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Austerity Blues

After sixty years of IMF intervention, Pakistan has little to show for it

Almost every immigrant kid is familiar with this ritual: on the eve of a two-day journey from America to our motherland, my mom and I would stay up late strategically filling a suitcase with goods for our relatives in Pakistan. In my family, the items usually included expensive creams (Clinique and the like), discounted designer purses from T.J. Maxx, and small electronics, like iPod minis or digital watches. We’d fill shoes and bags with the smaller items, Matryoshka dolls made up entirely of department store purchases. I’d struggle to weigh the suitcase on a scale, ensuring it was just below the max allowance for whatever airline we were taking to fly from Indiana to Islamabad. Often it wasn’t, which resulted in the classic mad rearrangement at the check-in scene.

When we arrived, I felt like Santa Claus gifting the otherwise mundane objects to my family in Pakistan one by one. I understood how they cherished them, too—I would see the tube of lotion from our previous visit placed carefully on a shelf, squeezed till every bit of product had come out. My cousins kept their iPods and Walkman in pristine condition, unlike mine, which were dropped or forgotten on the school bus regularly. The things that came out of that suitcase took on a magical quality in Pakistan, where the markets were full of fragrant mangoes, shimmering gold bangles, and brightly dyed silks I could not find at home, but devoid of what we carried there.

And so this was how I learned that the country where I came from had less than the world where I now lived. It wasn’t just the begging kids exactly my age tapping on car windows, or the excitement with which my relatives went to the first Pizza Hut in Lahore, when at home in Indiana, it was a dinner of last resort. The subtleties I observed in the few weeks every year we spent in Pakistan instilled the idea without ever anyone ever explicitly saying it to me. By the time I was a teenager, it was a phenomenon I viewed not as a curiosity but a fact of reality. The sky is blue; Pakistan is poor.

You could argue I understood the imbalance in wealth between Pakistan (and by extension the Global South with which it’s identified) and America more intimately than the average American. But what I didn’t yet understand was the degree to which my adopted country had helped perpetrate this imbalance, often under the auspices of the International Monetary Fund.

Bretton Woodsmen

There are many ways to explain the creation of the IMF, the international organization that purports to foster economic stability mainly through loans and bailouts for countries facing short-term financial crises. One is the friendly, AP US History version my high school history teacher helpfully laid out in bullet points on a PowerPoint slide. It goes something like this: After the Great Depression and with the end of World War II in sight, the allied Powers That Be vowed “never again”—at least where their money was concerned. In July 1944, economists and world leaders gathered at a resort in Bretton Woods, New Hampshire, and proposed the creation of both the IMF and the World Bank, two institutions that could guide struggling countries out of economic crises not only for their benefit but for the benefit of an increasingly interconnected world. While the World Bank’s original mission was to aid in the reconstruction of a war-devastated Europe—later, they’d pivot to providing health and infrastructure support to the so-called developing world—the IMF would be enlisted to assist countries struggling with temporary shortfalls. So began these institutions’ role as caped heroes of economic crises.

But there is another IMF origin story less palatable to the mythos of the liberal world order.

The economist John Maynard Keynes came to Bretton Woods from his native United Kingdom with a solution to aid the imbalance of trade between countries, particularly those lagging in the global economy: an international bank with its own currency, one completely separate from the gold standard, which would allow for countries in need to overdraft if they fell behind. The international body would incentivize those countries to eventually pay back the loan, mainly through interest schemes, while at the same time, nations with an excess of credit would also be charged interest and encouraged to export their capital. The push and pull of both policies, Keynes theorized, would prevent poorer countries from becoming beholden to a cycle of debt dictated by the rich, and wealthier countries from continuing in lopsided trade practices. This was a neatly symmetrical idea, the kind of macroeconomic solution that endeavored to avoid many of the crises we now know that the IMF as it actually formed has often been responsible for. On paper at least, Keynes sought to correct imbalances leftover from centuries of colonial rule, war, and all other phenomena that keep wealthy countries wealthy and poor ones poor.

Though White has been reduced to a footnote, he did more to secure America’s global hegemony than most national heroes.

Keynes’s American counterpart at Bretton Woods was Harry Dexter White, then a senior officer in the U.S. Treasury Department. White isn’t nearly as well-known as Keynes—he was accused of being a Soviet spy shortly after his performance at Bretton Woods and promptly stripped of credit in American history—but it is his vision of the IMF that prevailed. White is responsible for proposing the dollar-centric global economy we’re stuck with to this day, where the U.S. dollar is the currency of all trade, even when the United States isn’t directly involved. He wholly rejected Keynes’s idea to incentivize wealthier countries to help correct the imbalance in global capital, and he ultimately wielded America’s post-war economic standing to push an American-centric vision of the IMF: a top-down international institution that bends poorer countries to its will—for the good of the global economy, of course. Though White has been reduced to a footnote, he did more to secure America’s global hegemony than most national heroes.

When Keynes and White left Bretton Woods in the summer of 1944, they left with an IMF and a World Bank that had the importance of the U.S. dollar, and thus American power, baked into them. Even as pegging any currency to gold became obsolete, the dollar remained the be all, end all of global trade. No country can now succeed economically without U.S. dollars in its reserves.

Breaking the Bank

Pakistan’s first brush with IMF relief came in 1958: a little over a decade after the Partition with India and gaining independence from the British. The country was on the heels of its first military coup, of which there would be many more, and struggling with an acute crisis of export imbalances, of which there would also be many more. That year, new, self-appointed “president” General Ayub Khan signed a standby agreement with the IMF worth $25 million, and while the money was never withdrawn, it marked the beginning of a lopsided relationship that persists to this day: in May, the Pakistani government, once again facing inflation and export imbalances, accepted its twenty-first IMF loan in the form of a $6 billion bailout. Pakistan has received some of the highest numbers of IMF loans in the world.

I moved to Pakistan in 2017, just as inflation started to climb again. When you live in a country beholden to a cycle of IMF bailouts, you hear those three letters far more often than you might stateside. And though heady discussions about macroeconomics are rarely appealing to the average American, in a country living constantly in the shadow of the IMF, even marginal street vendors understand its role in Pakistan’s economy. Haggling with them that summer often involved jokes about the U.S. dollar.

Pakistan had just elected a new government in one of the country’s rare “democratic” handovers of power. When Imran Khan, a cricket player turned global celebrity turned politician, took the helm as prime minister in August 2018, it was at the precipice of a slow-motion economic depression he knew he was inheriting. Almost simultaneous to Khan’s victory, discussions about an IMF bailout began anew—a rite of passage, it seems, for fresh leaders of state. But Khan had campaigned as an independently wealthy and corruption-free outsider to government, championing himself as a reformer: the man who could finally change the broken system that brings Pakistan to the IMF’s door again and again. A song released in support of his campaign, “tabdeeli aagayi hai,” roughly translates to the Obama-like slogan “change has come.” In his televised victory speech, Khan looked into the camera and told the country to brace for its biggest economic challenge yet, implying that Pakistan didn’t need the IMF to get out of it. He mocked leaders that took IMF bailouts before him and criticized the institution as a neocolonial construct. Compared to other modern Pakistani heads of state, he is also perhaps the most openly critical of U.S. and Western policy in Pakistan, and has been dubbed “Taliban Khan” for enthusiastically encouraging peace talks with the Pakistani Taliban in the years during which Obama’s drone war raged in the region, among other statements of implicit support.

On the heels of Khan’s landmark victory, it seemed for a moment like he might find a way to fix the slumping trade imbalance without the IMF. At least, supporters and detractors alike wanted to believe him. And then, not even a year into his term, Khan sheepishly accepted the terms of a new IMF bailout this past spring. Though the government attempted, in various media appearances, to market the deal as highly favorable to Pakistan compared to those struck by previous governments, the reality of the agreement would be similar to those of Khan’s predecessors: privatizing state-controlled industries, removing protectionist subsidies, increasing taxes, intentionally slowing the economy, and implementing austerity cuts to public programs. Out on the street, everybody from fruit-sellers to car salesmen would joke, “Didn’t you hear? Change has come!” (If you didn’t know, Pakistani humor is deeply sarcastic.)

The IMF coats its bitter pills in euphemisms and mumbo jumbo—former Managing Director Christine Lagarde says she doesn’t like the word “austerity” and insists “it’s more like discipline”—but the reality of the situation is that for the average Pakistani, life was about to get demonstrably worse. Jobs would be even harder to find. Inflation controls would reduce consumer buying power. Taxes on basic goods would increase. Barely functional state institutions would have even less money, as the IMF insists on their further weakening under the guise of correcting the ledger. While the country’s budget may be momentarily balanced, national programs that might help to prevent future imbalances have been put to the wayside. Considering this is their fifteenth IMF bailout since the 1980s, Pakistanis weren’t naïve about what was about to happen when they heard of the deal. Indeed, in the days after the bailout was announced, friends and colleagues across industries in Pakistan sent me frantic messages, some about how they might be able to secure their money in a U.S. bank account, others simply looking for work paid in dollars knowing their rupee salaries would soon be worthless. Amid the frustration, both at the government and civilian level, there was an overwhelming sense of helplessness: What other option was there?

A Tale of Two Bailouts

It wasn’t until I was jolted out of my seat in an entry-level economics lecture in college that I began to question why and how Pakistan remained poor. Naïve and idealistic, I cared more back then about Palestinian liberation than understanding injustice in my own country of origin, and I certainly cared very little about Econ 103. Until a guest lecturer whose name I can’t remember, though the image of her saari in a nearly-all white Wisconsin lecture hall left a lasting memory, gave a basic overview India’s economy post-Partition. For once, I decided not to doodle in the back of the two hundred-person class.

During the period following Partition, she told us, India spent many years largely insulated from the global market, guided by semi-socialist, anti-colonial principles and bent on reducing import reliance by producing more goods nationally. The result was that, in the 1960s and 1970s, though their total GDP was considerably higher than Pakistan’s, India was poorer by many metrics, particularly their rate of growth, which climbed so slowly compared to other developing countries that it had its own name: “the Hindu rate of growth.” By the start of the 1990s, India’s economy was on the brink of collapse until it took a major IMF bailout and a structural adjustment loan from the World Bank, embarking on a rapid liberalization process.

Significantly, much of the liberalization that has defined India’s meteoric rise—now defined by call centers, a booming middle class, and industry tycoons—was adopted at the insistence of the IMF and the World Bank, who forced rapid privatization as terms of the bailout and loan packages. While poverty remains endemic in the country, India’s GDP has been well over $2 trillion for several years. In comparison, Pakistan’s stands at a paltry $305 billion—well below that of Iran, one of the most heavily sanctioned countries in the world. Sitting in that lecture hall, I thought of the hours-long journey to rural Punjab where my grandfather lived outside Sarghoda, on bumpy roads where colorful trucks carried massive bales of sugarcane, fields of laborers picked row after row of cotton, and the dusty shelves in local department stores were filled with out of date imports sold at double the price they should cost.

Many Pakistanis are in a state of denial about the fact that India has grown to be a global economic force. For two countries cut from the same cloth, why has India’s experiment with economic liberalization yielded such different results? The answer may lie partly in the many years India remained in relative economic isolation, which cultivated a spirit of self-reliance across Indian industries, one that persists even now that it has emerged as a major player in the global economy. And without the paternalistic hands of the IMF and World Bank on its shoulders during a crucial period of development, India’s civic institutions became enshrined aspects of its society. That’s not to say India’s nationalized industries don’t host a wide array of their own problems: corruption continues to be rampant in the Indian economy. But this early period of autonomy set the stage for a middle class to grow with some degree of confidence in collective bargaining institutions, and in turn some degree of genuine democracy.

The Pakistan I and most Americans know today is colored by this recent history; I came of age after 9/11, so the Pakistan I knew was post-9/11 too. The year I attended that Econ lecture was among the bloodiest in Pakistan’s history during the never-ending War on Terror. My family had stopped visiting altogether—at one point, I didn’t go back for seven years. It’s easy to forget that it was Pakistan, not India, that was America’s closest ally in the region after Partition.

This is when Pakistan’s experiment with neocolonial intervention began. As the country embarked on a series of IMF loans and World Bank interventions, privatization schemes upended once healthy worker’s coalitions, a sector already threatened by increasingly authoritarian regimes. At the Twentieth Annual General Meeting and Conference of the Pakistan Society of Development Economists in 2005, the late professor Hassan Gardezi addressed the conference with his critique of Pakistan’s adoption of Western neoliberal policies for development during this period:

When America’s recipe for capitalist affluence was transferred and applied to friendly countries of the South, the rules of the game somehow got changed. What had produced real-life economic prosperity in America was conveniently ignored by those engaged in planning the economic development of Pakistan.

Pakistan’s success relative to India was ultimately short-lived. While its rate of growth outpaced India’s for several decades, it was eclipsed by its neighbor rapidly after the country adopted liberalization as its economic maxim; by 2010, Pakistan’s GDP growth rate hovered around 1.61 percent, while India’s had shot to 10.26 percent. And while Pakistan enjoyed being in the good graces of Western influence in the decades after Partition, it struggled to build enduring public institutions

Repressive domestic politics, of course, have also played a role. As an arbiter of the new world order, you would think the IMF, backed as it is by democratic nations, would discourage the giving of loans to dictatorships. But in Pakistan, it’s been quite the contrary. Many of the corrupt institutions putting undue stress on the Pakistani economy today (namely the military, which accounted for twenty percent of the annual budget between 1993 and 2006 and represents Pakistan’s second largest expenditure after debt servicing) have benefitted from IMF loans. And Pakistan’s many military dictators have been very friendly with various American administrations.

Ayub Khan, the military dictator who ushered in Pakistan’s relationship with the IMF, was an unabashed supporter of the United States. Americans conducted spy missions on the Soviet Union with the help of Khan’s air force, whose bases received generous upgrades from them in turn. Pakistan’s longest military dictatorship took place in the 1980s, under the right-wing Islamist General Zia ul-Haq, who, despite driving the country towards religious extremism, was financially supported by Reagan. “Operation Cyclone,” one of the longest and most expensive covert CIA operations ever undertaken, funneled billions into Zia’s coffers. The money went toward funding the mujahideen, who were fighting the Soviets in neighboring Afghanistan, and in turn bolstering an increasingly authoritarian Zia with ever more power. General Pervez Musharraf, the most recent, but likely not last, military dictator was a close ally of George W. Bush, who officially forgave $1 billion dollars of Pakistan’s debt in return for joining the United States in the War on Terror.

That Pakistan has endured over two decades of military dictatorship since gaining independence never mattered much to Western governments and financial institutions—as long as said dictators were in their pockets.

Imperialism by Another Name

The IMF strives to give the impression that the fund is filled with apolitical technocrats—despite the fact that its managing directors have been entirely European and white—but the institution is regarded by many as all but captured by American interests. Even after recent reforms to the IMF’s voting structure, the United States maintains the lion’s share of IMF votes as well as effective veto power over major IMF decisions. In a Center for Economic and Policy Research report examining voting reform at the IMF, the authors note that American influence in the institute goes far beyond its voting share:

Outside of Europe, the major decision-maker is generally the United States Treasury Department. This means the Treasury is the main power for policy decisions affecting low- and middle-income borrowing countries . . . [and] allowing Washington to continue to be the main decider for non-European borrowers, as it has been since the IMF’s inception, does not generally matter that much to the other high-income country governments.

That the secretary of the treasury is an executively appointed position makes this imbalance of power even starker. And Washington’s de facto role in the fund’s decision-making has directly impacted the IMF’s bailout patterns. As one former IMF staffer wrote of the fund’s lending patterns post-Cold War: “Because decisions were no longer based on compatibility with repayment terms, lending was guided increasingly by the political preferences of the leading industrial countries.”

The IMF bailout of today is far from what Keynes had envisioned for his lender of last resort: it does less to lift economies than break them in to be fit for Western interaction—or exploitation.

For the United States, these preferences are led primarily by economic self-interest. This is true of many of its most hypocritical relationships, like the U.S.-Saudi alliance or its frequent support of fascist dictators in Latin America, but for developing countries, this dynamic might appear in subtler forms: imperialism disguised as assistance. When Christine Lagarde spoke about the many countries who have turned to the IMF for bailouts, her tone was often admonishing, like a teacher finger-wagging a student for bad behavior. Shortly after assuming her role as chairwoman, she said, “I look under the skin of countries’ economies and I help them make better decisions.” And if they don’t like the sound of what she’s saying? “I say, well, I’m terribly sorry but this is the sound we are making.” Her English might be a bit garbled, but the message is clear: teacher knows best. Such rhetoric encourages the nations on the other end of the IMF’s equation to feel they are entirely incapable of helping themselves. Worse, it perpetuates a perception of the developing world as colonial subject: the locals can hardly be trusted with the goods of the state; when you give them the reigns, the whole thing falls apart.

There’s a rich irony to this rhetoric considering that Lagarde’s predecessor was accused of sexually assaulting a maid in a New York City hotel, and she herself faced a scandal within the first few months of securing her position. Lagarde was accused, and ultimately found guilty, of negligence for approving a massive payout of taxpayer money to a private businessman while serving as France’s finance minister under Nicolas Sarkozy. This is the kind of corruption the IMF likes to claim its reforms will eliminate. But she was spared a sentence or even a fine for her involvement in the payout, and though Lagarde was found guilty, the IMF threw their support behind her shortly after her sentencing.

The IMF bailout of today is far from what Keynes had envisioned for his lender of last resort: it does less to lift economies than break them in to be fit for Western interaction—or exploitation. It’s evident that from the IMF’s perspective, the fact that the bailouts rarely deliver long-term advancement of the lower or middle classes hardly matters (though they often claim otherwise), so long as a country pays its bills on time.

Scarcity for What?

Working as a foreign correspondent in Pakistan from 2017 to 2019, I had the immense privilege to see my homeland’s far-flung peripheries in person. On long drives to interview subjects or reach filming locations, I’d pass gold and coal mines; massive fields of rice, cotton, and wheat; mountain ranges studded with minerals; glaciers, rivers, and the country’s pristine beaches. Despite its population of just over 200 million, Pakistan is a remarkably resource-rich country. But decades of austerity, coupled with extractive agricultural and industrial practices, mean that in the face of this potential abundance, many Pakistanis go without eating. Many die of thirst. Many, many more pay exorbitant prices to live in slums.

Perhaps this deprivation would be less infuriating if Pakistan weren’t a land of plenty. Knowing the country already possesses much of what it needs to be a prosperous and equitable nation, then seeing it squandered, funneled to the elite, mismanaged, spent on military golf courses and vacation villas, or lost to dubious bureaucracies is nothing short of maddening. When I moved to Pakistan, my first responses to the institutional disrepair were shaped by  having grown up in neoliberal institutions of the West: like many, I was dismayed that Imran Khan’s government didn’t approach the IMF about a bailout sooner. Several economists predicted exactly what this delay caused: currency entered free-fall, leaving the economy in worse shape than when Khan inherited it.

But Khan, and most Pakistanis, have learned that a lending hand from the West always comes at an enormous cost. On his first trip to the White House as prime minister this July, after sitting through a meeting where President Trump mentioned the possibility of decimating Pakistan’s neighbor Afghanistan in passing, Khan addressed the humiliating position of relying on Western loans. “I hate the idea that we would be asking for funds,” he said to a small audience at the U.S. Institute for Peace, another seemingly innocuous project of American hegemony. “Aid has been one of the biggest curses for our country.”

In the bloody, perpetual hangover of the War on Terror, little by way of bilateral friendship remains between the United States and Pakistan, and by extension Western institutions like the IMF and the World Bank. While over three thousand people died on 9/11, an estimated sixty thousand Pakistanis have been killed in terrorist attacks since the beginning of that war. The loss of trust in their former ally is indelible and widespread, and there is little left to show for it aside from a handful of F16s. More than that, many Pakistanis no longer trust their own country—or countrymen. At that 2005 Conference of the Pakistan Society of Development Economists, Hassan Gardezi spoke also to this degradation of confidence in the state:

In the ongoing process of restructuring the world economy on neoliberal lines, the position of capital and its cross-border mobility has been enhanced tremendously. The role of the state as a key player in promoting distributive justice has been undermined and subordinated to the so-called free market. Labor and working classes have turned out to be the biggest losers, bearing the burden of competitive austerity.

As Pakistan’s state institutions suffered blow after blow—a steady clip of IMF-mandated downsizing that neutered left-wing mobilization and state services, punctuated by military coups—the belief that the state has the average citizen’s interests in mind has faded. A select group of families benefited handsomely from the privatization of Pakistan’s industrial sector, and many of those same families rise to the top of the supposedly democratic system Pakistan enjoys today. There’s an overwhelming sense, especially among the working class, that little can be done to change the order of things. Right now, that assumption is mostly true.

Throughout those early years spent packing suitcases for my family, I didn’t question why my charmed suburban life was so different from theirs, despite seeing it up close. I didn’t understand that my life of privilege came at the expense of my homeland, that my two worlds were tethered to the same fate, that my bag full of perfumes was more than just the objects it carried. The optimism many take for granted in America is conditional on others going without. You can’t bring it back home in a suitcase.