Sep 202008

By S.M. Naseem

WITH Pakistan’s finances in serious trouble, it was easy to predict that the country’s ‘new’ economic managers would soon summon the IMF doctors to cure the ailing economy.

Pakistan’s economic problems have been exacerbated by an uneasy political transition from a military-led to a democratically-elected government, which — as street demonstrations against inflation and load-shedding testify — has yet to gain the confidence of all sections of the population, especially the poor.

The recent arrival of a high-powered IMF delegation on a two-week mission, with a ‘comprehensive package’ — apparently already assembled in Washington, with minor trappings to be added in Islamabad — for the ailing economy, however, does not bode well for the country’s long-term development.

The history of Pakistan’s relationship with the IMF has been unsavoury, often mutually so. Neither has the experience of other developing countries approaching the IMF and related organisations in times of economic distress been very wholesome, except as a temporary palliative. Indeed, the organisation has suffered such a loss of esteem in recent years that it has been having trouble finding clients. Its shrinking clientele, restricted now to ‘failing’ or ‘failed’ states, has raised concerns about the future of such institutions.

Many Pakistani economists, some after long years of service with the IMF and World Bank, have recently declared in unequivocal terms that the IMF recipe is unlikely to be of much help in overcoming the serious structural problems that the country faces. (Ijaz Nabi, a former colleague, went so far as to say: “Given our current political scenario, the standard IMF programme would be disastrous.”) It is therefore surprising that the present regime, especially after Musharraf’s forced exit from the corridors of power, has decided to adopt a course that is likely to perpetuate his policies, which brought the economy to the brink of disaster in the first place.

An argument often used by the protagonists of IMF packages is that it would help stem the capital outflows and the steady hemorrhaging of foreign exchange reserves besides resulting in the resumption of the large FDI and other capital inflows which have sustained Pakistan’s high growth in the past few years.

The argument suffers from two serious flaws. First, these flows are a function of complex domestic and global factors, which an IMF package alone could, at best, only partly help overcome. In the past, foreign investors have been encouraged by the existence of a stable military-led regime which served as a guarantee for the return on and safety of their investments. The new democratic regime, with its teething troubles of establishing its firm writ, is unlikely to inspire the same degree of confidence anytime soon.

Second, and more importantly, the IMF package is unlikely to address the basic structural problems of the economy — i.e. the low savings rate and the low tax/GDP ratio — which large external flows have helped build, rather than remedy, in the past. Despite Pakistan’s repeated recourse to IMF packages, these problems persist.

One had hoped that the new government would embark on a sustained programme of economic and social reconstruction that has been deferred for decades because of inadvertent economic and political factors. It would have been better if a large national consensus could develop such a programme which was endorsed and had the full commitment of major political parties and civil society actors. Unfortunately, this now seems to be a largely forlorn hope with the breakdown of the coalition which helped achieve the ouster of the old regime.

What is still possible, in order to make the programme politically inclusive, is to invite different political groups, inside and outside the government, to agree on a common economic agenda, which would signify a collective political will to solve the major social and economic issues facing the country. It would give Mr Zardari a broader mandate on economic and social issues than the political mandate he received in the election.

It is interesting, if a bit ironical, that on the day we heard the news of the arrival of the IMF mission headed by Mr Juan Carlos di Tata, the prime minister inaugurated a meeting of a panel of economists headed by Mr Hafiz Pasha, an academic veteran who has advised almost all regimes in the past decade and a half in a ministerial or quasi-ministerial capacity. His group has been assigned a task almost identical to that of the IMF delegation.

According to one press report quoting the NRO-rehabilitated bureaucrat-head of the Planning Commission, Mr Salman Faruqui, “A macro-economic stabilisation plan will be finalised (by the Planning Commission’s panel of economists) as an integrated package in one month’s time to cope with fiscal and monetary difficulties, setting short-, medium- and long-term goals.”

This is a rather Herculean task. Even if they are able to accomplish the task assigned to them, their work is unlikely to be of much value in solving the real challenges facing the economy. Such ‘firefighting’ efforts have been routinely undertaken by all incoming governments (including Gen Musharraf’s) without any substantive impact on government policies which were eventually designed by the IMF, World Bank, the ADB and other agencies, the fiction of a ‘homegrown’ package notwithstanding. The idea of such a distinguished panel playing second fiddle to the IMF is abominable.

It is about time that our academics and professionals, especially in the economics profession, began to assert their self-respect and refused to be used as an accessory of the establishment in producing pipe dreams for the future through fancy models and sophisticated econometric techniques, in support of unscrupulous rulers who want to fool both the people and the peddlers of foreign aid.

Much more important is the task of establishing functioning, truly autonomous academic and research institutions capable of producing timely, relevant and independent research for inclusive and equitable development. Towards that end, the reorganisation of the Planning Commission under technically qualified leadership and the creation of an autonomous statistical agency, with the capability of organising periodic field surveys on various issues, would be essential steps.

Instead of giving a ‘command performance’ at the request of the government, the research community needs to take its own initiatives through reviving professional associations, such as the long-languishing Pakistan Economic Association, or creating other independent ones, selecting its own agenda and presenting its own solutions as an alternative to those of the government.

Source: Daily dawn, 20/9/2008

 Posted by at 8:59 pm

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