Contenders for the villain's tag By A B SHAHID

ARTICLE (May 11 2010): The financial restructuring models applied to Latin American and Asian countries in the past earned the IMF the reputation of being cold-blooded, heavy-handed and deaf to the demands of the under-privileged, who bear the brunt of the IMF loan conditionalities. Greece is the new chapter in this continuing saga.

For a change though, the IMF isn't curtailing outlay on 'safety nets' for the poor. In Pakistan, it didn't ask for cutting the outlay on the BISP. What remains questionable, though is whether that's how you go about restructuring economies because until a country's businesses don't get back on their feet, people can't start 'fishing' for themselves; they keep asking for fish to survive.

That's what is happening. Reportedly, it took some pleading on Pakistan's part to convince the IMF to delay another hike in power charges. But the fact that Lahore High Court had to stay another 6 percent hike in these charges by the Lahore Electric Supply Company shows that the IMF didn't agree to delaying this debilitating hike.

On the controversial VAT levy at the retail level and the proposal to stagger the withdrawal of subsidies on fuel and basic consumption items, the IMF refused to budge. Inflation, therefore, would only rise, and so will the mark-up rates and the cost of doing business - a scenario that could only worsen the social order.

Higher prices will build pressure for higher wages and threaten the ability of business and industry to survive, employ more workers, and pay higher wages. The IMF does not feel that in an insurgency-ravaged, Pakistan, the solution lies in re-focusing the impact of subsidy withdrawals on sectors with the ability-to-pay, not the poor.

This flaw in the IMF's restructuring programmes earned it the tag of a villain. Indeed, countries in economic distress must cut consumption, but not every consumption-type, more so in a country like Pakistan whose population rises by over 2 percent a year. What is required is selectivity in tax-enforced cuts in consumption.

Selective containment of consumption is not a complex issue; what makes it complex is that it hurts powerful vested interests with unlimited greed. For instance, the auto sector has been demanding relaxation in import duties to revive its lost glory of which (during 2003-07) 'on money' and 'profitability' were the hallmarks.

To begin with, we already have enough cars, courtesy the now delinquent consumer loans. Even if some of us can afford to buy petrol at the price it is sold, does Pakistan have the exchange reserve surpluses to buy oil? And, right now, should we buy more cars, or commute to our places of work in combined transport vehicles?

But what we can't live with are power shortages and recurring increases in power charges. What Pakistan needs is higher employment (even if a chunk thereof is on part-time basis) to sustain peoples' faith in surviving by earning a living, not queuing up for charity. Impliedly, it is imperative for a population-wise fast growing Pakistan that its GDP grows substantially.

Higher GDP alone can boost taxes, not flawed initiatives like replacing the GST with VAT. This isn't the time for experiments, but for making the most out of the existing systems and plan for changes therein once the economy shows signs of stability to afford the FBR the luxury of a major system change.

The government is oblivious to the slide in peoples' faith in governance. Social chaos is just round the corner. The frequency with which power company offices and police stations are being targeted in broad daylight is frightening. That we don't have enough law-enforcers (police) and many are being targeted for their bad conduct, is a bad setting for what may be in store for us. Kyrgyzstan and Greece offer examples thereof.

The build-up of chaos can be stopped by rationalising 'tax incidence' and the state setting examples of austerity to save enough to keep the economy growing. But when you hear that the utility bills of the President's House are overdue and the Punjab Governor's new official car will cost Rs 25 million, you wonder whether the top echelon of the state machinery has any idea of what Pakistan confronts.

The fact that implementation of the "austerity plan" is nowhere in sight proves that cutting waste isn't a priority, despite the fact that the Auditor General detected irregularities of over Rs 323 billion in just the FY09 accounts of federal ministries and departments. This amount (29 percent of FY09 tax revenue) reflects the regime's concern for good governance, and tramples rather than sets an inspiring example of austerity.

While the primary responsibility for what may go wrong with Pakistan will lie with its government and its people, other countries, especially the 'Friends of Democratic Pakistan' (FoDP), will have their share in it. The fact that the financial and governance crisis in Pakistan was allowed to drag on until financial markets lost faith in Pakistan (leaving it at the IMF's mercy), is an affair wherein our 'friends' have a share.

Pakistan is a 'strategic ally' of the US but, instead of helping Pakistan, debts owed to it (representing CFS expenses) aren't repaid quickly. Consequences of such apathy were aptly summed up by a former IMF Chief Economist Simon Jones, who recently blamed Europe's foot-dragging that turned the Greek problem into a disaster. According to him, "the EU has shown itself bankrupt morally and politically."

Belatedly, the IMF has agreed to lend to Greece an amount 40 times its borrowing quota. Reason: although Greece's share in the EU GDP is just 2.6 percent, its collapse threatens, at first the Euro, and then the EU. Economies like Pakistan, whose failure doesn't threaten a global crisis don't matter. Besides, Pakistan doesn't have sympathisers like Simon Jones even among the FoDP.

But, given the current state of Pakistanis' awareness about what goes on in the government circles, should social chaos unfold courtesy fiscal waste and flawed state policies, the blame will lie with those who ignored sane advice, and the contender for the villain's tag will be a trio - IMF, Pakistan's government, and the FoDP, not just the IMF; the likes of Simon Jones will spot the hiding villains and tag them.

Source: http://www.brecorder.com/index.php?id=1054879&currPageNo=1&query=&search=&term=&supDate=