FOR the first time in many years, Pakistan finds its economy not constrained in any way by IMF conditionalities, though we do still need to ‘behave’ in the interim in order to qualify for the medium term Poverty Reduction and Growth Facility [PRGF] which the World Bank and the IMF executive boards are likely to approve in the next month or so.
Once the facility is approved we would be back where we were until September 30, 2001 when the ten- month long 568 million dollar Standby Arrangement (SBA) ended. And we know how Pakistan’s economy has suffered as a result of being managed under strict performance criteria as prescribed by the Fund.
Since 1982 the country has undergone numerous Fund programmes all of which, except the last one were abandoned only after the release of the first tranche. This is why Pakistan had come to be known among the IMF bureaucracy as the one-tranche country. Among those which were curtailed after the release of the first tranche, the very first one which we had negotiated in 1981 because there were only 100 million dollars left in the Foreign Exchange Reserves in 1979-80 was abandoned not because the conditionalities were felt to be impracticable but because cheap Afghan war-related dollars had started flooding the country. This was perhaps the original sin. This was the time when we had the space and the financial capacity to implement all the reforms and more to put the economy of our country on an even keel. Since reforms mean hardship all around at least in the short term, we could have cushioned this hardship both for the poor and the rich with the space provided by the massive infusion of Afghan war-related dollars in the country at that time.
But this was the time when we had a military dictator in the saddle in the country and he had badly needed the political support of the feudal aristocracy, the big business and civil service. So, instead of establishing a true tax culture in the country, introducing land reforms and making the civil service really accountable, the military dictator used these floods of dollars to let them enjoy more of what they already had. The political power which the feudal aristocracy, the big business and the civil and military bureaucracy achieved during this period because of their increased financial powers had a tremendously negative impact both on the country’s politics and its economy when democracy was restored at a time when the Afghan war-related dollars started disappearing. The dollars which had come in during the Afghan war had gone back in the meanwhile to where they had come from in the shape of clandestine bank deposits of those (the feudal aristocracy, the big business and the corrupt members of civil and military bureaucracy) who had siphoned them off.
The pendulum swung to the other extreme during the present military regime when sanctioned from every corner and from every angle, the country was left with no option but to undergo the shortest possible and the strictest possible Fund arrangement. And understandably, it achieved the distinction of completing a Fund programme for the first time in Pakistan’s history. But then the result is no better— this time because of the Fund’s refusal to see the holes in its own programme as also the environmental peculiarities of Pakistan’s economy. In this the two,the military government as well as the bureaucracy of the Fund, share equal blame. The military government knew very well that Pakistan has been fighting two low intensity wars( one across the Afghan border and the other across the LoC) for the last 15 years. These wars had become more intense since Islamabad tested its nuclear device in 1998. The Kargil war in early 1999 made things even more bad and the military take-over in October 1999 added its own weight to these wars. This, over the years, therefore, gave rise to a war economy in this country having its own peculiar problems. But the reform programme which the IMF prescribed for the country in September 2000 and which we accepted without drawing the attention of the Fund to these peculiar problems was in fact a programme fit to reform a peace-time economy.
So, despite the ‘successful’ completion of the programme and Pakistan having acquired the disingenuous distinction of having become for the first time the full-tranche country, the economy continues to stagnate, investment continues to remain very low, unemployment continues to remain very high, our dependence on foreign loans continues to be backbreaking, the capacity in the economy to generate enough resources to make the two ends meet continues to remain very low and we continue to buy dollars from the open market to meet our foreign debt obligations encouraging the hundi system which has destroyed our legitimate banking system.
Perhaps in the post September 11 developments we would again be treated with a flood of dollars and at the same time the causes which had given rise to above mentioned peculiarities would disappear by and by replacing the war economy with peace time economy and providing the government in power the room and space to take up once again the much needed reforms like developing a tax culture, land reforms, privatization and expanding physical and social infrastructure,etc. It is with these things in mind that the finance and economic ministry officials should be negotiating the PRGF with the Fund and the World Bank and should not accept a programme which does not take these issues into consideration. Of course, the military government which continues to be looking for legitimacy and political support to lengthen its stay in Islamabad would certainly feel tempted to refuse a programme that would cause the rich and the powerful in this country to lose their unearned millions which they are at present making in the shape of tax exemptions, bank frauds and kick-backs,etc,as a result of these ‘genuine’ reforms.
Here is where the multilateral agencies should put their foot down and threaten to stop the new flood of unencumbered dollars in case the government curtailed the ‘genuine’ reform programme. On the other hand the government should not accept any conditions under the new programme which induced recession in the economy and caused it to continue to stagnate. This is easier said than done. But done it should be as a repeat of the 1982 action on the part of the present military government and a replay of the 1999 reform package on the part of IMF would only lead this country to beyond the bottom.
