Columns

With the country plunged into bankruptcy by the mismanagement of the economy by the Gotabaya Rajapaksa Presidency, Sri Lanka turned to the International Monetary Fund (IMF) seeking a lifeline to salvage the economy.

While there are many who have ideological reservations about the IMF, in view of the dire straits that the country finds itself in even such individuals are resigned to the fact that there is no alternative to going to the IMF for assistance.

In fact the Opposition had been repeatedly calling on the Government to seek IMF assistance when the first signs of the economic debacle came to light during the Gotabaya Rajapaksa Presidency. After the declaration of bankruptcy government ministers later claimed they too had recognised the need to go to the IMF at that time but stated they were prevented from doing so by an unnamed “unseen hand.” This criminal lapse on the part of the Government and the Cabinet of Ministers (many of whom are currently still holding office) has gone unpunished.  

The whole issue of the IMF and its relationship with the country has come to the fore during the presidential election campaign. Both the Samagi Jana Balavegaya (SJB) and the National Peoples Power (NPP) have declared their intention of renegotiating the IMF Agreement in the event they are elected to office.

The Government has countered this with the claim that the country is now committed to the terms of the IMF Agreement and that it cannot under any circumstances be renegotiated. In order to support their claims government ministers are trying to instill fear into the minds of the public by painting doomsday scenarios.

Minister Bandula Goonewardene has on several occasions warned that such negotiations will result in the dreaded queues coming back. State Minister of Finance Shehan Semasinghe, at a media conference last week emphasised that any violation of the International Monetary Fund (IMF) agreements would immediately jeopardise the country’s access to IMF programmes. He warned that if the promises made by opposition candidates were to be implemented, it could lead to the loss of the IMF programme.

Minister Semasinghe has further cautioned that such actions could put the country at risk of a serious crisis by undermining agreements with foreign creditors and private bondholders.

However, on the face of it the Government’s position is not only questionable but sends out conflicting signals. An agreement by definition is between two parties and can always be recast by agreement of the two parties. It is only a unilateral withdrawal or breach that can entail consequences for the party violating the agreement.

It is unlikely that any of the Opposition parties would resort to any unilateral withdrawal nor have they stated that they would do so. In fact in the event of the SJB or the NPP winning the presidential election they will be better positioned to negotiate with the IMF because they would be armed with a mandate from the people whereas the present government’s engagement with the IMF was without a mandate from the people.

On Wednesday the President contradicted his previous stand that renegotiating with the IMF was not possible when he announced that the Government and the IMF had reached agreement with regard to revising the PAYE taxes.

Addressing an election rally at Eheliyagoda the President announced that the Government had reached an agreement with the International Monetary Fund (IMF) to revise the Pay As You Earn (PAYE) tax, which he stated had become a significant concern for the public.

He said “We have already submitted a proposal and they (IMF) have also presented their suggestions. Once we discuss and reach a final agreement, we will provide relief to the people.” Readers will have to ask themselves if this process of both parties submitting proposals to each other for revising the terms of the IMF Agreement is not negotiation what is it.

State Minister Semasinghe further stated that he is currently in discussions (must be read as negotiations ) with the IMF to revise the tax policies, aiming to provide relief to citizens by adjusting income taxes.

Adding to the mixed signals sent out by it, the Government is also adding to the confusion with regard to post presidential election engagement with the IMF by the latest statement by President Ranil Wickremesinghe that the IMF is now out of the picture and that any further discussions must be held with the 18 countries that engaged in the debt restructuring talks.

According to the President such talks will consume a great deal of time and will place the economy in further jeopardy.

In the meantime despite the Government heralding the completion of discussions with the bilateral lenders with the theme of “Suba Aranchi”, the talks with the bond holders have yet to be completed. Keeping the country in the dark with regard to the contents of the IMF Agreement and the debt restructuring process and at the same time urging the Opposition to support the Government is a big ask. While the talks with the private bond holders are still ongoing, the latest media reports reveal that the bond holders have sought to intervene in the case filed by Hamilton Bank against the Government of Sri Lanka. The implications of such a move is not known due to the paucity of information on all sides including that of the government.

The International Monetary Fund (IMF), during its recent mission to Sri Lanka in July/ August has said that the 2025 budget needs to be underpinned by appropriate revenue measures and continued spending restraint. The government has yet to explain how it will fulfill the liberal promises of increased salaries for public servants, tax exemptions and other goodies that it has promised on election platforms in the face of the IMF Missions statement that “ the 2025 budget needs to be underpinned by appropriate revenue measures and continued spending restraint. “

Ahilan Kadirgamar, an economist with an alternative view of dealings with the IMF writing in the Daily Mirror has accused the current government of selling out the country’s economic future to please its external creditors as well as to make a political claim before elections that it has brought the country out of bankruptcy.

He has pointed out that Sri Lanka did not default on its domestic debt but did so only on its foreign debt, but it was pressure from bondholders as a negotiating tactic to reduce their haircut, and the IMF’s framing of combining domestic and external debt, which led to DDR.

Kadirgamar goes on to state as follows: “Worse, DDR was imposed only on the retirement funds of working people including garment and estate workers, while the treasury bonds held by banks, finance companies and wealthy individual investors were not touched.

“In other words, the deal is all too good for the bondholders, but the Government is trying to claim this as good news ahead of elections. Indeed, once the bondholders smelt the desperation of the Government to show a political success story, they are demanding much more than they could have from any legitimate government.”

Kadirgamar goes on to state that regardless of what the bilateral creditors and the IMF say the country must reject this deal now. He furthermore calls for rejection of the IMF targets and conditionalities which he believes are aggravating the crisis and fuelling a longer-term crisis for the state, the economy and society as a whole.

In the run up to the Presidential Elections it is up to independent economists to unravel the intricacies of the IMF and Debt Restructuring strategies pursued by the Government in order to enable the public to make an informed decision on September 21st. The voter cannot be left to be mislead by the arguments of Gotabaya Rajapakse’s Ministers who were complicit in driving the country to bankruptcy now opportunistically singing hosannas to President Ranil Wickremesinghe.

(javidyusuf@gmail.com)