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IMF: Financial assistance or Debt Trap?

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After World War II, the International Monetary Fund (IMF) was established as means of projecting sustainable growth and financial stability. However, over the years, accusations of exploiting the political and economic climate have been made against the organization. The apparent helping hand results in a cycle of a debt trap, which essentially binds states’ policies to the interests of the USA and its allies. Thereby, the developing world loses control over resources and becomes bound to imperialist powers. Accordingly, the IMF can dictate the devaluing of state currencies, as well as commanding trade and state resources. This loss of control generated by the IMF allows imperial powers to impose policies on developing states. Accordingly, states find themselves in need of assistance and approach the IMF once again. The resulting notion is that the states pay the price of their sovereignty through this assistance, as all policies and regulations are now dictated by the organization’s advisors and consultants. This concept is witnessed in the case of Pakistan, which is currently seeking an IMF bailout package. The country has historically put its sovereignty at stake due to IMF regulations and hence became a pawn for the USA.

The notion of IMF trapping can be further understood in the domain of economic imperialism. Under this realm, imperialist states utilize their surplus capital through direct investment and loans, thereby generating profit from the developing world. To elaborate, through economic initiatives imperialist powers project political and economic dominance over states, by making them economically dependent. Moreover, these dependent economies are also victims of unequal exchange of raw materials. As, foreign investors can retain maximum profit, while the client states are victims of trade and budget deficits. To match the deficit, the developing world takes on more debt burdens. Hence, it can be argued that instead of providing financial assistance, the IMF exploits the dependence of states to project American imperialism. In the context of Pakistan, the prevalence of the debt trap is evident. The state has spent considerable amounts per debt-servicing without little progress. In addition to the public and multilateral debt, a substantial rise in private debt is also witnessed. A comparison with Brazil, Mexico, and Argentina also presents a dark future. Brazil withstood $72 billion in debt in 1980 and presented $146 billion for debt-servicing till 1998. Nevertheless, despite this, in 1998 Brazil was under $231 billion in debt. Similar instances are witnessed in Argentina. Argentina was advised to privatize government entities by International Financial Institutions (IFIs) for seeking debt relief. This step descended a state into a crisis since debt kept compiling, whilst the country’s assets were under question too.

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IMF exploitative tendencies can be better understood through the lens of US hegemony. As means to maintain its might, the US aspires to control economically dependent states. Being one of the major funders, the IMF falls under US influence. Accordingly, states are provided with loans at high-interest rates and under tough conditions. As a result, the path towards development and policy making in underdeveloped states is hindered, per the interests of the US. The developing world is compelled into loans with unhinged guarantees, causing the citizens to suffer under inflation and tax spikes. Such factors are promoting global poverty and inequality, as evident in the report published by Oxfam International. It is highlighted that 92 percent of the global wealth is accumulated by the richest individuals, while the remainder of the world is given access to limited resources and an inadequate standard of living.

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In Pakistan, the PML-N and PPP governments have currently formed a coalition government against PTI, which was criticized for compromising national interests in coordination with the IMF. Nevertheless, after coming to power, these political parties have ascended into a similar path and are seeking IMF deals. In typical IMF directions, the organization has pressurized the new government to abolish subsidies. However, the reality of this action is that another cycle of inflation and decreased standard of living shall be witnessed. Thereby, decreasing future investments. The prudence of privatization of national assets for payment of loans will further trap Pakistan since it will have to revisit the IMF after losing assets. Similar instances were witnessed in Argentina and Brazil as well. Henceforth, the reality of the IMF should be understood and Pakistan should explore alternative avenues for economic development.

About Author:  Tamseel Aqdas is an Undergraduate student of Peace and Conflict Studies at the National Defence University, Islamabad. She has a keen interest in Hybrid and information warfare.

The views expressed in the article are the author’s own and do not necessarily reflect the editorial policy of Global Defense Insight.

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