The Effect Of IMF Programs On Economic Growth

For the past two decades the International monetary Fund has come under intense scrutiny and attack. Its role in stabilizing the economy of a country and dealing with its balance of payment problem has been heavily criticized. The critics have blamed the international organization for its dictatorial and exploitative role and its micro managing and unneeded influence on the economic policies of a country. In this paper I will analyze the role of International Monetary Fund on the economies of the countries and whether its intervention makes the country better off by taking it out of the economic troubles that they are facing or does it further worsen the situation? The paper will further look into the short and long term effects after the intervention of the IMF on the economy of Pakistan.

The International Monetary Fund:

            The worst debt crisis in 1980's that mainly hit the developing countries of Latin America, including Brazil, Mexico, Argentina etc, left the debtor countries entirely devastated and their financial institutions ramshackle. It was followed by a complete chaos in the defaulter countries after the uprising of the people against the policies of their government, which contributed to the collapse of some autocratic regimes such as Brazil's military regime and the Argentine bureaucratic-authoritarian regime(). Economic growth stagnated, incomes dropped, unemployment rose to the peak and high inflation eroded the purchasing power of the middle and lower middle classes. The debtor countries were once again on the doorstep of their creditors to seek new loans to prevent the bankruptcy. The international creditors gave new loans to the ravaged economies but with very strict conditions and obliged the debtor countries to accept the intervention of International Monetary Fund (IMF). As a result, the IMF rose up as an economic police to keep check and balance on the disorganized economies. For the first time IMF intervened in the inner economic and financial policies of a country to make it pay its debts. The role of IMF was to keep the economies of these South American countries functioning by imposing certain conditionalities on the countries so that they could return the loans to their creditors. Structural Adjustment Programs (SAPs) were born as a result of this debt crisis.

            The International Monetary Fund was established on July 22, 1944 originally with 45 members. Today the organization has 187 member countries. The idea behind its establishment was to help in rebuilding the Europe after the World War II. But with the passage of time as the world progressed, its policies changed. According to the organization’s charter, the IMF promotes international monetary cooperation and exchange rate stability, facilitates the balanced growth of international trade, and provides resources to help members in balance of payments difficulties or to assist with poverty reduction (IMF Objectives).The IMF does it through its economic surveillance that keeps track of the economic health of its member countries, alerting them to risks on the horizon and providing policy advice. It also lends to countries in difficulty, and provides technical assistance and training to help countries improve economic management (ibid). But there are different viewpoints about the actual role and purpose of the IMF. The proponents of the policies of the IMF say that it has a positive impact on the overall economy of a country. For example, in the case of Argentina it did recover from its financial crisis of 1980’s when the IMF intervened and in the following decade it showed a tremendous growth (Cavallo 2004). However, the critics of the IMF say that its policies only benefit the elites and corporate industrialists while the poor and the lower socio economic class get suffered. They heavily criticize the reform programs of the organization like “Structural Adjustment Programs (SAP)” in which the Fund gives loan to the countries on harsh conditionalities. Moreover, they argue these developing countries have long paid back their actual loans but due to high interest rates they are still hugely indebted and are dependent on new loans.

           

               The member country of IMF, having balance of payment problem, can take loan from it, but it is not the only prerequisite for taking loan. Ghana, for example, entered an IMF agreement in 1983 when its foreign reserves reached their strongest position ever: 4.8 times monthly import requirements (Przeworski and Vreeland 2000). For these countries to be eligible for the loan from the IMF has to accept certain conditions. The conditionalities are given the name of Structural Adjustment Programs (SAP). The most frequently imposed elements of an adjustment program include: Devaluation of the currency, cuts in government expenditures, privatization of government, higher taxes and interest rate, and reduction of wages. The critics say that the IMF is only concerned with the return of the loans and the SAP’s only serve this purpose. The IMF determines countries’ macro-economic policies and takes control over central bank policies. It imposes a neo liberal ideology on the debtor countries. Despite the IMF’s claim that the SAP’s have been successful, it is widely acknowledged that they have failed to achieve their goals. The trade liberalization and privatization of government enterprises has allowed the multinational companies to trespass into the borders of developing countries and destroy the domestic industries. The local industries, farmers, businessmen and banks are unable to compete with the large corporate firms and thus go out of the business. Moreover, the adjustment program makes the economy export oriented so that revenues could be generated from the exports. The currency of the country is devalued which makes the exports cheaper in the international market. But it also makes the import goods quite expensive for the host country that raises the import bills and inflicts a huge burden on the country’s economy. In a survey conducted among 1024 countries, the average rate of growth of countries participating in IMF programs grew at the rate of 2.04% while countries not under the programs at 4.39%, a difference of –2.35% (ibid). This can give us a broad and clear picture of the effect of IMF’s policies on the economy of a country.

Pakistan:

            Pakistan is a developing country in South Asia that got independence in 1947 and since then its economy has experienced both boom and bust. In 1960’s and 1980’s the economy was quite flourishing attaining the average annual GDP of 6.8% and 6.5% respectively while in 1990’s it fell to 3.5% (Economic). During the difficult times of economic crisis Pakistan mainly approached the International Monetary Fund and other international creditors to borrow loans. After becoming the member of the IMF in 1988, Pakistan has taken eleven loans from the IMF including the recently borrowed loan in 2008 (Upadhyay). Most of these loans were aimed to manage the financial problems of Pakistan such as balance of payment deficits, stabilization of currency, rebuilding international reserves and managing liquidity problems. Ironically, only two of these loans arrangements were made during the military regimes while the rest were made during the civilian and democratic regime. Tough conditions were imposed on Pakistan by the IMF including close monitoring, reduction of government spending, revision in tax collection policies, change in policy/discount rate etc to make sure that high economic growth is achieved so that the loans could be returned in time. In this section we will examine the effect of the IMF and its Structural Adjustment Programs on the economy of Pakistan.

           

                     The unemployment rate of Pakistan has increased since 1980’s after its first contact with the IMF. From 1980 to 2001, the unemployment rate increased from 3.5 percent to 5.7 percent (Khan, Nawaz, and Hussain). One of the conditionalities of SAP is to force the government of the debtor country to cut down its expenditures to narrow down the budget deficit. The development projects of the government are the main target of this conditionality. Therefore, the reduction in such projects has affected the employment in Pakistan negatively. Moreover, with the depreciation of Pakistani rupee, the imported goods have become more expensive which has decreased the investment in Pakistan and discouraged the investors to further extend their businesses. This in turn has increased the unemployment rate in Pakistan. Bengali and Masood (2001) analyzed the fiscal and monetary package of IMF which was targeted to slide down the unemployment. They concluded that conditionalities have adversely affected the employment situation in Pakistan. Ali (2003) also concluded that SAP has resulted into decrease in real wages of both male and female labor force as well as employment.

           

                  The Structural Adjustment of Program has also increased the income inequality in Pakistan. The policies have made the rich and elites of Pakistan richer while the poor people got suffered and their incomes shrank. Inequality in a country is measured by Gini coefficient which varies between 0 and 1. The close a Gini is to 1, the more unequal is the income distribution. The income distribution in Pakistan has widened in the era of SAP, i.e. since 1980’s. By the measure of Gini-coefficient, it was 34.14 percent in 1981 and it increased to 37.29 and 41.12 percent in the years 1995 and 2001 respectively (Khan, Nawaz, and Hussain). This could be the result of pro rich and anti poor policies of the IMF. One of the policies implemented by the IMF is to increase the taxes mainly sales taxes to generate revenue. As the taxes are levied on such goods that are not consumed by the rich, thus the policy has largely affected the lower income group. Moreover, most of the labor in Pakistan is associated with agriculture. The rise in import bills, which made the agricultural equipments expensive to import, and the withdrawal of agricultural subsidies by the government has greatly affected the income of poor people of Pakistan.

Conclusion:

            The former managing director of the International Monetary Fund says, “Our primary objective is growth. In my view, there is no longer any ambiguity about this. It is toward growth that our programs and their conditionality are aimed. It is with a view toward growth that we carry out our special responsibility of helping to correct balance of payments disequilibria and, more generally, to eliminate obstructive macroeconomic imbalances”( Przeworski and Vreeland 2000).  We agree that the International Monetary Fund has a very important role to play in reviving the economies of the countries. Balance of payment crisis and exchange instability are the facts of life and most of the developing countries have faced these problems at some point in their history.  It is beyond the scope of this paper to check whether or not the austerity and structural programs are necessary to restore growth but if the main objective of the IMF is the economic growth then it has failed badly and their programs are badly designed. 

Identity Dynamics In Violent Conflict: An Exploration

Upon analyzing many cases of violent conflict, some underlying abstract themes can be felt which have a  part to play in the anatomy of violence and conflict. The factors driving peoples into the active realm  from the passive realm are deeper and more complex than how they appear at first. Upon studying the  different forms and occurrences of violence – be it the ethnic, religious and sectarian riots in Karachi or  the racial segregation, prejudice and tensions in Los Angeles – we are left with similar questions: What  drives ordinary people to violence? What is beneath racial, religious, ethnic and sectarian violence? Why  do people of different races, religious beliefs and ethnicities co‐exist peacefully in some societies and  rise up in violent conflict in others? This paper explores the stance that the complex dynamics of identity  and shifts in identity can provide some answers to these questions.

        This paper aims to prove the linkage between identity, power struggles and conflict. Identity is an  individual or group’s sense of being, their perception of self and an awareness of their distinction with  respect to others. Identity dynamics cause people to associate themselves with a group or cause (Ross,  2001). Identity is concerned with judgments about groups and their motives. These groups of people can  have any commonality – religious, racial, ethnic  for example. These identities connect people through  ‘perceived common past experiences and expectations of shared future ones’ (Ross, 2001, 157).  For the  purposes of this paper, identity is thusly defined.  

       This paper aims to show how identity changes with context and how the concept of identity (both  individual and group identity) is not a static one, but a dynamic one.   It is linked to power struggles  between individuals and groups. People create and shift their identities according to situations,  depending on the opposition they are faced with. This strong sense of self leads man to create the  ‘other’ – the different, the opposition. This process of separation then justifies the dehumanization of  the ‘other’ and this is how ordinary people become perpetrators of violence. Conflict between different  groups usually starts with one or both sides feeling deprived or aggrieved in some way. As a group, they  are either being denied economic or political rights, or are being stereotyped to be further disadvantaged in society.  Human beings tend to create identities to support their cause, and they tend  to shift these identities when context changes. An individual never has one single identity, and is never  strongly self aware until he meets with difference or opposition of some kind: ‘Social identity theorists  argue that individuals possess multiple social identities that become salient in different contexts or as  context changes (Bryan, 2008, 1).’
          
              Identity dynamics play an important underlying role in all case studies of violence and conflict. This  paper looks at this salient force of shifting identities and claims that groupings among human beings are  based on a common purpose/cause – usually, the actual conflict lies not in being of different color,  religious beliefs or ethnicity, but in the threatened identities of people involved (Ross 2001). The context  (what we want and what is being denied to us) shapes our identity and in contemporary times,  urbanization and urban planning policies of the government also have a role to play.  

Having introduced the research question, this paper would assert its position that certain factors put  together mobilize ordinary people into being perpetrators of violence. These factors will be discussed in  detail, particularly referring to how they affect identity dynamics, and the overall conclusion in the case of ethnic/racial riots would be emphasized more. Differences of color, religion, race and ethnicity have  always existed between humans, but what drives these differences into violent conflict is when the  State starts to differentiate between its citizens and when State policies are biased in favor of one  community and against the other. The State should balance all its diverse citizenry and not provide  economic or political opportunities to a specific group at the expense of others. This is the root cause of  many incidents of violence, and this is the disease that should be treated instead of focusing on the  symptoms and declaring such conflicts as mere law and order situations.


Shifting identities could be a result of a politically maneuvered attempt to gain power. This is true in the  case of Johannesburg and the sexual violence against women. Society in South Africa had so deeply  been plagued by otherization that after the apartheid era was over, new identity dynamics were  created. Where earlier people identified with two groups – Afrikaners and Blacks, post-apartheid South  Africa saw the creation of new groups to identify with - men and women. To maintain social control and  power, men began using rape as a tool to dominate women. Identities changed – earlier people were  either Black or Afrikaners, and now they were men against women.  Political motivations behind shifting  identities can also be seen in the case of Karachi’s religious riots between Muslims and Ahmadis.  Political parties needed to legitimize their rule post-partition by creating an ‘other’, and they used  hatred against the Ahmadis to their advantage: ‘these parties capitalized on latent anti-Ahmadi  sentiments, which assumed an aura of religious sanctity and culminated in rioting in the fifties’  (Shaheen, 196). Religious sentiments of people are often used for this purpose, because religion is the  oldest identity-forming entity:

Religions frequently supply cosmologies,moral frameworks, institutions, rituals,traditions, and other identity-supporting content that answers to individuals' needs for psychological stability in the form of a predictable world, a sense of belonging, self-esteem, and even self-actualization. The peculiar ability of religion to serve the human identity impulse thus may partially explain why intergroup conflict so frequently occurs along religious fault lines (Seul, 1999, 553).

Economic reasons behind shifting identity are more pertinent to the sectarian, racial and ethnic conflict  cases: ‘Certain social and economic conditions intensify the likelihood of violence, while others promote  harmony between different groups’ (Shaheed, 195). Economics effects identity, grievances and conflict  to such an extent that Niccolo Machiavelli, in his ancient text ‘The Prince’ advises rulers not to interfere  with the property of their people, and in doing so they would never despise him: ‘A son can bear with  equanimity the loss of his father, but the loss of his inheritance may drive him to despair’ (qtd. in The  Prince, Chapter  19)

In the case of the LA riots, three different groups seemed to base their racial identity according to their  economic situation and the jobs they could get. The LA riots seem to be a war for control over the city  and its resources, and in LA it rose when public sector spending and unemployment decreased, which  was the main source of jobs for Blacks and Hispanics: ‘it is the accelerated decay in the public sector that  best explains the rising tensions between different ethnic communities’ (Davis, 6). Racial identities  always existed in LA, but they resulted in violence primarily because of State policies against the inner  city and in favor of the suburbs, where the White population resided: ‘Racial polarization has been going  on for generations across the white picket-fence border between the suburb and city’ (Davis, 17).The  Whites had access to better jobs and better share in State resources. In Karachi, the war between  different ethnic groups was also based on resources, employment and jobs. The Sindhi-Muhajir conflict  occurred as a result: ‘Muhajirs were better placed to compete for jobs … than were the indigenous  people of Sindh’ (Shaheen, 199). The same economic struggle took racial tones in LA and ethnic ones in  Karachi.  

It can also be noticed that against the Whites, the Hispanic and Black populations joined together to  face a common enemy. But amongst them, conflict arose when jobs were few and had to be shared.   The same can be seen in the case study of Amristar, where after the Jallianwala Bagh massacre, the  Indians collectively opposed the British atrocity. At this point the colonizer was seen to be a common enemy, and so the Indians forgot their own internal conflicts and joined together as a joint identity.  Later on the Indians shifted this identity to one based on religious beliefs, and once religious identities  had fulfilled their purpose, people of the subcontinent shifted their identities to ethnic ones.  Also, in  the case of the French Revolution, the identity shifts are very pertinent. People of different occupations  and social standing came together to achieve a common purpose, and were united against a common  enemy – the absolute monarchy system. Peasants, the working class and lower level priests were all  joined in revolutionary efforts.  In the case of Karachi, we see how the Pathans shifted identity once they  migrated to Karachi. Earlier tribal identities mattered to them, but facing opposition from the Muhajirs  and Sindhis in Karachi, they united under a common identity of being Pathans: ‘Where tribal differences  and rivalries exist in the Frontier, these are erased in Karachi when Pathans presented a united front to  all the others’ (Shaheen, 202).   Similarly, for the Muhajirs, there were internal differences. Not all  Muhajirs were the same, and there existed Biharis among the Muhajir populations. But in the riots that  occurred, Muhajirs joint together against the Pathans to occupy the city’s resources.  In the case of  Karbala, we saw people returning to their post-Islam tribal identities as the Sovereign collapsed (the  Sovereign being the Prophet Muhammad, who maintained unity among the Muslims). Identities now  shifted from being Muslim to being of a particular clan, or family. The Umayyads were now against the  Prophet’s family and divisions sprung up between formerly united people. This struggle was also a  struggle for power, to keep the Khilafat inside a particular family. Therefore, it can be established that  identity is not constant, and the same people can be classified as alike or different, according to the  context.

In Karachi’s example, we see how violence occurs when identities are threatened. The Pathans had a  province of their own, but the Muhajirs had no province they could identify with, and Karachi was  central to their distinct identity and social value. Their jobs, homes and collective sense of being were all  invested heavily in the city, which is why they were so strongly opposed to any other who tried to  dominate the city. This can be attributed to almost all cases of sectarian and ethnic violence. The Tamils  of Sri Lanka, the Basques in Spain and the Bengalis in former East Pakistan – all shared this threat to  their identity. This makes ordinary people to resort to violence – the threat that another would  dominate their sense of identity, be it economically, politically or through social instruments like  language and culture.  

A very important reason for the LA riots also seems to be urbanization and the lack of urban planning by  the government, ‘returning the cities into the Hobbesian wilderness’ (Davis, 10). When the government  denied providing funds to rebuild LA, it also denied investing in providing urban housing and  employment to keep up with the rise in urbanization. Also in Karachi, the ‘criminal inadequacy of urban  developments’ has led to squatter settlements and to people depending on their social circle for money,  which strengthens ethnic identity and ties (Shaheen, 205).Therefore, it can be seen that interests and  identities are often interconnected.  

Human beings have the ability and inclination to form cohesive groups and to form targets of  externalization. Although this facilitates emotional survival, the strong solidarity between groups of  similar identity in a given context can give rise to competition and conflict with the others (Ross, 2001).  In texts as ancient as the Genesis, we find examples of these groupings. It is inherent in the Hobbesian  state of nature of man to self preserve. But such ethnic and sub national identities are a threat to the  Hobbesian Sovereign, as separatist movements based on different identities can occur and break the  Leviathan.

This sense of identity leads to violent conflict, otherization and dehumanization, and stereotyping. In the case of Amritsar, the British colonial identity felt itself to be superior to the Indians and thus created a separate realm of punishment and reward between the two. This led to the British legitimizing their use of violence. In the case of Rome, this dehumanization of the other led to the creation of separate  identities and legitimized brutal violence in the minds of the people, because gladiators and convicts  were seen to be inferior ‘others’. Identity dynamics lead to resentments among groups and rioting.  Identity dynamics also lead to stereotyping of certain groups which can legitimize using violence against all members that share the same identity. This is seen in South Africa’s example, where all Black men are stereotyped as being rapists, which causes people to believe that rape is a racial problem instead of a gender problem. In LA, all Blacks and Hispanics were viewed as parts of gangs or inherently violent people, and this sometimes led to violence against innocent people. The people residing in the core city were all seen to be drug dealers or gang members, and this further hampered the progress and the provision of justice to the core city dwellers.  

In the end, it can be said that the State in many cases has treated the symptoms of conflict as law and  order situations, but not the underlying causes of it, which are based on the lines of identity. It is not the  government’s job to differentiate amongst its citizens. Racial, ethnic and religious differences can be  contained into the spheres of non violence as long as State policy does not prefer one group over the  other in economic or political benefit: ‘Unbalanced economic and political policies have continued to  widen the gulf between different groups … as a result, sub‐national identities have become important’  (Shaheen, 200).  Instead of imposing a common identity on its citizens, or denying rights to particular  groups, the State can wait for different groups to amalgamate over the course of time on their own,  without any outside interference: ‘Only by including its citizens into decision making  and  by  evolvingdemocratic institutions can the state hope to reduce or eliminate the authority  of sub state entities’  (Shaheen, 210).  
 

Works Cited

Bryan, Todd A. “Aligning Identity: Social Identity and Changing Context in Community‐based    Environmental Conflict” University of Michigan Press (2008): 1-9. Web. 21 May 2011.  

Machiavelli, Niccolo.  ‘The Prince, translated by N.H. Thomson.’  The Harvard Classics. New York: P.F.    Collier & Son (1909): Chapter 19. Web. 21 May 2011.  Ross, Marc Howard. “Psychocultural Interpretations and Dramas: Identity Dynamics in Ethnic Conflict”   Political Psychology 22.1 (2001): 157-170. Web. 21 May 2011.   

Seul, Jeffrey R. “Ours is the Way of God: Religion, Identity, And Intergroup Conflict” Journal of Peace Research 36.5 (1999): 553-569. Print.  
 

Written By:Fatima Akram (LUMS)

The Pollution Biology of Aquatic Oligochaetes - Ebook - Pilar

      

Title: The Pollution Biology Of Aquatic Oligochaetes

Author: Pillar Rodriguez, Trefor Reynoldson

File Type: PDF Document

Download Link: Click Here To Download