Pakistan and IMF
EVERY time I tell someone that I am working on the history of Pakistan's relationship with the IMF, there is one question that always comes up: "Is the IMF evil?"
There are many iterations of this question, but it always boils down to this: "They say once a country borrows from them," said one particularly keen questioner, "that country can never repay the debt and remains in their clutches forever, is it true?"
I'm always struck by the level of fear and awe that the Fund commands in our popular imagination. It is run by the Jews, some say. It operates like a medieval money lender, it has usurious terms on its loans, nobody who falls in their clutches ever gets out. The better off try and connect it with some imperialist ambitions: it is a tool of US foreign policy, used to reward those who serve the imperial masters and punish those who disagree. It engineers the overthrow of governments and works in cahoots with the CIA, another told me rather insistently, brushing aside my questions that would cast doubt on the assertion.
My answer to the question is always the same: no, the IMF is not evil, but it's also not as innocent as it would like us all to believe. Does this mean that it is only slightly better than what popular imagination would say? No, the fact of the matter is actually far more humdrum than what popular imagination would like to believe. The Fund is actually just another bureaucratic body, trying to pursue an increasingly difficult mission, in an increasingly divided world.
The popular imagination in Pakistan is used to perceiving this country as permeated by foreign interests, a mindset that is in part a legacy of the many frontline roles the country has played in superpower campaigns. It's also used to perceiving all government bodies with extreme distrust and an equally extreme disdain. International institutions that interact regularly with the government, therefore, find themselves sucked into the perceptions that arise from this distrust and disdain.
And few international bodies have had a longer and more intrusive role to play in Pakistan than the IMF.
So what exactly has this long role been that the Fund has played in our economy?
Let's start with the obvious. The IMF is an international institution created in the aftermath of World War II along with a whole number of other international institutions that were designed to help operate the post-war order that emerged from the ruins of the British Empire. Those institutions include the United Nations, the World Bank and the International Postal Union to give a couple of examples.
The IMF had a specific mandate. It was designed to help countries tide over temporary balance of payments difficulties. If the price of cotton collapsed in one year, for example, due to a bumper harvest in some other cotton producing country, small countries that relied on cotton exports to earn their foreign exchange would find their reserves of dollars deplete very rapidly. The depleting reserves would curtail their ability to pay for their imports which could end up crippling large sections of their economy if, let's say, they couldn't afford to make payments on oil imports any longer. A small and temporary payments difficulty of this sort could cascade through the economy and create a much larger crisis, maybe even lead to default on external debt obligations. There needed to be, the architects of this new order agreed, some way for countries vulnerable to periodic balance of payments difficulties, to be able to borrow quickly to tide over short term problems without falling into a full blown crisis that could have international ramifications.
Those were the good old days when the world was a simpler place. Pakistan borrowed three times from the IMF during the Ayub Khan regime, and each of those facilities was a short-term Standby Arrangement of exactly the sort envisioned in the original Articles of Agreement under which the Fund was created.
The more interesting borrowing history began in the 1980s. Those were the years the world economy was emerging from a debilitating decade of stagnant growth and high inflation that the 1970s became famous for. But the renewed global growth came at a cost. Many parts of the Third World, as it was known at the time, fell into a massive debt crisis, as the levels of their borrowing fast exceeded their ability to repay. Latin America was at the epicentre of that crisis, and by mid decade a massive effort had to be launched to ensure that the region did not default on its external loans, in part by urging those banks that had extended loans to them to soften the terms on which repayment would be made.
The Fund's mission underwent an important change during that time. When the dust settled from the Latin American debt crisis, the Fund was no longer confined to lending only to paper over temporary balance of payments problems. From that point onwards, the Fund's mission grew to include reviving economic growth in stagnant economies.
This was a critical turning point, and it carried the Fund deeper into the borrowing countries economic management than it had ever gone before. Reviving growth, it turned out, was a far more complex affair than simply papering over a temporary balance of payments problem. The Fund staff had to become party to the myriad and complex dysfunctions that afflicted the borrowing country's economy, and the terms of its loans entered into areas that they had never imagined they would be entering. From here on, the Fund found itself examining the budgets of every borrowing country and urging structural changes in the economy that they could not have done in the earlier times. Privatisations, trade liberalisation and altering the institutional architecture of the state were all far reaching requirements that the Fund began to insist upon from borrowing countries in this time.