February 4, 2002	Monday	Ziqa’ad 20, 1422

                                                 By Our Special Correspondent

WHY the so-called reforms are not working. The impact of all the IMF dictated reforms which this government has been religiously implementing over the last nearly three years has by and large remained rather insignificant.

So far there has been no improvement in the investment activity, nor has there been any decline in the rate of unemployment. As a result the revenues have continued to stagnate. Any increase in the collection in these three years has been either due to a natural growth or because of some one shot extortionist type of measures.

For excuses the government fell back first on the drought that hit the region in the year 2000 and then on September 11 and December 13. However, there are two more factors because of which the reforms have not worked. The first of these reasons pertains to the largely stifling nature of the IMF’s prescriptions. These reforms have in effect caused a stagnating economy to slow down further. In simple words the recessionary bout that had raised its head in the fag end of the 1990s got deepened further by the insistence of the Fund to keep a tight lid on budgetary deficit. Secondly, in the government itself there was only lukewarm support for these reforms because of which even those reforms which could have made any dent were implemented only half heartedly or not at all at the implementation level.

While, the President and the finance minister kept up their rhetoric as to their commitment to these reforms, they could do little to motivate the man on the spot to take the initiative needed to make these reforms work. One would have thought that in the wake of the accelerated flows of budgetary and balance of payment support following the rediscovery of Pakistan by the rich countries after September 11, things would have taken a turn for the better. But this too has not happened because of the adverse impact of the events on the country’s exports. Many orders were cancelled, new orders were not booked, shipping and insurance rates went up (these have come down in the recent weeks, though).

There are two more factors because of which these reforms have not worked. First, one finds the donors too shy to accept the fact that it was because of their abandonment of Pakistan in the 1990s which had actually caused the country to suffer massive economic setbacks and not solely because of the so-called misgovernance and corruption during the decade of the 1990s. And secondly the military government to justify its take over in October 1999 needed the crutches of the so-called ‘lost decade.’ The harebrained idea of ‘lost decade’ helped both the donors and the official economic managers in this country to agree to prescriptions based on totally false assumptions. Therefore, the failure of these reforms. This is what the World Bank’s interim assessment summary report on poverty in Pakistan in the 1990s says with total impunity: The 1990s have been a particularly adverse decade. Macroeconomic imbalance widened during the decade and brought Pakistan on the verge of debt trap. Here the report conveniently ignores the fact that during this decade the successive governments had to resort to commercial borrowing (because the donors had turned off the concessional tap) to repay the debt accumulated during the previous military regime. The report further says that these imbalances contributed to, and were exacerbated by deterioration of investment climate, and a decline in growth. Here too the report does not mention the fact that the investment climate was destroyed in this country by the World Bank’s so-called energy window which made available concessional loans for private thermal power generators to set up costly power stations in Pakistan causing a perpetual bleed of its foreign exchange earnings. The World Bank while making available these loans to the private sector did not ask either those who took the loans nor the government which was underwriting it how it was proposed to reconcile the fact that the domestic users of the power supplied by these private producers would pay in rupees and the producers would repatriate their profits in dollars.

According to the WB report, progress in poverty reduction and social indicators stagnated, and in a few cases progress was even reversed. Here too, the report has conveniently ignored the Bank’s own contribution to the failure. The biggest failure of the Bank in those days was to abandon its auditing role in the SAP programmes. It kept on expanding its organization in the country but did little to monitor the programme as closely as one would have expected it to do in view of shortages of skills at the grassroots levels in this country and natural lack of transparency that is prevalent in most developing countries.

Interestingly, the report makes another wrong assumption to obtain a desired result. It says that poverty in Pakistan, as is the case with most countries, is linked to overall growth performance of the economy and then adds: “ periods of substantial and sustained poverty reduction — in Pakistan’s case, notably, in late 1980s — also happen to be periods of sustained growth. Perhaps those who wrote the report had forgotten that in 1988 the then Finance Minister of Pakistan Dr Mehbubul Haq had rushed to the IMF seeking emergency assistance (SBA) of a paltry $275 million. This had happened despite the billions which came to this country in the preceding decade. Actually when General Zia, the then all powerful President of Pakistan and a darling of the donors died in an air crash in August 1988, there was nothing in the kitty or on the ground in the shape of assets to show what had happened to all those billions. In fact the elected governments which succeeded this military rule had to borrow from commercial markets to pay back the debt he had burdened the country with. The fact of the matter was in the decade of 1980s, the donors were too generous and pouring in dollars in this country and these dollars got reflec