IMF bailout: the coming medicine for Pakistan?

October 27, 2008

Is the International Monetary Fund going to force Pakistan to swallow its classic bitter pill – which to some is worse than the disease – as a price of rescuing it from economic meltdown?

IMF Managing Director Dominique Strauss-Kahn has said loans to countries hit by the global financial turmoil would be faster, and with fewer conditions, than in the past. Conditions for lending should be defined by what is needed for the programme and should not be an “attempt to fix the world”, the IMF Survey magazine quotes him as telling staff.

However, on the ground, and especially in Pakistan, there is feverish speculation about the price the nation of 160 million people could be asked to pay in return for a loan to stave off financial collapse. 

 

 

Pakistan’s The News, citing an internal document, sets out what it said were extremely tough conditions

1)      a 30 percent cut in the defence budget between 2009 and 2020

2)      reduce government pensionable jobs from 350,000 to 120,000

3)      a new taxation structure to raise revenues including tax on wheat production and other crops

4)      Revenue collection reports/analyses to be submitted each quarter to the IMF down to the provincial level

5)      Six IMF directors and two from the World Bank to monitor preparation of the federal budget

Are these conditions virtually amounting to an “economic martial law” feasible for a country that is the central front of the war on Islamist militancy? Can it really bear the cost ?

And is this why Pakistan is balking at the prospect of going to the IMF even at this stage when it needs $3 billion to $ 4 billion in the next 30 days to stabilize the economy?  Islamabad said it had not yet formally made a request to the IMF, contradicting Strauss-Khan’s statement that an approach had been made and that discussions would begin.

This led some to think that Islamabad was still hoping that its friends such as China, Saudi Arabia or perhaps the Americans would help put together the immediate cash that could hold off going to the IMF for some more time.

Pakistani Defence Minister Ahmad Mukhtar, who told The News that the defence forces were already facing massive financial constraints following the devaluation of the rupee against the dollar, has already rejected the reported proposal of a 30 percent cut in defence spending.

 

 And the Dawn newspaper in a report from Washington quotes an unnamed Pakistani diplomat as saying that the Pakistan Army couldn’t be expected to fight al Qaeda and the Taliban if its funding were to be cut by a third. “There have been general suggestions of reductions in expenses but not a word about the military,” he says.

 The United States, though, he says is calling for Pakistan to “refocus its military strategy” to fighting militants instead of devoting resources to confronting India as has been its traditional military posture..

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