For years the International Monetary Fund (IMF) has been pressing Gulf States to apply Value Added Tax (VAT) on consumer goods and services, ostensibly to strengthen fiscal budgets.
It appears that Gulf Cooperation Council (GCC) States may have heeded that advice although several including Kuwait and Oman have postponed its implementation, wisely in my opinion. Saudi Arabia and the UAE introduced VAT on Jan 1, 2018 and the result was a spike in infl ation with residents feeling the sting on their finances according to polls.
I have been open on social media about my objection to this 5 percent tax and I have written a letter to the authorities setting out my concerns and urging a U-turn.
Although VAT has hardly been a success story, the IMF now promotes personal income tax as well as taxes on businesses and real estate purchases. Very bad idea! I would strongly urge the Emirates and all GCC countries not to fall for this terrible advice from global institutions with a damaging track record.
The IMF and the World Bank (WB) cannot be trusted. I have issued warnings on Twitter concerning the dangers of listening to the recommendations of the IMF and the WB on taxes which are blanket, straight out of their playbook, rather than tailor-made according to individual economic circumstances.
It is absolutely imperative for Arab states to retain economic sovereignty by consulting with their own financial experts. We must be our own doctors and must remain so. Egypt reluctantly fell into IMF clutches when its back was against the wall in 2016. While recovering from economic shocks in the aftermath of two back-to-back revolutions Cairo agreed to accept a $12bn IMF loan that naturally came with strings.
The most populous Arab nation was obliged to fl oat its currency that saw its value cut by more than half causing massive infl ation and it was forced to make severe cuts to fuel and other subsidies which like the 1977 ‘Bread Riots’ could have unleashed social unrest. However, unlike Venezuela, Algeria, Sudan and France, Egypt has missed the bullet of fiery popular discontent and is seeing light at the end of the tunnel.
IMF conditions hurt Egypt’s middle classes, but its people have shown patience. The currency is strengthening and infl ation is falling. The IMF is eager to offer the Egyptian government another loan which has reportedly been declined. Guess who is waiting in the wings to shower oil-rich Venezuela with debt. No surprise here. The IMF is poised to recognize the Trump administration’s anointed President who seeks IMF cash to bolster his unelected government. The IMF and the World Bank should be shunned due to their inextricable linkage with US foreign policy. The facts are eye-opening. Dr Said bin Salem Al Hadi from Oman understands the game.
The IMF targets developing economies, particularly resource-rich countries refusing to do Washington’s bidding, with the aim of reducing them to failures is his core message. He gives Iraq as an example and cites South American states caught on the IMF/WB hook; whose economies were driven to collapse. The US occupation of Iraq was sold as delivering freedom and democracy to the people and look where they ended up. These global, or should I say American, financial institutions were used as weapons creating chaos, destabilization and dare I say it, theft.
After coercing countries to cancel Iraq’s debts, The IMF, the World Bank and the WTO set about restructuring the Iraqi economy which included the privatization of state-owned corporations and foreign ownership which had US companies such as Halliburton, Bechtel and others laughing all the way to the bank even as the nation’s poorest were hammered with severe subsidy and wages cuts. “The IMF is not really an independent actor. I do not think there’s anyone in this town who would tell you with a straight face that it is not controlled by the US Treasury,” said Mark Weisbrot of the Centre for Economic Policy Research. His opinion is seconded by the Brookings Institute that has confirmed that the United States views all multi-nationals, including the World Bank, as instruments of foreign policy to be used to support US objectives.
The former President of Ecuador Rafael Correa accused the IMF of blackmail and there are unconfirmed allegations that his successor has bartered Wikileaks whistle-blower Julian Assange, who sought sanctuary in the Ecuadorian embassy in London, in exchange for an IMF bailout.
Frustrated with interference from the World Bank and the IMF, in 2009 Argentina, Brazil, Paraguay, Uruguay, Ecuador, Bolivia and Venezuela established their own monetary fund Banco- Sur which unfortunately failed to get off the ground due to undercapitalization. Perhaps it is time for Gulf States and its Arab allies to consider something similar offering unconditional loans with funding from wealthier countries. Africa is heavily in debt to US-dominated monetary funds. Stringent IMF conditions imposed years of cruel austerity on Greeks forced into penury to the extent many committed suicide or gave up their children into state care because they could no longer afford to feed them. Jordan whose economy is burdened by millions of refugees agreed to an IMF loan in 2016 conditional upon its efforts to stimulate the economy and the reduction of public debt.
The agreement stipulated Amman’s passing of a controversial tax law that elicited protests and strikes. Jordan is now negotiating with the IMF on a new development program. How about some of the wealthier Arab states holding out a helpful hand instead! For more on this topic read John Perkins’ semi-autobiographical book ‘Economic Hitman’ based on his own career. His job was to convince leaderships of poorer countries to accept loans for infrastructure on the proviso that construction projects were contracted out to American companies. He says the loans were the bait for those countries to fall under the sway of US political infl uence and allow US companies access to their natural resources. “Economic Hitmen have managed to create the world’s truly global empire, basically a secret empire, he claims.
“We identify a country and corporations that have resources like oil and arrange huge loans for those countries from the World Bank or one of its sisters. The money never actually goes to the country, it goes to our own corporations to build infrastructure projects that help a very few wealthy people but do not benefit the majority.
“So they are left holding a huge debt that they cannot pay and so we go back at some point and say you cannot pay your debts so sell us your oil cheap to our oil companies, vote with us at the next UN vote. Allow us to build a military base…and if they fail, we send in the jackals to overthrow their leaders and if the jackals fail to overthrow or assassinate their leaders as they did in Iraq, then we send in the military.”
No Arab country should every again be fooled into that invidious position. Our leaders should probe the activities of these discredited tools of Washington when hopefully the next time they come knocking with advice or offers of billions, they will find the door shut.
By Khalaf Ahmad Al Habtoor UAE Businessman