By Barrister Muhammad Hassan Idrees.
Ethos behind the formation of IMF is to fortify the world’s economy through lending liquidity and enhancing deterrence against recession. It is esteemed as a last resort which means it reinforces financial stability in a country that is standing at the verge of default. Deteriorating economy, lack of resources and surging threats of wreckful crises urge the countries to turn up the IMF for facilitation. The entire dimensions of IMF are transformed from rescuing the annihilating economies to polite their sovereignty. Bagehot’s doctrine of lender of last resort emphasizes that impartation of liquidity should be against worthy collaterals, high interest rate should be implied to curtail moral hazards and the assurance of its assistance can only be for the solvent economies. Notwithstanding, nothing allocates the powers to the lender of last resort to design fiscal crave-out for the countries borrowing from it.
To Paul Tucker, an American scholar, implicit approach for the operations of lender of last will make a more fragile financial system. The success of its operations is stipulated with the satisfaction of the creditors. A wave of panic among the stakeholder of the financial market is by far most perilous for the system. Pumping the liquidity into the system without earning the trust of the creditors is nothing but putting the money on fire. Apprehension of the system to collapse escalates the demand of liquidity hence; causes the deficiency of liquidity. Thus, the lender of last resort shall assert its support explicitly to undo the anxiety of the creditors. Kathryn Judge while depicting the essential credential of the functions of lender of last resort stressed that its principles should be clearly stated. Michael D Bordo contentions that more than injecting liquidity into the financial system it is optimal to ignite hope for the survival of the system.
“what did urge the government of Pakistan to surrender its sovereignty before IMF when the doctrine regarding its operational functions is entirely adverse to it ?”
Notwithstanding nebulous approach of IMF while acting as lender of last resort for Pakistan is inconceivable. It is almost incondensable to figure out the doctrine which is being used to carry out the operations in Pakistan. In spite of scholars’ view an implicit approach is adopted which is inflating uncertainty among the creditors and making the system more vulnerable. Although the government claims to end up borrowing from the IMF is fascinating nonetheless; contemplations haul towards the unprogressive programs we have started with IMF. Neither the governments of Pakistan nor the IMF make it clear for the financial market and creditors regarding the conditions of the lender of last resort operations which lasts more than a decade. Even being very optimistic and an advocate of global financial system, my conscience coerces me to inquire if IMF at any point in a decade ensured it’s assistance to deteriorate the demand of liquidity through its lending principles. Imperative cannons of the said doctrine are compromised by the IMF having said that no expedience can be evident on high interest (plenty) rates on the impartation of liquidity.
“non-transparent dealing with IMF allows the speculations to create the tornados of panic hence; it is burying us under the mountains of debts and also infringing our sovereign powers”
Henceforth, all accusations cannot be attributed to IMF for the depreciation of the value of Pakistan’s wealth because there are relatively more server causes of it. There is no will of the government to implement fiscal policies which can strengthen the system. The economy of Pakistan is engulfed by fanatic ambitious to keep at par with India in the unending race of the collection of ammunition. Instead of approving the poorly structured economic and taxation system, we opted to lay down our arms before IMF’s stipulation without bothering the detrimental consequences. Without sweating to format a befitting system and relaying on our resources we accepted not only unethical but unprecedented conditions of IMF. A dramatic reduction can be evident in public spending, education and health sector and curtailing jobs opportunities in government sector to satisfy the IMF which is causing irreparable damage to the system. Resultantly, instead of rekindling the hope for the survival of the system, it has created more doubts which are escalating the liquidity demand. Rather bringing international investment to the country we are exporting domestic investment and hauling our system to a point of no return. Without addressing the cause of corruption in public sector which is destroying our system, no amount of liquidity support can guarantee the survival of the system. Non-transparent dealing with IMF allows the speculations to create the tornados of panic hence; it is burying us under the mountains of debts and also infringing our sovereign powers. Pakistan should end its far-fetched dependence on IMF and reform its system and for a further collaboration with IMF if necessary, Pakistan must stick to its own interest and market needs.
In the modern era of global financial markets, it is not atypical to engage the role of international lender of last resort. Question however arises here, what did urge the government of Pakistan to surrender its sovereignty before IMF when the doctrine regarding its operational functions is entirely adverse to it. IMF, more or less has become a tool of American foreign policy to control their economies. Thus, it is miserably failed to accomplish its mission to “promote high employment and sustainable economy growth, and reduce poverty around the world”. It is an undeniable fact and can also be witnessed in the case of Pakistan that the IMF generously lends to the countries which are in good books of United States but frugal otherwise. Hence, if the world desires to debunk more fruits of the global financial markets, there should be explicit principles for IMF to act as an international lender of last resort and abandon the approach of fulfilling the ulterior motives of powerful countries. Liquidity support of lender of last resort indeed, cannot be unconditional nonetheless; IMF should not intercede more than a bona fide consultant.
About the Author:
The author of this paper is currently a PhD student at Canterbury Christ Church University, United Kingdom. The area of his research is “The Role of Lender of Last Resort in Contemporary financial issue and need of regulatory frame work for Pakistan”. He has completed B.A.LL.B (Hons) from Punjab University Law College Lahore which is a renowned institution of Pakistan. He has completed his master degree in International Business and Corporate Law with Distinction from University of Bedfordshire, United Kingdom. He is also a member of The Honorable Society of Lincoln’s Inn and enrolled as a practicing lawyer in Lahore High Court Bar. He is also the author of six international papers till date.