Tag Archive: World Bank


Remember the export of wheat about three years ago by Pakistan triggering a very serious food shortage in the country leading to phenomenal rise in food prices? The same wheat was imported back at exorbitant prices. Since then the price of wheat and flour is constantly on the rise. This was perhaps one of the biggest corruption scandals of the Shaukat Aziz government. It seems that the present government has learnt only one lesson from this regrettable decision; do it again and make billions at the cost of millions of hapless “voters” who you will need only in the next season of “democracy”. Interestingly, this decision, which has been taken to be able to pay off central bank loans, has been taken at a moment when wheat prices are at the lowest in the international market.

It is simply beyond comprehension why export is needed to pay off SBP loans which essentially are in local currency. It seems that the driving factor behind this imprudent decision is dollar-lust. Express Tribune has reported that after a ban stretching more than three years, the government on Tuesday allowed the export of wheat in a bid to pay back central bank debt, a move that could result in a serious food crisis since a World Bank (WB) report has already warned of a five-million-ton drop in production in the next crop. The Economic Coordination Committee (ECC) of the cabinet allowed the grain export without imposing any cap on quantity. It is expected that wheat will be exported in massive quantities since Russia, the world’s largest wheat producer, has banned the grain export resulting in price surge in the international market.

The ECC assessed a $300 per ton (Rs1,040 per 40 kilogram) wheat price in the international market, anticipating a further hike in coming days. Although the government has fixed the wheat price at Rs950 per 40 kg in the domestic market, farmers usually receive an average Rs850. Pakistan is the third largest wheat producer. The ban on export of wheat was slapped in June 2007 when because of incoherent policies the country first exported the commodity and then had to spend over $1 billion to import the same for domestic consumption.

The ministry of food and agriculture’s summary to the ECC proposed lifting the ban primarily to pay back debt taken from the State Bank of Pakistan (SBP) to buy wheat, make room for next year’s crop storage and capitalize on higher prices in the international market. Total wheat stocks are estimated at 9.07 million tons, of which 6.1 million tons are in Punjab. “The Punjab government is paying Rs77.5 million per day interest on loans,” obtained for buying wheat, says the summary. The federal government is picking up Rs24.6 million from the amount.

The production target in the pre-flood scenario was also estimated at 25 million tons. According to the Damage and Need Assessment Report of the World Bank and the Asian Development Bank, “wheat production may reach only 20 million tons opposed to an average production of almost 23 million tons in the last three years.”

The report goes on to say that there is concern about the possible impact of reduced wheat output in the coming season on food security. Around 78,000 tons of wheat were either destroyed or damaged in Punjab during the recent floods.

Advertisements
Those who think that Pakistan is not their preferred destination for making investment should sit back, relax and give reason a chance. They should have a second thought and see if they can do any better if they chose to take their money elsewhere to places like India who claims to be a fast growing economy. India’s most dreaded news magazine, Tehelka has a different story to tell. It says that India may be thumping its chest for being the second fastest growing economy and being one of the few countries that was relatively unscathed by the global economic downturn. But when it comes to doing business, it fares worse than most neighbors, including archrival Pakistan.

According to a report titled Doing Business 2011: Making a Difference for Entrepreneurs prepared by the World Bank and the International Finance Corporation, India is 134 in a ranking relating to the ease of doing business, while Pakistan, Sri Lanka, Bangladesh and Nepal are ranked 83, 102, 107 and 116, respectively. China is ranked 79. Among its neighbors, Bhutan, ranked 142, is the only country ranked below India.

Worse, among the nine parameters based on which countries have been ranked, India’s position has declined in five and shown improvement on only three fronts. It has been able to maintain status quo on only one of the yardsticks. India has shown improvement in terms of paying taxes, starting a business and closing a business, while it has slipped on the counts of dealing with construction permits, registering property, getting credit, protecting investors and trading across borders.

“India is one of the most preferred destinations for investments in the world today and is likely to remain so for next few years,” said DK Joshi, chief economist at credit rating agency and industry tracker Crisil Ltd. “As far as reasons for India being ranked so low in terms of ease of doing business, this could be because of procedural hassles, time taken in approvals, among others. The pace of reforms, too, is slower than anticipated and all these factors results in lower ranking,” Joshi added.

 

It is a strange world where someone’s misery can turn into opportunity for someone else to make quick windfall profits. This is true not only for individual greedy business men but also institutions. In the case of Pakistan, where Government needs to rehabilitate people and reconstruct infrastructure, the only thing needed is money and that too in local currency because almost nothing is to be imported. Any other nation, in such an hour of need, would adopt austerity as a way of life and divert all national and individual savings towards reconstruction and employment generation for those whose livelihood was washed away. Another way is to ask those to cough up who have stashed tons of plundered wealth. They could be given an opportunity to whiten their black money.

However, strange are the ways of the Pakistani Government where the easiest of the way is to ask for external loans and that too very expensive one. At this point in time, debt servicing is 44% of the current expenditure and with additional debts it will rise further and add to the miseries of the people. The only gainers in this calamity are Pakistani businessmen and international lenders like the Bretton Woods sisters and ADB who see a huge business opportunity in investing in reconstruction activities.

Express Tribune, while updating on flood relief activities has reported that the World Bank has increased funding to help Pakistan cope with catastrophic flooding by $100 million, to a total of $1 billion, the bank said in a statement on Thursday. “The World Bank is committed to helping the people of Pakistan during this time of need and has made $1 billion available to finance immediate recovery needs and longer-term reconstruction,” the statement quoted World Bank President Robert Zoellick as telling Pakistani Finance Minister Hafeez Shaikh in Washington.

The same newspaper has also reported that the International Monetary Fund will give Pakistan $450 million emergency loan for flood aid, providing some relief for a government overwhelmed by the disaster. IMF Managing Director Dominique Strauss-Kahn said in Washington on Thursday that the funds would be dispersed in ‘coming weeks’.

Strauss-Kahn said discussions with a delegation led by Finance Minister Abdul Hafeez Shaikh on how to ‘reorganise’ an $11 billion IMF loan program. He said Islamabad remained committed to terms including tax and energy sector reforms. The IMF package had kept afloat and economy that was already fragile before the floods rampaged from the northwest to the south, damaging crops and infrastructure which Prime Minister Yusuf Raza Gilani estimated could hit $43 billion, almost one quarter of last year’s gross domestic product.

Meanwhile demonstrators marched against the new International Monetary Fund (IMF) loan plan in front of the World Bank’s offices in Islamabad.

With about two thousand people dead, millions homeless and deadly diseases spreading, mighty Indus is still furious and this death and destruction is only one side of the story. And its only the beginning.  Deadlier still are events unfolding as are the stories of Government’s incompetence to deal with this situation. The floods are an excellent recipe of disaster for Pakistan as a country, if those rich elite who plundered it do not cough up whole of the looted wealth or at least a fraction of it. Pakistan’s already creaky economy has been pushed to the verge of ruin by the devastating floods of the past month. With foreign aid only now beginning to trickle in, the impoverished country has been forced to take out further loans while pleading for outstanding ones to be restructured.

Already burdened by heavy debt, the country’s economy has suffered a major setback. According to the Independent, funds will have to be poured into reconstruction efforts while many sectors of the economy, especially agriculture, will suffer losses for up to several months, if not years.

So far, the floods have covered a fifth of the country, cost at least 1,600 lives, displaced 4.6 million people, destroyed roads, bridges and schools, damaged power stations and dams, and swamped millions of acres of agricultural land. About 150,000 Pakistanis were forced to move to higher ground yesterday as water from a freshly swollen Indus River submerged dozens more towns and villages in the south. Officials expect the floods to recede across the country in the next few days as the last river torrents empty into the Arabian Sea. Survivors may find little left when they return home. Already, 600,000 people are in relief camps set up in Sindh during the past month. The floods have affected about one-fifth of Pakistan’s territory; at least six million people have been made homeless, and 20 million affected overall.

Some officials estimate that the cost of rebuilding infrastructure could be $15bn, money that Islamabad simply doesn’t have. As of July, Pakistan had a debt of $55.5bn. That figure will jump to $73bn in 2015-16, as debts that were rescheduled after 9/11, in As a result of the tragedy, the budget deficit will grow, inflation will rise, and economic growth will slow – all areas where the fund had wanted to see progress in the opposite direction.

At the same time, Islamabad has secured loans of $1bn from the World Bank and $2bn from the Asian Development Bank to help relief efforts and begin the task to rehabilitation and reconstruction. Government officials say that they were left with no option but to approach the banks as foreign aid has generated only a fraction of what’s needed. The disaster has revealed decades of infrastructural neglect that damns successive governments. However efficiently the current government may have been able to mobilize resources, the state’s capacity was woefully lacking in the first place.

Some 17 million acres of agricultural land have been submerged by the floods, which are still raging in the southern province of Sindh. Key crops including wheat, cotton and rice have been affected. Pakistan’s economy has long suffered problems because of its embarrassingly narrow tax base. Broad sections of the wealthy, including senior politicians, pay little or no tax. But Mr Sheikh said that the crisis could be an opportunity to take tough economic decisions the government has long wanted to. “We could push through a sales tax, introduce a flood surcharge on well-to-do people and get some leeway from the IMF.”

These two sisters born in USA have already reached the age of retirement but they are still young, gorgeous and attractive. They have saved as many lives as they have destroyed. Those who are poor and under-privileged hate them and love them at the same time but the fact of the matter is that they can not breathe, let alone live, without them. One of the sisters is married to American and the other to European but they have influence of neither of the two. These sisters have their own personalities. Although their permanent residence is in Washington DC, they have homes everywhere. In addition to these homes, these two ladies meet here and there off and on. Every time they try to meet at one of the international destinations, there are widespread protests against them.

At the end of World War II, Europe which was heretofore a major market for American goods, found economies of its countries in shambles with infrastructure completely destroyed by the war. This was an alarming situation for the Americans who could foresee closure of its industries as a result of economic meltdown of the buyers. The Americans came up with a unique idea; creation of financial institutions to help rebuild Europe and its economies so that they are economically strong enough to buy American goods and keep the industries running. They met their European counterparts at Bretton Woods in the state of New Hampshire in July, 1944. Notable powers at the meeting were USA and UK who dominated the proceedings and influenced the decision-making. As a result of this meeting, two institutions among three other were born. These are commonly known as Bretton Woods sisters. One was named as International Bank for Reconstruction and Development (IBRD) while the younger sister was named as International Monetary Fund (IMF). IBRD is also known as World Bank. Traditionally, World Bank is headed by an American and IMF is headed by a European.

World Bank

World Bank provides leveraged loans to developing countries for capital programs. The World Bank has a stated goal of reducing poverty. It Bank comprises only two institutions: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA).

From its conception until 1967 the bank undertook a relatively low level of lending. France was the first recipient of World Bank aid; two other applications from Poland and Chile were rejected. The loan was for $987 million, half the amount requested and came with strict conditions. Staff from the World Bank monitored the use of the funds, ensuring that the French government would present a balanced budget and give priority of debt repayment to the World Bank over other governments. The United States State Department told the French government that communist elements within the Cabinet needed to be removed. The French Government complied with this diktat and removed the Communist coalition government. Within hours the loan to France was approved.

Emphasis was shifted to non-European countries and until 1968, loans were earmarked for projects that would enable a borrower country to repay loans (such projects as ports, highway systems, and power plants). From 1968 to 1980 the bank concentrated on meeting the basic needs of people in the developing world. The size and number of loans to borrowers was greatly increased as loan targets expanded from infrastructure into social services and other sectors

From 1989 World Bank policy changed in response to criticism from many groups. Environmental groups and NGOs were incorporated in the lending of the bank in order to mitigate the effects of the past that prompted such harsh criticism. Bank projects “include” green concerns.

For more details, please visit Wikipedia.

International Monetary Fund

IMF is the international organization that oversees the global financial system by following the macroeconomic policies of its member countries; in particular those with an impact on exchange rate and the balance of payments. It is an organization formed with a stated objective of stabilizing international exchange rates and facilitating development through the enforcement of liberalizing economic policies on other countries as a condition for loans, restructuring or aid. It also offers highly leveraged loans, mainly to poorer countries.

Whenever Pakistan was faced with Balance of Payments problems, it had to seek assistance from IMF and accept its diktats which were largely to the disadvantage of the poorer segments of the society like frequent tariff increases in the case of most essential items and utilities, withdrawal of subsidies etc. Unless Pakistan checks its foreign exchange outflows and enhances its remittances and exports, it will remain in the clutches of IMF.

For details on IMF functions and its history, please visit Wikipedia.

Article by: Arooj Anjum