KARACHI, Sept 28: The IMF tends to micromanage borrowers’ economies and ends up giving a series of waivers, betraying its ability to set achievable targets.

To quote the governor of the State Bank Dr. Ishrat Husain the slippages in Pakistan’s case have been condoned through waivers “granted consistently.”

Borrowers resent “strict adherence to quantitative indicators” and feel that the Fund concern should be limited to “the overall policy direction”. As it would appear, after 9/11, things for Pakistan are generally moving in this direction.

Summing up Pakistan’s experience in executing IMF funded programmes Dr. Ishrat told an international experts conference in Berlin recently that “it would be preferable if there is a minimal approach in the specification of conditions by the IMF and more reliance is placed on the actions proposed and initiated by government’s themselves.” He was invited to speak at the seminar in his individual capacity and unveiled his personal thoughts.

Whereas the IMF and the economic team of the military government have shared common perception about the prescriptions to resolve fiscal and economic problems, he said they have differed on “the intensity, sequencing, timing and phases of various measures.” There has been no serious disagreement on the nature of reforms to be undertaken.

Not all the IMF targets have been met on schedule and delays have occurred in many cases.

Despite appropriate and timely policy actions, there were deviations from agreed targets. The slippages and variations were the outcome of factors outside the control of the authorities. When the IMF officials were convinced of the factors for the deviations, waivers flowed automatically.

Policy-makers say that Pakistan’s track record and credibility with IMF has made the relationship “more productive and useful” that yields the waivers. Yet the general perception is that Pakistan’s support to the US war of terror has softened the Fund’s attitude. It has led to withdrawal of multi-layer sanctions by major stakeholders of the Fund.

In the last fiscal, tax revenue targets were not met because of anticipated developments did not take place. The fiscal deficit exceeded mandated target because of one-time adjustments to clear tax refunds to the banks, to take care of accumulated losses of the KESC and to meet increased defence expenditure.

The IMF did not take a very serious view of these deviations because, to quote SBP governor, the policy directions indicated the trend in reduction in overall fiscal deficit and generation of primary surplus.

In the past, IMF has been very sensitive about fiscal deficit target, which had to be met either by raising revenues or cutting expenditure. The budget deficits impact adversely on current account and result in unsustainable debt burden.

Critics say that the IMF’s policy options are benchmarked to established orthodoxy when the Fund needs innovative ideas to work for a sound international financial system.

The rigid approach does not work. Even industrial economies change their strategy and make temporary deviations which becomes an imperative in case of emerging markets. The latest example is that of European Union.

Owing to the economic slump, European Commission has postponed the present deadline of 2004 for euro-zone countries to balance their budget. Germany, France and Italy are all at risk of over-shooting the budget deficit of three per cent.

“There is need for IMF to be more flexible and open minded in its approach, examine the evidence and consequences of various policy options without benchmarking them to established orthodoxy,” says Dr. Ishrat and pleads for “a freer hand to the country missions and Area departments in the design and review of programmes.” Currently, the central departments, which are the guardians of the Fund’s orthodoxy, almost enjoy veto powers.

Though the governor did not say it, the Fund’s orthodoxy is explained by the stakes of major shareholders in the IMF. Their interests and priorities come first, more often than not, at the cost of minority shareholders.

The opportunities offered by 9/11 should be fully seized to stop borrowing from the IMF after the current three-year PRGF programme expires so that the priorities for economic growth are set by Pakistan and not the international donors.

The alternative is an Argentina-like collapse. It would be a question of time, given the speed with which the national economy is being integrated with the global market, afflicted by recessionary trends that would not go away soon.