IMF OR NO IMF? - PLEASE COME UP WITH A DECISIVE ANSWER

SHAMSUL GHANI (shams_ghani@hotmail.com)
Nov 10 - 16, 2008

The German finance minister's advice to get it done within six days seems to have fallen on deaf ears. We are taking our own time; even when we know that the last resort is to go to the lender of the last resort. With the issue of external liquidity still unresolved, our economic managers seem busy making last ditch effort to avoid IMF assistance. The unceremonious return of Mr. Shaukat Tareen from Saudi Arabia doesn't seem to be the harbinger of good tide. Since we have a squeezed timeline, we can not afford to dilly dally. We have to be decisive as there is much at stake.

The banking sector, the capital market, the business, the industry all are in limbo. None of our friends seems to have agreed to an outright cash bailout. Their half commitments are based on roundabout techniques to see us through the crisis. There seems to be a trust deficit all around and rightly so, as we have an inglorious history of financial scams. We have yet another history of being smart to one another within the national boundaries. Once pitted against global adversaries, we are always found lacking in wit and guts. By now, we should have understood that we have landed ourselves into a financial trap, courtesy our own wrongdoings. We are going to get nothing on our own terms. Even Saudi Arabia is not going to allow us a single barrel of crude oil on deferred payment terms, until and unless a yes vote is passed by the US. China, although having no such constraint, is not going to single out itself by offering us a cash bailout in utter disregard of US simply because we have never proved ourselves worthy of the much trumpeted friendly ties. We ignored Chinese sane advice in 1971 and halved the country. We disregarded China's interest in our economic growth and deep involvement in a number of strategic projects like Gwadar during the last eight years or so and ended up as big economic losers for some so-called democratic gains. How many of us know that China feels disgruntled over the events that took place in our country during the last one year?

The Friends of Pakistan is a project lunched by the US. It's a 'marriage of convenience' type arrangement to bail us out strictly on US terms. The mission statement of project sponsors: your political crudity and economic inconsistencies notwithstanding, we recognize your strategic position and are prepared to help you out but certainly not on your terms. Being assured of no hard cash assistance from any side and convinced that the aid will come only through an IMF program, we should make haste and finalize the emergency portion of BOP assistance deal. Having done that, we can explore the possibility of a much cheaper assistance. The Exogenous Shocks Facility (ESF) is a special short-term liquidity financing instrument recently modified by IMF. This program is tailored to assist low income countries whose economy suffers from exogenous shocks like trade disruptions in war like situation, natural catastrophes and unusual global price hikes. The assistance under PRGF (Poverty Reduction Growth Facility) and ESF is much cheaper as compared to the stand-by-arrangement facility that we are pursuing. We can make a good case for ESF as our country is passing through economic hardship wreaked by the war on terror and global oil and commodity price hikes.

WHY NOT IMF

IF NO ONE ELSE THEN WHY NOT IMF?

Resorting to IMF borrowing brings a bad name to the democratic setup. Really? It imposes conditionalities that cripple the developing economies. But then what about the economies that cripple themselves and that too without any cogent reasons? Closing the argument, we should examine the proposed conditionalities one by one.

1. The IMF program asks Pakistan to reduce fiscal deficit from 7.4 per cent to 3.5 per cent. That is not conditionality; it is something that is going to benefit us, if we are able to do it. Of course, it will take a lot of doing. We will have to cut non-productive expenditure and government spending. The army has already put in abeyance its GHQ project. Let others follow the suit and contribute their mite to achieve the target of 3.5 per cent deficit.

2. The program asks to raise tax to GDP ratio from 10.5 to 15 per cent within the next five years. Given the will to execute, this is not a difficult task. We have a very narrow tax base which can be broadened considerably. Non-essential imports can be further discouraged and the 384 item list be enlarged. Duties on pure luxuries and 1500 cc plus cars can be doubled or even tripled. All untaxed sectors now need to be taxed. This is what Mr. Shaukat Tareen has said. He has been blunt enough to name the sacred sectors; agriculture, real estate etc. He has touched the feudal lords on the raw; he should better beware. This is time about that agriculture issue is settled once for all. If radical land reforms are not in the offing, then the sector must be taxed according to the landholding size and on progressive tax basis.

3. The program asks the government to achieve zero net borrowing from the state bank. This point is already on economic goals agenda of the government. IMF program will simply ensure its implementation.

4. The program asks to get rid of subsidies and apply cut to PSDP. The government has already executed the dirty subsidy-job. The government has also decided to cut the Rs.541 billion PSDP by Rs.100 billion. The final decision will be taken in the next meeting of Planning Commission.

5. It is feared that the IMF may ask for a further discount rate hike of up to 3.5 per cent which may result in a historically high domestic lending rate. This fear is more conjectural than real. This point can well be discussed with the IMF who is said to have softened its stance on conditionalities.

6. The IMF will monitor our banking and financial sectors and place its watchdogs on all financed projects. It simply means that the IMF wants to share our monitoring responsibilities. Let's take it as blessing in disguise. Moreover, it will reduce the corruption chances to a minimum.

Given the IMF assistance being the only recourse left, the much publicized IMF phobia is an attempt, by the vested interests, to create confusion to drive the economic managers away from the program. IMF monitoring of our economy will certainly plug a number of corruption holes.

SAUDI PAK OFFERS CLEAR ADVANTAGE IN TERM DEPOSITS

Saudi Pak Bank is creating a buzz over its recently launched "Salana Munafa" term deposit scheme. The scheme gives depositors 14.5% return in just one year of investment of Rs. 1 LAC or more.

The market for term deposits is currently very competitive with almost all the big banks (and many small ones as well) flaunting their menu of term deposits. Even in this barrage of advertising, Saudi Pak distinctly stands with its unique and 'must have' product.

Saudi Pak Salana Munafa offers 14.5% p.a. for 1 year on as low a deposit of Rs. 1 LAC. Currently, no other bank is offering such an attractive return on such a low investment and term, giving Salana Munafa a clear advantage over all other term deposits in the market right now.

Given this fact, Saudi Pak Bank is also being extremely clear about the deposit scheme in their communication. While some might promise big profits and hide large minimum investments and long investment periods in the fine print, Saudi Pak has put everything front and center. About the only thing in fine print is the government tax that is required by all banks.

With the current economic conditions, many citizens are concerned about how to best invest and protect their savings. Saudi Pak Bank has chosen the perfect time to introduce a term deposit with a clear advantage.