The wrong model
Pakistan’s economy continues to remain dole-dependent on the IMF
The writer served as Executive Editor of The Express Tribune from 2009 to 2014
Once again Pakistan has reached the crossing, at which, on a number of occasions in the past, Pakistan was forced to abandon an ongoing International Monetary Fund (IMF) programme. On a few occasions, the Fund in its own “mysterious” interest was forced to save by allowing as many waivers as were required to complete the programme in time.
Normally, such a point is reached at the end of the first year’s first quarter of the Fund programme, when the first phase of reforms — which include across-the-board price increases; withdrawal of subsidies that impact the middle, lower-middle and poorer sections of society; and adjustment of interest rates and exchange rate corrections — has been affected.
The next phase of reforms calls for equitable sharing of reform-related pain by the richer classes when most of the monetary and fiscal concessions allowed to big business for encouraging investment — such as export/import rebates, tax concessions, broadening of tax net phase and concessionary credit, special SROs issued to specific sectors or/and individuals, etc — are withdrawn.
At this point the big business invariably starts using its blackmailing clout threatening strikes, rallies, closure of businesses, right-sizing units, slowing down investment, sometimes even stopping it completely and using media advertisements narrating harrowing stories of how a government lacking economic sense and the capacity to govern, was destroying the economy by adopting anti-business policies.
An elected government with a narrow mandate invariably succumbs to such tactics and abandons the Fund programme.
Rarely, the Fund allows the recipient country the required number of waivers to complete the programme within the time-limit. This is how the last three-year programme ended in September 2016. It is still a mystery why the Fund had allowed the waivers instead of walking away from the programme. Some experts were heard stating that those that actually influence the decisions of the Bretton Woods institutions were mindful of the disastrous global and regional consequences of a nuclear-armed country’s economy buckling under.
Perhaps the same reason is likely to rescue the current programme as well from being abandoned. And perhaps the seemingly decisive role Pakistan could play in bringing to fruition the abandoned Afghan peace process could add another important reason for the same elements to decide to keep Pakistan’s economy afloat and allow us the needed waivers to conclude the programme.
In the follow-up — whether the programme is abandoned after the first phase of reforms or is saved by the required waivers — Pakistan’s economy would continue to remain as dole-dependent as it has been all these 72 years. And our hope to see the current programme as the last one would continue to remain a forlorn hope. And it will remain so, even if the programme is successfully completed without any waivers because the one-size-fits-all prescription of the Fund has never been known to have liberated the economy of a developing country like Pakistan from the clutches of perpetual poverty.
The basic problem is with the economic model itself being used throughout the last several years. Free market economy — riding on the shoulders of deregulation, divestment and denial of safety nests, along with all eggs in the basket of the private sector in countries like Pakistan that are suffering perpetually from significant energy and capital deficits and with poor access to technology — has only caused more poverty, illiteracy and health risks.
In order for such countries to make the most of the limited indigenous energy, capital resources and poor access to technology, they need to adopt an economic model that is based on principles of mixed economy with the commanding heights of the economy in the hands of the state and the private sector working under a strictly-regulated market with even their profit margins fixed by the state along with greater emphasis on human resource development.
Published in The Express Tribune, October 5th, 2019.
Normally, such a point is reached at the end of the first year’s first quarter of the Fund programme, when the first phase of reforms — which include across-the-board price increases; withdrawal of subsidies that impact the middle, lower-middle and poorer sections of society; and adjustment of interest rates and exchange rate corrections — has been affected.
The next phase of reforms calls for equitable sharing of reform-related pain by the richer classes when most of the monetary and fiscal concessions allowed to big business for encouraging investment — such as export/import rebates, tax concessions, broadening of tax net phase and concessionary credit, special SROs issued to specific sectors or/and individuals, etc — are withdrawn.
At this point the big business invariably starts using its blackmailing clout threatening strikes, rallies, closure of businesses, right-sizing units, slowing down investment, sometimes even stopping it completely and using media advertisements narrating harrowing stories of how a government lacking economic sense and the capacity to govern, was destroying the economy by adopting anti-business policies.
An elected government with a narrow mandate invariably succumbs to such tactics and abandons the Fund programme.
Rarely, the Fund allows the recipient country the required number of waivers to complete the programme within the time-limit. This is how the last three-year programme ended in September 2016. It is still a mystery why the Fund had allowed the waivers instead of walking away from the programme. Some experts were heard stating that those that actually influence the decisions of the Bretton Woods institutions were mindful of the disastrous global and regional consequences of a nuclear-armed country’s economy buckling under.
Perhaps the same reason is likely to rescue the current programme as well from being abandoned. And perhaps the seemingly decisive role Pakistan could play in bringing to fruition the abandoned Afghan peace process could add another important reason for the same elements to decide to keep Pakistan’s economy afloat and allow us the needed waivers to conclude the programme.
In the follow-up — whether the programme is abandoned after the first phase of reforms or is saved by the required waivers — Pakistan’s economy would continue to remain as dole-dependent as it has been all these 72 years. And our hope to see the current programme as the last one would continue to remain a forlorn hope. And it will remain so, even if the programme is successfully completed without any waivers because the one-size-fits-all prescription of the Fund has never been known to have liberated the economy of a developing country like Pakistan from the clutches of perpetual poverty.
The basic problem is with the economic model itself being used throughout the last several years. Free market economy — riding on the shoulders of deregulation, divestment and denial of safety nests, along with all eggs in the basket of the private sector in countries like Pakistan that are suffering perpetually from significant energy and capital deficits and with poor access to technology — has only caused more poverty, illiteracy and health risks.
In order for such countries to make the most of the limited indigenous energy, capital resources and poor access to technology, they need to adopt an economic model that is based on principles of mixed economy with the commanding heights of the economy in the hands of the state and the private sector working under a strictly-regulated market with even their profit margins fixed by the state along with greater emphasis on human resource development.
Published in The Express Tribune, October 5th, 2019.