The International Monetary Fund (IMF) in its publication titled the World Economic Outlook made a dire prognosis: 'the world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s'.
At the time of the actual drafting of this report and prior to its publication world recession as a prognosis was considered within the realm of a possibility but not a certainty as is now being feared by several governments with the deepening of the banking crisis in the West with the take-over of Iceland's largest bank by the government.
Be that as it may, the West has so far ignored the IMF's prognosis or indeed prescriptions for the simple reason that the organisation's capacity is considered sorely deficient in the light of its performance in the 1979 Asian financial crisis; an assessment whose validity was conceded by the IMF Managing Director when he called upon its Board of Directors, comprised of member countries with a voting strength based on their shareholdings, to consider strengthening the skills mix of the Fund as well as its terms of reference to enable it to more effectively deal with a global crisis.
The IMF also does not have adequate resources at its disposal to tackle a global crisis, yet the IMF chief has announced the activation of its emergency financing mechanism for the emerging economies, last used during the Asian financial crisis.
There was, however, nothing earth shattering about the statements or prescriptions emanating from the IMF report or the subsequent press conference with IMF's Chief Economist, Olivier Blachard who deemed it prudent to add an obvious rider, "if the right policies are in place then the probability of a Great Depression is extremely small." What exactly these right policies should consist of is by now fairly well established by public and private analysts through the media.
They underline the need to take joint action - a move now being forced on reluctant European governments by their markets. The World Bank President, Robert Zoellick, called for the establishment of a multilateral body, instead of a meeting of the exclusive Group of Seven most industrialised countries of the world, which would have greater capacity to deal more effectively with a global financial crisis.
This was also supported by US Treasury Secretary Paulson who has proposed a meeting of G-20, including the emerging economies that are also hard hit by the financial crisis and who have cautioned that there is need to "take care to ensure that our actions are closely co-ordinated and communicated so that the action of one country does not come at the expense or the stability of the system as a whole". And, equally importantly, another prescription to resolve the crisis is to regulate the financial system with clearly defined limits on the incentives package of CEOs as desired by the general public referred to as Main Street.
In contrast what is, however, more significant is that IMF analyses and prescriptions continue to have great applicability to the poor indebted countries. Pakistan is not an exception. Interestingly, Chief Economist Blanchard stated that the IMF had first believed that the developing economies could largely steer clear of any painful spillover from the credit mess, but no longer. There is simply too much evidence to suggest otherwise.
But the case in Pakistan is markedly different in this context. A liquidity crunch on the one hand and rising inflation on the other, each requiring a contrasting cure: thus an injection into the system would further raise inflationary pressures, while a withdrawal would bring the credit market to a standstill.