News
Sri Lanka is proof that governments use IMF bailouts to hurt political opponents
M Rodwan Abouharb, The Conversation & Bernhard Reinsberg, The Conversation
Sri Lanka received a bailout from the International Monetary Fund in March amid soaring inflation, debt and a sovereign default.In exchange for US$3 billion, the government committed to spending cuts and tax and financial sector reforms. These have prevented Sri Lankan wages from recovering after they fell by almost half in real terms during the preceding financial crisis, leading to protests in the streets of Colombo.
Sri Lankans’ experience of these measures has been far from uniform. Emerging evidence indicates that the government – led by Ranil Wickremesinghe, part of the Buddhist Sinhalese majority – has concentrated the burdens primarily on ethnic minorities, who are the poorest in Sri Lanka and typically support the opposition.
The government has sought to protect the elite, which is primarily Buddhist Sinhalese, by avoiding imposing wealth taxes and only making small increases in corporation tax. It has placed the costs of austerity on low-income people by doubling the value-added tax rate to 15%.
It has also doubled the tax that people pay on pension-fund returns. Again, this hits poor ethnic minorities hardest because they frequently earn too little to pay income tax.
Unfortunately, this experience is part of a worldwide pattern. Our new book, IMF Lending: Partisanship, Punishment and Protest, shows how governments lump the burden of adjustment on opposition supporters while shielding their own backers – in other words, using IMF programmes for political gain.
IMF programmes and past research Scholars have long noted that IMF restructuring programmes create winners and losers, but always in relation to different sectors of the economy. For example, the fact that programmes attempt to strengthen exports has been shown to favour farmers and business owners over urban middle-class state employees like civil servants.
The problem with purely comparing sectors is highlighted when you look at citizens’ experiences. One segment of the survey data we used in our research, covering nine countries in Africa, showed that three out of 10 civil servants actually thought IMF reforms made their lives better, while a similar proportion observed no difference.
Admittedly this data is from 1999-2001, since none of the more recent surveys that we used asked this question, but it raises an important point: if IMF reforms are entirely bad for the civil service, why are so many civil servants upbeat about the effects? Politics is likely to be the missing piece of the puzzle.
An extensive academic literature already shows that governments often use their discretion to play politics over development loans. For example, a recent study found that projects funded by Chinese money are more likely to be undertaken in the birth region of a political leader.
With IMF programmes, it’s commonly assumed that they narrow borrowing governments’ policy options, but that is an oversimplification. Borrowers certainly have less overall freedom over economic policy, but they maintain broad discretion in how they implement loan conditions. Our study is the first to quantify how they use this discretion and examine the consequences for protests within the countries in question.
Our study
We collected individual survey data from over 100 countries from four widely used sources: Afrobarometer, Asian Barometer, Latinobarómetro and the World Values Surveys. It covers a 40-year timespan up to the late 2010s, with periods varying from region to region.
We first examined whether opposition supporters had experiences of reforms different from government supporters. Sure enough, these were indeed more negative.
We worried this might be because these people are more critical of their governments in general. So we compared countries which had just experienced a restructuring programme with others which had not, and found that sentiment among opposition supporters was much more negative in borrower countries.
The graph (above) provides an explanation, showing that opposition supporters in countries on IMF programmes suffer relatively more deprivation than government supporters compared to countries not in programmes.
This “partisan gap” was also wider in countries who went through a more burdensome recent IMF adjustment, which points to the same conclusion.
The effect on protest
We expected that this highly unequal treatment would increase the chances of protest – especially when stoked by opposition politicians. This, too, was robustly supported across the surveys.
In Africa, people who reported being worse off due to the structural adjustment programme were more likely to protest. Opposition supporters as a whole were also more likely to protest, especially if the country had just experienced a more severe IMF programme.
Again, this data was from 1999-2001. Nonetheless, the other surveys also showed that protest was more likely among opposition supporters, especially during times of high pressure for adjustment.
What can be done
Scholars normally blame the increase in inequality caused by IMF programmes on the loan conditions, but the effects are clearly amplified by governments’ policy choices. How could this situation be improved? The IMF could require borrower countries to impose loan conditions in a non-partisan way, but would probably argue that its mandate prohibits considering domestic politics. Policing this would also be very difficult and time-consuming.
An alternative would be for the IMF to tame its demands on borrower countries. This would reduce the burdens that could be inflicted on opposition supporters. Economists might warn that this could encourage countries to be more financially irresponsible. Equally, however, it ought to make it more likely that adjustment programmes will be completed, thereby making the borrowing country more economically resilient for the future. It would also avoid any adverse reaction from the financial markets against a country breaking conditions.
Another potential avenue is to let opposition parties and civil society organisations participate in bailout negotiations. This would ensure everyone “owns” the bailout, and might even make it harder for incumbent governments to exploit policy conditions for political gain.
(M Rodwan Abouharb, Associate Professor in International Relations, UCL. Bernhard Reinsberg, Reader in Politics, University of Glasgow)
Latest News
Peter Magyar sworn in as Hungary’s PM, ending Orban’s 16 years in power
Peter Magyar has been sworn in as Hungary’s new prime minister, almost a month after parliamentary elections that ended Viktor Orban’s 16 years in power.
Magyar, 45, who leads the centre-right Tisza party, was propelled into office on promises of change after years of economic stagnation under Orban, and strained ties with key allies, including the European Union.
On Saturday, Magyar invited Hungarians to “step through the gate of regime change”.
His party has a huge parliamentary majority, winning 141 of the 199 seats.
However, Magyar faces several challenges in his new role, including restoring Budapest’s relations with the EU, reviving the economy and tackling a budget deficit that reached almost three-quarters of its full-year target by April.
A ceremony was held inside Hungary’s neo-Gothic parliament building as Magyar was sworn in. The EU flag, removed under Orban, was displayed inside the chamber for the first time in 12 years.
The newly appointed parliamentary speaker, Agnes Forsthoffer, used her first decision in office to order the flag’s reinstatement, describing the move as “the first symbolic step on this path [back to Europe]”.
The new prime minister aims to strike a deal with the EU that would unlock around $20bn in frozen funding. The money was withheld over concerns about worsening human rights under Orban and a decline in the rule of law.
During Orban’s tenure, Hungary drifted further away from the EU as ties with Moscow deepened. The former prime minister used his veto in the European Council to oppose sanctions on Russia and block support for Ukraine.
Theofanis Exadaktylos, a professor of European politics at the University of Surrey, told Al Jazeera that Magyar will need to prove he is different from Orban while dealing with the bureaucracy left behind by his predecessor.
“The challenges for the new PM are primarily related to the extensive presence of the previous regime. Orban was in power for such a long time and he has managed to change Hungary substantially from an administrative point of view. To that end, uprooting the previous establishment will be a challenge,” he said.
“The second [challenge] will be to establish himself as different to the previous regime. Considering his background there will be sceptic voices, however let’s not forget that ideologically he belongs to the right,” he continued.
“Nonetheless, his election marks a turning point in Hungary showcasing that the previous regime had started to lose ground in its popular basis. The third challenge is the way he will reconnect Hungary to the European Union: to that end, he has a bit of work to do from a diplomatic point of view to create new allies within the Union.”
Magyar’s rise to prime minister is widely regarded as a remarkable feat. He was largely unknown in Hungarian politics until early 2024, when he became embroiled in a public dispute with Orban’s ruling Fidesz party, of which he had previously been a prominent member.
[Aljazeera]
Latest News
Senior Sri Lankan monk arrested for alleged child sex crimes
A prominent Buddhist monk has been arrested in Sri Lanka for allegedly sexually abusing an 11-year-old girl, in the highest-profile case involving a local religious leader.
Authorities took 71-year-old Pallegama Hemarathana into custody on Saturday from a private hospital in the capital, Colombo, where he had checked in for treatment as a criminal probe against him progressed.
Hemarathana is accused of committing the abuse in 2022 in a highly venerated temple in Anuradhapura, where he is the chief priest.
Authorities said the victim’s mother has also been arrested for aiding and abetting the monk.
“We will be guided by the magistrate on further action,” a police statement said Saturday.
Hemarathana, who had been subject to a foreign travel ban, was detained on the orders of the chief magistrate in Anuradhapura, after child protection authorities cited complaints of delays in his arrest, reported Sri Lanka’s Daily News. It said the court instructed police to arrest Hemarathana and bring him before the court “without delay”.
There have been several cases of clergy abusing children in Sri Lanka, but the latest arrest involves the most senior monk to be accused of such a crime.
Last month, 22 monks were arrested at Colombo’s international airport after 110kg (242lbs) of cannabis were found hidden in their bags, in what was the biggest drug smuggling discovery ever in the facility.
[Aljazeera]
Business
Trade, Investment and Tourism Cooperation Forum strengthens economic ties between Sri Lanka and Vietnam
Marking a significant milestone in strengthening bilateral relations between Sri Lanka and Vietnam, the Sri Lanka– Vietnam Trade, Investment and Tourism Cooperation Forum was successfully held on Friday (08) at the Hilton Colombo.
The Forum, jointly organised by the Vietnam Chamber of Commerce and Industry and the Sri Lanka Export Development Board, was held in parallel with the State Visit of President Tô Lâm of the Socialist Republic of Vietnam and General Secretary of the Central Committee of the Communist Party of Vietnam. The event was attended by President Tô Lâm and Prime Minister Dr. Harini Amarasuriya.
The Forum underscored the importance of the longstanding bilateral relationship between the two countries and reflected the shared commitment to expanding economic cooperation.
The primary objective of the Forum was to further strengthen bilateral economic ties by focusing on key priorities including the expansion of trade, promotion of investment and enhancement of tourism cooperation. The event also provided an opportunity to explore new avenues of collaboration, strengthen business-to-business engagement and facilitate greater market access by bringing together senior government officials, entrepreneurs and industry leaders from both countries on a common platform.
During the Forum, direct air connectivity between Colombo and Ho Chi Minh City was officially launched. The new services, operated by Vietnam Airlines and VietJet Air, are expected to further strengthen relations between the two nations and their people.
Six Memoranda of Understanding covering key areas of cooperation were also signed during the Forum. In addition, a notable development was the establishment of the Sri Lanka–Vietnam Business Council under the Ceylon Chamber of Commerce.
Alongside the Forum, the Sri Lanka Export Development Board organised a business networking session, providing Sri Lankan and Vietnamese entrepreneurs with the opportunity to engage directly with one another. The event received strong participation from the private sectors of both countries, with businesses expressing keen interest in expanding trade and establishing resilient supply chains.
Representing Sri Lanka at the event were Minister of Industry and Entrepreneurship Development, Sunil Handunnetti, Minister of Environment , Dr. Dhammika Patabendi, Deputy Minister of Industry and Entrepreneurship Development ,Chathuranga Abeysinghe, Deputy Minister of Ports and Civil Aviation, Janitha Ruwan Kodithuwakku, Deputy Minister of Tourism Ruwan Ranasinghe, Secretary to the Ministry of Industry and Entrepreneurship Development, Thilaka Jayasundara, Secretary to the Ministry of Trade, Commerce, Food Security and Cooperative Development, K.A.Vimalenthirarajah, Chairman of the Export Development Board Mangala Wijesinghe along with several other dignitaries and officials.
Representing Vietnam were Politburo Member, Secretary of the Party Central Committee and Chairman of the Central Organisation Commission , Nguyen Duy Ngoc, Politburo Member, Secretary of the Party Central Committee and Chairman of the Central Commission for Policies and Strategies , Nguyen Thanh Nghi, Politburo Member, Deputy Prime Minister and Minister of National Defence, Phan Van Giang, Politburo Member and Minister of Public Security, Luong Tam Quang and Politburo Member and Minister of Foreign Affairs, Le Hoai Trung, among others.
(PMD)
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