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Asian Tribune is published by World Institute For Asian Studies|Powered by WIAS Vol. 12 No. 2523

Queuing Up with Cap in Hand before the IMF: simmering, questionable forecasts come to the boil amidst strengthening dollar

By Hemantha Abeywardena writes from London…

After months of deliberations, Pakistan is left with no choice but to turn to the IMF, the lender of last resort, for a bailout, seeking a staggering loan, $8 billion – for the 19th time.

Unlike its previous 18 attempts, the latest attempt appears to be far from being smooth: the US, the contributor to the fund with the largest voting right – 17.68% - has been putting up a few hurdles along the difficult path for Pakistan to overcome, in order to get the bailout, though.

A spokeswoman for the State Department said this week that Pakistan cannot seek a bailout from the IMF to pay off its loans, taken from China; she just reemphasized the official US position, spelt out by Mike Pompeo, the Secretary of State, a few months ago.

The meeting between Imran Khan, the newly elected prime minister and Mr Pompeo recently has not changed the position of the latter, judging by what the spokeswoman said this week.

Pakistan is not the only country that seeks funds from the IMF. The list from the developing world, including Sri Lanka, is growing by the month and the lender acts exactly like any other lender that deals with potential borrowers; imposing its own conditions on the latter and exploring the possibilities of paying back with laser-sharp focus.

In the case of Pakistan, although, the need of assistance was felt across the nation for months, the ruling coalition showed the signs of reluctance for such a move at the beginning: first of all, they were totally against going before the IMF while in opposition, demonizing the institute with all sorts of interpretations of its involvement – and motives as well - in the economic affairs of the country; then, they turned to friendly countries such as Saudi Arabia and China for a possible alternative, but to no avail.

In the end, a carefully calculated ‘U’ turn is done in exact fashion that a competent driver does it on a highway – looking forward at first, then sideways and finally backward.

The political scenes in other developing countries are no different when it comes to the issue of the IMF, the institute that came into being in 1945 in order to secure global financial stability involving its 189 members in particular and the world in general.

Nowhere in its constitution does it say that it is a charitable organization. Unfortunately, that is how the politicians in the developing world want it to be seen when they play to the gallery – while in opposition, not in power, of course.

Since the IMF had its own embarrassing moments, especially for not foreseeing the collapse of Mexican peso in 1994, the onset of the Asian financial crisis in 1997 and the global financial crisis in 2008 respectively, it has taken steps to avoid a recurrence by insisting on the member nations the need of being fully transparent with their policy implementations.

Understandably, the IMF demands a robust and efficient tax collection mechanism in place and cutting down on public expenditure. This is a bitter pill to swallow for any government, in the absence of a magic wand or a silver bullet from the global lender.

When the IMF tightens its screws on the nations that hold the begging bowls, the pain manifests itself in the familiar forms: freefall of local currencies, depletion of what is left of reserves, price hike in oil, gas and electricity – among many.

In short, it’s a perfect recipe to bring down an existing government in a loan-seeking nation in favour of the opposition that vehemently oppose the terms – up until they come to power!

As a significant number of countries, from Latin America to Asia, turn to the IMF for help, a familiar pattern emerges from the ashes of despair – the colossal failure of misplaced, wildly-optimistic growth forecasts in the face of strengthening dollar.

The way self-styled pundits keep getting things wrong, not once, but many times over the past few decades, prompted two well-known personalities add two sayings to the economic lore, with an offshoot in its own right, econo(co)mics.

Warrant Buffet, the legendary US investor, for instance, once famously said during a similar crisis, “ Only when the tide goes out do we see who has been swimming naked,” firmly focussing on the folks who predicted otherwise. Mr Buffet never lost time to cut down the folks armed with charts and models to size, knowing very well what they were up to.

The frustration of Harry Truman, the 33rd President of the United States, took a similar turn when his economic advisers used to tell him, “on one hand ….followed by on the other hand,” far more frequently than he anticipated.

He was reported to have demanded, “ Give me a one-handed economist!”

The IMF, meanwhile, has downgraded the global growth this week, perhaps sensing the dismal picture across the world, from America to Asian.

Despite few of its own flaws, the institution, however, still is a pillar with a life jacket in an ocean of despair, where loan sharks lurk around to prey on the vulnerable.

- Asian Tribune -

Queuing Up with Cap in Hand before the IMF: simmering, questionable forecasts come to the boil amidst strengthening dollar
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