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Monetary mauling

"Seeking loans is a norm in today's world. Countries do finance their needs through a combination of internal and external loans. But this by no means can be adopted as a preferred approach for sustenance"

In 1944, as the WWII drew towards its end, leaders from forty-four allied nations met at Bretton Woods, New Hampshire in USA, to forge a new system of exchange rate and currency pegging. The new international monetary system replaced the gold standard with the US dollar; initially pegging it to gold price and then ceasing the same, granting US dollar the value of an underlying asset. These measures proclaimed the economic hegemony of USA for times to come, ushering an endless ongoing era. The ‘agreed’ monetary system required to be monitored for delivery (in pursuance of American interests) and thus the world heard cries of new born twins the International Monetary Fund (IMF) and the Word Bank (WB); economic thugs to-be, of the stronger to be unleashed on the weaker.

These two international financial institutions (IFIs) were then raised on the pretext of rebuilding the post war economies and assist countries in times of financial crises, adopting an apolitical approach, driven by experts.

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Today, the Asian Development Bank, Paris Club and many others also form part of the list of financial institutions. It was not long enough when it was realized that countries being supported were only those who were not in the Soviet bloc during the Cold War. Countries in Africa were lured into economic dependency on aid, by pulling the strings of anti-racism and social equality irrespective of color. Post WWII saw the transition from colonialism to the opportunistic capitalism, relying on economic aid; a modern day definition of a colony. The modus operandi involved offering huge loans and operatives were assigned for luring these countries, referred to as economic hitmen, who covertly conspired to bring the countries to agreements or endeavored to change regimes. These economic hitmen were the warheads carrying the payload.

The first known economic hitman is Kermit Roosevelt Jr, a grandson of erstwhile US president Theodore Roosevelt. He was a CIA operative, who successfully accomplished the assigned task of regime change in Iran in 1953, by getting the then prime minister Mohammad Mosaddegh removed from power without any bloodshed. More was claimed and confessed in John Perkins’s bestseller ‘Confessions of an Economic Hitman’ first published in 2004. In the book, he also describes himself as one of the former hitmen. Increased dependency of world economies on energy and food resources, provided an avenue to these IFIs to fulfil their sinister designs in third world and developing countries. Hikes in prices and heavy taxing on utilities and fuel made way to the list of instruments like currency depreciations, tax regimes, increased interest rates, and structural reforms which included privatization and deregulation.

Where required, short-term support programs were characterized with cosmetic interventions like open market access, with ulterior motive of allowing multinationals to operate in dependent countries syphoning off profits to corporate headquarters in USA and elsewhere. Seeking loans is a norm in today’s world. Countries do finance their needs through a combination of internal and external loans. External loans are looked for, in international financial markets where borrowing countries sell their bonds or treasury bills, then is the option of borrowing surplus incomes on country to country basis or going to IFIs. But this by no means can be adopted as a preferred approach for sustenance. Countries keep looking for long-term measures of their own to stabilize their economies, through revenue or income generation. It was in 1958 that we went to IMF for the first time seeking assistance, in response, a stand by arrangement worth $25,000 was granted, to be followed up by another two in 1965 and 1968.

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Thereon, Pakistan has been frequenting on and off, tallying up to twenty-two times when loans have been extended to us. As of now, the debt situation we find ourselves in, is nothing less than being horrendous. Let us do some number crunching. The debt Pakistan is in, needs to be viewed from the perspective of national income. In 2021, our net revenue was Rs 7.9 trillion which included Rs 5.8 trillion of tax collections. As of now, our total debt is to the tune of Rs51,742 trillion which equals seven and a half years of our total income (simple arithmetic) based on 2021’s above quoted net revenue. Our continuous reliance on loans syphons off a major chunk of our income in debt servicing.

Take a swig of this too, we paid $4.67 billion in debt servicing in 2015, moving up to $11.58 billion in 2019 and in the face of current economic turmoil, we are to pay $49.23 billion from 2022 to 2027. Remember, each devaluation of our currency is also adding to our payable debts, exponentially. Over simplistic solution with IMF is to broaden the tax base, taxing on everything we earn or buy, least concerned with socio-political impacts of such measures. Despite all this, IMF programs have not enabled a sustained growth pattern; which IMF attributes as failure in implementation of its reforms program, whereas our economic experts blame the short-term cosmetic nature of these programs mostly harboring on decontextualized top down approach, preferring nation over people (citing greater good).

In simple words, quantitative indicators like GDP are prioritized over qualitative ones. Lack of in house technical expertise is yet another sour issue. In my view, the very basis of these reform programs needs to be analyzed to break the cycle of debt. The fact remains that we have transcended from an assistance to dependence paradigm in seeking loans. How to undo all this? How will we generate enough income for whooping debt servicing quantum? I leave these and more questions for economic professionals.

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