I WROTE in this paper on July 8 that an IMF programme as a way out of the ongoing macroeconomic crisis would be a mistake. Subsequently, several articles and emails sent directly to me concurred with this assessment.

I am writing now to say that where we stand today, we have run out of options and we have no choice but to work with the IMF. I will also argue that if we put together a technically competent team of our own, we can influence the institution to our advantage.

Without the IMF programme (or something acceptable to the IMF), and the balance of payments support that will come with it, we will be plunged into an economic crisis the likes of which we have not seen before. Economic hardship will combine with political uncertainty to shake the very foundations of our country.

Here is why I had argued earlier against an IMF programme.

In early summer, the State Bank had international reserves for three months of imports but they were going fast because the huge gap between imports and exports was getting wider. It was clear that the only way the gap would be bridged was by getting a hefty dose — around $10bn a year — of external financing, otherwise the value of the rupee would fall sharply.

The financing needed to come quickly and had to be concessionary, for two reasons. It would enable us to restore the balance of payments in a less painful and more orderly manner, and it would allow us to bounce back quickly to high economic growth.

Friends of Pakistan, who know our resilience and appreciate our political difficulties, were expected to put together a five-year $40-50bn programme. Our part of the deal would be to mend our ways and address the core structural weaknesses of the economy that make us vulnerable to boom and bust cycles.

The three structural weaknesses are: (i) the government spends far more than it earns in revenue (the fiscal deficit); (ii) as a nation we import far more than we export (the trade deficit); and (iii) we lack adequate social services to allow the less well off to participate in the booms and be protected in the busts (thus dangerously alienating a large number of people especially in the poor areas of Balochistan, rural Sindh, southern Punjab, southern NWFP and Fata).

The bitter fact is that in the four months since the article was written, we have not succeeded in convincing our friends abroad (of all creeds and colour!) that we have a credible recovery programme of our own which would address both the short-term balance of payments crisis as well as the core structural weaknesses. To make matters worse, our political coalition collapsed, rivalries and public bickering resumed, key economic ministries were poorly staffed and the relevant cabinet ministers appeared remote and disengaged.

In the absence of sound economic management, the economy was adjusting in painful ways: a depreciating exchange rate, high inflation and severe energy cutbacks due to reduced payment to power producers. Furthermore, militancy surged. Our friends abroad wondered whether we were capable of putting together a rescue programme without external tutelage.

Meanwhile, the trade gap persisted and reserves haemorrhaged. Now we are down to a few weeks of imports. And in November? Best not to think about it.

Who is responsible for bringing us to the edge of the precipice? Not the average citizen, who has sacrificed immensely as energy and food prices have soared, inflation has reached new heights and basic services (electricity, water supply) have deteriorated. Not our friends abroad, who have waited patiently for us to get our political and policy house in order.

The responsibility lies in our collective failure to pressure the political leadership (across all parties) to take tough and sensible decisions and thus demonstrate to the world that we can manage our affairs. Why, one might ask, has there not been a special parliamentary session on the economic crisis?

So, I am afraid an IMF programme it will be. Our friends need an IMF seal of approval on economic management before they will finance an adequate programme of stabilisation and recovery. But there are ways of making the best of a bad situation.First, let us not hoodwink ourselves or the public and acknowledge that it is in our own interest to make the sharp cutbacks needed to stabilise the economy. At this stage, all stabilisation programmes (home-grown or not) are painful and will require sacrifice, and thus will resemble an IMF programme.

Second, let us own the programme fully. By blaming the IMF for the tough decisions, we lose the opportunity to inculcate policy discipline that carries over to times of plenty, thereby laying the foundations for the bust during the next economic boom.

Third, let us be vigilant about the core criticism of IMF programmes. Anchored in technical concerns about stabilisation, they miss the big political economy picture and can inflict painful policy trade-offs that hurt the poor. The best vigilance is to put together our own technically capable teams to engage with the IMF on an equal footing and thus make it advocate a sensible alternative to the board of directors that endorses the programme.

Fourth, perhaps the strongest criticism of IMF programmes is that they force deeper cuts than necessary that delay recovery, thus prolonging the pain associated with the cuts. Again, capable technical teams can engage with the IMF to demonstrate that recovery is more likely with more fine-tuned cuts.

Finally, let’s demonstrate that we are keener than the IMF and technically more capable of addressing the core structural weaknesses (viz. unmanageable fiscal deficits, lack of export competitiveness and inadequate social services) to avoid such crises in the future.

The best course would be for us to constitute a home-grown technical team to propose a programme that would look like a sensible IMF programme in the short run (the stabilisation phase) and a more robust programme in the medium term (the recovery phase). And then get the IMF to endorse it!

ijaz.nabi@gmail.com

The Kenyan government has hailed biodiesel as an innovation that combines green politics with poverty reduction. But recent drops in biofuel prices have caused concern about the sustainability of alternative fuel production.

Rural farmers who have invested all their savings into growing oil seeds now fear they have opted for the wrong venture.

Over the last few years, the Kenyan government, NGOs and industry have pushed the production of biodiesel — which is environmentally sustainable because it emits fewer toxic air pollutants and greenhouse gasses than petroleum-based fuels — and many small-scale farmers have placed their hopes into oil seeds as a new avenue to earn money. Initially, biofuel projects seemed to be a success, with farmers more than doubling their usual income.

In Ngurumani, a small town in Kenya’s Rift Valley, for example, farmers started to sell the seeds of the jatropha tree for biodiesel production, which had an immediate, positive impact on reducing poverty and hunger in the region. Farmers who previously used to plant food crops for household consumption only, started selling seeds for as much as $10 per kilo.

Originally from Central America, the drought-resistant jatropha tree has been growing in Ngurumani for decades. Yet, until recently, the Maasai, who traditionally use jatropha trees for fencing of homesteads, marking graves or treating cuts, were unaware that the black seeds of the trees were in fact valuable sources of biofuel.

In the Central Kenya town of Naromoru, a collaboration between NGO Help Self Help, the Jomo Kenyatta University of Agriculture and Technology in Nairobi and Dutch biodiesel manufacturer Solarix launched Kenya Eco-Energy, a project that encourages rural farmers to use two other types of seeds, castor and croton, for environmentally friendly biodiesel production.

However, the farmers’ luck ran out in April when biofuel prices suddenly plummeted from an average of $10 per kilo to less than $0.5 per kilo. Biofuel research companies, producers and NGOs supporting the production of environmentally friendly diesel had created an artificially high demand for the seeds that could not be maintained in an open market in the long-term.

In addition, the development of regulatory policy frameworks and local infrastructure needed to manufacture biodiesel took longer than expected. As a result, Kenya has only few biofuel processing plants that struggle to keep up production with seed supply, and many rural farmers cannot afford the costs of transporting their seeds to the nearest factory. — IPS News