Guest post by A.H.Kalwar of Pakistion Blog
Russia is the largest borrower from the International Monetary Fund (IMF). The initial objective and promises by IMF were to quickly bail Russia out of an economic crises, and throw it back on track. Today Russia’s debts to the IMF are so big that the only way to ensure repayment is to keep borrowing more. This summer alone $4.5bn have been borrowed entirely for minimum repayment of previous IMF loans.
A brief look at institution’s like the World Bank and IMF rings loud bells. The constant failures of such institutions have elevated poverty, widened the wealth gap, while corporate profits sore. The joint economic comity of the U.S. congress admitted that there is a mire 40% success rate of the World Bank. Even that is an exaggeration.
Pakistan is IMF’s next target, while President Zardari and Prime Minister Gilani keep on insisting that they will not accept IMF’s tough conditions and are negotiating them down to a reasonable level, it is highly unlikely.
Whenever a government takes up and IMF loan it is one of the following cases; ‘One’ it has already defaulted and failed, something which Pakistan is far from being. ‘Two’ the leadership is either corruptible or a U.S. puppet.
The conditions
While it is too soon to predict what the final conditions will be, they will most certainly be along the following lines.
- Currency Devaluation
- Privatization of critical state assets.
- Excise Duty on services and agriculture sectors.
- Reduction in defense budget
- Reduction in Development expenditure
- Increased general taxes
- High level IMF involvement in state economic affairs, including the appointment of key government personnel.
- Cuts in education and health care programs.
- Changes in foreign trade policy.
- High annual interest
In simple words, a further 15-20% of Pakistani popullation will be pushed under the poverty line. Our economic growth will be hampered, including a critical hit to the agricultural sector. We’ll be caught between the ever so popular “Vicous IMF cycle”, of further loans, and prolonged repayments.
Furthermore, IMF’s influence will not be confined to the economic side of our nation. It will systematically creep into social, political and other arenas as well. While U.S. already has more say power than our President himself over Pakistan, increased U.S. influence is a nightmare.
This certainly is not an helping hand.
Comments
4 responses to “The IMF Trap”
Unfortunately, there’s no other realistic option then to loan money from the IMF straight away and it’s remarkably cheap at 3-4%. It’s sad but there’s no other option.
I know folks here would be saying things like:
I) Giving confidence to Over-seas Pakistanis and they will send the money
II) Forcing the corrupt politicians to bring the money back
This is plain idealism and would never happen. Yes but the money should be spend wisely but with the record of politicians and leaders that’s not going to happen…Sad, Sad..
“Foreign Reserves Phenomenon: Shaukat Aziz versus PPP”
Pakistan recently has seen a drastic drop in its Reserves by 50% and its currency devalued by 40%, which has left ordinary people confused and the usual cynics have started heaping the blame onto the policies of Mr. Shaukat Aziz, without even knowing the basic macro-economic indicators nor understanding the relationship b/w Foreign reserves, Trade deficit and Currency devaluation.
To understand the difference – READ FULL ARTICLE:
http://presidentmusharraf.wordpress.com/2008/08/21/foreign-reserves-phenomenon-shaukat-aziz-versus-ppp/
Here is my take on the conditions listed above:
* Currency Devaluation
Already implemented covertly. Dollar is now at Rs. 80 and all this blame on flight of capital etc. is just to hide the fact that your currency has been devalued.
* Privatization of critical state assets.
Though backing off for the time being from the Qadirpur Gas Field sale, nothing has been canceled. They will try again soon, probably using some backhand deal or something. They plan to sell 17 assets this year alone including Qadirpur Gas Field and Pakistan Steel Mill.
* Excise Duty on services and agriculture sectors.
This is going to happen as IMF is not backing down.
* Reduction in defense budget
Though this is the only condition I liked, it is certainly not going to happen.
* Reduction in Development expenditure
No question it will be implemented
* Increased general taxes
No question it will be implemented
* High level IMF involvement in state economic affairs, including the appointment of key government personnel.
This is nothing new and has been happening for a long time. Your finance ministers, Governor State Bank, etc. are always appointed by these IMF/WB goons and you will see their resumes include stints at one of these institutions (And once they have done their jobs, they usually go join them again)
* Cuts in education and health care programs.
No question it will be implemented
* Changes in foreign trade policy.
Again this is nothing new and has been implemented again and again with additional conditions that favor the rich nations and harm the local economy.
* High annual interest
We already say this with the so called “autonomous body” the State bank of Pakistan announcing a 2 percent rate hike to 15%. It was so stated (“The fund required Islamabad to undertake a set of prior actions, including a 2 per cent increase in interest rates which was announced last week”). At least it exposed the myth who Shamshad Akhtar — or any State Bank Governor for that matter — works for. The government can holler and scream(Central bank under fire in Senate) but Shamshad knows where the power lies and is secure in the knowledge as who her boss is (the government could face pressure to extend her contract, as she is very popular with the international financial institutions.
Nice lookin blog. Thanks for the info, I look forward to more.