Sarath Fernando

[Ed. Note: The author is the director of the Movement for National Land and Agricultural Reform (MONLAR) in Sri Lanka.]

Whatever may have happened last year during the process of negotiations that the Sri Lankan government had with the World Bank and the International Monetary Fund (IMF) for much-needed loans, they were remarkably different in terms of conditions and results when compared to what was achieved in previous years. No doubt, such loans were intended, as they were on previous occasions, to meet the budget and balance-of-payment deficits, together with the financing of the development programmes of the government for the ensuing year.

In spite of the government's confidence that it would be able to obtain the full quantum of aid requested because of the presence of the president herself for the discussions with the newly named Sri Lanka Development Aid Forum (which replaced the Sri Lanka Aid Group), what it received, at least initially, was far below expectations, for the World Bank-IMF combine turned out to be rather parsimonious in this regard, much to the government's disappointment. Instead of agreeing to give the immediately required loans to meet the budget and balance-of-payment deficits, the Bank and Fund only approved the long-term project loans, such as those required for building infrastructure facilities-for example, superhighways-which in terms of priority needs was far down the list.

The government, as stated earlier, wanted to become eligible for the requested loans in order to finance its budgetary and balance-of-payment requirements as well as its development programme. As such, it had to prove its credibility and creditworthiness by immediately agreeing to implement the harsh recommendations and conditionalities laid down by the Bank and Fund which, to say the least, have become the bone of contention.

Immediately after this meeting in Paris, the government lost no time in winning the confidence of its demanding creditors by taking appropriate measures that conformed to the requirements laid down by them. One of the most significant requirements was that the government should reach a negotiated settlement of the ethnic war so that its huge defence expenditure could be drastically reduced.

Among the other items of government expenditure that were lined up for pruning were those involving the civil service as there will be no salary increases for state sector employees and there will be further cuts in budgetary allocations, including those of various ministries. Conversely, as if such burdensome reductions were not enough, the prices of fuel, electricity, bus fares, milk, etc., were raised in addition to tax increases, including the defence levy tax from 6.5 percent to 7.5 percent. The sharp devaluation of the rupee in relation to the U.S. dollar from approximately 76 rupees to 100 rupees initially, which later stabilised at about 90 rupees, resulted in a proportionate increase in the overall cost of living.

With these clear indications of the willingness of the government to submit itself to the diktats of the World Bank and IMF, they condescended rather grudgingly to advance a standby loan of 253 million rupees (US.74 million) and that too on an instalment basis. Of this amount, 131 million rupees (US.94 million) was immediately released, which enabled the government to tide over its budget deficit.

Nature of the "Standby Loan"

While the government may be lulled into a false sense of security, what is important is to look into the nature of this standby loan and its long-term implications as well as how it will be granted.

At a press conference last May, immediately after reaching this loan agreement between the Sri Lankan government and the World Bank and IMF, an event attended by Deputy Finance Minister G. L. Peiris and the Central Bank governor, Dr. A. S. Jayawardane, the resident representative of the IMF, Dr. Nadeem Ul Haque, stated that this agreement would be open and transparent; and as such, there was nothing to hide in it. He also said that there would be a close monitoring of the progress made and that each of the four instalments of US million dispersed every three months would be granted after reviewing the progress achieved. What he clearly meant was that the IMF would see how well the government was implementing the conditionalities and reforms that were agreed upon.

Declarations in defence of the government's stance were made by Peiris and Jayawardane at this press conference, asserting that the granting of these loans was a clear expression of the "tremendous" confidence that the World Bank and IMF have in the government's management of the economy. They went out of their way to assure the public that there was no "pressure" or "arm twisting" by the World Bank and IMF and that whatever economic decisions that were made were based on the policy of the People's Alliance (PA) government as outlined in the 21st Century Vision announced by President Chandrika Kumaratunga. This assertion has been made as if to deceive the people of our country that all economic decisions made by the Sri Lankan government have been done on its own free will.

Contradictory Statements by Ministers

In contrast to these apologists, Minister of Education Indika Gunawardena and his brother, Minister of Transport Dinesh Gunawardena, were highly critical of this deal. The former made a purposeful attack that was tantamount to a virtual condem-nation of the economic policies of the government that are being pursued in collusion with both the IMF and World Bank and also of the key officials of the Treasury and the Central Bank. He characterised the recently signed standby loan agreement with the IMF as a "noose around the neck of the country" and said that we must remove this "noose" as soon as possible.

Minister Ronnie de Mel openly stated that, although he was willing to grant a salary increase to the port workers on the basis of their collective agreement made some time ago, he was unable to do so because of this IMF standby loan agreement which prohibited such an increase.

Meanwhile, Minister Dinesh Gunawardena was concerned that the steep price increases for milk, fuel and other essential goods were unjust and unbearable for the people and that he and his party, the Mahajana Eksath Peramuna, would fight against these price increases. What real weight these protestations will carry in concrete terms in the long term is an interesting question.

In addition, the cabinet subcommittee appointed by the government recently to make recommendations to bring down the spiralling cost of living and the prices of essential goods submitted its report at the beginning of July 2001, which made a strong case against such unconscionable price increases.

What has also to be taken note of is the growing groundswell of discontent that is brewing among an ever broadening segment of our people, cutting across even class barriers, which could ignite into a conflagration enveloping our society as a whole, thanks to this highly questionable standby loan agreement!

Much More to Come

The question that is looming large in the minds of those who have come to the end of their tether is what more inflictions they may have to suffer during the next few months, which may come, among others, in the following forms of socio-economic pain:

(a) Further increases in fuel prices, electricity bills, bus fares and essential consumer items. How such price increases will impact the quality of life of particularly those in the low income bracket and also those existing (not living!) below the poverty line is a foregone conclusion with high morbidity and mortality rates in the offing.

(b) Privatisation of higher education and the change of the medium of instruction to English, creating an unbridgeable hiatus between the children of the urban-based elitist class and the rural-based poorer sons and daughters of the soil, who will be condemned to linger only as hewers of wood and drawers of water.

(c) Privatisation of the two state banks of which the Bank of Ceylon, according to an IMF assessment, has done so well that it has been able to reap large profits. In spite of this excellent performance, the IMF loan agreement makes it obligatory on the part of the government to put the Bank of Ceylon on the stock market. Such a move will inevitably result in not only this bank being privatised but eventually being "foreignised." The very fact that several leaders of the private business sector have been appointed to its board of directors is a clear indication that the ground is being prepared for its eventual takeover by the private/foreign business sector. Also the fact that the bank's unions have voiced a concerted protest against such a move will unfortunately have hardly much of an impact, given the Cinderella-like (mis)treatment meted out to the working community in recent times.

(d) The eventual emasculation of the once vibrant working class community is also a possibility if we are to go by one of the small print conditionalities hidden away in some innocuous corner in this IMF loan agreement, for the combined might of the World Bank, the IMF and the top private business community have colluded to install a Reagan-Thatcher prototype labour policy that is intended to reduce the working community to a mere cypher. Such a policy will entail the rescinding of all labour laws that have hitherto protected the working community from undue exploitation and victimisation. In this so-called free labour market, the "hire and fire" policy-without paying any compensation-will also mark the elimination of the Termination of Employment Act and the wages boards from the statute book for good. What will be in store for the now effete working class community is a forewarning that they should girdle their loins for a showdown in order to protect their shrinking interests.

In addition, the general agreement to a massive reduction in government expenditure is bound to lead to a further drastic reduction of some of the essential services now provided by the government. These include agricultural services, health services, education, water, sanitation, etc.

The result of these measures should be understood together with the other measures adopted by the World Bank and IMF and also the plans pushed by other international trade agreements, such as the General Agreement on Tariffs and Trade (GATT) and the World Trade Organisation (WTO), within the overall context of globalisation.

The privatisation of health, education, postal and other services is also scheduled to be pushed through very soon using the WTO and GATT arrangements. The United States is now about to take control over some of our best tropical forest reserves, such as Sinharaja, in exchange for a reduction of some of their loans.

What Is Really Unjust and Criminal?

The unbearable injustice and criminality of these proposals become clear when one sees that the revenue raised by these measures is to be channelled to meet massive expenses to provide further infrastructure development, which includes three superhighways to attract foreign investors, and the equally massive cost of the protracted ethnic war. We say it is "totally" and "unbearably" criminal to compel those who are extremely poor and starving, including infants and mothers, to pay with their life and limb for these costs.

As a result of these measures, the cost of milk has reached such a high level that the poorest families (two million poor families receiving Samurdhi grants that have a monthly income of less than 1,000 rupees [US] per family) cannot buy the required milk for a single child even if they spend their total monthly income on milk alone.

Time to Regain People's Right to Decide

We feel that we have delayed for far too long the need to question the wisdom of the economic policies that we have adopted for 24 years since 1977. The next few months up to May 2002, the period over which the IMF standby loan agreement would push us to implement all of these destructive measures, are bound to lead to further social unrest, an increase in suicides and crime and the death of infants from abysmal hunger and malnutrition.

Should this be allowed? Should we permit our rulers, together with a few rich people and a few high officials in the government, Central Bank and Treasury, to create such a situation? Have we given them a mandate to do so? These are the questions that demand a quick answer.