AT PENPOINT
If the IMF mission to Pakistan is successful in releasing the next tranche of the current IMF programme, it will afford relief to the government, but that relief is likely to be temporary. It should not be forgotten that the last tranche was accompanied by much the same atmospherics: the government anxious, the IMF demanding, but it seems that this time was worse.
The problem is that by the time of the review for the next tranche, the election will be that much closer, and thus the government will be even more reluctant to give the IMF what it wants. There are two assumptions That have to be made. First, the government wants to avoid the sort of measures that Cause the public hardship. Second, the IMF is not a monster that gets some sadistic pleasure from the suffering of the poor. That said, it needs to be seen why the end-result is the sort of punitive measures that are about to come.
The government has an odd attitude towards loans. When the USA founded the World Bank and other Bretton Woods institutions like the ADB and the IMF, they were not purely economic institutions, but also tools of political and neocolonialist control. The loans they made were not to be repaid. The local elites, which had been put in place just before independence, embezzled them with gusto. Initially, project loans were made, which were supposed to be repaid out of the increased revenue that was supposed to accrue. It didn’t, and Third-World countries got into trouble paying back the loans.
This is where the debt traps began. The next step was programme loans, which are not meant for any development, but merely to avoid a default. These are loans, and must be repaid out of revenues that are not even supposed to increase. The development aid consisted of projects that might or might not raise revenues. A dam may irrigate new lands, and the land revenue or income tax should help pay off those loans. However, what happens if the loan is embezzled? Or if the landowners can stop income tax being levied?
It then becomes overpoweringly important to be in a position to be on the chain of those who will take a share from that embezzlement, and to be one of those making the tax laws. There is an overwhelming need to join that elite, and to remain in it. The real reason why the old colonial elite goes into politics is not so much to make money, but to protect that which has already been made.
On the flipside, the IMF is not so much concerned with development, or how the average citizen actually fares, as whether its loans will be repaid or not. Its assumption has to be that repayment must come from revenues that are not enhanced, as opposed to development loans, which at least on paper assume that they will be repaid from enhanced revenues.
Development spending assumes both import substitution and increased exports, thus leading to more foreign exchange being available to repay the loans.
Another reason why the IMF has been harder on Pakistan is that it has free rein. There are no pressing political reasons why it should show Pakistan any leniency. Its negotiators were also fully aware of exactly what kind of problems the country is facing. There is thus no reason why it should show Pakistan any mercy.
Perhaps the worst problem Pakistan suffers is that it has been there before, and once it gets out of the present quagmire, is likelier than not to go there again. The measures being foisted upon Pakistan are very harsh, but they do not contain within them the seeds of an escape from the debt trap.
The only way of escaping from the debt trap is to increase exports. As recent events (the covid-19 pandemic followed by the ongoing bout of inflation in the West and the Russian invasion of Ukraine) have shown, the power of increasing exports depends on the West’s readiness to buy. Indeed, even commodity producers, especially oil-exporting countries, face this problem.
The problem thus is that there seems no way Pakistan can escape the debt trap, unless it is willing to accept the consequences of a default. Pakistan would probably find that unacceptable, because three categories of its imports are of essentials: petroleum, edible oil and lifesaving medicines. The recent crisis in the poultry industry because of the import of GMO soybeans for feed shows that many apparently indigenous industries are actually dependent on imports.
There thus seems no way out for Pakistan so long as it remains part of the current economic system. It is tied to the system because it has to trade, and it does not have sufficient weight within the system to dictate its terms.
For example, the USA is able to sustain a chronic trade imbalance because sellers are willing to accept dollars. As the USA merely has to print more dollars, it can import as much as it wants without having to sell. Pakistan (and all other Third-World countries) has to earn dollars by exporting to pay for its imports, because no one is willing to accept the only currency it can print, the rupee.
Without breaking the mould, it seems, Pakistan cannot gain the independence it needs. By that standard, the PTI and Imran Khan do not go far enough. If Imran wants people to seek true freedom, he should give some indication that it is really economic dependence that causes political dependence, and it is perhaps meaningless to talk of the latter without the former. Imran is thus exposed as merely struggling for his own restoration to office.
His record in office shows that he has no problems with remaining part of the system, which is heavily tilted against Pakistan. There are no political reasons as easy as Afghanistan to allow Pakistan to go on as before. Matters have become more difficult now that the USA has cozied up to India, and Pakistan is being seen by the USA with suspicion as an ally of China against its new-found friend.
The solution does not lie in military rule. It might have seemed a simple equation to military minds, but it was not. Ayub Khan managed to remain in power and carry out development, on the basis of joining SEATO and CENTO, and even sacrificed the rights to the water of three of Punjab’s five rivers through the Indus Basin Waters Treaty. However, it failed to get US support in the 1965 War.
All that Pakistan can offer now is to give up its nuclear programme. However, the cost of doing so would be prohibitive, not just for the government, but for the military leadership. It might well mean making overt what has been suggested has been done covertly already: accepting Indian hegemony. Besides, the IMF has made cuts in the conventional forces’ budget a condition. Obviously, this would be music to Indian ears.
It should cause Pakistan to tremble, to see how China and India have been tied up before. After the 1962 Indo-China War, the USA made a major push against China and for India. Pakistan was thrown to the wolves. In the Yahya years, the USA used Pakistan for its rapprochement with China, but in 1971 let India beat Pakistan, and allowed Bangladesh to come into existence.
This time, the USA is in economic conflict with China, and there are possibilities of military conflict over Taiwan or the South China Sea. Already, though not in conflict, they are supporting opposite sides in the Russo-Ukraine conflict. China has been on the Russian side throughout the modern era, dating back to the time when they were under the Romanov and Qing Emperors, back in the 19th century. China’s main rival then was Japan, just as it is today.
In this sea, Pakistan seems a little fish. Its economic woes are not enough to give the rest of the world pause. They also do not seem enough to make its friends any incentive to spend large sums to bail it out.
Perhaps the worst problem Pakistan suffers is that it has been there before, and once it gets out of the present quagmire, is likelier than not to go there again. The measures being foisted upon Pakistan are very harsh, but they do not contain within them the seeds of an escape from the debt trap.
