Catching up on my reading, which unfortunately needs a lot of catching up, picked up Weisbrot's article "The IMF is hurting countries it claims to help", August 2019. The title of the article was the reason that it ended up in the pending reading list in the first place; after all we are regular customers of the IMF and it is only because of good old IMF helping us more than a dozen times that we have not defaulted on our external debt obligations, and are on the path of economic success for the last couple of decades. How could IMF be hurting countries?
Notwithstanding that most of us, not really sure about the repercussions, sincerely believe that Pakistan would be better off defaulting, but rationally speaking it would not be wise to irk our creditors; if nothing else they will stop further lending to us and we would have to give up our precious quality of life built around imported stuff. So all else being equal, we need IMF, and they, allegedly, hurting countries does raise concerns.
In the article Weisbrot discusses the example of Ecuador, a country which perhaps most of us will struggle locating on the globe; almost lost interest in reading any further. But then came the kicker; the comprehensive reforms for modernizing the economy and paving the way for strong, sustained and equitable growth sounded pretty darn familiar.
Ecuador was asked by the IMF to tighten the national budget to about 6% of GDP, irrespective of rising unemployment and poverty; make the central bank autonomous and privatize public assets; and all that will excite foreign investors thereby increasing FDI, which consequently will make everything all right!
Seriously!? Weisbrot also alludes to American influence rising in Ecuador due to the arrangement with the IMF; well actually he says that directly!
Notwithstanding, the program conditions were too big a coincidence; and some of us really do not believe in coincidences. Accordingly, ended up at IMF website to see their current client list, as at 31 August 2019.
Angola, obviously for alphabetic reasons, heads the list of EFF clients of IMF, and hence ended up searching for the critical pillars of their program. Curiously, fiscal discipline, more taxes, exchange rate depreciation and a commitment to a market-determined exchange rate, and a tight monetary policy to reduce inflation seems to be their solution to all economic problems as well.
Ukraine was the next IMF client to be Google-d, primarily because they had signed an SBA agreement and the view was their conditions must be different. Remarkably, Ukraine also has to continue with fiscal consolidation, have to reduce inflation via the monetary policy while maintaining a flexible exchange rate, improve taxation and privatize large State Owned Enterprises.
"The key objectives of the program relate to fiscal policy and the balance of payments, and measures to: (a) implement a structural increase in revenues, facilitating a reduction in the fiscal deficit; (b) reverse the decline in central bank foreign exchange reserves; (c) reduce public debt relative to GDP and lower Sri Lanka's risk of debt distress; and (d) enhance public financial management and improve the operations of state owned enterprises. The program also aims to transition toward inflation targeting with a flexible exchange rate regime and to promote sustainable and inclusive economic growth", Press Release: IMF Executive Board Approves Three-Year US$ 1.5 billion Extended Arrangement under EFF for Sri Lanka, June 3, 2016.
Oh wow! Déjà vu; while you would expect some similarities with Sri Lanka, purely because of geographic closeness, but twins! They have a rather dissimilar economy compared with Pakistan, and more worrying is that this EFF agreement was finalized in 2016 and Sri Lanka is still not doing very well. In 2018, they had to cough up the Hambantota port for settling their debt to China.
Sri Lanka, apparently like us is a regular client of the IMF; since 1965 they have knocked at IMF's door more than a dozen times. Curiously, most of IMF's current clients are also their regular clients; but surely that is because these countries have not been diligent in complying with IMF conditions. Presumably, IMF must have lots of satisfied clients; perhaps they could place a list of these clients on their website, if only to dispel negative rumors about their programmes.
Logically, either the regular clients of IMF really do not understand the program conditions, or they are not able to enforce them in spirit and in form, or the conditions do not work. Continuing with logic, in the first two scenarios, it does appear odd that IMF cannot adequately explain the conditions or cannot insist upon compliance even after six monthly reviews.
Something seems fishy in the state of Denmark and perhaps somebody needs to figure out what smells; that however is way beyond the meanderings of this simple column.
But let's not worry our pretty little heads too much; IMF team just visited us and have given us a thumbs up. And to all those non-believers, oh come on!
(The writer is a chartered accountant based in Islamabad. Email: [email protected])