Bonus season at the IMF 
http://www.mosharrafzaidi.com/2010/01/19/bonus-season-at-the-imf/
http://thenews.com.pk/daily_detail.asp?id=219487

Tuesday, January 19, 2010
by Mosharraf Zaidi

On Dec 11, 2009, the twin towers of conventional Pakistani economic genius, Mr Shaukat Tarin and Syed Salim Raza, wrote a love letter to their boss in Washington DC, a certain Mr Dominique Strauss-Kahn, asking for a favour.

Both the finance minister and the State Bank governor will object to this trivialisation of their relationship with the Pakistani state, and romanticisation of their relationship with the IMF. They shouldn’t. They have been the architects of Pakistan’s deal with the IMF. Pakistan signed up to a stand-by agreement with the IMF in November 2008 for $7.6 billion. That amount was revised to $11.3 billion in August 2009. If the finance minister and State Bank governor don’t work for Mr Strauss-Kahn, then nobody does. Mr Strauss-Kahn is the executive director of the IMF. Once you take money from the IMF, you don’t get to shape public policy. You get to announce what the IMF wants from your country.

Advocates of the perpetuation of Pakistani state’s addiction to borrowed money claim Pakistan will fall to pieces without the IMF’s money. Those advocates must be on hallucinogens. The country’s electricity grid, its domestic commerce, its public administration, law and order, national security and its internal cohesiveness are the subject of daily hand-wringing. This economy isn’t exactly the Starship Enterprise. It is the Titanic, without all the fancy James Cameron frills. No gallant four-piece band. No tragic Leo DiCaprio-esque hero. No electrifying Kate Winslet starlet. Just a lot of arrogant and shiny metal with no buoyancy.

Before this stand-by agreement was signed, a small minority (including yours truly) had argued that Pakistan should be actively pursuing a strategic default on its loans, rather than taking on new ones. What has happened since this loan was taken not only affirms that position, and the need to default. It also demonstrates that having Citibank executives negotiate loans, and formulate public policy, is suicidal for Pakistani democracy.

The favour that Mr Tarin and Mr Raza ask of the IMF executive director is a little leniency with the benchmarks for spending restraint they were supposed to make Pakistan meet in September 2009. While they mask their problems in all kinds of complicated lingo, they basically say that Pakistan keeps spending more money than it is supposed to, because of two things — its military and its bureaucracy. Advance salary payments because of Eid and the Pakistani military’s bombing of its own territory can be rationalised quite well. But the resemblance between this latest set of national priorities and necessities is so hauntingly similar to all past versions that someone, somewhere must be laughing out loud.

Not the poor and vulnerable of this country, for sure. Back in 2004, while Kaiser Bengali was screaming hoarse from his perch at the SPDC about the growing vulnerability of the poor — despite the amazing smoke-and-mirrors growth narrative of then-finance minister, and later prime minister, Shaukat Aziz — nobody listened. Now, with a government that was supposed to be listening intently to what Bengali and others have to say, the poor are being bulldozed by inflation and snail’s-pace growth. This year’s revised projections have the inflation rate running at 11 per cent and real growth at nearly zero per cent (3 per cent nominal).

All the while, both the IMF and the finance ministry make lots of noises about how the IMF loan, and everything else the government is doing, is in service of the poor. Yet, a cursory examination of the IMF’s latest judgements of what is going on in Pakistan reflects poorly on how seriously these people take poverty — the Citibankers that pretend to be running Pakistan’s economy, and their less wealthy professional cousins at the IMF that are actually running Pakistan’s economy.

The word “poor” is mentioned in three places, not counting a reference to the Standard&Poor’s credit-rating agency on Page 6.

In the IMF’s description of the “structural reforms” it has seen taking place in Pakistan, the report refers to the delays in the rollout of the Benazir Income Support Programme (BISP) on page 11, where it mentions poor families.

As part of the annexes, the World Bank and the government of Pakistan each separately provide their own descriptions of future plans. The government of Pakistan annex is particularly amusing in its reference to the poor (in passing). In one of the most comedic and self-contradictory paragraphs I’ve ever come across in any serious document, Shaukat Tarin and Salim Raza state that:

“We will continue our efforts to consolidate macroeconomic stability, reduce poverty, and lay the basis for high and sustained growth. A principal challenge for this year will be to consolidate macroeconomic stability in the context of an increasingly difficult security situation. We will also continue to provide social safety nets for the poor. At the same time, we will press ahead with the implementation of tax reform, including a broad-based VAT.”

Pakistan will be the first country in human history to manage to help the poor through macroeconomic stability, social safety nets and tax reforms featuring a VAT at the same time.

At the very minimum, the IMF’s release of the Tarin/Raza love letters to Dominique Strauss-Kahn expose the government’s plan to impose yet another regressive tax. VATs, or value-added taxes, are notoriously regressive, penalising the poor for their consumption, while protecting the incomes and the wealth of the rich. Of course, if Pakistani voters understood why the military and political elite keep running to Citibank for their economic management, the country would not be saddled with the debt and baggage that it is. The IMF programme reeks of a diet specifically designed to extract nutrients from the poor and middle classes, and fatten the rich.

If any further proof of the starkly elitist framework of the IMF and its approach to Pakistan was needed, it is amply demonstrated in the treatment of fiscal issues. The discussions between the IMF and the government of Pakistan focus almost exclusively on generation of more revenue, rather than a discussion of where this revenue comes from.

Agricultural land taxes and capital gains taxes do not figure anywhere in the discussion between the government and the IMF. Instead, paragraphs upon paragraphs are dedicated to tax administration. Of course, the World Bank and other donors, including the British government, have traversed down this meaningless path for the better part of a decade. Pakistani tax collectors don’t need computers and training sessions. They need the mandate and jurisdiction to collect taxes from everybody, and not just the clerks and shehri babus that finance the Pakistani state’s dysfunction.

The largest drain on Pakistan’s resources is the financing of its debts. The second-largest is the financing of its military. The third-largest is the running of government.

Pakistan taking on more debt, with a promise to cut back spending, is counterintuitive to begin with. If Pakistan was willing or able to cut back spending, it would not need the IMF. So Pakistan taking on more debt, with a promise to cut back spending and then not living up to its promise, is exactly what we should expect. And the fact that it is not living up to its promises because the Pakistani military and the Pakistani government need more and more money is also exactly what we should expect.

The IMF will grant the leniency that Messrs Tarin and Raza requested, because Pakistan is the gift that keeps giving. Bonuses all around.