Cost of pulling in the IMF

The following is extracted from Dawn.com, the online edition of the most popular newspaper in Pakistan:

IMF conditions may result in 3m job cuts: economists
Sher Baz Khan
Saturday, 29 Nov, 2008 | 10:36 AM PST |

ISLAMABAD: Conditions attached to the $7.6 billion International Monetary Fund loan are expected to cause up to three million job cuts in different sectors and push another 5.6 million to 7.5 million Pakistanis into poverty over the next two years.

This was stated by the chief economist of the Royal Bank of Scotland (RBS), Mr Sakib Shirani, at a discussion on the IMF loan organised here on Friday by the Centre for Research and Security Studies (CRSS). A number of economists and industrialists attended the discussion.However, Mr Shirani, who was part of the talks held in Dubai between Pakistani and IMF officials, said the government was left with no option but to seek the IMF ‘standby arrangements’.

The topic of the discussion was ‘IMF: pain or panacea’.

When asked about the immediate fallout of the conditions which was aimed at slowing down the import-led economic growth, Mr Shirani said that two to three million people would lose their jobs in various sectors, including fertiliser, manufacturing and services.

He said the GDP growth was expected to slow down to 3.4 per cent this year. ‘Some 5.6 to 7.5 million people will be added to the existing number of poor’.

...

CRSS executive director Dr Farrukh Saleem said Pakistan was facing three problems — trust deficit, budgetary deficit — the government raises Rs1.5 trillion as revenue and spends Rs2 trillion — and trade deficit — the country imports goods worth $35 billion and exports goods worth $20 billion. ‘Pakistan is now like a patient who is suffering from a severe heart attack and the only doctor around is the IMF.’

He said that over the past 64 years the IMF had been following a standard prescription: increase taxation, reduce government expenditure and devalue currency. But, he said, a large majority of the IMF recipients, including Argentina, Bolivia, Brazil, Chile, El Salvador, Ethiopia, Haiti, Indonesia, Kenya, Liberia, Malawi, Pakistan, Paraguay, Philippines, Somalia, Sudan, Syria, Thailand and Congo, had failed to implement these measures.

The panelists were of the view that an increase in taxation would mean a further slowdown in the economy which would mean an increase in unemployment. ‘Same thing is with the rate of interest. The high cost of capital leads to closure of a number of industrial units, meaning more unemployment.’

to read the article in full, click HERE

Having read "The Shock Doctrine" by Naomi Klein (see previous posts HERE), I find the contents of this article quite disturbing... I am not an economist, and probably am extremely clueless about how to fix fiscal deficits and such... but speaking as a person on the street, I wonder about the very high costs associated with the option of receiving aid from the IMF. It is sad that pumping this money into this economy will make life harder for those who have been working hard on driving the economy all these while... I wonder also, if such dire consequences would have been predicted if the government of Pakistan had gone with some other option of funding...

My heart goes out to all the locals who will be suffering from these painful measures in the next few years...