Want to keep IMF away? Stay healthy

The International Monetary Fund (IMF) is not here to fund development projects. It is a global lender with core mandate to prescribe policies to discipline the financial systems of member countries. The IMF responds to emergency needs of its members. Before committing to any financial support it goes for a thorough check-up of financial health of the recipient countries and prescribes measures that are essential but unpopular to the masses.

And countries have to agree on those terms if they are to get the much needed money to support their budgets. It was true for Greece, Portugal or Spain seeking billions of bail-out dollars after the 2008 global financial crisis and for troubled economies like Argentina in South America, or Pakistan and Sri Lanka in South Asia.

Bangladesh also asked for financial support of $4.5 billion, which officials explained was pre-emptive measures to meet emergency foreign currency needs, not a bail-out.

During her Dhaka visit last week, IMF Deputy Managing Director Antoinette Monsio Sayeh, after her meeting with the prime minister and finance minister, expressed her hope that the IMF board might approve the loan package for Bangladesh. At the same time, she said Bangladesh requires structural reforms to address weaknesses in the financial sector, increase efficiency of state-owned commercial banks, and improve the tax system to earn more revenue to finance public investment for social programmes.

Though these reform recipes are opt-repeated by the IMF, economists here also have long been calling for the same. When the IMF asks for these improvements, these become points for critical discussions.

Why do such prescriptions come along with IMF loans? The answer is simple. The IMF never pours billions of dollars into crisis ridden economies without any say. It gives conditions for reforms in the financial system. Because, as a global regulator, it needs to keep record of reasons for financial woes of a country for future reference and accountability to other members. When a country seeks support from the IMF, the entire world knows that the country's economy is not on the right track, and its economic policies are not effective. The country needs strong reforms to clear its financial sector of all wrongs.

If a country is exposed to the world for economic woes caused by bad management, then this in no way creates a good image for the country and discourages potential foreign investors.

Seeking a loan from the IMF also creates a negative public image at home. Blame goes to it when the government raises utility prices in its efforts to cut subsidy pressure. When a 5% rise in retail electricity and up to 179% hike in gas price for industries are announced surrounding the visit of IMF officials, all fingers are pointed to the global agency for its conditions, which are often not explained publicly.

The IMF earned bad names as its prescriptions backfired in some countries.Since the 1970's, mass protests against the economic hardship created by IMF-imposed "structural adjustment programmes" occurred throughout Africa, South America, Central America, the Caribbean, and Asia, all of which have been met with police brutality.

But a lot of its well-intentioned prescriptions and warnings, which could have put economies on strong footing, were ignored because of the lack of seriousness of governments in recipient countries.

The IMF prescriptions given to Bangladesh point finger to domestic evils causing damage to the health of the economy, while policymakers are holding the external evils solely responsible for the current economic woes.

Hiking energy prices was well anticipated given the surging global prices, but the rate of hike stunned the businesses. Businesses earlier said they were ready to pay higher for gas and electricity if uninterrupted supplies were ensured. But they were not prepared for such an abrupt, whopping hike at one go. They expected it to come in phases, in small doses, giving them the time to adjust.

While businesses have started calculating how they can pass the additional energy cost on to consumers and the government, economists are ringing alarm bells for another spike in inflation, which will further depress consumption. Depressed demands will force factories to produce less and face revenue shortfall, prompting cost cutting measures. Instead of increasing pay for employees to protect them from the crisis, some may go for job cuts and pay cuts making the unemployment situation worse.

Our banks are riddled with bad loans. They are scrambling for cash. The government fails to generate enough revenue to support development projects and social programmes. Our revenue-GDP ratio is among the world's lowest. Our education quality is inferior even in regional standards. Bangladeshis pay two-thirds of their health costs out of their pockets. Reasons are simple; the government does not have money to spend more on education, health and people's welfare. Bangladesh is committed to growing into a high income country in less than 10 years from now. The government will then be required to spend more on welfare. Well-off nations have higher tax-GDP ratio, they earn more revenue to fund welfare schemes, and keep utility and health costs low. How will Bangladesh become a welfare state, as envisioned in the constitution, with this low base of revenue earning?

How long can the government bear the burden on subsidies for industries by keeping energy prices lower than global prices? Do all the subsidies really benefit the people? The IMF's deputy managing director, while exchanging views with an audience of students and teachers at Dhaka University, categorically said some subsidies are helping the rich much more than the poor. She felt that subsidies should be more targeted to address the needs of the poor.

How banks, emptied by bad borrowers, will support businesses with low-cost funds to spur growth and create jobs?

These are where the IMF calls for reforms, echoed by domestic economists too. But what becomes tricky is when the government chooses and picks the easy ones, passing the burden straight on to consumers. It promptly chooses to hike prices of electricity and gas. Last year, it hiked fuel oil prices at unusually high rates, leaving people to take the blow of fresh rise in prices of everything.

But the calls for basic reforms, which could have put the economy on a solid track and lead the country towards a welfare state, fell on the deaf ears. The IMF had talked about the same issues a decade ago while lending nearly $1 billion, and repeated the same while agreeing on a $4.5 billion loan package this time.

IMF's senior executive Antoinette Monsio Sayeh, leading a high-profile team, left Dhaka last week on a happy note, visibly convinced by talks with government's high-ups. If the reforms her team has stressed do not remain in pledges only, Bangladesh's financial and revenue sectors may see some positive changes and the country might not need to call in the IMF in future. There are roughly 190 members of the IMF, and a good number of countries do not need its support to keep their economies humming. Though greeted as a saviour in times of dire need, like a doctor in health emergencies, the IMF, in deed, is an unwelcome guest for an economy in a normal time.

Bangladesh also can keep the IMF away, like a human being in good health keeps doctors at bay.