Global Economy in a Swirling Freefall

As the world economies are sliding into deeper recession and while the
worldwide depression cannot be ruled out, top financial mangers and central bankers from around the globe have gathered in Washington to attend the annual meeting hosted by the IMF and the World Bank. This meeting is being held at an historical juncture when it has become apparent that the largest army of technocrats of these institutions, is considered to have contributed to global economic woes in the rest of the world instead of solving them. The economic ideology (not policy) of free market economy preached by the technocrats of these international agencies is coming under heavy fire. Further, reversing their previous doctrines, these technocrats are going to suggest some planned management of the world economies at national and international levels.
However, none of these policies will affect Pakistan because it has never
practised any prescription of any economist.

The post-cold war era has created an ideological euphoria for the victory
of the free market system in the United States. Stretching this euphoria to
irrational levels, the United States, as the sole superpower and a major shareholder in the IMF and the World Bank, forced these institutions to pressure other countries to open their markets for the creation of a lassiez faire ideal capitalist system that has never existed anywhere. The economists in these institutions, indoctrinated to such free market notions, feverishly forced countries to implement their free market prescriptions. Moreover, the U.S treasury kept constant pressure on these institutions to implement
such ideology while a few economists who did not agree with such an
approach were sidelined.

No political-economist would disagree that the system of planned economies (the so-called socialist system) has failed. Further, there is no dispute that this system had to be replaced by a relatively more open economic system. Nonetheless, the transition from planned to open economies was to take time and should have been induced gradually. On their own, these economies were struggling to adopt the new system at their own pace. But, the IMF, pushed by the US Treasury forced them to bring about an over-night change. No wonder they collapsed. Commenting on this situation an international economist said that, "If you force a person to run at high speed who is hardly dragging himself on crutches, he is going fall for good. This is what has happened in Russia and many other countries now in trouble."

It was totally forgotten that the second largest economy of the world,
Japan, had developed under strict central planning by the country's finance
ministry. Other Asian economies had also followed similar pattern whereby the open markets were functioning well under a central macro-economic planning. The Chinese have also followed the same strategy --- opening markets without giving away marco-economic planning -- and have reaped the fruits of this approach. They did not follow the IMF prescriptions like Russia did and its people can still feed themselves unlike the Russians who are starving.

Similarly, the East Asian economies were working well till the recessionary conditions set in which is normal for the capitalist system. Business cycles (from boom to burst and then recoveries) is a well established phenomenon of the 200-year history of capitalism. The inflow and quick outflow of international finance, encouraged by the new lassiez faire system, also exacerbated the deteriorating economic situation in these countries. The ruling elites of these countries made matters worse by first turning a blind eye to an environment of rabid speculation and then trying to control the damage by fruitlessly defending their currencies. But, again, this has been quite
common in newly industrialised countries: speculation, recession and
depression have been recurrent phenomena in the US and Europe. However, the IMF prescriptions backfired.

Many independent international economists believe that if these countries
were left alone, they might have come out of endemic recessions through their home grown remedies. To boost the sagging economies, lowering interest rates and/or inducing fiscal stimulus might have salvaged these troubled economies. However, the IMF prescriptions forced them to adopt policies that led to further contraction of economies giving rise to unprecedented unemployment and impoverishment. Ironically, the same IMF was praising the policies of these countries and saw no corruption, nepotism or coronyism before the economies of these countries started tumbling down. However, it is clear that IMF policies did more harm than good to these countries.

Many critics assert that the IMF and the World Bank are disproportionately
influenced by America's political and economic needs. They also play a
pivotal role in safeguarding the interests of other international finance concerns. No one loses in this game except the poor masses of the developing countries whose elites borrow from these institutions and then transfer those funds to their private accounts. The US has always made good money on the funds it funnels to troubled economies through the IMF. Therefore, it is clear that the IMF and the World Bank are no messiahs.

Now when the recessionary conditions are spreading to the western hemisphere, the IMF and the World Bank are again going to reverse their position as they
do every now and then. It appears that these institutions, prompted by the their main sponsors in the west, are going to abandon the ideology of lassiez faire and bring back the macro management and planning at national and international levels. Many economies like Malaysia and Hong Kong (under China) are already erecting barriers to safeguard their interests. And, interestingly, their remedies are working too. It appears that to end recession which is getting worse by every passing day, these institutions are going to suggest fiscal stimulus all around the world. This means the governments, not markets, will take the centre-stage in propping up the economic systems.

Of course none of the new or old policies of the IMF or the World Bank
are relevant to Pakistan because its ruling elites never cared to follow any rational policy. One cannot blame even the IMF or the World Bank for economic impoverishment in Pakistan. Pakistan is suffering from self-inflicted wounds. Its economic managers, Dr Hafiz Pasha or Dr Yaqoob may be having good time in Washington but their participation in these deliberations at the international level is meaningless.