Sydney Sebro

816008283

GOVT 3046
INTERNATIONAL
ORGANISATIONS
“This is global governance in the making. But we must agree and agree to a binding
commitment” (Papandreou, 2011). Throughout the years there have been attempts to
Global Governance as the international system was becoming mostly anarchic
without the presence of an overarching authority. These attempts were the
establishment of international organisations that unite states to deal with issues
prominent in either the international system or single states themselves.
Additionally, Global Governance fosters international cooperation, interdependence,
increased coherence, collective decision-making, and commitment and trust among
nation states. International organisations created to foster these factors and defined
as “Governance is the sum of many ways individuals and institutions, public and
private, manage their common affairs. It is a continuing process through which
conflicting or diverse interests may be accommodated and co-operative action taken.
It includes formal institutions and regimes empowered to enforce compliance, as
well as informal arrangements that people and institutions either have agreed to or
perceive to be in their interest” (UN Commission on Global Governance, 1995).
Presently, many social, economic, and political issues have been more prominent
with the global development. In consequence of these issues, international
organisations are established to solve and mitigate these arising problems. This
essay will seek to discuss the role of the International Monetary Fund, its relevance
and effectiveness in addressing the Sri Lankan Economic Crisis.

Currently, Sri Lanka’s Economy is at an all time low which was triggered by the

consolidation of political power, hyper-populist policies and organic agricultural

methods. “The consolidation of power refers to the practice of dissolving or

disbanding legislative, judicial and executive authorities and concentrating power in

one or two offices or office holders” (Webster University, 2013). In 2019, the Sri

Lanka Podujana Peramuna (SLPP) government were appointed where Gotabaya

Rajapaksa the President arranged for his family members to uphold key positions of

the Prime Minister and the finance minister. Nevertheless, Rajapaksa reformed the

constitution that gave power to this government “to hire and fire judges and other

members of the judiciary” (Endresen, 2022). Consequently, this may lead to

corruption providing evidence that proves the corruption of this government as their

power to fire who have differing views or ideologies to them and/or hire judges with

their biased goals and objectives. According to W. Julian Korab-Karpowicz, 2012,

“independent individuals, are enemies by nature, asocial and selfish, and that there

is no moral limitation on their behavior, is a great challenge to the idealist political

vision based on human sociability”.

Another factor that impacted the economic, political, and social system of Sri Lanka

is the hyper-populist policies used as a tool to deter the poor “(the “masses,” the

“people”)” from becoming revolutionary. The hype-populist policies are extreme

policies that incentivize the poor by redistributing resources to satisfy the masses.

“The Rajapaksa government enacted populist policies, including massive tax breaks,

which had an adverse effect on government revenue; the Goods and Services (GST)

tax rate was slashed in half from 15 percent to 8 percent; the income tax was cut

which increased the taxable income band by 600 percent from 500,000 Sri Lankan

Rupees (SLR) to 3,000,000 SLR. This resulted in a 33.5 percent decrease in the

number of taxpayers.” Furthermore, this led to a loss inn revenue with an estimated

two percent (2%) Gross Domestic Product (GDP) of a nature that disallowed the

government to lower the GDP debt and on the other hand increased it.

One of the last issues impacting on the Sri Lankan Economic Crisis is the adopted

organic agricultural methods where the government ordered farmers to shift to.

Farmers transitioned to organic methods with a short deadline and no support. “In

April 2021, Rajapaksa banned imports of chemical fertilizers. The push for organic

farming caught farmers by surprise and decimated staple rice crops, driving prices

higher” (uzma, 2022) Consequently, there was a decrease in agricultural outputs,

therefore “Sri Lanka had to stop exporting these items and instead import them to

ensure enough quantity to sustain domestic demand” (Endresen, 2022). The

aforementioned created a domino effect of reduced output leading to the

termination of the exportation of these gods and in turn the importation of the goods

to satisfy the domestic needs. Furthermore, “Sri Lanka was caught in a vicious cycle
of rising debt and rising interest payments due to the mismanagement of its

economy” (Endresen, 2022).

The International Monetary Fund (the IMF) was born out of the 1930’s Great

Depression, as a means of building and maintaining international economic

cooperation (IMF, 2022). It is aimed at ensuring economic growth and stability

through assistance and correction of the underlying issues that its member nations

face. According to Article 1 of the International Monetary Fund’s Articles of

Agreement; the purpose of the IMF is “To facilitate the expansion and balanced

growth of international trade, and to contribute thereby to the promotion and

maintenance of high levels of employment and real income and to the development

of the productive resources of all members primary objectives of economic policy”.

(Killick, 1984) Their purpose also extends to giving “confidence to members by

making the general resources of the Fund temporarily available to them under

adequate safe-guards, thus providing them with opportunities to correct

maladjustments in their balance of payments without resorting to measures

destructive of national or international prosperity.” (Killick, 1984)

According to Killick, whilst an institution such as the International Monetary Fund

can be argued as necessary today, the objectives of the fund are often overlooked

and contradicted, where the balance of payments is concerned. This is due to the

evolution of fund’s main facilitators over the years from those major countries for

which it was designed to benefit, to an overwhelming reliance by developing

countries, which would not have been at the helm of the Fund’s design.

The relationship between the IMF and Sri Lanka first began as it dealt with and is

still dealing with a balance of payments crisis. Sri Lanka’s first bailout was a Stand-

By Agreement (SBA) for the period of April 20th, 2001, to September10th, 2002 with

the approved amount of US$256.8 million dollars. “All member countries facing
external financing needs are eligible for SBAs subject to IMF policies. However,

SBAs are more often used by middle income (and, more recently, advanced) member

countries, since low-income countries have a range of concessional instruments

tailored to their needs” (IMF, 2017). Although the IMF’ Stand-by agreement was

successful in ceasing the drop in official reserves there were both positive and

negative impacts of the agreement, however, mostly negative, “A decline in output

was principally linked to the external shocks related to the global slowdown, the

attack on Colombo airport, the events of September 11, and the drought. However,

the growth performance was also affected by the erosion of confidence resulting

from the political instability in the second half of the year that led to fiscal policy

reversal, an escalation of government debt, and a cessation of structural reform”

(Sugisaki, 2002). This agreement was unsuccessful due to the states inability to

follow the conditionalities of the International Monetary Fund (IMF). Subsequently,

there have been several other bailouts after the 2001 to 2002. The final one being the

current one of 2022, the Extended Fund facility (EFF) providing Sri Lanka with

US$2.9 billion “to restore the macroeconomic stability and debt sustainability”

(Macwan, 2022). Moreover, we are yet to see the impacts of this loan and reform.

Neoliberalists state that international organisations, are good for global governance,

and states as it allows for the relative power of states. These international

organisations level the playing field for developing states to have access to just the

same number of resources as developed states. The IMF loans were created to assist

developing and lesser developed countries in balancing their economies as well as

their social systems so that they can increase their power to assist the international

system. The International monetary Fund is ““organization that sets rules and

standards to govern specific sets of activities,” and is also ““the centerpiece of efforts

by the major capitalist democracies to regulate their monetary affairs” (Keohane

1998, 84). However, neorealists state that these organisations are only created to

benefit stronger states and maintain their power. “The notion of strategic
interdependence implies a situation in which the ability of one participant to gain his

ends is dependent to an important degree on the choices or decisions that the other

participant will make” (Schelling, 1960).

Although it seems that the IMF was created for the benefit of lesser developing and

lesser developed states it has in fact shown through the Sri Lankan Economic Crisis

that it is unable to reform these issues. Throughout the years of approximately five

bailouts going on six they have been unable to deal with any and all economic as

well as political issues is a reoccurring event. Despite the IMF’s changes and

adaptations over time through its policies to better assist with the unique issues that

plague developing countries, it can be argued that the issues preventing the IMF

from effectively achieving its goals remain a deeply fundamental one; as the design

and vision of economic stability as perpetuated by the mostly developed nations for

which it was built to assist is inapplicable to those that now rely most on the Fund.

Accordingly, an illustration into the role, relevance and effectiveness of the

International Monetary Fund is explored below in relation to the Nation of Sri

Lanka, and their attempts to achieve economic stability over the last two decades.

Reference

“About the IMF.” IMF. Accessed November 24, 2022. https://www.imf.org/en/About.

“Articles of Agreement.” Articles of Agreement of the International Monetary Fund.
Accessed November 24, 2022. https://www.imf.org/external/pubs/ft/aa/.

Bird, Graham, and Paul Mosley. “The Role of the IMF in Developing Countries.” The IMF
and its Critics, 2004, 288–315. https://doi.org/10.1017/cbo9780511493362.012.

Endresen, Janice. “Sri Lanka's Financial Crisis: Origins, Impact, and next Steps.” Cornell SC
Johnson. Cornell SC Johnson, June 15, 2022.
https://business.cornell.edu/hub/2022/06/15/sri-lankas-financial-crisis-origins-impact-
next-steps/.

International Monetary Fund. Accessed November 24, 2022.

https://www.imf.org/en/About/Factsheets/Sheets/...

Meher. “Sri Lanka's Economic Crisis.” The International Relations, August 5, 2022.
https://theinternationalrelations.com/sri-lankas-economic-crisis/.

Mejía, Daniel, and Carlos-Esteban Posada. “Populist Policies in the Transition to

Democracy.” European Journal of Political Economy 23, no. 4 (2007): 932–53.
https://doi.org/10.1016/j.ejpoleco.2007.03.001.

“News Brief: IMF Completes Review under Sri Lanka's Stand-by Arrangement and
Approves US$60 Million Disbursement.” IMF, April 15, 2002.
https://www.imf.org/en/News/Articles/2015/09/29/18/03/nb0231.

“Sri Lanka Letter of Intent, Memorandum of Economic and Financial Policies, and Technical
Memorandum of Understanding, April 1, 2002.” International Monetary Fund.
Accessed November 24, 2022.
https://www.imf.org/external/np/loi/2002/lka/01/index.htm.