More on the debate on IMF

I had posted my piece on the forthcoming IMF programme and expressed fears as a citizen. The op-ed that was published in the NEWS has evoked a hard-hitting response by a former IMF staffer. I am happy that a debate has ensued – this is why his scathing attack on my argument is more than welcome. Any noise is better than the silence of complacency. Raza Rumi (ed.)

by Dr Meekal Aziz Ahmed

Raza Rumi wrote a nice article entitled “Debating the aid plan,” in your newspaper of Nov 1. I agree with a lot of what he says. Things in our land are pretty grim these days. But just as Mr Rumi’s article was engaging me, there came the usual blast against everyone’s favourite whipping boy and scapegoat, the IMF.

Let me recall a timeless phrase so that Mr Rumi knows “where I am coming from,” as they say, and then move on to the substance of his critique. ‘The fault, dear Brutus, is not in our stars, but in ourselves, that we are underlings.” Mr Rumi, who must have read his Shakespeare, surely is familiar with these words. How well that quote describes our hapless country which seems to be going nowhere, while we insist it is everyone else’s fault?

Let me now turn to the heart of his analysis and critique of the IMF. A programme with them is going to be something of a “social holocaust,” he says, bringing great misery to the people and a decline in their living standards. The IMF will ask us for all sorts of things like cuts in “development” expenditures (the quotation mark is deliberate), social spending, sweeping privatisation, a reduction in subsidies and deep cuts in the size of government. And maybe it will even insist on the unthinkable, a cut in the “Big D,” our sacred defence budget. That would be the unkindest cut of all, if Mr Rumi will forgive the pun, which is intended.

But there is more. The IMF is going to be snooping around our brilliant know-it-all bureaucrats in the ministry of finance in Islamabad, observing them closely and breathing heavily down their necks. What an unforgiveable slight that would be on our integrity and economic sovereignty.

The writer’s criticism of the IMF is terribly old hat and hackneyed. True, the IMF deserves criticism for the mistakes it has made in the past, most spectacularly in East Asia, mistakes that were easy to point out and analyse ex-post in the comfort of the drawing rooms in academia, and the cafeteria of the World Bank. After all, these persons did not have to take the lead in making the critical decisions in the face of an unprecedented meltdown of the once much-admired Asian Tigers.

Whatever the IMF’s reputation, the inescapable fact is that Pakistan needs drastic adjustment to stem, and hopefully reverse, the downslide of the economy. There is no getting around this fact, and waffling and criticising the IMF has already cost us dearly. The economy is in total disarray, it is getting worse with each passing day, and we need to pick up the pieces quickly.

To achieve this we need to start by cutting current spending, which Mr Rumi does not mention at all. We need to get rid of the waste of our precious resources, cut down the junkets, ground the VVIP executive jets, stop the multiple umrahs, desist from forming 80-member cabinets, and taking 150-member foreign delegations, demote the legions of ministers of state, auction the bulletproof BMWs or put them in storage, except for those for the president, prime minister and the Senate chairman. If others fear for their lives, they should stop flattering themselves, go home and let someone else do their job.

There will be plenty of takers, I assure them.

We need to trim, perhaps drastically, what goes by the name of “development expenditures” because these expenditures have very little to do with development. They contain a large proportion of bogus, badly-designed projects and programmes, some seriously over-cost with no hope of achieving economic viability, and others long dead in the water. While we do this, obviously we must protect vital social spending on health, education, the provision of clean water, etc., and the good, high-return projects.

It may surprise Mr Rumi that the IMF does not insist on cuts in social spending. I have worked on the IMF executive board for many years and have come across hundreds of adjustment programmes. No programme has come to the board with the gleeful announcement by IMF staff that they have slashed social spending and poverty-alleviation schemes to balance the budget. If staff did make such a claim, the programme would be rejected by the executive board. In fact, in recent years, precisely to preclude such cuts, the IMF, and the World Bank, put rising annual floors under social spending in the context of the Poverty Reduction and Growth Facility (PRGF).

The prerogative to cut spending resides with the country authorities. The IMF will ask that unsustainable spending, even on so-called “development,” should be scaled back. Where the cuts will fall is not for them to say – that is the government’s decision.

And, yet, Mr Rumi has a right to complain. Every time the IMF has asked Pakistan to cut spending because it is wasteful and unsustainable, and creates a chronic fiscal problem, Pakistan has cut spending in the “soft” social sectors, leaving largely untouched current spending so that we can carry on in our merry ways as before. Similarly, we leave untouched defence spending because there always seems to be some crisis or the other and we need all that money to defend ourselves.

That is exactly what we propose to do again if the news from Dubai is any guide. The defence minister has announced that the question of cuts in defence spending does not arise in these troubled times. Mr Rumi treads softly around the issue of cutting defence spending, the largest item in our budget, and a huge drag on our economy. He does not express any views, which is a shame.

Let me turn to the cruel and heartless cuts in subsidies the IMF will insist on. Let me start by asking who really benefits from these open-ended, costly, and badly-targeted subsidies? The poor? I don’t think so. In many countries of the world, there are social safety nets for the poor which include direct income-support but also well-targeted subsidies. Why does Pakistan not have such social protection systems for its poor? The IMF, which has the best expertise in fiscal matters in the world under one roof, will design a well-targeted and well financed social safety net in a week, if we ask them. What is preventing us from asking them for such assistance which, under their Technical Assistance Programme, comes free as a privilege of our membership of that institution?

Let me give Mr Rumi my simple answer. There is no social protection for the poor in this country because our high-flying policymakers haven’t bothered to even think of one. Because, sir, the poor don’t count.

Under these circumstances, is it a surprise that the Benazir Income Support Scheme, which is a first attempt at some sort of formal social protection in 61 years, is still being bandied about with no implementation in sight? Does anyone care whether this scheme will ever see the light of day? Or worry about the fact that, if implemented, there is a risk it will help no one in a material way and simply turn into another financial scandal? The chances of that happening are very great indeed if it is true that it has been decided to channel this income support through our worthy MNAs. I cannot think of a worse decision.

Mr Rumi is worried that an IMF programme will bring forth a decline in living standards of the people of Pakistan. His considers this outcome almost axiomatic. Let me tell him what has brought about a decline in the living standards of the people of this country. It is the 25 percent rate of inflation that rages in our land and which shows no sign of abating. That has been devastating for the poor.

During the last IMF programme, inflation was running at around two percent. Once the IMF programme was over, fiscal and monetary policy was loosened in an ill-advised dash for growth, and inflation surged as any economic textbook would tell you it would, to reach levels never seen before. An IMF programme which seeks to halt inflation should bring some welcome relief to the poor, not make their situation more miserable.

Mr Rumi does not think we need cuts in our sprawling, ever-expanding, corrupt and incompetent government. I suppose he approves of the fact that we have seven roving ambassadors and a new adviser for textiles, as my friend Khalid Hasan has recently reported. Nor, I presume, would he object to the 40 new ministers sworn in recently, bringing the total cabinet size to 57, with more ministers to come. The cold reality is that we need drastic cuts at all levels of government and a lean cabinet.

(To be concluded)

The writer has a doctorate from Oxford University and has worked at the Planning Commission and the IMF

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