As reported in last Thursday's issue of this paper, Pakistan has declined the offer of funds from the International Monetary Fund for rehabilitation and reconstruction in the aftermath of the horrendous earthquake of October 8.
At a time when we are appealing for funds as well as help in kind from all over the world, this may sound perplexing to many. But Islamabad's reluctance is understandable. Funds from the IMF are relatively more expensive and more importantly as we know by experience they come with a host of conditionalities which are often unpalatable.
Pakistan has had a long but sometimes difficult relationship with the Fund. True, in the past a number of times we could not adhere to commitments and also failed to meet the performance criteria on due dates. We were, therefore, graded as a one-tranche country.
It goes to the credit of Musharraf/Shaukat Aziz team that we not only completed the PRGF Programme successfully, but also extricated the country from the future Fund programmes. In hindsight, however it is now clear that the Fund programmes were generally drawn with full knowledge, on both sides, that the schedules and performance criteria imposed on us were unrealistic.
Emphasis was on quantitative targets and not on qualitative improvements. Further, when the western donors were favourably inclined on a political level, the quarterly performance criteria and targets were relaxed.
However, when the relationship with the West was stormy (as seen after the nuclear test) the unreasonableness from the Fund's side was at its peak. One could draw a firm conclusion that help from the Fund was clearly determined by political considerations.
This is not the first polite 'no' from Pakistan to the Fund's offer for Post-Programme Monitoring. In September 2004 Pakistan declined to avail itself of the last tranche of the PRGF facility as it had already drawn 100 percent of its quota. Further, draw-down would have meant crossing the threshold that kicks in the Fund's Post Programming Monitoring (PPM) of a recipient's economy.
We should welcome sound advice from any quarter, especially from multi-lateral institutions, like IMF, whose good house-keeping seal of approval is important for us to access the international capital markets. One should welcome the Fund's advice at a macro level.
A difficult problem is generally faced by a recipient country when the Fund insists to micro-manage the recipient's economy.
Countries that are able to put their economy in order have sound reasons to decline the PPM facility. Even though IMF has recently, raised the threshold in the PPM facility (where the conditionalities kick in) and Pakistan may be able to draw down an additional $250-300 million from the Fund we would still require a firm unequivocal commitment from the Fund management that it would refrain from micro-managing our economy. The Government is hopeful that it can obtain credit for rebuilding the damaged infrastructure from cheaper sources, ie the World Bank and the Asian Development Bank.
Before we touch IMF money again we must have a firm commitment there would be no procedural linkage of PPM with new conditions. Managing Director Rodrigo de Rato must formally give his word to obtain such a promise from his Board of Directors. Otherwise, it would be better to avoid falling into a ditch once again.