Topic:

International Monetary Fund (IMF)

Submitted To:
Sir Ejaz Hashmi

Submitted By:
Moieen Ud Din 12-ARID-1492
Adeel Ahmed 12-ARID-1487
Israr Ahmed 12-ARID-1496
Adnan Hassan 12-ARID-1488
Shaid Iqbal 12-ARID-1518

Date: 18-Jun-2015

University Institute of Management Sciences

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 International Monetary Fund

Introduction:
The International Monetary Fund and the World Bank were created in 1944 at a conference
in Bretton Woods, New Hampshire, and are now based in Washington, DC. The IMF was
originally designed to promote international economic cooperation and provide its member
countries with short term loans so they could trade with other countries (achieve balance of
payments). Since the debt crisis of the 1980's, the IMF has assumed the role of bailing out
countries during financial crises (caused in large part by currency speculation in the global
casino economy) with emergency loan packages tied to certain conditions, often referred to as
structural adjustment policies (SAPs). The IMF now acts like a global loan shark, exerting
enormous leverage over the economies of more than 60 countries. These countries have to
follow the IMF's policies to get loans, international assistance, and even debt relief. Thus, the
IMF decides how much debtor countries can spend on education, health care, and
environmental protection. The IMF is one of the most powerful institutions on Earth -- yet
few know how it works.

History:
Cooperation and reconstruction (1944–71):

During the Great Depression of the 1930s, countries attempted to shore up their failing
economies by sharply raising barriers to foreign trade, devaluing their currencies to compete
against each other for export markets, and curtailing their citizens' freedom to hold foreign
exchange. These attempts proved to be self-defeating. World trade declined sharply, and
employment and living standards plummeted in many countries.

This breakdown in international monetary cooperation led the IMF's founders to plan an
institution charged with overseeing the international monetary system—the system of
exchange rates and international payments that enables countries and their citizens to buy
goods and services from each other. The new global entity would ensure exchange rate
stability and encourage its member countries to eliminate exchange restrictions that hindered
trade.

The end of the Bretton Woods System (1972–81):

By the early 1960s, the U.S. dollar's fixed value against gold, under the Bretton Woods
system of fixed exchange rates, was seen as overvalued. A sizable increase in domestic
spending on President Lyndon Johnson's Great Society programs and a rise in military
spending caused by the Vietnam War gradually worsened the overvaluation of the dollar.

End of Bretton Woods system:

The system dissolved between 1968 and 1973. In August 1971, U.S. President Richard Nixon
announced the "temporary" suspension of the dollar's convertibility into gold. While the
dollar had struggled throughout most of the 1960s within the parity established at Bretton

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Woods, this crisis marked the breakdown of the system. An attempt to revive the fixed
exchange rates failed, and by March 1973 the major currencies began to float against each
other.

Since the collapse of the Bretton Woods system, IMF members have been free to choose any
form of exchange arrangement they wish (except pegging their currency to gold): allowing
the currency to float freely, pegging it to another currency or a basket of currencies, adopting
the currency of another country, participating in a currency bloc, or forming part of a
monetary union.

Oil shocks

Many feared that the collapse of the Bretton Woods system would bring the period of rapid
growth to an end. In fact, the transition to floating exchange rates was relatively smooth, and
it was certainly timely: flexible exchange rates made it easier for economies to adjust to more
expensive oil, when the price suddenly started going up in October 1973. Floating rates have
facilitated adjustments to external shocks ever since.

The IMF responded to the challenges created by the oil price shocks of the 1970s by adapting
its lending instruments. To help oil importers deal with anticipated current account deficits
and inflation in the face of higher oil prices, it set up the first of two oil facilities.

Helping poor countries

From the mid-1970s, the IMF sought to respond to the balance of payments difficulties
confronting many of the world's poorest countries by providing concessional financing
through what was known as the Trust Fund. In March 1986, the IMF created a new
concessional loan program called the Structural Adjustment Facility. The SAF was succeeded
by the Enhanced Structural Adjustment Facility in December 1987.

Debt and painful reforms (1982–89):

The oil shocks of the 1970s, which forced many oil-importing countries to borrow from
commercial banks, and the interest rate increases in industrial countries trying to control
inflation led to an international debt crisis.

During the 1970s, Western commercial banks lent billions of "recycled" petrodollars, getting
deposits from oil exporters and lending those resources to oil-importing and developing
countries, usually at variable, or floating, interest rates. So when interest rates began to soar
in 1979, the floating rates on developing countries' loans also shot up. Higher interest
payments are estimated to have cost the non-oil-producing developing countries at least $22
billion during 1978–81. At the same time, the price of commodities from developing
countries slumped because of the recession brought about by monetary policies. Many times,
the response by developing countries to those shocks included expansionary fiscal policies
and overvalued exchange rates, sustained by further massive borrowings.

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When a crisis broke out in Mexico in 1982, the IMF coordinated the global response, even
engaging the commercial banks. It realized that nobody would benefit if country after country
failed to repay its debts.

The IMF's initiatives calmed the initial panic and defused its explosive potential. But a long
road of painful reform in the debtor countries, and additional cooperative global measures,
would be necessary to eliminate the problem.

Societal Change for Eastern Europe and Asian Upheaval (1990-2004):

The fall of the Berlin wall in 1989 and the dissolution of the Soviet Union in 1991 enabled
the IMF to become a (nearly) universal institution. In three years, membership increased from
152 countries to 172, the most rapid increase since the influx of African members in the
1960s.

In order to fulfill its new responsibilities, the IMF's staff expanded by nearly 30 percent in six
years. The Executive Board increased from 22 seats to 24 to accommodate Directors from
Russia and Switzerland, and some existing Directors saw their constituencies expand by
several countries.

The IMF played a central role in helping the countries of the former Soviet bloc transition
from central planning to market-driven economies. This kind of economic transformation had
never before been attempted, and sometimes the process was less than smooth. For most of
the 1990s, these countries worked closely with the IMF, benefiting from its policy advice,
technical assistance, and financial support.

By the end of the decade, most economies in transition had successfully graduated to market
economy status after several years of intense reforms, with many joining the European Union
in 2004.

Asian Financial Crisis

In 1997, a wave of financial crises swept over East Asia, from Thailand to Indonesia to Korea
and beyond. Almost every affected country asked the IMF for both financial assistance and
for help in reforming economic policies. Conflicts arose on how best to cope with the crisis,
and the IMF came under criticism that was more intense and widespread than at any other
time in its history.

From this experience, the IMF drew several lessons that would alter its responses to future
events. First, it realized that it would have to pay much more attention to weaknesses in
countries’ banking sectors and to the effects of those weaknesses on macroeconomic stability.
In 1999, the IMF—together with the World Bank—launched the Financial Sector Assessment
Program and began conducting national assessments on a voluntary basis. Second, the Fund
realized that the institutional prerequisites for successful liberalization of international capital
flows were more daunting than it had previously thought. Along with the economics
profession generally, the IMF dampened its enthusiasm for capital account liberalization.
Third, the severity of the contraction in economic activity that accompanied the Asian crisis

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necessitated a re-evaluation of how fiscal policy should be adjusted when a crisis was
precipitated by a sudden stop in financial inflows.

Debt relief for poor countries

During the 1990s, the IMF worked closely with the World Bank to alleviate the debt burdens
of poor countries. The Initiative for Heavily Indebted Poor Countries was launched in 1996,
with the aim of ensuring that no poor country faces a debt burden it cannot manage. In 2005,
to help accelerate progress toward the United Nations Millennium Development Goals
(MDGs), the HIPC Initiative was supplemented by the Multilateral Debt Relief Initiative
(MDRI).

Globalization and the Crisis (2005 - present):

The IMF has been on the front lines of lending to countries to help boost the global economy
as it suffers from a deep crisis not seen since the Great Depression.

For most of the first decade of the 21st century, international capital flows fueled a global
expansion that enabled many countries to repay money they had borrowed from the IMF and
other official creditors and to accumulate foreign exchange reserves.

The global economic crisis that began with the collapse of mortgage lending in the United
States in 2007, and spread around the world in 2008 was preceded by large imbalances in
global capital flows.

Global capital flows fluctuated between 2 and 6 percent of world GDP during 1980-95, but
since then they have risen to 15 percent of GDP. In 2006, they totaled $7.2 trillion—more
than a tripling since 1995. The most rapid increase has been experienced by advanced
economies, but emerging markets and developing countries have also become more
financially integrated.

The founders of the Bretton Woods system had taken it for granted that private capital flows
would never again resume the prominent role they had in the nineteenth and early twentieth
centuries, and the IMF had traditionally lent to members facing current account difficulties.

The latest global crisis uncovered fragility in the advanced financial markets that soon led to
the worst global downturn since the Great Depression. Suddenly, the IMF was inundated with
requests for stand-by arrangements and other forms of financial and policy support.

The international community recognized that the IMF’s financial resources were as important
as ever and were likely to be stretched thin before the crisis was over. With broad support
from creditor countries, the Fund’s lending capacity was tripled to around $750 billion. To
use those funds effectively, the IMF overhauled its lending policies, including by creating a
flexible credit line for countries with strong economic fundamentals and a track record of
successful policy implementation. Other reforms, including ones tailored to help low-income
countries, enabled the IMF to disburse very large sums quickly, based on the needs of
borrowing countries and not tightly constrained by quotas, as in the past.

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For more on the ideas that have shaped the IMF from its inception until the late 1990s, take a
look at James Boughton's "The IMF and the Force of History: Ten Events and Ten Ideas that
Have Shaped the Institution."

Purpose of IMF:
The International Monetary Fund created for the purpose of:

1. Promotion global monetary and exchange stability.

2. Facilitating the expansion and balanced growth of international trade.

3. Assisting in the establishment of a multilateral system of payments for current

transactions.

International Monetary Fund Organization Chart:

Board of Governors:

The Board of Governors is the highest decision-making body of the IMF. It consists of one
governor and one alternate governor for each member country. The governor is appointed by
the member country and is usually the minister of finance or the head of the central bank.

The Board of Governors also elects or appoints executive directors and is the ultimate arbiter
on issues related to the interpretation of the IMF's Articles of Agreement. Voting by the
Board of Governors usually takes place by mail-in ballot.

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The Boards of Governors of the IMF and the World Bank Group normally meet once a year,
during the IMF-World Bank Spring and Annual Meetings, to discuss the work of their
respective institutions. The Meetings, which take place in September or October, have
customarily been held in Washington for two consecutive years and in another member
country in the third year.

The Annual Meetings usually include two days of plenary sessions, during which Governors
consult with one another and present their countries' views on current issues in international
economics and finance. During the Meetings, the Boards of Governors also make decisions
on how current international monetary issues should be addressed and approve corresponding
resolutions.

The Annual Meetings are chaired by a Governor of the World Bank and the IMF, with the
chairmanship rotating among the membership each year. Every two years, at the time of the
Annual Meetings, the Governors of the Bank and the Fund elect Executive Directors to their
respective Executive Boards.

Ministerial Committees

The IMF Board of Governors is advised by two ministerial committees, the International
Monetary and Financial Committee (IMFC) and the Development Committee.

The IMFC has 24 members, drawn from the pool of 187 governors. Its structure mirrors that
of the Executive Board and its 24 constituencies. As such, the IMFC represents all the
member countries of the Fund.

The IMFC meets twice a year, during the spring and Annual Meetings. The Committee
discusses matters of common concern affecting the global economy and also advises the IMF
on the direction its work. At the end of the Meetings, the Committee issues a joint
communiqué summarizing its views. These communiqués provide guidance for the IMF's
work program during the six months leading up to the next spring or Annual Meetings. There
is no formal voting at the IMFC, which operates by consensus.

The Development Committee is a joint committee, tasked with advising the Boards of
Governors of the IMF and the World Bank on issues related to economic development in
emerging and developing countries. The committee has 24 members (usually ministers of
finance or development). It represents the full membership of the IMF and the World Bank
and mainly serves as a forum for building intergovernmental consensus on critical
development issues.

The Executive Board

The IMF's 24-member Executive Board takes care of the daily business of the IMF. Together,
these 24 board members represent all 188 countries. Large economies, such as the United
States and China, have their own seat at the table but most countries are grouped in
constituencies representing 4 or more countries. The largest constituency includes 24
countries.

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The Board discusses everything from the IMF staff's annual health checks of member
countries' economies to economic policy issues relevant to the global economy. The board
normally makes decisions based on consensus but sometimes formal votes are taken. At the
end of most formal discussions, the Board issues what is known as a summing up, which
summarizes its views. Informal discussions may be held to discuss complex policy issues still
at a preliminary stage.

IMF Staff:
The IMF has an international staff of about 2,600 economists, statisticians, research scholars,
experts in public finance and taxation and in finance systems and banking, linguists, writers
and editors, and support personnel, most headquartered in Washington, DC. The IMF is
headed by a Managing Director who is also chairman of the Executive Board, which appoints
him.

Member countries:
The International Monetary Fund (IMF) is an organization of 188 countries, working to foster
global monetary cooperation, secure financial stability, facilitate international trade, promote
high employment and sustainable economic growth, and reduce poverty around the world.

Members of IMF
188 members countries

Members Effective Date of Members Effective Date of

membership membership

Belgium December 27, 1945 Malaysia (Malaya) March 7, 1958

Bolivia December 27, 1945 Tunisia April 14, 1958
Canada December 27, 1945 Morocco April 25, 1958
China December 27, 1945 Spain September 15, 1958
Colombia December 27, 1945 Libya September 17, 1958
Czechoslovakia (December 27, 1945) Portugal March 29, 1961
Egypt December 27, 1945 Nigeria March 30, 1961
Ethiopia December 27, 1945 Lao People's July 5, 1961
Democratic Republic
(Laos)
France December 27, 1945 New Zealand August 31, 1961
Greece December 27, 1945 Nepal September 6, 1961
Honduras December 27, 1945 Cyprus December 21, 1961
Iceland December 27, 1945 Liberia March 28, 1962
India December 27, 1945 Togo August 1, 1962
Iraq December 27, 1945 Senegal August 31, 1962
Luxembourg December 27, 1945 Somalia August 31, 1962
Netherlands December 27, 1945 Sierra Leone September 10, 1962

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 Norway December 27, 1945 Tanzania September 10, 1962
(Tanganyika)
Philippines December 27, 1945 Kuwait September 13, 1962
South Africa December 27, 1945 Jamaica February 21, 1963
United Kingdom December 27, 1945 Côte d'Ivoire (Ivory March 11, 1963
Coast)
United States December 27, 1945 Niger April 24, 1963
Yugoslavia December 27, 1945 Burkina Faso (Upper May 2, 1963
Volta)
Dominican Republic December 28, 1945 Cameroon July 10, 1963
Ecuador December 28, 1945 Central African July 10, 1963
Republic
Guatemala December 28, 1945 Chad July 10, 1963
Paraguay December 28, 1945 Congo, Republic of July 10, 1963
Iran, Islamic Republic December 29, 1945 Benin (Dahomey) July 10, 1963
of (Iran)
Chile December 31, 1945 Gabon September 10, 1963
Mexico December 31, 1945 Mauritania September 10, 1963
Peru December 31, 1945 Trinidad and Tobago September 16, 1963
Costa Rica January 8, 1946 Madagascar September 25, 1963
(Malagasy Republic)
Poland January 10, 1946 Algeria September 26, 1963
Brazil January 14, 1946 Mali September 27, 1963
Uruguay March 11, 1946 Uganda September 27, 1963
Cuba March 14, 1946 Burundi September 28, 1963
El Salvador March 14, 1946 Congo, Democratic September 28, 1963
Republic of the
(Zaïre)
Nicaragua March 14, 1946 Guinea September 28, 1963
Panama March 14, 1946 Rwanda September 30, 1963
Denmark March 30, 1946 Kenya February 3, 1964
Venezuela, República December 30, 1946 Malawi July 19, 1965
Bolivariana
Turkey March 11, 1947 Zambia September 23, 1965
Italy March 27, 1947 Singapore August 3, 1966
Syrian Arab Republic April 10, 1947 Guyana September 26, 1966
(Syria)
Lebanon April 14, 1947 Indonesia9 February 21, 1967
Australia August 5, 1947 Gambia, The September 21, 1967
Finland January 14, 1948 Botswana July 24, 1968
Austria August 27, 1948 Lesotho July 25, 1968
Thailand (Siam) May 3, 1949 Malta September 11, 1968
Pakistan July 11, 1950 Mauritius September 23, 1968
Sri Lanka (Ceylon) August 29, 1950 Swaziland September 22, 1969
Sweden August 31, 1951 (Yemen, People's
Democratic
Myanmar (Burma) January 3, 1952 Republic of (Southern September 29, 1969
Yemen))10

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 Japan August 13, 1952 Equatorial Guinea December 22, 1969
Germany August 14, 1952 Cambodia December 31, 1969
Jordan August 29, 1952 (Yemen Arab May 22, 1970
Republic)10
Haiti September 8, 1953 Barbados December 29, 1970
Indonesia April 15, 1954 Fiji May 28, 1971
Israel July 12, 1954 Oman December 23, 1971
Afghanistan, Islamic July 14, 1955 Samoa (Western December 28, 1971
Rep. of (Afghanistan) Samoa)
Korea August 26, 1955 Belize March 16, 1982
Argentina September 20, 1956 Hungary May 6, 1982
Vietnam (Viet Nam) September 21, 1956 St. Kitts and Nevis August 15, 1984
Ireland August 8, 1957 Mozambique September 24, 1984
Saudi Arabia August 26, 1957 Tonga September 13, 1985
Sudan September 5, 1957 Kiribati June 3, 1986
Ghana September 20, 1957 Poland1,6 June 12, 1986
Bangladesh August 17, 1972 Angola September 19, 1989
Bahrain September 7, 1972 Yemen, Republic of10 May 22, 1990
Qatar September 8, 1972 Czechoslovakia September 20, 1990
United Arab Emirates September 22, 1972 Bulgaria September 25, 1990
Romania December 15, 1972 Namibia September 25, 1990
Bahamas, The August 21, 1973 Mongolia February 14, 1991
Grenada August 27, 1975 Albania October 15, 1991
Papua New Guinea October 9, 1975 Lithuania April 29, 1992
Comoros September 21, 1976 Georgia May 5, 1992
Guinea-Bissau March 24, 1977 Kyrgyz Republic May 8, 1992
(Kyrgyzstan)
Seychelles June 30, 1977 Latvia May 19, 1992
São Tomé and September 30, 1977 Marshall Islands May 21, 1992
Príncipe
Maldives January 13, 1978 Estonia May 26, 1992
Suriname April 27, 1978 Armenia May 28, 1992
Solomon Islands September 22, 1978 Switzerland May 29, 1992
Cape Verde November 20, 1978 Russian Federation June 1, 1992
Dominica December 12, 1978 Belarus July 10, 1992
Djibouti December 29, 1978 Kazakhstan July 15, 1992
St. Lucia November 15, 1979 Moldova August 12, 1992
St. Vincent and the December 28, 1979 Ukraine September 3, 1992
Grenadines
Zimbabwe September 29, 1980 Azerbaijan September 18, 1992
Bhutan September 28, 1981 Uzbekistan September 21, 1992
Vanuatu September 28, 1981 Turkmenistan September 22, 1992
Antigua and Barbuda February 25, 1982 Tajikistan April 27, 1993
San Marino September 23, 1992 Micronesia, Federated June 24, 1993
States of
Bosnia and December 14, 1992 Eritrea July 6, 1994
Herzegovina5
Croatia5 December 14, 1992 Brunei Darussalam October 10, 1995

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 Macedonia, former December 14, 1992 Palau December 16, 1997
Yugoslav Republic
of5
Slovenia5 December 14, 1992 Timor-Leste (East July 23, 2002
Timor)
Serbia5 December 14, 1992 Montenegro5 January 18, 2007
Czech Republic3 January 1, 1993 Kosovo June 29, 2009
Slovak Republic3 January 1, 1993 Tuvalu June 24, 2010
South Sudan April 18, 2012

Qualifications for Apply:

Any country may apply to be a part of the IMF. Post-IMF formation, in the early postwar
period, rules for IMF membership were left relatively loose. Members needed to make
periodic membership payments towards their quota, to refrain from currency restrictions
unless granted IMF permission, to abide by the Code of Conduct in the IMF Articles of
Agreement, and to provide national economic information. However, stricter rules were
imposed on governments that applied to the IMF for funding.

The countries that joined the IMF between 1945 and 1971 agreed to keep their exchange rates
secured at rates that could be adjusted only to correct a "fundamental disequilibrium" in the
balance of payments, and only with the IMF's agreement. Some members have a very
difficult relationship with the IMF and even when they are still members they do not allow
themselves to be monitored. Argentina, for example, refuses to participate in an Article IV
Consultation with the IMF.

Benefits for Members Country:

Member countries of the IMF have access to information on the economic policies of all
member countries, the opportunity to influence other members’ economic policies, technical
assistance in banking, fiscal affairs, and exchange matters, financial support in times of
payment difficulties, and increased opportunities for trade and investment.

The benefits of belonging to the IMF are obviously convincing to countries that have
voluntarily joined the organization. These countries anticipate that membership will help
them run their own economies better. Because member countries are known to be following
the IMF code of conduct, membership encourages investment and trade, leading to fuller
employment. The IMF also provides technical assistance and financial support when the
member country needs it.

1. Access to information on economic policies of all member countries

2. Opportunity to influence members’ economic policies
3. Access to technical assistance in banking, fiscal affairs, and exchange matters
4. Financial support in times of payment difficulties
5. Increased opportunity for trade and investment

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How is the IMF Financed?

The IMF is financed by member countries who contribute funds on joining. They can also
increase this throughout their membership. The IMF can also ask its member countries for
more money. IMF financial resources have risen from about $50 billion in 1950 to nearly
$300 billion last year, sourced from contributions from its all members. This initial amount
depends on the size of the country’s economy. E.g. the US deposited the largest amount with
the IMF. The US currently has 16% of voting rights at the IMF, a reflection of its quotas
deposited with IMF. The UK has 4% of IMF Voting rights. Loans are also available to
developing countries to ‘deal with poverty reduction.

Where the IMF Gets Its Money:

On joining the IMF, each member country contributes a certain sum of money, called a quota
subscription, which is based on the country’s wealth and economic performance. Each
member of the IMF is assigned a quota, based broadly on its relative size in the world
economy, which determines its maximum contribution to the IMF’s financial resources.
Upon joining the IMF, a country normally pays up to one-quarter of its quota in the form of
widely accepted foreign currencies (such as the U.S. dollar, euro, yen, or pound sterling). The
remaining three-quarters are paid in the country’s own currency. IMF financial resources
have risen from about $50 billion in 1950 to nearly $300 billion last year, sourced from
contributions from its all members.

The current quota formula is a weighted average of GDP (weight of 50 percent), openness
(30 percent), economic variability (15 percent), and international reserves (5 percent).

Obligations of Membership:

1. Agree to the code of conduct found in the IMF Articles of Agreement

2. Pay a quota subscription
3. Refrain from restrictions on exchange of foreign currency
4. Strive for openness in economic policies affecting other countries.

Functions of IMF:
The IMF works to foster global growth and economic stability by providing policy advice
and financing to members, by working with developing nations to help them achieve
macroeconomic stability, and by reducing poverty. The rationale for this is that private
international capital markets function imperfectly and many countries have limited access to
financial markets. Such market imperfections, together with balance-of-payments financing,
provide the justification for official financing, without which many countries could only
correct large external payment imbalances through measures with adverse economic
consequences. The IMF provides alternate sources of financing.

Upon initial IMF formation, its two primary functions were: to oversee the fixed exchange
rate arrangements between countries, thus helping national governments manage their

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exchange rates and allowing these governments to priorities economic growth, and to provide
short-term capital to aid balance of payments. This assistance was meant to prevent the
spread of international economic crises. The IMF was also intended to help mend the pieces
of the international economy post the Great Depression and World War II.

The IMF's role was fundamentally altered after the floating exchange rates post 1971. It
shifted to examining the economic policies of countries with IMF loan agreements to
determine if a shortage of capital was due to economic fluctuations or economic policy. The
IMF also researched what types of government policy would ensure economic recovery. The
new challenge is to promote and implement policy that reduces the frequency of crises among
the emerging market countries, especially the middle-income countries that are vulnerable to
massive capital outflows. Rather than maintaining a position of oversight of only exchange
rates, their function became one of “surveillance” of the overall macroeconomic performance
of member countries. Their role became a lot more active because the IMF now manages
economic policy rather than just exchange rates.

In addition, the IMF negotiates conditions on lending and loans under their policy of
conditionality, which was established in the 1950s. Low-income countries can borrow on
concessional terms, which mean there is a period of time with no interest rates, through the
Extended Credit Facility (ECF), the Standby Credit Facility (SCF) and the Rapid Credit
Facility (RCF). Non concessional loans, which include interest rates, are provided mainly
through Stand-By Arrangements (SBA), the Flexible Credit Line (FCL), the Precautionary
and Liquidity Line (PLL), and the Extended Fund Facility. The IMF provides emergency
assistance via the Rapid Financing Instrument (RFI) to members facing urgent balance-of-
payments needs.

Surveillance of the global economy:

The IMF is mandated to oversee the international monetary and financial system and monitor
the economic and financial policies of its member countries. This activity is known as
surveillance and facilitates international cooperation. Since the demise of the Bretton Woods
system of fixed exchange rates in the early 1970s, surveillance has evolved largely by way of
changes in procedures rather than through the adoption of new obligations. The
responsibilities changed from those of guardian to those of overseer of members’ policies.

The Fund typically analyses the appropriateness of each member country’s economic and
financial policies for achieving orderly economic growth, and assesses the consequences of
these policies for other countries and for the global economy. In 1995 the International
Monetary Fund began work on data dissemination standards with the view of guiding IMF
member countries to disseminate their economic and financial data to the public. The
International Monetary and Financial Committee (IMFC) endorsed the guidelines for the
dissemination standards and they were split into two tiers: The General Data Dissemination
System (GDDS) and the Special Data Dissemination Standard (SDDS).

The executive board approved the SDDS and GDDS in 1996 and 1997 respectively, and
subsequent amendments were published in a revised Guide to the General Data

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Dissemination System. The system is aimed primarily at statisticians and aims to improve
many aspects of statistical systems in a country. It is also part of the World Bank Millennium
Development Goals and Poverty Reduction Strategic Papers.

The primary objective of the GDDS is to encourage member countries to build a framework
to improve data quality and statistical capacity building in order to evaluate statistical needs,
set priorities in improving the timeliness, transparency, reliability and accessibility of
financial and economic data. Some countries initially used the GDDS, but later upgraded to
SDDS.

Conditionality of loans:

IMF conditionality is a set of policies or conditions that the IMF requires in exchange for
financial resources. The IMF does require collateral from countries for loans but also requires
the government seeking assistance to correct its macroeconomic imbalances in the form of
policy reform. If the conditions are not met, the funds are withheld. Conditionality is perhaps
the most controversial aspect of IMF policies. The concept of conditionality was introduced
in a 1952 Executive Board decision and later incorporated into the Articles of Agreement.

Conditionality is associated with economic theory as well as an enforcement mechanism for

repayment. Stemming primarily from the work of Jacques Polak, the theoretical underpinning
of conditionality was the "monetary approach to the balance of payments.

Structural adjustment:

Some of the conditions for structural adjustment can include:

 Cutting expenditures, also known as austerity.

 Focusing economic output on direct export and resource extraction,
 Devaluation of currencies,
 Trade liberalization, or lifting import and export restrictions,
 Increasing the stability of investment (by supplementing foreign direct investment
with the opening of domestic stock markets),
 Balancing budgets and not overspending,
 Removing price controls and state subsidies,
 Privatization, or divestiture of all or part of state-owned enterprises,
 Enhancing the rights of foreign investors vis-a-vis national laws,
 Improving governance and fighting corruption.
 These conditions have also been sometimes labeled as the Washington Consensus.

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ROLES OF IMF:

1. Surveillance:

It is the responsibility of the Fund to see whether the members are serious regarding their
functions, whether they get guidance from Fund regarding exchange rate policies. In respect
of conduct of exchange rate policies fund has approved three principles (1) A member in
order to get undue benefit will not prefer any other member (2) For the sake of abolition of
destabilizing forces in exchange rate govt. should interfere in foreign exchange market (3)
Regarding such intervention is should be kept in view that the interests of the other countries
be not affected. Thus under this function there is regular dialogue and policy advice which
IMF offers to each member. Hence IMF makes an appraisal of each member’s economy

2. Exchange Restrictions:

In the light of Article VIII of the Fund, no country can put any type of restrictions on the
payments regarding Current Account. However a country can impose restrictions on the
movement regarding capital amount. Again no country can impose restrictions that the
transactions will be made in certain currencies.

3. Consultation and Technical Assistance:

For the sake of effective performance of its functions fund must be having the information
regarding the economic policies and economic conditions of its member countries. This will
be possible if the fund and the members are linked to each other. In 1984, 118 countries
completed their talks with fund under Article IV. Again the Fund provides technical
assistance to its members regarding strengthening their capacity to design and implement
effective policies. Fund assists in the areas of fiscal policy, monetary policy, exchange rate,
banking and financial system etc.

4. Lending For BOP Difficulties:

Basically Fund is aimed to provide financial assistance to those member countries which
suffer from BOP difficulties. But to the poor countries, it also assists in the attainment of
growth and alleviation of poverty.

5. IMF policies promote corporate welfare:

To increase exports, countries are encouraged to give tax breaks and subsidies to export
industries. Public assets such as forestland and government utilities (phone, water and
electricity companies) are sold off to foreign investors at rock bottom prices. In Guyana, an
Asian owned timber company called Barama received a logging concession that was 1.5
times the total amount of land all the indigenous communities were granted. Barama also
received a five-year tax holiday. The IMF forced Haiti to open its market to imported, highly

15
subsidized US rice at the same time it prohibited Haiti from subsidizing its own farmers. A
US corporation called Early Rice now sells nearly 50 percent of the rice consumed in Haiti.

6. Lending:

The IMF provides loans to countries that have trouble meeting their international payments
and cannot otherwise find sufficient financing on affordable terms. This financial assistance
is designed to help countries restore macroeconomic stability by rebuilding their international
reserves, stabilizing their currencies, and paying for imports—all necessary conditions for
launching growth. The IMF also provides concessional loans to low-income countries to help
them develop their economies and reduce poverty.

7. Loans to Country’s with financial crisis:

The IMF has $300 billion of loanable funds. This comes from member countries who deposit
a certain amount on joining. In times of financial / economic crisis, the IMF may be willing
to make available loans as part of a financial readjustment. The IMF has arranged more than
$180 billion in bailout packages since 1997.

8. Analysis and advisory services:

The IMF still sees its primary purpose in promoting world trade, and in securing the general
well-being of the world economy, through analysis and advice. This advice is aimed at
avoiding inconsistencies between the policies of its different member states, and policy
mistakes by individual members. The IMF tries to influence the policies of its members, in
the belief that poor policies have an adverse effect that extends beyond national frontiers. Its
Articles of Agreement (Article I, 1) refer to the establishment of a "machinery for
consultation and collaboration on international monetary problems". The term used by the
IMF for this function is "surveillance".

9. Drawings on the Fund:

The IMF is primarily a financial institution, which provides credits to member countries,
known in IMF terminology as "drawings on the Fund". Such credits are extended in relation
to the size of the quota. Since the 1950’s, credit has been provided in “tranches”, units
corresponding to 25% of a member’s quota. The first tranche is available automatically,
without any discussion of policy. The larger the credit is in relation to the quota, in other
words, the higher the tranche, the higher is the extent of policy reform required
(conditionality). These credits are at a rate of interest calculated by the IMF to correspond
with market rates of principal member countries, and to cover the IMF's operating costs.

10. Subsidized credit:

In some circumstances, the IMF is a provider of subsidized credit. Since the 1970’s, the IMF
has given low interest credits to poor countries, who at that time were especially vulnerable
because of the increased cost of imported fuel. The interest subsidy was paid through a Trust

16
Fund, financed in part in the 1970’s by the sale of parts of the IMF's gold reserves.
Currently, the IMF’s facilities for low-income members, defined principally on a basis of per
capita income and eligibility for the concessional lending of the World Bank Group under
IDA (International Development Association), are known as the Enhanced Structural
Adjustment Facility. The loans are made available in three installments over a three year
period, carry an interest of 0.5%, and are repaid over a period from 5 ½ to 10 years after the
loan disbursement. At the end of July 1999, the IMF had SDR 6.5 bn. in credit outstanding
under this subsidized credit arrangement (or 10.2% of its total outstanding credit). The
subsidy is paid in part from interest from the Trust Fund created in the 1970’s, and in part
from donations and loans from member countries.

11. Balance of payments disequilibria:

Provide short term finance to deal with temporary balance of payments disequilibria (such
problems were assumed to arise from the current account, since it was believed that capital
flows in the post war would be minimal and moreover the Articles encouraged capital
controls). The pursuit of inappropriate demand management policies by a member country
would lead to danger signals, in the form of balance of payments imbalances. If the
imbalance reflected a fundamental disequilibrium (never explicitly defined but generally
meaning an unsustainable payments imbalance), the exchange rate would be altered with the
approval of the Fund. If the problem was perceived to be temporary, the IMF would provide
financial assistance. Through the quota mechanism, the IMF de facto created an additional
pool of reserves (it functioned analogously to a credit union).

12. Economic stability:

The IMF works to foster global growth and economic stability by providing policy advice
and financing to members, by working with developing nations to help them achieve
macroeconomic stability, and by reducing poverty. The rationale for this is that private
international capital markets function imperfectly and many countries have limited access to
financial markets. Such market imperfections, together with balance-of-payments financing,
provide the justification for official financing, without which many countries could only
correct large external payment imbalances through measures with adverse economic
consequences. The IMF provides alternate sources of financing.

13. Assists Low-income countries:

In addition, the IMF negotiates conditions on lending and loans under their policy of
conditionality,[8] which was established in the 1950s.[10] Low-income countries can borrow
on concessional terms, which means there is a period of time with no interest rates, through
the Extended Credit Facility (ECF), the Standby Credit Facility (SCF) and the Rapid Credit
Facility (RCF). No concessional loans, which include interest rates, are provided mainly
through Stand-By Arrangements (SBA), the Flexible Credit Line (FCL), the Precautionary
and Liquidity Line (PLL), and the Extended Fund Facility. The IMF provides emergency

17
assistance via the Rapid Financing Instrument (RFI) to members facing urgent balance-of-
payments needs.

18
14. Role in good governance:

1. Reflecting the increased significance that member countries attach to the promotion of
good governance, on January 15, 1997, the Executive Board held a preliminary
discussion on the role of the IMF in governance issues, followed by a discussion on
May 14, 1997, on guidance to the staff.1 The discussions revealed a strong consensus
among Executive Directors on the importance of good governance for economic
efficiency and growth. It was observed that the IMF’s role in these issues had been
evolving pragmatically as more was learned about the contribution that greater
attention to governance issues could make to macroeconomic stability and sustainable
growth in member countries. Directors were strongly supportive of the role the IMF
has been playing in this area in recent years through its policy advice and technical
assistance.
2. The IMF contributes to promoting good governance in member countries through
different channels. First, in its policy advice, the IMF has assisted its member
countries in creating systems that limit the scope for ad hoc decision making, for rent
seeking, and for undesirable preferential treatment of individuals or organizations. To
this end, the IMF has encouraged, among other things, liberalization of the exchange,
trade, and price systems, and the elimination of direct credit allocation. Second, IMF
technical assistance has helped member countries in enhancing their capacity to
design and implement economic policies, in building effective policymaking
institutions, and in improving public sector accountability. Third, the IMF has
promoted transparency in financial transactions in the government budget, central
bank, and the public sector more generally, and has provided assistance to improve
accounting, auditing, and statistical systems. In all these ways, the IMF has helped
countries to improve governance, to limit the opportunity for corruption, and to
increase the likelihood of exposing instances of poor governance. In addition, the IMF
has addressed specific issues of poor governance, including corruption, when they
have been judged to have a significant macroeconomic impact.
3. Building on the IMF’s past experience in dealing with governance issues and taking
into account the two Executive Board discussions, the following guidelines seek to
provide greater attention to IMF involvement in governance issues, in particular
through:
 A more comprehensive treatment in the context of both Article IV consultations
and IMF-supported programs of those governance issues that are within the IMF’s
mandate and expertise;
 A more proactive approach in advocating policies and the development of
institutions and administrative systems that aim to eliminate the opportunity for
rent seeking, corruption, and fraudulent activity;
 An evenhanded treatment of governance issues in all member countries; and
 Enhanced collaboration with other multilateral institutions, in particular the World
Bank, to make better use of complementary areas of expertise.

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Role in Pakistan:

The History

Pakistan became a member of the IMF in 1950 and the first time the Government of Pakistan
opted for a loan from the IMF was in 1958. This was a Standby Agreement (SBA) amounting
to USD 25 Million. However, due to political disturbance, this loan was cancelled soon after.
Pakistan received its second and third SBAs in 1965 and 1968, during Field Marshal Ayub
Khan’s era. Four more SBAs worth USD 330 Million were granted to Pakistan during
General Yahya Khan’s regime who replaced Ayub Khan. As governments changed hands in
Pakistan, in a 20 year span from 1958 to 1979, Pakistan had been granted a total amount of
USD 460 Million in IMF Packages. A USD 1.27 Billion Extended Fund Facility (EFF)
followed in November 1980 which was three times the combined value of the seven SBAs
that Pakistan had collected previously.

Pakistan, in its six decades of history, has run into financial problems on quite a few
occasions where IMF loans have come to assist. Examples of problems that have required
assistance include, balance of payments deficit, currency stabilization, rebuilding foreign
exchange reserves, liquidity issues and short term needs.

The newly elected government has announced that Pakistan needs IMF’s assistance to
overcome severe problems on the economic front. IMF has also reportedly agreed to a USD
5.3 Billion package to support Pakistan. While details of the deal are yet to emerge, it is
obvious that any funding will come with conditions. The non-government forces and sources
will scream about the “harsh conditions” that will “break the poor man’s back” while the pro-
government will point to a “no choice situation” and “home grown reforms” that will finally
lead us towards self-reliance.

The reality is that no viable alternative exists at present and the government is justified in
approaching IMF. As this issue will be discussed and debated over months to come as details
of the deal unfold, we briefly recap Pakistan’s history with the IMF.

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During 1988-91, though IMF continued to financially assist Pakistan, its number of
conditions attached to the Structural Adjustment Loan programs increased from 27 to 56.
These included sales tax on 44 items of basic and daily use, withdrawal of subsidies on public
services and starting of privatization. Since 1984 to 2010, Pakistan has received five Standby
Agreements, three Extended Credit Facilities, two Extended Fund Facilities and one
Structural Adjustment Facility Commitment.

Standby Agreement 2008

In November 2008, Pakistan secured a 23 month SBA worth Special Drawing Rights SDR
5.1685 Billion (USD 7.61 Billion). In August, 2009, the SBA was augmented to an amount
equivalent to SDR 7.2359 Billion (USD 10.66 Billion) in order to help Pakistan address its
balance of payment needs. To ensure the success of the loan program, the IMF, in
consultation with the government, designed performance criteria and structural benchmarks.
The government, however, failed to implement some of the important conditions. As a
consequence, following the completion of the fourth review in May 2010, IMF suspended the
program. Disbursements under the arrangement had reached SDR 4.936 Billion until then.
The remaining two tranches worth SDR 2.296 Billion (USD 4.06 Billion) were withheld. At a
later stage, the IMF extended the program in December 2010 until September 2011 “to
complete the reform of the General Sales Tax, implement measures to correct the course of
fiscal policy, and amend the legislative framework for the financial sector”, as per the IMF.
The criteria were not met until and the program was suspended.

21
At a time when the world was enduring a severe financial crisis and austerity measures were
in vogue to bring fiscal discipline, Pakistan was unfortunately living in another world.

IMF Loan 2013

At present Pakistan is facing a severe Balance of Payment crisis with heavy payments falling
due in the near term. Accordingly, the government has made a request for a loan to the IMF.
“Pakistan has to avoid committing default on foreign loans,” said Mr. Ishaq Dar, Finance
Minister of Pakistan. “That’s the only reason we are going to IMF with a homegrown reform
program.”

The IMF has agreed to lend Pakistan an amount of USD 5.3 Billion (originally asked for
USD 7.2 Billion) under the Extended Fund Facility (EFF) over the next three years to boost
Pakistan’s FX reserves and to help the economy. An IMF loan will likely involve Pakistan in
a long process of committing to reforms, broaden its narrow tax base and slash subsidies in
particular. The 3 year loan will be available with a 3 percent floating interest rate and will be
considered by the IMF board in in early September.

The request for a USD 3 Billion loan in the first year has been put forward by the Finance
Minister, Mr. Ishaq Dar, so that Pakistan can comfortably pay off the outstanding dues that
will mature this year. The urgency of the loan also demonstrates the precarious situation of
FX reserves especially when the State Bank of Pakistan has almost USD 6.25 Billion left in
foreign reserves, an amount that cannot even cover six weeks of imports. It was also
proposed by Mr. Ishaq Dar that the IMF release the tranches on quarterly basis from the
second year.

Is the Loan Enough?

While IMF has agreed to a loan of USD 5.3 Billion, the question remains whether the amount
would be enough or not? The Asian Development Bank has estimated that Pakistan will need
an amount in the range of USD 6 Billion to USD 9 Billion to meet its obligations.

Impact of IMF and World Bank core principles:

Resource extraction/export-oriented open markets, minimised role of state, privatisation,

reduced protection of domestic industries, currency devaluation, increased interest rates,
unstable exchange rates, flexibility of the labour market, elimination of subsidies, reduced
financial regulations and forced increase in cheaper exports to keep currencies stable and earn
foreign exchange to pay off debts. According to Joseph Stiglitz (ex-chief economist at IMF);
the Bank’s ‘investigation’ involves little more than close inspection of five-star hotels. It
concludes with a meeting with a begging finance minister, who is handed a ‘restructuring
agreement’ pre-drafted for ‘voluntary’ signature. In 1988, Davison Budhoo (ex-economist at
IMF, who worked there for 12 years, designing SAP’s for third world countries) revealed in
his 22-page resignation letter; “When we went on a mission, we did not even have the scope
to innovate, to look at the country and make projections, that you thought were reasonable…

22
there was already a briefing paper before we entered the country. We were told what we were
expected to do, and give conditionality in terms of what the fiscal deficit was and how much
it should be reduced; even before we entered the mission… we were expected to structure our
findings in relation to the figures in the briefing paper, which were put there without any
research, and were predetermined. So the conditionality was also predetermined… In this
sense, every IMF mission is fraudulent even today…”

IMF and World Banks’s structural readjustment program for Pakistan:

World Bank assistance for Pakistan traces back to 1971, when the country received $25
million IDA assistance for cyclone-devastated East Pakistan. World Bank’s resident mission
in Pakistan started in 1979 whereas Pakistan became the member of IMF in 1988. IMF’s
restructuring agreement for Pakistan was introduced in 1991 when the privatisation
commission was formally established. It is to be noted that the ruling authorities, the
politicians, bureaucracy as well as the establishment were not well versed with the tricks of
trade and major role was played by SBP governors (the chosen individuals) who were either
former World Bank employees or directly associated with IMF in the past.

IMF’s control on monetary and economic policies:

In order to understand how IMF directly controlled the monetary and economic policies, it’s
necessary to know how the money policy works in Pakistan. The country’s currency i.e.,
Pakistani rupee was pegged to the pound sterling until 1982, when the government of General
Zia-ul-Haq changed it to managed float. This regime is the current international financial
environment in which exchange rates fluctuate from day to day, but central banks attempt to
influence the country’s exchange rate by buying and selling currencies. The central bank also
controls the money supply through open market operations, targeting interest rate in order to
expand or contract the monetary base (the expansionary and contractionary monetary policy),
influencing economic growth. A careful analysis of fluctuation of interest rates, market-based
pricing and periodic interventions by SBP in the past makes it clearly evident that monetary
policies are under direct control of IMF and World bank, through their representatives
governing the central bank.

It is really important to note that all the central bank SBP governors who worked at their
posts during the period starting from 1988 till 2009 were direct employees of either IMF or
World Bank in the past, and have played key roles in defining the economic, financial and
monetary policies for the country for more than two decades. It is a matter of common sense
to question why Dr Yaqub, Dr Ishrat Hussain and Dr Shamshad Akhtar left their lucrative
jobs at IMF or World Bank and joined the Central Bank of Pakistan as governors. This
question can also be rephrased as why these governors were imported from IMF or World
Bank to run the financial affairs of Pakistan. A careful analysis of country’s monetary and
economic policies in last 20 years will answer the question.

23
During the last two decades, IMF loans have been an important source to manage the
financial problems of Pakistan such as balance of payment deficits, stabilisation of currency,
rebuilding international reserves, managing liquidity problems along with enabling the
country to meet its short term needs by providing various types of loans which IMF calls its
lending ‘facility’. These loans followed some very strict conditions imposed on the country in
the name of “IMF’s assistance policy”, raising prices on food, water, oil, electricity and
cooking gas, etc, in the name of market-based pricing bringing the nation ‘down and out’
squeezing last drop of blood out of poor people. However, politicians during the regimes of
Benazir Bhutto, Nawaz Sharif, Pervez Musharraf and Asif Zardari have earned great fortunes
in the form of commissions received on account of privatisation and liberalisation. Cash
flight and reserve drainage has also been observed during these regimes, followed by interest
rate adjustments as per IMF’s demand. On the other hand, the country is struggled to
maintain its currency exchange rate against US$ by throwing its products in open competitive
export markets. It is the same restructuring agreement that has deprived the nation of its
precious resources located at Reko Diq, which is owned by foreign mining companies and
not the people of Pakistan.

IMF’s restructuring program:

Imtiaz Alam Hanfi (governor SBP 1988-1993) initiated the restructuring program by
privatising financial institutions in Pakistan. Mr Hanfi was not a former IMF or World Bank
employee, however he attended the World Bank training based on managing various World
Bank tasks for different countries in a simulated environment. Unfortunately, the short
training didn’t prove sufficient and he ended up getting into various conflicts with political
governments of PPP and PML in 1988 and 1993 due to his treasury bill and foreign exchange
reforms. In addition to that, he failed to comply with the demands of IMF to increase the
interest rate to a desired level. Being somewhat dissatisfied with Imtiaz Hanfi, IMF
recommended it’s employee Dr Muhammad Yaqub who was appointed as Special
secretary/principal economic adviser in the ministry of finance by the PML government in
1992. Later, he took charge as governor SBP in 1993. He was an economist by profession
and held several important positions in the IMF, which he joined in 1972 and left in 1992. Dr
Yaqub remained SBP governor till 1999. During this period he paved the way for “IMF’s
Four Steps to Damnation” by implementing the assistance strategy.

The four step program became fully effective in 1999 when Dr Ishrat Hussain was appointed
as governor. Dr Ishrat was a former World Bank Employee who joined in 1979 and held key
positions there. As governor SBP, he implemented a major program of restructuring of the
central bank and steered the reforms of the banking sector, which were highly applauded by
IMF and World Bank. He held the post till 2005 and then he was appointed chairman,
national commission for government reforms. In 2006, Dr Shamshad Akhtar took charge as
governor. Interestingly, Dr Akhtar was also a former World Bank employee who joined the
bank in 1979 and worked for 10 years as an economist in the resident mission in Pakistan,
starting from 1980. She served as governor state bank till 2009, and then she re-joined the
World Bank as vice president and remained at the position till she became assistant secretary-

24
general for economic and social affairs at UN. Dr Shamshad was followed by Syed Salim
Raza, a British national and a former Citibank employee who took charge as governor in
2009. He resigned in 2010 due to pressure from the IMF to make painful reforms. After the
sudden ouster of Salim Raza, Shahid Hafeez Kardar took the charge. Mr Kardar was a
member of national commission for government reform under chairmanship of Dr Ishrat
Hussain. Hafeez Kardar resigned from his post in 2011 due to his differences with the finance
ministry. He was under pressure due to excessive government borrowing by PPP government
under the leadership of Asif Zardari. The next one to join the office was Yaseen Anwar, a US
citizen with JP Morgan, Bank of America and Merrill Lynch on his resume. Mr Yaseen
successfully covered the financial discrepancies by Zardari’s government and resigned in
2014, when Nawaz Sharif’s finance ministry demanded the same favor from him.

It is really important to note that all the central bank SBP governors who worked at their
posts during the period starting from 1988 till 2009 were direct employees of either IMF or
World Bank in the past, and have played key roles in defining the economic, financial and
monetary policies for the country for more than two decades.

Impact of IMF directed restructuring on Pakistan:

It is unnecessary to know which puppet was sitting at the seat of president, prime minister or
finance minister during that period (1988 to 2014) and which puppet replaced the former one.
What is more important is that national assets have been stripped away in the name of
privatization and our politicians have made billions out of it in form of commissions received
for selling those assets at cheaper prices. Market liberalization is already in place and a
selective group has the control on broad money supply. This group is bringing in cash for real
estate and currency speculation and sending it out without any restriction whatsoever. These
two factors have triggered the third step i.e., market pricing or steep rise in prices of oil,
electricity, gas, water and other utilities. Riots (peaceful demonstrations dispersed by bullets,
tanks and tear gas) are now quite prominent in the country. Violent mobs protesting against
electricity and gas shortage, excessive billing and rising prices of commodities can be seen
throughout the country and these protests are becoming a routine. Recent sit-in protests in
Islamabad by two opposition parties were linked with the same factors.

Flight of capital due to liberal market policies is in progress and the nation is almost on the
verge of being dragged into free trade by the rules of the World Trade Organization and the
World Bank. Already deprived of our resources, which are owned and controlled by
outsiders, exporting our resources at cheaper rates in a competitive open market, in order to
maintain the currency exchange rate which is dropping fast against US$, we are moving
towards a fate similar to Nigeria’s; a country having US$80 billion of annual oil exports, yet
unable to do anything for its economy.

25
Pakistan’s story in the Fund:

The interesting thing to note through all this is that none of the large critiques developed
about the IMF applies to the case of Pakistan. Western investors are not exactly battering
down the doors to gain access to our economy or its natural resources. Our financial system is
hardly so large or so deeply connected with the global economy to present a risk to the
international financial system, like was the case in East Asia in the late 1990s. We are
strategically important to the superpower, but nowhere near as important as Russia was in the
1990s, or Eastern European countries were during the decade of their transition, nor has our
opening up involved anywhere near the complexities that were involved in transitioning from
communist to liberal capitalist systems in the former Soviet Union. Our region too, has no
sustained history of interaction with the Fund. India signed one facility with the IMF in 1991,
Bangladesh has had three facilities since 1990, Sri Lanka has had two while Nepal has had
three. Pakistan, by contrast, has had 12 IMF programmers since 1988, more than all the other
countries of the region combined. Our story with the Fund is uniquely ours, it does not
partake of any of the larger critiques developed about the Fund over the decades. Even in the
case of other South Asian countries, it is hard to employ any of the critiques of the Fund that
have grown out of the experience of other regions in other times. The role the Fund has
played in South Asia is fundamentally different from the role it has played in Latin America,
Africa, East Asia, Eastern Europe or the European Union today. The nature of the crises in
which it has had to intervene in South Asia is also fundamentally different from the debt
crisis of the 1980s, or the foreign currency crisis of East Asia in the late 1990s, or overseeing
the transition of post-communist societies in the early 1990s, or the restarting of growth in the
EU today. In short, the story of the IMF and Pakistan has been told very sparsely, and is not
widely understood.

IMF conditions to have negative effect on economy: PEW:

Posted by News Desk on September 15, 2013 in Business,

ISLAMABAD: The Pakistan Economy Watch on Sunday said that tough conditions of
International Monetary Fund will deal a death blow for the beleaguered economy of Pakistan.

International lenders are not concerned about the development of Pakistan which is addicted
to foreign loans since Ayub Khan’s era without any positive outcome, it said.

Dr. Murtaza Mughal, President PEW said unlike the common notion, the foreign loans have
weakened the economy, eroded the currency and buying power of masses and promoted the
interests of elite. Pakistan, a resource rich country with unmatched human resources, has
become a laboratory for lenders to find new ways and means to enslave a nation.

Dr. Murtaza Mughal said that those claiming to have taken IMF loan of their own terms are
misguiding masses as beggars can’t be choosers. Insistence of the IMF on hike in power and
gas tariff, tight monetary policy, reduction in powers of central bank, slapping additional

26
taxes on poor and avoiding any tax on elite has exposed their agenda. He said that FBR has
failed to achieve tax collection target of Rs295 billion for July and August despite extracting
ten billion from different companies in advance and stopping refunds worth fifteen billion
which will provide an opportunity to the IMF to force PML-N led government to further
squeeze masses.

Dr. Mughal said that many believe that the current monetary policy has been designed by the
IMF while the governor of SBP has only announced it. The government which has failed to
safeguard life and property of the masses has not right to collect taxes, he said. IMF
conditions to have negative effect on economy.

Dr. Mughal said that many believe that the current monetary policy has been designed by the
IMF while the governor of SBP has only announced it. The government which has failed to
safeguard life and property of the masses has not right to collect taxes.

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