problems of crisis-hit member countries. They say that there is a temptation of making the IMF a scapegoat for political instability in these countries. In the case of Sri Lanka, the IMF was called in at a time when painful intervention could no longer be avoided. Ironically, the stand-by arrangement coincided with the domestic political turmoil, resulting in an unfinished agenda. It is time that the authorities pay attention to these tasks ahead.

Key to employment in the private sector

By Feizal Samath

But confronted by a board of directors that fires questions in English, the young graduate - unable to converse properly in English - fidgets, mumbles and strains to give responses. He fails the interview and is not selected.

Elsewhere a young girl, with advanced level qualifications, sits coyly before the chief executive of a local chamber. The CEO speaks to her in English about a job at the chamber. The girl, not confident of her English, stammers and stutters. She is not selected.

That's not the end of the story. Both these individuals find their way into semi-government institutions and work their way to the top. Both have commandeered the English language while working, done excellently well and are happy for the opportunity given to them.

Language may not be the only setback towards finding a job in Sri Lanka's burgeoning private sector. There are plenty of other discriminatory attitudes like preference given to job applicants from top Colombo schools, being relatives or friends of workers in the same office or coming from the same school as the interviewing officer or panel, researchers say.

"The public sector, apart from its highly politicised job structure, does not have this type of discrimination," says Prof. W.D. Lakshman, an eminent economist and former vice-chancellor of the Colombo University.

The results then of a recent national survey on youth, though shocking, are not the least surprising. The National Youth Survey, completed late last year by the University of Colombo and supported by German aid institutions and UNDP, found that 50 percent of the 3,000-odd youth interviewed still preferred public sector jobs.

"This is somewhat strange when everyone knows that the public sector is shrinking. Around 50 percent of the youth respondents in the survey believe the private sector is discriminatory," noted Lakshman during a brainstorming session in Kandy last week on the national survey.

The workshop titled, "Sri Lankan youth: profiles and perspectives" was sponsored by the German-based Friedrich Ebert Stiftung, a private NGO working for freedom, democracy, social justice and peace, in collaboration with the University of Colombo to discuss the youth survey. It brought together leading academics, sociologists, economists and government officials.

But the private sector disagrees with the views expressed in the survey. "Most young people prefer the public sector because of its status. They believe that it helps in marriage, has a much less workload than in the private sector and has pension benefits," asserts Ken Balendra, chairman of the Bank of Ceylon and a former head of the John Keells Group, Sri Lanka's biggest private conglomerate.

He agrees that English could be a constraint but that is because of a weakness in the education system. "English is essential in the formal private sector as business is conducted in English and I don't think young graduates are turned away because they are qualified but lack a working knowledge of English," he told the Sunday Times.

In quite a few cases, graduates with a limited knowledge of English but competent in Sinhalese or Tamil have scored over their western-educated counterparts. "Having a knowledge of Sinhalese or Tamil is a plus factor when dealing in the local market," he added. Other private sector employers argued that the two cases illustrated earlier - about the lack of English to find employment - was more circumstantial than the rule. "In such cases, maybe the employer needed an English-speaking applicant for the job," said one corporate executive.

Lal de Mel, chairman of the Insurance Corporation and chairman of a public-private sector partnered employment network, believes some university academics are also to blame for the situation. "We just can't get universities to change their stereotype structures and provide a market-oriented education plus language skills," he said.

De Mel said his corporation has invested in an English-learning centre as an in-house training centre for staff. "I have urged some universities to invest in similar centres so that graduates have a working knowledge of English when they pass out. The response to this is 'no money or we have other priorities'," he noted adding that universities can make a great difference in providing English language skills to undergraduates if some effort is made.

"There is a reluctance on the part of academics to change the university system in line with current IT demands, market needs and globalisation," he said, noting that Sri Lanka is losing out rapidly to India where education is market-oriented.

De Mel is also chairman of the Tharuna Aruna Institute, a joint collaboration between the government and private chambers of commerce and industry, where 75 graduates are found training placements every month in private sector firms. At the end of a 16-month training period in which the graduates are paid 3,000 rupees per month by the state, the employer has the option of hiring the trainee or he or she is sent to an employment pool. The scheme, started about six years ago, has just 50 to 75 graduates in this pool while all the others were hired by companies where they had received a training.

Lakshman, currently professor of economics at the Colombo University who spoke on 'Youth and Unemployment', said youth had a culture of blaming others for difficulties created by them. The survey found that more than 50 percent of the youth wanted either politicians or the state to solve their problems. "The culture of blaming others for one's own difficulties is widely established among the youth as much as among many others in the Sri Lankan society," he said adding that youth should be taught the 'goodness of self reliance'.

The other problems in the job market, according to Prof. Chandra Gunawardene, dean of the Faculty of Social Sciences and Humanities at the Open University, are that students who graduate from secondary schools and universities lack the skills required by their employers.

She said vocational training institutes should be strengthened with better instructors, raising the level of these institutes and providing a higher status for both teachers and students.

Dr. Laksiri Fernando, a senior political scientist attached to the Colombo university, believes that the state - despite its shrinking role - should have a responsibility in planning employment and get the support of the private sector in this endeavour. "I am not saying the state should be responsible for employment but it should have a guiding role in the creation of jobs."

The survey found that the unemployment rate among educated youth is much higher than among those with little or no education. This was partly due to the fact that those with educational qualifications looked for certain types of jobs like in the public sector for instance which guarantees job security, regular income and social prestige.

The preference for government jobs was stronger among youth with higher levels of educational attainment with the highest proportion reported from among those with university degrees. "Those with little or no education tend to have a much greater preference for self-employment. The largest proportion in each educational group prefers government jobs," the survey reported.

With Sri Lanka moving away to industry and services from an agriculture-based economy, it was not unusual for the survey to show that most youth wanted to move away from agriculture. But it found that nearly 50 percent of the respondents would opt for agriculture if it guaranteed a good standard of living.