Wednesday, March 30, 2011

Jhootha hi sahi

IMF loan raised to $11.3 billion on false premise of tax reforms? 

ISLAMABAD: Pakistan?s former representative in the IMF?s Board, Dr Ehitsham Ahmad, has admitted that the augmentation of IMF loan from $7.6 bn to $11.3 bn was made on a false premise that the tax reforms in the country would be implemented by autumn 2009.

The email message of Dr Ehitsham has generated heated debate among the economists in which he reportedly regretted that he pleaded the case before the Fund?s executive board to raise the loan amount up to $11.3 billion from the earlier committed limit of $7.6 billion.
It is relevant to mention here that it was Dr Ashfaque Hassan Khan, who wrote on the opinion pages of this esteemed newspaper first under the title of ?Ten Blunders? of the PPP-led regime that also included augmentation of the IMF loan that was used to fill the gap of Tokyo pledges from Friends of Democratic Pakistan (FoDP).
Now in another message sent by Dr Ehitsham to explain his position, a copy of which is also available with our sources, states that the root of the crisis, as correctly identified by Sakib Sherani in one of his article, lay in the inaction during 2006 and 2007, the failed tax reforms, and in the credit expansion that preceded it for some years.
He stated that the argument then was that we needed the original program as a ?bridging loan? while we brought the stalled tax reforms back on track. In retrospect, a program that front-loads assistance, with back-loaded structural measures, may be more appropriate for countries in Latin America that have made considerable progress on structural reforms than for countries like ours.
On augmentation issue, he stated that it arose with the failure of the Tokyo FODP in April 2009 and expected inflows did not materialize - plus the Army action in Swat led to a large spending on the IDPs. Again, the outcome in the Board was not assured, and Pakistan had to lobby hard for the augmentation and the extraordinary permission from the IMF to use part of the tranche for budgetary purposes - a bridge to the FODP monies.
This would not have been possible without the personal credibility of Shaukat Tarin with IMF management, and especially the Board, and the assurances on my part that the tax reforms were on track.
Put bluntly, Dr Ehitsham says, the original programme itself is not credible without the tax reforms?the augmentation doubly so. ?The IMF staff are not fools, and will not allow us access to the augmentation given the unfavourable debt sustainability analysis and the absence of credible structural reforms,? he further stated.
So the argument about the augmentation issue is purely academic. ?We will not get funds that we have no chance of repaying,? he maintained.
The augmentation was made on a false premise?that the tax reforms would be implemented by autumn 2009. To give Shaukat Tarin (former finance minister) his due, Dr Ehitsham said, he thinks he really tried and it really does no good to blame others, who may be tempted to retaliate. The blame game is destructive and detracts from the issues and challenges that as we all agree, are dire.

He wrote to Dr Ashfaque Hassan Khan that he fully agreed with his viewpoint that we (Pakistan) should not seek to draw on the augmentation, and we will probably have to negotiate a debt restructuring agreement in short order to repay the amounts already drawn. As you pointed out in the article that I commended, the next IMF programme will not be a walk in Rock Creek Park, or Margallah Hills for that matter. On my part, he said, he had resigned IMF position in December 2009?there was no way that he was going to be able to face my friends on the Board, after the assurances that he had given in August. ?Concerted actions are needed in order to address the crisis. The politicians are confused and driven by short-term self interest?disastrous under the present circumstances,? he concluded.

1 comment:

  1. Great thoughts you got there, believe I may possibly try just some of it throughout my daily life.

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