Kashmir

Budget shows how cost of Kashmir has finally caught up with Pakistan
Author: Sonia Trikha (Shukla)
Publication: The Indian Express
Date: June 16, 2001
Economic sovereignty virtually pledged to IMF
Pakistan, it turns out, has done more than mortagage its security with a historic Rs 2 billion-cut in its defence outlay ahead of the July 14 summit. In a document signed by the Pakistan Finance Minister Shaukat Aziz and Governor of State Bank of Pakistan Ishrat Husain, it has virtually pledged the country's economic sovereignty to the International Monetary Fund. The cost of Kashmir is finally catching up with Pakistan.
Aziz, who announced yesterday that his country's ''sovereignty and credible deterrence will never be compromised'', along with Husain has signed a Memorandum on Economic and Financial Policies (MEFP) to the IMF for approving a stand-by arrangement of SDR 465 million. Aziz writes that ''in support'' of the policies set out in MEFP, Pakistan ''requests'' IMF's executive board to approve the arrangement.
The Aziz-Husain signed document is addressed to Horst Kohler, IMF'S Managing Director. It lays outs out in micro and macro detail each move of the Pakistan economy for the next several years as designed to please the Fund's dictates. The fine print apart, it is the abject language which evokes a nation caught in the throes of financial crises and under pressure from the international lending agency to clean up its act.
How far a country is willing to commit itself is a measure of its desperation and Pakistan appears willing to make sweeping promises. In the manner of a student writing imposition in class, the document pledges ''it (Pakistan) stands ready to take any additional steps that may be necessary and will consult with the Fund on this matter in accordance with the Fund policies on such consultations'' for this purpose of loan approval.
Aziz made a virtue out of a necessity when he announced the defence cut but IMF had already dictated that. In the MEFP, Aziz records that ''adequate expoenditure control mechanisms have been put in place to ensure that the defence budget stays in place''. Aziz has also promised that the Pakistan Ministry of Defence's progressive monthly expenditures will be monitored ''closely'' and its results will be reported quarterly the Fiscal Monitoring Committee of the Ministry of Finance. There's more. Any transfers of allocations will not be permiited without Aziz's Ministry approving it.
Pakistan has raised its development spending by 0.4 per cent. It is already listed in the MEFP as doing so. According to analysts, this surrender of sovereignty is the price Pakistan is paying for not only Benazir Bhutto and Nawaz Sharif's past political corruption scandals but also for General Pervez Musharaf's current ambition of keeping the military dictatorship in power. But it is not clearly not paying off. In November last year, when this document was signed Aziz had guaranteed a GDP growth objective of 4.5 per cent. According to the Economic Survey for 2000-2001 growth was a little more than half that, 2.6 per cent.
Pakistan's foreign service debt obligations are more than $37 billion with reserves of only $1 billion. The ride will only get rougher as the IMF cracks down on Pakistan to meet its fiscal targets for securing a subsequent three-year loan. Fiscal discipline as set out in the MEFP demands a 1.3 per cent cut in budget deficit.