After his meeting with Christine Lagarde, managing director of the International Monetary Fund (IMF), in Dubai, Prime Minister Imran Khan says they both have agreed on the need to carry out deep structural reforms to put the country on the path of sustainable development in which the most vulnerable segments of society are protected.
Lagarde, too, underscored the need for a ‘strong package of economic reforms to enable Pakistan to restore the resilience of its economy and lay the foundations for stronger and more inclusive growth …. [necessary] to improve people’s living standards in a sustainable manner.” “I reiterated that the IMF stands ready to support Pakistan,” Lagarde said.
This sets the scene for a possible multi-billion dollar package for Pakistan. But does Imran Khan know what the MD of IMF had told an embattled Yanis Varoufakis, former Greek finance minister?
“You are of course right Yanis. These targets that they insist on cant work,” Lagarde responded when Varoufakis pleaded for softening the conditions of the 1,000 billion Euro loan signed in 2010 by the troika – IMF, European Central Bank. “Both Lagarde and [German Finance Minister Wolfgang] Schäuble admitted that the medicine couldn’t work, but they had to administer it anyway. As a patriot, no. It’s bad for your people,” he claims the German having said to him.
Varoufakis had believed the package comprising severe austerity measures and cuts in subsidies for health and education was detrimental to the growth in Greece. Even Greece’s voters rejected it by a comfortable margin but despite that Prime Minister Tsipras caved in to even stronger terms than had originally been envisaged by Brussels. “He (prime minister) followed his usual practice of agreeing with everything I said but drawing the opposite conclusion,” Varoufakis says in his latest book ‘Adults in the Room’.
Yanis Varoufakis’s six-month tenure was a story of almost daily confrontations with the IMF, the European institutions and, most of all, with a German government that seemingly held him in contempt. Varoufakis eventually resigned after six months in office. Why?
He believed that the ‘bailout’ package for the ailing Greek economy was actually a bailout for leading French and German banks designed to prevent them from bankruptcy. The hundreds of billions these banks had lent to Athens had vanished. And, under the European Central Bank laws, the governments were not allowed to rescue financial institutions or pass on bad debts to the central financial institution. So, the German government, says Varoufakis, cunningly ‘cut in’ the IMF to make it look like an international package of ‘solidarity with an EU member’ and imposed it on Greece.
Varoufakis equates global banks, multi-national corporations, governments, and the ‘supranational’ IMF to ‘super black boxes’ run by influential politicians and bureaucrats who are good at converting ‘inputs’ such as money, debt, taxes and votes into ‘outputs’ such as profit, more complicated forms of debt, reductions in welfare payments, health and education policies.
These black boxes are controlled by networks of power comprising their CEOs – the insiders of the system – who decide who to co-opt (such as consulting economists, technocrats) from the outside and who to exclude (such as those who may blow the whistle on their internal machinations).
While reading this riveting book, one could also relate to the conversation in Pakistan during the last few months: those who were presenting a recourse to the IMF as the ultimate cure despite the fact that the loans from Saudi Arabia, UAE and China are cheaper and without conditions, and those advising against funds from the IMF. The former were in a big majority.
The author of this book too propounded that financial entities such as the IMF were instruments for financial enslavement of developing nations, who eventually lose their sovereignty because of the overbearing debt they owe to these institutions. And we still remember how the US Secretary of State Pompeo attempted to leverage his country’s influence with IMF by a warning. “Make no mistake, we will be watching what the IMF does,” he had said in July 2018 in response to reports that Pakistan is planning to request a bailout package of up to $12 billion to shore up its depleted currency reserves and indebted economy.
An IMF package for Pakistan may not be as hazardous as the one for Greece but a call for caution and due diligence is not misplaced.
Published in Daily Times, February 12th 2019.