Pakistan will be going to the IMF for the 13th time. Will PTI’s Asad Umar fare better than past ministers?
As election fervour morphs slowly into a nervous anticipation for Naya Pakistan, commentators are now shifting their attention away from the events of July 25 and looking to the future.
Amongst the many policy proposals floating in newsfeeds and pundit circles alike is the government-elect’s rumoured plan to approach the International Monetary Fund (IMF) for a bailout to deal with Pakistan’s pesky foreign exchange reserves crisis.
While stories about American opposition to a new loan and the interplay between the IMF and the China-Pakistan Economic Corridor (CPEC) debt have begun to do the rounds, let’s look back:
What has Pakistan’s experience with the IMF looked like? Why do we keep going back and who precisely is being ‘bailed out’? What are the lessons to be learned?
While the corruption motif could certainly find a place in the explanation, perhaps we should be looking beyond the apparent and instead towards the historical and structural imperatives that keep us going back for more.
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Pakistan and the IMF: a (very) brief history
Though Pakistan began its borrowing history with the IMF under Ayub Khan, its first Structural Adjustment Package (loans disbursed with added conditions of macroeconomic policy changes to ensure repayment) was accepted by Ziaul Haq in 1982.
Since then, various governments have accepted 12 conditional loan packages from the Fund, all of which have sung quite similar policy tunes: privatisation of state assets, liberalisation of the terms of trade, indirect taxation, subsidy cuts and an almost singular focus on reducing budget deficits.
Socioeconomic casualties at the hands of the IMF conditions have included social sector spending (most notably, health and education), employment and accessibility to essential items like oil and electricity.
The Fund’s macroeconomic prescriptions have been so consistent over the past three decades that, whether it be 1988 or 2018, it seems one can fairly confidently predict the contents of any loan package, without a single document in hand.
And though there are now claims emerging from both within and outside the IMF that it has moved away from any dogmatic adherence to the Washington Consensus, there is very little evidence to show for it.
In a March 2018 IMF Country Report on Pakistan, the Fund’s diagnosis of the country’s economic woes sounds familiar: insufficient exchange-rate flexibility, too many burdensome public-sector enterprises, not enough “growth-supporting structural reforms”.
Indeed, such an approach is not unique to Pakistan — Joseph Stiglitz, Nobel Prize winner and former chief economist at the World Bank, has criticised the Fund for its ‘cookie-cutter’ approach to conditional lending and structural reform, with countries as diverse as Argentina, Nigeria and Pakistan receiving virtually identical loan packages over the years.
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This is important because if the government-elect does follow through on its intentions to approach the IMF, it is fairly clear what deal it will leave with. The question then is — will it work?
And again, there is little evidence to suggest that it will. A number of scholars and commentators have conducted empirical surveys of Pakistan’s macroeconomic experience under the IMF structural adjustment and the conclusions are worrying.
Akbar Zaidi looks at the decade between 1992 and 2002 and highlights decreases in per capita income and per capita GDP, worsening the gap between rich and poor.
Professor of business policy and political economy Imran Ali has commented on rising inflationary pressures on the economy in the mid-to-late 2000s, highlighting oil and gas price rises and a decline in Pakistani manufacturing.
One study that analyses adjustment data between 1981-2001 confirms many of the observations made above. This includes an unemployment rate that “…increased from an average of 3.5 per cent in the 1980s to 5.7pc in the 1990s further to 6.7pc in 2000-01” due to an obsession with budget deficit reduction and dangerous increases in inflation and the prices of oil, gas and electricity.
In terms of per capita income, something the authors call “the most frequently used indicator of economic welfare”, the study finds an overall deterioration, linking it to the IMF-mandated increases in indirect taxes and subsidy reductions.
Overall, the study concludes that the Fund’s primary aim during this period — the stabilisation of the Pakistani economy — remained woefully unmet.
And so, we go back again, empty coffers in hand.
Who is responsible?
The many damning studies aside, it is that clear that the Fund’s formula is failing when, after 12 loan packages, macroeconomic stability remains a pipe dream and we are considering signing our 13th deal.
And as loosely as the dollars are disbursed, so too is the blame. Reactions ranging from anti-Semitic Jewish conspiracy-theory characterisations of the IMF to hand-wavy arguments about purely local incompetence and corruption dominate the discourse in Pakistan.
As is necessarily the case with false dichotomies, the truth lies somewhere in the middle.
There is, of course, the fundamental problem of cherry-picked implementation of the Fund’s programmes and a number of excellent pieces detail just that.
One such piece explores this in detail, arguing that “the government often complies with some conditions and ignores others, using the leverage of international political environment and the IMF to push through only policies that benefit domestic elites and lobbies”.
That same piece, however, goes a step further — as we all should when analysing complex realities created through the interplay of a multitude of actors, institutions and motivations. It highlights the Fund’s own tendency to turn the other cheek — a noble act in many contexts, criminal in this one.
This includes the continual recalibration of benchmark deadlines, discretionary leeway as long as creditors are temporarily satisfied and the exaggeration of potential success with the concurrent downplaying of risk.
Nadeem ul Haq’s recent comment on the same tells a story of hastily re-negotiated mini-budgets, a resultant uncertain investment climate, the imposition of unanticipated (and coercive) spending cuts on the finance ministry, and much more.
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The Fund is flexible — as long as some cuts are made, any reductions are chased, a bit of compliance shown. Haq’s conclusion is clear: “Pakistan has been the subject of a long-running experiment in austerity”.
Yet another factor blurs the boundaries of the dichotomy — the revolving door between the Fund and many former Pakistani state officials:
Abdul Hafeez Sheikh, finance minister from 2010 to 2013, served as director of economic operations of the World Bank (the Fund’s structural adjustment official partner) in Saudi Arabia throughout the 1990s; Mahbubul Haq, finance minister in 1998, was former director of the World Bank; Shahid Javed Burki, vice-president of the World Bank who implemented a number of structural adjustment initiatives during his tenure as de-facto finance minister in 1996. Former prime minister Raja Ashraf arbitrarily appointed his son-in-law World Bank alternative executive director in 2013 with little to no fanfare.
The point is this: the financial movers and shakers in Pakistan are either well-acquainted with or have more or less internalised the programmatic gist of IMF-lending and the logics of austerity economics that go along with it.
These are the same technocrats who are responsible for drawing up budgets, cutting or saving subsidies, jobs, welfare expenditures and more.
An awareness of this makes the trope of ‘us versus the Fund’ a tired one, the assignment of blame a complex process, and any attempt at a holistic understanding of the ideas and policies that underpin Pakistan’s perpetual debt crisis all the more urgent.
So here is what we know so far — the Fund’s structural adjustment experiment in Pakistan has overwhelmingly failed, we are stuck in a loop of incurring new debts to pay off old debts, and if we go back, we will be served another dose of the same old medicine.
More optimistic (naïve?) observers will point out what they think will be a crucial difference: Naya Pakistan.
Surely Asad Umar’s business savvy, corporate know-how and real world experience will make him a more competent finance minister? Surely the negotiations with the IMF this time will be different?
Putting aside the fact that Pakistan’s former finance ministers have had equally impressive profiles, let us assume for the sake of argument that Asad Umar will approach talks with the Fund in a qualitatively different and fundamentally new way. What hope does the Pakistani economy have of securing a better deal for itself?
It becomes necessary here to examine the internal structure of the IMF itself and how that shapes any terrain of negotiation. Two elements are key: voting and drawing rights and the Fund’s internal chain of command.
Voting and drawing rights
The Executive Board of the IMF is responsible for the day-to-day administration of IMF country missions and it comprises 24 members.
Eight countries get to appoint their chosen director — the United States, Japan, Germany, France, the United Kingdom, Saudi Arabia, China and Russia. Every other member nation can collectivise in groups and nominate the remaining 16 directors.
When a country joins the IMF, it contributes a certain quantum of money — a ‘quota subscription’ — which forms the basis of the following: how much a country can borrow in times of need and their voting power. As McQuillan and Montogmery put it, “the richer the country, the larger its quota”.
A couple of interesting observations can be gleaned from the above. First, it is (at best) slightly odd that the Fund’s criteria for determining each country’s drawing rights (and in turn, each nation’s capacity to employ the Fund for domestic macroeconomic stabilisation) is contingent on that country’s wealth and economic performance.
This circular logic of capital accumulation permits stronger financial players a more meaningful say in deciding the rules of the game and might suggest that the Fund’s responsibility first and foremost is to the robustness of the global financial system instead of the health of individual economies. Asad Umar against the World.
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Second, the fact that a majority of the world’s borrowing nations have little effective say in the number and terms of the loans disbursed is troubling to say the least.
Eric Toussaint and Damien Millet, in Debt, the IMF, and the World Bank emphasise this inequity through the following example: “the group led by Rwanda, including 24 Sub-Saharan African countries and representing 225 million people, has only 1.39pc of voting rights”.
The equation between drawing rights and voting rights means that the majority of the developing world — the IMF’s most loyal customers — has an almost negligible role in shaping its own recovery.
As of right now, Pakistan votes with Afghanistan, Algeria, Ghana, Iran, Morocco and Tunisia, representing 2.2pc of the vote share. Asad Umar (plus seven countries with very little economic clout) against the World.
The chain of command
The IMF is a massive organisation, and therefore, houses a vast bureaucracy consisting of staff members that act as ‘international civil servants’ rather than national representatives.
How does this impact the dynamics of forging loan agreements between the Fund and member states? Again, two key elements will be analysed: the space for dissent within the IMF and the space for dissent between the IMF and Pakistan.
On the issue of internal disagreement within the Fund’s ranks as to loan prescriptions and conditions for member states, Paul Blustein’s 2003 book on the international debt crises of the 1990s, offers unique insights.
In it, he quotes a number of IMF employees and their experiences working at the Fund. One former IMF staffer, Michael Dooley, says:
“I can tell you for sure there are heated arguments. But they are resolved internally…you don’t want an institution like the Fund changing its mind every week about how to do things. Financial markets are watching. While you negotiate, Rome is burning”.
As far as staff missions to specific countries are concerned, Laura Papi (another former IMF staffer) says: “…there is a very clear hierarchy…(even when disagreements surface within a mission team) they will disappear…because the mission chief will say ‘I think X, even if you think Y…then he goes to the Front Office and says, ‘We believe X’”.
The result is an almost militaristic internal chain of command between staffers and their superiors at the Fund, one that not only narrows the parameters of critical inquiry but limits any possibility for creative re-imagination of what an economy can look like and who it should serve. We are left with societies carved out of cookie-cutters.
The rigidness in this chain of command trickles down to negotiations between IMF Mission Teams and member countries as well.
Though the Fund insists it seeks to uphold the spirit of freedom to contract with all lending nations, experience tells us otherwise.
Ben Thirkell-White, in his book The IMF and the Politics of Financial Globalization, writes: “for poorer, less politically significant countries with limited expertise…negotiations may be highly one-sided”.
Indeed, the IMF's own internal evaluations have documented the ‘inflexible attitude’ with which the Fund approaches debtor countries, conceding:
“…the Fund often came to negotiations with fixed positions so that agreement was usually only possible through compromises in which the country negotiating teams moved to the Fund’s positions…the Fund too often simply imposed its will, was generally insensitive to genuine constraints in policy-making…and was too quick to dismiss policy options favoured by the government”.
This rigid, militaristic chain of command not only makes internal dissent a distant possibility but flexibility in negotiation an institutional anomaly.
And even though Asad Umar's infatuation with ideas of mass privatisation might mean negotiations go more smoothly than the Pakistani citizenry would hope, any and all points of contention that may be raised in order to preserve some semblance of fiscal sovereignty will be shrouded in the shadow of the Fund’s institutional coherence, rigidity and sheer power.
Repoliticising the Pakistani economy
Three decades and very little to show for it — it is clear that the Pakistani economy is far from stable after structural adjustment.
And yet, as this next government gears up for another go, there is nothing but the slow simmering of protest in a few think-pieces and opportunistic political challenges.
There is something alienating about economics. At its core, it is merely a framework through which a society decides how to divvy up the goods. These decisions should be socially-deliberated, stemming from a value-led, justice-driven consensus.
Instead, when the flurry of dizzying demand curves, maddening models and indecipherable equations are thrown at us in the hopes we will defer to the ‘experts’, we capitulate.
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In recent times, Pakistan has seen lively debate on a number of difficult issues — civil-military relations, religious freedom, ethnic minority rights, and women’s protection to name a few. And though these debates may not always go as one hopes, there is still a conversation.
To quote Timothy Mitchell, Pakistan’s economy today is under the ‘rule of experts’ — sealed off from popular debate and couched in a vernacular so technical that we find ourselves accepting certain practices or arrangements unknowingly, deferring to authorities to act in our interest when we would otherwise prefer to act by ourselves.
Perhaps this is why government after government finds it so easy to knock on the Fund’s door.
It should not be this easy. Pakistan today faces a housing shortage of over ten million units and only 1pc of housing currently available is affordable for the poorest 68pc.
According to the Pakistan Council of Research in Water Resources, the country may run out of water in 2025 — seven years from now — if things do not drastically change.
According to the United Nations Development Programme, almost 76pc of Pakistan’s youth drop out of formal education due to financial stress.
Those who do complete their education and enter the job market are unlikely to find decent jobs, with our youth unemployment rated estimated to be as high as 40pc.
A public health crisis weighs heavily on the population’s most underprivileged, with infant mortality, maternal mortality and life expectancy rates at some of the lowest in all of South and South-East Asia.
According to the World Health Organization, Pakistan’s healthcare system ranks abysmally low — worse, even, than healthcare in Iraq and Libya.
IMF-mandated austerity has meant that we have long been prioritising abstract, perhaps even unattainable goals of economic growth over genuine human development.
If the next government truly wishes to create a new Pakistan, it will have to come to terms with a financial relationship with the IMF that has, at least in part, contributed to the mess we find ourselves in.
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