ISLAMABAD: Wary of inadequate reforms and under-utilisation of resources, the International Monetary Fund (IMF) now wants Pakistan’s president to endorse any new bailout programme.
“Active political support is required at the highest level to implement essential reforms in Pakistan,” said IMF’s post-evaluation draft report for a new $11.3 billion bailout programme.
“It will be worth while to consider the president for co-signing the letter of intent (for any future arrangement).”
A letter of intent (LOI) states the policies a borrowing country intends to implement with the help of its requested financial assistance.
It is standard practice for a recipient country’s finance minister to sign the LOI on behalf of the government and the SBP governor. A former SBP chief reiterated that presidents never sign letters of intent.
The LOI signed in 2008 was administered by then finance minister Shaukat Tarin and former State Bank governor Shamshad Akhtar.
The programme met an untimely end in 2010 with two tranches worth $3.4 billion not disbursed due to Pakistan’s in ability to honour written commitments. The reforms were related to general sales tax and ensuring fiscal consolidation and autonomy of the State Bank of Pakistan.
An IMF delegation is also said to have held an informal meeting with Chief of Army Staff General Ashfaq Parvez Kayani. The delegation has sought guarantees for implementing crucial reforms in case Islamabad decides to initiate another programme with the Fund, credible sources in the finance ministry told The Express Tribune.
Analysts, however, find the IMF’s move repulsive. They feel the decision undermines the country’s economic managers and is an insult to the office of the president.
“Asking the president to co-sign the letter of intent is not only an insult to the country and the office of the president, it also means the IMF has no confidence in the finance minister and his ability to deliver,” said Dr Ashfaque Hasan Khan, a former special secretary of the finance ministry.
The ministry’s spokesman Rana Assad said he was not authorised to deliberate over the contents of the post-evaluation report, adding the finance secretary might be in a better position to respond to related queries. The finance secretary, however, was not available for comments.
The IMF headquarters’ response is also awaited on the same.
A senior finance ministry official blames Finance Minister Dr Abdul Hafeez Shaikh for the ‘embarrassing situation’.
“Dr Shaikh showed the president’s door to the IMF during the fourth review of the last unsuccessful programme in Doha (Qatar). The minister advised IMF’s mission chief to meet the president personally regarding assurances on implementation of reformed general sales tax. Shaikh and the chef de mission then flew to Islamabad to meet the president,” said the official requesting anonymity.
In accordance with the IMF’s cautious stance, a delegation of the Fund comprising its Middle East and Central Asia Director Masood Ahmed and new mission chief for Pakistan Jeffery Franks held meetings with various powerhouses in the last week of July.
While IMF’s meeting with the chief of army staff is said to be the most important in the string of huddles, the delegation also met with PML-N Senator Ishaq Dar, Jehangir Tarin of the PTI, and MQM’s Farooq Sattar.
Pakistan is eager to explore the possibilities of another IMF programme, but the IMF is reluctant to enter into any agreement with an interim setup.
Published in The Express Tribune, August 9th, 2012.
COMMENTS (44)
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Does it mean the IMF is reconciled to paying 10% towards risk management?
I do not understand what is so insulting? If you want someone to provide you financial assistance then you must keep your part of the deal of implementing reforms. You failed to do so for last so many bailout and that has put the lender in a need to seek guarantees from the highest office. If it is so insulting, so no to the bail out but we cannot and will not do so because we have become used to getting easy money.
The above piece of writing says, "The programme met an untimely end in 2010 with two tranches worth $3.4 billion not disbursed due to Pakistan’s in ability to honour written commitments. The reforms were related to general sales tax and ensuring fiscal consolidation and autonomy of the State Bank of Pakistan".
Well, in 2010 Pakistan needed US dollars to dispell the ghosts of Taliban with then ongoing military operations against them. It was an attempt to thwart the operations when those were intense. The GST reforms would have created unprecedented unrest in the poor people pf Pakistan ending in civil war like situation to thwart the government.
Autonomy of the SBP would have not made possible even the salaries of huge administration and army comprising of almost 4 million people in the last two years.
The printing of money at the rate of Rs. 3 billion per day made it possible by the SBP, internally, and increase in remmittances from 10 billion US$ to 13 billion US$ plus the increase in exports from 20 billion US$ to 25 billion US$, in 2010-12, externally. This not doing "fiscal consolidation and autonomy of the State Bank of Pakistan" not only stablized the economy but the government also.
Now, I leave it upto the readers what IMF wanted then in 2010 and could want now. Pakistan will make up its current current account deficit of almost 4.2 billion US$ maximum by march 2013. Till then, Pakistan will not go to IMF at all for sure rather Pakistan will clear its Standby Arrangement's liabilities completely.
Why is the IMF so keen to lend Pakistan more money. Is acting like a loan shark i.e laden down Pakistan in dept for the foreseeable future and get every possible office bearer of the country as signatory to the agreement. IMF should know money will disappear before you know it was there!
a very easy solution: just give IMF gaurantees against President's personal assets - believe me we will never default.
@MAD:
I don't think he did and this too is speculative! I have "attended" several such "meetings" in the past and the mission has never met with the COAS and certainly not as a specific appointment.
Unless times have changed, this did not happen this time either.
"An IMF delegation is also said to have held an informal meeting with Chief of Army Staff General Ashfaq Parvez Kayani. The delegation has sought guarantees for implementing crucial reforms in case Islamabad decides to initiate another programme with the Fund, credible sources in the finance ministry told The Express Tribune." This statement shows and proves that IMF has lost its trustworthiness and credibility on PPP's leadership and this is why IMF delegation is seeking COAS' guarantees to implement the crucial reforms in Pakistan and this also proves that army is still the sign of trustworthiness and credibility in foreign financial departments.......
This should have been enough for any respectable Finance Minister to resign,but hats off to our FM he is still sticking to his post,shame on him.
If COAS can assure IMF of the govt's commitments,
he should also ensure that
the govt doesn't play with citizens and provides their due rights.
It is extreme insult of President of Pakistan if he feels but people know he is a thick skinned peron. For this he has to dismantle the assemblies and go for General Elections as soon as possible to get fresh and talented mandate. The new leadership should be in a position to persuade the IMF and other monetary institutions.
There is a saying "beggars have no choice." Take the bowl with you to ask money don't expect the donors to give you respect . This is the courtesy of PPP Government .
How does the COAS come into this?
“Active political support is required at the highest level to implement essential reforms in Pakistan,” said IMF’s post-evaluation draft report for a new $11.3 billion bailout programme.
“It will be worth while to consider the president for co-signing the letter of intent (for any future arrangement).”
With Kayani, and opposition let the real rulers PCO CJ sign the agreement. He would still be there after all others gone.
Kiyani is as corrupt as Zardari. IMF Should shut its doors on Pakistan indefinitely. Pakistanis have looted their own country enough and they can finance it as well
Next the IMF will insist the signatures of the President to be countersigned by those of the COAS. +++++++++++++++++++++++++++++++++++++++++++++++++++++++++
@Oracle (India):
"why on earth, an IMF envoys meet a COAS..Next what, UNICEF official meet DG, ISI….As they say,, This can happen only in Pakistan.."
Right on! Can you imagine that happening in any other country?
Aga Khan University and Medical College has graduated over 2000 doctors since it was established. Less than 100 of them are in Pakistan.What a waste of National resources. Law should be passed that degree will only be awarded after a doctor serves atleast 2 years in Pakistan preferably in rural area of the country
Does IMF know that our President enjoys Immunity?
If IMF wants real guarantees, it should have army chief sign it and mortage the personal property of top army brass.
Informal meeting? This is the first time I have heard of the IMF seeking "informal" assurances from the military chief of any nation. I suppose Kayani's handpicked President and PM after the next general election will have to follow IMF diktats.
Kaptaan Khan to the rescue?
@Dr Meekal Ahmed: @s shah:
What you gentlemen said is meaningful and frightening. The IMF delegation meeting General Kayani shows the downgraded level of confidence the donors have in our GOP. What to talk of donors, we the citizens are victims and witnesses of economic disbandment.
Frankly asking, does General Kayani sleep at all at night?
Salams
The economic team has failed and needs to change FBR has become dysfunctional .PRAL is cause of lot of problems at FBR and they need to be wound up.and the work outsourced to NADRA Politicians and public needs to start paying more taxes
@oracle. You r right. It can happen only in Pakistan. Now u have a good day too.
A Pakistani
@s shah: First they should see the CJ . . . ;-)
why don't they ask the CJ, the most Supreme Man in the country . . .;-)
What ! This President will sign any thing, and claim later that there is no need to honor it, because it is not a hadith !! IMF must be going mad, after dealing with Pakistan..
In case of Pakistan, IMF may also ask US to indemnify it against defaults ++++++++++++++++++++++++++++++++++++++++++++++++++++ There was wisdom in aksing for USD 5000 per container:)
Guys remember Musharraf was designated CEO...and the CEO has to sign the papers +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Express Tribune scoops generally border on the unreliable ... and normally not subjected to prudent editorial scrutiny ...
"Analysts, however, find the IMF’s move repulsive. They feel the decision undermines the country’s economic managers and is an insult to the office of the president. “Asking the president to co-sign the letter of intent is not only an insult to the country and the office of the president, it also means the IMF has no confidence in the finance minister and his ability to deliver,” said Dr Ashfaque Hasan Khan, a former special secretary of the finance ministry"
There is a reason Pakistan is known as a 1 tranche country. IT takes the money but does ot implement the reforms later. Given that just 3 years back, $8 billion was taken and reform follow through did not occur, I am surprised IMF is even willing to give a loan without prior implementation clause. Without some assurance that the reforms actually will be implemented and Pakistan will be able to repay its loans, there would be no basis for a fresh programme.
If Pakistan feels this is insulting, its only option is to not request a fresh borrowing programme. When the past finance ministers have been unable to deliver on the reform promises, it is disingenuous to pretend that a higher degree of assurance is an insult. IT is just recognition of ground reality
I think it will be better if COAS also signs witnessed by the chiefs of DeP.
"An IMF delegation is also said to have held an informal meeting with Chief of Army Staff General Ashfaq Parvez Kayani." Members of delegations should be tried for hitting democracy in Pakistan.
such losers we are :(
Didn't anyone tell the IMF what Zardari believes about signed agreements: they are neither Quran, nor Hadith.He believes he is free to exercise his will.
Fate of Pakistan in Zardari hands.......Great idea making him president lol
I do not see PM figuring in the parleys. IMF, perhaps know who is relevant in Parliamentary system (Pakistani Model). Well if President becomes de-facto Chief Executive and run the country as a Private Limited company.
Could Express Tribune publish some more details about this alleged draft report? I presume it is a (allegedly) leaked draft? The credibility of the claim that the IMF wants the President to co-sign the LOI is doubtful given the President of Pakistan does not have any executive powers to enforce specific fiscal measures to be undertaken by the Finance Ministry.
What I found shocking was that the IMF team met with Gen Kayani and sought assurances from him!
why on earth, an IMF envoys meet a COAS..Next what, UNICEF official meet DG, ISI....As they say,, This can happen only in Pakistan..
Pakistan and especially people in Pakistan should start thinking about what is happening with their country and should really make approaches and policy which are coherent with the world and should be more human rather then just being Islamic.
Shahbaz,
I think you are completely misinformed on this.
The IMF has signed agreements with caretaker government's before. What they will insist on this time if a new program is to be agreed upon during the caretaker administration is that ALL political parties agree to the program (with implementing the VAT being a "PRIOR ACTION"), and that they publically express their support for it.
Getting the President involved is actually quite silly and has NOT been discussed -- according to my information. The ONLY case I recall was President Suharto of Indonesia signing the agreement during the Asian Crisis. BAD IDEA!
Finally, there has NOT been a formal request by Pakistan so all this is pie-in-the-sky and speculative because we hope to squeak-by without implementing any reforms by using CSF and other external inflows and spend it all on winning the elections.
NO ADJUSTMENT. JUST FINANCING.
What a wonderful way to run an economy!
Another bad idea!
Because, as someone said, such a strategy, if it can be called that 'will only prolong the agony of a dying economy'.
Look at it this way --- like the American's they are weary of leaders who way one thing behind closed doors and another when speaking to the public. If you want IMF money you need to make some serious economic reforms which are not going to be popular - the only way those reforms have any chance is if the President actively lobbies on their behalf - something that hasn't happened in the past.
“Asking the president to co-sign the letter of intent is not only an insult to the country and the office of the president, it also means the IMF has no confidence in the finance minister and his ability to deliver,”
Well obviously the President and Finance Minister are incompetent. Otherwise the country would be in better situation buddy. Oh also, if you are gona go out there to beg don't expect people to show you any respect when you show up to them with a bowl in your hand.