Why the IMF is bad for Sri Lanka, in 7 points


My good friend Daniel Alphonsus (beforehand on the Finance Ministry) listed the seven major themes of IMF intervention in Sri Lanka. He stated “the themes of this final program need not be very different from the past six extended programs. But their sequencing needs to reverse.”

Daniel listed the broad issues that the IMF does, and I deal with it as a helpful abstract, not official. Daniel’s article has his personal argument and you need to learn it, however I’ll solely handle these seven factors right here:

As famous earlier, of the 2 major kinds of IMF packages, prolonged amenities are the extra formidable. They last more and are meant to rectify structural issues. Once we evaluate the six prolonged amenities Sri Lanka has obtained, the identical themes preserve propping up over the a long time:

  • Worth distortions: Eradicating worth controls, particularly in power and agricultural markets, to cut back shortages and encourage manufacturing. 
  • Trade fee distortions: Allowing change fee depreciation through versatile change charges to encourage exports and discourage imports. 
  • Commerce liberalisation: Eliminating import controls, simplifying the tariff construction and lowering tariff charges to encourage commerce and exports.
  • SOE reform: Lowering budgetary help from the exchequer, privatisation and bettering SOE administration and governance to enhance authorities funds and productiveness. 
  • Public expenditure: Lowering expenditure, lowering civil service headcount + politicisation and expenditure administration programs to cut back authorities borrowing. 
  • Social transfers: Changing subsidies and in-kind transfers with money + concentrating on transfers to those who actually need them to make the social security internet simpler and environment friendly. 
  • Income measures: Growing taxes, eliminating tax loopholes, bettering tax administration and simplifying the tax system to cut back funds deficits and allow better public items provision. A abstract of every of the six packages will be discovered on the finish of this text.


For a shared sense of what issues the IMF is meant to unravel, let’s agree that Sri Lanka has run out of international change ({dollars}) and this has led to catastrophic shortages of meals, power, and gas. Protestors asking for the facility cuts, gas shortages, and meals shortages to cease.

So what’s the IMF resolution? No matter the issue, wherever it’s on the planet, they typically have the identical suggestions (which is absolutely downside primary). Since Daniel outlines their seven major themes, let’s undergo them one after the other.

1. Eradicating worth controls

  • Worth distortions: Eradicating worth controls, particularly in power and agricultural markets, to cut back shortages and encourage manufacturing.

Daniel says the IMF would “remove price controls, especially in energy and agricultural markets, to reduce shortages and encourage production.” Given primary provide and demand, what would this imply? Costs would go up.

What would this do?

If we take away worth controls on gas, costs will go up. This received’t have an effect on wealthy folks filling up their jeeps a lot, however a poor individual with a trishaw or tractor is totally out of luck.

Identical factor for agriculture, i.e. meals. Costs would go up. Given excessive demand, producers don’t even want to supply extra, and in any case, meals takes time to develop. Lifting worth controls would simply imply rapid worth gouging. What’s the client going to do? Starve?

The issue with simply eradicating worth controls is that costs would get uncontrolled. In its myopic concentrate on costs, the IMF doesn’t even contemplate that worth controls may very well be there for a cause. Sri Lanka has worth controls on gas so folks can energy their tractors to develop meals and get to work. We have now worth controls on meals so human beings can get the essential energy to operate. ‘Rationalising’ these costs would irrationally destroy the human foundation of the entire financial system.

How would folks react?

Nicely, Ok.D. Chaminda Lakshan was simply murdered by the cops just lately, for protesting gas worth hikes. Individuals are protesting as a result of the costs are excessive now. How do you suppose they’d react if you means you need to make it worse? We might justifiably go berserk.

No one’s on the market protesting for increased costs on meals and gas. Individuals need meals and gas costs managed higher, and the IMF would make issues worse.


The precise reply is just not blindly eradicating worth controls. The sane different is to do what folks need. Management costs to allow them to stay, utilizing strategic rationing to guard industries and the working class. To that finish, Sri Lanka ought to ration gas in order that productive buses, tractors, tuk-tuks, and bikes can get one thing, and gas-guzzling automobiles and jeeps get instructed no. We additionally must ration and even nationalise meals manufacturing so that individuals don’t starve, even when fancy imported meals runs out.

Worth controls provide you with a precious device to regulate who will get protected, whereas eradicating them simply protects capitalists and their earnings. And what our folks desperately want now’s safety.


2. Depreciating the forex

  • Trade fee distortions: Allowing change fee depreciation through versatile change charges to encourage exports and discourage imports 

Sri Lanka’s forex has already depreciated 65%. It was 200 to the greenback, now it’s 330. To the moon! The issue right here is that Sri Lanka’s greenback money owed have gotten 65% costlier (to the purpose that we’ve defaulted), and dollar-denominated gas and medication have additionally change into extra pricey.

The logic is that the outdated change fee was incorrect and nobody would remit {dollars} at this worth, however now persons are nonetheless not remitting {dollars} in any case. As investor Murtaza Jafferjee stated, “There are no USD available even after a 70 percent depreciation.”


What would this do?

Like gas hikes, this isn’t hypothetical. The rupee has already depreciated, and it has A) not solved the issue and B) created different issues. The IMF concept is that this ‘encourages exports and discourages imports’ however that is simply junk psychology. Only a utterly unproven concept of human motivation, unethically examined on complete human populations.

The unlucky reality is that Sri Lanka not has any capacity to do a lot about our forex. Depreciation is simply taking place. However it’s folly to suppose that depreciation is sweet. As Shiran Illanperuma stated to me, “Devaluation drives up the cost of inputs and basically drives inflation across the board. The basket of imports tends to shift from production to consumption goods cause you focus on survival.”

That is what the IMF picks as an answer. A blunt device like change charges together with blunt worth will increase. They simply bludgeon everybody within the nation with blunt devices, which don’t even work. It makes the nation straightforward pickings for capitalists, proudly wounding the nation as a very unproven motivational device.

How would folks react?

We have now depreciation now, so look how persons are reacting now. We’re fairly livid. Milk powder is unavailable, important meals is costlier, spare components, and export inputs are sometimes unattainable. Center-class financial savings have been minimize in half. Individuals need much less depreciation, no more.


As I’ve stated, that is largely unattainable with pure financial coverage. What Sri Lanka wants is long-term industrial coverage. The one factor that may transfer our forex is demand for exports, and export industries must be deliberate, protected, and supported by the federal government to develop. This could take years, however there’s no different means out. That is what each industrialised nation has truly performed, versus the theoretical nonsense the IMF tells poor nations to do.

If you wish to encourage exports, you’ll want to actively develop industries, as each industrialised nation has performed. A depreciating forex doesn’t magically produce factories. They must be given authorities help, protected, and nurtured alongside. Once more, this isn’t commie concept. That is how each industrialised nation has truly developed.

As with each IMF suggestion, keep in mind to ask cui bono? Who advantages? Does a depreciating forex profit you? Or does it profit native and international capitalists? Who do you suppose the IMF represents?


3. Eliminating import controls

  • Commerce liberalisation: Eliminating import controls, simplifying the tariff construction and lowering tariff charges to encourage commerce and exports

The IMF says Sri Lanka ought to “eliminate import controls.” Earlier than you take away a management, nonetheless, you need to ask what was it controlling? Was it one thing worse?

What would this do?

Sri Lanka’s import controls have been (unstrategically) controlling huge stress on our greenback reserves. Because the economist Howard Nicholas illustrates, with out them we’d be doing even worse (Refer Determine 1).

What would occur if we simply minimize import controls off? Nicely, that stress on our greenback reserves would explode, and we’d be in a world of damage. Inequality would explode as nicely, as a result of imports would go the place the cash was, with none controls in any respect. So {dollars} would go for Daimler Benzes as an alternative of dhal.

As all the time, preserve asking cui bono? Eliminating import controls would profit international exporters and native importers, however working folks and households would undergo much more. And the elevated stress on foreign exchange would damage everybody.

How would folks react?

No one’s on the market screaming for extra imports on the whole. They need gas, they need milk powder, they need medication, they need necessities. If the nation eliminated import controls on the whole, none of that may be prioritised. We might have worse stress on reserves, with even much less consideration of what the folks need. They might rightly be livid.

A solution

Individuals don’t need the elimination of controls. They need issues to be below management. Meaning lifting import controls on what the folks need (like dhal, milk powder, or sanitary pads) and elevating them on what the wealthy don’t want (luxurious items, air conditioners). This fashion we are able to elevate income with out burying working folks alive. On the similar time, authorities industrial planners must A) give you an industrial plan after which B) carve out exceptions for the required inputs. We have to use import controls to develop and shield native business which might A) serve native customers with out placing stress on greenback reserves and B) make merchandise for export. Within the long-term, that is the one means out of the core downside, which is that nobody desires to offer us foreign exchange to place in our reserves, which is how we purchase imports in any respect. None of those are loopy commie theories. That is how each industrialised nation truly developed, versus the failed textbook they throw at us. Each industrialised nation has and continues to have import controls, which they use as a strategic device. Proper now, Sri Lanka wants each device we are able to get.


4. Privatisation and SOE cuts

  • SOE reform: Lowering budgetary help from the exchequer, privatisation and bettering SOE administration and governance to enhance authorities funds and productiveness 

 As you could have seen, the IMF requires blunt, dogmatic cuts, with no sense of what nation they’re in, what’s occurring, or what 12 months it’s. As economist Howard Nicholas just lately stated: The IMF focuses on the incorrect factor. An important factor that the present downside pertains to is the commerce imbalance. Just lately I had a replica of the IMF workers report on Sri Lanka, and what’s unbelievable to me is that in 120-odd pages, they point out the commerce stability solely as soon as, and solely obliquely.

And that is fairly staggering after I present you the issue of Sri Lanka. This for me suggests they’ve an ideological agenda. They’re not trying on the knowledge, and so they’re not within the knowledge.”

As each Sri Lankan on the road is aware of, the issue is we don’t have {dollars} for power, gas, and medication, however the IMF makes use of this disaster to simply push its typical agenda. Each disaster is a chance to chop issues, and privatise up the scraps. Do these cuts assist the folks recuperate? Do they minimize their very own nations throughout disaster like that? Nope. However right here we’re. One other alternative for hacks to hack.

So in Sri Lanka, the IMF will name for ‘reducing budgetary support’ to state-owned enterprises (SOEs). However which enterprises? Shouldn’t some enterprises truly get more cash? And is that this an excellent time, when the entire financial system is having a coronary heart assault? Moreover the plain foreign exchange burners that’s the dumb airline, what do SOEs must do with a collapse in greenback reserves?

The IMF doesn’t get into that. The Washington Consensus since shock remedy within the Nineteen Eighties has been simply minimize every part and hoover up the scraps. Each hearth within the International South is known as a hearth sale for International Capitalism, and the IMF aren’t firefighters. They gentle the match.

What would this do?

Blanket cuts to state spending will simply seize up the financial system additional. Individuals is not going to get salaries, suppliers is not going to receives a commission, the entire financial system shall be damage. Because the Nice Despair white economists have recognized this, they simply don’t apply the lesson to us.

Throughout a recession in his personal nation, John Maynard Keynes advisable authorities spending on any exercise. He stated the federal government ought to even bury cash within the floor and pay folks to dig it up. That is the ‘stimulation’ wealthy nations give themselves, however it’s nothing however harsh austerity for us. And we all know austerity doesn’t work. We’ve recognized because the Thirties. Economics isn’t as racist as economists. Keynes, after all, took a special view on brown folks. He performed a key position within the genocidal Bengal famine, stripping sources out of the South to serve the North.

“The inflation was no accident. The impoverishment was no accident. British policy was explicitly designed to ‘reduce the consumption of the poor’, as Keynes put it, in order to make resources available for British and American troops, through a ‘forced transfer of purchasing power’ from ordinary people to the military. The austerity was imposed most harshly on the people of Bengal, who fell into extreme famine, while food supplies were appropriated and diverted for military use. “In the name of the Allied cause, the policies imposed by Keynes and Churchill killed more than three million people – many times more than the total number of military and civilian casualties suffered during the entire war by Britain and the US combined. The scale of this tragedy is almost impossible to fathom. If laid head to foot, the corpses of the victims would stretch the length of England, from Dover to the Scottish borders, nearly 10 times over. 

Things really haven’t changed that much to this day. Capitalism and the IMF just took over where colonialism and the East India Company left off.” (Supply:

How would folks react?

If authorities spending is minimize, salaries received’t be paid, suppliers received’t be paid, we’re speaking about tens of millions of Sri Lankans getting damage. Are SOEs inefficient, perhaps, however that’s not our downside proper now. Our downside is that the entire financial system is collapsing, so we have to push extra authorities spending out, even when it goes right into a gap. We’re attempting to stop complete collapse and chaos, not optimise Sathosa.


The choice is definitely extra authorities spending. , the stimulus white folks preserve giving themselves. Print cash and pay folks to farm. Pay folks to put in huge quantities of photo voltaic (with prioritisation of the required imports). Pay folks to restore and broaden irrigation programs. Like FDR did to finish the Nice Despair, we don’t want cuts. We want huge public works.

That is what a real worldwide accomplice would do, and if we now have a plan we do truly do have buddies in Asia. However we should keep in mind that the IMF is just not our good friend. They simply characterize worldwide collectors and capital. They don’t care if we damage. In reality, it’s higher for them. That’s the place privatisation is available in. Low-cost belongings for them to grab up.


5. Firing folks

  • Public expenditure: Lowering expenditure, lowering civil service headcount + politicisation and expenditure administration programs to cut back authorities borrowing

Authorities servants didn’t trigger this downside. They put little or no stress on international reserves. Their salaries are small and denominated in rupees (after all). But that’s what the IMF desires to chop.

No matter issues you may have, the IMF has the identical options. As a result of it’s not about our issues, it’s about what wealthy folks need. And so they need these poor authorities servants to get fired.


What would this do?

Like cuts to SOEs, firing folks would blow cash out of the financial system at a time once we’re desperately attempting to inflate it again up.

As Keynes stated it doesn’t matter if authorities departments are inefficient. That’s not our downside proper now. The issue is that we’re crashing into our personal nice melancholy, and we desperately want cash circulating.

Firing authorities servants does nothing for international reserves. It does nothing to supply export, or meals, or power, or something we’d like. It’s simply firing poor folks and placing them on the road. It’s just a few ritual sacrifice that worldwide collectors demand, however it has no profit to the nation.

How would folks react?

If we begin throwing authorities servants out on the road, guess the place they find yourself? On the road. When you thought protests had been unhealthy, wait until a bunch of fired, drained, and wired folks present up. It’ll be even crazier, and we’d deserve it.

No matter waste there’s within the civil service, it’s in rupees, and it goes proper again into this financial system. In the meantime folks driving imported automobiles and sending their children to high school overseas name authorities servants a burden, and lazy. It’s rank class warfare, and full hypocrisy. Civil servants weren’t those burning {dollars}. That’s on readers of the Each day FT.


Public expenditure in rupees is solely not the issue. We’re having a foreign exchange disaster, not a rupee disaster. We actually must reorient authorities servants to productive work, however firing them throughout an financial crash is simply madness. It will simply throw extra folks into poverty, pull more cash out of an already stalling system, and we’d simply crash with better depth.

What we’d like is definitely extra authorities spending, as I mentioned, which has been the recipe for white folks for practically a century. We have to get extra folks to work. Now is just not the time to be firing folks. Except, after all, you’re a capitalist and also you A) don’t care and B) like having poor determined folks as a surplus labour military. As a result of that’s the place this leads. Both wage slavery or revolution, neither of which shall be fairly.


6. Lowering subsidies

  • Social transfers: Changing subsidies and in-kind transfers with money + concentrating on transfers to those who actually need them to make the social security internet simpler and environment friendly

In response to the IMF, money transfers are simply ‘more effective and efficient than subsidies. But that’s simply not true. Generally money is sweet, however generally subsidies make extra sense. It depends upon the scenario. However as all the time, the IMF is one dimension suits all, and that dimension is all the time too small to suit anyone.

That is additionally an answer searching for the issue. No one’s holding posters saying ‘More efficient cash transfers! Fuel and food subsidies are keeping people alive and the economy going. We’re supposed to tug that plug for a money supply system that doesn’t exist? As a result of what? Concept?

What would this do?

Moreover Samurdhi and Mahapola (money funds to the poor), the federal government doesn’t have a system for money supply. As an alternative, gas, power, and a few meals are subsidised, which is an important enter to the financial system. How will we change that working subsidy system with a money system that doesn’t exist?

Any money supply system can be liable to political corruption or siphoned off in charges by personal corporations. It’d be an excellent enterprise for some, however truly worse for the financial system.

How would folks react?

Individuals would positively protest in case you minimize off subsidies, and also you’d be creating an enormous mess for cause. Simply devotion to some utterly unproven concept.

Subsidies are literally inputs to your entire financial system. They make every part tick. As I discussed, subsidies are investments that feed staff, getting them to work, and run these companies. When you myopically prioritise making the power and agriculture sectors extra ‘efficient’ on paper, you destroy your entire financial system in apply. And folks know this if you minimize subsidies. They protest, and so they’re proper.


Subsidies will be superb. Subsidies will be extra environment friendly than money. When you subsidise milk some baby will get milk. When you subsidise rice somebody will get fed. When you subsidise gas some tractor tills a discipline. When you give money you don’t know what occurs, it may very well be siphoned off, hoarded, or spent on booze. I’m not saying money transfers are unhealthy, however they’re only a tactic, not a method. It depends upon the scenario.

On this scenario, we should always truly be utilizing subsidies extra. Individuals ought to get a primary ration of meals (a subsidy) to allow them to survive. Farmers and industries ought to get some subsidised power and gas. We should always present inputs in variety to get actual industrial manufacturing going. The talk over subsidies vs. money transfers is truthfully pointless and dogmatic. Not like IMF suggestions, we should always do what works.


7. Growing taxes

  • Income measures: Growing taxes, eliminating tax loopholes, bettering tax administration and simplifying the tax system to cut back funds deficits and allow better public items provision. A abstract of every of the six packages will be discovered on the finish of this text

Sri Lanka’s tax assortment is dismal and the present President made it abysmally worse. It positively must be improved, however once more we have to take a look at the scenario proper now.

All the stuff that the IMF says to get rid of (worth controls, import controls) is definitely a direct approach to elevate cash, whereas tax hikes can be delayed and require assortment capacity we don’t but have. I’m not saying don’t do it. Do it. Elevate my taxes. However there are higher methods to boost income proper now.

What would this do?

When you’re firing folks, lowering spending, and usually cratering the financial system with austerity, it’s unclear who you’re elevating taxes on. Sri Lanka has an especially low share of individuals paying revenue tax, and the actually wealthy are slippery as eels. In the very best case, this suggestion would don’t a lot, as a result of it’s largely unworkable (Refer Determine 2).

Most Sri Lankan taxes are collected by sin (liquor, booze, cigarettes, automobiles, and oil), VAT (gross sales tax), and import duties. The IMF desires to chop the latter, and in case you improve consumption taxes, that simply hits poor folks. Earnings tax is just 19% of income. There’s merely not that a lot you are able to do.

How would folks react?

When you improve revenue taxes folks will ignore it as a result of there’s no assortment power (and also you’re firing authorities servants, aren’t you?). When you elevate company taxes OK, however companies are tanking too. When you elevate consumption taxes protests will devour you. It’s laborious to see how any of this improves the scenario.


In reality, the entire stuff that the IMF says to not do are methods to boost income. Import controls and worth controls are very direct methods to boost income, and they are often made progress too.

With power, for instance, you possibly can cost ‘huge’ quantities for extreme residence use. Operating the ACs ought to value like Rs. 200,000, whereas a invoice of Rs. 2,000 must be untouched. That is successfully progressive taxation, collected by the electrical energy invoice. It additionally reduces demand for electrical energy. Many birds, one stone.

Identical factor for gas. Big surcharge for filling up a luxurious automobile or jeep. Filling up a bus, tractor, lorry, or tuk-tuk must be low-cost. That is once more a progressive tax, collected on the pump, which additionally reduces demand.

Within the longer-term, revenue taxes plus wealth taxes are additionally essential. However once more this isn’t about tax or don’t tax. It’s about the best taxes, amassing cash strategically, from the best folks. Leaving the poor largely untouched, however amassing from the wealthy, importing class that received us into this mess.

Who not what

What I hope you’ve seen working by this text is A) how truly terrible the IMF suggestions are and B) who they really profit. The who’s an important half.

The IMF serves collectors and worldwide capital, and the few wealthy folks that profit in Sri Lanka. All the time headed by a European, it’s a essentially colonial establishment that preserves that (abusive) relationship by our personal desperation and lack of options.

Daniel calls the IMF’s suggestions ‘politically costly,’ which is only a fancy means of claiming wildly unpopular and never democratically accepted. Individuals don’t like increased costs, they don’t like a weaker rupee, they don’t like shedding their jobs, they don’t like shedding subsidies, and so they don’t like paying extra taxes. All of this stuff the IMF calls ‘reforms’ are unpopular for good cause. The folks aren’t dumb. The folks must be listened to.

The logic amongst my class of individuals (the wealthy), nonetheless, is that odd folks simply don’t perceive, however that’s simply not true. It’s simply frequent sense that elevating costs, firing folks, and slicing subsidies are a foul concept throughout a disaster. Western economics is a wierd priesthood, with obscure financial beliefs and magic ‘structural’ spells that don’t work, however which nonetheless stay dogma for the poor. It’s actually a category battle, and as Tolstoy stated: “This wonderful blindness which befalls people of our circle can only be explained by the fact that when people behave badly they always invent a philosophy of life which represents their bad actions to be not bad actions at all, but merely results of unalterable laws beyond their control.

In former times such a view of life was found in the theory that an inscrutable and unalterable will of God existed… The new explanations came in the form of science: political economy, which declared that it had discovered the laws which regulate division of labour and of the distribution of the products of labour among men.”

Because the (good) economist Ahilan Kadirgamar stated in The Hindu: “In Colombo’s elite circles, the refrain now is that “we will have to go through much suffering before it gets better”. However, the elite would be the final to undergo as austerity will largely hit Sri Lanka’s working folks. In reality, the IMF settlement in bailing out exterior lenders can be bailing out the elite lessons in Sri Lanka, as a lot of the exterior debt and the associated tasks and conspicuous consumption served them greater than anybody else.

“The neoliberal technocrats are proposing to buy over people affected by austerity measures with cash transfers. However, working people are far more committed to their social welfare entitlements as evident from how they have fought hard to protect free education and universal health care over the decades. Indeed, there will be tremendous resistance to privatising state services and utilities. If anyone has to pay for this crisis, it must obviously be the wealthier classes in the country; the imposition of a wealth tax, for example on property and vehicles accumulated over the years, would be a starting point.” (

As Ahilan stated, “The IMF agreement in bailing out external lenders is also bailing out the elite classes in Sri Lanka, as much of the external debt and the related projects and conspicuous consumption served them more than anyone else.” As he continued, “if anyone has to pay for this crisis, it must obviously be the wealthier classes in the country.”

And but what is clear is obscured below mountains of very critical financial pablum. Psychological experimentation on poor, colored populations. The experiments by no means work, however they preserve testing us. They might truly become profitable by not underdeveloping us, however it’s not about that actually. It’s about energy. It’s like how white folks used to throw cash at us. Simply to observe us run.

The reality is that the IMF and its backers might forgive Sri Lanka’s money owed with out even noticing. However that’s not what they do. They preserve us in a colonial debt entice, and inform us to worry different Asians. However take a look at the entice we’re actually in. It certain seems fairly Capitalist and Western. As Shiran Illanperuma wrote: “In fact, predominantly Western banks, financial institutions and hedge funds, held over 40% of Sri Lanka’s external debt — in the forms of International Sovereign Bonds — in 2021. Notably, 70% of Sri Lanka’s International Sovereign Bonds were issued between 2016 and 2019 while the previous government was undertaking IMF reforms.”

The reality is that Sri Lanka might take care of our greenback downside by abandoning {dollars} as a lot as potential and buying and selling in different currencies with our neighbours. We might journey the shifting geopolitical winds out of this storm, as an alternative, we’re being sucked again into White Empire because it implodes.

What do we expect these ‘final’ reforms are going to do? At greatest we’ll simply kick the can a number of months down the highway. At worst a rustic that’s already struggling and on hearth will completely explode.

When you don’t imagine me, I invite you to take these seven factors and go right down to the protests, and current them to folks on the highway. Inform them you need to elevate costs, devalue the forex, hearth folks, and minimize public subsidies. Then attempt to not get chased down that highway. That’s actually what we should always do to the IMF. Chase them overseas, out of historical past, all the best way down the revolutionary highway.


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