Pak Economy: Why IMF is not an option

By Dr Shahida Wizarat

PAKISTAN’S economic performance during the 1960s was spectacular and many countries at the same level of development used Pakistan as a role model to develop their institutions — and got ahead.

We continued on this growth path, although at a slower pace, in the years that followed. Even during the 1980s, Pakistan was still a prosperous country, with an annual average rate of growth of 6.4 per cent.

But the performance of the economy during the 1990s was in marked contrast to the growth performance of the earlier decades, when the rate of growth plummeted to 4.1 per cent. In addition we had a serious development crisis, which was of a structural and long-term nature. The socio-economic problems manifested themselves through an increase in armed robberies, murders, suicides, kidnapping for ransom, etc.

During the decade of the 1990s four democratically elected governments were removed unceremoniously from office. Although different reasons were cited for removing these governments, by 1998 the easiest and most effective pretext used was the allegation that the government was about to default on its loan repayments.

What were the reasons for the dismal performance of the economy during the 1990s? How did the 1990s differ from earlier decades? First, due to the adoption of a market-based monetary policy the government started borrowing from international financial institutions due to which the size of its foreign debt increased tremendously. It was the debt crisis which was the mother of all crises and gave rise to development and growth crises which in turn led to a distributional crisis.

The bulk of our revenues during this period was not available for development, as revenues were being used to service debts. The latter gave rise to a social crisis, which along with the debt crisis directly affected the political crisis.

Second, the decade of the 1990s was also the time when the country adopted the World Bank (WB) and International Monetary Fund’s (IMF) Stabilisation and Structural Adjustment policies. The focus of these was on liberalisation, privatisation and reduction in government expenditure. This meant slashing the expenditure on health, education, infrastructure and human resource development, etc.

Since the bulk of these expenditures is consumed by the poor, slashing them increased the poverty level like never before. Poverty also increased as a result of reduction in the rate of investment, GDP growth and the employment level. This is corroborated by a recent study that shows there is a negative correlation between foreign debt and the Sindh GDP. Since increased credits come with conditions it is the latter that negatively impacted output growth in Sindh.

Some technocrats, with political ambitions, attribute the dismal performance of the 1990s to mismanagement of the economy by democratic governments. For the 1990s also happened to be the first decade when we had democratic governments in the country.

If the government borrows from the International Financial Institutions (IFIs) for budgetary support all three factors prevailing during the 1990s will prevail again i.e. neo liberal policies, increase in debt and the installation of a democratic government. Even if the economy starts to witness a meltdown as a result of an increase in the debt-GDP ratio, which is already very high, or the adoption of structural adjustment and stabilisation policies, which will come with foreign debt, anti-democratic forces will attribute the meltdown to the induction once again of a democratic government in Pakistan.

And meltdown it will. During the 1990s when we experienced economic miseries emanating from the adoption of neo-liberal policies and increase in the size of debt, the threshold level from which we started descending was quite high. The level from which we will begin our descent at present will be much lower than it was in the 1990s. So the descent will be to a much greater depth and the decline far more steep. It will be a horrendous situation.

The country will be faced with a total meltdown on the economic front with serious socio-political ramifications — and this at a time when the Frontier and Balochistan are already in flames as a result of the so-called war on terror. Embarking upon neo-liberal policies in the present scenario will be a perfect recipe for disaster.

According to Naomi Klein, in her recent book The Shock Doctrine: The Rise of Disaster Capitalism, the IMF does not have a programme in any country except Turkey at present. So the IMF would naturally be looking for clients. It will even offer its credits at very favourable rates in the beginning to lure us into borrowing. But once we start borrowing and become dependent, the rates will be raised.

Intelligent and shrewd policymakers are able to see through this game and refrain from borrowing from IFIs for budgetary support. When India needed budgetary support, it decided to borrow from non-resident Indians rather than the IMF. Likewise, Pakistan can borrow from non-resident Pakistanis, friendly governments, etc.

Pakistan has faced with multifarious crises — General Pervez Musharraf’s impeachment, the call for the restoration of the judiciary, military operations in Wana, Waziristan, Swat, Balochistan and a serious economic crisis brewing for the last so many years. Countries that have faced such crises have experienced the thwarting of democratic processes and the installation of technocrats who have ruthlessly implemented structural adjustment and stabilisation policies.

Stephen Haggard has acknowledged that “Some of the widest ranging reform efforts in the developing world were undertaken following military coups.” The same is brought out very convincingly by the experience of several Asian, Latin American and African countries by Klein in her book cited earlier.

Pakistan now is so much wiser. With hindsight, we can state that increase in the foreign debt-GDP ratio has led to an interruption in the democratic process and the installation of technocratic governments. For the IFIs subscribe to the ‘new political economy’ approach, which labels politicians and statesmen and women as corrupt, insincere and therefore ineligible to govern.

As the stakes of the IFIs in a country rise, they feel comfortable when the country is governed by its own officials and consultants. The newly installed democratic government in Pakistan must bear in mind that any increase in the foreign debt-GDP ratio is bound to derail the democratic process. Turmoil, as a result of the economic, social and political fallout, will engulf the entire country like never before.

The writer is an independent economist and works for the Applied Economics Research Centre, University of Karachi.

Source: Daily Dawn, 26/8/2008

Leave a Reply