Patchy work on Pakistan's economy

Political ramifications of of new economic order by Dr. Manzur Ejaz

One can delineate certain characteristics of the emerging international economic trends from recently concluded annual meeting of the World Bank and the International Monetary Fund in Hong Kong. Instead of being purely developmental and currency-trade stabilization agencies, these world organizations are assuming explicit -that might have been implicit all along-roles of brokering, regulating, and rating different developing economies. In essence, the new functions of these agencies are meant to remove the barriers and facilitate investments by the multi-national corporations. For that, in addition to promoting open trade, these agencies have taken upon themselves to promote good governance and eradication of corruption in the developing
countries.

A couple of years ago, the World Bank's (WB) literature, shying away from the word ‘corruption', incessantly used the terms like ‘rent seeking'. It did not want to temper with the sensitivities of the ruling elites of the developing countries. As a matter of fact, the WB official would consciously censor the word (corruption) from the writings and even from the onversations of their new and uninitiated consultants. Then the billions of dollars were siphoned away by the elites of the developing countries under the WB's very nose. Its solemn silence over the plunder was dictated by the cold- war ideological considerations.

It is a sea change in approach when the World Bank president, James D. Wolfensohn, declares that "my bottom line on corruption is simple: If a government is unwilling to take action despite the fact that a country's development objectives are undermined by corruption, then the Bank Group must curtail its level of support to that country. Corruption by definition, is
exclusive: it promotes interests of the few over the many. We must fight it wherever we find it." This well awaited war cry, suppressed due to political considerations, is trumpeted due to conflicting interests of international finance originating from different countries.

Primarily, the U.S. based corporation were at a disadvantage as a result of anti-bribery bill passed by the U.S. Congress. According to this bill, the U.S. corporations are disallowed to pay bribes to the developing countries'
officials to get business. More importantly, these corporations are not allowed to take deductions on the amounts paid in bribes as business expenses. On the contrary the European corporations were allowed to declare pay-offs as business expenses and, hence, they could take tax deductions on these expenditures. Therefore, their cost of business was less than the
American companies. To become competitive, the U.S. has pushed the WB to move against the corruption in the developing countries.

Besides corruption, the World Bank and the IMF have adopted policies that will effect the political and social policies of its clients, the developing countries. After all, political instability, anarchy and corruption effects the profitability and standing of the multi-national corporation on Wall Street: the recent destablization of currencies in the East Asia has
adversely effected the stock markets in the industrialized countries because of expected decline of profits of multi-nationals. This is an extremely important factor in the new economic order because, to the dismay of many developing countries, most of the official aid from the industrialized countries is being replaced by investments by the multinationals.

The World Bank estimated that official aid of all kinds came down from $65.6 billion in 1991 to $40.8 billion in 1996. Such aid or loans from the industrialized countries will keep a downward trend because the governments in these countries are privatizing most of their function: As the post World War II welfare states are coming to an end, the developmental aid considered to be a kind of welfare grants, at least by lay persons in these countries, is being scaled back. While the private sector is taking over the state functions at the domestic front, multi- national corporations are replacing the governments' sponsored programs in the developing countries. In this backdrop, the IMF Managing Director Michel Camdessus argued that freeing capital markets offers the best hope of prosperity.

Most of the developing countries are not comfortable with this situation. Many participants from the developing countries ( Bangladesh, Egypt and India) were worried by the recent drop in official aid from richer countries.
Notwithstanding the rhetoric, fact of matter is that aid from the rich countries, specifically, the development loans channeled through the World Bank were the cheapest funds available. If these funds were used properly and were not appropriated by the ruling elites, big tag projects (like Mangla and Tarbala dams in Pakistan) could be undertaken paying very reasonable costs.

Now, whether one likes it or not, the developing countries have to compete for the private investments in a lassie faire international environment. In turn, investments by the multi-national corporations is a double edge sword: On the one hand these investment are expanding the developing economies but on the other, an unprecedented uncertainty and destabilization
is injected. Recent currency destabilization in the East Asian countries (Thailand, Philippine and Malaysia) by international speculators was a preamble to an unfolding of a broader picture. Malaysian Prime Minister, Dr. Mahathir Mohammad has been furious and crusading against such currency speculators who, in his view, have conspired to undo the economic
achievements of Asian Tigers. He has been asking for banning such manipulations.

But, given the proven laws of capitalist economies, such forces are going to remain well and alive and take advantage where ever an economic weakness is anticipated. Western economists are not off the mark in arguing that such a
destabilization results from fundamental economic weakness. Further, the experience of last two centuries in the industrialized countries reflects such ugly reality of the capitalist system.

Whenever, economic excesses resulted in fundamental weakness, stock and currency speculators took advantage: The periodic depressions in the U.S.A., followed the meltdown of equity markets. This led to economic restructuring
and building of stabilizing institutions: creation of Federal Reserve Bank in the U.S. and similar institutions in Europe were designed to lessen such instability. The newly industrialized and/or developing economies, adopting capitalist model, cannot escape this reality and will have to strengthen their financial and other institutions. In the backdrop of this new economic
order, the IMF and the World Bank have reorientated themselves.

Now, these agencies concentrate on privatization, liberalizing regulatory environment, improving good governance, eradication of corruption and rating the overall economies of the developing countries. On one hand, these
agencies are forcing the developing countries to downsize the public sector, eliminate the trade barriers and improve the governance and on the other they provide bill of clean health which, in turn, will is taken as a green signal
by the multi-national corporations to invest in certain countries and avoid others.

Many developing countries have reservations about this new approach. Pakistan's Finance Minister, Mr. Sartaj Aziz, has argued that these agencies should not venture into politics and "eschew deadlines or conditions'' and let member-governments decide the best pace and approach to achieve these objectives. However, it is clear that, contrary to Mr. Aziz's preference, the penetration of international finance will not be limited to the economic arena only: the political sphere will be equally effected. Therefore, the IMF and the World Bank, being the main conduits of international finance,
cannot adopt hands-off policy with regard to political and social policies in the developing countries. The new economic order will be accompanied by a new political system.