Anura Kumara Dissanayake of the JVP has stated that the Rajapaksas ruined the economy of Sri Lanka. As to who really ruined the economy of Sri Lanka, Dissanayake is referred to my book: How the IMF Ruined Sri lanka & Alternative Programmes of Success, published by Godages in 2006.
Who ruined Sri Lanka?
It was actually the IMF that ruined Sri Lanka by imposing its Structural Adjustment Programme in 1977. The United National Party led by President Jayawardena turned to the IMF and the IMF led him up the garden path to ruin. By the time the United National Party handed over Sri Lanka to the opposition, when the United People’s Freedom Alliance (UPFA) was victorious in 2004, the foreign debt of Sri lanka was at $ 11,373 million.
When President Jayewardene won the election in 1977 our foreign debt was at $ 750 million and that too on project financing, where on completion the project would have brought about earnings to offset the capital repayments. That means that we were not in debt. At that time the IMF and the World Bank lent money only for development projects. Then no money was lent for consumption and luxury living. There was no deficit budgeting and no budget assistance. We lived with what we had and with dignity.
President Jayewardene liberalized the economy. The Structural Adjustment Program structured our economy to become severely indebted so that we had to thereafter get loans to pay our dues. The policy measures of the SAP were to open up the economy for imports, reduce or abolish import tariffs. The use of foreign exchange was also liberalized- anything could be imported and anyone could draw any amount of foreign exchange for anything- for foreign travel, to educate children abroad. When there was no foreign exchange to meet this extravaganza, the IMF instruction was to sell paying State Ventures and raise funds or obtain loans from the IMF. This in a nutshell is how the IMF Ruined Sri Lanka and this was done through the Lame Duck President Jayewardene.
Other pathways to ruination included currency devaluation. In 1977 the Sri Lankan Rupee was devalued over 100% from Rs 15.50 in October 1977 to Rs. 31.64 in 1978. Imposition of high interest on loans also contribution for this forced local entrepreneurs to close shop.
This is basically how Third World countries were brought under the thumb of the IMF.
IMF ruined many countries
Professor Jeffery Sachs, a Noble laureate on economics, who imposed the IMF’s Structural Adjustment Program on Bolivia, Russia and Poland, once confessed to the errors of his ways thus:
“Western Governments enforced draconian budget policies in Africa during the 1980s and 1990s. The IMF and the World Bank virtually ran the economic policies of the debt ridden continent, recommending regimens of budgetary belt-tightening, known technically as structural Adjustment Programs which had little scientific merit and produced even fewer results. By the start of the Twenty First Century Africa was poorer than in the later 1960s when the IMF and the World Bank had first arrived on the scene (Sachs, End of poverty, 2005).”
The IMF through its liberalization policies saw to it that the money that comes in as Aid and Loans goes back in some form or other to the donor countries or to the Developed Countries, while leaving the countries indebted to the extent of the loan. When the loan funds were used for foreign travel, for luxury imports and for the education of the children of the rich in universities of the Developed Countries the money somehow got back to the Developed Countries. It was a systematic method of giving loans and getting it back with interest while saddling the countries with debt.
What is important to realize is that when a country is indebted the country has to raise further loans to pay its dues on the loans and to continue the liberalization of foreign exchange condition that the IMF has imposed. Thus since the country was initially made indebted by the UNP, the country has to borrow to fund this extravaganza.
That is how the economy of Sri Lanka was ruined.