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IMF & Pakistan; Can IMF Ditch the Defaulters?

Sultan Ali Barq

History is full of moments when the oppressed and exploited nations and groups have raised collective voices and adopted bold strategies to safeguard their interests, integrity and sovereignty. Eversince recent movements for globalization of international trade under New International Economic Order (NIEO) and World Trade Order (WTO), trade and economic interests have become the wars of interests and survival for both rich and poor in which the institutions like IMF are operating generally under the instructions of the rich. Factually, the rich need the poor as consumers of their exports, borrowers of their surplus capital and suppliers of raw materials at very low prices. Can the rich survive without the poor? Can IMF ditch the defaulters? I intend to search the solutions to above questions through 2 quotations. First, a letter to editor of the Washington Post, of January 5, 1998, "Give the IMF Some Credit" remarked,

"--- its [IMF] original purpose --- to help countries in need to finance balance-of-payments (BOP) deficits so that they would not take actions that would harm their trading partners. --- countries do not go bankrupt. --- IMF credits come with policy conditions that borrowing countries find painful to accept and implement. ---- "

During the Annual Meeting of IMF and World Bank, on October 11, 1995, the President Clinton of the United States said,

" ---- today, the visit of President Zedillo of Mexico reminds us that in only nine months, with the help of the international community, Mexico has pulled back from the brink of financial disaster. --- As you have heard, President Zedillo has announced that Mexico will begin repaying its short-term debt with a $700 million installment this month, well ahead of schedule. (--- applause --- )

Mexico's success is a tribute first to President Zedillo's leadership, his courage, and his government's steadfast commitment to carry through tough economic reforms, though they have required great sacrifices from the Mexican people. They have borne these sacrifices - the austerity, the increased unemployment in the short run - with the hope that they will pay off in long-term growth ----

The international financial institutions - the IMF, the World Bank, the Inter-American Development Bank - all your swift and decisive support for the stabilization package played a vital role in bringing this hopeful moment to pass. The United States also acted decisively. We acted decisively for Mexico and for America. For helping Mexico help to protect one of our biggest export markets and 700,000 jobs that depend upon our trade with Mexico. Helping Mexico not only prevented a national crisis, --- Those emerging markets support more than three million American jobs. They're essential to our economy and to the well-being of our people, but they're more important for our common commitment to a more peaceful, more democratic, more free world. ---- "

As a careful reader, the two quotations clearly state the fears and desires under which the institution of IMF was created by the super powers and under whose instructions it operates. Such fears/desires are include;

  1. Balance of Payment Support (BOP): Borrowing countries must not be allowed to default even though fresh credit is given for paying the old debt. In case of default, the loss is spread to all members/partners.
  2. Enabling the rich and economic super powers to continue to import cheap raw materials and export finished goods.
  3. The interests of G-8 or USA for trade are looked after because reduction in export would translate into the increase in the unemployment that is politically dangerous and unaffordable.
  4. The countries are not allowed to disturb the peace and democracy for preventing an assault on the philosophy of the governance of the capitalist economic theory and blocking the emergence of any new philosophy.

Let us translate and analyze the above objective functions in the back drop of the situation in Pakistan;

  1. Everyone in Washington, London, Paris and Islamabad knows that Pakistan is not and shall not able to pay, retire or even service its debt for long. (Virtual default)
  2. They know that Pakistan shall have to continue to borrow for repaying the loan and servicing of the credit. (Captive borrower)
  3. They know that Pakistan has survived for about 18 months after nuclear explosion, despite the sanctions. (Unusual resilience)
  4. They know that Pakistan has the means and tangible resources for a renaissance with committed leadership and the help of its own people and friends.

They shall therefore, like from Pakistan;

  1. Not to go to other allies but to them (bonded labour style) and they would like to influence the allies to dump Pakistan, if the things went "wild". (Feudal psyche)
  2. Continue to sell cheap raw materials and semi processed products, if at all Pakistan produced any surpluses. (Captive producer) Pakistan needs to accelerate the pace of agricultural development and production independent of external support.
  3. Not to default, (Even if it has to borrow to repay and remain captive nation)
  4. Continue to borrow, (Preferably for repayments)
  5. Continue to devalue its currency so that they buy the same stuff with fewer dollars. (Convert cheap labour into value added products)
  6. Follow their dictation/instructions about the taxation, governance, strategic and security issues like, taxing the non-taxable, micro managing the economy, disarmament, NPT, CTBT etc. (Feudal psyche)

Above desires are translated into the conditionalities of IMF that invariably become impossible for the leadership in the borrowing countries to implement. The corollary of the above may also hold as perfectly, i.e., the conditionalities are designed in such a manner that they are impossible to implement so that the borrowing countries remain under "control". (Hostage)

Extended analysis further proves that Pakistani leadership (historically) has fallen in the trap and are unable to think independently and confidently. They, therefore, goto them for support and do not look for alternatives, continue to sell raw materials at very cheap prices, do not default even if they have to borrow to repay, continue to devalue their own currency on their instructions and lie like a mat to allow them to walk on. The situation reminds me of my friend, Prof. Dr. Rubenstein of University of Pennsylvania, " — Time has come when sovereignty shall become a tradable commodity. Countries would sell sovereignty to buy food, security, medicine .--- "

Pakistan needs a leadership with competence, very strong nerves, clear understanding of the issues and psyche of the other side of the table, ability to negotiate with the super powers and come out with a most suitable package. Tragedy of the poor indebted countries is that most of the funds have been either invested in useless projects (non-revenue generating) or have been plundered. Net cost value of tangible assets generated by over US$ 83 Billion credit (External US$43 Billion and Domestic US$ 40 Billion) is not more than US$ 6-8 Billion. In 1997, we all believed that Mian Nawaz Sharif would rid the country of this serious problem and help in saving half of the revenues from going to servicing of the credit that has been predominantly plundered and is limiting the capacity of leadership to serve.

All the investments have, however, been made under the direct and strict supervision and scrutiny of the lending agencies. They [lenders], therefore have moral responsibility to accept the loss for wrong investments. National leadership, should therefore, determine, where the borrowed money has gone?

My friend Shaheed Hakeem Saeed, few months before the assassination, asked me to write a proposal and background paper/s for holding a summit meeting of highly indebted nations in the World. We spent many hours to define the highly indebted countries as "those with the current debt in excess of 50 percent of GDP." I gave my own analysis to prove, that such countries were already in serious debt trap and shall never come out of the same. According to Hakeem Sahib, "Let all such nations declare to default in group (DIG)." By doing so, such countries would not have to pay back the funds that have been predominantly plundered and shall be out of the shackles of the IMF and their harsh and unaffordable conditionalities. The initiatives be made in a manner that they do not look like "blackmailing". The offer should be made very gracefully with solid arguments and convincing alternatives for a New International Economic Order (NIEO) that shall be equitable instead of the present one that helps the rich only.

We worked very hard. He [Hakeem Sahib] started to contact various heads of the states and international dignitaries and according to him, people were very excited with the idea. But before, we could actually make it happen, someone snatched him from Pakistan. The issues still remain as seriously as they were last year. Does the government of Mian Nawaz Sharif has the wisdom and will to walk on very "tight rope", fight a war of nerves and national interests and get a deal from the Super Powers according to which Pakistan does not continue to fall in deeper debt trap any more than it is today, gets a moratorium of the order of 10-20 years, gets write off for the interest and service charges, does not pay the debt that has been plundered and/or where the net returns are lower than the stipulations at the time of finances. Future, borrowing should be authorized by the parliament and should not be for any project with rate of return of less than 20 percent.

Pakistan should therefore, call the Summit meeting of over 66 Highly Indebted Poor Countries (HIPC), make a New Free Trade and Economic Block (NFTEB) and resolve to Default-In Group.(DIG) It is not difficult to assess the reactions of Super Powers and IMF to DIG Plan. DIG plan shall bring the stakeholders to the table and give an opportunity to the borrowers to design do-able conditionalities and repayment schedules. This shall give a more equitable focus on globalization and shall be good for the humanity. Moreover, the suggested initiatives shall promote peace and eradicate poverty as opposed to the prevalent system that has been conceded by everyone, including President of US and heads of IMF, World Bank etc., that it "promotes poverty and deprivation."

Does the Prime Minister want to take the suggested initiatives? Can his team think beyond stereotype systems and do the necessary homework? Can his team develop a vision about a prosperous, strong and sovereign Pakistan? Do they have the minimum "critical mass" necessary to launch such a programme? Commons in Pakistan have apprehensions about the answers to above questions, despite the compulsive optimism and political popularity. According to them, if the leaders wanted to get rid of the debt problem as promised in their manifestos, why did they not do so during last 50 years? DIG is the only option left for creating a space and finding long term sober solutions for the eradication of growing poverty. Finally my analysis demonstrates that the consequences and costs of not taking the suggested steps are economically unaffordable and politically extremely destabilizing for all HIPCs including Pakistan.

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