IT’S a dilemma for the ages. For over two decades now, Pakistan has received bailouts from the IMF. And this repeated recourse to foreign funds as a bailout has created some very perverse incentives within the country, and bent it all out of shape.

A few years ago, while in conversation with a top banker in Karachi, I asked him why bank lending to the private sector had fallen to such dismally low levels.

“There’s no demand from the private sector,” he replied comfortably.

But that’s not what I heard when I talked to businessmen, I told him. “They tell me banks are not interested in lending to them anymore because they prefer to make their money safely lending only to government.”

“There’s truth to that,” he said, and told me about all the difficulties the banks have had in recovering loans from private parties. “They default easily,” he said, “Even when we know they have the money to pay, they still refuse and prefer to hand us the collateral instead, which is not what we want.”

The conversation meandered for a while, as I poked around to see what was in his mind regarding lending, and then I asked him point-blank: “What will it take for banks to start lending to private parties again?” This was his reply: “When the next boom happens”.

When would that be, I asked naively?

“You see, everyone knows there are these 10-year cycles in Pakistan. We have a decade of boom, followed by a decade of lacklustre activity. Then the boom comes again. Currently, we’re at the midpoint of the lacklustre phase, but the boom will inevitably come, driven by foreign inflows and then we’ll all get back to work.”

“What about the difficulties in making the recoveries that you were just telling me about?” I persisted.

“Oh we won’t let that stop us at that point.”

Time and time again, I’ve come across this line of reasoning. In conversations with all manner of businessmen I’ve heard them talk about the ‘10-year cycle’ theory and tell me that they’re basically biding their time, placing no big bets, undertaking no major expansion, investing no new funds until they feel the winds beginning to blow once more. Then comes the moment to make your fortune.

I have marvelled sometimes at how deeply the effect of the bailouts tends to travel. You can hear it programmed into the DNA of the economy, guiding that all important animal spirit that animates a modern economy: sentiment.

That’s about all that a finance minister is ever really expected to do in this country, apart from managing vested interests. First and foremost, the finance minister of Pakistan is an interlocutor between the political elites of this country and their creditors.

The domestic creditors, who hold the bulk of the country’s stock of public debt, aren’t his to manage. They have direct lines that go straight to the nerve centres of power, whoever happens to be running things at that point in time; it’s never the finance minister who’s running things; he’s only implementing them at best.

The finance minister is left to deal with the foreign creditors, which basically means the multilateral agencies — the IMF, the World Bank, and that joke amongst multilateral creditors, the ADB where lengthy staff meetings need to be held when too many browser hits from the corporate network are landing up on pornographic websites and Manila has to call in and complain.

The domestic creditors have it a little tough. They live here. They breathe the same air as their debtors, and more often than not, have other business ventures too, leaving them vulnerable to government displeasure on other fronts.

They can decide whether or not they wish to lend, but they better not say no to the government too many times, and they know that. They play a delicate game.

Not so the foreign creditors. They’re lucky if they get an audience with the real decision-makers. When they do, it’s usually a very pro forma meeting. They get the rack rate, have to go by the book, follow the rules, and actually have to listen to the story some low-level government hack puts out to them.

Unless, of course, the government is low on foreign exchange and happens to be in the superpower’s doghouse. Then it’s different.

But today, Pakistan is in the global limelight. Everyone is walking on eggshells around this country — to the point that the IMF had to fold its hands before the State Bank (that’s how far down the food chain they are these days!) in a dispute over how to calculate core inflation.

The IMF figures showed it rising. The State Bank’s figures did not. So they agreed to continue talking about it till the next review.

So what do you do? Can the world afford to cut Pakistan off to urge the country to walk the high road of reform? Some have mustered the nerve to utter words to the effect in public, but nobody has the courage to contemplate the consequences, not out loud anyway.

So the only thing left to talk about is the timing and phasing and niceties of the disbursement schedule and the technicalities of calculating core inflation and the nuances of judging when a currency intervention is for smoothing unwanted volatility and when it’s in support of an unspoken currency peg.

This squeamish dialogue is set to begin between Pakistan and the IMF, now that we’re back on that gravy train again, and there’s this little matter of the troops in the neighbouring country. And it’s off to a pretty decent start with the last Article IV report, which finds plenty to smile about in places where they were wagging their fingers only a few years ago. The upshot is there’ll be quarterly reviews, and I for one look forward to reading them with a magnifying glass.

The writer is a business journalist and 2013-2014 Pakistan Scholar at the Woodrow Wilson Centre, Washington D.C. khurram.husain@gmail.com Twitter: @khurramhusain