SO, IT IS IMF AGAIN!

SHAMSUL GHANI (shams_ghani@hotmail.com)
Feb 23 - Mar 01, 2009

A few months back, the country was buzzed with a cacophony of voices, a few supporting and the majority opposing Pakistan relapsing to the IMF for a financial bailout package. This scribe fully supported our economic managers' decision - being the only option left to strike an IMF deal as early as possible to resuscitate the economy. The logic for going to IMF and abide by the much publicized (and criticized) conditionality was quite simple.

The conditionality in fact was badly needed at that particular moment of time. The German finance minister's advice at that time to get it done not within six months or six weeks but within six days certainly made sense. The Friends of Pakistan was a US sponsored project, a 'marriage of convenience' type arrangement to bail us out strictly on US terms. The unwritten mission statement of project sponsors was "your political crudity and the resultant economic instability 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 rightly and timely stepped into the well-designed trap.

The logical conclusion at that time was; If no one else then why not IMF. Resorting to IMF borrowing brings a bad name to the democratic setup was the argument of the neo-democrats who had resumed office after a break of nine years. It imposes conditionality that cripples the developing economies. But then what about the economies that cripple themselves and that too without any cogent reasons? The IMF program now having been undertaken, the debate on the efficacy of IMF assistance is left behind.

In the words of Mr. Masood Ahmed, Director of the Middle East and Central Asia Department, IMF:

"It is important to point out that the program - and its conditionality - is based on the targets and measures that the authorities have themselves set for the next two years.

While the necessary macroeconomic tightening will clearly involve some pain, it is important that the burden of adjustment should fall least on the most vulnerable members of the society. And that is why for the IMF, it was crucial that the government's program includes key social protection measures. Expenditure on the social safety net will be increased to protect the poor through both cash transfers and targeted electricity subsidies."

While the government has ostensibly failed on social safety net issue, the program and its implementation could be termed satisfactory so far as the World Bank in its latest analysis has observed that Pakistan's economy is showing signs of improvement on macroeconomic imbalances. The analysis however, sounds a note of warning for South Asian economies for which there is no room for complacency as the adverse effects of global slowdown are still emerging. There is a need to create fiscal space and desist from policy reversal measures in the wake of falling international fuel and food prices. In addition to the lower global demand, there is strong evidence of trade credit crunch which is bound to have spillover effect to hit the country exports.

BUT WHY IMF-II?

The recent statement of finance advisor Mr. Shaukat Tarin to go to IMF for another $4.5 billion program has come as a shock. Mr. Tarin has talked of renegotiating the revised numbers with IMF and ask for easing of conditions of the bailout package of $7.6 billion. During a recent press briefing, David Hawley, Senior Advisor, External Relations Department, IMF has confirmed that an IMF team will be meeting Pakistani delegation in Dubai this month to discuss the implementation of first program and any to take up any further assistance issue.

According to Mr. Tarin, Pakistan's economic condition is deteriorating due mainly to our involvement with the war on terror for which we had been receiving sustained aid which now stands suspended after May 2008. Pakistan received around $10 billion as aid to fight terrorism during the Musharraf era. As a result of global slowdown and terrorist siege of a number of country's strategic areas, Pakistan's trade and investment climate has been badly affected after US stopped payment of war bills after May, 2008; the lack of assistance has cost Pakistan roughly $1.25 billion. The US reaction on the recent peace efforts and promised implementation of Shariah in Swat valley has turned out to be unfavorable, as expected. The chances are that likewise past peace efforts, this step will also earn US displeasure. So, any chances of aid resumption are remote. The pressure to "do more" shall, however keep increasing.

The situation, no doubt, is difficult. But the war on terrorism is not to be fought with the IMF money. Mr. Tarin's case is quite weak. Instead of making such an incoherent economic presentation, he should have convinced the government to take the issue to the Obama administration with a clear mind that the war can be fought only if the aid resumes or we shall be forced to put the shutters down. Moreover, the request to ease conditions of the existing IMF program is also uncalled for as the program was based on home grown conditionalities and we had vowed to own this program. The emphasis was on tightening of belts that we have miserably failed in. The tightening of belts refers only to the well-to-do elitists and feudal lords of this country. The masses have no bellies, so no question of belt tightening is for them. It is shameful that hardly three months have passed and we are not only talking of easing of existing terms but are also flaunting the infamous begging bowl. One should remember that IMF programs, like the steroids, have the power to heal when taken in controlled emergency doses but their use by habit can be highly destructive.