Former finance minister, Asad Umar, has revealed that an alternative solution to deal with the country's financial crunch instead of opting for the International Monetary Fund (IMF) bailout package was presented to Prime Minister Imran Khan in March this year but the latter chose to avoid going down the 'risky path'.
"That choice had been created primarily because of the phenomenal goodwill of the prime minister in the global market, particularly in Asia, and a very mutually reinforcing relationship between the civil and the military arms of the government," Umar contends.
To support his argument at that time, Umar claims he had cited the example of Egypt, where the poverty level had increased from nearly 30% to 53% because of an IMF programme.
Egypt steeply devalued its currency but that did not even help in reducing the current account deficit.
Umar acknowledged the role of former directors general of Inter-Services Intelligence (ISI), Naveed Mukhtar and Asim Munir, and then the army chief in convincing the Gulf countries to financially assist Pakistan.
"We worked as a team and got a $3.3 billion oil facility and $3 billion in cash injection from Saudi Arabia, $2 billion from the UAE, Chinese currency equivalent to $3 billion and $3 billion from Qatar."
Umar said his ministry was able to squeeze the current account deficit considerably and also raked in money to bridge the gap and that was how the opportunity was created.
The plan also involved drastic reduction in the current account deficit on the back of regulatory duties, non-tariff barriers and currency depreciation. But the currency deprecation was less than what Pakistan went for under the IMF deal.
Meanwhile, Dr Ashfaque Hassan Khan former Economic Adviser, Government of Pakistan and a member of the Economic Advisory Council, has challenged the veracity of the statement made by Asad Umar. He said Umar's alternative programme was never discussed in the Economic Advisory Council meetings.
"What I know is I was the only one who openly advocated that Pakistan should learn to live without IMF. I presented analternative program to Prime Minister in one of the Economic Advisory Council meeting held in September 2018. In that meeting everyone except myself asked the Prime Minister to go to the IMF. Dr Hafiz Pasha and Shahid H. Kardar who were not the members of the EAC, but especially invited by Umar, strongly advocated for Pakistan going to the IMF without wasting any time. The same alternative Programme I presented in a conference in NUST on July 23, 2019 which was presided by the Honourable President Dr Arif Alvi. Other than the one prepared by myself I have no knowledge of any alternative programme," added Dr Khan.
Perhaps both are right or perhaps Asad Umar needs to provide more collaborative evidence of what he is claiming is no misrepresentations of facts.
However, there is no denying the fact that going to the IMF for the bail-out package at this juncture does not look all that sensible for Pakistan if one were to keep in mind the reservations expressed by many a globally acclaimed economist about the IMF programmes.
Many developing nations are said to be in debt and poverty partly due to the policies of international institutions such as the International Monetary Fund (IMF) and the World Bank.
Their programmes have been heavily criticized for many years for resulting in poverty. In addition, for developing or third world countries, there has been an increased dependency on the richer nations. This is despite the IMF's and World Bank's claim that they will reduce poverty.
Following an ideology known as neo-liberalism, and spearheaded by these and other institutions known as the Washington Consensus (for being based in Washington D.C.), Structural Adjustment Policies (SAPs) have been imposed to ensure debt repayment and economic restructuring. But the way it has happened has required poor countries to reduce spending on things like health, education and development, while debt repayment and other economic policies have been made the priority. In effect, the IMF and World Bank have demanded that poor nations lower the standard of living of their people.
The IMF and the World Bank provide financial assistance to countries seeking it, but apply a neoliberal economic ideology or agenda as a precondition to receiving the money. For example:
* They prescribe cutbacks, liberalization of the economy and resource extraction/export-oriented open markets as part of their structural adjustment.
* The role of the state is minimized.
* Privatization is encouraged as well as reduced protection of domestic industries.
* Other adjustment policies also include currency devaluation, increased interest rates, flexibility of the labor market, and the elimination of subsidies such as food subsidies.
* To be attractive to foreign investors various regulations and standards are reduced or removed.
The impact of these preconditions on poorer countries has been devastating. Factors such as the following lead to further misery for the developing nations and keep them dependent on developed nations:
* Poor countries must export more in order to raise enough money to pay off their debts in a timely manner.
* Because there are so many nations being asked or forced into the global market place-before they are economically and socially stable and ready-and told to concentrate on similar cash crops and commodities as others, the situation resembles a large-scale price war.
* Then, the resources from the poorer regions become even cheaper, which favors consumers in the West.
* Governments then need to increase exports just to keep their currencies stable (which may not be sustainable, either) and earn foreign exchange with which to help pay off debts.
* Governments therefore must: spend less, reduce consumption, remove or decrease financial regulations, and so on.
* Over time then: the value of labor decreases, capital flows become more volatile, a spiraling race to the bottom then begins, which generates, social unrest, which in turn leads to IMF riots and protests around the world
* As a result, policies such as Structural Adjustments have contributed to the greatest peace time transfer of wealth from the periphery to the imperial center in history, to which one could add, without much media attention.
The IMF has prescribed the same medicine for troubled third world economies for over two decades:
* Monetary austerity. Tighten up the money supply to increase internal interest rates to whatever heights needed to stabilize the value of the local currency.
* Fiscal austerity. Increase tax collections and reduce government spending dramatically.
* Privatisation. Sell off public enterprises to the private sector.
* Financial Liberalization. Remove restrictions on the inflow and outflow of international capital as well as restrictions on what foreign businesses and banks are allowed to buy, own, and operate.
Only when governments sign this structural adjustment agreement does the IMF agree to:
* Lend enough itself to prevent default on international loans that are about to come due and otherwise would be unpayable.
* Arrange a restructuring of the country's debt among private international lenders that includes a pledge of new loans.
Joseph Stiglitz, winner of the Nobel prize for economics and a professor at Columbia University notes that:
The IMF likes to go about its business without outsiders asking too many questions. In theory, the fund supports democratic institutions in the nations it assists. In practice, it undermines the democratic process by imposing policies. Officially, of course, the IMF doesn't impose anything. It negotiates the conditions for receiving aid. But all the power in the negotiations is on one side-the IMF's-and the fund rarely allows sufficient time for broad consensus-building or even widespread consultations with either parliaments or civil society. Sometimes the IMF dispenses with the pretense of openness altogether and negotiates secret covenants.
The International Monetary Fund and the World Bank were conceived by 44 nations at the Bretton Woods Conference in 1944 with the goal of creating a stable framework for post-war global economy. The IMF was originally envisioned to promote steady growth and full employment by offering unconditional loans to economies in crisis and establishing mechanisms to stabilize exchange rates and facilitate currency exchange.
Much of that vision, however, was never pursued. Instead, pressured by US representatives, the IMF took to offering loans based on strict conditions, later to be known as structural adjustment or austerity measures, dictated largely by the most powerful member nations. Critics charge that these policies have decimated social safety nets and worsened lax labor and environmental standards in developing countries. The World Bank (The International Bank for Reconstruction and Development) was created to fund the rebuilding of infrastructure in nations ravaged by World War Two. Its vision too, however, soon changed. In the mid 1950s, the Bank turned its attention away from Europe to the Third World, and began funding massive industrial development projects in Latin American, Asia, and Africa. Many scholars and activists contend that the Bank's aggressive dealings with developing nations, which were often ruled by dictatorial regimes, exacerbated the developing world's growing debt crisis and devastated local ecologies and indigenous communities.