15677938 imf final project

7/31/2019 15677938 IMF Final Project

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11/2/2012 1


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PAKISTAN & IMF


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INTERNATIONAL MONETARY FUND (IMF)

The IMF is an internationalorganization which lendsmoney to countries whichneed to borrow it. Itsheadquarters are inWashington DC, USA

The IMF was set up at aconference in 1944.

Representatives of 45countries met to discuss

how to avoid the problemscaused by the economicdepression of the 1930s.


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ADVANTAGES OF IMFDISADVANTAGES OF

IMF

Promotes international monetarycooperation.

Helps the countries to improvebalance of payments.

It encourages economic growth.

It gives financial advice tocountries about how to run theireconomies.

Mostly power is in the hand of richcountries

IMF imposes hard conditions toprovide loans

Conditions imposed results inincrease in poverty and low percapita income


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HOW IT WORKS

The IMF exists primarily

to assist countries ineconomic difficulties.

Provides loan to the

needy country afterverification andimposing hard and stiffconditions, such as:

1.Liberation of2. Barriers in free trade

3. High tariffs and quotas

4. Remove a portion of

subsidies


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ROLE OF IMF

Help to stabilize exchange rates

IMF has the same members as UnitedStates except Cuba, Lichtenstein and Andorra

IMF is independent of the World Bank

Its am is to increase living standards
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FUNCTIONS OF IMF

International MonetaryCooperation

To help deal with Balance ofPayments adjustment

Economic Surveillance

Loans To Country Are With

Financial Crisis.

Technical Assistance AndEconomic Training.


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HOW IS IMF FINANCED?

The IMF is financed by member countries whocontribute funds on joining or from existing members

IMF stands at $300 billion financed from its 183member countries

The U.S deposited the largest amount with the IMFand it has 16% voting rate as well

IMF has some special rights to withdraw theapproved amount of loan


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WHAT DOES THE IMF ACTUALLY DO?

In particular the IMF was to play a role in

stabilizing exchange rates and balance ofpayments

These days they are also doing:

Compiling statistics and evaluationof its membercountries economies .

overriding in Financial crisis to avoid future crisis

In recent months this has involved

$2.1 billion to Iceland

$15 billion to Hungary

$16 billion to Ukraine


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ARGUMENTS IN FAVOR OF IMF

IMF can be seen as lender of last resort.

IMF can also impose necessary reforms onan economy.

Provides an external assessment of theeconomy


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The reality is something in between

At times they have appeared rather inflexibleinsisting on fiscal responsibility and privatization

at a time

This does not mean that the IMF are blameless,far from it

They have made many mistakes and errors ofpolicy

IMF A SAINT OR SINNER???


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WHY HAS IMF NOT REDUCED POVERTY?

Often they are to meet government deficits and /or lack of foreign exchange. Therefore, may notbe used for development .

AID improved economic development mostwhen it is targeted in certain ways .

Loans from IMF can have the same effect asdomestic savings in stimulating investment. Thekey is how the loans are used.

IMF impose economic conditions e.g.privatization and deregulation.


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PAKISTAN & IMF

The IMF, has played a crucial role in themacroeconomic stability of Pakistan since 1988.

The IMF credit rating of a borrowing country is takenvery seriously by other donor agencies.

Since 1988, Pakistan has not enjoyed smoothrelations with the IMF.

Because of the latter's dissatisfaction with theeconomic performance of Pakistan.

Pakistan signed several agreements with the IMF, butdue to a variety of factors most of them remainedincomplete, with the IMF refusing to lend the fullamounts to Pakistan.


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BENAZIR BHUTTO GOVT.

In the 1990s, the nation suffered many losseson the economic front and the era is thusconsidered a "lost decade" for the economy ofPakistan.

All macroeconomic indicators showed poorperformance, bringing Pakistan to the brink ofdefault.

Moreover, the IMF's relations with Pakistan

were further strained by 1997 due to thepolicies of former Prime Minister BenazirBhutto.


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NAWAZ SHARIF GOVERNMENT

Positive relations in that era

IMF resumed its working by providing a standby loanin Dec 1996

The resumption of IMF lending brought new

conditional ties and forced large-scale budget cuts ofPRs 45 billion ($1.13 billion) between October 1996and January 1997.

Almost 90 percent of these cuts were in the annualdevelopment budget, which affected economic

performance in the short run.

In March 1997, relations with the IMF againworsened.


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CONTINUED

The relationship between the IMF and governmentof Pakistan brightened when Sharif promised tointroduce economic reforms to the country.

On October 20, 1997, Pakistan reached anagreement with the IMF for a three-year, $1.6 billionStructural Adjustment Loan (SAL) package .

At the beginning of 1998, the IMF agreed to givePakistan the second disbursement (worth another

$208 million)


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CONTINUED

The IMF asked Pakistan to tackle several long-

standing structural problems.

In May 1999, relations between the IMF andPakistan again soured.

The IMF sent a five-member commission toIslamabad to review the economic performanceof the country. The commission reported thatthe government of Pakistan had failed to meet

several IMF conditional ties in result of that:

postponed the release of a $280 milliondisbursement to Pakistan


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CONTINUED

The Executive Board of the IMF approved aStand-by-Credit of $596 million.

Conditions are as follows:

Charge GST to agriculture

Charge GST at retailer shops

Reudce budget deficit from 6.4 to 5.2

Change petrolium prices with international market


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CONTINUED

Pakistan addressed most of the conditions and met the IMF

targets

As a result, IMF approved a three-year Poverty Reduction andGrowth Facility (PRGF) loan to Pakistan in December 2001

The military government of General Musharraf implementedunpopular reforms because:

The country was on the verge of serious financial crisis

These reforms fitted in well with the strategic

vision of President Musharraf.

Except for the Musharraf government's Stand-by Agreement(SBA), these were not fully implemented and consequentlyalmost half of the agreed amount remained undrawn.


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PAKISTAN AND THE IMF, 1995-2004

REGIME PERIOD PROGRAM TYPEAND AGREED

AMOUNT (IN US$MILLION)

AMOUNTDRAWN

(IN US$MILLION)

% UNDRAWN

Benazir Bhutto /Meraj Khalid /Nawaz Sharif

Dec. 95-Mar. 97(Sept. 97)

SBA 562 295 48

Nawaz Sharif Oct. 97-Oct. 00(May 1999)

ESAF 682 265 61

Oct. 97-Oct. 00(May 1999)

EEF 455 113 75

Pervez Musharraf Nov. 00-Sept. 01 SBA 465 465 0

Dec. 01-2004 PRGF 1,410 6 disbursementsout of 12 total

Currently inprocess


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PAKISTAN MAY TAKE IMF AID TOAVOID BANKRUPTCY

Pakistan may accept politically unpopular aid fromthe International Monetary Fund to avoidbankruptcy

Pakistan needs $5 billion to avoid bankruptcy as ithas 25% of inflation rate

Its a bit hard to get help from IMF as it is imposing

some stiff conditions to be filled


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CONTINUED

Pakistan's poor population of 160 million isalready suffering from rocketing food and fuelprices and enduring daily power cuts caused byenergy shortages.

The Pakistani rupee has lost about a third of itsvalue this year.

The current economic crisis is the deepest faced

by the nuclear-armed nation since 1999

Pakistan ended its three- year, $1.5bn loanprogram with the IMF in December 2004.


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IMF & PAKISTAN;

CAN IMF DITCH THE DEFAULTERS?

Every one knows that pakistan isnot able to repay the loan and shallnot be able to repay in the future aswell, so the point is that ..

Should IMF provide loan to thepakistan or not???


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IMF asked to reduce 1/3 of army

spending(pay cut up to 10% out of 30% )

IMF officials would be sent to collect taxes

It also asked to reduce pensions by 50%

IMF ORDERS PAKISTAN TO CUTMILITARY SPENDING


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PAKISTAN AND THE IMFA RELATION OF TRUST

Throughout the 1980s and `90s,economic policies had a fatal flaw

Pakistan took loan in 2000 when itsannual production was too short

The growing burden of paying interestleft the infrastructure crumbling.


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THE IMF MANDATED ECONOMICRESTRUCTURING IS POISON FOR

PAKISTAN IMF-World Bank prescription trigger

hyperinflation and precipitate indebtedcountries into extreme poverty.

Pakistan has been subjected to the samedeadly IMF economic medicine.

In 1999, an IMF economic package, which

included currency devaluation wasimposed on Pakistan.


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PAKISTAN ACCEPTS FOLLOWING IMF

CONDITIONS Changes in the Islamic Development Bank loans

Devaluation of rupee

Freezing defense budget

Ending subsidy on gas and electricity,

20 per cent reduction in non-development expenditure of civilDepartments.

Increase in bank markup rates up to 2%

Interbank and open market dollar rate must be same

Stop interference is stock markets


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FORGET IMF AND PAKISTANSHOULD DEFAULT

Lets tighten our belts and spend the money we have tomake a pro-Pakistan trade policy and creatively market

Pakistan

We Should default as. South Korea, Thailand, and Indonesiahave done it. They have survived, So can we

Ex-bankers and former IMF employees will never advisePakistan to default because to do so would be counter-

intuitive.


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CONTINUED

Countries try to avoid default for THREE

reasons:

1. To save countrys reputation

2. To participate in international trade freely

3. To protect domestic banking and financialinstitutions

In short, governments choose not to defaultbecause it is the politically expedient thing todo.


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MEASURES TO BE TAKEN FORIMPROVEMENT

Hire competent and trained workforce

Make sure there are nurses and doctors at eachschool

Pay every graduate twice what they would make

Teach the kids their native languages

It's time for Pakistan to start spending its money onpeople servicing, instead of debt servicing


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PAKISTAN TURNS TO IMF(NOVEMBER 16, 2008)

Pakistan has agreed with theInternational Monetary Fund (IMF) ona $7.6 billion emergency loan to

stave off a balance of payments crisis

Traditionally seen by Pakistan as itsmost reliable friend, China appears to

have decided that IMF program is thebest medicine


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--CONCLUSION--BOTH SIDES OF THE COIN

In Pakistan, People generally are not infavor of IMF assistance mainly due to itsharsh conditions.

Those who are in favor ,plead that IMFProgram has always been at the acmeof economic difficulty

The IMF supporters feel that IMFprogram have brought stability toPakistans stock-market performanceand currency volatility


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15677938 imf final project

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