The IMF and the Taliban

imfAmong the many factors at play in the growth of the Pakistani “neo-Taliban” is the story of poverty and a failed government response to basic human needs. With the global recession underway, things have only gotten only worse for those near the bottom of the socioeconomic ladder in Pakistan and elsewhere.

As the World Bank puts it:

“Estimates of the additional number of people trapped in extreme poverty in 2009 as a result of the financial crisis range from 50 to 90 million.”

With that in mind, it can be easy to view this weekend’s IMF/World Bank meetings as good news:  lots of talk of providing money to Pakistan and other developing nations to help during the recession.

Unfortunately, the IMF is talking about providing loans.

That means more long-term debt for the very nations that can least afford to pay it off. To make things worse, many of these loans are likely to come with the kinds of conditions that will further limit social welfare spending.

In a New York Times opinion piece, Mark Weisbrot of the Center for Economic and Policy Research summed up recent agreements between Pakistan and the IMF:

Pakistan has agreed to significant spending cuts, as well as raising interest rates, despite negative demand shocks to the economy…These and other examples indicate that in spite of the world recession, the I.M.F. is willing to sacrifice employment, and increase poverty, in pursuit of other goals. A country can always reduce a trade deficit by shrinking its economy, since that causes households and businesses to import less.

While demanding transparency and accountability are important, IMF policy prescriptions have the impact of sacrificing human development indicators for macroeconomic outcomes. And even then, the IMF prescription can make the macroeconomic indicators worse.

Developing nations didn’t fuel this economic crisis, but now they must suffer “belt-tightening” if they want help. This is a morally dubious proposition, given that the poorest nations are not responsible for starting this recession.  From the Wall Street Journal:

Critics in Pakistan, Turkey and Eastern Europe have complained of a double standard, saying the IMF is requiring some — but not all — countries to tighten their belts, while urging the U.S., Europe and China to boost spending to fight the recession. The IMF says that the finances of some countries are in such peril, there is no alternative to budget cuts.

In fairness, Pakistan does suffer from significant government corruption. But if the requirements go beyond transparency and into budget cuts and fiscal limitations, these recommendations will run directly counter to the latest current in U.S. foreign policy.

American policymakers are finally acknowledging the costs of billions of dollars in military aid to Pakistan — weak civilian governance.  So at a time when the IMF is talking about social spending cuts, the U.S. is finally proposing  more development aid.  This doesn’t represent a sea change in our problematic approach to Pakistan, but it is a moderate improvement.

Not only that, but the U.S. government is diverging from IMF prescriptions in another way as well.  U.S. aid will be in the form of grants, not loans.  Perhaps the U.S. government should push the IMF to adopt this approach as well.

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