Why do Men have Midlife Crises

 

The Poverty of Imagination: On Pakistan's unending economic crisis

 

Do Government Bailouts of Banks Worsen Economic Conditions?

 Ruchir Sharma in The FT 

As bank runs spread, it has become clear that anyone who questions a government rescue for those caught underfoot will be tarred as a latter-day liquidationist, like those who advised Herbert Hoover to let businesses fail after the crash of 1929. 

Liquidationist is now challenging fascist as the most inaccurately thrown insult in politics. True, it’s no longer politically possible for governments not to stage rescues, but this is a snowballing problem of their own making. The past few decades of easy money created markets so large — nearing five times larger than the world economy — and so intertwined, that the failure of even a midsize bank risks global contagion. 

More than low interest rates, the easy money era was shaped by an increasingly automatic state reflex to rescue — to rescue the economy from disappointing growth even during recoveries, to rescue not only banks and other companies but also households, industries, financial markets and foreign governments in times of crisis. 

The latest bank runs show that the easy money era is not over. Inflation is back so central banks are tightening, but the rescue reflex is still gaining strength. The stronger it grows, the less dynamic capitalism becomes. In stark contrast to the minimalist state of the pre-1929 era, America now leads a rescue culture that keeps growing to new maximalist extremes. 

Today’s troubles have been compared to bank runs of the 19th century, but rescues were rare in those days. America’s founding hostility to concentrated power had left it with limited central government and no central bank. In the absence of a financial system, trust was kept at a personal, not an institutional level. Before the civil war, private banks issued their own currencies and when trust failed, depositors fled. 

Had the US Federal Reserve existed at the time, it would not have helped much. The ethos of contemporary European central banks was to help solvent banks with solid collateral — in practice they were tougher, protecting their own reserves and “turning away their correspondents in need”, as a Fed history puts it. 

A restrained government was a key feature of the industrial revolution, marked by painful downturns and robust recoveries, resulting in strong productivity and higher per capita income growth. Right into the 1960s and 1970s, resistance to state rescues still ran deep, whether the supplicant was a major bank, a major corporation or New York City. 

Though the early 1980s is seen as a pivotal moment of broader government retreat, in fact this era was marked by the rise of rescue culture when Continental Illinois became the first US bank deemed too big to fail. In a move that was radical then, reflexive now, the Federal Deposit Insurance Corporation extended unlimited protection to Continental depositors — just as it has done for SVB depositors. 

Recent bank runs have been compared to the savings and loan crisis of the 1980s. Triggered in part by regulation that made it impossible for S&Ls to compete in an environment of rising rates, the crisis was resolved by regulators who wound down more than 700 of these “thrifts” at a cost to taxpayers of about $130bn. The first preventive rescue came in the late 1990s, when the Fed organised support for a hedge fund deeply tied to foreign markets, in order to avoid the threat of a systemic financial crisis. 

Those rescues pale next to 2008 and 2020, when the Fed and Treasury smashed records for trillions of dollars created or extended in loans and bailouts to thousands of companies across finance and other industries at home and abroad. In each crisis, rescues held down the corporate default rate to levels that were unexpectedly low, compared with past patterns. They are doing the same now even as rates rise and bank runs begin. 

The hazards are not just moral or speculative, as many insist — they are practical and present. The rescues have led to a massive misallocation of capital and a surge in the number of zombie firms, which contribute mightily to weakening business dynamism and productivity. In the US, total factor productivity growth fell to just 0.5 per cent after 2008, down from about 2 per cent between 1870 and the early 1970s. 

Instead of re-energising the economy, the maximalist rescue culture is bloating and thereby destabilising the global financial system. As fragility grows, each new rescue hardens the case for the next one. 

No one who thinks about it for more than a minute can wax nostalgic for the painful if productive chaos of the pre-1929 era. But too few policymakers recognise that we are at an opposite extreme; constant rescues undermine capitalism. Government intervention eases the pain of crises but over time lowers productivity, economic growth and living standards.

From SVB to the BBC: why did no one see the crisis coming?

Michael Skapinker in The FT  

Silicon Valley Bank collapses after its investments in long-dated bonds made it vulnerable to interest rate rises. The BBC is thrown into chaos after suspending its top football pundit and colleagues abandon their posts in solidarity. JPMorgan Chase suffers reputational damage and lawsuits after keeping sex offender Jeffrey Epstein on as a client for five years after he pleaded guilty to soliciting prostitution, including from a minor. 

In all these cases, we can ask, as Queen Elizabeth II did on a visit to the London School of Economics during the global financial crisis in 2008: “Why did no one see it coming?” 

Did anyone in the BBC’s leadership ask whether, if they suspended Gary Lineker from presenting its top Saturday night football programme Match of the Day, other pundits might walk out too? Did SVB run through the risks attached to its investment policies if interest rates rose faster than expected? And why did JPMorgan accede to senior banker Jes Staley’s desire to keep Epstein on? These are dramatic examples of what can go wrong, but any organisation that fails to keep its possible risks under regular review could go the same way. 

All too often senior managers fail to consider the worst-case scenario. Why don’t they listen to doubters? 

Amy Edmondson, a professor at Harvard Business School, says sometimes it is because there are no doubters. Leadership groups become so locked into a “shared myth” that they ignore any suggestions they might be wrong. “We’ve got the well-known confirmation bias where we are predisposed to pick up signals, data, evidence that reinforce our current belief. And we will be filtering out disconfirming evidence,” she says. 

It is like taking the wrong route in a car. “You’re on the highway driving somewhere and you’re heading in the wrong direction, but you don’t know it until you’re just hit over the head by disconfirming data that you can’t miss: you suddenly cross a state line that you didn’t expect to cross.” 

This groupthink and confirmation bias is prevalent in the wider society, where people leap on any evidence to support their view on, for example, climate change, Edmonson says. “Oh my gosh, this is the coldest winter ever. What do you mean global warming?” 

In many cases, there are doubters, but they are either reluctant to raise their voices or, when they do, colleagues hesitate to join them. At JPMorgan, there were questions about Epstein. An internal email in 2010 asked: “Are you still comfortable with this client who is now a registered sex offender?” 

James Detert, a professor at the University of Virginia’s Darden School of Business, says evolution has hard-wired us not to deviate from our group. “If you think about our time on earth as a species, for most of it we lived in very small clans, bands, tribes, and our daily struggle was for survival, both around food security and physical safety. In that environment, if you were ostracised, you were going to die. There was no solo living in those days.” 

We carry this fear of being cast out into our workplaces, compounded by the experience of whistleblowers, who sometimes suffer retribution from their employers and are shunned by colleagues. Dissenters present their colleagues with an uncomfortable choice: either to view themselves as cowards for not speaking up too, or to regard the rebel as “some kind of crackpot”. The second is often easier. 

Isn’t the Lineker saga a counter-example? His colleagues supported him, forcing the BBC to quickly see how badly it had miscalculated. Detert says this was an unusual case. Celebrated footballers-turned-commentators are brands themselves, Lineker in particular. The BBC realised how much it needed him, and how easily he could have secured a contract with a rival. Usually, he says, rebels find themselves isolated. 

So what can leaders do to encourage doubters to speak up, to ensure they consider all the possible downsides of their strategies, and escape eventual humiliation or disaster? Detert is not a fan of appointing a “devil’s advocate” who is tasked with giving a contrary view. It is often clear that they are simply going through the motions. He prefers what he calls “joint evaluation”. As well as the preferred policy — investing in long-dated bonds, for example — senior managers should draw up a distinctively different policy and compare the two. This is more likely to show up the flaws in the preferred strategy. 

Simon Walker, whose roles have included head of communications at British Airways and spokesman for Queen Elizabeth, and Sue Williams, Scotland Yard’s former chief kidnap and hostage negotiator, told me at an event organised by the Financial Times’ business networking organisation, that leaders should involve every function from communications to legal to HR when examining possible future crises. Detert agrees this can be valuable, provided the presence of often under-regarded departments such as HR is taken seriously. 

Leaders’ behaviour is a signal of whether they want staff to speak up. Edmondson says: “Leaders of organisations have to go out of their way to invite the dissenting view, the missed risk. Before we close down any conversation where there’s a decision, we need to say, without fail: ‘What are we missing?’ We say: ‘OK, let’s just say we’re wrong about this and it goes badly awry, what would have explained it?’” She recommends calling on people by name, asking what their thoughts are. 

Detert adds that office design can signal to staff that their thoughts are welcome: the leader sitting in open plan, or having bright stripes on the floor indicating the way to their office, or sitting at square tables without place names rather than at rectangular ones where their seat position makes it obvious they are in charge. 

How relevant are these workplace layouts when, post-lockdown, employees no longer come into the office every day? “That’s the $10mn question,” Detert says. On the one hand, remote working might be making it harder for leaders to read the signs that people are uneasy with a strategy. On the other, it could be that people find it easier to speak out from their own homes. They may also feel that other aspects of their lives, such as family, are now more important than work, which could encourage them to talk. 

Others think SVB’s relaxed remote-working culture, which meant senior executives were scattered across the US, contributed to its failure. Nicholas Bloom, a Stanford professor who has studied remote working, told the Financial Times: “It’s hard to have a challenging call over Zoom.” Hedging interest rate risk was more likely to come up over lunch or in small meetings. 

Leaders also need to persistently praise people who speak up. The penalties for doing so are often more obvious than the rewards. Those who keep their heads down are seldom blamed. As Warren Buffett said: “As a group, lemmings may have a rotten image, but no individual lemming has ever received bad press.”

The Wishful Thinking of Diaspora Pakistanis Reveals A Clandestine Truth About Pakistani Politics

Pakistan is financially, politically, and philosophically bankrupt. What it needs is a new paradigm: a truly people powered government by Arsalan Malik in The Friday Times 

 


In recent months, I have had several conversations with my fellow diaspora Pakistanis in the US about the dumpster fire that is Pakistani politics and economy. To my incredulous amazement, many of them still support the artist formerly known as the “Kaptaan.” Imran Khan continues to have a firm hold on the imagination of these diaspora Pakistanis.

To wit, a very successful, and intelligent Pakistani finance professional told me “IK is the only person who will stand up to the military and save Pakistan from default.” Never mind that IK was a construct of the military in the first place (indeed the overwhelming majority of Pakistani politicians are) and was unable to bring it to heel when he tried during his first unsuccessful term as PM. Pakistanis who think this way although passionate and well meaning, seem to be in-denial of the fact that a large part of the reason we are facing default is because of the fuel subsidies Khan revived a few days before his ouster. Those subsidies further depleted the Treasury at a critical time and effectively tore up the IMF agreement. It made no economic sense and was an act of pure pique to sabotage the subsequent government and curry favor with the masses. This was not the act of a leader who puts his country’s interests before his own. The successive government had to reverse this but the damage was already done. This is the same sort of irrationally misplaced good will that afflicts Trump supporters, who still think he will “drain the swamp” when, in actuality he moved the swamp to DC with him after his election. Just like Trump supporters are convinced he is the answer, many Pakistanis still think that IK will somehow save the Pakistani economy. This is a defensive retreat into fantasy in the face of the unpalatable reality that IK is perhaps even more narcissistic and incompetent than the other inept and feckless fools who have tried and failed to run Pakistan.

Another group of less sophisticated expats think that IK will be successful because “he is not corrupt and is not looking to enrich himself” as opposed to the shamelessly kleptocratic Bhutto/Zardari and Sharif clans. True, IK may not be corrupt but a person is known by the company he keeps. In IK’s case, this consists of the same corrupt, bandwagon careerists in bed with the military who have been a blight on Pakistan’s iniquitous politics ever since its inception. They continued to loot the country in cahoots with the military, under his watch and then abandoned him as soon as the going got tough and he ended up on the wrong side of the military establishment.

However, what both of these Pakistani expat types get right is that if elections were held tomorrow, IK would sweep to victory. He is doubtlessly the most popular politician in the country and has activated and vitalized countless numbers of young people who would not have been otherwise interested in politics. At the same time, he has unwittingly exposed the real puppet masters of Pakistan – its insatiable and pretorian military – and focused the ire of the masses against the top men in khaki behind the curtain for the first time in Pakistan’s history.

IK’s supporters have legitimate grievances against the failed ruling class and establishment elite, and see Imran as their last best hope. This is similar to the effect that Bernie Sanders has had on American millennials and Gen Z. The difference is that Bernie Sanders actually has a progressive, pro-worker, truly populist policy agenda. IK is an inept, incompetent, socially conservative, right-wing populist figure. He is a cult leader, whose track record proves that he cares for his ego much more than he cares for the country. We can be sure that, if accepted back in the fold by the military establishment, instead of confronting it, he will turn out to be even more compliant, because like all narcissists he cares more about power and assuring his own ascendancy and legacy.

Also, unlike Bernie, his politics excludes a class analysis of the problems that afflict Pakistan. Pakistan is at a crossroads. Instead of looking for solutions in another authoritarian strong man and the same old neoliberal policies, the answer to Pakistan’s travails lies in returning power to the working class people of the country, through, for example, the local grassroots organization of truly leftist and socialist political parties like the Mazdoor-Kisaan Party, the Awami Khalq Party, and the Awami Worker’s Party. No one who belongs to the elite that IK belongs to, which includes myself and my friend in finance by the way, can be expected to fix Pakistan.

Pakistan is financially, politically, and philosophically bankrupt. What it needs is a new paradigm: a truly people powered government, led by leaders from the working class, a la Lula in Brazil, that will have the mandate of a super majority of the people to enact progressive policies like raising the taxes on real estate speculation which is the most secure and profitable form of investment for Pakistan’s elites. Such a movement will also institute much needed land reforms to break up antediluvian and anachronistic agricultural monopolies. It will invest in the health and education of the working people of Pakistan instead of F-16s and it will confront the neoliberal institutions that have a stranglehold on Pakistan’s economy by, for example, reversing the disastrous terms of business with the Independent Power Producers (IPPs) which are the central reason for recurring power shortages resulting in an untold number of work days lost, and loss of profitability of private enterprises, and has plunged Pakistan into darkness and creeping de-industrialization.

True change only takes place when millions of working people demand it and when they demand justice. Then, the people at the top have no choice but to respond. In the end, the only force that will save Pakistan are the people of Pakistan, not the military, not the elite, not the businessmen, not the neoliberal economists or a cult of personality but the working-class people of the country. Otherwise, like all Potemkin villages, it will fall apart.

The world lacks an effective global system to deal with debt

Rebeca Grynspan in The FT

There is an alarming tendency among the international community to regard debts in the developing world as sustainable because they can, after some sacrifice, be paid off. 

But this is like saying a poor family will stay afloat because they always repay their loan sharks. To take this view is to overlook the skipped meals, the foregone investment in education and the lack of health spending that forcibly make room for interest payments. This sort of debt trap is a social catastrophe in the making. Ten years from now, the debt may be repaid, but the family will be ruined. 

This is the dilemma facing many developing countries, both big and small. The pandemic, cost of living crisis and rising interest rates have brought them to a point where they can only pay their debts by way of austerity or foregone investment in the sustainable development goals (SDGs). Their debts are sustainable in that they can be repaid, but unsustainable in every other way. 

Furthermore, this full-blown development crisis with debt distress at its core also threatens a new lost decade for much of the world economy. 

The repeat of a 1980s-style debt crisis that could in turn threaten global financial stability is perceived to be marginal. But the public debt of developing countries, excluding China, reached $11.5tn in 2021. By some accounts, serious debt problems are largely confined to a small share of this figure, owed by highly vulnerable low-income countries such as Chad, Zambia or Ethiopia. 

But the situation is deteriorating rapidly. During the pandemic, government debt ballooned by almost $2tn in more than 100 developing countries (excluding China), as social spending went up while incomes froze due to lockdowns. Now, central banks are raising interest rates, which exacerbates the problem. Rising rates have meant capital flight and currency depreciation in developing economies, as well as increasing borrowing costs. These factors have pushed countries such as Ghana or Sri Lanka into debt distress. 

In 2021, developing countries paid $400bn in debt service, more than twice the amount they received in official development aid. Meanwhile, their international reserves declined by over $600bn last year, almost three times what they received in emergency support through the IMF Special Drawing Rights allocation. 

Foreign debts are therefore eating an ever-larger piece of an ever-shrinking national resources pie. As inflation rises, natural disasters become more frequent and food and energy imports rise in price, countries need more, not less, contingency planning assistance. 

A much bolder approach is needed. Recent efforts by the international community to agree on large-scale emergency debt measures have faltered. This is despite important efforts at the G20 through the now-discontinued Debt Service Suspension Initiative, and the Common Framework for Debt Treatments, which is in need of crucial improvements, such as suspending payments during negotiations and an extension to middle-income countries in debt distress. 

The failure of these efforts has revealed the complexity of existing procedures, characterised by creditors who refuse to engage in restructuring with extraordinary powers of sabotage. Crisis resolutions are often too little, too late. The world lacks an effective system to deal with debt. 

An independent sovereign debt authority that engages with creditor and debtor interests, both institutional and private, is urgently needed. At a minimum, such an authority should provide coherent guidelines for suspending debt payments in disaster situations, ensuring SDGs are considered in debt sustainability assessments, and providing expert advice to governments in need. 

Furthermore, a public debt registry for developing countries would allow both lenders and borrowers to access debt data. This would go a long way in boosting debt transparency, strengthening debt management, reducing the risk of debt distress and improving access to financing. Progress on both these fronts could begin with an independent review of the G20 debt agenda: India’s presidency may bring a historic opportunity to succeed where others have faltered. 

Tackling the current global debt crisis is not only a moral imperative. In a context of growing climate and geopolitical distress, it is one the biggest threats to global peace and security and financial stability. Without supporting countries to become sustainable, their debts will never be realistically repayable.

Is the IMF fit for purpose?

As the world faces the worst debt crisis in decades, the need for a global lender of last resort is clearer than ever. But many nations view the IMF as overbearing, or even neocolonial – and are now looking elsewhere for help writes Jamie Martin in The Guardian

 
Last summer, after months of unusually heavy monsoon rains, and temperatures that approached the limits of human survivability, Pakistan – home to thousands of melting Himalayan glaciers – experienced some of the worst floods in its history. The most extensive destruction was in the provinces of Sindh and Balochistan, but some estimated that up to a third of the country was submerged. The floods killed more than 1,700 people and displaced a further 32 million – more than the entire population of Australia. Some of the country’s most fertile agricultural areas became giant lakes, drowning livestock and destroying crops and infrastructure. The cost of the disaster now runs to tens of billions of dollars.

In late August, as the scale of this catastrophe was becoming clear, the Pakistani government was trying to avert a second disaster. It was finally reaching a deal with the International Monetary Fund (IMF) to avoid missing payment on its foreign debt. Without this agreement, Pakistan would likely have been declared in default – an event that can spark a recession, weaken a country’s long-term growth, and make it more difficult to borrow at affordable rates in the future. The terms of the deal were painful: the government was offered a $1.17bn IMF bailout only after it demonstrated a real commitment to undertaking unpopular austerity policies, such as slashing energy subsidies. But the recent fate of another south Asian country appeared to show what happens if you put off the IMF for too long. Only weeks before, the Sri Lankan government, shortly after its own default – and after months of refusing to implement IMF-demanded reforms – was overthrown in a popular uprising.

The correlation of Pakistan’s crises – exceptionally devastating floods and the threat of economic meltdown – was partly bad luck. But it was also emblematic of a challenge faced by many countries at the forefront of the climate crisis: how can they afford to deal with extreme weather events and prepare themselves for the coming disasters, while suffering under crippling debt loads and facing demands for austerity as the price of relief?

Pakistan and Sri Lanka are only two of the many countries currently facing conditions of severe debt distress. Covid-19 delivered a major blow to many low- and middle-income countries that had borrowed heavily during the era of low interest rates beginning with the 2008 financial crisis. As the costs of public health and welfare rocketed, economies were locked down and tourism collapsed, which meant that tax revenues plummeted. The pandemic also disrupted global supply chains, leading to shortages of many goods and higher prices. These inflationary pressures were then exacerbated by Russia’s invasion of Ukraine. Meanwhile, the decision of the US Federal Reserve to raise interest rates to reduce US inflation has pushed the value of the dollar to its highest level in 20 years. This has made the debt of countries that borrowed in dollars – many do – more expensive since their currencies are worth less, while further increasing the cost of their imports. Rising US interest rates have also encouraged investors to pull capital out of riskier emerging markets at a historic rate, since safer dollar investments now produce higher returns.

The result is that the world economy faces the possibility of one of the worst debt crises in decades, threatening deep recessions, political instability, and years of lost growth. At the same time, the increase in extreme weather events – stronger hurricanes, recurring droughts – makes life even harder for states that already dedicate a large portion of their revenues to servicing foreign debt. In the midst of this turmoil, the IMF has become more involved in bailing out countries than it has in years. Over the last few months, the value of its emergency loans reached a record level, as a growing number of states turned to it for help, including Bangladesh, Egypt, Ghana and Tunisia.

Broadly speaking, the way the IMF works is by collecting financial resources from members and then offering them short-term assistance in the case of financial hardship. Based in Washington DC, the institution is staffed by representatives of ministers of finance and central bank governors from around the world. Because voting power is weighted by each state’s financial contribution, the US, as the IMF’s largest shareholder, exercises outsized influence over its major decisions and can veto proposed reforms to its governance. But as an international body that counts nearly every sovereign state as member, the IMF plays a unique role in the world economy. It’s the only institution with the resources, mandate and global reach to help almost any country facing severe economic distress.

But in exchange for its help, the IMF typically insists governments do what they find most difficult: reduce public spending, raise taxes and implement reforms designed to lower their debt-to-GDP ratios, such as cutting subsidies for fuel or food. Unsurprisingly, politicians are often reluctant to undertake these measures. It’s not just that the reforms often leave voters worse off and make politicians less popular. National pride is also at stake. Bowing to demands from an institution dominated by foreign governments can be seen as humiliating, and an admission of domestic dysfunction and misgovernance.

 

On the rare occasions that the IMF criticises the policies of a wealthy European state, this too can embroil the institution in domestic political conflicts. In September, the IMF’s criticism of Liz Truss’s proposed tax cuts provided ammunition to her political opponents and contributed to a slump in the pound’s value. The decision to sack chancellor Kwasi Kwarteng was taken while he was attending the IMF’s annual meeting in Washington DC, where the institution’s leading officials did little to mask their disapproval of his policies. In future histories of the fall of Truss, the IMF is likely to play a not insignificant role.

Despite all this, the IMF is not the kingmaker it once was. After reaching the height of its powers in the 90s, when its name became synonymous with the excesses of neoliberal globalisation and US overreach, the IMF has faced increasing resistance. It’s still the only institution that can guarantee assistance to nearly any country experiencing extreme financial stress. But the decline of US power, emergence of alternative lenders, and the IMF’s reputation as a domineering taskmaster has left it an anomalous position. It is much needed and little loved, enormously powerful and often ineffectual in getting states to agree to its terms. If predictions are correct that the world is entering an extended period of economic turmoil, this will only increase the need for some kind of global lender of last resort. Whether the IMF is up to the task depends on whether it has learned from its chequered history.

One of the most remarkable aspects of the IMF was what, in theory, it was supposed to accomplish when it was established – and how quickly it departed from this initial vision. The creation of the IMF was agreed at the Bretton Woods Conference of July 1944, when representatives from more than 40 countries met to rewrite the rules of the world economy. Led by the world-famous British economist John Maynard Keynes and his US counterpart Harry Dexter White, their aim was to create an international monetary system that stabilised currencies and facilitated a return to freer trade. National currencies would be set at fixed but adjustable rates to the dollar, which was in turn convertible to gold at a fixed rate of $35 per ounce.

The role of the IMF in this system was to help member states suffering from short-term balance-of-payments problems, while its partner organisation, the World Bank, made long-term loans for reconstruction and development. Crucially, in this original vision, the IMF would help members weather financial instability without browbeating them into undertaking painful policies such as cutting budgets or raising interest rates in the middle of a recession. This marked a break with the previous gold standard system, which from the late 19th century had provided predictable and stable exchange rates for countries that kept the value of their currencies fixed to a specific quantity of gold. This stability had come at the cost of being able to implement expansive national economic policies during a crisis. By contrast, officials involved in the creation of the IMF insisted that it avoid developing what Keynes referred to as “grandmotherly powers”, meaning finger-wagging, moralising strictures that unduly curtailed the freedom of member states.

Shortly after the end of the second world war, however, European representatives in the IMF’s executive board discovered that – despite an apparent wartime consensus shared by their more powerful US counterparts – the IMF was going to readopt an unpopular practice associated with earlier periods of financial imperialism: attaching policy conditions to its loans. To their chagrin, the institution would be authorised to intervene in sensitive domestic matters concerning fiscal and monetary decisions. US representatives were wary of allowing members access to the dollar without strings attached. And because the IMF had been designed in ways that gave the US unparalleled control over its activities, their prerogatives held sway. It was not in Europe that the IMF first deployed these interventionist powers, though; it was in the so-called third world, beginning in South American states such as Chile, Paraguay and Bolivia in the 50s.

After the collapse of the Bretton Woods system in the early 70s, when Richard Nixon removed the US dollar’s peg to gold, the IMF appeared to be out of a job. But it quickly took on new prominence in making bailout loans to financially unstable states. These loans came with demands for major structural reforms (privatisation, deregulation, the removal of tariffs) in addition to fiscal and monetary restraint. What made the IMF so mighty was that other creditors – whether commercial banks such as Citibank, or foreign governments – often considered a prior arrangement with the institution as a sign of a country’s creditworthiness. When the Soviet Union collapsed in the early 90s, the IMF undertook its most ambitious task yet, overseeing the transition of nearly-formerly Soviet republics to capitalism. In the process, it became, as the political scientist Randall Stone put it, the “most powerful international institution in history”.

As the IMF reached the height of its influence in the 90s, however, it sparked a global backlash that continues to this day. And the place where that backlash began was in Asia.

The Asian financial crisis is poorly remembered in the west, having been overshadowed by the 9/11 terrorist attacks and the “war on terror”. But it was an enormously consequential event, and its impact would reshape the global economy over the next 25 years. It began in the summer of 1997, when the collapse of the Thai baht sparked a financial panic that spread quickly throughout the region. As investors dumped one shaky currency after another, the panic became self-perpetuating, wreaking havoc from Indonesia to South Korea, and to countries as far off as Russia and Brazil.

The IMF quickly stepped in to offer rescue loans to the worst-hit countries, including Thailand, Indonesia and South Korea. The conditions of these loans included the institution’s perennial demands for austerity and tighter monetary policies – even though none of these governments had run significant deficits, nor seen much inflation in their economies in the run-up to the crisis. The IMF also insisted on a long list of reforms designed to liberalise their economies and, in particular, to dismantle practices and institutions derided as corrupt and inefficient forms of “crony capitalism”. In South Korea, the IMF set its sights on the country’s huge conglomerates, or chaebol, such as Hyundai, which enjoyed close ties to the state and domestic banks. In Indonesia, the IMF called for uprooting the vast system of patronage that enriched the family of long-ruling autocrat Suharto, such as the lucrative national clove monopoly, which produced a key ingredient of the kretek cigarettes popular in Indonesia, and was controlled by one of Suharto’s sons.

By intervening in sectors that had little to do with the currency crisis, the IMF appeared to be announcing the scale of its ambition. It wanted to transform what had, until then, been widely considered well-run economies. In particular, it seemed dead set on overturning what was known as the “Asian Model” of economic management, characterised by state-led investment in specific industries and firms. This approach had yielded impressive results in several countries, not least Japan, which then boasted the world’s second-largest economy. But it was widely seen by western officials and investors as anachronistic. To them, the crisis had rung the death knell for this Asian statist alternative to the Anglo-American laissez-faire approach.

This reformist zeal made the IMF unpopular across much of Asia. People were especially infuriated by demands to lift restrictions on foreign ownership of domestic firms. As US and European corporations swooped in to buy up financial institutions in Thailand and South Korea at steep discounts, many denounced the IMF as neo-colonial. In China, which was spared from the worst of the crisis, the state-owned People’s Daily newspaper accused the US of “forcing east Asia into submission”. Even Raghuram Rajan, who became the IMF’s chief economist in 2003, later admitted that the institution’s handling of the crisis had left it vulnerable to charges of financial colonialism.

Meanwhile, austerity measures such as cutting subsidies to fuel and foodstuffs like rice and flour, in countries undergoing severe cost of living and unemployment crises, fed growing political turmoil. The crisis was especially dire in Indonesia. As the rupiah continued to plunge into 1998, the country was gripped by political discontent and violence, as mob attacks on the ethnic Chinese minority led to scores of deaths. In Jakarta, the military fired on student protesters at Trisakti University, killing four and fanning the flames of riots spreading across the country. When Suharto raised fuel prices to fulfil IMF demands to produce a budget surplus, opposition intensified. In May 1998, he was forced from office.

At the time, defenders of the IMF insisted Suharto had been the author of his own downfall, claiming he had refused to implement reforms quickly enough to halt a crisis caused by his own corruption. But other contemporaries recognised that insisting he instantly uproot the entire system of patronage on which his regime relied was an impossible demand. “It’s crazy to ask people to commit suicide,” one diplomat remarked at the time.

Looking at images of Suharto signing the terms of an agreement with the IMF in January 1998, as the institution’s managing director, the French economist Michel Camdessus, loomed over him, it wasn’t hard to see this as a humiliating surrender of sovereignty. And it did not take conspiracists to recognise that the US Treasury and many western investors wanted Suharto gone, despite the opposition of the state department and Pentagon to anything that threatened the stability of a US strategic partner in the Asia-Pacific region. While the IMF didn’t plot Suharto’s removal, there was little question that US Treasury officials had come to see regime change as the only salvation for the Indonesian economy. As Camdessus himself later admitted: “We created the conditions that obliged Suharto to leave his job.”

To some American observers, Indonesia had proven an iron law of history: that the growing material prosperity of a citizenry would inevitably cause them to reject autocratic rule. What happened to Suharto, they said, would eventually happen to the Chinese Communist party. (Some predicted the exact year – 2015 – that China would see its equivalent popular uprising.)

What went less commented on was the obvious wakeup call the crisis and its political effects delivered to other governments. The lesson was clear: make yourself able to resist a crisis of financial globalisation and, if it comes, be sure you can deal with it on your own. 

For many states, the Asian crisis was a warning. In the event of a future financial crisis, they wanted to avoid calling in any institutions that might interfere in their domestic affairs. One way to do this was to build up huge stockpiles of foreign currency reserves. At a moment of crisis, these reserves can be used to defend a currency’s value, pay off foreign debts and import necessities. China led the way, but South Korea, Brazil, Mexico and others followed. From 2000 to 2009, the total value of China’s reserve assets grew by nearly $1.8tn. Today, it’s well over $3tn – a figure higher than the total GDP of the entire African continent.

For some countries, accumulating these reserves has been key to a strategy of export-led development, since doing so can help hold down the value of a national currency and thus make exports more competitive. But for most states, the aim has been insurance against financial turmoil. And in some cases, it’s worked remarkably well. The accumulation of currency reserves helped many emerging market economies escape the worst of the global financial crisis that began in 2008. While the IMF played a major role in bailing out Greece in the 2010s, it did comparatively little elsewhere. It was not invited back to countries where it had become so controversially involved in the 90s, such as South Korea and Russia.

One striking consequence of this currency stockpiling is that capital now moves in huge quantities from poorer countries to wealthier ones, rather than vice versa. This is because much of the world’s supply of reserves are held in US dollars, which countries tend to invest back into the safe haven of US treasury bills. Doing so guarantees a nearly bottomless global demand for US government debt and helps ensure the continued centrality of the US dollar to the global economy. The fact that China sits on such a huge stockpile of US treasuries has long generated anxiety about the political leverage this might give Beijing over Washington, since a sell-off would be catastrophic to the value of the dollar. But because it would also be catastrophic to the Chinese economy, the threat has never been close to realisation.

Not all states can afford to pile up currency in this way. For those that can, it is not painless, since it diverts resources away from public investment. Some economists have wondered why governments opt for it, suggesting that the opportunity cost of reducing public investment may outweigh the possible savings of averting a financial crisis. But hoarding these assets is not just a matter of economics. It’s also political and strategic policy designed to guarantee states the kind of autonomy that Indonesia, Thailand and South Korea bargained away during the 1997-98 crisis. Seen in this way, there’s little price that’s not worth paying for full sovereignty. The historian Adam Tooze has aptly referred to the strategies pursued by emerging market economies since the 90s as programmes of “self-strengthening” – a term originally used to describe the efforts of states like China and Japan in the late 19th century to reform their government administrations, militaries and economies to resist the incursion of powerful western empires.
 

Take Russia, a country that experienced a long and painful engagement with the IMF in the 90s. After defaulting on its sovereign debt in 1998, Russia, under its new president Vladimir Putin, began to amass a stockpile of reserves in the 2000s, facilitated by rising oil prices. By 2008, it sat on such a huge war chest that it could spark an aggressive war with Georgia without much concern for the financial repercussions. Russia appeared to have won new strategic independence.

A similar calculus was likely at play with Putin’s decision to invade Ukraine this year. But in one of the most far-reaching countermoves of Putin’s enemies, the US and its G7 partners targeted the foreign assets that were owned by the Russian central bank, but which they ultimately controlled. In late February, more than $300bn of Russian assets were immobilised in a move designed to paralyse Russia. The same tactic had been used just a few months earlier, when the dollar assets of the Afghan central bank had been frozen to hobble the Taliban in the wake of Kabul’s fall.

In Russia’s case, this strategy failed to end the war. And some worry it will backfire, encouraging states to rethink holding US dollars as a guarantee of economic stability. If the Asian financial crisis had the effect of turning countries away from the IMF and towards stockpiling reserves, the war in Ukraine may similarly push them away from the dollar as the reserve currency of choice. Were this to happen, the impact would be seismic. The dollar would be dethroned, losing its status as the world’s principal safe haven-asset. More likely, others argue, is further diversification away from dollars to other currencies. The ambitious US and European financial sanctions against Russia may prove, over time, to have similar effects to the IMF’s response to the Asian financial crisis: encouraging states to reconsider how they guarantee their autonomy in a global economy whose infrastructures they do not control.

Over the past decade, the IMF has made significant efforts to repair its reputation. In the wake of the global financial crisis, it became routine for IMF officials to publicly acknowledge that austerity could be counterproductive and that tackling inequality had become one of the institution’s central concerns. The selective use of once-taboo policies such as capital controls to restrict the flow of foreign capital into and out of a national economy was reconsidered, while demands for far-reaching domestic structural reforms were supposedly a thing of the past. When the official IMF publication Finance and Development ran an article in 2016 with the provocative headline Neoliberalism: Oversold?, many media outlets reported it as a sign of the institution undergoing a significant transformation. “What the hell is going on?” was how one longtime critic of neoliberalism, the Harvard economist Dani Rodrik, greeted news of its publication.

But in practice, the IMF’s transformation has itself been oversold. As the scholars Alexander Kentikelenis, Thomas Stubbs and Lawrence King showed in an article from the same year, the IMF, despite these rhetorical shifts, continued to insist on just as many, if not more, of the same structural reforms of borrowers as ever – sacking civil servants, cutting pensions, lowering minimum wages. A 2020 study by the Global Development Policy Center at Boston University found something similar. Today’s IMF, it noted, recognises that austerity constrains growth – while continuing to demand austerity from states in receipt of its aid.

Yet the Boston University study also reached another conclusion – one that shows how, despite itself, the institution may be undergoing real changes, not from ideological shifts alone, but from competition for its business. Researchers found that borrowers that had prior loan arrangements with China tended to get more lenient treatment from the IMF. Why? Probably because China does not make austerity or domestic reforms the price of its loans, which pushes the IMF to moderate its terms with clients that have access to this unconditional financing. Other studies have found a similar phenomenon at work at the World Bank.

China is now the world’s largest bilateral lender, a fact that has generated considerable anxiety in the west. Lending without policy strings attached is sometimes seen as Beijing’s way of buying goodwill with corrupt autocrats. China is also accused of “dept trap” diplomacy, by making loans to states to invest in unaffordable “white elephant” infrastructure projects. When these states can’t repay their debts, Chinese officials insist they give up valuable assets, like a 99-year lease over a strategic port, such as happened in Sri Lanka in 2017.

Critics of China have described Sri Lanka’s descent into financial and political turmoil as the logical end point of Beijing’s predatory lending. It’s true that the Rajapaksa brothers, who traded off ruling Sri Lanka from the mid-00s until this summer, pursued an extravagant programme of Chinese-financed infrastructure building. But when the Sri Lankan economy collapsed earlier this year, the government actually owed more money to private bondholders in Europe and the US than to China – despite the role Beijing had played in financing the country’s infrastructure boom. It’s too simple to see Sri Lanka solely as the victim of Chinese debt diplomacy.

Today, many are looking for clues on the nature of China’s role as lender in how it navigates its first global debt crisis. Over the last few years, it’s started making more emergency bailouts, setting itself up even more as a direct alternative to the IMF. But even critics of the IMF see the institution – with its broad membership, global reach and public aims – as playing a meaningfully different role in the world economy from a state actor like China, which – like all states – will make loans largely for the sake of its strategic aims and national interests. This is why many reformers calling for changes to the international financial system – such as Mia Mottley, the prime minister of Barbados – still focus on the IMF. Despite its history of missteps, and close ties to US foreign policy objectives, the institution is still seen as being uniquely able to provide something approximating a global financial safety net.

Given its continued dominance of the IMF, it is from the US that the greatest pressure to actually reshape the institution will have to come. There are signs that the current global crisis is forcing political change. In October, just before the annual meeting of the IMF and World Bank, the former Treasury secretary Lawrence Summers called on the institution to develop new, unconditional ways of providing financial assistance to states facing extreme pressures, as central banks raised interest rates. The political stigma involved in traditional IMF forms of lending, Summers suggested, was pushing states away from the institution when they needed it most. 

It was extraordinary to see Summers making this case. During the Asian financial crisis, Summers had been deputy secretary of the US Treasury. He had played a leading role in coordinating Washington’s response to the crisis through the IMF. He had even met with Suharto in Jakarta to personally convince him to agree to its terms. But now, the world economy needed a kind of financial assistance, Summers implied, that moved past the legacy of the interventionist IMF, whose powers he himself had once helped to unleash. This year’s annual meetings, which failed to consider ambitious measures to rescue the world economy, he claimed, would be remembered as nothing more than a “missed opportunity”.

As the Fed’s decisions threaten a new wave of global economic instability, these meetings may also be remembered for something else entirely: as an illustration of the paradoxical nature of US power in the third decade of the 21st century – mighty enough to break the world, but not to put it back together again.

We must tax profits now, freeze energy prices – and if necessary bring suppliers into the public sector

Without urgent action, families are seeing nothing more than pain now and pain later. There is a way through writes former PM and Chancellor Gordon Brown in The Guardian

The energy cap has to be suspended before 26 August, the date on which an approximately 80% increase in our energy bills is expected to be announced. Photograph: Peter Byrne/PA


Time and tide wait for no one. Neither do crises. They don’t take holidays, and don’t politely hang fire – certainly not to suit the convenience of a departing PM and the whims of two potential successors and the Conservative party membership. But with the country already in the eye of a cost of living storm, decisions cannot be put on hold until a changeover on 5 September, leaving impoverished families twisting in the wind.

The energy cap has to be suspended before 26 August, the date on which an approximately 80% increase in our energy bills is expected to be announced. The Department for Work and Pensions computers, which adjust universal credit and legacy benefits, have to be reprogrammed in the next few days if help is to be given to all who need it when prices rise on 1 October. Voluntary cuts in energy usage – good for our green agenda – should, as has happened in Germany and France, be agreed upon now when the weather is good if we are to prevent rationing later when the weather turns bad. And windfall profits and bonuses have to be properly taxed now before the money flees the country.


There were two great lessons I learned right at the start of the last great economic crisis in 2008: never to be behind the curve but be ahead of events; and to get to the root of the problem. And it is not tax cuts or, as yet, a wage-price inflation spiral that are the most urgent priorities for action, but dealing with the soaring costs of fuel and food: the cause of half of our current inflation.

So it is indeed urgent that the candidates to be prime minister – and the current prime minister and chancellor – meet to make not just one or two but several urgently needed decisions: to suspend and fundamentally reform the energy price cap; to agree October payments for those who will not be able to afford to turn up their heating; to home in on alternative supplies abroad and open up appropriate storage facilities at home; to agree voluntary energy reductions; and to help pay for these measures with a watertight windfall tax on energy companies and a tax on the high levels of City bonus payments. For if we could remove the opportunity to avoid or opt out, as we did when imposing the windfall tax on privatised utilities in 1997 and the banker bonus levy of 2009, we could raise not just £5bn but as much as £15bn. This would be enough, for example, to give nearly 8 million low-income families just under £2,000 each.

All these measures should be based on a clear set of principles: that the right to a warm home is a human right; that we should do most for those who have least; and that no energy retailer should be allowed to additionally profit from the crisis.

Britain’s crises have one thing in common: a failure to invest
Larry Elliott


Read more

What’s more, British ministers – and no one has yet grasped this – should also be leading the way, as we did in 2009, in demanding coordinated international action with an emergency G20 early in September to address the fuel, food, inflation and debt emergencies. These are global problems that can only be fully addressed by globally coordinated solutions.

Tuesday’s forecast from Cornwall Insight of a £4,266 average annual energy price by January is remarkable. It means, as an immediate analysis carried out by Jonathan Bradshaw and Antonia Keung shows, that more than half of British households, 54%, will be in fuel poverty by October and two-thirds, 66%, by January. Six million households, an astonishing number, will be forced to pay an unprecedented 25% of their income in fuel costs and 4.4 million will be subject to a virtually unaffordable 30%.

So instead of allowing Ofgem to announce an increase on a scale that will send shock waves through every household, the government should pause any further increase in the cap; assess the actual costs of the energy supplies being sold to consumers by the major companies; and, after reviewing the profit margins, and examining how to make standing charges and social tariffs more progressive, negotiate separate company agreements to keep prices down. They should work with businesses to cut consumption, as is happening in France and Spain, which have imposed their own cap on energy prices, dictated more by what people can afford than the current wholesale gas price in the marketplace.

And if the companies cannot meet these new requirements, we should consider all the options we used with the banks in 2009: guaranteed loans, equity financing and, if this fails, as a last resort, operate their essential services from the public sector until the crisis is over.

With one of our main suppliers, Norway, seeking to retain its own gas for domestic use and France running into problems with its nuclear reactors, we are already running out of time to negotiate new deals with other international suppliers. And we are already missing out of additional capacity from Qatar, which has gone to mainland Europe. Over time, we can and must increase domestic production, and agree on a home insulation programme with the same urgency as our vaccination programme.

It’s true that Britain’s decade-long low growth, caused by low investment, has made us vulnerable to skill shortages and supply-side bottlenecks and thus higher inflation than our competitors. But most of the current rise in inflation has been generated from energy and food prices caused by the war in Ukraine and so removing the Bank of England’s independence is merely an exercise in blame shifting, as is direct criticism of the Treasury which, in my view, will take its lead from ministers.

It is the government that sets the inflation target and appoints the Bank’s main decision-makers. And it is the duty of government in a crisis to send the Bank an open letter telling it to set out a clear pathway over the coming years to return to stable prices. On the basis of an agreed inflation trajectory back to 2%, we should consider agreeing year-on-year wage settlements – starting with a flat rate of between £2-3,000 this year – so that hardworking families, especially those on the lowest incomes, can afford their energy bills without being plunged into poverty.

The truth is that without a plan the government is lurching from one crisis to another, failing to address the anxieties of families who see nothing more than pain now and pain later. But there is a way through from pain today to gain tomorrow, not just through the immediate relief I propose but in a clear strategy to move us from the 1.4% annual growth that the Conservatives have achieved back to a 2.5% trend growth rate. This is the one way to permanently end the cost of living crisis that British families have had to endure through an austerity decade.

No one can be secure when millions feel insecure and no one can be content when there is so much discontent. Churchill once said that those who build the present in the image of the past will utterly fail to meet the challenges of the future. Only bold and decisive action starting this week will rescue people from hardship and reunite our fractured country.

There is a global debt crisis coming – and it won’t stop at Sri Lanka

Foreign capital flees poorer countries at the first sign of instability. The pandemic and Ukraine war ensure there is plenty of that around writes Jayati Ghosh in The Guardian





This January, even before Sanjana Mudalige’s salary as a sales worker in a shopping mall in Colombo, Sri Lanka, was slashed in half, she had pawned her gold jewellery to try to make ends meet. Ultimately, she quit her job, because the travel costs alone exceeded the pay. Since then, she has shifted from using gas for cooking to chopping firewood, and eats just a quarter of what she did before. Her story, reported in the Washington Post, is one of many in Sri Lanka, where people are watching their children go hungry and their elderly relations suffer for lack of medicines.

The human costs of the crisis only really captured international attention when the massive popular upsurge earlier this month, known as Aragalaya (Sinhalese for “struggle”), led to the peaceful overthrow of President Gotabaya Rajapaksa. His family had ruled Sri Lanka with an iron fist, albeit with electoral legitimacy, for more than 15 years, and is now being blamed by both national and international media for the desperate economic mess the country is in.

But blaming the Rajapaksas alone is too simple. Certainly, the aggressive majoritarianism that they unleashed, along with the alleged corruption and major economic policy disasters of recent years (such as drastic tax cuts and bans on fertiliser imports), were crucial elements of the economic debacle. But this is only part of the story. The deeper and underlying causes of the crisis in Sri Lanka are barely mentioned by most mainstream commentators, perhaps because they reveal uncomfortable truths about the way the global economy works.

This is not a crisis created by a few recent external and internal factors, it has been decades in the making. Ever since its “open economic policy” was adopted in the late 1970s, Sri Lanka has been Asia’s poster boy for neoliberal reform, much like Chile in Latin America. The strategy was the now-familiar one of making exports the basis for economic growth, supported by foreign capital inflows. This led to a significant increase in foreign currency debt, something the IMF and the Davos crowd actively encouraged. 

In the period after the 2008 global financial crisis, as low interest rates in advanced economies led to the availability of cheap credit, the Sri Lankan government relied on international sovereign bonds to finance its own spending. Between 2012 and 2020, the debt to GDP ratio doubled to around 80%, with a growing share of this in bonds. The payments due on these debts kept rising in relation to what Sri Lanka could earn from exports and the money sent back home by Sri Lankans working abroad. The disruptions caused by the pandemic and the war in Ukraine made matters much worse, by causing export earnings to fall and sharply increasing the price of essential imports including food and fuel. Foreign exchange reserves plummeted – but the government had to keep paying interest even when it could not import essential fuel.

Looked at in this light, it is clear that Sri Lanka is not alone; if anything, it’s just a harbinger of a coming storm of debt distress in what economists call the “emerging markets”. The past period of incredibly low interest rates in the advanced economies meant that more funds flowed to “emerging” and “frontier” markets from the richer world. While this found cheerleaders in the international financial institutions (IFIs), it was always a problematic process. This is because, unlike in places such as the EU and US, capital leaves low- and middle-income countries (LMICs) at the first sign of any problem.

And these countries were much more battered economically by the pandemic. Advanced economies were able to provide massive countercyclical measures – think of the UK’s furlough programme – because financial markets effectively allowed and even encouraged them to do so. By contrast, LMICs were prevented from increasing fiscal spending by much – because of those same financial markets, which threatened the possibility of credit downgrades and capital flight as government deficits grew larger. Plus they faced significant declines in export and tourism revenues and tighter balance of payments constraints. As a result, their economic recovery has been much more muted and economic conditions remain mostly dire.

The half-hearted attempts at debt relief, such as the moratorium on debt servicing in the first part of the pandemic, only postponed the problem. There has been no meaningful debt restructuring at all. The IMF bewails the situation and does almost nothing, and both it and World Bank add to the problem through their own rigid insistence on repayments and the appalling system of surcharges imposed by the IMF. The G7 and “international community” have been missing in action, which is deeply irresponsible given the scale of the problem and their role in creating it.

The sad truth is that “investor sentiment” moves against poorer economies regardless of the real economic conditions in specific countries. Private credit rating agencies amplify the problem. This means that contagion is all too likely, and it will affect not just economies that are already experiencing difficulties, but a much wider range of LMICs that will face real difficulties in servicing their debts. Lebanon, Suriname and Zambia are already in formal default; Belarus is on the brink; and Egypt, Ghana and Tunisia are in severe debt distress.

Many countries with lower per-capita income and significant absolute poverty are facing stagflation. Billions of people are increasingly unable to afford a basic nutritious diet, and cannot meet basic health expenses. Material insecurity and social tensions are inevitable.

The situation can still be resolved, but it requires urgent action, especially on the part of the IFIs and G7. Speedy and systematic debt resolution actions to bring in private creditors and other creditors, such as China, are needed, as is IFIs doing their own bit to provide debt relief and ending punitive measures such as surcharges. In addition, policies to limit speculation in commodity markets and profiteering by big food and fuel companies must be put in place. Finally, the recycling of special drawing rights (SDRs) – essentially “IMF coupons” – by countries that will not use them to countries that desperately need them is vital, as is another release of SDRs equating to about $650bn to provide immediate relief.

Without these minimal measures, the post-Covid, post-Ukraine global economy is likely to be engulfed in a dystopia of debt defaults, increasing poverty and sociopolitical instability.

Message from Sri Lanka

Jawed Naqvi in The Dawn

ONE can see a few instructive lessons from the painful turbulence underway in Sri Lanka. The most crucial of these for neighbours and beyond is the resounding message that there are limits to socially divisive policies any government or state can pursue, particularly to mask the distress brought about by bad economic prescriptions. In other words, sooner or later people catch on.

The jostling is already on between narratives about the crisis. The dominant narrative about an economic collapse as the trigger for mass protests is a tautology. Another perspective, inevitably, is focusing on the ousted Rajapaksa government’s refusal to vote with the US against Russia over Ukraine. The last-minute call to Vladimir Putin for help, chiefly with oil, will be interpreted in myriad ways.

There will be comments also about the need for the IMF to fix things urgently. The problem is this had happened to India when the Gulf War induced economic instability with oil prices nudging a veteran pro-Soviet India into becoming a darling of the West. The prescription the IMF gave Manmohan Singh required secrecy. It had to be kept away from parliamentary scrutiny. The Ayodhya movement of L.K. Advani was activated to occupy the nation’s attention, away from the IMF-induced pain that inevitably comes with its trickle-down economic advisory.

Be that as it may, Ranil Wickremesinghe looks the man of the moment for the US. Never mind that he lost the last election when his party couldn’t win a single seat. He came into parliament through the backdoor, the national list.

Would that work for the purpose of evicting China from its perch in Colombo? If the Western purpose falters, there could be worse awaiting the hapless country. So, here we are. The president who courted China’s economic worldview and refused to vote against Russia has fled. (Remember Kyiv in 2014?) And Wickremesinghe, nephew of Sri Lanka’s first pro-US president J.R. Jayewardene, has taken charge, and is threatening to quell the protests by force if necessary.

There’s always a backup script if things go wrong. The ousted president was a close ally of the Bodu Bala Sena. The Sinhalese chauvinist group has cast itself in the image of India’s RSS, a Muslim and Christian-hating Buddhist clone of the Hindutva order. Other similarities between India and Sri Lanka are eerier. Remember how prime minister Solomon Bandaranaike was assassinated by a Buddhist monk angered by his quest for a friendly pact with the minority Tamils? The murder bore an uncanny resemblance to Gandhi’s assassination by Hindu supremacists hostile to his alleged appeasement of Muslims. 

Certain things about Sri Lanka’s heart-wrenching mess one can do little about, among them being the fact that Covid-19 waylaid the tourism industry, the island nation’s economic backbone. Small-scale entrepreneurs, critically the garment exporters, took a hit. The resultant cap on foreign imports coupled with an outlandish nationwide move to switch to organic farming, (mainly to mask the slashing of fertiliser imports) wrecked the prospects of an early recovery from pandemic-induced setbacks. The horror could strike Sri Lanka whose human development indices are far ahead of its neighbours.

Decades before Gen Musharraf sealed his military support against the Tamil Tigers, India and Sri Lanka bonded as close friends. Former president Chandrika Kumaratunga particularly treasures an old picture of Nehru hoisting her in the air. Later Indira Gandhi stopped Sirimavo Bandaranaike from quitting during a Sinhalese communist insurrection in 1971, the year Mrs Gandhi would go to war with Pakistan. “Indu called me to say under no circumstances was I to resign.” The Janatha Vimukthi Peramuna insurrection would have rattled any government. It was the first of two unsuccessful armed revolts conducted by the communist group against the socialist United Front Government of Sri Lanka. The revolt lasted two months before Indian troops helped quell it.

I met Mrs Bandarnaike when she was in the wheelchair with paralysed toes. It was a peep into the India-Sri Lanka backstage. Her son Anura Bandaranaike was a devotee of India’s healer-guru Sai Baba of Pattapurthi. On his advice, the mother flew to Puttaparthi. The Sai Baba promised quick recovery but it was a tall claim. The Buddhist press was up in arms over the leader of their country falling prey to the ‘mumbo jumbo’ of an Indian guru.

It didn’t help that India was firmly in the Soviet camp while its neighbours had cosy ties with China and the US, both allies against Moscow. Pakistan, Bangladesh, Nepal and Sri Lanka led the movement for Saarc, the South Asian club that met in Dhaka for the first summit in 1985. Gen Ershad, its host, would later tell me that it was a collective effort by India’s neighbours to deal with Delhi jointly. “We were allergic to India,” Ershad told me bluntly in a TV interview. “So we decided to deal with India jointly.”

Sri Lanka is in a serious quandary today and does not have the emotional wherewithal to deal with the IMF’s conditionality that always comes. The protesters represent Sri Lanka’s multicultural bouquet. There’s just no room for dividing them again. Nor is there stomach for more IMF pills.

Palitha Kohona, Sri Lanka’s ambassador in Beijing shared the fears with the Global Times. The patience is running thin.

“In some cases, it’s difficult because the belt is already on the last notch. Sri Lanka has a state-funded healthcare system from birth to death. Some are worried that the IMF might recommend that we tighten the healthcare system. Our education system is also free from grade one to university level. This might be another area that the IMF might recommend pruning. But these may add to the unrest, which is already hampering the recovery of the country and unsettle any government, which takes over in the next few weeks. We have to deal with these issues, and it’s not going to be easy for Sri Lanka.”

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Bleeding from Shylock’s cut

Jawed Naqvi in The Dawn

SHYLOCK is the big business, Antonio, the political parties. Let’s throw in Portia, symbolising law and justice, but which mostly eludes Indians currently. The news is heart-warming in the interregnum though. A brilliant woman journalist won a tenacious legal battle with an alleged sex predator of a powerful social echelon. And octogenarian leftist poet Varavara Rao got bail too, albeit for six months.

But Rao’s comrades, India’s most brilliant and selfless souls, are cramming the jails. A battery of leftist intellectuals and lawyers along with a merrily self-effacing octogenarian Jesuit priest stand accused of plotting to murder the prime minister in a laughably bizarre plot. Others are facing sedition charges for orchestrating communal violence in Delhi, which their rivals actually waged under police protection.

An American newspaper has revealed how the dubious assassination plot was structured around hacked computers that were used to plant the “evidence” of the purported crime. So, the victories here and there are welcome aberrations — happy aberrations — in a system that stands entrenched against equal rights and dignity for women and which ambushes dissenting citizens at will.

It’s no secret that major political parties receive funds from big business, which becomes a fertile ground for quid pro quo. In fact, it’s a curious rule of thumb that the parties whose leaders are in jail or face charges for alleged graft, are precisely the ones that the corporate lobbies shunned, and, therefore, did not favour with their largesse. It is also likely that the leaders didn’t accept the implied quid pro quo and chose to suffer.

It’s a bit like the movie industry. If one didn’t pick the money from the usurious market the movie is likely never going to find a theatre to screen it. Mayawati and Lalu Yadav are a case in point of politicians who have been made an example of for seeking alternative routes of raising money, tainted money, to fight costly elections, and which they mostly won. Portia will have to be more innovative than leaning on her fabled court craft and throwing in a clever interpretation of law to tilt the argument. Today, she has to weigh the cases as presented.

Chara ghotala or fodder scam is up for public scrutiny and trial by media, a bail-less crime, but an opaque defence deal has to be decided for reasons of national security through sealed envelopes in highest court rooms. This, therefore, is a political battle and has to be fought politically. It is far-fetched to think of defeating a closet patriarchy or a renegade state in a court battle.

In this regard, a key component of Prime Minister Modi’s hare-brained demonetisation move had a clever edge. He mopped up 85 per cent of India’s cash on Nov 8, 2016. The Uttar Pradesh assembly polls began on Feb 11, 2017. By cancelling big currency notes on the eve of a huge election, which Uttar Pradesh always is, he sucked out a vital resource the rivals needed to give him a good fight.

Why don’t Indian parties crowd-fund as some, but only some, sections of the left do? Even in the heartland of capitalism in the United States, Bernie Sanders could come tantalisingly close to becoming president with crowd funding. Delhi’s Aam Aadmi Party came to power with the help of this mostly shunned method of raising electoral funds. In the bargain, AAP inspired donors to see themselves as stakeholders in the great endeavour.

We read in the morning paper that India’s main opposition Congress party has run out of money. Elections are due in key states where the party could do well, primarily Assam, with clever handling. It’s a wrong time not to have money. West Bengal, Tamil Nadu, Pondicherry and Kerala are also up for polls.

Being in penury, or near penury, is, however, a good sign for the Congress party and may not be such a bad idea for India’s democracy either. Remember the tycoons muscling their way through pliable media contacts to claim cabinet berths for their acolytes in the second innings of the Congress-led alliance of Manmohan Singh? The ministry of telecommunications was crucial to the quest. And with all the deals being done to monopolise data and e-commerce today, the stakes were bound to be high. The BJP has emerged as the monopoly beneficiary of corporate donations, not least by tweaking the law to make the transactions opaque. No surprise there.

A great reason for the Congress’s financial crunch is Rahul Gandhi’s decision to make a direct connection between India’s prevailing economic crisis and Mr Modi’s patronage of his crony capitalist friends. Protesting farmers, dissenting intellectuals and assorted environmentalists across the world have seen through the plot. (Whoever can see the plot is an enemy of the state.)

On the flip side of the Congress’s course correction under Gandhi, an interview was published of Punjab’s Congress Chief Minister Amarinder Singh. He is rowing back from the bold demands by the farmers for the repeal of pro-business farm laws. Singh favours suspending the laws for two years instead of annulling them. The India Today magazine did some fact-checking to show that Singh had not met Modi’s friend Mukesh Ambani, as claimed, a day ahead of the nationwide strike by the farmers. The cordial picture of the two was from 2017.

Amarinder’s challenger in Congress is cricketer-turned-politician Navjot Sidhu, a vocal critic of big business. Shylock is hemorrhaging India. Rahul Gandhi is losing his MLAs to corporate-political pelf, the latest casualty being his government in Pondicherry. It’s time he went to the people with the bowl, an agreeable way to involve them in his bold analysis of the country’s crisis. He can start to stitch the wounds, not as a grand leader for which he must win a mandate, but as a caring citizen like those languishing in jails. The Congress will be the richer for it. Good for Portia too.