Keen to secure a $1.4 billion IMF loan, Pakistan has embarked on an economic policy meant to reduce poverty. But it is turning out to be a disaster for the poor.
Pakistan's economic reforms programme, adopted in 2001 by the same military dictator who now heads a democratically-elected government, is coming under the intense scrutiny of angry opposition parties and civil society groups.
They say the reforms have increased poverty in one of the world's poorest countries – 35 per cent now live below the poverty line according to government figures – and that they are undemocratic. The reforms package has yet to be presented to the elected parliament for debate and approval.
Ironically, when the World Bank and International Monetary Fund asked the government in 1999 to draft the reforms, they wanted wide consultation with civil society groups, ministries, academics and the general public. Under this consultative approach, which was to have begun a new era in the World Bank and IMF's controversial history of economic reforms, the government was to have prepared a Poverty Reduction Strategy Paper (PRSP).
A PRSP is a national strategy drawn up by governments of low-income countries for targeting government expenditure to reduce poverty. Once a PRSP has been approved by the World Bank and IMF, the country qualifies for debt relief and cheap loans.
"The rhetoric did not meet reality. There is little evidence to suggest that the government prepared the PRSP with an inclusive preparatory process," says Asim Sajjad Akhtar, convener of the Pakistan Rights Movement, a confederation of social movements across Pakistan, which demands parliamentary debate and approval of PRSP.
The PRSP had to be approved by the IMF for it to release a loan of about $1.4 billion.
The reforms covered privatisation, deregulation, subsidy cuts and increased taxation. They included taxation on medicines, introduction of corporate farming, abolition of price controls on almost all crops, and lower interest rates on savings accounts.
The package came as a shock to several nongovernmental organisations when they saw the final document in November 2001. "PRSP…subscribes to the failed philosophy of the trickle-down effect of macro-economic growth. This [trickle-down] never happened [in the 1980s] and it will not now," says Mushtaq Gadi, a former activist with the Sungi Development Foundation, one of the groups that protested in November 2001.
Despite the protests and without parliamentary consultation, the paper was approved by the IMF Executive Board in December 2001 and adopted by President Pervez Musharraf, the army general who took over the government in a bloodless coup in 1999.
Since the reforms, "the prices of [luxury] goods like refrigerators, televisions and cars are decreasing, but those of food, fuel, medicines and other commodities of daily use of the poor have been increasing," says Mohammad Azhar, a public health activist.
Through the 2002 election year, Pakistan's donors, including Western and Japanese governments, international financial institutions like the IMF, World Bank and Asian Development Bank, demanded guarantees that economic reforms would not be reversed.
Finance Minister Shaukat Aziz declared just before the October elections: "We have assured them that there will be no change in Pakistan's economic direction after the new government takes over."
"IFIs' insistence that the elected government would follow the economic reforms and policy is a clear encroachment on the country's political sovereignty," says Akhtar. "Isn't it absurd that the elected government cannot make its own economic policy?"
In December 2002, 35 civil society organisations representing farmers, labourers, fisher folk and government employees sent a strongly-worded letter to the PRSP Secretariat based in the Ministry of Finance.
They said: "The entire PRSP process has simply reinforced a previously tried and failed policy paradigm. It has also undermined democratic political processes within the country and thereby threatens the sovereignty of the state itself."
But some signatories softened their position after USAID, the American government's aid agency, offered them funds for pro-democracy programmes.
The country's donors restated their position at the meeting in May this year of the Pakistan Development Forum, which annually reviews the country's economic situation and assesses development needs.
"Pakistan deserves strong support for such a reform programme," the IMF's representative told the meeting. "Over the past two to three years, Pakistan has been highly successful in restoring and consolidating macroeconomic stability."
The government says foreign exchange reserves have risen from $2 billion in 1999 to $10 billion, external debt has come down from $37 billion to $26 billion, exports are up by 20 per cent and inflation has been cut from 10 per cent to 3.5 per cent.
However, the Asian Development Bank said recently poverty has risen since 1999 and called for increasing pro-people spending, mainly in education and health. "There should be no doubt in anyone's mind that poverty is on the increase beyond 1999 and it has only worsened," said ADB country director Marshuk Ali Shah.
Experts say poverty has grown by over 10 per cent since 1985. Responsibility for Pakistan's growing poverty "lies with the successive governments' failure to translate economic growth into poverty reduction and sustainable development prospects for the poor," says Khadija Haq, president of the Mahbub-ul-Haq Human Development Centre.
"The real answer to poverty reduction lies in changing the model of development from traditional economic growth to… basic education and basic health for all, credit to the poor, women's empowerment, land reforms, equitable growth and good governance."
But Dr Ishrat Husain, governor of the State Bank of Pakistan and former World Bank director for Central Asia, warned last year against "populist economic policies", saying increased spending could result in yet more external debt.
This "will lead us once again to rely on the whims and fancies of the international financial institutions and to follow their conditionalities."
The opposition Pakistan Peoples Party and Islamic Mutahida Majlis-i-Amal alliance are now demanding that the government seek parliamentary approval for the PRSP. "We will not allow the government to adopt the PRSP without having it approved by the people's representatives," said Sen. Raza Rabbani of the Pakistan Peoples Party.
The government has promised to present the PRSP before Parliament in October.