With the mandate of fostering global monetary corporations, securing financial stability, facilitating international trade, promoting high employment and sustainable growth, and reducing poverty around the world, IMF formally came into existence in 1945 at Bretton Wood Conference.
Ever since its inception, the fund has been under severe criticism by economic luminaries, celebrated academicians, and the enlightened political scientists belonging to different parts of the world exclusively to the third world countries.
For many observers, the problems of the fund are congenital; Bretton Wood produced a deformed infant & a little has been done through the years to overcome such deformities.
The assertion is often made the fund was created by and for industrial countries with no concern for the developing countries. Much of the criticism on fund revolves around the conditions attached to its lending facility.
According to well-versed economists, when the fund prescribes austerity to the recipient country, the health budgets are cut down, children are forced to leave schools and the workers are thrown out of work. Education and health sectors suffer the worst consequences of IMF’s prescribed austerity drive. IMF with utter disregard to domestic affairs of the host country prescribes its own recipe to cure the ills of borrowing economy.
It dispatches a team to assess the economy of the host country, measure its performance, and to recommend corrective measures and remedial actions; of what Joseph Stieglitz– a former World Bank Chief Economist famously scorned as second-rate economists from first-rate universities–says, “They are well-meaning people and I am sure they want to help. But their visits are painful reminders of riots in Bolivia, Indonesia, and strikes in Nigeria…”
Another renowned economist Jeffery Sachs argues that the IMF’S “usual prescription is budgetary belt-tightening to the countries who are too poor to buy such belts”. Furthermore, it reminds me the prophetic words of Harry White Former Assistant to Secretary of the U.S treasury who once said “I don’t think the fund should butt into every country’s business and say “we don’t like this or that”.
Moreover, for the developing country like Pakistan, the IMF prescriptions are force-fed and according to one economist, we have to swallow the IMF prescribed medicine because we have no other choice. He adds that some of the recommendations of the fund are like a doctor stemming the bleeding of your arm by stopping your heart. Thus, such prescription incompatible with the domestic market of the borrowing country does not bear any fruit. It rather redoubles the difficulties for the host country to cope with its socio-economic challenges.
In addition, there is also a widespread perception in developing countries that by giving its own program, the fund entraps the borrowing country and thereby penetrates deep into its economic system. The fund’s undue intervention in the country’s internal economic dispensation results in economic chaos and uncertainty. The policymakers are therefore unable to craft economic programs in accordance with the requirements of the home economy. Consequently, the country is forced to surrender its economic independence and financial sovereignty.
Another allegation levelled against the IMF is that it is a tool of U.S foreign policy that furthers its strategic and economic interests
Being the only nation with an outright veto helps Washington sway decisions to its benefits. The U.S, therefore, exploits the fund to lure the borrowing country into a debt trap and thereby makes it as its lackey. Such entrapment helps U.S advance her imperialist agenda and meet her global interests. This can be plainly grasped in our relations with the fund, whose pockets are generous to us when we serve the interests of the U.S as it happened after 9/11 and penny-pinching otherwise.
The undue clout of Washington on IMF has raised many questions on its credibility. Rightly did Lord Keynes describe the views of America on the future of IMF. He wrote in 1944, before Bretton Wood Conference.
“In their eyes, the fund should have wide discretionary and policing powers and should exercise something of the same measure of the grandmotherly influence and control over the central banks of the Member Countries, that these central banks, in turn, are accustomed to exercise control over the other banks of their own countries”… this is how the game to control the economy of the borrowing country is played by U.S in cahoots with IMF.
It seems that China too is following the footprints of IMF. It is employing the same tactics to create its global hegemony as that of the U.S. by using its heavy influence on IMF. It has been keenly observed by political cognoscenti and leading defence analysts that China is colonising smaller Countries by lending them massive amounts of money that they can never repay. The Country is accused of leveraging massive loans it holds over small states worldwide to snatch their assets and increase its military footprints.
Developing Countries from Pakistan to Djibouti, the Maldives to Fiji all owe huge amounts to China. There are examples of many defaulters being pressured into surrendering control of their assets or allowing military basis on their land. This move of China is being dubbed by its detractors as “debt-trap diplomacy” or debt colonialism, offering enticing loans to countries unable to repay and then demanding concessions when they default. Sri Lanka provided a prime example of last year.
Owing more than $1 billion in debts to China, Sri Lanka was forced to hand over Hambantota port to the companies owned by the Chinese government on a 99 years lease. And Djibouti, home to US military base in Africa, also looks likely to cede control of a port terminal to a Beijing-linked firm. Apart, America is eager to stop the Doraleh container terminal falling into Chinese hands, particularly because it sits next to China’s only overseas military base.
While commenting on the Chinese debt-trap diplomacy, Rex Tillerson said” Bejing encouraged “dependency using opaque contracts, predatory loan practices, and corrupt deals that mire nations in debt and undercut their sovereignty”.
Additionally, China’s debt empire has also been rearing its head in the Pacific, prompting fears the country intends to leverage the debt to expand its military footprint into south pacific. Beijing’s creation of man-made islands in the disputed South China Sea for use as military bases suggests the concern may be warranted.
Another case worth mentioning here is of Tonga. It also carries some big debts and is struggling hard for the repayment. Tonga’s Prime Minister, Akilisi Pohvia voiced his concerns saying that Beijing was planning to seize assets from his country. Inter alia, a report from the Center for Global Development offers some insight into spreading China debt.
It depicts that the infrastructure project loans to the likes of Magnolia, Montenegro, and Laos have resulted in millions or even billions in debts, which often account for huge percentages of countries’ GDPs.
Many of these Projects are linked to the Belt & Road Initiative, a bold project to create trade routes through the swathes of Eurasia, with China at the centre.
Mahathir Mohammad, the Malaysian Prime Minister while talking to press expressed his reservations about Chinese investment in the following words “We welcome foreign direct investment from anywhere certainly from China. But when it involves giving contracts to China, borrowing huge sums of money from China- and Chinese contractors prefer to use their own workers from China, use everything imported from China even payment is made in China. So we gain nothing at all”.
Therefore, Pakistan is dealing with both IMF and China must remain cautious so that it might neither fall prey to Chinese debt peonage nor to IMF’s debt trap.
It may not be possible in case of IMF because a beggar cannot be a chooser while in case of engagement with China, we need to maintain caution and outline our own rules of engagement based on monitoring, evaluating, and allowing discussions to weigh the pros and cons of each and every development project.