Cover Story

Treating the Symptoms and Ignoring the Disease

Nader Rahman

"They'll say the IMF is arrogant. They'll say the IMF doesn't really listen to the developing countries it is supposed to help. They'll say the IMF is secretive and insulated from democratic accountability. They'll say the IMF's economic 'remedies' often make things worse turning slowdowns into recessions and recessions into depressions. And they'll have a point. I was chief economist at the World Bank from 1996 until last November, during the gravest global economic crisis in a half-century. I saw how the IMF, in tandem with the U.S. Treasury Department, responded. And I was appalled."
Joseph Stiglitz, former Senior Vice President and Chief Economist of the World Bank, in April 2000.

For the real picture of the International Monetary Fund's (IMF) role in Bangladesh and for that matter any least developed country (LDC) one need not veer too far away from the words of Joseph Stiglitz. He is as investigative journalist Greg Palast puts it “The Globaliser Who Came in from the Cold”. His disillusionment with the World Bank, IMF and the WTO (all interchangeable faces of essentially the same body) stems from first hand experience of how they tow the line of the corporate west and most importantly the US Treasury Department. Many of our economists place the blame of soaring oil prices and near double digit cost push inflation on IMF's over-the-counter prescriptions, their medicine seemingly treats the symptoms rather than the disease.

Gas, its uses, misuses and pricing has long been a topic of contention(right), Joseph Stiglitz(inset)

On August 1 this year, business leaders from around the country gathered to release a statement in which they strongly criticised the interference of international agencies, especially the IMF and their bid to influence the economic management of the country. The businessmen expressed their concern as they said the IMF was urging the government to increase the price of natural domestic gas prices, a move which they claimed would be suicidal. They next took to task the reported letter from the IMF to the finance advisor, which strongly urged further trade liberalisation and also resisted the idea of a “Safeguard Body.”

To put it bluntly the businessmen of the country were fed up with the IMF and its prescriptions, the money it lent Bangladesh came at too high a price and with far too many strings attached. The people who were supposed to benefit from it most were complaining. Where did the IMF go wrong, if at all?

The answer lies within the framework of the IMF itself and who better than Joseph Stiglitz could explain that. In two books, The Best Democracy Money Can Buy and Globalization and its Discontents, Stiglitz spells out the four-step process by which the IMF and the World Bank use the same “Country Assistance strategies” for every nation that needs their help. He even recounts a story when a report was borrowed from one country for another and mistakenly the name of the first country was not even changed!

The four-step strategy starts with Privatisation or as he would have it called “Briberization”. While there are a great number of reasons in favour of privatisation in some sectors in Bangladesh, exactly what should be privatised should be of utmost importance. As Professor Anu Muhammad, Jahangirnagar University says, “The privatisation of our national banks is very risky business, as we can see with the case of Rupali bank. Where are the great Saudi investors now, the same ones that supposedly saved the bank? They are not to be seen as trouble spread throughout the country? Aside from that fact, that state owned banks are being asked to privatise shows the hand of the IMF. Selling such banks which middle and low income people around the country are dependant on could be a huge liability as under foreign ownership their pro-poor attitudes are bound to change.”

The best example of such large scale IMF backed privatisation that has failed miserably comes from Russia in the mid nineties. Apparently the US Treasury viewed the Russian privatisation as a success as they wanted Yeltsin re-elected. They did not care if that was through a corrupt election they just wanted the money to go to Yeltzin. After which the US-backed oligarchs stripped Russia's industrial assets, with the effect that the corruption scheme cut national output nearly in half, causing depression and starvation.

Stiglitz narrows the second step to capital market liberalisation, while in the case of Bangladesh the term liberalisation takes on a whole new meaning. The liberalisation that the Bangladeshi business leaders talk of do not paint the word in the glowing light that we have come to see it, for them liberalisation has a far darker meaning. Hossian Khaled, the President of the Dhaka Chamber of Commerce and Industry (DCCI) says “The IMF consistently complains that trade in basically all senses of the word should be liberalised in Bangladesh and that can and will have many knock on effects.”

Agriculture is the sector most likely to be affected.

Dr. Debapriya Bhattacharya, the Executive Director of Centre for Policy Dialogue (CPD) says “It is true one major approach of the IMF is that they believe in full liberalisation, but they do so without taking into account the contextual realities of that country. For example in Bangladesh the WTO agreement talks of protecting strategic industries, but for the IMF to push for further liberalisation after that would be incorrect,” he goes on to say “that would create a climate in the nations where the businessmen would feel exposed.” And that is exactly what is happening and what prompted the business leaders to announce their August 1 statement.

There are ways out as Dr Bhattacharya says “not everything suggested by the IMF is wrong, we should prepare ourselves for further liberalisation in the future as well as protecting our thrust sectors, such as pharmaceuticals, ceramics and agro products. But aside from that a move in the direction of further liberalisation staggered over some time would not be very bad for us.”

There are also those who differ rather more vigorously. Mahbubur Rahman, president of the International Chamber of Commerce Bangladesh (ICC-B) says “The liberalisation that they (the IMF) speak of is nothing but a policy that tows their line, in their efforts to bring the rest of the world in line with the so called free trade of the west they promote liberalisation.”

Professor Muhammad continues, “The liberalisation that the IMF speaks of is quite unbelievable, even more so taking into account the fact that we are an LDC. The liberalisation comes in many forms, firstly taking down duties and tariffs and therefore opening up our unprepared markets to our big brother India.” This in his opinion is one of the worst aspects of the IMF's continued stay in Bangladesh, there may even be a time when we no longer owe them or any international agency money, yet their one-size-fits-all strategy will still be shoved into our faces.

The businesspeople have claimed that increasing oil and gas prices in line with the global price would lead to a break down of the market in Bangladesh(bottom), Jonathan Dunn(inset)

Jonathan Dunn, the resident IMF representative says, “The misconception in this area of the IMF's work here has been around for ages. Sure it must be said that when we lend money there are certain provisions that need to be met, but with regard to other areas such as suggestions sometimes at the request of the Bangladesh government we never push them on the government and claim to hold back loans if they are not followed. That is a great misconception, we analyse the situation in the country and give what we believe to be useful suggestions as to how they may improve their economy.”

Others are less convinced of this purely advisory role. Professor Muhammad says “They may claim that they just advise at times, but there is no doubt that immense pressure is applied to governments to follow their prescriptions.”

The continued liberalisation of trade in Bangladesh brings with it more questions than answers as lowering duties and tariffs will lead to our protected import substitute industries effectively being wiped out. That is a risk the IMF is seemingly willing to take Dunn, says “For Bangladesh to be a profitable global market, it must liberalise and we at the IMF have made no bones about it. For us the faster Bangladesh brings itself into line with world markets the better equipped their businesspeople and consumers will be.”

Another effect of the liberalisation Bangladeshi business leaders have criticised were the proposed increase in gas prices and this fits in very well with Stiglitz's third step in their one and seemingly only “Country Assistance Strategies”. His third step is 'market-based pricing', a fancy term for raising prices on food, water and domestic gas.

The businesspeople have claimed that increasing oil and gas prices in line with the global price would lead to a break down of the market in Bangladesh. Their claim is simple; fuel is a basic raw material for their production and by increasing the prices of fuel the cost of production would go up. That would lead to the consumers having to pay a higher price for their products and in a country that is already experiencing near double-digit inflation the effect could be catastrophic. This logic is overly simplistic to the IMF office here.

In reply to them Dunn says “The business leaders are not looking at this from a long term point of view. With fuel prices being exceedingly low, the businesspeople in the country are being lulled into a false sense of security. They are producing their goods under great duty and tariff protection, on top of that they purchase fuel an extremely low prices, how are they getting a feel for global competition? Isn't that what they should aim for? The least they should do is purchase fuel at the international prices, this would benefit them for a number of reasons”, he went on to add “the subsidy given by the government now on fuel is having a crippling effect on the economy, what should be done instead is that the subsidy should be removed but not for everyone. The farmers and other low-income groups should still buy the fuel at a subsidised rate. The rest should purchase it as international prices, that would make the market more competitive.”

While what he says seems to make genuine sense there is still more of the story to reveal. Professor Muhammad says “Why has it come to such a stage that our gas exploration and production is controlled by foreign companies? Till the mid to late 90's we managed to run everything ourselves and then after the foreign companies came out problems started. So much so that due to their mistakes and leakages they owe us close to TK 1000 crore in damages.”

Bangladesh's agriculture industry will seemingly be the worst affected by IMF and World Bank “suggestions”. It was recently reported that the World Bank is pressurising the Bangladesh government to increase the rate on agricultural loans given out by the BKB (Bangladesh Krishi Bank) and RAKUB (Rajshahi Krishi Unnayan Bank) from 8% to 12% a staggering 50% increase in the rates. If this is implemented it could spell the end of our agricultural renaissance, as farmers would struggle to pay back their loans at higher rates, as well as having to deal with expensive fertilisers. If the IMF and World Bank had their own way the price of fertilisers would be pushed up as well, because they are looking at decreases in subsidies. From the institution's point of view, there is some logic to increasing the interest rates, it would make the banks healthier, but behind that logic the farmer is left out. The banks may be financially healthier but the farmers, the lifeblood of this country would be in dire straits.

The fourth and final step in the Stglitz waltz is basically an amalgamation of everything mentioned above and it is the "poverty reduction strategy" which is basically free trade. This is free trade by the rules of the World Trade Organization and World Bank. Stiglitz the insider likens free trade WTO style to the Opium Wars. The effect of this free trade is as Dr Bhattacharya says, "The fact that businesses feel overexposed to competition.” One might say we are in the midst of an ideological war as well. Traditionally the IMF judgment was considered sacred, but those days seem to be coming to an end. But in most peoples' minds we are still slaves to them, whether it be through the use of their loans or their apparent “advice”.

This June this year the IMF's poverty reduction and growth facility (PRGF) deal ended with Bangladesh, the next round of talks between the nation and the IMF will be of utmost importance but it also comes with a potential banana skin for Bangladesh. With the PRGF expiring Bangladesh would have to decide how next to deal with the IMF, should they leave the organisation as an observer and advisor in the country or should we move to the next logical step, which in the eyes of the IMF would be the policy support instrument.

In their own words the IMF says, “The Policy Support Instrument (PSI), introduced in October 2005, enables the IMF to support low-income countries that do not want or need fund financial assistance. The PSI helps countries design effective economic programmes that, once approved by the IMF's Executive Board, signal to donors, multilateral development banks, and markets the Fund's endorsement of a member's policies.”

This is where things get tricky, the IMF advertises the PSI as a tool to be used by countries that have graduated from their financial assistance or no longer need it, yet it still acts like a leash as it too comes with strings attached and only this time they don't even give any money in return. In return one gets what could only be called a credit rating from the IMF, if favourable then other donors will provide aid and grants to the countries, if not and then basically everything will be stopped. This could be a real problem if Bangladesh was to sign this as Professor Anu Muhammad says “The PSI is a slave document, in fact I personally think of it as the policy slavery instrument, it does nothing but hold a nation down to yet more IMF prescriptions and even worse they don't even provide any money for it. And instead if one does not follow the rules set by them carefully then no other donor agencies will provide funds. It is nothing but a warrant of arrest, and the only thing being arrested is development.” For him these types of policies are just as bad as borrowing money from them, in fact they may even be worse. This seems to be one document we must resist from signing.

All of this leaves us in a rather precarious position and the real question is where to from here? Dr Muhammad believes the answer is simple “We must break free from the IMF. Look at the East Asian and Latin American countries that suffered greatly in the late 90's; it is without doubt that the IMF was to blame in most of those cases. Since then those economies broke free of the IMF and have been flourishing ever since. We must learn from them. For the IMF regions are more important than individual countries and that is where in policy decisions we are left behind,” he adds “they want us to liberalise our markets and then we will face highly protected markets, if we want progressive advancement we must say no to them. If we work properly the necessity for overseas loans would no longer be there. We must be strong.”

The IMF and other institutions have seemingly “guided” us long enough and this could be the historic opportunity we need to set ourselves free. Even if that is not necessarily the case, Bangladesh should finally stand up and take action, rather than just follow the advice of such agencies. The reliance on foreign loans and the conditions that follow can be overcome but a concerted effort is needed by the business community as a whole. The IMF asks Bangladesh to liberalise yet if and when we do go to trade, we are faced with highly protected markets. They talk of removing agricultural subsidies here while the US and EU struggle to keep up with their wine lakes and butter mountains, the result of the two most highly subsidised group of farmers in the world. This is the time to break free from the West and the ideological war is on.

There is an old saying where people are told to keep their friends close but their enemies closer. This seems to be the case with Bangladesh, as the IMF offices are located in the heart of Dhaka's financial district, Motijheel, and occupy space in the Bangladesh bank building itself. Such close proximity seems a little too telling.

Joseph Stiglitz's words on IMF's overwhelming influence in LDC's maybe a little melodramatic but not devoid of logic:
“When a nation is down and out, the IMF takes advantage and squeezes the last pound of blood out of them. They turn up the heat until, finally, the whole cauldron blows up. It has condemned people to death. They don't care if people live or die. The policies undermine democracy...it's a little like the Middle Ages or the Opium Wars.”

Copyright (R) thedailystar.net 2007