IMF - A NECESSARY EVIL FOR WEAKER ECONOMIES

SHAMSUL GHANI
(feedback@pgeconomist.com)

May 17 - 23, 2010

After getting out of the clutches of the demon international lender during Musharraf's rule, Pakistan once again took to the infamous captivity in November 2008 by entering into a $7.6 billion IMF SBA program.

This assistance was subsequently augmented to $11.3 billion out of which we have so far received $6.4 billion in four tranches of $3.1 billion, $0.847 billion, $1.2 billion and again $1.2 billion. Pakistani government is now being made to run from pillar to the post for the release of 5th tranche of $1.2 billion which still seems hard to come by as IMF is adamant to ensure that the implementation of VAT takes place with effect from 01 July 2010. The government still grappling with the complex mechanism of the new tax system is far from taking on board all stakeholders. Going into the net of IMF assistance programs entails certain social and economic costs that are to be borne by the people of the client country alone.

Our national psyche demands that we keep away from the luxuries of western democracy. On the contrary, we have developed a fatal love for this alien system. We go to polls in a state of frenzy and come out with our bodies bleeding, left, right, centre, up and down. We sit in seclusion licking these wounds. Once these wounds are healed, we are ready for the next take. After 1971 polls, we lost the eastern wing of our country. After 2008 polls, we saw our economy going to dogs.

Pakistan's economic survival demanded that it renewed our slavery bonds with the IMF. The revival of the bonds brought further social and economic pressures to a nation that was already on the vent. Remove all subsidies - that provide relief to the common man - was the first IMF dictate. Pakistani government responded in slavish deference. The removal of subsidies from the energy sector has brought a new wave of inflation in Pakistan during times when the inflationary forces are on a retreat the world over.

The criticism of IMF might appear cynical - or in better words: fashionable - to some, but let us see what the external world or even the Americans themselves think of this organisation. The US "economic hit man" John Perkins writes in his book "Hoodwinked":

"On December 13, 2008, BBC announced: Ecuador is to default officially on billions of dollars of foreign debts it considers "illegitimate", says President Rafael Correa. Mr. Correa said he had given the order not to approve a debt interest payment due on Monday describing the international lenders as "monsters". The Washington Post pointed out: Ecuador is ceasing payments not because the oil-rich country cannot afford to pay but because it has mad a political decision not to."

John Perkins further quotes the Ecuador energy and mines minister saying:

"Banks that grant loans to dictators, knowing they will finance projects that benefit the rich minorities and hurt the poor majorities, have to accept the blame for much that is wrong here in Ecuador and so many other places. After true democratic elections are held, the elected officials must stand up for the majority."

The paradox is that in case of Pakistan, it is the autocratic rule of a 'dictator' that releases the economy from the grip of IMF, and it is the so-called democratic rule that throws the economy back to the shark-jawed IMF. John Perkins describes his meeting with Father Miguel of Nicaragua in the following words:

"We both knew that the US Treasury and State departments in collaboration with the World Bank and the International Monetary Fund purport to help Third World countries pull out of recessions; however, they actually accomplish the reverse.

When those nations experienced economic problems and were unable to make their loan payments, they were forced to accept "structural adjustment programs" (SAPs) that mandated that client countries drastically reduce government spending, raise interest rates (often to 30 per cent or higher), privatise sectors of their economies, and sell national assets to multinational corporations."

The IMF was conceived in 1944 in the aftermath of Second World War when the representatives from 45 countries met in Bretton Woods, New Hampshire, United States, and agreed in principle to the framework of international economic cooperation. The IMF formally came into existence in December 1945 when 29 countries signed its Articles of Agreement.

Today, the IMF is represented by 186 countries (as of June-09). The economic and operational goals of the organisation include working to: foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. How far it has succeeded in achieving these goals and objectives, the following words of Joseph Stiglitz appear to provide answer:

"They all say the IMF is arrogant. They all say the IMF doesn't really listen to the developing countries it is supposed to help. They all say the IMF is secretive and insulated from democratic accountability. They all say the IMF's economic 'remedies' make things worse - turning slowdowns into recessions and recessions into depressions. And they all have a point. I was chief economists at the World Bank from 1996 until November last, during the gravest global economic crisis in a half-century. I saw how the IMF in tandem with the US Treasury Department, responded. I was appalled."

The basic objective of the IMF is to bail out economies that are in difficulty particularly the balance of payments problem through various mostly short term assistance programs using up the pool of funds contributed by the 186 member countries. Any economy making use of these programs is required to accept certain IMF conditionalities also known as Washington Consensus. These conditionalities, according to the critics are anti-poor and drag the economy into further mess. From the foregoing, it should not be difficult to infer that no client nation can avail IMF financial assistance without securing US vote of approval. In the hierarchy of member countries, US enjoys the top position by virtue of its contribution as well as world power status. Only US has the veto power to turn down any proposed IMF assistance program.

With all its rapacious force, the IMF is after all water-bound shark - it doesn't have the power to come to us; it is we and we alone who chose to go to it. So, the weaker economies watch out; improve your political and economic governance. That is the surest way to avoid IMF. No doubt IMF is a necessary evil, yet it can be warded off through better economic and financial management.

QUOTAS AND VOTES OF IMF MEMBER COUNTRIES

COUNTRY QUOTA MILLION SDRS QUOTA % OF TOTAL VOTES NUMBER VOTES % OF TOTAL
US 37149 17.09 371743 16.74
Japan 13312 6.12 133378 6.01
Germany 13008 5.98 130332 5.87
UK 10739 4.94 107635 4.85
France 10739 4.94 107635 4.85
China 8090 3.72 81151 3.66
Italy 7056 3.24 70805 3.19
Saudi Arabia 6986 3.21 70105 3.16
Canada 6369 2.93 63942 2.88
Russia 5945 2.73 59704 2.69
Netherlands 5162 2.37 51874 2.34
Belgium 4605 2.12 46302 2.08
India 4158 1.91 41832 1.88
Switzerland 3459 1.59 34835 1.57
Australia 3236 1.49 32614 1.47
Mexico 3153 1.45 31778 1.43
170 other countries 74265 34.16 785152 35.35