September 22, 2003	Monday	Rajab 24, 1424

While the Finance Minister, Mr. Shaukat Aziz, has repeatedly stated that Pakistan would seek no further assistance from the IMF after the end of the $1.5 billion Poverty Reduction and Growth Facility (PRGF), his statement recently got qualified when he added the big ‘unless’ as “...unless the IMF comes up with some concrete suggestions” (Dawn, 9-9-03).

The finance minister has invited suggestions from the IMF on strategy formulation with a view to “further consolidate(ing)” the “economic gains” (ibid). Against the above backdrop, can it be reasonably concluded that Pakistan will soon gain independence from the IMF’s “guidelines” for setting our economic policy direction?

On the one hand, the finance minister appears to be flowing with the popular sentiment seeking freedom from the IMF. On the other hand, he appears to be inviting the Fund for an even more prolonged stay “provided” they can advise on further consolidating the gains. Knowing the fertile scope of lending agencies, will they not be able to respond to the FM’s invitation in a manner too attractive to resist. If the IMF could graduate to the goals of poverty alleviation and power utilities’ revival from its original raison d’etre for maintaining global exchange-rate stability and later to provide balance-of-payments support, can it not now come up to the above requirement of our finance minister?

While the presence and role of lenders is most welcome provided they can have the economy propelled on to the long-awaited growth and development path, it is the past strategy and the envisaged one about which there will be growing qualms unless it is headed straight towards the goals of development which are growth plus reduction in unemployment, inequalities, and poverty and not growth-now with the rest expected to follow in sequence at an unknown point in time in the future. It is, therefore, important to build linkages amongst the components of the reform strategy pursued thus far on the advice of the foreign financiers.

The head of the IMF review mission, Mr. Milan, said in Islamabad recently, “The IMF on Tuesday expressed its concern over rising poverty in Pakistan and called for improving governance, financial system, public finance, and social sector indicators” (Dawn, 10-9-03). At the same time, Mr. Milan further said, “IMF had welcomed that PRGF would be its last programme in Pakistan as the country did not need fresh funding because of accumulation of over $11 billion in foreign exchange reserves” (ibid). In these very statements are glaring contradictions. If the IMF’s programme is to be the last programme for the latter reason, then clearly the IMF’s programme aimed at stabilization more than poverty reduction which is how the programme was incidentally christened.

While much of forex build-up has been due to a host of other factors discussed at length elsewhere, why must an IMF programme named after poverty reduction head towards sunset if poverty reduction will take a long time as said by the head of the IMF mission in the same breath. However, is it believed by any chance that $11 billion in forex reserves will help reduce poverty which is why the IMF’s Poverty Reduction and Growth Facility (PRGF) type of assistance is no longer required? While this is certainly not an attempt to provide reasons for the IMF to continue, there is a need to know what the goals of $1.5 billion PRGF were? If it was poverty reduction, then this has certainly not been achieved as admitted by the IMF itself. And, if stabilization, then why is IMF’s facility shrouded under the garb of poverty when it aimed more at the attainment of the traditional goals of economic growth some of which have been contributed more by extraneous developments as analyzed already by many.

The issue of poverty is then hitched to a bandwagon driven by restructuring of the financial system, governance, public finance, and social sectors. The intervening or related variables certainly are gross inequities and unemployment. So as the financial system was restructured on lines more suited to the developed West than to local conditions, it contributed to unemployment in the country. It might be said that golden parachutes were provided for safe and financially secure landing. What is financial security to the policy makers is insecurity of another kind that most of the off-loaded employees had to face as they climbed down the needs hierarchy to now focus all over again on merely satisfying the lower order needs of survival and sustenance.

As they would now fend for themselves through small-scale business ventures and/or retailing, we must determine whether development is all about getting reduced to a nation of shopkeepers, vendors, retailers, and small merchants-not that these are not required or not respectable. And, as all development banking effort would either be closed down or encouraged to convert to investment and consumer banking into which areas those with a corporate banking focus also diversified, are banks expected to intermediate only between small savers and small borrowers? And, if on the ashes of development banking, microfinancing is given a high profile, it almost stands pretty much confirmed that it is in small scale activity that we are reposing all our faith.

While gigantomania is not being advocated here, small too is not all that beautiful in a country where the restructured financial system can hardly reach out to all and sundry in the bulk of the poor population. Great faith is reposed in microfinancing for poverty eradication or alleviation. The Grameen Bank of Bangla Desh is benchmarked in this respect. The good work done by Grameen Bank notwithstanding, Bangla Desh remains a poor country with a low human development index and a HDI rank that trailed even behind that of Pakistan according to the Human Development Report 2001. All reliance on microfinancing for alleviation of massive poverty is clearly flawed. While microfinance has enormous merit in dealing with pockets of poverty, the reductionist emphasis in our economic policy is likely to exacerbate both inequities and poverty that are huge already.

The next lynchpin in the doled out economic strategy is good governance. While none can dispute the significance of good governance, governance by itself cannot have the desired impact on inequities and poverty unless the range of governance is extended beyond governments, bureaucracy, corporate, financial, and academic governance to also include governance of the key sectors of industry and agriculture. Governance of the industrial sector would include not just its overall governance but also of its micro constituents with a view to discharging the responsibility to all input providers. Only then will a step have been taken towards inclusive industrial governance that might show up in reduced inequities to some extent.

In the area of industry though, the only concept we have in mind is “export-led” based on a partial reading of the history of late developers in the Far East. If most industry is to be “export-based,” we are then talking about a capital- and technology-intensive industry for international competitiveness. This would then be labour-displacing, and labour-saving. While inequities will be difficult to address thus, they are likely to compound as export-based industrial growth will redistribute more in favour of the owners of capital and financial assets. If industrial strategy is to focus on development which means reduction in inequities and unemployment, choice of factors of production, products, and markets will need a careful blend. Exclusive reliance on export-based industry will get us growth and forex but not development in the strictest sense described herein.

It is governance reform in agriculture that is the key to poverty alleviation. If the concept of land-to-the-tiller is implemented and followed through to its logical conclusion, we will have taken a telling jab at the root cause of poverty which fact is seen by the World Bank but not pushed hard enough for reasons of much expediency. Until then all talk for good governance will be welcome only for the sake of badly needed good governance in the country. For, hitching poverty alleviation to good governance will carry a hollow ring unless good governance of the agricultural sector is made its centre piece.

Reform in the area of public finance is overdue. However, while this reform may get us closer to a fair and effective taxation system, that by itself will not be able to make a dent in poverty through welfare payments as the tax base is small compared to the multitude of the poor all of whom cannot be provided for by resources mobilized through the taxation system. Also, entitlements are to provide supplements in certain areas and to temporarily support the few on the wayside who are encouraged strongly to resume work as soon as they find it.

In our setup where the bulk cannot find gainful work, emphasis has to be on employment generation rather than looking for resources from taxation to feed the poor on a permanent basis. So, while reform of public finances is a means to the end of a clean financial resource mobilization and distribution system, it cannot be a means to the end of poverty alleviation as is believed by those who see all roads leading directly to poverty alleviation.

Emphasis on what are known as social sectors is badly required. But emphasis on mass literacy and education will lead to literacy and education. Population welfare may decrease population growth rates marginally. Healthcare will provide health care. To say that each one of these will also lead to development because this is what the Asian tigers did too is again a very partial reading of their economic history. For, they did this too and a lot more as many of them first laid a firm foundation through land reforms.

On this a superstructure of development was erected through guided capitalism and development of resources with human resource at the centre that could then build on the new value system also transformed for development purposes in the above process. To say that it was only education and health is to communicate an underspecified model of late developers for the benefit of none, importance of education and health notwithstanding. To define the universe of underdevelopment, the jigsaw puzzle has to fall properly in place.

The above are the drivers of IMF’s reform recipe on the basis of which they claimed that poverty would be reduced through the PRGF. Close to the end of the PRGF, the IMF admits itself that poverty is too huge in Pakistan to be reduced in a short span of time. So, PRGF could not do the job even though it was christened after poverty for the reasons above that they fall short of saying. Do the lenders then believe or would like to make us believe that the above components of its programme, if pursued, will lead to poverty alleviation eventually whenever that may be? The answer is to the contrary for as long as the policy gap is not plugged this time around as discussed herein. Unless this policy gap is filled indigenously, we will be creating demand, room, and space for IFIs’ policy advice which they will keep providing to the best of their understanding and their interest!