By Matthew Russell Lee, News Analysis
www.innercitypress.com/imf1conditionspak081009.html
UNITED NATIONS, August 10 -- On August 7 the International Monetary Fund's executive board approved additional funds for Pakistan, up to $11.3 billion, explicitly waiving a previously condition that more stringent bank supervision legislation be enacted. Also waived, or excused, was Pakistan's delay in complying with a commitment to eliminate power subsidies, In a media conference call late on August 7, Inner City Press asked the IMF's head of mission to Pakistan Adnan Mazarei about the two waivers.
He acknowledged both, but insisted that the IMF no longer engages in conditionality, and therefore there was no formal vote on the continuation of power subsidies. The bank supervision commitment, it seems, comes from another time. But if both commitments were sought, is the IMF's claim to no long engage in conditionality just a semantic difference? What really has been changed?
From the IMF transcript:
Inner City Press: I see in the press release that the Board granted a waiver to legislative amendments to increase the effectiveness of bank supervision. I wonder if you could say if that’s extended for a particular period of time. And, also, I did not see any mention of this power subsidy. I thought that IMF had asked that that be eliminated by July 1. At least it has been reported some places that that is, but I do not see it in the press release.
I also saw an article about the consolidation of ministries in Pakistan, including the Ministry of Human Rights is somehow being something directed by or requested by the IMF. Can you comment on that?
MR. MAZAREI: Let me start with the last question on the consolidation of ministries. I think it is very good for a government to be lean and mean in this administration, but the Fund has had nothing to do with that particular recommendation. We do not micromanage government organizations; we make general recommendations about the level of spending. We do not get involved in how many ministries government should have or not.
On the issue of electricity, electricity sector, as you are aware, is a major drain on the economy of Pakistan. Because of ongoing recurrent blackouts, GDP growth and manufacturing output and generally welfare of consumers is very much undermined. At the same time, because of well-known and long-lasting problems of areas of customers not paying the power companies, the government putting in place price limits on electricity, which has created also some financial problems with electricity sector, investment in power and energy in Pakistan has been very low.
The World Bank and Asian Development Bank have recently agreed with Pakistan on a set of measures to help improve the finances of the electricity sector, taking care of the problem of inter-enterprise areas, which is in Pakistan known as circular debt. At the same time, the Asian Development Bank and the World Bank have agreed with the Pakistani authorities on possible increases in electricity prices in the period ahead such that by August of next year, electricity tariff differential subsidies will be eliminated.
You are absolutely right that the authorities had intended to eliminate the subsidies by last July, but because of political considerations, because of social issues, these increases have been delayed.
Now, on bank supervision, you are absolutely right. The authorities had indicated that they would like to increase the powers of the Central Bank in the area of bank supervision, but they have been delayed in implementing this, and they are going to do this by September 1, hopefully. And the waiver doesn’t have a time limit, but the authorities have committed to do this, and in a short while from now, and that should be okay.
Inner City Press: Could I just ask was there not a waiver given on the power subsidy or was the commitment made by the government not as sort of binding, or does the press release just not contain all the waivers that were given?
MR. MAZAREI: There was no conditionality on the electricity sector. What we put down officially as performance criteria, which we will not have anymore going here forward because policies in this area have changed, used to require waivers. Now, the reason there was no waiver for electricity, as I said, was because there was no formal conditionality on this. And this area, the issue of electricity is formally in the domain of the World Bank. We are interested in it by and large by of its criticality in terms of macroeconomic policy for the government finances and for growth.And see, www.innercitypress.com/imf1conditionspak081009.html
