Once a country gets an IMF programme, getting out is difficult
There is no such thing as a free lunch, as the saying has it. This aphorism was first used way back in 1930s. Economists use it frequently. Milton Friedman, the free-market economist, used it as the title of his book in 1975. Another economist, Campbell McConnell says that the idea is “at the core of economics” in his book Economics: principles, problems and policies. Yet another economist, Greg Mankiw in his book, Principles of Economics sheds light on this adage in the following words:
“To get one thing that we like, we usually have to give up another thing that we like. Making decisions requires trading off one goal against another.”
In plain words, this proverb contains a universal truth: nothing is free, for everything one is to pay a price. Differently put, there are two sides of the bargain. Every party is to keep his or her side of the bargain. One was constantly reminded of this axiom as Pakistan struck a bargain with the IMF.
Whenever a country calls upon the IMF to help pull it back from the brink of economic collapse, it enters into negotiations with the IMF. The IMF lays out the preconditions to be met to secure the bailout package. The IMF imposes tough conditions, chipping away at the sovereignty of the country. No doubt, the country’s economy gets a semblance of normality. That said, it gradually and slowly slides into a debt trap. Needless to say, the major affectee of the IMF programme is the common man. He is crushed under the weight of taxes and increased prices of commodities. It is difficult for him to keep body and soul together.
All eyes are on Imran Khan to see how he will walk a tightrope as he will have to perform a balancing act between assuaging public sufferings and implementing IMF’s conditions
Once the country signs a deal with the IMF, the country’s rulers have to dance to its tune. It is the IMF which now calls the shots. It is hard to break its vicious cycle. With every IMF programme, the noose is tightened around the country’s neck. It goes without saying, the bigger the loan, the harsher are the conditions imposed. In a word, the country strikes a Faustian pact with the IMF. The county will then have to pay through the nose.
The IMF’s declared agenda is to “secure financial stability” and to “reduce poverty around the world”. But this is not to be. If we look around the world, the countries that joined the IMF programme due to their tottering economies, had to bear the burden. They had to throw people out of the work, to cut pensions, to introduce new taxes, to slash subsidies on commodities, to privatise public assets, to devalue their currencies, to widen the gap between the haves and the haves-not, to exacerbate the inflation. Briefly put, the economic travails of the common man were to be increased manifold. To drive one’s point home, one cannot help quoting Nobel Laureate and the former Chief Economist at the World Bank, Joseph E Stiglitz, the author of the best-selling book, Globalization and Its Discontents:
“… the IMF is often called upon in the worst of situations, when the country is facing a crisis. But its remedies failed as often, or even often more, than they worked. IMF structural adjustment policies– the policies designed to help a country adjust to crises as well as to more persistent imbalances– led to hunger and riots in many countries; and even when results were not so dire, even when they managed to eke out some growth for a while, often the benefits went disproportionately to the better-off, with those at the bottom sometimes facing even greater poverty”.
To state the obvious, the IMF does not force a country into joining its programme. It’s entirely falls to the country’s leadership whether to join it or not in the economic crunch. Be that as it may, when a country joins an IMF programme, it’s hard for it to bid farewell to it.
Let us turn to highlight the latest IMF deal with Pakistan. After long and tortuous negotiations, long-winded and painstaking discussions, Pakistan and the IMF had finally entered into an agreement about a $6 billion bailout to achieve an “ambitious structural reform agenda” spanning over a period of 39 months. The opposition parties rejected it outright calling it a “complete sell-out”, notwithstanding the crucial fact that they too signed IMF deals during their tenures.
The terms and conditions settled by the PTI government with the IMF are shrouded in secrecy. They have not been disclosed to the nation as yet. They say, the devil is in the details. Former Finance Minister Asad Umar is reported to have said to put the accord before the Parliament, which begs the question: would the present government unveil all the details surrounding the IMF agreement?
Leaving aside the undisclosed details of the IMF programme, one thing is crystal clear: the Pakistani nation will have to fasten its seat belt, bracing itself for a bumpy ride ahead. Needless to mention, Dr Abdul Hafeez Sheikh, Prime Minister’s Advisor on Finance, said that the government had had no choice but to take “important and tough decisions”. Lamentable as it is, the prices of gas, electricity, petrol and other commodities have already gone through the roof. The imposition of the IMF conditions can further aggravate the economic woes of the common man. At the end of the day, it is the common man who is to bear the brunt. The latest IMF programme does not sit well with the common man. It is feared that the public anger simmering in the cauldron can boil anytime to the surface. Imran Khan, being the Prime Minister, should put his finger on the pulse of the nation sooner rather than later. He should not throw caution to the winds. He should do something to alleviate the sufferings of the common man. No doubt, the empty coffers of the country would get replenished and the battered economy would get a breathing space. Nonetheless, the common man should not have to suffer for it. All eyes are on Imran Khan to see how he will walk a tightrope as he will have to perform a balancing act between assuaging public sufferings and implementing IMF’s conditions. There is no room for failure. Let’s hope that he will walk safely towards the finishing line.