Mosharraf Zaidi

http://www.thenews.com.pk/daily_detail.asp?id=146039

No Oxygen in the IMF Ventilator

Tuesday, November 11, 2008
by Mosharraf Zaidi

Being of Pakistani origin qualifies an IMF employee to be as much of a Pakistani economy expert, as being of Pakistani origin qualifies a child that eats a lot of Krispy Kreme doughnuts to be an expert in Pakistani child nutrition. That is, not very much. IMF economists that spend the better part of multiple decades prescribing bitter pills for poor countries should stick to pretending to know Latin American debt markets. The utter brazenness of IMF pensioners advocating an IMF programme for Pakistan is so typical, it makes the challenge of affecting change in Pakistan for Pakistanis like Raza Rumi, Masooda Bano, and Harris Khalique (among dozens of others), much, much more difficult. How are these Pakistanis supposed to take on conflict of interest in the public sector for example, when the loudest IMF-type “reform” voices are IMF employees or pensioners? 

How out of touch are the pundits that are not only proposing Pakistan’s re-entry to the IMF club, but arguing for it vociferously, day and night, on television and in newspapers? Well, while the rest of the world is taking a moment to bask in the sheen of the triumph of ideas and idealism in Barack Obama’s election victory in the US, the freshest idea these guys can come up with is to drag Pakistan back into the same black hole it has been to eleven times before. How unrepentantly docile a response does an IMF programme represent? Consider this. Pakistan was chosen as a case study for the first-ever evaluation conducted by the IMF’s own Independent Evaluation Office. Why? Pakistan represents a unique country, which until 2002 had the longest-running relationship with the IMF in the world. No country to that point had spent as much time in board rooms with the IMF negotiating loans and conditionalities. Here’s what the IMF’s own evaluators had to say about the IMF and Pakistan in this report: “Serious doubts about the prospects of future implementation of the program would have had to be raised.”

So while IMF cheerleaders (who happen to be former IMF employees) are kicking and screaming for another IMF programme for Pakistan, it is not only the poets that have a problem with an IMF solution, it’s the thieves too. The IMF itself has “serious doubts” about how effective yet another IMF programme can be for Pakistan. 

Who else is against an IMF programme for the country? Most civil-society leaders, who tend to lean left of centre, want Pakistan to default. Most defence policy hawks, who tend to lean right of centre, have also endorsed the idea that Pakistan must default. Common Pakistani expats from around the world are excited–not just in agreement with, but actually excited–about the prospects of a Pakistani default. Young Pakistanis just starting their careers? Deeply motivated to rough it out, rather than use unsustainable crutches. Pakistan spending its way into a deep dark hole has become somewhat of a time-honoured tradition for this country. The fact that a radical solution like default is as popular as it seems to be should send serious and stern signals of warning to decision-makers at the State Bank, the Ministry of Finance and at IMF headquarters in Washington, DC. 

The popularity of a radical solution alone is bad enough. Even more worrying–indeed, incredibly worrying–is how the issue bridges the bipartisan divide. The two most polar positions in Pakistani political economy–the Islamabad hawks, and the Islamabad NGO-wallahs–are aligned when it comes to another IMF programme. Who will be left for the Washington Consensus to co-opt if these two get together on this issue? 

Of course, given that former IMF employees never worry about the political viability of their soup-in-a-can prescriptions, or the future of the country they are about to tag when they are with the IMF, it is only reasonable that they not worry after they are outside the agency. In fact, as the crisis becomes more and more desperate, the IMF cheerleaders become more and more shrill. Instead of taking pause to reflect about the state of a country that rewards cavemen with ministerial portfolios, that prioritises begging-bowl economics over infrastructure investments, and that values ideology over ideas–the IMF gang clearly wants one more shot at “fixing” Pakistan. 

What anyone who has spent the better part of the last decade in the trenches in Pakistan–rather than competing with the Republic National Committee at Neiman Marcus–has learnt, is that Pakistan can’t be fixed by the IMF, or any other external force. This is a beast of a country. It has its own momentum, its own political compulsions, and it requires its own dedicated experts. At PIDE, PILER, PIEDAR, SPDC, and SDPI many already exist, but have almost no voice. Their voice is stolen from them by jet-setting Washington Consensus operatives that have opacity and multiple interests pouring out of their international roaming Blackberries. 

The IMF evaluation of its work in Pakistan does not specify Pakistanis working at the IMF at the heart of the problems it has had in being successful in Pakistan, but it raises enough questions to raise more questions about why even basic due diligence does not occur when it comes to the IMF’s preparation for “assistance” packages for Pakistan. Here’s another excerpt from the evaluation conducted in 2002: 

“Even internal documents, however, did not go beyond the stage of taking note of past implementation difficulties. The only effort to take stock of past experience and draw strategic orientations for future IMF involvement was done in a 1993 country strategy paper (CSP), but its close links with the briefing paper for the negotiation of what became the 1994 EFF/ESAF limited its “strategic” value, and the lessons it drew from past experience did not appear to be consistently reflected in the design of subsequent programs. No other CSP was prepared since then, even after CSPs were given new impetus in 1997 through guidelines aimed at making them a prime vehicle for staff to step back from the contingencies of programme negotiations, learn lessons from past country experience, and design an optimal strategy for the IMF’s involvement in the country.”

So, not only does the IMF never really end up being useful for Pakistan, but in fact it mysteriously keeps continuing to engage with Pakistan, even after Pakistan continuously and repeatedly fails to live up to its commitments to the IMF. 

Will this time be any different? Of course it will not. The incentives are just too skewed. There are even more Pakistanis at the IMF and World Bank today than there have ever been in the past. They have seen the light. The brilliant career trajectories on offer in this country through the fast stream of international bureaucracy are too delicious to resist. Spend a decade in Washington, DC, pray for a crisis, fly into Islamabad with a “solution,” meet a dictator (or a democrat), speak in tongues, and get the job of a lifetime. It has been happening regularly since Ayub Khan. Change, however, is afoot in Pakistan. If you were working as an international bureaucrat, you might have missed the memo. This is a country of 172 million people. Economic crises may scare the super-rich and the elite, but most Pakistanis have nothing to lose. The lawyers know this. So they have lived by the sword, like they too have nothing to lose. The lawyers have inspired a generation of Pakistanis. Rumi is one voice among an almighty opera. A thousand policy memos cannot silence the chorus of change. 

In the meantime, it is of course deeply professionally risky for young writers to take on the Washington Consensus, and to write with a lack of the fake and hypocritical “respect” that these IMF uncles have got accustomed to. But it is much more risky for Pakistan to allow these same uncles to continue to peddle the mythology of Pakistan’s dependence on the IMF. The destiny and roti of 172 million people dependent on a bunch of suits? That will be the day. The IMF itself knows the value of a good suit. Its own reports and evaluations reject the hyperbole and hyperactivity of these cheerleaders. So should Pakistanis, left of centre, right of centre, and everywhere in-between.

http://www.thenews.com.pk/daily_detail.asp?id=143483

Why Pakistan Must Default

Tuesday, October 28, 2008
by Mosharraf Zaidi

Pakistan is not going to default, because nobody will let it. That’s too bad. Don’t let the “economists” scare you. Default sounds like a dark, scary, doomsday scenario. Sovereign default sounds worse, like God’s curse itself. It is not. “Sovereign” is the fancy term for country, used by the same loan sharks that milk pensioners to fatten their year-end bonuses (and who brought you Wall Street Meltdown 2008). Sovereign default is simply a country not making its loan repayments on time. It has happened to plenty of countries. They are all still around.

Ex-bankers and former IMF employees will never advise Pakistan to default because to do so would be counter-intuitive. It would be like expecting the PPP to undertake land reforms, or the Jamaat-e-Islami to be consistent about anything. Advising Pakistan to default would represent an existential crisis worse than sovereign default. People would be forced to revisit the premise of their entire careers. We can’t have that. So instead, we have experts from all around the world wringing their hands, loosening their ties and extolling the virtues of the “bitter pill” of yet another IMF programme. The purpose? To avoid the “dreaded” default, at all costs.

Why is default such a “scary” thing, and why do countries go to extraordinary lengths to avoid default? Countries try to avoid default for four reasons. First, countries try to avoid default to save the country’s reputation as a borrower in good standing–which means that they want to continue to borrow at rates that are favourable to them. Second, countries try to avoid default to save their ability to participate in international trade freely–which means they fear having sanctions imposed on them for being poor managers of their affairs. Third, countries try to avoid default to protect domestic banking and financial system–which means in essence that they want to protect the rich, because there aren’t many poor folks with bank accounts. And finally, the fourth reason countries try to avoid default is to save the government of the day from the disgrace of having defaulted.

Eduardo Borensztein and Ugo Panizza published an IMF working paper earlier this month that exposes one of the worst kept secrets in international development. They conclude that among all four of these reasons to avoid default, the most compelling, based on the evidence, is politics. They conclude that “The political consequences of a debt crisis seem to be particularly dire for incumbent governments and finance ministers”.

In short, governments choose not to default because it is the politically expedient thing to do. The actual economic costs of defaulting, Borenzstein and Panizza conclude, are simply not that high. Moreover, another paper earlier this year (by yet another IMF economist, Ali Alichi), suggests that the only real reason that countries repay the sovereign debt that they owe is to continue to be able to borrow money.

In short, Pakistan is trying to avoid defaulting so that the PPP government can stay in power, and so that while it stays in power, it can continue to borrow money. The real question here is: where is all the money going and why does Pakistan need to keep borrowing it?

Most of the money is going to debt-servicing and to defence. The traditional response to unsustainable expenditure in Pakistan is to call for a cut in defence spending, while continuing to find a way to pay off Pakistan’s loans. No one ever actually explains what they mean by cutting defence spending, which is why the conversation begins with a request to cut the defence budget, meanders into the patriotism of those demanding the cut, and ends with a straight-faced refusal. No one expects Pakistan to compromise its national security, but it is not unreasonable to explore more efficient ways of securing the nation and the national interest. Far from a national conversation about spending priorities however, no one has gone so far as to even suggest a more traditional and hawkish view, for example, that the war on terror being waged by Pakistan’s soldiers needs all the financing it can get, and that Pakistan’s debtors will have to wait. An even more refreshing case to make would be to suggest that both debt servicing and national security are major drags on current and future generations, and that they represent much lower priorities than building infrastructure, fixing the police and delivering real education. What would a Pakistani government that was committed to those priorities look like?

For starters it would stop hiring poorly qualified political workers to stack the deck for future election campaigns. Forget hiring another ten thousand jiyalas as teachers, to ruin another generation of children. Let’s face it, Pakistan cannot grow teachers on trees, it doesn’t have any teachers. It has to go out and hire the best Indonesian, Turkish, and Korean teachers. It has to bring them to Pakistan and put them to work. Pay them real salaries. Hire the Emiratis that have designed Sheikh Mohammad’s infrastructure revolution to do the same thing to Karachi. Then go out and hire every willing CBM, FAST, GIKI, and IBA graduate out there, and make cops and municipal administrators out of them. Take ten of those supercops, give them Blackberrys, night-vision goggles, Humvees and some ammo and put them outside every school. Forget the entourages. Protect the schools. Take the municipal administrators and tell them to get running water to those schools. If there’s no well, and no groundwater, teach them how to negotiate deals, so they can buy truckloads of mineral water for the students, and their mothers. Get those kids and their families some clean water. Make sure there are nurses and doctors at each school. Pay every Aga Khan University Medical School graduate twice what they would make as residents at Mount Sinai or Beth Israel. Teach the kids their native languages, drop the grammatically dreadful and aesthetically murderous fake American accents and bring back the Pakistani accent to film, television, radio and to dinner parties.

That’s the kind of expenditure that would explain indebting future generations of Pakistanis. It would explain deepening the pool of debt that Pakistan is drowning in. It would explain the helplessness currently being feigned by economic and political policy makers. In short, if Pakistan was borrowing money to pay for this kind of a social program, it would be hard to argue against it.

Instead, Pakistan is borrowing money to throw it into the same black hole that the money has been going into for at least a generation now. What has Pakistan got to show for almost forty years of sustained debt growth? Illiterate fanatics who can’t pronounce the name of God are taking over Swat because the courts don’t work. Drug lords and criminals posing as religious vigilantes are taking over NWFP because the cops don’t work, can’t work, and aren’t allowed to work. The water in the taps all over the country is toxic. The teachers at the school can barely read. The ones that can spend more time in Lahore, Peshawar, Quetta and Karachi, at the civil secretariat looking for a transfer, than teaching their students whatever little they know. The students are at home watching Sanju Baba kill bad guys, and Jon Abraham seduce bad girls. The mullahs are making speeches they don’t understand, to crowds that aren’t listening, until they bring on the hate. Then everybody listens. The uncles and aunties think cheap Broadway rip-offs with racy costumes constitute a culture renaissance. Little girls in rural Pakistan meanwhile are being traded by remorseless jirgas, in the name of honour. The culture vultures hate Arabic, love Punjabi, and are addicted to broken English. The hawks want beef, the doves want bhindi. And bankers want to loan Pakistan more money to finance the whole rot all over again.

It’s time for Pakistan to start spending its money on people servicing, instead of debt servicing. Bigger and more successful countries have done this before including Indonesia, Russia, and Argentina. Pakistan loves to ape other countries. Now is its chance. Time to default.