IF history is any guide, it looks like the job of getting the country back onto an IMF programme will be left for the interim government. But there are some differences this time which may not provide history with another chance to repeat itself.
Some background first. In November 1988, Pakistan signed a Standby Arrangement with the IMF with far-reaching conditions, principally regarding the fiscal deficit, which in those days of runaway borrowing under Junejo’s partyless government had touched nine per cent of GDP.
The agreement was signed in a hurry by a small group of bureaucrats led by Mahbubul Haq and Ghulam Ishaq Khan, the former serving as finance minister in the interim government and the latter as president.
Negotiations for the facility had been under way for a number of years, beginning with Yasin Khan Wattoo who was finance minister under Junejo, but gained momentum only when the interim government entered office following the dismissal of Junejo’s government and the arrival of an interim government selected largely by Ghulam Ishaq Khan.
They were concluded within a matter of months, and the letter of intent was signed two weeks before the government of Benazir Bhutto was to be sworn in. The only thing left for the incoming civilian government to do was to ratify the agreement and start its implementation.
In the new assembly, anger rang out at the fact that an interim government, whose only mandate was to oversee the conduct of the elections, had overstepped its authority by signing a far-reaching and long-term programme of structural adjustment.
The programme placed strict limitations on what the new civilian government could do, and many contemporary observers wondered aloud whether the haste in which the facility had been signed did not have political motivations.
The prevalent view at the time was that economically there was no emergency in the country to merit such a hurried approach to the IMF. Even the World Bank had agreed with this assessment in one of its country reports, saying Pakistan could have gone another couple of years before coming to a point where it would need to approach the IMF.
So if the economic circumstances did not merit an IMF programme, why was it signed? The most common take on this question at the time was that the programme was signed to tie the hands of the Benazir government and prevent the runaway spending and borrowing spree that was the hallmark of the Junejo years.
The next time this story repeated itself was in 1993, when the caretaker set up headed by Moeen Qureshi of the World Bank again signed an IMF programme that carried far-reaching conditionalities and was left for the incoming Benazir government once again to implement.
One more time, accession to an IMF facility happened for political reasons, and during a period when politics was in abeyance.
And once again, a non political set-up, meaning an interim government that was not chosen through a process of consultations with the major parties, carried out the deed.
Today there are enough people convinced that Pakistan is moving fast towards an IMF programme as reserves are depleting. Given present-day import requirements, and with oil above the $100 mark, the import cover required is much larger than it used to be in the early days, and what sounds like a very large amount — $10bn — is in fact the threshold sufficient to cover three months of imports. A reserve figure below this amount is cause for concern.
One more time, memories of those two moments — 1988 and 1993 — are revived and there is anticipation that perhaps the job of getting the country onto an IMF programme, whether urgently required or not, may be left to the interim government when politics is in abeyance and a small space opens up for making unpopular decisions.
But if history is any guide, then the key ingredient from those two episodes is missing this time. That key ingredient is a caretaker set-up independent of political parties. In both cases from the past, the caretakers believed themselves to be technocrats with the mandate to set the economic keel of the state back on an even footing.
This time the two major political parties are likely to have the final say in the selection of the interim set-up, and in defining its mandate, an unprecedented situation if you think about it.
We’ve had two interim governments constituted under Ghulam Ishaq Khan, acting as a proxy for the army’s interests in the political arena, and one appointed directly by the army-led set-up which included Moeen Qureshi and Wasim Sajjad.
The last interim government of Musharraf had its eyes firmly set on the new political realities that were going to emerge from the elections and hardly found time or the will to make any decisions regarding the growing economic imbalances in the economy.
This time the situation is not as dire as it was in 2007. We’re more likely to have an interim government that will have its mandate clearly delineated. It is unlikely that it will be empowered to take far-reaching decisions, and will probably occupy a politically embattled space and cling to a minimalist agenda.
This interim government, unlike those that took the far-reaching decisions, will not be ushered in by the army, but by civilian authorities. It is unlikely therefore, that it will bring much of a mandate to the position. The job of making the far-reaching decisions is more likely to be left to the next government. And a long and discontinuous timeline needs to be traversed before we can get there.
Of course events could belie all this, if the situation takes a turn towards the worse in a sudden and dramatic manner. But for now, the economy is likely to be left to drift until the next government has been sworn in.
The writer is a Karachi-based journalist covering business and economic policy.