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USAID!

Over the past 51 years, the United States Agency for International Development (USAID) has grown into a powerful multi-billion dollar political-cum-military weapon in the hands of the American establishment.
THE FALL AND FALL OF PAKISTAN ECONOMY
Sunday, July 01, 2012

Over the past 51 years, the United States Agency for International Development (USAID) has grown into a powerful multi-billion dollar political-cum-military weapon in the hands of the American establishment. USAID's charter is explicit: To serve the foreign policy interests of the United States. USAID is a big business in Pakistan. In fact, USAID is a billion dollar per year wrangle and that is more money than OGDC, MCB, Pakistan Petroleum, PTCL, PSO, Engro, Fauji Fertilizers, SNGPL, Lucky Cement, Indus Motors and Pak Suzuki collectively make in one year. In 2009, USAID contracted out its five-year, $80 million jobs project. USAID contracted out a $89-million four-year FIRMS project. USAID contracted out a $30-million five-year trade project. Roger Bate, a former director at the London-based Institute of Economic Affairs, claims that data from USAID's Buy American Report indicates that over the last decade between 70 and 80 per cent of funding appropriations were directed to US sources. Rubn Berros, the author of 'Contracting for Development', claims that only a few cents of every dollar of foreign aid ends up in the Third World. On February 9, 2012, Rolf Rosenkranz of Devex, the organisation focused on reducing inefficiencies in the field of international development, asked the all-important question: Can USAID afford a 90 per cent failure rate?

President Kennedy's stated objective behind the creation of the USAID was to separate military aid from development aid. According to Eva Golinger, the author of 'The Chavez Code', over the years USAID merely became an additional fund for the CIA to dip into for covert interventions. William Blum, a former employee of the US Department of State, maintains that there exists a close working relationship with the CIA, and that Agency officers often operated abroad under USAID cover (Killing Hope: US military and CIA Interventions Since WWII). More recently, a former editor of The Japan Times asserted that the CIA, through USAID, is running a disinformation campaign on Japan's earthquake crippled nuclear facilities. Corruption also runs rampant. This is what, USAID achieved under its $150 million Fata Livelihood Development Programme: USAID trained two-dozen truck drivers to read road signs. USAID transported cattle from central Punjab to improve the breed in Fata. For $150 million USAID distributed 278 Ravi Piaggio motorcycles, 10 tractors, 12 threshers, nine reapers, 10 trolleys, six MB ploughs, six cultivators, 210 spray pumps and 20 auto sprayers. This is what USAID achieved under its $3.3 million HIV/AIDS Prevention and Care Project: USAID provided services to 78 HIV-positive individuals and their 276 family members. Then there was the 'Kabul bank fraud' in which USAID lost a wholesome $850 million. On May 11, 2011, US House Republicans told Dr Rajiv Shah, USAID's administrator, that USAID's efforts in Haiti have been a failure. According to David Reef of The New Republic, USAID has provided a total of $28 billion in economic and development assistance to Egypt but USAID's undertakings in Egypt have been a total failure. On February 9, 2012, Rolf Rosenkranz of Devex, the organisation focused on reducing inefficiencies in the field of international development, asked the all-important question: Can USAID afford a 90 per cent failure rate?

PAKISTAN AND THE IMF


WHERE DOES THE PROBLEM LIE?

THE FALL AND FALL OF PAKISTAN ECONOMY


Sunday, July 01, 2012

After the PPP-led government announced its fifth and what was being bragged as "a historic budget (for reasons having less to do with economics), the finance minister was quick to retort that with a soaring current account and budget deficit, Pakistan, for resolving its financial crisis, may take the begging bowl to the IMF. In the post-budget briefing, the minister said that 'containing current account and budget deficits' was the topmost challenge which the country faced. The statement put the current account deficit for the outgoing fiscal year at $4 billion or 1.7 per cent of GDP and overall fiscal deficit for the current year at about Rs. 1.5 trillion or 7.4 per cent of GDP while the current account deficit for the next year has been projected at $4.8 billion or 1.9 per cent of GDP and budget deficit at Rs. 1.105 trillion or 4.8 per cent of GDP. Pakistan's association with the IMF dates back to 1980s when the agency started to play an increasingly important and assertive role in our economic policies. The IMF was created with the purpose to preserve the post-Second World War international economic order and in the process, oversee that industrialised states do not engage in competitive devaluation which caused much of the economic crisis of the 1930s. Though the IMF evolved to regulate the (im)balance of payments problems that states face yet, over the years, it has acquired a more assertive and aggressive tone particularly in the area of determining economic policy choices. Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with member countries usually every year. A staff team visits the country, collects economic and financial information and discusses with officials the country's economic development and policies. The IMF doles out what is regarded as a 'stabilisation' programme for countries which face macroeconomic instability, that is, high inflation and severe budget and foreign payments deficits. A state's negotiation with the IMF revolves around executing policies which are labelled as

'conditionalities'. These conditionalities are imposed on the state receiving IMF loans and, in particular, comprise the implementation of these policies: a) abolition or liberalisation of foreign exchange and import controls; b) devaluation of the official exchange rate; c) control of the government deficit through limits on spending, especially in the area of social services for the poor and staple food subsidies; and d) greater hospitality to the foreign investment and a general opening up of the economy to international commerce. Most of these policies proved quite unpopular in most countries where these had been tested. This is so because the primary thrust of IMF's policies is not geared toward ensuring development of the aidreceiving state rather it is to oversee that such state continues to pay back the international loans accruing to it. During the 1980s, the IMF strategy was tested in 28 of the 32 nations of Latin America and the Caribbean. The results revealed that though Latin America had performed more than reasonably well in paying back its debts (around $145 billion) yet the economic costs were tantalising including economic stagnation, rising unemployment and a decline in per capita income of 7%. Pakistan first went to the IMF in 1980 when an 'Extended Fund Facility' was made available. Many leading and well-reputed economists still believe that when the IMF facility was provided for Pakistan, it was not really needed. Akbar Zaidi has argued that Pakistan's economy was in a far better shape than any other developing country and was not on the brink of an economic crisis or collapse during the 1980s. Comparing Pakistan with Bolivia, which accepted the IMF stabilisation programme, Zaidi notes that the latter had an inflation rate of 11 per cent and a fiscal deficit in excess of 30 per cent of GDP. Pakistan's economy, on the other hand, was (and one may add, still is) in fairly good shape provided that important steps are taken in order to boost revenues. At present, Pakistan owes the IMF about $8 billion: $1.8 billion is due to be paid in 2012, $3.9 billion in 2013 and $2.1 billion in 2014. It is quite evident that Pakistan has to repay around $8 billion in almost two and a half years which makes it imperative that a new deal with the IMF is signed in order to buy more time. But this generates a paradox: you borrow in order to retire the loan, which means that you are being burdened by debt after debt after debt. This approximates the example of an individual who seeks loan from one bank in order to pay another. Considering that no drastic increases are accruing in the said individual's income, he/she is forced to live in a burden of lifetime debt. Where is the sense in all of this? Coming to the policy prescriptions, Pakistan was advised by the IMF in 1980 to devalue the rupee against the dollar, reduce government expenditures, establish tax reforms to increase domestic resource mobilisation, encourage savings, institute price reforms and push for export-led growth and privatisation. Most of such measures are policies with which most political economists, simply, don't disagree. Yes, they would criticise reduction of government expenditures as leading directly to curtailment of social welfare programmes (such as investments in health and education) and privatisation which leaves the middle-class employed on the whims of the market and its functioning with no social security net once they are rendered unemployed. But who would disagree with IMF's policy prescription to increase the tax base or encourage savings or even competitive devaluation?

The primary thrust of IMF's policies is not geared toward ensuring development of the aid-receiving state rather it is to oversee that such state continues to pay back the international loans accruing to it.

The sense, from an economic perspective, requires that the government should institute policies to increase its revenues so that proportionality is maintained between earnings and expenditures. One of the basic mechanisms, over which successive governments have failed miserably, is efficient tax collection. At present, Pakistan's tax-to-GDP ratio stands at a little less than 9 per cent which is one of the lowest in the world. The PPP's 'historic' budget flirted slightly with the tax system but did not make any significant structural change. The finance minister reiterated that his government's proposals would increase the tax-to-GDP ratio to a slightly better 10.1 per cent. The government's inefficiency in raising revenues and curtailing wasteful expenditure is the root cause of all the fiscal ills and woes which plague the country. By wasteful expenditure is meant money that goes under the head of corruption. This wasteful expenditure sits side by side with debt servicing which has eaten up one-third of the budget. The present budget outlines that the government will spend Rs. 1.1 trillion--or more than one-third of its outlay--on servicing both domestic and foreign debts. Debt servicing and defence expenditure (which the finance minister put at 18.4 per cent), jointly take away major chunk of the budget and almost 48 per cent only is left for running the country. This is still quite a handsome figure, however, figures hardly are the right source to celebrate or denigrate a country's economic performance. It is the 'performance' itself which counts and the fundamental requirement for effective performance is essential economic reforms, including the implementation of agri tax. It is the government of Pakistan, not the IMF, which is responsible for the poor state of our economy. Before going to the IMF, we need to put our own house in order first. If we dont, we will continue to flounder in a sea of economic woes! The writer is an Assistant Professor at Department of International Relations, University of Karachi. farhan_74@hotmail.com