Pakistan accepts 11 IMF conditions

[fatman17]

The last govt in pre partition India to tax Agriculture was the 'British in teh lat 19th century. What happened next? The biggest famine in the history of this rich and fertile land, with an estimated 10 million people dying of hunger. Do we want to go down that road again?

youre missing the point completely. you cannot make that comparison. what i am advocating is to tax the BIG-FISH, the 100 acre and above farmers. 100,000 who control 90% of the land. do u know what the agricultural output from these lands controlled by these people is - u will be amazed. and they dont pay a paisa of the righful tax.
the small farmer u r referring to, is already stuck between a rock and a hard place.
come on please!

 

[fatman17]

Mark,

I am no expert on economics but basing my comments on what I have studied and read.

You are probably absolutely right that IMF program stinks. My earlier post was to make the point that in the face of no other alternate, we have to make do with what is coming down the road...i.e. IMF funding.

Unfortunately our leadership neither has the ability nor the contacts to get help from outside of the IMF. Both KSA and Chinese have backed away from what needs to be done. In light of this, IMF is going to be shoved down our throats.

The Friends of Pakistan forum would be better off being termed "Facilitators to the IMF" forum as most have told Pakistan to go to the fund and get help. This is truly a case of the nation needing to take hold of its own destiny. 99% of the population does not pay taxes. Not sure whom we can blame here but ourselves. I should probably avoid saying that others are shoving the fund down our throats, we are quite capable of doing so ourselves and this time is no exception.

All I can say is that I do not have much confidence in the ability of the GoP (especially Zardari and dunce) to do the needful. That leaves some external auditor (directors of IMF) to call the shots. Lets just hope and pray that they do this to help out Pakistan and not to screw over the country (which has been the IMF track record thus far). There was an article recently which made the point that regardless of what IMF says and wants, Pakistan should field an extremely capable economic team to liaise with the IMF team so we can ensure that things that can be hurtful to Pakistan can be avoided. This is a simple task, however it remains to be seen whether Zardari can put this team together or not. I have no idea what Shaukat Tareen is capable or incapable of. I hope he is the right man for the job. Otherwise we are in deep !

the Brazilians did all-right! 100 bill bailout, a devaluation of the currency which they turned into an advantage by offering cheap, quality exports and now they are doing great.

 

[p2prada]

the Brazilians did all-right! 100 bill bailout, a devaluation of the currency which they turned into an advantage by offering cheap, quality exports and now they are doing great.

At the same time Brazil is a mid level economy, something like china. They have cash reserves and also a decent manufacturing industry. Don't forget that they export oil too. Along with a very good export policy with regard to other natural resources like Iron, manganese and zinc.
Any country exporting massive amounts of raw materials don't fall in the same category as pakistan is in.

Look at Japan. They recently announced a $300billion infusion into their economy. In India, RBI cut 2.5% of their reserves, almost $30billion into the financial sector this month.

Brazil and Japan already have money. Pakistan doesnot. Different circumstances. Thats why IMF is imposing a lot of restrictions on Pakistan's economic policies. Pakistan will eventually have to give back the money that is lent to them. If Pak economy does not bounce back, then one more loan will be added to the default list.
Also, opening up pakistan's economy for FDI in a large way will be bad for home grown industries which will be lapped up by american and chinese companies.

Pakistan has few options:
1) Opening up the economy.
There will be no pakistani private companies. Only Firangi companies.

2)Borrow from FoP:
An impossibility till now. Lets see what the future holds.

3)Borrow from IMF, WB:
The only option left. PLAN C. There is nothing anybody can do about it. IMF is the only option unless FoP comes through.

 

[p2prada]

youre missing the point completely. you cannot make that comparison. what i am advocating is to tax the BIG-FISH, the 100 acre and above farmers. 100,000 who control 90% of the land. do u know what the agricultural output from these lands controlled by these people is - u will be amazed. and they dont pay a paisa of the righful tax.
the small farmer u r referring to, is already stuck between a rock and a hard place.
come on please!

This is the best option, Property Tax. But tax evasion in rural areas is very easy. Some of these landlords have access to manpower and also contacts with tribes that are outside govt control. Implementing new tax laws will be a pain in pakistan. Trying to tax farmers dependent on subsistence farming will actually do more bad than good.

 

[AgNoStiC MuSliM]

P2P:

The major issue right now is a slippage in the foreign exchange reserves. When you look at what is different now from the last 5-6 years under Musharraf with 7% plus growth, it is a lack of confidence in the economy that started with a new civilian government and an increase in the tempo of the PWoT. The growth rate this year is still projected at 4.5 percent. Not enough to really drive quick change, but the economy is not stagnating either.

The confluence of the shifting domestic dynamics in Pakistan, and the global spike in commodities, oil, food shortages, is what really pushed things over the edge. Again, the major issue behind pursuing this injection of foreign exchange is to shore up FE reserves, and not to help support the budget (the deficit already brought down substantially). I would argue that barring the loss of confidence, the fundamentals of the economy more or less remain the same as they were under Musharraf, especially if we start seeing the oil price drop translate into a drop in inflation.

I believe that is why the GoP is reluctant to accept the stringent IMF conditions, because it does not really require them. Pakistan's economic house is not in the dire straits that require that sort of restructuring or conditions, its a matter of restoring investor confidence and shoring up FE reserves.

 

[Quwa]

Brazil might be a strong economic power, but its socio-economic condition is not all that better than Pakistan or India's. There are huge inequalities between regions and districts, and the Brazilian govt used to ban outsiders from the worst off regions. Though things are starting to change given the New Socialist rise in Latin America.

In any case, as I see it the better long-term prospect for Pakistan does not lie within IMF nor democracy...but really a radical paradigm shift. Even if we were to adopt something similar to South Korea or Taiwan - it will require an authoritarian govt and land reform. Based on personal knowledge, the thinkers closer to the Pakistan military have a lot more knowledge about IMF than their civilian counterparts.

Personally speaking I think the IMF loan will be accepted and Pakistan will be taken down to the gutters even further...it will simply facilitate a military coup. The only difference may be that the next military coup will only last for a few months and facilitate heavily filtered elections so that a govt thinking along the lines of the military comes into power. Under filtered elections we will see the same party coming into power for a couple of decades...much like South Korea and Japan.

 

[DarkStar]

I will repeat myself, that taxing large landowners will lead to a rise in food inflation. The reason being, they will not give the taxes out of their own pockets, but will squeeze the "thekedaars" to provide them with more money, which will directly affect the price of produce that is delivered to markets. The problem with Pakistan is not large land owners. They thought the same thing in Zimbabwe, and decided to go for land reform. Look where they ended up. As for Bhaaratiya land reform, well after the abolition of princedoms, most land reforms were halted. States like Bihar still have very substantial land owning elites.

As for devaluation helping Pakistani exports by being more competitive, that would work well in theory, but not in practice. The reason being, Pakistani manufacturing for export, of finished goods like textiles has already declined recently. The danger is that devaluation will lead to inflation, without seeing the corresponding benefits in terms of exports. If Pakistan had a robust manufacturing/export sector, then devaluing the rupee may have helped.

I agree with those above saying the Fundamentals of the economy are good, and Forex inflow is actually rising, year on year.

And the reason why Pakistan is not being helped by its "friends" has more to do with politicial reasons, rather than any concern about Pakistani financial policies, or worries about corruption.

The fact is, that certain countries see this situation as one in which they can find some leverage to implement their policies. The example with the proposed further privatisation of whats left of the state energy sector, is a prime example. We've been down this road before, and have regretted it.

The private sector works on a for profit basis, and is not intersted in making any infrastrucutural investment for the long term. These private companies will not do their utmost to aleviate the current power shortage, but instead try to maximise their profits from the current infrastructure. Europe is realising this right now, and many countries have regretted the utility privatisations of the 90's. Britain even went so far as to nationalise its rail network all over again. ( the advantage these countries have, is that they already had a complete utility infrastucture before they decided to privatise it). Russia has been aggressively taking/buying/ back many of the state resources and companies that had been privatised under yeltsin.

Privatisation should not be taken to the same extreme, that nationalisation was taken to in the 1970's. But I'm afraid its already happened.

 

[blain2]

the Brazilians did all-right! 100 bill bailout, a devaluation of the currency which they turned into an advantage by offering cheap, quality exports and now they are doing great.

Sir, in your previous post you responded to the point I made about the "dunda". If I am not mistaken, your opinion was that implementation of sound policies or collection of taxes is questionable. Based on that how do we know what worked for Brazilians will work for us? Some facts about the Brazilian dynamics missing from the Pakistan equation entirely include the following:

Literacy rate for women (ages 15-24): 98%
Literacy rate for men (ages 15-24): 95%

Most people in Pakistan assume that its their God-given right to not only have all of the infrastructure at their disposal, but also have it for free. The sense of responsibility to the nation is something that cannot be had without the dunda or education (which for most instills a responsibility to the nation or to anything they hold dear).

I think if anything, we can compare Pakistan's IMF experience with that of BD.

 

[Always Neutral]

Sir, in your previous post you responded to the point I made about the "dunda". If I am not mistaken, your opinion was that implementation of sound policies or collection of taxes is questionable. Based on that how do we know what worked for Brazilians will work for us? Some facts about the Brazilian dynamics missing from the Pakistan equation entirely include the following:

Literacy rate for women (ages 15-24): 98%
Literacy rate for men (ages 15-24): 95%

Most people in Pakistan assume that its their God-given right to not only have all of the infrastructure at their disposal, but also have it for free. The sense of responsibility to the nation is something that cannot be had without the dunda or education (which for most instills a responsibility to the nation or to anything they hold dear).

I think if anything, we can compare Pakistan's IMF experience with that of BD.

I agree with Blain and would like to go one step further. There are parts of Pakistan who will reply to the stick with a AK 47 and hence what would be the solution. Let these regions go or subdue them and let them drag you down.

Finally the only long term hope is Education, Education and woman empowerment as the first lessons any kid learns is from their mothers.

Regards

 

[p2prada]

Personally speaking I think the IMF loan will be accepted and Pakistan will be taken down to the gutters even further...it will simply facilitate a military coup. The only difference may be that the next military coup will only last for a few months and facilitate heavily filtered elections so that a govt thinking along the lines of the military comes into power. Under filtered elections we will see the same party coming into power for a couple of decades...much like South Korea and Japan.

A military coup is not the immediate aftershock of taking a loan. Who knows? The present govt might actually make things work. The IMF will already press for reforms in the economy and zardari will have to deliver to the people in pakistan.

I highly doubt Obama will be happy with a military coup either.

 

[p2prada]

As for devaluation helping Pakistani exports by being more competitive, that would work well in theory, but not in practice. The reason being, Pakistani manufacturing for export, of finished goods like textiles has already declined recently. The danger is that devaluation will lead to inflation, without seeing the corresponding benefits in terms of exports. If Pakistan had a robust manufacturing/export sector, then devaluing the rupee may have helped.

Not just that. Pak will face stiffer competition from China, Taiwan, ASEAN countries and India when it comes to textiles.

Privatisation should not be taken to the same extreme, that nationalisation was taken to in the 1970's. But I'm afraid its already happened.

No. Privatization is good for the economy. But the problems in pakistan is that there are no BIG companies who can actually handle large investments.

When india opened up the economy in 1991, there were already big ticket companies like TATA, Reliance, Aditya Birla Group, Mahindra, L&T etc who can invest in large infrastructure projects with very little help from US or Japan. The govt ensured that any overseas private investments in india will be carried out on a partnership basis with indian firms.

EG:The 2 biggest insurance companies, Allianz and AIG teamed up with Bajaj and Reliance to form BajajAllianz and RelianceAIG to lap up the insurance market in the automobiles sector. Similar alliances were seen in communications(HutchEssar etc), military, and other infrastructure projects.

The same cannot be said for pakistan, which makes it difficult to open up the economy.

 

[DarkStar]

p2prada...most of these industries have already been privatised, and many are dominated by foreign firms. Privatisation can work in certain selected industries, but things like power generation, rail system, postal system, should not be privatised.

Experience in the west and in Pakistan has shown that. There are certain industries, which need to remain in state hands, because they should be run for the good of the public, rather than the good of the shareholder.

 

[nitesh]

Dark, I think p2 has made a good point, but you also have solid points. But overall I think it has to go like this:

The opening for private sector has to be a gradual process not sudden, what I mean is let's take any sector suppose infrastructure (not the buildings of strategic importance like ports airports etc at least in first phase of opening up) here private sector can enter but government should have certain stake and management could be given to them. But the company should be pakistani with a minor stake from the foreign partner. Suppose in some sectors like previously in India foreign companies only had permission for 26% stake then it was raised to 49% then to 74% and in some sectors foreign companies can work independently. Total government control is not good at all and total private control is....... well we are seeing what is the global crunch going on

 

[p2prada]

P2P:

The major issue right now is a slippage in the foreign exchange reserves. When you look at what is different now from the last 5-6 years under Musharraf with 7% plus growth, it is a lack of confidence in the economy that started with a new civilian government and an increase in the tempo of the PWoT. The growth rate this year is still projected at 4.5 percent. Not enough to really drive quick change, but the economy is not stagnating either.

Exactly what I was trying to point out when everybody was crying about pak going bankrupt in the forum. Pak is only going to default on loans, although this default is serious. Right now, Pak just needs money to pay back older loans and continue investing in the power sector. But, Pak needs this money, atleast $4billion NOW and another $4Billion for the next few months so that Pak doesnot default.

Confidence in the economy is brought about by stability. But, the public in pak blindly believes that zardari was the cause of it all, when that is far from the truth. Investor confidence deteriorated in pakistan mainly cause of WoT, terrorism and not to mention the lal masjid incident.

You had already pointed out to me that WoT was a major cause. Then again, you need to see where the majority of overseas investments was made in pak. you need to see if investments made during Mush's time were just one time investments or they were prolonged for many years as in the case of india and china. For eg: japan recently announced investment in a freight corridor between delhi and mumbai (distance = 1500km). This will take YEARS to build.
But, if investors in pak have only made investments in communications and small industries, the returns will not be as large or lengthy as a freight corridor.
Big ticket investments will include infrastructure projects, R&D etc. Has pak attracted such investments or has pak attracted investments like small software parks for coding and testing etc.

It looks to me like investments during Mush's time were small, one time investments for immediate profits. Once that was done, no more investments followed and the reserves dried up, conveniently for Mush (meaning, just when he lost power).

I believe that is why the GoP is reluctant to accept the stringent IMF conditions, because it does not really require them. Pakistan's economic house is not in the dire straits that require that sort of restructuring or conditions, its a matter of restoring investor confidence and shoring up FE reserves.

Time will tell.

 

[kingfisher99]

TABLE - Pakistan economic indicators - Nov 6

Thu, Nov 6 2008, 04:55 GMT
Thomson Financial News Products

====== DAILY INDICATORS ======

WEDNESDAY PREVIOUS

Floating Interbank Rate (Rs/$) 80.90/81.00 81.35/81.45

Rupee/US $ (kerb market) 81.80/82.50 81.50/82.50

Karachi 100-share index 9,183.14 9,183.14

Gold (Karachi) Rs/10 gm 20,643 20,430

======CENTRAL BANK AUCTIONS======

Treasury Bills Auction Results:

Cut-off Yield (pct) at auction on: Nov 05 Oct 22

Three-months bills 13.5313 12.5631

Six-month bills Bids Rejected 12.6649

12-months bills Bids Rejected 12.7873

Pakistan Investment Bond (PIB) Auction Results:

Cut-off Yield (pct) at auction on: Aug 29 (2008) June 28(2008)

11.25 pct coupon, three-Year PIB 13.6973 12.2964

11.50 pct coupon, five-Year PIB B/Rejected B/Rejected

11.75 pct coupon, seven-year PIB 14.3398 -------

12.00 pct coupon, 10-Year PIB 14.5493 13.4201

12.50 pct coupon, 15-Year PIB 14.7500 13.6104

13.00 pct coupon, 20-Year PIB No B/Received 13.9399

13.75 Pct coupon, 30-Year PIB 14.9384 14.2496

======WEEKLY INDICATORS======

Week ending Oct 25 Oct 18

Total liquid frx reserves $ 6.922 bln $ 7.323 bln

Forex held by central bank $ 3.714 bln $ 4.037 bln

Forex held by other banks $ 3.208 bln $ 3.286 bln

======MONTHLY INDICATORS======

LAST PVS

Consumer price index Sept 188.10 186.29

Change mth/mth (pct) Sept 0.97 2.14

Change Yr/Yr (pct) Sept 23.91 25.33

Wholesale price index Sept 211.02 211.60

Change mth/mth (pct) Sept -0.27 2.45

Change Yr/Yr (pct) Sept 33.20 35.73

Trade Balance (FBS) Sept $-2.02 bln $-1.87 bln

Exports (FBS) Sept $ 1.78 bln $ 1.58 bln

Imports (FBS) Sept $ 3.80 bln $ 3.46 bln

======ANNUAL INDICATORS======

FISCAL YEAR 2007/08 2006/07

Population (millions) **160.9 156.77

Per capita income **$1085 $925

External debt (billion dlr) **45.0 $40.5

Total F.Debt as pct of GDP **24.7 27.1

Domestic debt (billion rupees) **3,020 2,610

Total domestic debt as pct of GDP **30.3 30.0

Gross domestic product growth **5.8 pct 6.8 pct

Manufacturing sector growth **5.4 pct 8.2 pct

Services sector growth **8.2 pct 9.6 pct

Agricultural sector growth **1.5 pct 3.7 pct

Commodity Producing sector growth **3.2 pct 6.0 pct

Average consumer price inflation 12 pct 7.77 pct

Fiscal deficit (pct of GDP) **7.0 pct 4.3 pct

Trade balance (FBS July-June) $-20.74 bln $-13.56 bln

Exports $19.22 bln $16.98 bln

Imports $39.96 bln $30.54 bln

Current a/c balance $-14.016 bln $-6.878 bln

* = revised

** = provisional

SBP= State (central) Bank of Pakistan

FBS= Federal Bureau of Statistics

(Karachi newsroom; tel: +92-21 568 5192; fax +92-21 567 3428)