Daily Times

Right after the previous regime had claimed to have freed the nation from the clutches of the International Monetary Fund (IMF), the current government has invited the IMF back in to exert its influence over the nation’s economic policy-making process by requesting a $7.6 billion bailout loan package over the next two years. The present government is insisting that it went to the IMF on its own terms, though many sceptics consider that this was the only alternative left to prevent outright default.
Much of the criticism of the IMF within Pakistan is perhaps due to the fact that IMF-backed policies for economic adjustment have not only remained unsuccessful in correcting unsustainable external and fiscal deficits, they have also put Pakistan on the verge of bankruptcy. Conversely, the IMF itself claims that it is the neglect of its policy prescriptions which is responsible for Pakistan’s current economic woes.
To address these concerns, a panel of national economists has presented a set of policies labelled ‘economic stabilisation with a human face’, which has proposed a Rs 200 billion ($2.5 billion) spending cut, including a reduction of up to about Rs 100 billion in development spending, leaving the enormous defence budget intact once again.
Although Pakistan has entered into several IMF programmes in the past, and it already has somewhat of a reputation for falling short on its commitments. How our less than a year-old civilian government can hold a firm policy line to pursue IMF favoured austerity reforms in the face of unrelenting and multidimensional pressures remains to be seen.
Let us, however, take a look at some currently pervasive demands for the IMF itself to implement direly needed reforms, which would also have obvious implications on how the IMF loaning arrangements would affect Pakistan.
Broad-based reluctance to work with the IMF is not exclusive to Pakistan. In fact, similar suspicions are evident in many other countries in Africa and South America. Several national leaders have openly proclaimed that the IMF is responsive mainly to its largest shareholders, which have their own vested interests around the developing world. Borrowing from the IMF has thus become a political liability, which enables opposition groups to accuse their governments of having evidently conceded to foreign agendas that seek to secure growth at the expense of the poor. On the other hand, numerous other stakeholders point out that in a world of globalised financial markets, the IMF’s role and functions remain more crucial than ever.
It must be realised however that the IMF is also facing a serious financial crisis at present, which may undermine its effectiveness in monitoring international financial stability, addressing key economic issues and providing technical expertise to finance ministries and central banks around the world. To restore the effectiveness and legitimacy of the IMF, far-reaching reforms of its governance structure and operational approach are vital.
Yet, the ongoing debate over the specifics of reforming the IMF has largely been centred among policy-makers in Europe and North America. In contrast, the developing countries, which are not only the primary beneficiaries but also holding over half the world’s GDP, people, and natural reserves, have had little voice and input in the process of prosing a reform agenda for this international financial institution.
In view of this above situation, the New Rules for Global Finance Coalition, together with Oxford University’s Global Economic Governance Programme and other partners recently launched an initiative to provide countries throughout the developing world a chance to present their priorities for reform of the IMF.
This initiative, entitled ‘Bringing balance to the IMF reform debate’, began with a series of regional meetings held in summer last year around Africa, Central Asia, East Asia, Latin America, and the Middle East, bringing together finance ministers, central bankers, and senior advisors from the respective regions to elaborate their own priorities for a reformed IMF. This extensive consultative process yielded a set of very innovative recommendations. Foremost was the advice for the IMF to begin focusing on policy recommendations related to long-term growth, without an overemphasis on short-term stabilisation.
Many developing country policy-makers want to ensure maximum policy space that allows them to design their own programmes, and also to be provided capacity training as per their requests, instead of imposing capacity building initiatives to facilitate IMF priorities. The need for sovereign nations to be provided alternative approaches to achieve the agreed outcomes, and to in fact be asked to demonstrate the social and poverty impacts associated with each alternative is also a very sensible suggestion.
Besides calling for a review of the overall governance structure of the IMF, many developing country policy-makers seem to desire a more thorough revision of internal management-related issues of the IMF. For instance, in addition to reiterating the need for expanding the voice and vote of developing and emerging market economies on the Executive Board, the need to incorporate greater diversity of nationalities and qualifications in management and staffing at relatively lower tiers of the IMF management was also explicitly identified.
It was particularly encouraging to note that developing country officials who are themselves dealing with the IMF wanted that its personnel should have more in-depth knowledge of specific countries and regions for which they are assigned lending operation responsibilities. Some even went so far as to suggest that IMF missions, which fly in and out of developing countries to negotiate loan agreements, should extend their visits for a bit longer to help deepen their personal knowledge of the recipient country and to have sufficient time to engage in broad consultations with parliamentarians, the private sector and civil society, instead of just meeting with finance ministry and state bank officials.
Bear in mind though that these are yet recommendations from policy-makers who deal with the IMF directly, not from people who bear the brunt of IMF reforms on the ground. For starters however, it would be encouraging even if some of these above suggestions catch the attention of those who will have a role to play in reforming the IMF.
Meanwhile, IMF funding may provide a short-term answer to external debt problems of countries like Pakistan. The challenge of improving not only balance of payments, but also of simultaneously encouraging equitable growth, will remain insurmountable unless the IMF itself is willing to initiate serious internal reforms.

The writer is a researcher. He can be contacted at ali@policy.hu