As in most of the developing countries, IMF funding patterns to Pakistan has been subject of intense debate, over the last three decades. Proponents and opponents of IMF have produced evidence to support their respective point of views, particularly in broader perspective of international relations. However, little effort is made to explore the genesis of funding patterns linkage with political objectives of the IMF. In order to understand this crucial aspect of IMF packages we have to go beyond the typical debate of purely economic effects of IMF policies on Pakistan.

A careful overview of particular history of IMF packages for Pakistan in terms of their volume, timing, terms and conditions and rationale provides us an interesting picture of politically motivated patterns of funding.

Pakistan joined IMF in 1950.The first time government of Pakistan went for a loan from IMF was in 1958. It was a Stand By Agreement worth US $ 25 million. However, the loan was cancelled soon after. It was a period of political upheavals in Pakistan and Pakistan’s first military dictator Field Marshal Ayub Khan was about to take over. However, during 1960s under Ayub-dictatorship, IMF happily granted two Standby Agreements (SBAs). One in 1965, other in 1968 to help solve Ayub regime’s financial difficulties. When Pakistan’s second military dictator General Yahya Khan replaced Ayub Khan, IMF continued showering its financial blessing over him. Four more SBAs were made, handing Yahya regime down a loan worth US $ 330 million.

However, with the first popularly elected government of ZA Bhutto coming to power, IMF behavior towards democratic government became cooler and it almost deleted Pakistan from the favorite list on account of Bhutto’s ‘socialist agenda’. That was why Bhutto had to tell the Fund to “go to hell, we do not want your money”.

However, in 1979, when General. Zia-ul-Haq was at the helm, the nature and extent of IMF involvement drastically changed. The IMF extended lavish package for the dear dictator. Statistics show that in 20 years (1958-1979) Pakistan had collective IMF packages of worth US $ 460 million. However, in November 1980, it extended a huge amount of US $ 1.27 billion to Zia regime through long-term Extended Fund Facility (EFF). The amount was three times the entire amount lent through 7 SBA packages in preceding 20 years.

This rapid increase in IFM loans, from 1977-8 to 1980-81, signifies the importance of Pakistan to IMF and its master the USA. The IMF was so keen in financial pampering of Zia regime that besides such huge direct funding, it influenced the aid-giving policies of a large number of Western countries, convincing them for funding Zia’s Pakistan.

Also, the IMF packages throughout the 1970s, being Stand By Agreements, had the essential characteristics of high interest rates when Z A Bhutto was in power. However, contrary to the stringent measures during 1970s, IMF extended mild and favorable conditions to Zia regime November 1980 onwards.

The amount of package was biggest ever for any developing country until then. Also, rescheduling of repayment of debts was arranged through “Aid to Pakistan” Consortium rather than by Paris Club. This was a deviation from standard lending practices and out of the way arrangement. There is a subtle difference between the approaches of Paris Club and Consortium. The Paris Club is primarily made of professional bankers while Consortium reflects long-term global political interests.

IMFs invariable magnanimity towards Zia regime can easily be attributed to two major geo-political factors at the time; the Iranian revolution and Soviet intervention in Afghanistan. Thus there were no economic factors, as usually claimed by Fund, for the positive change in IMF behavior.

After Zia period, there was major shift in IMF attitude towards Pakistan when Pakistan was governed by elected civilian governments. Now once again more complex and tough conditions were attached to loans offered to Pakistan. The number of conditions attached to structural adjustment loan, for Benazir government (1988-91), increased from average 27 in 1985 to 56 in 1989. It is said that conditions attached to 1988 IMF package were the most sever in the history of IMF-Pakistan interaction.

Not only the conditions were enhanced but these conditions became harsh and stringent. For instance, under structural adjustment program, Benazir government was forced to impose sales tax on 44 items of daily use. Pressure was built up to withdraw subsidies on major public services and to start privatization. Usually such economic steps make any government unpopular.

During Benazir Bhutto’s second stint in power (1993-96), IMF suspended Extended Structural Adjustment Facility (ESAF) and Extended Fund Facility (EFF) after differences with Bhutto government over reduction in tariff rates. The IMF financially screwed so tight that PPP government bowed down to accept all conditions in order to get a package worth US $ 1.2 billion in 1995.

After removal of Benazir government in 1996 by President Farooq Leghari, IMF pressure continued over the succeeding civilian government headed by Nawaz Sharif who also obediently obeyed IMF dictats. Over 66 industrial units were privatized during his second stint in power, rendering thousands of workers jobless. All such measures had their consequences, causing regular increase in external debt of Pakistan.

The IMF’s strict and anti-people financial prescriptions continued throughout the 1990s. But with the sudden entry of yet another dictator, General Musharaf in 1999, followed by 9/11, IMF ceased its harsh attitude once again and as usual softened its behavior towards Pakistan’s latest military dictator. The moment Mushraff regime agreed to be part of US-led ‘war on terror’, IMF indicated easing out its position on the concessional Poverty Reduction and Growth Facility (PRGF). It is pertinent to mention that prospects of PRGF package for Pakistan were quite dismal till a week before 9/11.

However, IMF swiftly changed its position after 9/11 and quickly agreed to support Musharraf regime by extending financial support under much needed PRGF. Most likely a sudden and positive change in IMF attitude towards Pakistan was the result of political understanding between General Musharraf and US administration, and not in line with the ethics of multilateral lending.

In nutshell, IMF is not a democratic institution at all as claimed by its founders. It does not believe in its own capitalistic principals of economic liberalism or concept of multilateralism. It only serves as an extended hand of US treasury, at the service of its real master, always dancing with dictators and dictating the democracies.

Abdul Khaliq Shah