December 27, 2001	Thursday	Shawwal 11, 1422

KARACHI, Dec 26: It may be difficult to disagree with the majority, if not all of the IMF objectives, but the problem arises with the speed, sequence and priority of the Fund’s programme, as indicated in the performance criteria and benchmarks.

A consensus exists that globalization is inevitable but how fast the emerging markets can be integrated into the world economy to compete with mature economies, is the moot question. The emerging markets have to follow the path blazed by the industrialized countries. But pre-mature globalization can cause indignation. It quite often destabilizes the economy and the society. However, the social costs of globalization and the terror shock waves are persuading the IFIs to re-orientate their programme so as not to exclude the poor nations and peoples.

Although the IMF is gradually expanding the range of of its conditionalities, it is also talking of “ownership” of the IMF programme by the recipients of the IMF funding. And insiders say the IMF conditionalities are made up of performance criteria, often provided by the governments seeking the IMF assistance.

IMF tends quite often to be rigid on issues like exchange rate, revenues and fiscal deficits; it provides waivers when things appear to be moving in the right direction or when it is dictated by political considerations, which it does not publicly admit. Pakistan’s revenues have fallen short of targets, though budget deficits have been on set course.

It allows delays but does not abandon its performance criteria benchmark or goals. The State Bank took time to allow commercial banks to buy and sell foreign exchange in the inter- bank market without supporting commercial transactions. It was an SBA conditionality.

Some insiders also claim that the Fund officials, quite often, overlook fudging by authorities to meet unrealistic targets set by the Fund. The focus is to manage a durable working relationship in a volatile and uncertain world, unless issues like nuclear blasts bring about a split.

Departing from the past policies, the budget deficit target has been relaxed from 4.9 per cent of the GDP to 5.7 per cent in current fiscal to allow fiscal space and help raise in development spending from Rs130 billion to Rs140 billion with a shift taking place towards poverty reduction programme.

Whether it be a nation, ethnic community or corporate entity, it has culture of its own and origins of its own independent development of thought and actions suited to its environment. What is universally applicable is steered through specifics, which differ from country to country. Indigenous solutions may often work better than alien thoughts. This is demonstrated by the State Bank’s purchase of foreign exchange from the kerb market, not well received by the IMF officials, who kept on pressing the central bank to gradually reduce its dependence on the open market.

Bracing criticism of many a foreign and local experts, the State Bank has made purchases of about $5 billion from the kerb market by December 24, 2001, including $1.6 billion in fiscal 2000 and $2.1 billion in 2001. With the kerb rate premium plummeting, the central bank has purchased $628 million from the inter-bank market and $250 million from the kerb since September 11. There was a net addition of $500 million in the reserves, as $378 million were used for repayment of debts.

On December 24, the foreign exchange reserve soared to unprecedented level of $4.6 billion and was made up as follows: SBP $3 billion and commercial bank $1.6 billion. The forex reserves with commercial banks has remained constant, but the net official reserves have gone to unprecedented level of $3 billion. The previous highest ever was $2.9 billion in one single year because of a windfall on sale of PTCL shares.

Since September 11, donors have provided about $800 million as follows: PRFG $110 million, World Bank’s banking structuring programme $100 million and US grant $600 million.

The soaring foreign exchange reserves, brought about by purchases from the kerb, has helped to make current account fully convertible, contributed to stabilization of the rupee, halted the rapid growth of foreign debt stock and reduced the spending on debt servicing. It made rapid liberalization of the foreign exchange regime possible. And finally, the forex reserves target of $2.8 billion set by the IMF for July 2003, has been met 18 months in advance. The highest average figure for the last ten years has been $1.6 billion. These included foreign currency accounts that are no longer included in the net reserves shown by the central bank.

The State Bank is now working to gradually raise the forex reserves and shift its purchases from the kerb to the inter-bank market. It has taken several steps to move towards one exchange rate and full convertibility on capital account. There is no restriction on taking out capital that has been brought in. No capital that has not been brought in, can be taken out.

Other restrictions on capital have already been withdrawn. For individuals, capital account transactions is taken care by the kerb market. It is the institutions that need curbs on capital controls to go fully. Many a corporates, however, have often managed funds from the kerb, encouraged by an official nod.