ISLAMABAD, Aug 19: Economic policies can be fruitfully implemented only if these are conceived and adopted keeping in view the institutional capacity and political policy-making process of a country.

This was stressed by Professor Mariano Tommasi, Director, Centre of Studies for Institutional Development, Buenos Aires (Argentina), in the course of his lecture organized by the Pakistan Institute of Development Economics (PIDE) here on Tuesday.

Currently on a South Asian tour sponsored by the South Asian Network of (Economic Research) Institutions (SANI), the topic of Prof Tommasi’s lecture was “The Political Economy of Reform”.

“Be humble,” he said, tacitly addressing himself to the bodies like IMF and World Bank which dish out policy recipes as if they were the know-alls. Instead, “we have to recognize limitations of our knowledge.”

Recounting the tumultuous experience of Argentina with “structural adjustment”, “trade liberalization”, “deregulation” etc., Prof Tommasi cautioned that “reforms are more than their titles.” For often some fundamental contents thereof might be more important than “the policies”.

Although the titles are universal, their contents are different in different countries. “We have to focus on the policy-making process and political institutions”, while choosing a course of action.

He cited the example of privatization. In no country is the level and extent of privatization the same. In developing countries, the privatization of utilities worsened the problem, because of inadequate regulatory system.

Similar was the experience with privatization of pension funds. Previously, some people evaded their contribution and the government stole the money. “Now 10 years later, we are worse. More people evade contributions, while stealing still goes on.”

The decade 1985-95 was the period of structural reforms as spelled out in the so-called Washington Consensus. Argentina was flaunted as the “poster child”, model of “reforms”.

For a time, it was indeed a model if the criterion is private consumption. As foreign debt mounted, this increased by 50 per cent during 1990-97 and then plummeted to the ground in 1998. By 2001, “we were back to the point where we had started: poverty, unemployment, high disparity in income distribution. More than 50 per cent of population now lives below the poverty line.”

Public sector performed its job of enforcing its policies and regulating private sector neither in the older times of state intervention, nor after the bandwagon swing to market-led liberalization.

For a while, some measures did produce some good results, but when the system was “tested”, it did not survive.

Prof Tommasi, in this regard, referred to the central bank which lost its independence after the minister incharge of economic affairs decided that it hampered his economic policies.

His description of the constitutional, political and judicial system of Argentina resonated in the minds of his Pakistani audience because of its similarity with that of Pakistan. The parliament of Argentina is invested with policy-making powers by its constitution, but in fact these are exercized only by the president in conjunction with the provincial governments.

A major setback to his country was the volatility of economic policy under which policies were adopted and abandoned at the whims of leading personalities. There was no dearth of people trying sincerely to chart a beneficial course but were helpless because priorities changed with the change of people at the helm.

Responding to questions from the audience, Prof Tommasi underlined the need of people’s consensus on policies.

This would not only facilitate better implementation, but would also create an environment where any setbacks would be faced and overcome more easily in the best interests of the country.

Responding to a remark by an IMF representative, Prof Tommasi said the IMF and the World Bank themselves were like hard wood with certain internal politics and rigidities of their own. Their officers’ promotion, for example, was dependent on their ability to make governments adopt the projects pushed by them, irrespective of their suitability for the country concerned.