International Financial Institutions: Trapping and exploiting developing countries

In recent years, it has become clear that international financial institutions (IFIs) often trap and exploit countries, and then proceed to blame others for the consequences of their own actions. This unwritten rule of business has been applied with dedication by IFIs around the world. It is a well-known fact that many countries have crumbled under the weight of IMF programs, including Latin American economies and, more recently, Hungary and Greece.

Hungary started an IMF deal with the implementation of austerity measures, reduction in pension benefits, freezing wages and reducing deficits. These actions badly affected social welfare spending and systems. People started to agitate against the government, but the IMF was comfortable. When Hungary’s government tried to create some space for the poor and introduced a banking transaction tax, the IMF reacted very strongly and halted cooperation.

Greece, despite all recipes of the IMF and European institutions and partners, has still been unable to find a sustainable solution to its economic woes.

Pakistan is one of the victims of this cycle of exploitation. It has been entangled in a debt trap, and is paying the price in the form of high inflation, a free fall of the rupee, shrinking production, and elimination of social welfare spending under the dictation of IFIs.

Instead of accepting responsibility for their mistakes, however, the IFIs are trying to shift the blame onto China. They want to make China a scapegoat for their own failures. Opponents of the China-Pakistan relationship and the China-Pakistan Economic Corridor (CPEC) are finding it an excellent opportunity to exploit the situation. They have begun smear campaigns and are trying to tag the bad economic situation of Pakistan with CPEC and Chinese investment.

This is particularly evident in the actions of the US and India, who are both fierce opponents of CPEC and the China-Pakistan relationship. It is an open secret that the US has been pushing Pakistan for a long time to quit CPEC and the Belt and Road Initiative (BRI). This is part of the US policy to contain China and check its peaceful rise. To achieve this objective, the US is pressuring Pakistan in many ways.

First, Pakistan was put in the grey list of the Financial Action Task Force (FATF) with the objective of squeezing its economic space. Second, the IFIs are playing their role in piling on pressure. Third, the US has allocated hundreds of millions of dollars to run a campaign against China and CPEC. Through the Countering Oppressive Politicization of Economies (COMPETE) Act, Washington has reserved $500 million for the media to keep a close watch on China and the BRI, including CPEC.

On the other hand, India is also trying to step in to sabotage CPEC. It is spreading false rumors about Chinese personnel and its embassy in Pakistan.

An analysis of events in recent decades reveals that the current economic crisis has stemmed from two main factors – IFIs (which have been discussed above) and the war on terror. The war on terror has undermined Pakistan’s standing in the global arena and its security situation. Although Pakistan did not want to become part of the war, the US and the West forced it to become a frontline ally.

As a result of the war, the country suffered huge losses on all fronts, including the economy, security situation, social sector, and human life. It had to bear an economic loss of $150 billion, which is beyond the country’s capacity. This figure is higher than the current external debt of $130 billion.

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