7 Ways The IMF Sucks
My friend Daniel Alphonsus (previously at the Finance Ministry) listed the seven main themes of IMF intervention in Sri Lanka. He said “the themes of this final program need not be very different from the past six extended programs. But their sequencing needs to reverse.”
Daniel listed the broad things that the IMF does, and I treat it as a useful summary, not official. Daniel’s article has his own argument and you should read it, but I’ll only address these seven points here:
For a shared sense of what problems the IMF is supposed to solve, let’s agree that Sri Lanka has run out of foreign exchange (dollars) and this has led to catastrophic shortages of food, energy, and fuel. Protestors asking for the power cuts, fuel shortages, and food shortages to stop.
So what is the IMF solution? Whatever the problem, wherever it is in the world, they generally have the same recommendations (which is really problem number one). Since Daniel outlines their seven main themes, let’s go through them one by one.
1. Removing Price Controls
Daniel says the IMF would “remove price controls, especially in energy and agricultural markets, to reduce shortages and encourage production.” Given basic supply and demand, what would this mean? Prices would go up.
What Would This Do?
If we remove price controls on fuel, prices will go up. This won’t affect rich people filling up their jeeps so much, but a poor person with a trishaw or tractor is completely fucked.
Same thing for agriculture, ie food. Prices would go up. Given high demand, producers don’t even need to produce more, and anyways, food takes time to grow. Lifting price controls would just mean immediate price gouging. What’s the customer going to do? Starve?
The problem with just removing price controls is that prices would get out of control. In its myopic focus on prices, the IMF doesn’t even consider that price controls could be there for a reason…