The Bank and Fund have been toggling our economic policies
The ideology of neoliberalism is being imposed on poor nations, demanding them to lower the living standards of their people and enforcing Structural Adjustment Policies (SAPs) to ensure debt repayment and economic restructuring. These are the general demands by IMF and World Bank, requiring poor countries to reduce spending on things like health, education and development, while focusing on repayment and other economic policies as priority. The IMF and World Bank restructuring programs have been heavily criticised for elevated poverty in developing third world countries and increased dependency on the richer nations.
Impact of IMF and World Bank core principles
Resource extraction/export-oriented open markets, minimised role of state, privatisation, reduced protection of domestic industries, currency devaluation, increased interest rates, unstable exchange rates, flexibility of the labour market, elimination of subsidies, reduced financial regulations and forced increase in cheaper exports to keep currencies stable and earn foreign exchange to pay off debts.
According to Joseph Stiglitz (ex-chief economist at IMF); the Bank’s ‘investigation’ involves little more than close inspection of five-star hotels. It concludes with a meeting with a begging finance minister, who is handed a ‘restructuring agreement’ pre-drafted for ‘voluntary’ signature.
In 1988, Davison Budhoo (ex-economist at IMF, who worked there for 12 years, designing SAP’s for third world countries) revealed in his 22-page resignation letter; “When we went on a mission, we did not even have the scope to innovate, to look at the country and make projections, that you thought were reasonable… there was already a briefing paper before we entered the country. We were told what we were expected to do, and give conditionality in terms of what the fiscal deficit was and how much it should be reduced; even before we entered the mission… we were expected to structure our findings in relation to the figures in the briefing paper, which were put there without any research, and were predetermined. So the conditionality was also predetermined… In this sense, every IMF mission is fraudulent even today…”
IMF and World Banks’s structural readjustment program for Pakistan
World Bank assistance for Pakistan traces back to 1971, when the country received $25 million IDA assistance for cyclone-devastated East Pakistan. World Bank’s resident mission in Pakistan started in 1979 whereas Pakistan became the member of IMF in 1988. IMF’s restructuring agreement for Pakistan was introduced in 1991 when the privatisation commission was formally established. It is to be noted that the ruling authorities, the politicians, bureaucracy as well as the establishment were not well versed with the tricks of trade and major role was played by SBP governors (the chosen individuals) who were either former World Bank employees or directly associated with IMF in the past.
World Bank assistance for Pakistan traces back to 1971, when the country received $25 million IDA assistance for cyclone-devastated East Pakistan. World Bank’s resident mission in Pakistan started in 1979 whereas Pakistan became the member of IMF in 1988
IMF’s control on monetary and economic policies
In order to understand how IMF directly controlled the monetary and economic policies, it’s necessary to know how the money policy works in Pakistan. The country’s currency i.e., Pakistani rupee was pegged to the pound sterling until 1982, when the government of General Zia-ul-Haq changed it to managed float. This regime is the current international financial environment in which exchange rates fluctuate from day to day, but central banks attempt to influence the country’s exchange rate by buying and selling currencies. The central bank also controls the money supply through open market operations, targeting interest rate in order to expand or contract the monetary base (the expansionary and contractionary monetary policy), influencing economic growth. A careful analysis of fluctuation of interest rates, market-based pricing and periodic interventions by SBP in the past makes it clearly evident that monetary policies are under direct control of IMF and World bank, through their representatives governing the central bank.
It is really important to note that all the central bank SBP governors who worked at their posts during the period starting from 1988 till 2009 were direct employees of either IMF or World Bank in the past, and have played key roles in defining the economic, financial and monetary policies for the country for more than two decades. It is a matter of common sense to question why Dr Yaqub, Dr Ishrat Hussain and Dr Shamshad Akhtar left their lucrative jobs at IMF or World Bank and joined the Central Bank of Pakistan as governors. This question can also be rephrased as why these governors were imported from IMF or World Bank to run the financial affairs of Pakistan. A careful analysis of country’s monetary and economic policies in last 20 years will answer the question.
During the last two decades, IMF loans have been an important source to manage the financial problems of Pakistan such as balance of payment deficits, stabilisation of currency, rebuilding international reserves, managing liquidity problems along with enabling the country to meet its short term needs by providing various types of loans which IMF calls its lending ‘facility’. These loans followed some very strict conditions imposed on the country in the name of “IMF’s assistance policy”, raising prices on food, water, oil, electricity and cooking gas, etc, in the name of market-based pricing bringing the nation ‘down and out’ squeezing last drop of blood out of poor people. However, politicians during the regimes of Benazir Bhutto, Nawaz Sharif, Pervez Musharraf and Asif Zardari have earned great fortunes in the form of commissions received on account of privatisation and liberalisation. Cash flight and reserve drainage has also been observed during these regimes, followed by interest rate adjustments as per IMF’s demand. On the other hand, the country is struggled to maintain its currency exchange rate against US$ by throwing its products in open competitive export markets. It is the same restructuring agreement that has deprived the nation of its precious resources located at Reko Diq, which is owned by foreign mining companies and not the people of Pakistan.
IMF’s restructuring program
Imtiaz Alam Hanfi (governor SBP 1988-1993) initiated the restructuring program by privatising financial institutions in Pakistan. Mr Hanfi was not a former IMF or World Bank employee, however he attended the World Bank training based on managing various World Bank tasks for different countries in a simulated environment. Unfortunately, the short training didn’t prove sufficient and he ended up getting into various conflicts with political governments of PPP and PML in 1988 and 1993 due to his treasury bill and foreign exchange reforms. In addition to that, he failed to comply with the demands of IMF to increase the interest rate to a desired level. Being somewhat dissatisfied with Imtiaz Hanfi, IMF recommended it’s employee Dr Muhammad Yaqub who was appointed as Special secretary/principal economic adviser in the ministry of finance by the PML government in 1992. Later, he took charge as governor SBP in 1993. He was an economist by profession and held several important positions in the IMF, which he joined in 1972 and left in 1992. Dr Yaqub remained SBP governor till 1999. During this period he paved the way for “IMF’s Four Steps to Damnation” by implementing the assistance strategy.
The four step program became fully effective in 1999 when Dr Ishrat Hussain was appointed as governor. Dr Ishrat was a former World Bank Employee who joined in 1979 and held key positions there. As governor SBP, he implemented a major program of restructuring of the central bank and steered the reforms of the banking sector, which were highly applauded by IMF and World Bank. He held the post till 2005 and then he was appointed chairman, national commission for government reforms. In 2006, Dr Shamshad Akhtar took charge as governor. Interestingly, Dr Akhtar was also a former World Bank employee who joined the bank in 1979 and worked for 10 years as an economist in the resident mission in Pakistan, starting from 1980. She served as governor state bank till 2009, then she re-joined the World Bank as vice president and remained at the position till she became assistant secretary-general for economic and social affairs at UN. Dr Shamshad was followed by Syed Salim Raza, a British national and a former Citibank employee who took charge as governor in 2009. He resigned in 2010 due to pressure from the IMF to make painful reforms. After the sudden ouster of Salim Raza, Shahid Hafeez Kardar took the charge. Mr Kardar was a member of national commission for government reform under chairmanship of Dr Ishrat Hussain. Hafeez Kardar resigned from his post in 2011 due to his differences with the finance ministry. He was under pressure due to excessive government borrowing by PPP government under the leadership of Asif Zardari. The next one to join the office was Yaseen Anwar, a US citizen with JP Morgan, Bank of America and Merrill Lynch on his resume. Mr Yaseen successfully covered the financial discrepancies by Zardari’s government and resigned in 2014, when Nawaz Sharif’s finance ministry demanded the same favour from him.
It is really important to note that all the central bank SBP governors who worked at their posts during the period starting from 1988 till 2009 were direct employees of either IMF or World Bank in the past, and have played key roles in defining the economic, financial and monetary policies for the country for more than two decades
Impact of IMF directed restructuring on Pakistan
It is unnecessary to know which puppet was sitting at the seat of president, prime minister or finance minister during that period (1988 to 2014) and which puppet replaced the former one. What is more important is that national assets have been stripped away in the name of privatisation and our politicians have made billions out of it in form of commissions received for selling those assets at cheaper prices. Market liberalisation is already in place and a selective group has the control on broad money supply. This group is bringing in cash for real estate and currency speculation and sending it out without any restriction whatsoever. These two factors have triggered the third step i.e., market pricing or steep rise in prices of oil, electricity, gas, water and other utilities. Riots (peaceful demonstrations dispersed by bullets, tanks and tear gas) are now quite prominent in the country. Violent mobs protesting against electricity and gas shortage, excessive billing and rising prices of commodities can be seen throughout the country and these protests are becoming a routine. Recent sit-in protests in Islamabad by two opposition parties were linked with the same factors.
Flight of capital due to liberal market policies is in progress and the nation is almost on the verge of being dragged into free trade by the rules of the World Trade Organisation and the World Bank. Already deprived of our resources, which are owned and controlled by outsiders, exporting our resources at cheaper rates in a competitive open market, in order to maintain the currency exchange rate which is dropping fast against US$, we are moving towards a fate similar to Nigeria’s; a country having US$80 billion of annual oil exports, yet unable to do anything for its economy.
The question is, what maybe a conceivable solution to all this? Can this nation avoid the fate of getting stripped of its own resources, its economic freedom and ending up in the list of failed states?
The answer is quite clear. Yes it can. Take the example of Botswana. That country did it by telling IMF to go packing. We can do that too. All we need is a sincere government capable of steering the nation through this carefully planned and manufactured storm. It’s not simple though. It’s like someone asking his attorney to pack the bags and leave during a court hearing. It can only be done by having everything carefully sorted out before making a decision.
The primary issue, the major factor that has played a dominant role in dragging the country to this stage is lack of political will to resist. Those who can comprehend are being kept away from decision making positions while the same faces are being rotated in the seats of power, with no alternate choices for public to choose their representatives. Whether it is impression management with the help of media campaigns, or involvement of money to influence and change voter perception, may it be illiteracy and lack of education, or even pre-poll rigging, the consequences are to be faced collectively by all.
One of the leaders of the opposition parties protesting in the capital has boldly taken a firm stance against incapable, greedy and selfish group of people holding on to the seats of power, using all possible means to persuade a decisive majority of uneducated people and use their votes to gain favourable results. The leader of PTI, Imran Khan, has shown a strong commitment to its followers and has tried to expose the real picture to general public. The protest is in progress and the outcome is yet unclear. Let’s hope that the results go in favour of real positive change, bringing in capable people at decision making positions. We need people with the ability to identify, analyse and understand real issues and then act accordingly to resolve them.