Dealing with the IMF for 25 years

In a television interview a few days ago, Pakistan’s current finance minister boasted that he has been dealing with the IMF for 25 years. This claim was meant to assuage concerns and reinforce trust that he is the right man for the job. The comment, and the failure of the host to push back on the finance minister, sums up all that ails Pakistan, its politics, and by extension its economy.

Most countries in the world do not need to go to the IMF on any given day. Bangladesh, a success story in the Indian subcontinent over the last few years, has recently gotten in line, as it seeks to preemptively stabilise its economy from a rapidly deteriorating global economic environment. While quite a few countries have ended up in the IMF’s proverbial intensive care unit over the years – even the United Kingdom recently faced the IMF’s ire recently – none more so than the likes of Pakistan, Argentina, and Egypt.

This then begs the question: Why does Pakistan keep going back to the IMF? A lot of ink has been used to explain the reasons why, which fundamentally have to deal with the inability of Pakistan’s ruling class to change their habits and restructure the economy.

But the more important question that we must all think about and ponder over is this: Why is it that a particular cohort of individuals, Mr Dar included, are proud to have learnt how to deal with the IMF and secure one bailout after another?

The answer to this question, perhaps, has less to do with economic or political analysis, and more to do with human psychology. Pakistan’s ruling class – and the current finance minister is as much of an insider of this ruling class as one can be – has become used to feeding off the rents provided to it not only by the country’s citizens, but also the global community. From the early days of Ayub Khan, when the geopolitical rents related to the Cold War began flowing in, to the last spurt of rents under the China Pakistan Economic Corridor (CPEC), geopolitical rents have provided the financial resources and space to “grow” the economy. 

That this growth has been unsustainable, unequal, and unproductive is an established fact. Over the years, the ruling class has not only become comfortable but proud of the fact that they know “how to manage” institutions such as the IMF, World Bank, and the ADB. Of course, these institutions and their backers have played along, mainly because geopolitical necessities demanded it. But as the world has changed, it has become increasingly difficult in recent years to receive the kind of financial support Pakistan needs to stabilise its economy. 

But the ruling elite have a mechanism to even deal with the downturn in geopolitical rents: Making the argument that Pakistan is too big to fail. This argument has been the last pushback this author has received during a recent visit to Pakistan. Pressed hard on the downward trajectory of the economy and the financial logjam the economy is in, members of the upper echelons of society fall back on the argument that the world cannot let us fail. They argue that this is a country of over 230 million people with nuclear weapons, and if there is an economic meltdown, then all bets are off.

In short, Pakistan is holding a gun to its own head, and if the world does not help, it will have to clean up the mess once the gun goes off.

This is the psychology of “I have been dealing with the IMF for the last twenty-five years.” And it is this psychology that has brought Pakistan to the brink. The ruling class wants to maintain the status quo and the bet is that the global community, with all the issues it is facing today, would rather spend a few more billion maintaining the status quo, because the last thing it wants is another crisis.

The tragedy of this approach is that there is literally no incentive to reform, to alter the status quo, and to create opportunity for the many, not just the few in the Islamic Republic. The median age in Pakistan is 24 years, meaning that Dar has been dealing with the IMF before the majority of Pakistanis were even born. Readers can determine whether this is something to be proud of.