The IMF way or the other way?- The
world just got a bit smaller

Sunday 29 April 2012

Last week the IMF released its economic report on Lanka; it is available on the Fund’s website as Country Report 12/95 dated April 2012. It gave the government mixed grades; expressing approval of the austerity and price cutting already implemented, criticizing delay in rupee depreciation and the consequent fall in reserves, and bemoaning the mess in implementing EPF legislation. The report lowered 2012 GDP growth forecast to below 7.5% and expressed concern about foreign reserves and sovereign debts:
“ . . (R)isk underscored the need for a credible package of measures to stem the loss of reserves and place the current account on a more sustainable path.”
The overall assessment was as follows, and those who know how to read these things will tell you the intention is to push the government in certain directions; not for the report to be taken as an economic forecast.
“The policy package should improve Sri Lanka’s reserve position and place the external current account deficit on a sustainable trajectory. However, the next several months are critical, as the authorities will need to stabilize reserves and consolidate a shift to a more flexible monetary and exchange rate policy regime.”
OK, so what this adds up to is that the IMF wants the government to persist with austerity, cut subsidies, raise prices and resist wage demands. Politically, economic confrontations between the government and the subaltern social classes that started in the first months of this year will worsen. Whether one likes the IMF prescriptions or not, everyone can agree that a fight is brewing.
I have previously argued in this column that “no man is an island separate unto itself” and certainly this small island will always be sensitive to events in the big. wide world out there. It is not human rights but the economic quarrels in the rest of the world that will affect our future, which I have chosen as my topic for today. The big picture is the New Depression in the West and slowdown in China and India, but today I want to focus more sharply on Europe and specifically on France in the light of the outcome of the French Presidential Primaries on April 22.

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