Pakistan accepts 11 IMF conditions

[Quwa]

blain2

What you're talking about is a self-induced privatization and restructuring program...that is a good thing given how bloody fat our bureaucracy is. However going towards an IMF solution is suicide...I am a Political Science student and the IMF plays a central role in 3rd World Misery.

Firstly the money is seldom kept in check and often finds its way into the wrong pockets or the wrong projects. Secondly, public expenditure on education and health care is cut even further...the work that the Musharraf regime did in this area will go down the drain. Thirdly, agriculture tax will probably affect the common man more so than the feudal lords...do note that some lords are in power and all they have to do is "increase productivity" on their land. Fourthly, the IMF usually focuses on agriculture and areas of comparative advantage...hence our commercial industrial capability will be further retarded during the IMF era.

Through IMF what will also happen is that Pakistan will go into a debt-cycle where the debt increases and a greater proportion of our annual budget will go towards servicing this debt. What still happens to countries like Chile and Indonesia is that they continue taking loans to repay other loans! The only solution is an economic miracle in which the State takes control of strong revenue generators and through very soft aid from China or KSA manages to advance those areas. For example the State would nationalize or ensure public ownership of all coal and gas fields, and use Chinese/Saudi aid to build refineries, etc. Then the State can repay the debt and continue its normal routine...

As hard or tempting as it sounds...WE NEED TO AVOID the IMF. It is only because we have a stupid 2 bit sell out govt in charge that we have reached this point. We need land reform, nationalization of natural resources and a very aggressive kick start in capital manufacturing...i.e. commercial ships, large vehicles, etc. At times a complete turnaround does require some radical policy changes...whether it is an Islamic, Capitalist or Communist Land Reform and Self Industrialization...it is a tough start.

 

[blain2]

Mark,

I am no expert on economics but basing my comments on what I have studied and read.

You are probably absolutely right that IMF program stinks. My earlier post was to make the point that in the face of no other alternate, we have to make do with what is coming down the road...i.e. IMF funding.

Unfortunately our leadership neither has the ability nor the contacts to get help from outside of the IMF. Both KSA and Chinese have backed away from what needs to be done. In light of this, IMF is going to be shoved down our throats.

The Friends of Pakistan forum would be better off being termed "Facilitators to the IMF" forum as most have told Pakistan to go to the fund and get help. This is truly a case of the nation needing to take hold of its own destiny. 99% of the population does not pay taxes. Not sure whom we can blame here but ourselves. I should probably avoid saying that others are shoving the fund down our throats, we are quite capable of doing so ourselves and this time is no exception.

All I can say is that I do not have much confidence in the ability of the GoP (especially Zardari and dunce) to do the needful. That leaves some external auditor (directors of IMF) to call the shots. Lets just hope and pray that they do this to help out Pakistan and not to screw over the country (which has been the IMF track record thus far). There was an article recently which made the point that regardless of what IMF says and wants, Pakistan should field an extremely capable economic team to liaise with the IMF team so we can ensure that things that can be hurtful to Pakistan can be avoided. This is a simple task, however it remains to be seen whether Zardari can put this team together or not. I have no idea what Shaukat Tareen is capable or incapable of. I hope he is the right man for the job. Otherwise we are in deep $hit!

 

[S-2]

Thought that you may enjoy this brief commentary in Sept. 2007 from some of your former bengali citizens and their travails with the IMF-

IMF Forced To Retreat in Bangladesh

 

[blain2]

Thought that you may enjoy this brief commentary in Sept. 2007 from some of your former bengali citizens and their travails with the IMF-

IMF Forced To Retreat in Bangladesh

Not very reassuring to say the least.

 

[AgNoStiC MuSliM]

Thought that you may enjoy this brief commentary in Sept. 2007 from some of your former bengali citizens and their travails with the IMF-

IMF Forced To Retreat in Bangladesh

And who controls the IMF, and who would therefore be responsible for pulling the plug on the 300 million in loans (without IMF conditions) the WB had already approved for Pakistan?

 

[DarkStar]

The IMF has recently been called "bitter medicine". They're right about the bitter part, but I'm not too sure about the medicine.

A more apt description would be "poisoned chalice".

There are numerous examples of criticism of the IMF by international Aid Agencies, NGOs, and even the World Bank made scathing attacks on the IMF after the 1998 asian tiger currency collapses.

The IMF has certain set economic "doctrines" and "goalposts" which it believes will help a country on the road to recovery. But history has shown that IMF loans do anything but help a country. There are a few exceptions to the rule, but in general the IMF has contributed to a worsening of economies whether in Asia, AFrica or Latin America.

A favourite of their so called "structural adjustment programme", as has been seen extensively in Africa, is to force the governments to accept sweeping cuts in agricultural subsidies and investment, subsidising of provision of seeds, fertilizers, pest control, etc.

This was achieved by first giving the country "soft loans", and once they initiated the cycle of debt, and had to resort to borrow again to meet their debt obligations, the IMF, and other institutions like the World Bank, forced them to take this "bitter medicine".

The result of this was to force prices up, while the WTO nogitiated free movement of agricultural goods without tariffs, thereby creating an ideal market for European/American agricultural exports.

Now since the Europeans/Americans/Japanese etc, heavily subsidised their inefficient agricultural sectors, they flooded these African countries with their "cheap" produce, thus further destroying the local agricultural sector.

Who would grow vegetables and tomatoes in sunny africa, when "rainy" europe exported them cheaper than they can grow? The result was a lack of agricultural activity, leading to famine.

Now the issue of repaying the debt comes back, so what do the IMF do? Advise them to grow "cash crops" like coffee, so to generate some forex to repay the loans. Next step. Famine after famine. During the 60's AFrica was a net exporter of produce, and now it imports a lot of its food.

Read this interesting part of an article I found on the net.

The Case of Malawi
This stubbornness led to tragedy in Malawi.

It was a tragedy preceded by success. In 1998 and 1999, the government initiated a program to give each smallholder family a “starter pack” of free fertilizers and seeds. This followed several years of successful experimentation in which the packs were provided only to the poorest families. The result was a national surplus of corn. What came after, however, is a story that will be enshrined as a classic case study in a future book on the 10 greatest blunders of neoliberal economics.

The World Bank and other aid donors forced the drastic scaling down and eventual scrapping of the program, arguing that the subsidy distorted trade. Without the free packs, food output plummeted. In the meantime, the IMF insisted that the government sell off a large portion of its strategic grain reserves to enable the food reserve agency to settle its commercial debts. The government complied. When the crisis in food production turned into a famine in 2001-2002, there were hardly any reserves left to rush to the countryside. About 1,500 people perished. The IMF, however, was unrepentant; in fact, it suspended its disbursements on an adjustment program with the government on the grounds that “the parastatal sector will continue to pose risks to the successful implementation of the 2002/03 budget. Government interventions in the food and other agricultural markets…crowd out more productive spending.”

When an even worse food crisis developed in 2005, the government finally had enough of the Bank and IMF’s institutionalized stupidity. A new president reintroduced the fertilizer subsidy program, enabling two million households to buy fertilizer at a third of the retail price and seeds at a discount. The results: bumper harvests for two years in a row, a surplus of one million tons of maize, and the country transformed into a supplier of corn to other countries in Southern Africa.

But the World Bank, like its sister agency, still stubbornly clung to the discredited doctrine. As the Bank’s country director told the Toronto Globe and Mail, “All those farmers who begged, borrowed, and stole to buy extra fertilizer last year are now looking at that decision and rethinking it. The lower the maize price, the better for food security but worse for market development.”

Agricultural subsidies by the Industrialised west amount to billions of dollars per year, artificially making their produce cheaper. And we are trying to reinvent the wheel by taxing agriculture? Its the worst thing to do in a country which depends on agriculture. Millions upon millions of people benefit from the agricultural sector, and their livelihoods depend on it. Taxing "Landlords" will not work, as they will just increase their "theka" from the local farmers, directly increasing the prices of the produce. BAsically, food inflation will go up. Pakistan is already facing chronic inflation, so this would be a sort of double whammy on that score.

The IMF demand to increase interest rates will lead to a decline in growth. When the rest of the world is considering interest rate cuts to bolster their economies, we are being told to increase our interest rates. Somethign smells fishy here.

As for these interest rates hikes having any effect upon inflation, think again. The proposed devaluation of the rupee will lead to even more inflation, as everythign we import will suddenly increase in price. Since we import our oil too, that increases the transportation costs for every conceivable goods.

Mark Sien made a couple of excellent points above, and he mentions the "miracle" needed to get out of the IMFs tentacles. The "privatisation" mantra is also one of the defining "doctrines" of the IMF/World Bank, so we shouldn't be too surprised if our gas/coal/oil reserves are forced to be privatised or part privatised.

If we take this IMF offer, you can consider us "girwi" in their hands. I suggest any help should be limited, so that once we get out of this period, we will be able to refuse any further IMF installments. Maybe looking at another "Qarz Utaro/Mulk sawaro" ala nawaz sharif scheme, with overseas Pakistanis chippin in, could be launched and within a few months a substatial pot can be created to cushion the blow.

 

[DarkStar]

The last govt in pre partition India to tax Agriculture was the 'British in teh lat 19th century. What happened next? The biggest famine in the history of this rich and fertile land, with an estimated 10 million people dying of hunger. Do we want to go down that road again?

 

[AgNoStiC MuSliM]

Given the disastrous outcome of the IMF policies, as seen in Latin America and Africa, I would argue that Pakistan is better off defaulting, or accepting the first tranche and then refusing to implement some of the more ridiculous conditions.

IIRC Argentina defaulted as well - what would the repercussions be for Pakistan, barring imports being restricted entirely to essentials like fuel or necessary commodities, which we could probably live with?

 

[AgNoStiC MuSliM]

Excellent post by the way DS - we devoted several weeks to the same subject in a Latin American history class several semesters ago.

The eventual results were disgusting, the IMF appeared nothing but a tool to promote heavily subsidized, and therefore cheaper, imports from the developed world to these developing nations whose small farmers were obliterated.

 

[DarkStar]

Well, lets put it this way. In the civilised world, no one can hold a gun to someone and force them to pay. They have to take you to court.

A sovereign state has the advantage of, well, being "sovereign". That is, they are not subject to any court ruling, and legally, nothing can be done to force them to pay.

In effect, one can default without any major consequences. Only provisio being, you don't have to rush back to your creditor in a hurry. There have been many cases of sovereing default in recent times, when countries have not been able to pay certaing debts, or installments, interest at a particular time. What usually happens, is the creditor renegotiates the loan, and the interest payment, and defers it.

There is nothing much else the creditor can do. Unless you have pledged something as security. So your creditor can approach the courts to seek teh security pledged. But which court in a country, would decide in favour of the security seeker? (although with the pakistan judiciary, you never know).

Pakistan has a eurobond payment coming up. About 500 million dollars. Pakistan can easily default on it, without much consequence. Just don't think about issuing any more eurobonds for the next 10 years. AS long as Pakistan keeps up its other payments, don't see a problem there.

Just because pakistan doesn't pay one particular creditor, doesn't mean the whole financial circle will stop. Nothing will be effected, except that particular transaction. Does a business go bust, just because it refuses to pay a bank loan? Not, if the courts are on your side.

Lets put it this way, if Pakistan refuses to pay this eurobond. Would Saudi Arabia stop selling us oil because some bank didnt get paid in time? I think not. Would sierra leone stop buying pakistani rice, because we havent paide the eurobond. They probably couldn't give two hoots.

Pakistan has cash for two months imports. But what we are forgetting, is that Pakistan has never really had too much cash in reserve for a long time. ONly recently had we seen this "surplus". As long as the cash is flowing, coming in, and going out, there is no problem.

AS we speak, exports are continuing, expatriates are still sending in record amounts of forex, and the oil prices have fallen dramatically. I'd calculate that Pakistan would have to pay at least 4-5 billion dollars less in oil prices the next year, if current prices cotinue, so in effect we would be out of this crunch quite quickly, and may increase our reserves again.

An issue could be, the balance of payments. Well in that case, lets stop official importation of Tea and luxury items. That would free up a lot of our forex, and help us balance our books. If our books are balanced, we do not need to apporach anyone for a loan.
The same goes for our budget deficit. We need to take some austerity measures, and balance our budget, and if we do need to borrow, we should do it locally. Remember, Pakistan govt has extensively more internal debt than external debt.

All in all, there are many things that can be done without resorting to having to drink from this poisoned chalice.

This govt has tried to make a "meal " out of this "crisis".

p.s. on a lighter note. Lets restric the import of tea, we can impose a 100 percent duty on it. But no need to worry if you're addicted to the national brew, i'm sure there are plenty of smugglers who are willing to get their teeth into this, and help "serve" the nation.

 

[blain2]

I too agree that if the GoP gets over this hump, they can do without the IMF as foreign remittances are still coming in, the economy is still going (albeit with a rise in inflation), however the trade deficit is bound to improve with the oil prices going down. Just not sure if Zardari can convince key supporters of Pakistan to provide assistance to pay off the upcoming fiscal dues. I hope they do and we can tell IMF to buzz off, however recently the amount of money being talked about as needed has been increasing.

I think the current government is contemplating since we are borrowing, why put any limits? While the immediate sum that can get Pakistan over the balance of payment issue is somewhere are $3-4 billion, Shakat Tareen is yapping off about getting $10-12 billion to sustain the Pakistani economy. I just hope that Pakistan's future is not being bargained off for the ease of the current government which would have to take much more difficult measures in the absence of excess funding.

While I can understand the argument for defaulting, I still think that Pakistan should not go down this path. We should try to get by on the least amount possible by even *borrowing* from KSA and China but defaulting and especially on a Eurobond due will have repercussions for Pakistan across the entire investment community. Pakistan is a country that requires a lot of money to invest in infrastructure. This is hardly the situation for a country to go defaulting. Argentina and Pakistan can be compared in some ways, however in most ways, Argentinians have already gone through much of the infrastructure development that Pakistan has yet to get going. I think Pakistan defaulting would be a really bad message for anyone looking to put investment money into Pakistan for the next decade or so. I do not think that any Pakistani government can afford this scenario except in the case where the national security was being threatened by the alternates to defaulting. I do not think that we are in such a situation yet.

 

[muse]

Below is confirmation of our charge against the so called "democractic" government, that they are kleptocrats and that no one, at least no one we trust, trusts the "democractic" government --- it is said that the US is holding the Saudi and the Chinese back from helping Pakistan, but read below and you will see that this is not the case, no one trusts these "democrats":

And you guys imagine that these schemes you think Pakistan ought to follow will ever be followed through by these bunch of crooks and charlatans

Going to IMF on Friends of Pakistan’s behest

By Sajid Chaudhry

ISLAMABAD: Friends of Pakistan (FoP) have required the government to seek IMF package so that it could monitor utilization of its own loan as well as their aid effectively in Pakistan, sources told Daily Times.

Therefore, availing an International Monetary Fund (IMF) economic bailout package was not an independent decision of the present government, they added. Official sources in Ministry of Finance said that keeping in view the viewpoint of FOP the present government is pursuing IMF package besides aid from Friends of Pakistan, although the prospects for aid package from “the friends” are bright.

A $7.5 billion bailout package is expected from IMF along with around $4 billion financial assistance from international financial institutions like World Bank, Asian Development Bank, Islamic Development Bank and Department for International Development (DFID) of United Kingdom. Aid in the shape of commodities and fertilizer, export market access and oil could form the aid package from the Friends of Pakistan, the sources added.

The government would be tapping all sources of funds that it had mentioned in its three plans. It would be using IFIs’ help as per Plan-A, receive aid from Friends of Pakistan as per Plan-B and finally get funds from IMF as per Plan-C, the sources explained.

The basic role of IMF is to monitor economic developments in its member countries through Article IV concerning consultation and periodical assessment of economic health of any member country. In this way IMF would be best to monitor utilization of its own loan as well as aid given by FOP in Pakistan in the next 24 months.

Pakistan would be finalizing its negotiations with IMF authorities by November 10 and a formal request to IMF board would be made after Friends of Pakistan meeting at Abu Dhabi.

According to the official sources, IMF has created a $240 billion new short-term lending facility to channel funds quickly to emerging markets (including Pakistan) that have a strong track record, but that need rapid help during current financial crisis to get them through temporary liquidity problems. Short-Term Liquidity Facility (SLF) is designed to help emerging market countries with a track-record of sound policies to address the fallout from the oil and food crisis. The new facility, approved by the IMF’s Executive Board on October 29, comes with no conditions attached once a loan has been approved and offers large upfront financing to help countries restore confidence and combat financial contagion.

The sources said that IMF’s offer of SLF to Pakistan clearly indicates that in recent past Pakistan had a track record of sound economic policies. Otherwise Pakistan might not have been able to qualify for it, they added. The IMF bailout package is being offered to Pakistan due to sound economic policies adopted by former Prime Minister Shaukat Aziz, the sources said.

 

[muse]

Sorry, double post

 

[muse]

Yes, the evil that is Privatization, (evil dictator Musharraf was privatizing and good Chief justice stopped privatization - now the "democractic" government sings the priases of privatization and chief justice sings a different tune as well - tsk, tsk, tsk:


Privatisation can yield $2-3bn




By Mubarak Zeb Khan

ISLAMABAD, Nov 4: The government expects to raise $2 billion to $3 billion from the sale of state-owned entities like the National Power Construction Company, Jamshoro Power Company, Faisalabad Electric Supply Company, Heavy Electrical Complex, and the Qadirpur gas field.

Unveiling the privatisation plan on Tuesday, Privatisation Minister Naveed Qamar termed it the ‘cornerstone’ of the economic agenda to generate funds for bridging the balance of payment gap.

The policy, discussed at a meeting of the Privatisation Commission, would focus on encouraging private sector’s role and minimising government intervention in state-owned entities.

An official told Dawn that the meeting decided to submit a summary to the cabinet committee on privatisation for privatising the Small and Medium Enterprise Bank. The committee is headed by Prime Minister Yousuf Raza Gilani.

The official said that recommendations about various other ongoing and upcoming sales would also be submitted to the committee.

“The privatisation of public-sector entities will remain cornerstone of the government’s economic agenda,” Mr Qamar said, adding that the private sector had the “capability, expertise and resources to run the businesses” and the government should “only focus on policy matters”.

An official announcement said that the minister directed the Privatisation Commission to exercise “utmost transparency”, while processing the transactions at different levels.

The privatisation process “brings efficiency, enhances production, attracts fresh investment, creates new job opportunities, and generates (additional) revenue”, he said.

The meeting also finalised the bidding schedule for the privatisation of the National Power Construction Company (NPCC) and formulated recommendations for the approval of the CCOP.

Pak Elektron Limited (PEL), ICC (Pvt) Ltd, Al-Tuwariqi Steel Mills, Karachi, Saudi Cable Company Ltd, KSA, JS PE Management, Karachi, Alfanar Construction Company, KSA, and Zad Investment Company, KSA, have nearly completed the required process.

The government will also expedite the process for the sale of 26 Pakistan Tourism Development Corporation (PTDC) motels and restaurants.

 

[fatman17]

Its unfair to ask AN to convince anyone . The only way it will happen is by the "dunda". If the government servants have been paying their taxes, what are the excuses that the landowners can hide behind? In the past, this debate was never allowed to take place, now under severe economic constraints things are being forced. I think these free loaders will be brought under the tax net, the problem will be enforcement (which is an issue in pretty much all of the third world including India).

dunda by a democratic govt. tsk, tsk.

lets not be naive about it. we need a reality check here. people in power taxing themselves. this i would like to see. dont compare ourselves to india all the time. they did it right by having land reforms and getting rid of the princedoms.
i have 11 acres and i pay my taxes and everytime i do that, the "tehsildar" gives me a weird look.