do you think imf recourses have been able to meet the current account deficit in members countries

8/10/2019 Do You Think IMF Recourses Have Been Able to Meet the Current Account Deficit in Members Countries

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Under current agreement, IMF imposes 11 main conditions on Pakistan which includes:introduction of the Central Excise Duty on service and agricultural sector, reduction in theexpenditures on Public Sector Development Program, devaluation of rupee, freezing of non-development expenditure under the defense budget, non-provision of supplementary grants togovernment departments, ending subsidy on gas and electricity, reduction in non-development

expenditure of civil departments and federal ministries, increase in markup rate of banks and oninter-bank transactions, uniformity in the inter-bank and open market dollar exchange rate andstoppage of government financial intervention in stock markets.With little room to maneuver the budget, real economic success will depend on the attractivenessof our business environment in the eyes of both foreign and local investors. This is where thegovernment needs to focus the most because it is the private investments which will guaranteeour long term economic progress. The environment will also have to be made conducive toattract donor funding in sectors such as education, health and social development.At present, Pakistan is in a similar situation as Turkey was in 2001(Turkeys situation was actually even worse). It also had to resort to the IMF to get out ofthe crisis. However, Turkeys prudent policies and determination have transformed the

country into a stable, dynamic and well-functioning economy. In May 2013, Turkeycompletely paid off its debt to the IMF. Can Pakistan follow suit?

Statement at the Conclusion of an IMF Staff Mission to PakistanMay 10, 2014An International Monetary Fund (IMF) staff mission, led by Mr. Jeffrey Franks, visited Dubaiduring May 1- 9, 2014 to conduct discussions on the third review of Pakistans SDR 4.393

billion (about US$6.6 billion) Extended Fund Facility (EFF), approved by the Executive Boardof the IMF on September 4, 2013. The mission met with senior officials from the Ministry ofFinance and the State Bank of Pakistan (SBP). At the conclusion of the mission, Mr. Franksissued the following statement in Islamabad:

The IMF mission held constructive discussions with government and central bank officials onthe economic performance under the EFF program and is encouraged by the overall progressmade in pushing ahead with policies to strengthen macroeconomic stability and revivinginvestment and growth. The mission reached staff-level understandings with the authorities on aset of economic policies detailed in an updated Memorandum of Economic and FinancialPolicies.Economic indicators are generally improving, with growth gaining momentum, externalfinance improving, and credit to the private sector rising. However, core and headline inflationare also rising. Led by large scale manufacturing and service sectors, GDP will expand by about3.3 percent in FY 2013/14, accelerating further to reach 4 percent next year. An improvement inthe balance of payments situation along with the authorities efforts to build up reserves areyielding tangible gains in increasing SBP reserves and stabilizing sentiment in the foreignexchange market.Fiscal performance was strong during the first nine months of the year, but the government

recognizes an emerging revenue shortfall in April and is committed to taking the necessarycompensatory actions to assure attainment of the end-year deficit target. Looking forward, themission and the authorities agreed on the key revenue and expenditure measures to achieve afurther reduction in the fiscal deficit in FY2014/15. Decisive efforts to broaden the tax net anddevelop a more efficient and equitable tax system with adequate enforcement mechanism


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remain essential to provide the necessary resources to infrastructure and other critical areas suchas health and education.The mission thanks the authorities and technical staff for their cooperation and reaffirms theIMFs support to the governments efforts to implement their economic reforms. Conclusion

Pakistans economy has been suffering from structural defects since many years and thegovernment hasnt been able to make any concrete efforts to correct it. The government prefersmaking cash arrangements for the economys betterment instead of bringing any structuralchanges. The recent appreciation of the rupee against the dollar is also due to cash arrangementof $1.5 billion instead of increasing exports and decreasing imports, which would have genuinelyappreciated the rupee. The same is the issue with the balance of payments situation. If moremoney goes out of the country than the amount coming into the country, the balance of payments problem would occur forcing the country to seek the IMFs help. IMF has always put developingcountries like Pakistan in trouble than solving its problems. The IMF imposes very strictconditions on the loans it gives to countries. Such conditions are very harsh for economies likePakistan, which instead of growing at a faster rate face periods of slower growth. The recentstand-by arrangement programs taken by Pakistan forced the country to increase electricity ratesto a large extent, which burdened the middle class and also increased inflation in the country.Pakistan also has to pay back the loan with interest in a short time span which increases theamount of debt servicing it has to do from its annual budget. After defence expenditure, thesecond largest expenditure which the federal government has to incur is of debt servicing. Aftercombining the heads of defence and debt servicing, nothing much is left to run Pakistan.

Pakistans debt problem is due to the huge spending of the federal government, which includesrunning loss-making state-owned enterprises, trading in commodities and agricultural products.Pakistanis just love their government to spend on a large scale as they are in a habit of being run by a big daddy which controls everything. They want the government to do everything for themand be involved in every part of the economy instead of letting the free markets work wondersfor them. ZA Bhutto had introduced the government as the big daddy of the lives of the peoplewith his socialist policies but even after the international debacle of socialism, people still wantbig daddy to control everything. The IMF also calls on the federal government to make taxreforms but the govenrment is unwilling to increase the tax net and with a small increase inrevenue and a large increase in expenditure, the national debt is sure to increase manifold as itsthe only good way the government sees to bridge the ballooning budget deficit.

CASE OF TURKEY :

Should IMF Have Intervened into the Turkish Economy?It will be done by providing factual data that proves, firstly, that IMF policies worked andchanged Turkish economic structures, and, secondly, that IMF policies helped Turkish economicdevelopment in a very large measure in a positive way . Lastly, effectiveness arguments of boththeories will be reviewed. Economic development includes too many determiners within it. As


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well as the economic policies of the country; global trends, global economy, development of theother (rival or market) countries, domestic politics, and so on have effects on the topic. Becauseof this reason, understanding of the reaso ns of a countrys economic development is too hard and dangerous to bind to one point. That is why the best way to study the question (if IMF had aneffect or not) seems to be a comparison of two certain periods or sub-periods where much things

are constant but the relation with the IMF. There is also not much period in which there is no policy consulted by the IMF was followed. The paper will examine the 2002-2006 , in which verystrict policies of IMF were followed, and 2007-2012 , in which no IMF policy were followed, to

be able to find an answer to the question. In those two periods, most of the other determinants,like the other developing countries of the world, global trends and enhancement, domestic

politics of Turkey, are regarded as constant as much as they can. Let us begin with the very briefhistorical background of the period.On November 22, 2000, the very last crisis has emerged because of the bank-run of theforeigners. The government was not able to follow the IMF program. In 2002, AK Parti tookover the government. They began to follow exact IMF program which is established between2001-2002 als o with the help of Kemal Dervi, minister responsible of the economy, former

World Bank officer. The IMF program had been followed from 2002 to 2006. Here, the mostimportant indicator is liberalization of the economy. If the program had been followed, thereshould be a clear liberalization from 2001 to 2006. In the following paragraphs, a bunch ofstatistics will be provided from the book IMF Tahribat (Destruction of the IMF [on the Turkisheconomy]), an academic study of Petrol- , a pro-nationalist and opposition to AK Parti and theIMF, labor union. All statistical data will be based on 2000 index as 100, unless otherwise isstated. The statistics will be divided into three major parts: (I) macroeconomic data, (II) laborwage data, and (III) share of the sectors.

Firstly, macroeconomic data will be overviewed step by step.

(A) Growth in GDP increased from 2001 to 2004 by 12,4%. (B) However, employment did notrise that much. The rise is only 3% . (C) Related to the previous two, 2001-2003 productivityrates are more striking. In the manufacturing sector; production increased 9 times more than theincrease in the labor force in the same sector. Similar to the previous one, in the metal productionsector; production increased 6 times more. Also in the food industry; labor force decreased about4% whereas production increased by 12% (D) Rate of industry utilization capacity increased by19% from 2001 to 2004 (51). As a result, it can be said that not only production but also

productivity rose as liberal economic norms require.(E) Government expenditure has decreased sharply from 2000 to 2004. Its index is72,1 in 2001; 68,8 in 2002; and 67,2 in 2003. (F) Public investment/GDP rate decreased by75% from 2001 to 2004 (79). As a result, it is seen that the state began to abdicate from theeconomy, which is the core principle of the IMF programs. (G) Both import and export increased sharply. In terms of current account, import increased by 68% and import by 44% from2001 to 2004. (H) Growth in income of international trade in terms of real account was -14% in2001; and is +16.2% in 2004 (53-61). As a result, Turkish economy opened to the global trade,which is one of the stated purposes of the IMF.Secondly, labor wage statistics will be given (index as 100 in 1997).(A) Industry labor wage decreased by 16% in public and 12% in private sectors from2001 to 2004. (B) In the manufacturing sector, production increased by 25%, employment


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decreased by -4%, productivity by 15%, and wage per hour by -18% from 2000 to 2003As a result, not only labor-wages decreased in real term, but also production increasedwhich can be explained by a liberalizing economy.Lastly, share of the industries in expenditure will be shown. (A) Private consumption rose in realterms sharply from 2001 to 2004 (25). (B) Sales of vehicle and household appliance increased

between the same years (27). (C) Loans that are used increased from 23 million TL to 157million TL between 2002 and 2004 with a 580% raise in current account terms (26). As a result,it is seen that arguments of liberal economy the more expenditure people make, the bettereconomy gets and the more people spend, the better economy it means realized. Inconclusion, an obvious liberalization of the Turkish economy is seen from the beginning of the

period following the IMF program. Let us, now, examine the macroeconomic data of the twosub-periods, 2002-2006 and 2007-2012, and compare them with each other to see if theliberalization affected the macroeconomic accounts of Turkey in a positive or negative way; andwhether the accomplishment/failure of liberalization is related to the IMF program or not.

As it is seen from the tables compared, the sub-period in which IMF program wasfollowed has much more higher GDP growth rate. It has %7,24 average; whereas the secondhas %3,4. The average GDP growth rate of Turkish history (from 1923 to 2012) is %4,92.The first period has an average 47% more than the historical average; whereas the second,%45 less. It can, clearly, be argued that following the IMF program helped to thedevelopment of the Turkish economy given the last 11 years. From the previous paragraphs, itcan be deduced that the IMF program worked and changed economic facts in Turkey in a

positive way which helped the development in the macro manner.This paragraph is supposed to examine the validity of the arguments of thetheories. The previous paragraphs in this section have showed that IMF had a clear and strongeffect on the development of Turkish economy and that if IMF would not intervene into

it Turkey could not be at her current point in the economic manner.. IMF gives loans to countrieswho demand, under certain conditions. If they fail to follow the instructions, they cannot get anyother loan. This is the self-enforcing system of the IMF. Since the countries, periodically, needloans, they chose to follow IMFs instructions. ConclusionTurkish economy from 1923 to 2012 has an average of 4,9% GNP annual growth rate.When 02-06 in which IMF played a role and 07-12 in which no IMF policy is followed are compared, a clear distinction is seen. In the first period there is an average of 7,4% in growth


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in GDP; whereas in the second, only 3,4%. IMF, since its establishment, played a great role onits member countries development processes. It has relations with Turkey from 1960 to 2013,the year in which her debt is literally over. She made 19 times arrangements with it. IMFs effectis not only seen in the growth rate, but also the macro statistics of employment, wages, inflationof Turkey in the years in which she followed the instructions of the IMF. From the factual data, it

can be clearly seen that IMF had a positive effect on Turkish economy. The answer to the mainques tion that the paper trying to answer is clear: IMF should have intervened into Turkisheconomy. If it would not, Turkey could not be at her current situation today. IMF affected theeconomy, and this effect was in a positive way in the macro level.

do you think imf recourses have been able to meet the current account deficit in members countries

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