THIS short essay makes four points. First, the IMF serves global capital (finance and multinational corporations (MNCs)) by creating opportunities for it. Second, stemming from this is a so-called market ideology that is anti-development. Third, this ideology results in prior actions and conditions in IMF programmes that are mutually contradictory. Fourth, these prior actions and conditions set the stage for the next crisis and bailout package.
Low and low- middle-income countries (L/LMICs), like Pakistan, seek IMF assistance due to balance-of-payment deficits and declining foreign currency reserves. Trade deficits are often the result of aggressive import liberalisation pushed by the World Trade Organisation agreements. The IMF is an enforcer of this liberalisation on countries unfortunate enough to need a bailout. It has pushed import liberalisation far in excess of the commitments Pakistan made to the WTO. Pakistan was turned into a consumer society before it learnt to truly produce. Production has been hampered by the crony capitalism[an economic system characterized by close, mutually advantageous relationships between business leaders and government officials] introduced in the 1960s, a problem that still needs to be addressed.
The IMF insists on market-determined interest rates. No interest rate in any country is entirely market-determined; the central bank plays a major role in determining it. One prior action for Pakistan’s current bailout package is a much higher interest rate. This guarantees that the debt crisis will worsen since the government will borrow domestically at high interest rates to address the fiscal [related to government revenues] deficit problem. As the debt mounts the interest cost will make IMF fiscal targets difficult to meet.
Another reason fiscal targets are difficult to meet is because import liberalisation means lower tariff revenue. As one might expect, in Pakistan’s case, there has been a steady decline in tariff revenue as a percentage of total government revenue. High interest rates in LICs, however, create opportunities for global finance.
The balance-of-payment deficits resulting from import liberalisation also results in a vulnerable [that can be harmed] currency. Governments think the public will correctly regard currency devaluation as economic failure so they use up foreign currency reserves to bolster [support]it. An overvalued currency is subject to speculative[based on guess rather than knowledge] attacks, partly in the form of capital outflows (another IMF condition though recently somewhat relaxed). The IMF has required a large devaluation as a prior action to address the overvaluation.
The ostensible[apparent] justification for the devaluation is that it will encourage exports because it will be cheaper for the rest of the world to buy from Pakistan. However, many factors, other than domestic prices (such as world income, business networking, and political alliances) determine exports. While import liberalisation results in increased imports, higher local business costs due to higher interest rates, utility, taxes, and other input costs impede [رکاوٹ پیدا کرنا] exports. The devaluation causes import costs of machinery and intermediate goods to rise in local currency terms. The devaluation is also potentially inflationary (undermining IMF’s inflation target) due to a rise in import costs. Finally, the devaluation increases the costs of repaying the foreign debt. The devaluation does, however, create an opportunity for MNCs to buy local assets, which are now cheaper in foreign currency terms.
The net effect for the local economy of IMF prior actions and conditions is setting the stage for another balance-of-payment, fiscal and monetary crisis, another bailout package, and a continued IMF straitjacket[a severe restriction on freedom of action, development, or expression]. A more important reason to be wary of IMF and its partner organisations (like the World Bank and Asian Development Bank) is that they serve the interests of their high-income country paymasters. In turn, HIC governments are captured by global capital.
Another priority for the IMF is repayment, which is why it has pushed for privatising even public utilities, such as Wapda, if it deems they are a drain on the budget. Economists view public utilities as natural monopolies and hence part of public provision because the market power that accompanies monopolies results in higher prices for the consumer. Efficiency reforms and finding better ways to subsidise low-income consumers is the standard recommendation. Privatisation, however, creates opportunities for MNCs.
Another focus of the IMF and its partner organisations are reforms of tax administration. There is little doubt that efficient tax administration and broadening the tax base serve the national interest. However, higher tax rates, even while Pakistan is reeling [حادثےکے بعد سنبھلنا] from a declining per capita income in dollar terms, ensures repayment to the IMF and partner organisations.
After decades of social criticism, the very sophisticated IMF public relations campaign has tried to persuade critics that they have changed and that, in particular, they are poverty sensitive. A comparison of prior actions and conditions from three decades ago and recent programmes for Pakistan indicates no intrinsic [بنیادی]change. There is no real diagnosis since the conditions are based on ideology. Handouts for poverty alleviation will not make up for the decline in living standards, resulting from higher indirect taxes and inflation, which will follow Pakistan’s current IMF bailout.
IMF programmes negate authentic development based on undoing crony capitalism, equity reforms and ecologically sensitive economic diversification[creating more diversity]. Smart industrial policies can be part of this mix and they have been successfully used by countries like South Korea and Taiwan. Indeed, they are being used by the US and the EU. That notwithstanding, Pakistan has been warned against using industrial policies in past IMF bailouts. Thus, Pakistan’s only course to initiate development is building foreign currency reserves to avoid the IMF.
The IMF has been structurally adjusting Pakistan’s economy with 22 programmes since 1959 and will continue to do so if given the opportunity. The Nawaz Sharif administration solicited [asked for] a bailout package five years ago and it blamed the past administration for having to do so. History is in this case repeating itself. One possible measure of the success of an administration would be that the next elected government does not have to solicit an IMF bailout, for reasons indicated in this brief essay. By this yardstick, the Nawaz Sharif administration failed miserably. Let us see if the current administration can do any better.
The writer is a research associate at Mount Holyoke College, US, and a former executive director of SDPI.
Published in Dawn, June 21st, 2019
APOCALYPSE NOW
THROUGHOUT human history, religions have long predicted the end of the world. Global warming and the impacts of climate change also predict scenarios of a doomsday with catastrophic results on all life forms. Disease, hunger, strife, intense heat and ecological collapse are seen as contributing factors leading to an existential threat that may result in an apocalyptic end of Planet Earth.
With death and destruction staring humanity in the face, it becomes harder to fathom why, while living in the ‘age of climate change’, we are not doing enough to save the planet that sustains life. It is almost as if we have a death wish or seem destined to go through the cycle of destruction and rebirth until we learn how to live in harmony with nature.
There is enough knowledge and evidence available now to be fully cognisant [in knowledge] of the connection between man and nature and the devastating impact of the modern human footprint on the environment. It is also equally clear that, when the damage inflicted reaches a tipping point, nature will annihilate[obliterate] the intruder and gives itself time to heal and restore its functions.
The irony is that it is not lack of knowledge and awareness that prevents governments from taking urgent steps to drastically reduce emissions with immediate effect, but the false sense of achieving development goals for improving life quality indicators. These goals will become irrelevant when hit by heat, drought, food shortages and water scarcity.
The irony is further compounded by the fact that countries that are responsible for global warming are not doing enough and countries with low carbon footprints are now joining the race to accelerate their development agendas to meet the needs of a burgeoning [rapidly increasing] population.
The special report by the UN’s Intergovernmental Panel on Climate Change, which urges countries to increase pledges to reduce carbon emissions by five-fold from the commitments made in the Nationally Determined Contributions, was only noted and not welcomed at the Conference of Parties at the 2018 Climate Change Conference in Poland. And despite much hype and publicity, the alarm over the extinction of one million species has not [activate, caused to happen]any major change in policy to indicate that countries recognise the serious implications of species’ loss on life systems.
Based on existing scientific research and projections of a global temperature increase by three degrees Celsius by 2050, 55 per cent of the world’s population across 35pc of the land area will experience more than 20 days of intense lethal heat beyond the threshold of survivability. This will result in collapsed ecosystems and the displacement of one billion people, according to the Melbourne-based Breakthrough National Centre for Climate Restoration.
The think tank also states that 75pc of the planet’s land surface has already been altered and that the world faces a distinct probability of complete destruction by 2050. That gives us only 31 years. An existential threat only three decades away is not such a long-term deterministic projection that its urgency should fail to register with mankind.
The intriguing [arousing one's curiosity] question, then, is why — despite the dire [extremely serious] warnings and catastrophic consequences — are world leaders refusing to declare a climate emergency and take action on a war footing to reduce our risk of extinction? The goalpost has never been clearer or the threat more imminent – and yet a business-as-usual scenario continues, even as our survival is basically running on life support at this point.
The evidence continues to mount — with dire statistics on fresh water pollutants, antimicrobial resistant infections, air quality hazards and losses to businesses — but the much-needed transformative change is not visible on the horizon. The pace of change is slow and the speed of global warming is gaining exponential momentum, threatening to wipe out humanity from the face of the earth.
So is it nature reclaiming its place, or an ordained[predetermined by God] event in the cycle of cosmic life? Or is it quite simply the folly of man and his pursuit of a development agenda that is short-lived in its success and doomed by its endless quest for more. The enemy is approaching fast and will show no mercy to rich or poor, young or old.
Allowing countries to reach peak emissions is not an option, nor is ‘business as usual’ an acceptable approach. The carbon concentration in the atmosphere is already 415 parts per million, and the level today is higher than it has been at any point in the past 800,000 years.
The alarm bells are ringing loud and clear for those who wish to hear and respond to the challenge. The time is now, the need is upon us, and the end of the world is getting closer. This is not alarmist but an urgent call for action to deal with an apocalyptic emergency. We have only two options, either we put climate action at the heart of every conversation — or we perish.
The writer is chief executive of Civil Society Coalition for Climate Change.
aisha@csccc.org.pk
Published in Dawn, June 21st, 2019
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