Dec 01 - 07, 2008

International Monetary Fund is recognized worldwide as a lender which arranges capital on short notice through its emergency financing mechanism. In many cases it is proven that the Fund has moved to forward financial provisions to economies in need of urgent liquidity. In less than three months, Pakistan's application seeking stand by arrangement from the Fund was approved despite IMF's earlier not-so-good experience in relation to country's admissibility to its conditions, which were not ideally met according to the Fund' report in past. Many a time, the Fund's officials expressed their disappointment over the low rate of Pakistan's successive governments compliance with the Fund's conditions, saying by and large country's managements were least bothered to plan sources of repayment after approval of loans.

Originally, Pakistan was exposed to martinet conditions of the Fund in the last decade of yester century after it made lapses in compliance to the Fund's regulations and the Fund found loose ends in the fiscal discipline. This time too the Fund has planned a vigilant monitoring of government handling of economic affairs after transferring each proceed of total over $7 billion loan in phases in 23 months. Although usages of funds granted by the IMF during both Nawaz and Benazir regimes kept the moderation line usage ratio during the Musharaf government was fairly good. It was unofficially declared best criteria meeting management because of its having fulfilled 96 percent conditions in poverty reduction and growth facility fund (PRGF) and 90 percent on standby arrangements (SBA). Alternative modes of funding such as foreign direct investment simply helped out last government to make light burden of debts from the IMF.

Organizational structure of IMF has always been a point of discussion amongst financial analysts as for one reason it is believed to be overwhelmingly dominated by the United States of America. Since the advent of the Fund its chairmanship has never been honored to a member other than USA. It is said this was agreed upon foundation of the Fund. Logically, the influence of the USA in decision making is all powerful which is also reinforced by its leading voting power in the IMF's affairs. Contribution towards the Fund determines voting rights of member countries and accordingly bestows suffrage on them.

Amongst IMF's 185 members, USA's highest share in the Fund's resources entitles it to claim about 17 percent ownership rights of the Fund. Japan and Germany each occupy not more than 6 to 7 percent shares in the resource base while Britain and France not over 5 percent. Under such an uneven balance in authority distribution determined mainly by one's contribution in resource base, hegemony of USA in the Fund can not dither away. Unless any other nations stand up to challenge it by mobilizing large deposits into the Fund, voting power of US continues to maintain ascendancy. There is in fact no harm seen by developing economies finding ways out of fiscal crises provided dole-out won't get delayed.

In accordance with the scant its input, Pakistan can exert only 0.48 voting power in the Fund's proposal and measure. It is sarcasm that all Muslim or Islamic nations have not formed percentage points greater than that of USA. Neither have they come up with a similar funding club to rescue sinking economies of Umaah what they often proclaim flauntingly. Except Saudi Arabia no other Muslim or Islamic country constitutes over 1 percent voting right.

IMF has more than $200 billion in lendable resources. According to another estimate, it holds approximately $363 billion deposits including gold deposits worth $103 billion. In a recent development, Citibank default was dammed through almost an equal bailout package by the US government. Membership in IMF is conditioned with a mandatory membership in World Trade Organization which entails free market economic system. Therefore, China and erstwhile Soviet Union were never allowed funds of IMF during their liquidity crises. While WTO has been seeking promotion of worldwide free trade since long, it has yet to phase out non tariff barriers entirely from international trade, inviting common allegation over its subjective implementation of liberal trade policies. Anti dumping duties over Pakistan's textile products in EU market are to be pulled off.

Pakistan became a member of IMF in 1950 and got sanctioned maiden credit of SDR 25 million in 1958. Nothing was received however. Later on in the same year, SDR 37 million was received completely. Within a period 1958-2004, SDR 6.84 billion was sanctioned and SDR 4.46 billion utilized. The IMF currency is called Special Drawing Rights and presently equivalent to 1.50 US dollars. So far Pakistan has agreed upon SBA, PRGF, Accident Fund Facility Arrangement, General Resources Accounts, etc. While EFF carries along a lowest markup rate and longest reimbursement timeline of 10 years, SBA is popular amongst borrowers. Pakistan has mostly received SBAs, which generally has to be received within two year and repaid in maximum four to five years.

First tranche of recently approved SBA will add to the country's recurrent liabilities due to the Fund. Already due in this month is SDR 40 million. According to a report, with this volume of debts Pakistan will attain graduation from the Fund not before 2030.

Taking external debts from IMF entices hot debate in public about the unpleasant repercussions of conditionalities enclosed with loans. Strict policies to recover loans would be observed by the Fund, motivating primarily reduction in subsidies, rationalization in expenditures, interest rate hike, privatization of state-owned companies, and noninterference of central bank in currency fluctuation. Pakistan and India, according to IMF report, are countries where central banks often address currency value problem through administrative measures. What about interest rate weapon to mow down private debts? According to IMF press communiqué, government social safety expenditures will not be disturbed due to structural adjustment and targeted subsidy will continue after SBA. It says pension and EOBI are additional government expenditures which can subside by improving public savings in insurance. But is it possible within a span of two years?