World Bank's lop-sided approach

In December 2009, the World Bank took a decision, which went largely unnoticed. The international lender backed off from its commitment to finance a coal mining project in Pakistan under pretext of global concerns on CO2 emissions.

There was no uproar from the government. The development was hardly reported in local newspapers even as the decision would prove disastrous for energy starved South Asian country.

Among all the problems that hamper Pakistan's prosperity, the energy crisis stands out. It has eaten chunks off money, which otherwise could have been spent on schools and hospitals. Industry suffers recurrent power outages. The increasing gap between cost of producing electricity and what consumers are able to pay has indebted government by over 300 billion rupees.

Pakistan claims to have one of the biggest coal reserves in Tharparkar District of Sindh. Since the geological survey showed the presence of reserves in 1992, no headway has been made in exploiting the resource.

This is despite the increasing reliance on imported furnace oil for generating electricity. With depletion of gas reserves, more and more oil is imported every year to run the thermal power plants. It has become one of the major causes of the expanding deficit between the dollars earned and spent on foreign purchases.

The support of World Bank for Thar Coal and Energy Project (TCEP) was important if not necessary. The abrupt decision to abandon that for so-called environment friendly projects has raised many questions.

 Pakistan seems to be a victim of biasness. Earlier in 2009, the World Bank approved $3.05 billion for a coal-fired 4800 MW power plant in South Africa.

Coal and furnace oil are considered the dirtiest fuels for generating power. Among the hydrocarbons, natural gas results in least carbon emission. Hydro power plants, wind mills and solar panels all fall in the category of renewable energy resources.

Now consider the composition of coal in total power output of different countries: coal is source of energy in 95 percent of electricity generation in South Africa, 76 percent in Australia, 81 percent in China, 68 percent in India, 49 percent in Germany, 93 percent in Poland, 70 percent in Israel and 49 percent in United States of America. Pakistan generates less than 1 percent power using coal.

World Bank did not act on its own. The decision regarding TCEP followed U.S. government's insistence that multilateral donors should focus on green energy. The swift change in the attitude of the World Bank speaks volumes about the influence the developed countries have on its policy. And this is not shocking. This was bound to happen!

The foundations of World Bank were laid along with International Monetary Fund in 1944 at the Bretton Woods Conference. The purpose of these institutions was to help war-torn Europe to stand on its feet.

But the scope of World Bank slowly increased. Over the years, it funded development projects in poorest African nations and lent billions of dollars to help countries like Pakistan bring down incidence of poverty.

On the other hand IMF worked as a lender of last resort. Countries battered by economic slowdown borrowed from it to avert balance of payment crisis. Pakistan had to do exactly that in 2008.

Indeed, multilateral lenders have helped many countries come out of financial crisis. Korea, Thailand, Indonesia and Malaysia all resorted to IMF during Asian financial crisis and have since then bounced back.

But around the world, even in Europe and USA, tens of thousands of people choke the streets every year and throw shoes at delegates of the IMF and G8 meetings. The mistrust runs deep against these financial institutions.

 Funded by the richest nations, it is alleged that IMF and World Bank dictate policies under the garb of loans that go against the interest of developing nations and working class people in rich countries.

While it seems the funding is meant to ‘help' the countries in distress, IMF ensures how the loans are repaid. The policies which are part of the financial assistance are always meant in the direction of enabling the borrower-state to repay them in due time.

Neo liberalism underlies the terms of the loan. Poorest nations indebted to IMF borrow more every year just to pay off loan installments taken earlier, mostly by corrupt regimes.

World Bank and IMF have all along pushed the borrowers to open up their economies for free-trade. Domestic currencies are often led to depreciate and strong emphasis is laid on cutting budget deficits- in other words curtailing health and retirement benefits.

The global financial crisis of 2008 has put even the European countries at risk. Anti-austerity protests have swept European Union in recent weeks. Some of these protests in Greece and Spain have turned violent.

In this backdrop, one can imagine that stakes are even higher for Pakistan- the government here is embroiled with judiciary most of the time. Militants attack any city they choose and foreign investment has almost dried up.

The country joined IMF in 1950 but since 1984 successive governments continuously relied on IMF to shore up dollar reserves whenever there has been a flight of capital.

It failed every time to meet the conditions of IMF and as a result the loans cut short. It was the Musharraf led government, which marked the first time Pakistan draw all the loan installments in 2001/2002.

However, it was not the prudent economic policies of then government that helped implement IMF program, says Asad Saeed, a renowned economist. "Right after 9/11, government was able to reschedule $12 billion of loans from Paris Club. That gave enough room to implement IMF terms."

The most serious allegation against the multilateral lenders is with regard to odious debts, which are mostly given to dictatorial regimes. The political influence of IMF cannot be ignored. It is often used by wealthy states, which in turn lend to IMF, to support politicians rather than a nation.

South African case is most bizarre. IMF supported a regime which used the loans to maintain apartheid. The future generations, which have nothing to do with racial discrimination, are paying the cost now.

IMF dictates can hurt badly. In case of Pakistan, the power tariff has been raised by 89 percent on the average in last two years. The move seems logical as the world cannot be expected to pay for the subsidy Pakistani consumers enjoy. But some realities have been grossly ignored in making that assessment.

Power tariff is also high in part because of increased reliance on imported furnace oil, the line losses and the theft. Why aren't the international lenders assisting the country in addressing these problems? No one seems ready to answer this! 

But as the baggers cannot be the choosers, the policy changes have become imperative. And the government is enforcing those changes haphazardly just to save its neck and not fate of its people.

The so-called tax reforms will be further burden on salaried class and raising price of imported essentials rather than taxing the rich. Similarly, interest rate will be increased further in name of controlling inflation without correcting the real supply-side causes.

 IMF will be content with the numbers government shows on its records. It will be pleased with the cut in expenditures, which will basically mean less cash for health and education sectors. It will be happy with the revenues, which are actually being paid by the poorest in shape of sales tax.

No questions are being asked about the austerity measures adopted by rulers. No finger being raised at the convoy of cars that accompanies every parliamentarian. There is hardly any cry on the big houses in which government officials live.

Even if Pakistan is able to successfully complete the IMF program, the distrust among the general masses will grow. And if that is the case, the day is not far when thousands will rally the streets of Karachi and Lahore to condemn IMF. 

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