Apopular refrain of policymakers, many TV anchors and most public commentators in Pakistan is to vilify the IMF and to blame it for the country’s myriad economic woes ranging from the rupee ‘devaluation’ to inflation. To what extent is the IMF responsible for Pakistan’s predicament, and are the Bretton Woods Institutions (the IMF and World Bank) indeed agents of influence and control acting at the behest of the US?
To answer the second question first. According to the US Army Special Operations Forces: Unconven-tional Warfare Field Manual (2006), “The instrum-ents of national power as codified in US policy and doctrine include DIME and DIMEFIL”. DIMEFIL stands for diplomatic, informational, military, economic, financial, intelligence, and law enforcem-e–nt. The manual goes on to state that “The applicat-i–on of economic or financial incentives is among the most powerful ideas in the US arsenal of power.”
On the use of international financial institutions (IFIs) by the US to achieve military and/or foreign policy objectives, the manual states: “At the highest levels of diplomatic and financial interaction, the USG’s [United States Government] ability to influence international financial institutions — with corresponding effects to exchange rates, interest rates, credit availability, and money supplies — can […] dissuade adversary nationstate governments from supporting specific actors in the UWOA.” Note: UWOA = Unconventional Warfare Operational Area.
Echoing these objectives and reiterating the role of the IFIs in US foreign policy, A Report to the Committee on Foreign Relations, United States Senate, One Hundred Eleventh Congress — March 10, 2010, states that “The international financial institutions (IFIs) have traditionally been an important element of US foreign policy.”
It goes on to say that “The international financial institutions present the United States with an opportunity to maintain its influence, address national security issues, and provide global leadership in an era when the American economy may not be the overwhelming source of power it once was.”
Where the IFIs fit into the US-constructed global “rules-based order”, meant to exert and assert its influence in the world, is quite clear from the sampling of quotes from its declassified doctrinal documents. In the case of Pakistan and the IMF, the IMF’s Independent Evaluation Office’s first report from 2002, titled Evaluation of Prol-onged Use of IMF Resources, has the following observation on Fund engagement with the country: “In particular, decisions regarding the IMF’s involvement in Pakistan appear to have been heavily influenced by geopolitical considerations.”
The only other country whose Fund program-m–es came close to being “heavily influenced by geopolitical considerations” at the time was the Philippines.
The foregoing evidence should close the chapter on whether the IFIs, in particular the two Bretton Woods ‘sisters’, are aligned with US foreign policy objectives and whether their policy advice can be agenda-driven. However, despite the evidence on how the BWIs are designed to further US interests, a large part of the conventional wisdom in Pakistan regarding the IMF’s role in bringing the country to its recurrent situation is self-serving.
It is designed to avoid introspection, or to accept culpability and responsibility for poor policy choices over a protracted period, and instead shift the blame entirely to external agents and exogenous shocks.
I have previously referred to this reflex as a manifestation of an external locus of control, ie a psychological stance in which some individuals and societies believe that their life outcomes are determined by external factors beyond their control.
Pakistan has spent an estimated 34 years in IMF care since 1958. To the best of my knowledge, this is the single most protracted use of IMF resources by any country in the world. It would be useful to introspect if the IMF has arm-twisted Pakistan into this situation, or whether the country’s collective failure to collect taxes, promote exports, curb runaway consumption, provide a conducive environment for private investment etc is the actual cause of crisis-prone underdevelopment.
The real question is: with the need for economic reform so wellestablished from early on, why has Pakistan been unable to move the needle with or without IMF programmes? After all, if it has spent 34 years in various Fund arrangements (and the IMF, and not Pakistanis themselves, was a roadblock to real reform according to the conventional wisdom), then it has spent 42 years without the IMF.
What reforms are visible that can be attributed to over four decades of living without the ‘tyranny’ of the Fund?
An illustrative case of a country getting its act together and fixing its house after its last encounter with the IMF 30 years ago is provided by our neighbour India.
In 1991, after experiencing a severe balance-of-payments crisis and turning to the Fund for a Stand-By Arrangement, India be–gan implementing structural reforms. It has never returned to the Fund since, becoming an economic powerhouse within the past three decades.
A corollary to the conventional wisdom in the country regarding the BWIs is that the loans taken by Pakistan over the decades from these institutions are ‘odious’, since they were ‘forced’ onto the country.
This is completely disingenuous as project loans from the World Bank and Asian Development Bank etc have helped finance the construction of Pakistan’s major physical infrastructure over the past four decades, including the Tarbela and Mangla dams, the country’s railways network, its irrigation system, and road and highways infrastructure among other critical projects.
The conclusion is straightforward. The IMF and World Bank are agenda-driven. IMF programme design is flawed in that it creates perverse incentives and has unintended consequences in tax collection and the energy sector — setting up negative feedback loops that have worsened rather than helped the underlying structural problems.
Nonetheless, there is no escaping the fact that Pakistan’s predicament is of its own making. The sooner this is accepted by elites and policymakers, the sooner we can begin our journey back from the edge of the abyss.