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(2) And then I want to argue—and really, this isn't much of an argument, it's
more an observation of fact—that precisely this same policy package is being
forced on the Pakistani people, today, amidst war and flooding. The exact same,
stinking cocktail of bad economics and ruling-class rapaciousness is, under the
aegis of a twenty-five month IMF plan, in the process of being implemented.
The industrial economy in these years grew quite significantly. Even prior to
Ayub's takeover, “the growth rate of industry in Pakistan was among the most
rapid for any country in the world... a phenomenal 23.6% between 1949 and
Needless to say, this was still capitalism. It was brutal, and monstrously
unbalanced in its rewards (by one famous estimate, at the time the leading
twenty-two families controlled 66 percent of industrial assets, 70 percent of
insurance and 80 percent of total banking assets).7 Vast inequalities emerged
across provinces, and especially between West and East Pakistan. 8 Real wages
were more-or-less stagnant (“declining,” according to Tariq Ali; marginally
improving, according to other estimates). An economic crisis beginning in 1965
set the stage for mass upheavals in 1968-1969—the popular movement, started
by students but given its clout by a newly-formed industrial working-class and
the nationalist movement in the East, tossed Ayub from power.
Without wanting to get into this in too much detail, I'll just assert one point: by
no means do I want to suggest that this was or is a model consistent with
defensible moral or political principles. Ayub's rule was brutal, and depended
heavily on American financial support for its longevity and success. 9 But I do
want us to note that it was substantively different from what was to hit Pakistan
in the 80s, and especially the 90s and 2000's. And it was closer in its basic
outlines to the sorts of policies that have, historically, been responsible for
countries' development.10
In 1977, Bhutto (Sr.) was tossed from power in a coup led by Zia ul Haq. Zia was
to rule Pakistan for the next eleven years, till his death in 1988. As long as we're
happy to simplify a bit, we can think of these decades as the time that the rot
really set in. Put differently—I admit that this is schematic and partly inaccurate,
as a way of framing the issues; but it is instructive nonetheless.
4 Zaidi, p. 91
5 Kamran Asdar Ali, “Strength of the State meets the Strength of the Street: The 1972 labor struggle in Karachi.”
International Journal of Middle East Studies #37 (2005), p. 87
6 Christopher Candland, Labor, Democratization and Development in India and Pakistan (2007), p. 130
7 Zaidi, p. 102
8 See Richard Nations, “The Economic Structure of Pakistan: Class and Colony,” New Left Review (July-August 1971).
9 “...Almost single-minded focus on economic development was possible only because the large-scale military assistance
which started in 1954 and the continued strong foreign policy alignment with the US reduced the competition between
defence and develompent” (Parvez Hasan, Pakistan's Economy at the Crossroads (1998), p. 180)
10 See Ha-Joon Chang, Kicking Away the Ladder: Development Strategy in Historical Perspective (2002).
While the economy grew fairly rapidly under Zia, this was due to a series of
coincidences that actually disguised weak fundamentals. For one, large-scale
public investments made during Bhutto's 'national developmentalist' phase
came on line in the 1980s.11 Second, the impact of large-scale migration to the
Gulf greatly boosted demand.12 And third, after the Soviet invasion of
Afghanistan in 1979, Zia enjoyed the confidence of Uncle Sam—in the 1983-1988
period, foreign aid flows were triple what they were under Bhutto. One study
argues that “the only achievement of the government was to lure the private
sector back into industrial activity. Other than that, it was fortuitous
circumstances which was responsible for the above average performance...”13
In 1988 Pakistan signed its first major agreement with the IMF. A point of
interest: the agreement was hammered out not by Benazir Bhutto, who would
become the country's first legitimately elected prime minister since her father,
that same year—but by a caretaker gov't, on the day before Benazir arrived into
office. As if that weren't proof enough of the anti-democratic character of the
international financial institutions and their work, a second set of agreements
would be signed five years later, this time again by an interim government that
found itself in power between two elected governments.
Needless to say, the plans embodied all the orthodoxies that have come to be
known as the Washington Consensus: the fiscal deficit was to be cut, inflation
contained,14 the public sector was to be downsized, subsidies removed,15 import
11 “...[T]he large public sector investments in industry, which started under Bhutto and continued in the early Zia period,
resulted in major increases in steel, cement, fertilizer, and vehicle production...” (Hasan, p 240). “'[I]n contrast to its
rhetoric against the Bhutto government's economic agenda, the Zia government was hoping to reap the rewards from
investments made by the previous regime'” (Zaidi, p. 116).
12 Worker remittances went from $136 million in 1972-1973 to $2,886 million ten years later. In 1987-1988 they were
$2,013 million; by 1993-1994, they had come down to $1,455 million (See Zaidi, p. 161 and p. 359)
13 Zaidi, p. 119
14 “...Despite high interest rates, the saving rate has remained low. Moreover, high rates of interest have had a negative
impact on the growth rate. The rich who are able to save are obviously benefited by high interest rates.” (NGO
Statement on SAP (1995) cited in Zaidi, p. 349)
15 “Prior to the implementation of the SAP package, the bulk of the subsidies were on wheat, sugar and edible oil which are
important components of the total consumption of the poor. Not only have total subsidies declined but the share of
wheat, sugar and edible oil in these subsidies has also declined sharply... The price of kerosene and petrol rose by about
fifty percent between 1987-1988 and 1990-1991...” (NGO Statement on SAP (1995), cited in Zaidi, p. 349)
barriers lifted, the tax structure reformed,16 etc.
The results, as one might imagine, were devastating. The overall growth rate of
the economy fell well below the average of the 1980s. The rate of growth of
manufacturing almost halved, falling to 4.9% from an average of 9.1% between
1980-1988.17
In effect, the neoliberalism of the 90s finished what the militarism of the 80s
had started. Development expenditure, which had already begun to make way
for defence and debt in the federal budget,18 bore the brunt of hawkishness on
the fiscal deficit. From a high of 10% of GDP in 1976-7,19 it had collapsed to 2.1%
by 2000/01. Whereas it had grown 3.2% per year, under Zia, it now declined by
2.8%, annually, from 1988-1997.20
10 In t er est
Defen c e*
Dev elopm en t
8
0
1981 1988 1995 2001 2005 2009
197 7 1985 1990 1997 2003 2007
Figure 12122
16 “The burden of taxation over the period between 1987-1988 and 1990-1991 has also been borne largely by the poor...”
(NGO Statement on SAP (1995), cited in Zaidi, p. 349)
17 This failure to increase output or produce job growth hardly vindicated the government's decision to shift the burden of
investment to the private sector (“private sector fixed investment in real terms almost doubled over 1988-1996 and
provided more than two-thirds of the total expansion in fixed investment” (Hasan, p. 274))
18 “At the beginning of Zia's rule, public sector development spending had been nearly double the level of defence outlays.
A decade later, development spending had come down to the same level as defence.” Repayments of government debt,
too, were “the fastest growing element in government expenditures during 1977-1988,” most of this comprised of
increased interest payments on domestic debt. (Hasan, p. 252)
19 Hasan, p. 251
20 Hasan, p. 252
21 For reference's sake, “[i]n 1960-65, Ayub was spending 7.1 percent on development and 2.8 percent on defence; in 1965-
1970, the figures were 7.1 percent and 4.0 percent.” (Hasan, p. 149).
22 The figures for defence spending are underestimates: “Under Musharraf and Shaukat Aziz the government introduced
cosmetic changes such as de-linking military pensions from the main defense budget. There are about Rs. 100-150
billion that are not included in the budget. This is one problem. But then there is the overall share claimed by the
military in national resources that would put the percentage at a much higher level. There is a need to monetize the
military’s commercial ventures and the state assets that they utilize for financial purposes to arrive at a correct figure.
The defense budget calculated to the older formula (pensions and all other hidden items included) make it over 25% of
Spending on health and education stagnated; the former averaged 0.7% of GDP
in the 1990s and 0.6% in the 2000s, while the highest estimates of the latter put
it at a woeful 2.1% of total GDP in the 1990s and 2000s (countries at comparable
income-levels average around 3.4% of GDP23).24 Public sector employment
halved, from 1991 to 199825—a trend which would continue under Musharraf, as
privatizations proceeded apace.26
50
40
30
20
10
0
1 9 9 2 1 9 9 4 1 9 9 6 1 9 9 8 2 000 2 002 2 004 2 006 2 008 2 01 0
1 9 9 1 1 9 9 3 1 9 9 5 1 9 9 7 1 9 9 9 2 001 2 003 2 005 2 007 2 009
Figure 2
It is this history that has shaped the Pakistan of the present. Time is short, so I
don't want to address the nuances of the Musharraf period in too much detail,
but I do want to say a few things. There is an impression in establishment circles
that the Musharraf government put Pakistan back on its feet, and a corollary
impression that the transition to democracy in February 2008 put paid to the
CGE. The hidden items also include expenditure used on military but drawn from civilian head of expenditure. A
calculation of defense expenditure based on their overall share of national resources would take the figure even higher”
(Ayesha Siddiqa, “Interview with Viewpont,” Sept. 2010 <http://criticalppp.com/archives/22453>).
23 Amin Ahmed, “Pakistan’s spending on education lowest: WB” (May 2006)
<http://www.dawn.com/2006/05/12/nat5.htm>
24 Economic and Social Indicators, Pakistan Economic Survey 2009-2010 <http://www.finance.gov.pk/survey_0910.html>.
25 Zaidi
26 Aasim Sajjad Akhtar, “Privatization at Gunpoint,” Monthly Review (Oct. 2005)
<http://www.monthlyreview.org/1005akhtar.htm>
27 An outflow of $36.611 billion, inflow of $15.451 billion (Zaidi, p. 250).
progress that he had made in the economy.
Nothing, however, could be further from the truth. What happened under
Musharraf was largely derivative of the rise and fall of the global economy more
generally—and also centrally a result of the favor he had curried internationally,
by aligning himself with the American efforts in Afghanistan.
80
60
40
20
0
1995 1997 1999 2001 2003 2005 2007 2009
1994 1996 1998 2000 2002 2004 2006 2008 2010
Figure 3
28 See “Foreign Direct Investment Prospects for Pakistan,” Khalil Hamdani (April 2009)
<http://www.pide.org.pk/pdf/highlights/FDI.pdf>.
29 “Pakistan has been allowed to reschedule debt on numerous occasions... However, the earlier debt rescheduling was
minuscule compared to the $12.5 billion that took place in December 2001... This rescheduling allows relief of between
$1.2 – 1.5 billion annually in payments of debt servicing on external debt during the years 2001-5. To put the icing on
the cake, add to this the fact that Pakistan has not just had debt rescheduling, but an actual debt write-off by many
friendly countries, and we have an extraordinarily fortuitous situation based on Pakistan's support for the US invasion of
Afghanistan and its War on Terror” (Zaidi, p. 366-368)
credit freely available, but these found a profitable outlet in a consumption
bubble rather than in productive, long-term investments.30 Moreover, much of
the extra demand in the economy was not matched by increases in domestic
output, thus putting pressure on the trade deficit: from a surplus in 2005,
Pakistan began to run an ever-widening deficit in 2006. “[T]he signs of
overheating were evident,” in the WB's posthumous verdict.31 In the same report,
they admit to overplaying the poverty-reduction benefits of this same boom
(since a significant share of the non-poor remained “vulnerable”, and thus in
danger of dropping below the poverty line when “shocked”—as they were in
2008-2010)
In this sense, then, the Musharraf era led Pakistan straight back to the masters
of international finance, after the economy finally collapsed under the strain of
the global crisis. Seven months after the elections, following the enormous spike
in the price of oil in the summer of 2008 and then the worldwide collapse that
fall, Pakistan was forced to do a deal with the IMF. Foreign exchange reserves
had become precipitously low—equivalent to something like three weeks worth
of imports ($3.3 billion).32 After its upward revision in August 2009, the total
agreement with the IMF amounts to an injection of $11.3 billion over 25 months.
(The alternative, for which the political courage was lacking, would have been a
default on foreign debt payments.)
Anyway, before I move to speak about this IMF plan and what it portends for
Pakistan, I just want to take stock of the legacy left by the neoliberal era, so you
have a sense of the Pakistan that was hit by these floods.
Estimates of the number of people living below $2/day, in PPP terms, range
from a low of 60% to a high of 85%. According to national estimates, the poverty
rate almost doubled between the start of the IMF programs and the turn of the
millennium; it was argued that it decreased again under Musharraf, but those
gains were dubious in their sustainability, as I've argued.
After the latest bout of food inflation, about 48.6% of the population suffer from
food insecurity, with the percentages much higher outside of Punjab—67.7% in
30 “An analysis of the sources of growth during the period 2000-01 to 2004-05 shows that the composition of growth
during the period was pro-rich rather than pro-poor. It was fueled mainly by the services sector, (particularly banking
and communications) which contributed 60 per cent of GDP growth during the period and the manufacturing sector –
primarily manufacture of automobiles, luxury consumer electronics, cement and textiles – which contributed 30.4 per
cent of GDP growth during this period” (Akmal Hussain, “Fallacy of Poverty Reduction,” DAWN, February 20th 2008.
Available from: <http://www.dawn.com/2008/02/20/op.htm>).
31 World Bank, “Pakistan-Country Partnership Strategy for the period FY 2010-2013,” (Jul 2010)
<http://go.worldbank.org/JWQ7GXDYR0>, p. 3
32 <http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/0,,contentMDK:22369850~pageP
K:2865106~piPK:2865128~theSitePK:223547,00.html>
FATA, 61.2% in Balochistan, and 56.2% in Khyber Pakhtunkhwa. 33
One statistic that I find particularly precious: according to the most recent
household income surveys, a family with two adults earning the official
minimum wage would find themselves in the top 20% of the national income
distribution. Not only are most families thus making well below the minimum
wage—activists and social workers routinely point out that even if workers were,
they would still have trouble making ends meet. 34
If you want some insight into why the embankments broke in place after place,
why the gov't hadn't been dredging the riverbeds that had silted up, etc., etc.,
look no further than the pillaging of State capacity presided over by the IMF and
our own ruling-class. I want to quote directly from a recent WB report, to give
you a sense of how seriously neglected the irrigation infrastructure has been:
What I want to argue, in brief, is that the current IMF plan represents a
continuation of the two central trends of these lost decades: a drive to austerity
justified by the reigning and misguided policy orthodoxy, and precipitous
33 Abid Qaiyum Suleri, “Food for Survival,” The News (Aug 2010) <http://jang.com.pk/thenews/aug2010-weekly/nos-01-
08-2010/pol1.htm#2>
34 “Household Integrated Economic Survey (2008-2009),” Federal Bureau of Statistics
<http://www.statpak.gov.pk/depts/fbs/statistics/hies07_08/table11.pdf>
35 John Briscoe and Usman Qamar, Pakistan's Water Economy: Running Dry (World Bank/OUP 2006), pp. 60-61.
increases in the debt burden as a result of international loans. In the context of
the devastation wrought by the flooding, of course, it barely needs to be repeated
that it is absolute madness to launch an austerity program. What Pakistan needs
is a massive, internationally-assisted, State-led reconstruction plan, which can
rebuild infrastructure, restore industry, and put people to work in the process.
But thanks to our high priests in Washington and Islamabad, what it can expect,
instead, is retrenchment, inflation and stagnation. The funds that will be made
available for reconstruction are going to be cut from the development budget,
which was ordered frozen at last year's level (recent indications are that it will
actually be cut, rather than simply frozen).36 37
Already, after the SBA was signed in November 2008, the IMF had ordered
fiscal and monetary tightening in the name of fighting runaway inflation—in
other words, lower government deficits, and raise interest rates. The main way
in which the former was to be done was by slashing subsidies on food, fuel, and
electricity. The fiscal deficit, which was 7.6% of GDP in FY 2007/2008, 38 was to
be reduced by one-half as of this year (this target was made moot by the floods).
This, of course, has meant that Pakistan's poor have borne the brunt of the
country's fiscal adjustment, without any serious efforts to compensate for these
increased costs elsewhere.
Before I address the problem of the debt to which the plan is contributing (and
conclude, then, with a discussion of what the Pakistani Left is trying to do about
it), I want to speak to the question of the tax system—both because it is a
centerpiece of the Stand-by Agreement, and also because it clarifies exceedingly
well the class character of the IMF project. The plan has vested heavy hopes in
the overhaul of Pakistan's anemic tax structure.
Now, I agree that there is no denying that this is a problem: tax revenues in the
80s and 90s averaged around 13-14% of GDP,39 and have come down to a paltry
8.9% in the aftermath of this most recent economic crisis. Obviously, when a
government isn't generating revenues, there is less money for development
spending, schools, hospitals, etc., and more chance that a government will run
36 “The government has decided to freeze federal and provincial public sector development programmes (PSDPs) at last
year’s position to create fiscal space to cover the requirements of the current crisis.”
<http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/the-newspaper/front-page/imf-begins-
macroeconomic-review-pakistan-seeks-three-waivers-480>
37 “The cost of immediate flood relief will delay those efforts, said Hoti. "We have compromised on our annual
development plan and yesterday I suspended the entire new portfolio for our development plan for this province worth
about 17 billion rupees (about $200 million) because of the floods," he said.” <http://in.reuters.com/article/idINIndia-
51037420100824>
38 Explained in large part by aforementioned subsidies on food and fuel, which had alone amounted to 3.9% of GDP that
year, when oil prices were at their peak (World Bank 2010, p. 5).
39 Zaidi, p. 212
into debt-related difficulties.
But the reform counseled by the IMF is utter lunacy. The instructions to the
government are to implement a broad-based Value-Added Tax (VAT) by
October.40 I'm not sure how familiar people are with VATs, but they are basically
anti-poor taxes, as the burden they impose is borne by consumers. This will only
exacerbate a taxation structure that is already highly regressive: in 2008-2009,
roughly 62% of all tax revenues came from indirect taxes (sales, excise, and
custom duties) 41 The latest news is that Pakistan has postponed implementation
by a month, due to disagreements with the provinces over the mechanisms of
implementation.42 Nonetheless, when it is implemented, the Reformed General
Services Tax is expected to result in price rises as high as 15-17%. 43
Absent from the discussion is the necessity of expanding the number of people
who pay income tax (who number a woeful 1.6 million, or 1% of the population),
and the urgency of imposing varying forms of progressive taxes on a miserly
elite. By one (possibly fanciful) estimate, the tax-to-GDP ratio could double if the
government found the political will to tax speculative transactions in real estate
and on the stock market. 44 The governments' and IFIs' floundering on these
issues only clarifies that the problems of the taxation structure are not amenable
to technical or administrative solutions, but demand urgently the pressure and
direction of a popular movement.
The plan also threatens to rekindle a debt crisis on both the internal and
external fronts. The Government was directed by the IMF to eliminate
dependence on credit from the State Bank, and as a result borrowed heavily
from commercial banks to fund its deficit in the last fiscal year. 45 The decision to
raise interest rates this summer (which means that government securities pay
higher returns) thus meant even rosier balance statements for Pakistan's banks
40 “The reform was supposed to have been completed by July, but has been held up by a disagreement between the
provinces and the Center over who can collect taxes on services.” <http://brecorder.com/index.php?
id=1059675&currPageNo=1&query=&search=&term=&supDate=>
41 World Bank 2010, p. 57
42 <http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/the-newspaper/front-page/reformed-gst-put-off-
for-a-month-100>
43 <http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/the-newspaper/front-page/reformed-gst-to-cause-
price-hike-of-1517pc-090>
44 Huzaima Bukhari and Dr. Ikramul Haq, “Tax-to-GDP ratio: FBR's Waterloo,” The News (August 2010)
<http://www.jang.com.pk/thenews/aug2010-weekly/nos-01-08-2010/pol1.htm#8>
45 <http://brecorder.com.pk/index.php?id=1097873&currPageNo=1&query=&search=&term=&supDate=> It should be
noted that, particularly since the floods, the Government has returned to the State Bank, borrowing Rs. 220 billion since
July 1 (twice as much as it borrowed in the same period, last year). This, however, hasn't necessarily signaled the end of
borrowing from the commercial sector, who have few alternatives in an insecure economy: as DAWN reports, “rising
NPLs and relatively low private sector credit demand may provide incentive to the already risk-shy banks to meet
government’s borrowing requirements at the cost of private investment in the economy.”
<http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/news/business/44-pakistan-central-bank-rate-fa-
06>
—not soon after the flood crisis began, it was reported that banks' profits were
up 33% as compared to the year before.46 This trend (which, let’s remind
ourselves, amounts to redistribution from the poor to the rich) has contributed
to an ominous re-accumulation of domestic debt. In the budget for the
forthcoming fiscal year, a full 23% of the federal budget has been allocated to the
servicing on these obligations alone (if you include payments on the external
debt and the defence budget, you have accounted for at least half of all federal
expenditure).47
And this figure does not take into account the recent ad hoc amendments to the
budget: namely, the aforementioned announcement that the PSDP may be cut
by 30-50%,48 and the unexplained announcement that the defence budget has
been increased by Rs. 110 billion (For perspective, this last figure itself is about
73% of the amount the government hopes to collect by implementing the GST).
(Just for kicks, here's a parallel statistic to the figure I cited earlier: despite
paying US$45.6 billion in servicing on its external debt between 2000 and 2010,
Pakistan has added roughly $20 billion to its debt burden.)
6000
5000
4000
3000
2000
1000
0
2 000 2 001 2 002 2 003 2 004 2 005 2 006 2 007 2 008 2 009 2 01 0
Figure 4
This first arrangement with the IMF is slated to end by December—but the
condition of the economy, especially in the aftermath of the floods, means that a
second agreement is very possible. Only last month a report in DAWN made it
clear that the IMF's commitment to the reform programme has only
46 <http://brecorder.com.pk/index.php?id=1097873&currPageNo=1&query=&search=&term=&supDate=>
47 <http://tribune.com.pk/story/19101/half-of-the-budget-allocated-to-defence-debt-servicing/>
48 <http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/news/business/psdp-may-be-cut-by-30-to-50-na-
informed-jd-01>
strengthened in the aftermath of the floods.49
As always, with Pakistan, it's difficult to know whether to laugh or cry. What's
certain, though, is that we need to figure out how to do our part, here in the
States, to aid the popular efforts that have already arisen in Pakistan. Aside from
donating what we can, this has to consist in some type of visible political
intervention on these issues. It is sure to be a long road ahead, of course—but
that's hardly reason enough not to get started.
49 “Informed sources told Dawn that during the recent talks in Washington, the IMF authorities had taken a very strong
position and informed Pakistani officials that the programme would continue only after key measures agreed under the
programme were adhered to.” <http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/the-
newspaper/front-page/imf-sets-four-criteria-for-%242.6bn-loan-tranches-890>