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Will IMF ‘Quacks’ Finish Off Pakistan?
by Ramtanu Maitra
Nov. 5
Barring a miracle, it is almost a certainty thatPakistan will have to accept the International MonetaryFund’s standby arrangement, with stringent conditionalities,currently being offered, to avoid defaulting onforeign loan repayment. Pakistan has been pushed intoa corner to accept an IMF program that will reportedlyprovide Islamabad with $9.6 billion over three years,including immediate assistance of $4 to $5 billion. It isexpected that the IMF agreement will come through byNov. 15. It is interesting to note that Pakistani President AsifAli Zardari was keen not to go to the IMF with the beggingbowl. He sought help instead from a group formedin September, named Friends of Pakistan. However,these “friends,” the U.S.A., Britain, France, and Germany,along with China, the United Arab Emirates,Canada, Turkey, Australia, and Italy, plus the UnitedNations and the European Union, provided nothing. Reports indicate that once Pakistan accepts the “quackremedies,” as IMF prescriptions are rightly called—cutdown government expenditures (including subsidies),increase the taxation base, and devalue the currency—the so-called Friends of Pakistan will hand out somemoney to ease the pain. But, despite Pakistan’s repeatedrequests, these friends were unwilling to part with evena dime. What To ExpectWhat will the state of Pakistan, already barely holdingtogether as a nation, be, after the IMF quackery isapplied? Chances are the patient might not survive.According to a Pakistani news correspondent,Mazhar Tafil, who claims to have seen the documentdiscussed at Dubai between the Pakistani governmentand the IMF, it says that if Pakistan were to accept theIMF funds, it would have to reduce its defense budgetby 30% between 2009 and 2013, and reduce the numberof government and semi-government posts entailingpensions, from 350,000 to 120,000. “The IMF will propose a taxation structure under apackage of reforms in the Federal Board of Revenueand an Rs50 billion [about $600 million] increase in thecurrent target of revenue under the head of general salestax,” the document says. “Imposition of the agriculture tax will be made mandatoryat the rate of seven per cent on wheat productionand 3.5 per cent on other crops,” it maintains. The FederalBoard of Revenue (FBR) would submit a quarterlyreport to the Islamabad office of the IMF for the monitoringand analysis of revenue collection as direct andindirect taxes. The IMF would propose changes whereverit wanted. The document says the IMF representative wouldbe part of the FBR administrative structure and officesof the fund would be set up in all the provincial headquartersto monitor the sales tax collection at the provinciallevel. The proposals also say that six IMF directors andtwo World Bank directors would monitor preparationof the federal budget in the finance ministry. Theywould make budget proposals and the governmentwould be obliged to comply. “The Pakistan government will have to provide detailsof loans it got from all other lenders, includingChina, 48 hours before signing the funding agreementwith the IMF and 25 per cent of the government assetspledged as securities for such loans will be the propertyof the IMF,” the document says. According to another Pakistani analyst, Raza Rumi,the results of the IMF program will be nothing short ofa social holocaust. Reducing the budget deficit to 4.3%of GDP from current levels of 8-9% means that publicspending vital for social programs will be seriously reduced.“Whilst the Western governments are nationalizingbanks and bailing out the economies, we will beadvised to reduce and eliminate food subsidies, [and]scrap development expenditures translating into punyallocations for public goods such as health, educationand infrastructure,” Rumi pointed out. Another commentator, Pakistani economic analystFarrukh Saleem, was succinct when he said recentlythat the IMF’s poverty reduction is all about killing thepoor. America, already in a depression, is buying textilesno more. Pakistan’s textile sector employs 38% ofthe country’s labor force, and its share in total exportsstands at 62%. With no electricity and no gas, Pakistan’stextile mills are shutting down like never before. Thebanks have lent billions to the textile industry, so thebanks are soon going to be in trouble. The IMF promises to pour even more salt on our open wounds, Saleemsaid. A Long and Difficult RelationshipPakistan has had a long and difficult relationshipwith the IMF. Since 1988, the IMF, directly and indirectly,was involved with macro- and micro-managingPakistan’s economy. On the one hand, it provided directbilateral support to help the country cope with its balanceof payment deficits. On the other hand, the Fundhad indirect influence on lending by other donor agencies.The IMF also influenced policies of lending countriesto a great extent. But throughout this period, the IMF was continually“dissatisfied” with Pakistan’s economic performance,and usually refused to lend the full amounts which ithad promised. Moreover, the IMF’s relations with Islamabadwere strained in 1997 by the alleged largescalecorruption by the late-Prime Minister BenazirBhutto’s Pakistan People’s Party (PPP) and its resistanceto structural reforms initiated by the IMF andWorld Bank. When the new government of NawazSharif took office in 1997, relations were somewhat revived,but then soured when Sharif refused to imposethe 3% sales tax on selected retail trade, a demand highon the IMF’s list of conditionalities. In fact, Sharif’sgovernment failed to meet IMF conditionalitiesthroughout its tenure (1997-99). Negative internationalreaction to Pakistan’s 1998 nuclear weapons tests onlyaggravated an already difficult financial situation. Following the Oct. 12, 1999 military coup, whichbrought Gen. Pervez Musharraf to power, the government,at the very outset, appealed to the IMF for restorationof economic assistance and showed its willingnessto meet the associated conditionalities. The Fundresponded by recommending a ten-month Stand ByAgreement (SBA) for Pakistan and the resumption ofthe medium-term (Extended Structural Adjustment Facility/Extended Fund Facility (ESAF/EFF) program. But when Pakistan came off an IMF program in December2004, the government insisted that it wouldnever borrow from the agency again. What Ails Pakistan’s Economy?So, why is Pakistan forced to approach the IMFnow? One of the most serious problems that Pakistanfaces is its depleted foreign-currency reserves. Accordingto a Pakistani economist, by mid-October, the foreign-currency reserves of the central bank (exclusive offoreign-currency accounts of $3.2 billion held by otherPakistani banks) were down to $3.71 billion—anamount equivalent to five weeks of imports (that wouldtake it to the end of the third week of November)—fromthe all-time high of $14.24 billion a little less than ayear ago. The Pakistani currency, the rupee, has lost 25%against the U.S. dollar since the beginning of the year.Fresh foreign capital inflows have dried up or sloweddown. According to the Prime Minister’s finance advisor,Shaukat Tareen, $6-10 billion has been taken out ofthe country in the last six months. Inflation is running ata 30-year high of 25%. The government estimates that it needs $3.5-4.5 billionin the next 30 days to cover its balance-of-paymentsobligations and rebuild foreign-currency reserves.“We’re in a situation where money has to come fromsomewhere—even if it has to be the IMF—to end turmoilin the markets and restore confidence in the economy,”the former chief economist Pervez Tahir argues. Another leading Pakistani economist, Shahid JavedBurki, pointed out recently in a column in The Dawn,that from Pakistan’s perspective, its economic crisiscouldn’t have come at a more awkward time, since Islamabad’sneed for the infusion of foreign capital continuesto increase, while the developed countries are allabsorbed in trying to deal with the meltdowns in theirown financial sectors. Saudi-British NexusThere are perhaps two reasons, why Pakistan’s“friends” decided it has to go to the IMF. First, Pakistanhad long been in difficulties with the United Statesover its unwillingness to go the whole nine yards tomeet the Bush Administration’s demands over theAfghan War. It is not that Pakistan has not helped theU.S. and NATO during these seven years of bloodywar in Afghanistan, but it did not do “enough” to satisfythe White House, or Capitol Hill, or the Pentagon.In other words, the unleashing of the IMF on Pakistanshould be read as punishment handed out for noncomplianceof demands made by the U.S. and theNATO. (What is not discussed, is what the state of theAfghan War would be today, and where the reluctantwarriors of NATO would be, if Pakistan hadn’t helpedthe foreign occupiers as much as it did and, in the process,gotten pummeled by the jihadis. Nor is there anyindication that the bloody war on Pakistani soil will endin the foreseeable future.) The second reason is that Islamabad is steadily slippingout of Washington’s sphere of influence and theUnited States is hated by most Pakistanis. In this environment,Saudi-British influence is growing. This duois involved in helping the Pakistani militants, who arehelping the Afghan Taliban, who are fighting the U.S.and NATO, and the Pakistani Taliban, who are fightingthe Pakistani Army. Following the global economic collapse, Britain isin the forefront of trying to maintain the existing financialarchitecture by strengthening the IMF. BritishPrime Minister Gordon Brown was in Saudi Arabia toseek funds for the IMF. Putting Pakistan under thestrengthened IMF will enhance both London’s and Riyadh’scontrol, which they lack now, over Islamabad.Britain is keen to have a stronger influence overPakistan for geopolitical reasons. In recent years,through its intelligence wing, MI6, and its endless promotionof opium in Afghanistan, Britain has succeededin creating a permanent state of chaos along the Pakistan-Afghanistan borders. The British objective behindthe creation of chaos is multifold. The old colonial rascalsare trying to weaken the United States in Pakistan;working to prevent the Chinese from having access tothe Persian Gulf through Pakistan’s western borders,and thus develop a network of trade and developmentlinking Pakistan and China to Central Asia; and movingto position itself next to the Central Asian nations wherethree major powers—Russia, China, and India—meet. On the other hand, the Saudis have an altogetherdifferent agenda, centered around spreading the extremeorthodox form of state Islam, Wahhabism in Pakistan,and beyond in Central Asia, all the way to thesouthern flanks of Russia. Resuscitate the ‘Quack’There is yet a third reason for Pakistan’s “friends”sending it to the IMF: the international effort, led byBritain, to reestablish the IMF as the global monitor(dictator) of the collapsed financial system. In order tostrengthen the IMF, which has little monetary strength,and had only Turkey as its client prior to netting Pakistan,Hungary, Georgia, and Ukraine in recent days,Gordon Brown went to Saudi Arabia just before PakistaniPresident Asif Ali Zardari went to Riyadh on Nov.4. There, Brown demanded that the oil-rich Gulf Statesand China contribute funds for the IMF to lend to countriesat risk of financial collapse. In Riyadh, Zardari met with virtually no success.Pakistani media cited diplomatic sources saying theSaudis are not enthusiastic about easing the economiccrisis confronting the country. Diplomats have attributedthe coolness of the Saudi response to its uneaseover Pakistan’s quest for an oil facility from Iran, a realignmentof Saudi goals in the region, and politicalchanges in Pakistan. Brown claimed success in his attempt to persuadeSaudi Arabia to help stricken economies by pumpingmore into the IMF, but this is by no means confirmed.However, it is almost a certainty that at the G-20 summiton global finance, scheduled to be hosted in WashingtonNov. 15 by a reluctant U.S. President George W.Bush, the British, along with the Saudis, and perhapssome others, will push for putting some teeth into theIMF’s conditionalities. What is most disgusting about this situation is theAmerican behavior. At a time when the U.S. Treasurywas handing out sacks full of billions of dollars to bailout the corrupt investment bankers et al., it ignoredPakistan’s dire need for a loan of $10 billion. Instead,the United States, which has used Pakistani soil foralmost eight years now, to supply 70% of the logisticsfor its Afghanistan War, allowed the British and theSaudis to push Pakistan into the arms of the “quack.”This may well complete the process of destruction thatWashington’s “war against al-Qaeda” has done so muchto bring about.
