Geopolitical motivations behind IMF policies and actions
KARACHI: Pakistan’s foreign exchange reserves are depleting fast as the country desperately struggles to salvage a multibillion-dollar bailout package amid “shifting goalpost” by the International Monetary Fund (IMF).
The Washington-based lender approved in 2019 to lend Pakistan $6.5 billion on fulfillment of certain conditions to stabilise its economy. The plan, however, went off the rails several times and the full disbursement is still pending due to the IMF’s insistence that Islamabad complete all formalities.
The release of a $1.2 billion tranche crucial to escape a financial collapse is dependent on a successful completion of the 9th review, which has been pending since November 2022.
The bailout programme is ending on June 30 when the fiscal year 2022-23 will draw to a close. Several rounds of negotiations have failed to soften the IMF, much to the frustration of the finance minister, Ishaq Dar.
Prime Minister Shehbaz Sharif has also reached out to IMF Managing Director Kristalina Georgieva in an attempt to revive the stalled programme, but to no avail.
In a last-ditch effort, Premier Sharif hosted the ambassadors of at least a dozen influential Western and Asian nations to sensitise them on his administration’s efforts to break the deadlock with the IMF. The envoys were apprised that in February this year Pakistan implemented all the fiscal measures demanded by the lender for the $1.2 billion payout.
These included a Rs170 billion “mini budget”, hike in electricity and gas tariffs, increase in interest rates, and leaving the exchange rate at the market forces.
The only outstanding issue was an external financing gap, which, according to the finance ministry, was also settled on 27th May during a telephone call between the prime minister and the IMF managing director.
But now, the lender raised objections on the recently unveiled budget for the financial year 2023-24, increase in petroleum levy, correction in the forex market, and an amnesty scheme announced by the government in a desperate attempt to shore up its dwindling reserves amid fears of a sovereign default.
An increasingly agitated finance minister blames “geopolitics” for the IMF’s “delaying tactics”, saying that the global institutions want the cash-strapped nation to default like Sri Lanka.
Pakistan has been the “most loyal customer” of the IMF as it has approached the “financial emergency ward” a whopping 23 times in 75 years to resuscitate its chronically ill economy, which spends more than it produces, and thus requires foreign debts to stay afloat.
The current financial crisis has been exacerbated by a “perfect storm” unleashed by last year’s catastrophic flooding, political instability, and rising global food and fuel prices in the wake of the war in Ukraine.
Coming back to the “geopolitical manipulation” claim, many may take Finance Minister Dar’s outburst at IMF as a desperate attempt to shift the blame for his failure to mitigate the incapacitating financial crisis.
This may be true. But that aside, the global lender has long been criticised for following the dictates of some countries which have “a geopolitical interest in diverting the IMF from the principles” that should govern its provision of financial support.
Let’s first briefly review the history and purpose of IMF which has been an important player on the global economic landscape since 1944.
According to its website, the IMF works to achieve sustainable growth and prosperity for all of its 190 member states. It does so by supporting economic policies that promote financial stability and monetary cooperation.
The IMF has three critical missions: furthering international monetary cooperation, encouraging the expansion of trade and economic growth, and discouraging policies that would harm prosperity.
Of late however, the lender has been subjected to fierce criticism as critics have argued that the institution is failing to fulfill its main objectives: provision of emergency finance for the resolution of balance of payment crises and surveillance of the world economy.
Recent studies, backed by empirical data, substantiate the view that “geopolitical considerations are an important factor in shaping IMF’s lending decisions”.
Much of this criticism stems from the IMF’s governance structure since the institution is virtually controlled by a rather exclusive club of advanced economies, led by the United States, which has the biggest voting share in its decision-making.
It has long been argued that the US, taking advantage of its dominant position, uses the global financial institution as a tool to further its geopolitical interests. The United States, backed by other major Western shareholders, shapes and manipulates IMF policies and lending practices to control the developing countries in an effort to maintain its global hegemony.
Apart from military means, the US strategists had employed various strategies to contain Soviet Communism and extend American influence during the Cold War.
The IMF, as the global financial emergency ward, became an effective tool for the Americans to promote economic liberalisation, market-oriented reforms, and free trade policies. However, these measures often helped the US-controlled lender virtually take over the cash-strapped economies of borrowers, dictating all their micro- and macro-economic decisions.
After the disintegration of the Soviet Union, the US, as the sole superpower of the world, redefined its objectives vis-à-vis the IMF. The lender began to be used as a vehicle to promote geopolitical and geostrategic interests of the US which increasingly became involved in “global policing” for the establishment of its so-called “rules-based” international order.
Washington used the IMF assistance to allure and ensnare the developing nations in a grueling cycle of economic dependence.
There are examples aplenty of US geopolitical manipulation through the IMF. The most recent being the four-year $15.6 billion loan programme approved by the IMF for Ukraine in April 2023.
Never before in its history had the global lender approved a financing programme for a country involved in a large-scale war. The decision was clearly motivated by geostrategic and geopolitical considerations as Ukrainian President Volodymyr Zelenskiy welcomed it as “important help in our fight against Russian aggression”.
While the IMF has been delaying the disbursement of a measly $1.2 billion payout to Pakistan, its executive board took no time to approve a whopping $15.6 billion “exceptionally risky” loan for Ukraine.
During the Latin American debt crisis of the 1980s, the US, in its attempts to contain Socialism in its backyard, used its oversized influence within the IMF to restructure debts of the nations that agreed to become its pawns on the regional geopolitical chessboard.
Moreover, the US also used the lender’s actions and policies during the Asian financial crisis of the late 1990s to serve its geopolitical objectives.
Some criticism of the IMF might be exaggeration, but America’s oversized influence over the cash-flush lender is undeniable.
Though some reforms have been introduced to assuage rampant concerns and to shift some power towards emerging economies, more has to be done through broader reforms to increase inclusivity and ensure transparency in the IMF’s actions and policy to achieve its objectives of global monetary cooperation, financial stability, and economic growth.