Photo courtesy of LBO

Long term survival of an entity depends on developing a culture of innovation. This needs to be an organizational priority. Fostering such a culture consultatively and inclusively needs a free flow of information, employee empowerment, collaborative problem solving and aligning values, policies and procedures to achieve business objectives.

An outward looking worldview, merit based employment opportunities, recognising employee skills and knowledge, fostering life time learning and acquiring skills, encouraging to dream big in terms of future, flattening hierarchies and developing 3600collaboration, fostering a climate conducive for accepting and respecting diversity and promoting sense of belonging and new initiatives are vital. These are crucial characteristics of an innovative culture. Only then an entity becomes dynamic, responsive, adaptable and resilient.

Turning around a business

A business entity cannot be turned around without the active engagement of the workforce. Every worker needs to be convinced of and made accountable for the expected performance with the assurance that beneficial outcomes will be shared across the workplace.

If the entity is already insolvent, the situation needs to be turned around immediately. In this situation, it will be extremely difficult to get external funding so the entity must start with cutting down costs, expenditure, wastage and mismanagement; expediently collecting what is owed to the business and selling available products and services to the best customers for generating money.

Tough decisions in the turnaround plan need to be executed with full commitment and dedication of the workforce while continuously monitoring key results areas and their performance indicators. Simultaneously, any contingencies that arise in the process need to be handled by thinking decisively and taking appropriate remedial action sooner rather than later.

What is crucial is the adopting of a disciplined approach in analysing the situation, developing a turnaround plan and utilising the experience and expertise of everybody and executing the plan for achieving the anticipated outcomes.

Dealing with a countrywide economic crisis

Dealing with an economic crisis countrywide is more complicated than just spending less money, as politics plays a big role. Austerity, the key neo-liberal tool, does not simply represent spending cuts. It is a process of moving society away from consumption and wages towards investment and profits. It strengthens financial capital at the expense of security and certainty in people’s lives and drives increasing socio-economic inequality in society.

Private enterprise increasingly penetrates into the state and makes it more punitive, coercive and less welfare oriented, driving a culture where callousness and cruelty towards those in need and enforcing values of social hierarchy, dependency and competition. There are better and fairer alternatives as evidenced by what Chile endured and overcame.

Chile and neo-liberal experience

If we recollect Chile in 1973, the elected government of Salvador Allende was overthrown by the US backed and Augusto Pinochet led military regime. The USA sent a team of economists to introduce neo-liberalism in Chile and to counter the left movement that was gaining popularity in Latin America. This was done prior to neo-liberalism was introduced in Sri Lanka under the regime of President J.R. Jayewardene. Pinochet worked along with the IMF and restructured the economy following their conditionalities.

They reversed nationalisations, privatised public assets, introduced unregulated exploitation of natural resources, privatised social security and facilitated foreign direct investment and free trade. The regime guaranteed foreign firms the right to repatriate profits generated from such business operations in Chile and favored export-led recovery over import substitution.

Despite these developments, Chile’s budget viability was dependent on the income generated from copper, which was the natural resource that was held in the hands of the state. All revenues from copper flowed into government coffers. The results of structural reforms in Chile, such as growth rates, capital accumulation, and high rates of return on foreign investment were short lived. With the Latin American debt crisis in 1982, everything went pear shaped.

What an IMF package entails and not

An IMF rescue package is conditional on governments needing to enhance their incomes and shrink expenditure. For IMF loans, this means national resources and public enterprises will be privatised outright or through public-private partnerships. Direct and indirect taxes will increase with price increases of all essential commodities including food, education, health, electricity, fuel and water. Nevertheless, people’s reactions to such unpopular policies will be counteracted by the ruling elites pledging to create more employment by boosting agriculture and industry, with the private sector assisting national development. At the same time vital causes to the crisis such as corruption and ineptness of the leaders and wastage and mismanagement of resources are side stepped.

IMF’s research arm in 2016 published a paper titled Neo-liberalism: Oversold?. IMF’s independent evaluation office has acknowledged that fiscal austerity has not delivered the expected outcomes. Despite this, IMF does not promote sovereign debt reduction to boost economic growth but insists on fiscal retrenchment and austerity. It appears that when it comes to countries like Sri Lanka and Ghana, IMF ignores its own advice. The IMF is still adhering to austerity measures that inhibit economic growth, thus undermining efforts to reduce debt to GDP ratios.

According to the IMF, unanticipated transfers to state-owned enterprises and unexpected exchange rate depreciations may undermine debt reduction efforts. The IMF has not acknowledged that such undermining occurs as an unintended consequence of its own programmes. This is because indebted countries are required to shift to market determined exchange rates, raise interest rates and cut state subsidies. Such measures also drive up business costs.

Further into debt

The IMF executive’s emphasis is still on faster and more effective sovereign debt restructuring. These measures have led countries into further debt distress and re-seeking IMF help to face excessive delays, geopolitical bullying and unresponsive creditors. Disregard for their own research has led to lending programmes that include onerous conditions that bring deleterious living conditions to these countries’ populations and economies.

For countries like Ghana and Lanka, the IMF rarely looks at the socio-economic and political conditions that lead to debt problems. The risk is not necessarily the size of the ratio of debt to the GDP of a country. The issue really lies in what sources of income such as manufacturing, agriculture, services, tax revenues and the amount of savings and reserve levels a country has. This overall picture will indicate whether a government could service a certain debt level while retaining lending agencies’ confidence and credibility. If this manoeuvrability becomes limited or vulnerable, there will be difficulties in addressing the spending needs and any ensuing crises. Ultimately, these situations can negatively impact a country’s health, education and other essentials, leading to a crisis.

Read Part 2 here: https://groundviews.org/2023/08/10/debt-restructuring-austerity-and-the-imf-a-panacea-or-an-exacerbation-part-2/