Daily Times

The mission of the International Monetary Fund (IMF) is “to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.” IMF makes loans to countries experiencing economic distress to prevent or mitigate financial crises. IMF funds are often conditional on recipients’ making reforms to increase their growth potential and financial stability. Structural adjustment programs or conditional loans have attracted criticism for exacerbating poverty and reproducing the structures of colonialism.

The IMF has drawn criticism over the years. Joseph E. Stiglitz denounced the fund as a primary culprit in the failed development policies implemented in some of the world’s poorest countries (Globalization and Its Discontents, 2002). He argues that many of the economic reforms the IMF required as conditions for its lending-fiscal austerity, high-interest rates, trade liberalization, privatization, and open capital markets-have often been counterproductive for target economies and devastating for local populations.

The fund has also been criticized based on overreach or “mission creep.” William Easterly makes the case of the failures of Western aid to the undeveloped world (The White Man’s Burden, 2006). While he acknowledges some IMF successes in fighting financial crises in Mexico and East Asian countries in the mid-1990s, he criticizes many of the fund’s interventions in severely impoverished countries, particularly in Asia, Africa, and Latin America, as overly ambitious and intrusive. In addition, he describes many of the fund’s loan conditions and technical advice as out of touch with ground-level realities.

In recent years, the IMF’s work in more advanced economies has drawn ire as well. Greece has been the most high-profile example, as troika-imposed austerity measures deepened the country’s economic contraction. In July 2015, popular discontent led to a “no” vote in a referendum on whether to accept the IMF’s loan conditions, which included raising taxes, lowering pensions and other spending, and privatizing industries. The government subsequently ignored the results and accepted the loans. However, the Greek case also saw the IMF soften its stance on austerity, at least compared with the European Commission and ECB. In 2016, senior IMF economists argued that more austerity would be counterproductive, and in 2018, the fund raised about the unsustainability of Greece’s debt burden, putting it at odds with the rest of the troika.

IMF always recommends failed cookie-cutter solutions for every developing country, i.e., cutting subsidies, loosening up rules for Foreign Direct Investment, privatizing state-owned enterprises, and reducing corporate taxes

The same is true about the IMF policies in Pakistan. The history of IMF lending to Pakistan is long. However, none of the IMF loans has helped Pakistan. On the contrary, each time IMF has provided loans, which Pakistan still has not paid, with stringent conditions that have hurt the poor, the economy has declined and leading to more loans that Pakistan cannot pay or will never pay.

As reported in The Diplomat (July 18, 2019), Farrukh Saleem, the PTI government’s former spokesperson on energy and economy, believes that “the IMF is advancing U.S. security interests in the region by using the bailout package to ensure Islamabad’s compliance. [Saleem] refers to this year’s WikiLeaks document ‘Army Special Operations Forces Unconventional Warfare,’ originally written in September 2008, as evidence of how the IMF and World Bank are used to serve U.S. regional goals.”

Pakistan has borrowed around SDR 13.79 billion from the IMF. Of this amount, PPP borrowed 47 percent, PML-N borrowed 35 percent, and the military dictators borrowed 18 percent. Of the loan, PPP borrowed ten times and the most, and PML-N borrowed 35 percent in four loans. That is, the so-called “democratic leaders” borrowed 82 percent of the loan.

The new “democratic” government of Imran Khan is also on a borrowing binge. The PTI has agreed to borrow around $15 billion: $7-8 billion from the World Bank and $6-8 billion from the IMF and the Asian Development Bank (ADB). This loan makes it the 22nd loan from the IMF in 61 years and with no end in sight.

In a July 18, 2019 article in The Diplomat titled “The IMF Takeover of Pakistan,” reporter Kunwar Khuldune Shahi wrote, “On July 3, the International Monetary Fund approved a $6 billion bailout package to help “return sustainable growth” to Pakistan’s economy. As a result, many Pakistanis see the terms of the $6 billion bailout package as a hostile takeover of their economy and government.”

The inability of Pakistani’s politicians and bureaucrats to run the economy and manage the budget, of which the debt service and the military comprise over half, is the cause of the problem. Shahi reported that “The successive governments have bowed down to the pressures of the generals and the creditors not to reduce these two unproductive expenditures” (The Diplomat, July 18, 2019). These two unproductive expenses are contributing to the deficit and, therefore, more borrowing.

How many times will Pakistan rely on loans that it cannot repay? The reliance on and easy availability of loans have encouraged waste and corruption. For example, thanks to Imran Khan’s new policy on corruption, bureaucrats and politicians may now steal up to 500 million rupees without being investigated for corruption (see my Perspectives in Daily Times of January 2020). Given the history of incompetence, inefficiency, corruption, and ineffectiveness of the bureaucrats and politicians, the economic problems of Pakistan will never end, and foreign sources must stop lending knowing full well they can never recover their loans. Instead of constantly bailing out the country, they should let Pakistan stand on its own 426 million feet (app. population of 213 million). As the saying goes, “Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.”

Pakistan’s extreme budget deficit, shrinking economy, and trade deficit economy will continue to put it into more debt with no future in sight. Given these obvious problems, the IMF has not suggested any constructive solutions to bring Pakistan out of this vicious cycle, rather the solutions required by the IMF have caused more misery and economic disaster. Saleem has stated, “IMF isn’t trying to solve Pakistan’s problems at all, the package has zero reforms – be it power, budget deficit, or trade deficit. After all, the IMF is not a purely economic institute; it’s a political institute as well” (Shahi, The Diplomat, July 18, 2019).

The Economic Advisor to the cabinet has already admitted to the result of failed economic actions. He has stated that “the country has not seen economic growth” (Dawn, Jan. 12, 2020). Other reports by the State Bank of Pakistan and the World Bank reached the same conclusion. So much for the IMF policies.

These results should have been obvious to any average person: IMF policies do not help economic growth but stem-the-tide of economic growth. Why? Because most of the conditions imposed by the IMF burden the lives of ordinary people, requiring them to pay higher taxes, higher electricity costs, and higher interest rates. IMF is aware that its policies will always fail and further shows its disdain for Imran Khan and Pakistanis by installing its own ‘intelligent’ people (State Bank of Pakistan Governor and Economic Advisor to the PM) in key posts. Not only do they serve the IMF’s purpose of increasing its stranglehold over the country, but they also reflect a total lack of confidence in PTI’s capacity and Pakistanis to control their own economic and social affairs.

IMF always recommends failed cookie-cutter solutions for every developing country, i.e., cutting subsidies, loosening up rules for Foreign Direct Investment, privatizing state-owned enterprises, and reducing corporate taxes. While the IMF and its advocates argue that its programs and policies prevent a more severe crisis, opponents say they are making countries more dependent on the IMF and end up leaving populations poorer.

Fortunately, some Pakistanis do know these outcomes and are raising the alarm. Shahi reported that “The All Pakistan Anjuman-e-Tajran (meaning ‘trader’s association’) calling a nationwide strike is one example of the impact that the rise in taxation has had on local industries. As a result, the working class in Pakistan is rising against what it calls the ‘IMF’s imperialistic takeover’ of the country” (The Diplomat, July 18, 2019).

To be continued

The writer is Ph.D. (USA), Professor Emeritus (USA)