November 17, 2002	Sunday	Ramazan 11, 1423

KARACHI, Nov 16: IMF has given the policy makers a fresh assignment: to counter the hostility to reforms programme.

Discussing some aspects of political economy, the IMF officials recently advised “the authorities to explain more actively the rationale of the reforms” to enlist public support.

A Fund staff report recognizes hostility to the reform programme which, it says, the authorities attributed partly to the absence of “tangible” early successes to demonstrate that reforms are paying off.

“The progress in reducing inflation and the build-up of reserves were not perceived as tangible benefits to the common man,” says the report.

By contrast, the steps needed to pass on unexpected high oil prices, has reinforced a public perception associating the adjustment programme with a never-ending series of hikes for oil product prices and utility tariffs.

Noting that media in Pakistan takes it for granted that measures are dictated by the IMF, with little government ownership, IMF officials asked policy makers to dispel the impression.

The report has been released at a time when elections have thrown up MMA which believes that the country’s economic sovereignty has been usurped by the IMF and the World Bank. Finance minister Shaukat Aziz has however made several statements saying that Pakistan has regained its sovereignty by improving the external sector of the economy and building up of unprecedented reserves. The reality lies somewhere between the two opposing views. Islamabad’s bargaining position has improved and IMF waivers come easily.

In fact, the reforms programme supported by the IMF is currently more the outcome of joint government and the Fund’s efforts, reinforced by consultations among various stakeholders. The more difficult days in observing tough conditionalities of stand-by arrangement are over.

However, the IMF exercises constant pressure on the government to stay on the reforms course with focus on external sector of the economy and fiscal deficits. An improved external sector helps capital flows to the global financial centres from where they are redistributed to the periphery. The impact of an improved external sector may or may not impact significantly on the domestic economic scene unless the improvement has been brought about by a turnaround in the domestic sector. Much of the gains in external sector can be explained by global developments since September 11.

The IMF report also targets “the interests” that are opposing the reforms. While the business community was broadly supportive of the reforms, it says that opposition reflected in part the instance of interest groups that stood to lose from the reforms.

Those hostile to the reforms have been identified as follows: part of the CBR staff and tax dodgers benefiting from weakness in the tax administration; workers and bureaucrats who stood to lose rents and power through the restructuring/ privatization of public enterprises and banks; households and selected groups of consumers benefiting from current distortions in utility tariffs and weak bill collection; and certain industries benefiting from high protection.

While acknowledging these constraints, the IMF staff stressed that greater focus on poverty reduction through improved social services would help to deliver tangible benefits and increase support for these reforms.

But the moot question is: Will the government be allowed enough fiscal space for a meaningful poverty reduction programme under its rigid fiscal stabilization programme. The IMF wants to target fiscal deficit at three per cent when fast growing economies like India and Malaysia have running budget deficits between 5-6 per cent.

Even IMF-supported debt restructuring, rescheduling and relief have not made the country’s debt burden sustainable so as to keep Pakistan compliant of the Fund programme.

It is also recognized by IMF officials that prolonged dependence of national economies on IMF supported programme proves counter-productive. Its orthodoxy has fatal attraction.