White Paper on IMF 155 pages

White Paper on the IMF Extended Fund Facility Programme 2019/20-2022-23 Islamic Parties of Pakistan Table of Contents A. Introduction 5 B. The Coming Global Recession 7 C. The Fallacies of Vodoo Economics 15 C.1. General 15 C.2. Vodoo Theoretical Presumptions 26 C.3. Equilibrium 27 C.4. Competition 31 C.5. Globalization 32 C.6. Openness 36 C.7. Determination of Output, Employment, Investment and Profit 38 C.8. Usury/Interest 43 C.9. Exchange Rates 51 C.10. Taxation and Fiscal Policy 57 D. the IMF’s EFF (2019-23) Program 63 D.1. Assumptions of the EFF 63 D.2. The IMF’s EFF 2019-23 79 D.3. IMF Surveillance and Espionage Mechanisms 91 D.4. IMF Policies 97 E. Assessment 106 Table: Difference between Actual Outcomes and IMF forecasts for major macroeconomic statistics with IMF’s EFF module 2014-2015. 106 F. The Alternative 138 F.1. Objective of the Alternative Program 139 F.2. Militarization of the Economy 140 F.3. Macroeconomic Stance 143 F.4. Foreign Trade 146 F.5. Exchange Rate and Trade Flows 148 F.6. Monetary Policy 152 E.7. Debt Management 155 E. 10. Alternative Policies: A Summary 167 Statistical Appendix 173 Table A.1. Pakistan: Selected Economic Indicators, 2014/15-2019/20 1/ 173 Table A.2. Pakistan: Medium-Term Macroeconomic Framework, Program Scenario, 2016/17-2023/24 175 Table A.3. Pakistan: Balance of Payments, Program Scenario, 2016/17-2023/24 (in millions of U.S. dollars, unless otherwise indicated) 176 Table A.4. Pakistan: Gross Financing Requirements and Sources, Program Scenario 2017/18-2023/24 (in millions of U.S. dollars unless otherwise specified) 177 Table A.5. Pakistan: General Government Budget, Program Scenario, 2016/17-2023/24 (in billions of Pakistani rupees) 179 Table A.6. Pakistan: Monetary Survey, Program Scenario, 2014/15-2019/20 181 References 182 Introduction Islamic parties of Pakistan are increasingly concerned about Pakistan’s continuing loss of sovereignty to imperialist powers and their global management agencies. We regard the IMF Extended Fund Facility Programme which commenced in September 2019 as an imperialist ploy to hollow out the Pakistani state and further subject it to imperialist hegemony. All Pakistani secular parties support this programme – none have called for its repudiation – thus endorsing Pakistan’s intensified subservience under global imperialist, capitalist order. Islamic parties alone stand for building a resilient nationally self-reliant economy. Islamic parties call for an immediate repudiation of the IMF agreement because: It seeks to increase the Pakistani economy’s dependence on global capital and commodity markets at a time when the world economy is teetering on the verge of another catastrophic recession having failed to fully recover from the crisis of 2008-2009. It is grounded on false theoretical premises. The Vodoo economic presumptions underlying its macro-projections do not reflect global or national economic realities and the implementation of policies built upon these presumptions have repeatedly failed to realize sustainable and equitable growth.

The programme’s performance, monitoring and implementation process is specifically designed to subvert decision-making processes in Pakistan’s key state institutions – the State Bank, Ministries of Finance and Commerce, the federal and provincial tax collecting agencies, Securities and Exchange Commission, provincial departments of finance, customs offices etc. – and to convert them into agencies of colonial rule, subservient to imperialist regulation, management and control. The programme aims to destroy the Islamic character of Pakistan’s informal economy by making the earning of Halal Rizq impossible through the spread of usury based transactions and the documentation process. It completely ignoring the serious environmental crisis that Pakistan is facing and its impending impact on the national economy. We substantiate these arguments in the following section. The coming global recession The fallacies of Vodoo Economics Salient features of the IMF program An Islamic critique of the IMF program Our alternative vision. The Coming Global Recession The Program aims to accentuate Pakistan’s dependence on the global capitalist economy. The adverse impact of this dependence was well illustrated in the wake of the 2008-2009 crisis which originated in the United States but quickly spread to engulf many developing countries whose aggregate average growth rate turned negative in 2009 and after a weak recovery the following year have been on a downward trend throughout 2011-2019 (IMF, 2019). During the boom period (roughly 2001-2007) almost all developing countries had adopted export oriented macro strategies involving a suppression of domestic consumption and unit wage costs. During the boom period capital was flowing out of the developing countries in the form of central and commercial banks reserves lodged in developed ‘safe’ havens especially the US Treasury Bill market (UNCTAD, 2018). This depressed domestic investment rates in developing countries and increased the dependence of these countries on imperialist finance. Moreover macro vulnerabilities increased as debit rose massively in most developing countries to compensate for stagnant or declining real wages. During the crisis period – and intermittently in short ‘recovery’ phases these increased macro vulnerabilities have cost the developing countries dearly – growth rates have plummeted, employment fallen, net capital outflows increased, export growth declined and bank sector ‘infection’ has surged. Moreover there the governance and regulator weaknesses that characterize global financial systems remain unaddressed, focused on the futile attempt to suppress ‘terrorist’ finance. Otherwise all attempts at repairing global financial regulatory regimes have been marginal, cosmetic and demonstratively ineffective – even the Dodd Frank Act of the United States is on the verge of being replaced. Developing country vulnerability to a future capitalist global systemic crisis is much greater than in 2008. The strategy of suppressing domestic demand and focusing on export growth has drastically reduced the global competitiveness of developing countries. This is reflected in their bourgeoning trade deficits throughout the ‘post crisis’ phase (2010-2019). While during this period the US trade deficit averages around 0.5 percent of global GDP and large trade surpluses exist for Europe (especially Germany) Japan and China. In developing countries while imports have surged export growth has been at a continuously declining trend since 2010 (IMF, 2019). Comparing the period 2000-2007 to 2008-2018, we find that global growth rates have declined on average by almost 30 percent – despite the minor uptick in 2018 there has been virtual stagnation since 2014 and the forecasts for 2019-2020 are especially gloomy (IMF, 2019). The mini ‘recoveries’ of 2010 and 2018 have been shown to be limited, fragile and quickly brought to an end.

Another striking feature of the global capitalist management system is its incessant fueling of inequalities. Even in the global boom period 2000-2007, real wages stagnated in the developed economies while per capita income grew rapidly. During the boom period a great share of the increased income was captured by stock brokers, corporate executives and financial rentiers in the developed capitalist countries. Since 2011, the share of developing countries in global GDP has stagnated. Inequality is particularly marked in large developing countries following export oriented policies such as India and China. Thus during 2010-2016 in China the bottom 50 percent of the population’s share of income growth was 13 percent while in India it was 11 percent. The share of the top 10 percent of the Chinese population in income growth during 2010-2016 was 43 percent and in India it was 66 percent (Chanal, 2018). A CEO of a leading multinational in the garment sector could earn in just five days what an ordinary Bangladeshi garment worker could earn in his entire lifetime (Chanal, 2018). Another salient feature of developments in the world level is that trade globalization has come to an end. During 2001-2008 trade grew significantly faster than global GDP. Since 2011, growth in world trade has collapsed. Global supply chains are disintegrating. Inter-industry trade has declined. Much of the decline in trade values is attributed to a collapse in prices. Collapse in prices growth during 2010-2018 (only 0.5 percent per annum) has meant that during this period trade values growth has been much below output value growth at the global level – in 2017 global trade values were 15 percent below those of 2011. Terms of trade have declined for most developing countries and Pakistan like other large developing countries has been able to maintain aggregate export earnings – only by increasing export volumes. Decline in trade earnings has led to increased competition pressures in global markets as more and more developing countries engage in suicidal ‘races to the buttom’ through price and wage cutting. Particularly alarming for Pakistan is decline in South-South trade implying a major potential reduction in Chinese imports. Declining terms of trade are exacerbated by the trend towards accelerated Rupee devaluation which does nothing to stimulate export demand for Pakistan since our major exportable are not price elastic. Devaluation along with increased speculation in the cotton and rice markets as commodity prices plummet threaten to further destabilize our macro economy. An outward oriented macro-economic strategy is necessarily a debt focused strategy. This can clearly be seen in the case of China where the debt to GDP ratio has more than doubled during 2008-2018. India also faces an acute problem of corporate debt overhang. China’s increased integration with the global economy has meant a gradual decline in China’s trade with developing countries –China’s imports from developing countries have seen a declining trend. Chinese macro-strategy today focuses on accelerated import substitution – which means replacing developing country imports with domestically produced goods and substituting in country supply chains for supply chains linking Chinese production and assemblage production to developing country based firms. China today is much less likely to play an export stimulant role for Pakistan that it did for the Southeast Asian economies in the previous two decades. Similarly, expectations of CPEC related investment are exaggerated – Chinese FDI to Pakistan has already fallen in 2018-19; Chinese global financing agencies – the Silk Road Fund, the Asia Infrastructure Investment Bank and China Exim Bank – are over stretched and have limited resources in comparison to OBOR investment targets and are dependent on finding local and global financers and partners. Given adherence to IMF growth strangulating strategy domestic investment to supplement Chinese inflows will simply not be available. Infrastructure investment by Pakistani private sector has always been miniscule.

Compounding risks for a sustained global recovery is an imminent trade ‘cold’ war (and it may become ‘hot’ at a moment’s notice). Trump’s “make America great again” project implies a gradual disintegration of the liberal international trading system. He has been erecting tariff and new tariff barriers against not only China but also Europe, Canada and Japan. He is destroying America’s GSP regime and imposing restrictions on American technological exports. His trade policy is deeply embedded as an instrument in his ‘war on terror’ Geopolitical uncertainties are exacerbating systemic breakdown tendencies and accentuating the trend towards global economic stagnation. Imperialism, in its financialised phases is on the verge of self-implosion. As global stock markets and currency markets are liberalized, emerging markets become targets of currency trade speculations with cheap capital inflows and out flows thus increasing macroeconomic vulnerabilities and price and output volatility. In the absence of capital control even a whiff of ‘bad news’ can lead to a major capital flight and sudden accelerated currency depreciation. Market equilibrium is an IMF fantasy, a myth, an illusion, a ‘will of the wisp’ – in the real world of finance capitalism it appears and disappears at meteoric speed. Moreover, in its quest for never-ending capital accumulation, capitalism is destroying the natural environment. In this era global warming, ocean acidification, air pollution, deforestation and desertification have accelerated and threaten to destroy life on earth within the foreseeable future. The switch from fossil fuel sources is slow in most developed capitalist countries – and in China. Moreover, the sustainability of a major shift to the alternative energy sources is itself limited as the world is rapidly running out of the mineral and agricultural resources necessary for the introduction of solar, wind and nuclear energy and biofuels – specially water. A small number of ‘critical minerals’ upon which the production of almost all cutting edge technologies (digital manufacturing, weapon system and smart consumer products) depend are being exhausted and competition to possess these ‘critical’ raw materials is intensifying with major geopolitical implications. In any case, there are as yet no signs that there is a major move away from fossil fuels according to the 2017 estimate of the International Panel on Climate Change. Carbon emissions are at their highest level ever and increasing. The world’s major oil and other conventional energy multinationals have immense potential influence on policymaking and havebeen using it effectively to slow down the transition to non-fossil fuels. The China Belt and Road Initiative (CBRI) is designed to stimulate fossil based energy production and CPEC energy projects are likely to have a major environmental impact on Pakistan. The global intellectual property regime is specifically designed to promote imperialist control over strategic minerals and metals and imperialist resource diplomacy is invariably supplemented by economic sanction, establishment of military bases, ‘humanitarian’ interventions and occupation as illustrated by the example of Iraq, Libya and several West African countries. Pressure will be mounted, especially by China, for making long term mineral and metal supply deals.

The German Mineral Resource Agency in a study published in 2016 found that for Lithium, light rare earth metals, Indium, Gallium, and Tantalum, demand would far outstrip supply at the global level over the next two decades. China seems especially eager to secure global sources of light and heavy rare earth metals. Water is soon likely to become the major source of resources conflict and the transition to alternative technologies – especially wind and solar – will carry a heavy cost in water quest. Conflicts over land and food are also likely to emerge. China faces intense water scarcity and is also desperately short of copper and iron ores. Advances in geo-engineering have been the conventional response to tackle problems associated with environmental depletion but typical geo-engineering ‘solutions’ have merely served to shift the problem from energy to other sources. In any case most technological ‘fuels’ are at present not available for Pakistan. Pakistan is a water stressed country, highly vulnerable to environmental depletion. The IMF program says not one word about facing up to the environmental challenges. This is one of its major shortcomings. Nor does it recognize the immense political vulnerabilities that will be created by increasing Pakistan’s dependence on global finance and commodity markets. The markets are subject to imperialist governance and most capital flows to Pakistan are determined by geopolitical considerations. Pakistan is such a miniscule player in global trade and finance that multinationals and financial powers have virtually no state in its economy. Increasing Pakistan’s dependence on global market forces amounts to intensifying its subsumption with imperialist order. The pursuit of an anti-imperialist foreign policy focused on the promotion of national self-reliance becomes impossible in these circumstances. The IMF is an imperialist agency and its purpose in ‘supporting’ Pakistan is to deprive the Pakistani state of its independence and its sovereignty. C. The Fallacies of Vodoo Economics C.1. General The economic theory which underpins IMF policy presuppositions, intentionally or unintentionally, paints a manifestly false picture of the functioning of actually existing capitalist economies. Global capitalism is a socio economic formation dominated by an individuality obsessed with lust and greed subject to increasing pressure of market competitive monopolization and financial speculation. Exacerbating inequalities is a fundamental feature of this system(Pickety, 2013). With the advent of Trump (and similar neo-fascists in Hungary, Poland, Austria and China) capitalism has entered a phase in its history where neo liberal tendencies are struggling with what is known as ‘paleoconservatism’ – an attempt to combine capitalist order with western traditions (especially Republicanism). This eventually involves a reconstitution of the global management order to serve the national interests of the West (especially America). The neoliberal presumption is that economic wellbeing is served by the marketization of society and the reconstitution of the state wherein the ‘reform’ of the state (by the neutralization of money, increased bureaucratization to monitor and administer market policies and increased exposure to global finance). Neoliberalism aims at depoliticization of the policymaking process which is of course itself a political project. This political process of depoliticization depends eventually on the performance of increasingly stringent regulatory regimes and the paradox that neo-liberalization has always faced is that regulatory regimes are necessarily subject to capture by what it describes as ‘vested interests’. True ‘vested interests’ are those who do not subscribe to the fake presumptions underlying Vodoo economics and those who do not accept the neo-liberal definition of economic wellbeing.

It is the failure of neoliberal policies in America and Continental Europe to deliver on its promises for a large mass of the people which has led to the emergence of paleo conservatismthat seeks to continue the globalization process but to twist it to make it an explicit contributor to White systemic hegemony, emphasized by the concern to promote and preserve Western pagan and pseudo-Judo-Christian customs and the traditions. Thus the IMF, like all other imperialist agencies, is irrevocably committed to ‘modernizing’ – i.e. Westernizing – its client states. Fuelling resentment against non-modernizing (i.e. Islamic) cultures is an important political resource for paleoconservative forces especially in imperealist client states. Paleoconservatism is a project for a particular repolitization of Satan of the global order which neoliberalism has sought to technicalise. The specific form of re-politicization of global order that paleoconservatism seeks necessarily involves increased doses of authoritarianism and a delution of national democracies – as reflected in the de-sovereignisation of IMF client states. It is appropriate to recall that globalization is originally a project of the Nazis, theorized by Helmut Schmidt – the much loved figure of the heroic entrepreneur – much loved by both new liberals and paleoconservatives – is of course a semi-fictitious reconstruction of Nietzsche’s ‘Übermensch’. Paleoconservatism is neoliberalism reconstituted through politicization of global order for asserting the superiority of the white race and pagan Western civilization. Paeloconservatism charts a new course for the exercise of global hegemony by America. Paleoconservatism (correctly) recognizes Islam as the principal enemy of capitalism and modernist jahiliya. Peaceful coexistence between Islam and Western civilization is seen as impossible hence its political project is not to reject globalization but to reconstitute it through sub-national, international and bilateral alliance systems focused on promoting Western hegemony and de-constituting Islamic individualities and Islamic social order. Despite its preference for bilateral deals paleoconservatism remains committed to the increased globalization of American regulatory regimes and monitoring and supervision of client policy regimes by institutions such as the IMF, FATF, and IPO etc. which have been turned into sub-offices of the American state system. The policy shifts are occurring in a world characterized both by decelerating macroeconomic tendencies in the metropolitan countries (where annual average growth over the next few years is ‘opotimistically’ forecast at between one and two percent by the IMF itself) and the immiserising growth of so called ‘emergent’ economies characterized by growing levels of income and wealth distributional inequalities and the expansion of low paid income flows serving western markets and multinationals and finance houses is also slowing down. Burdening client states with debt is a key strategy for promoting American hegemony with this reconstituting global system.

American capital benefits enormously from this ongoing process of globalize politicization. It is linked to deals with foreign states and markets governed by imperialist regulatory regimes – one of whose executive is the IMF. The paleoconservative penetration of neoliberal global order is increasing capital’s inherent tendency to concentrate and centralize. The Vodoo economics theory to which the IMF subscribes regularly has been the source of state economic policymaking since the 1980s and the crises of 2008-2009 as well as its aftermath has shown it to be an unmitigated failure. The strategy adapted to deal with the 2008-09 threefold crisis – of banking, public debt and democracy – has failed to restore significant and equitable growth – in 2019 (up to July) the IMF had downward revised its growth rate estimates for the fourth consecutive time. Developed countries’ attempts to stimulate their economies by fiscal and monetary policies had proved quite ineffective. Tax mobilization limits have been reached and the reliance on the Laffor curve myth – that lower tax rates lead to higher aggregate tax revenue – has been shown to be false. Tax revenues of the rich states have been falling and tax regimes have become ever more regressive as corporate and bank income tax rates have been low and declining. Fiscal deficits have been rising as has public debt. The concern has been not so much to reduce public debt but to manage it in such a manner that the credit worthiness of the ‘debt state’ is restored within international financial markets. Attempts to strengthen bank regulatory regimes have been cosmetic rather than substantial. It is now clear that a global state – acting in the interests of global (rather than specific national) capital is required for effective global neoliberal financial regulators and that international financial agencies – such as the IMF, ECB and BIS – are toothless tiger as far as this is concerned – their role is limited to bullying poor countries. America is afraid of tightening the financial regulatory regime lest it constrains the supply of bank credit. Today almost no one believes that enough has been done to make the global financial order safe from undergoing another crisis. American banks are heavily under-capitalized – with an average equity to capital employed ratio of about six percent for the leading American banks (which accounted for 60 percent of total US bank assets in 2016). Adnati and Helocong (2015) argue that ‘adequate’ capitalization ratios would be between 20 and 30 percent. Banksin America, throughout Europe, China and India remain heavily loaded with bad debt. In 2019, average public debt of the 20 OBCD countries exceeded 100 percent of GDP up from 68 percent in 2009 – an average growth rate of about 6 percent. Never before in capitalism’s history has recovery been as sluggish as it is today. The future forecast is for declining growth, increased inequality and rising debt (both public and private). At the 2015 IMF annual meeting Larry Summers famously forecast an impending long dure of stagnation. Stagnation makes debt reduction all the more difficult. Nobel laureate Paul Kingman supported him and has developed a bitter critique of austerity economics and Vodoo (neoclassical) theory ever since. His call for a return to the failed Keynesianism of the 1960s and 1970s however is quite unviable became it is this Kegnerianpolicy which lead to Stagnation of the 1970.(and will assuredly do it again) and secondly because of the changed political economy of postmodern capitalism where central banks have become the real government of almost every capitalist country insulated from voters, parliaments other factions of the state democracy.

The expansion of the central bank credit – through quantitative earning and interest rate cuts – has failed to stimulate real investment. Revitalizing economic growth is beyond the capacity of central banks committed to a monetarist policy stance. In the major capitalist countries fiscal and monetary policies accentuate stagnation. Rising debt levels have failed to absorb the surplus capital that has been generated by ‘austerity’ economics. Placing limits on state borrowing is a sure recipe for institutionalizing economic stagnation. Faith in Vodoo economics of establishment, economists and leaders (both technocratic and political) remains unshaken despite the fact that each attempt to overcome stagnation – through private credit regulation, lowering of interest rates, quantitative earning measures, management of public debt – leads to the emergence of new problems while stagnation intensifies after every “recovery”. Why is this so? During the previous major crises of capitalism – in the 1930s – a new theoretical orthodoxy Keynesianism replaced neoclassical economics as a mainstream policy paradigm. Today there is no such development in sight. If anything, the grip of Vodoo economics on the minds of policymakers is stronger than ever. There are two primary reasons for the continued dominance of the Vodoo policy paradigm. First and foremost, it reflects the moral and religious degeneration of the masses, corrupted by several centuries of capitalist hegemony. Life hereafter has become an illusion and building a “heaven on earth” – through rampant consumerism, the de-feminisation of women by devaluing motherhood and bringing them into the labor force and population control – is endorsed as a desirable project. Vodoo policies through the fueling of private debt facilitate unsustainable consumption expansion among the mass. It stimulates the growth of greed and lust and constantly constructs and expands a mass base for the spread of the new “spirit of capitalism” by combining neoliberal and paleoconservatism themes and discourses. Secondly, Vodoo policies facilitate an enormous growth in the concentration and centralization of capital so that those who have most thoroughly internalized the “spirit of capitalism” – the top one percent of wealth holders are enabled to fuel their lust as never before. As distributional inequalities grow in Vodoo infested societies the power of the top one percent grows exponentially and ordinary people are transformed into subject of post-democracy – the Mustdha’feen of the postmodernprecariat. Post-democracies are ruled by lust and fear – lust for goods and fear of precariousness. Governance is reduced to a combination of the rule of law of capital and the provision of democratic entertainment. The precariousness of Vodoo policy itself is reflected in the depressed “recovery” periods and prolonged slumps it generates in the crises proneness of the precariously (un)balanced financial system and the mounting burden of the public and private debt – which at the global level is rapidly approaching the $100 trillion mark. It is also reflected in the reconstruction of capitalism as a system of technocrat economic administration.

Equally important is the continuing fiscal crisis of the capitalist state subject to Adolph Wagner’s law of rising public expenditure to cover the externalities of expanding markets. The taxable capacity of a Vodoo state soon comes up against a limit – because it dare not tax the wealthy (corporate and banking taxation is continually reduced) and because the taxability of the mustadha’feen is rapidly exhausted. Increased taxation is a means for benefitting the controllers of capital for they can pass on the taxes laid on them through price mechanisms while the mustadha’feen bear the whole burden. Hence, typically, the Vodoo tax state is inevitably transformed into a debt state. Tax revenue becomes increasingly a source of the income of both domestic and foreign usurers and as finance markets are integrated internationally tax revenues from poor countries are increasingly utilized to serve the enormous credit needs of America, China and Europe. Contrary to the assertions of “the common pool” theory it is the one percent whose income and wealth has been rising exponentially in the Vodoo era – it is they who are undertaxed and thus responsible for the endemic fiscal crises of the capitalist state. The taxation policy of the Vodoo states seeks not a reduction in aggregate debt but an increase in the government’s ability to serve domestic and foreign usurers and loan sharks. The one percent – the overwhelming majority of financial asset holders – has a built-in interest in increasing public debt along with increasing the state’s capacity to serve it. Not only do they earn income from public debt investments, the more a state borrows the more dependent it becomes on financial markets thus enhancing the power of the one percent within the political system. Lenders to the government – both domestic and especially foreign – become a political constituency within the Vodoo state. Retaining creditor confidence becomes an imperative of Vodoo state policy – linked to financers (both domestic and foreign) by contractual ties, the ‘rights’ of the financers are derivable from enforceable civil law (not from the constitution). As Wolfgang Streek argues, the Vodoo state is a Markvolk (a money republic) – a state dedicated to the service of its usurers(Streeck, 2017). Who are the Markwolk? Who sets global bond prices, interest rates, currency exchange rates? The IMF presumption that there is competitive “equilibrium” reflecting economic fundamentals in global bond, loan and currency markets is nothing short of a sick joke. Competitive “equilibrium” is nothing but a delusion of Vodoo economics – at least in the short run when it shifts massively from moment to moment unleashing creative destruction. Bond and currency markets are so heavily monopolized that capitalist policymakers do not dare publish data about their market demand structure. We know some names of leading dealers – Calpers, PIMCO – but we do not know their market power. We do not – perhaps cannot – know who determines the mythical equilibrium, exchange rate (around which REER of our country is seen as oscillating) or who determines the prices of our Sakuks and Eurobonds. The credit worthiness of a debt state is determined by the market strategies of a small handful of usurers dealing in its bonds and currency. In Pakistan where the global debt profile is heavily skewed towards financing from foreign governments and their multinational agencies, credit worthiness is determined by our subservience to the imperialist policy agendas.

The sovereignty of Vodoo states is limited by policy measures – such as the imposition of a ceiling on public debt accumulation, privatization and cutting back of defense and development expenditure. In practice, Vodoo states exercise sovereignty only over the mustadha’feen – the markvolk and the international usurers usurb state sovereignty. Today all Pakistani secular parties endorse this transformation of the Pakistani state – none have committed themselves to an explicit rejection of the IMF agreement In June 2019. Shahbaz Sharif spoke of the need for the constructional consensual macroeconomic policies. The growth that is sought is growth that enhances debt servicing capability – there is a realization that too much proportionate (not absolute) growth of debt can have a negative impact on GDP growth (Reinhart & Rog, 2009).But no one knows how to square the circle i.e. ensure debt servicing sustainability while stimulating growth. However in Vodoo states it is clear that servicing debt – avoiding defaults whatever the cost – takes precedence over growth concerns. This is because the political power of the one percent depends crucially on the continued approval of imperialist governments and markets. Unilateral debt reduction can never be envisaged by a Vodoo state. The debt state is necessarily subservient to imperialist order. Its claims to sovereignty are dependent on its complying with the dictates of global capitalist markets and imperialist governments. Measures disciplining ‘failed’ (i.e. non Vodoo) states are economic (sanctions, suspension of capital flows) and political (R2P, subversion, occupation). Suspending global usury payments is a first step towards revolting against capitalist order and therefore metropolitan countries, their international organizations and world financial markets combine in efforts to prevent default by poor countries. This is one of the most important policy priorities of the international financial management system – indeed a (if not the) ‘raison d'être’ for the existence of the IMF. Almost all of the financing made available to debt burdened countries finds its way back to international financial markets and imperialist governments. None is earmarked for development financing. The IMF is one of several guardians of the global capitalist financial system. It is irrevocably committed to a legitimacy of imperialist financial order and so basis its policies on the absurd economic orthodoxy – Vodoo economics – which provides a theoretical justification for global capitalist rule. The IMF takes little notice of the very significant cumulative departures from this absurd theoretical paradigm that capitalist practice routinely manifests. In what follows we will seek to explain why the policy presumptions of the IMF necessarily fails to realise sustainable growth within the context of the global capitalist system. In other words we will try to explain why Pakistan has had to go back for an IMF EFF just three years after the “successful” completion of its previous EFF program (2013-2016).

C.2. Vodoo Theoretical Presumptions Vodoo economics emerged in the late 19th century. It aims not to describe actually existing capitalism but to paint a fairytale picture of the supposed optimality of capitalist order. Its assumption of rational expectations and universal utility maximizing behavior has been shown to be false by behavioral economics. Its fantasy of perfect competition has always been nonexistent and its doctrine of compulsive profit maximization has been conceivably refuted by the theory of managerial economics. Its concept of the single representative agent – derived from an aggregation of the behavior of individuals – is manifestly over determined. Its presumptions preclude the possibility of conceiving of competition as a warlike turbulent system, recognizing the non-neutrality of money and of effective demand as a stimulant of real output growth. Its assumption of perfect knowledge and stable (forecastable) expectations, instant recovery of “equilibrium” by “efficient” markets and automatic adjustment by the interest rate to produce full employment and realization of potential output have not been empirically validated anywhere in the world. According to Vodoo economics crisis – mismatches between aggregate supply and demand in “real” and loan markets – are self-correcting through automatic interest rate adjustments and contra cyclical policy is always harmful – a presumption that takes no account of how capitalism has actually dealt with its major crises of 1929-1933 and 2008-2010. Equally absurd is the Vodoopresumption that inflation is always a full employment (demand side) phenomenon and that growth in money supply can never stimulate short run output growth. Equally fictitious is the Vodoo tale that free trade and state unimpeded access to global finance always benefits all participant countries. Two key Vodoo conceptions underlying the policy of the 2019-2023 EFF for Pakistan are “equilibrium” and “competition”. We will analyze them below in brief detail. C.3. Equilibrium In October 1999, Gorden Richardson, then governor of the Bank of England, said: I regret to say that I have little direct experience with economic equilibrium. Indeed so far as I am aware none at all. Sometimes there are suggestions that we will be moving towards equilibrium next year or the year after but somehow this equilibrium remains (always) in the offing (Euromoney, 1979). According to the Vodoo conception, the economy arrives at a stable conjecture automatically through market connection. This balance is maintained ad infinitum and we can only conceive of steady static growth paths. Time and turbulence are ruled out of the picture(Blanchard, 2000). In the real world economic balance is necessarily a transient phenomenon since economic variables necessarily overshoot or undershoot their mythical “equilibrium” values. Classical economists and their followers such as Sheikh (2016) and van Dugeri(1983) conceive of equilibrium as a cyclical, self-repeating gravitational force subject to turbulence and the values around which economic variables are seen as gravitating are themselves conceived of as moving averages over-determined by unpredictable technological, economic and social changes. Moreover, in the determination of market outcomes, supplier monopolization undauntedly plays an increasingly important part in post-colonial times.

Vodoo conceptions of equilibrium see it occurring either instantly or over very short period. Classical conceptions (“turbulent equilibrium”) expect the adjustment process to take seven to eleven years during which capacity utilization of individual industries are said to “adjust” to the (moving) average capacity utilization rate of the economy as a whole. This is the long run in which according to Keynes “we are all dead”. It is particularly absurd to conceive of equilibrium – instantaneous or turbulent – in financial markets which are driven by (anything but rational) expectations and are forever subject to bubbles and their bursting. It is recognized that expectations can affect fundamentals and the fictitiously presumed gravitational anchors are themselves path dependent(David, 2001). The Efficient Market Hypothesis has been belied once for all by the 2008-2010 crises. The dependence of fundamentals on actual outcomes in financial markets has also invalidated the Rational Expectation Hypothesis. There is no proof whatsoever of the time it takes for the ‘general rate of profit’ to act as a gravitational force determining financial asset prices. Nor of course is there any reason to believe that the assumed gravitational forces will lead to the realization of “potential output” or full employment. It is simply not the case that self-regulating markets generate “potential” output and full employment or allocate resources efficiently and equitably. It is also not the case that merely removing market “imperfections” will enable capitalist markets to do so. Indeed enhanced exposure to the inherently stagnating, crisis prone, politically vulnerable global financial and commodity markets increase the inefficiency and inequity of national market transactional structure. The East Asian experience shows that the market needs to be governed not “liberated”. As Dani Rodack has shown “there are no examples of countries that have achieved growth following whole sale liberalization(Rodrik, 2001, p. 7). Exposure to international finance enhances the vulnerability of both the real exchange rate and domestic interest rates to short global financial pressures and as the IMF itself has recognized “there is no proof that financial liberalization has benefitted growth in developing economies”. Chasing mythical equilibrium states through subservience to global markets (black cats in dark rooms which are not there) has been mandated by the IMF for poor countries as it serves the interests of global finance. It must be remembered that Wall Street and the City of London have always loudly applauded an enhancement of IMF resources. That is why within a year of the 1997 East Asian crisis, Thailand, Malaysia and South Korea got themselves rid of IMF programs. It is also the reason why the IMF had to brow beat (along with other members of the Triad) the Greek government to disregard the results of the anti-austerity referendum in 2015. But as an agency of the US state department, the IMF has of course no power to resist the systematic dismantling of the liberal global order by Trump in the interests of American nationalism.

There is nothing automatic or “equilibrating” about the global financial system as the crisis management strategies of the imperialist countries in the 2008-2010 period has shown. Subjecting Pakistan to the discipline of global financial markets is subordinating it to imperialist hegemony – it is nothing else. C.4. Competition Competition for increased profit is necessarily antagonistic leading to turbulent patterns and outcomes. It is of course never “perfect” and outcomes so generated are of course never “optimal”. Even Frank Knight noted that perfect competition “avoids any presumptions of emulation or rivalry”(McNully, 1967). Price adjustment is always achieved by visible not invisible hand. In the real world firms are always price setters and all firms seek to grow as large as they can to reduce costs. All market contesting firms are necessarily cost cutting, scale expanding, and price setting entities. Competition leads to continuous disorderly adjustments in price and output levels. Prices in all markets fluctuate with respect to productivity. As productivity stagnates or falls prices tend to rise. It is the technological capability and rising factor productivity of a firm which enables it act as a price setter in all competitive markets. Given our technological backwardness we will necessarily be price takers (not price setters) in virtually all global markets it we choose to integrate our production and financing structures to those of capitalist metropolitan countries. This is simply one aspect of imperialist subordination – our usury rate will be determined in world finance markets, our exchange rate will be determined by movements in world currency markets. “Perfection” exists only in the imagination of the IMF and its sycophants. Theories of monopoly capitalism have existed since Hilferding’s times who said that “it is useless to search for a theory of monopoly price”(Helferding, 1985, p. 270). Monopolies compete, sometimes through price cuts, sometimes through other means. Price setting capability of a firm – ability to impose a fluctuating mark upon fluctuating unit costs differs from market to market – but in the global markets (both commodity and finance) the “degree of monopoly (Kalecki’s term) is never so low as to render it “perfectly competitive”. The biggest firms are always price setters and although demand does influence price setting in many global markets, demand structures are often oligopolistic – a handful of major firms dominating. Prices in monopolized markets are rigidly flexible – they are characterized by administered pricing.Virtually all global markets are characterizedby the general prevalence of administered pricing. This is no in even those global markets which are seen to be competitive (Lee, 1999). Increased reliance on world trade and financial markets is surrendering Pakistan’s sovereignty and subjecting our economy to the monopolized competitive forces of global capital over which we have no control. C.5. Globalization

Neoliberal globalization became mainstream imperialist policy during the last two decades of the twentieth century. All subsequent IMF agendas have endorsed its main themes – lowering tariffs and NTBs, eliminating subsidies, privaligising global capital inflows and outflows, privatization and flexiblising labor markets (i.e. destroying human union). Many African and Latin American countries have submitted to IMF surveillance and dictatorship and the results in the main have been disastrous. In Latin America, for example, GDP per capita grew by a total of 75 percent during 1960 to 1980 when these countries were pursuing “statist” policies and by only 7 percent (with wide annual fluctuations) during 1980 to 2000 when IMF dictates were implemented. In Africa, during the period of IMF rule (1980-2000) GDP per capita fell by 15 percent while it had grown by 34 percent during the past two decades (Weishort, 2002). Strong export growth is usually a consequence of discriminatory trade and industrial policy, exchange rate stability and adroit price management. “Free” trade is only beneficial to a country if it is experiencing productivity growth – fall in relative unit costs. The real exchange rate is strongly influenced by real unit costs and unless productivity increases depreciation of a country’s currency will not lead to correction of payment imbalances. The IMF holds that depressing real wages is the only route to enhanced global competitiveness. As the African and Latin American experience has shown this is a manifestly false doctrine – Sustainable growth in global and national competitiveness requires factor productivity growth. Globalization involves genocide (remember the Red Indian, the Aborigines, Vietnam and Cambodia and the continuing American and French slaughter in Afghanistan, Iraq, Syria, Mali, Senegal and many other sub-Saharan countries), colonization, plague, slavery, targeted destruction of competitors (in India and China) and a huge transfer of wealth to Europe and America. Globalization is an ongoing war and we continue to be murdered and looted through the manipulation of transportation costs, tariff and NTB structures, trade and financing policies articulated both within capitalist economies and across them. The vision of “gentle commerce”, perfect markets and optimal macroeconomic outcomes pedaled by the IMF justify this continuing imperialist slaughter and pillage. The IMF advocated privatization, abandonment of capital controls, flexiblisation of labor markets make our economies easy prey for foreign control. To counter the negative effects of globalization countries that have achieved sustainable development (especially East Asia today Europe in nineteenth century) have always relied on state investment through import substitutions and industrialization, targeted protectionism, productivity enhancing technological policies and promotion of managerial capabilities. The focus of successful ‘dirigisme’ policies has been on achieving absolute (not comparative) advantage through productivity growth. Productivity growth is vitally important both for enhanced competitiveness and for institutionalizing non-inflationary full employment strategies – the words “productivity growth (leave alone strategies for factor productivity enhancement) occur nowhere in the IMF’s EFF program for 2019-2023. In an economy such as Pakistan, productivity enhancement must be focused on the domestic economy – not on international trade and financial transactions – since it is here that outcomes are most amenable to policy initiatives and because monopolistically determined price structures of global markets are unlikely to reveal efficient strategies for increasing Pakistan’s absolute cost advantages in its major spheres of production and exchange.

The health of the global economy is itself highly dependent on state support. Thus between 2008-2010 total subsidies for crisis fighting in the 20 OECD countries amounted to $ 1.87 trillion counting only discretionary expenditures (US over $750 billion, China about $ 340 billion, Japan $ 230 billion)(Tooze, 2018, p. 272).Globalization is not a natural process. It is continuously shaped by American and now Chinese businessmen, policy elites and politicians. The world is not governed by market forces. The markets themselves need governance. As the 2008-2010 crisis imploded this became crystal clear. Without massive and sustained support by imperialist states, financial markets would have collapsed catastrophically. The globalized economy is politicized through and through. It is Greenopan who crafted postmodern global financialization which is an artifact of deliberate legislative and political construction designed to strengthen imperialist hegemony.It is now being re-crafted by a paleoconservative (Trump) to further strengthen the American grip over the world. There is nothing that is natural or automatic about the functioning of the global financial system. The massive extension of the Fed’s swap loans to Europe in the aftermath of the crisis illustrates the essentialy political character of global financial decision making. The IMF is aninstrument of American financial diplomacy. The inherent crisis proneness of the global financialization process requires a continuous intensification of imperialist political efforts to attempt to salvage this sinking ship. C.6. Openness Trade liberalization, like financial liberalization, erodes national sovereignty. This is amply demonstrated by the impact of the 2008 crisis on East Asia. In the run up to thecrises the East African economies had been puppets of the IMF. They had adopted tight monetary policies and built up huge foreign currency reserves – South Korea’s foreign exchange reserves amounted to $240 billion. For several years prior to the crisis South Korea had been building itself on a regional financial hub in East Africa. It had massively liberalized currency and capital flows. The vulnerability came from the liability side of the balance sheets of South Korean banks – many of which were targets of foreign investment and deeply involved in wholesale transactions borrowing short (at relatively low interest rates) and lending long at higher rates. This short term borrowing was in global dollar markets. Korea’s export success further fueled the appreciation of the Won. Korean manufacturers (Choeloes) increased dollar financing of Korean investment and repaying their creditors at favorable exchange rates. By June 2008, the Choeloes had $176 billion as outstanding short term liabilities. Bank short term liabilities amounted to $81 billion. Then the short term lending markets collapsed and the dollar appreciated massively. There was an immediate catastrophic collapse in the exchange value of the Won which depreciated by 60 percent during 2008-2009. The cost for Korean borrowers for issuing dollar bonds against default CCPS increased by over 300 percent in 2008. Banks were effectively expelled from the REPO market.

During 2008-2009 Thai exports fell by 25 percent leading to a major political crisis. South Korean exports also took a hit. To offset the decline in dollar funding the South Korean government provided $130 billion in foreign loan guarantees and other firms of support. The Bank of Korea actively intervened in the currency markets to prop up the Won and US Fed strongly supported this market intervention by negotiating a $ 30 billion swap loan in October 2008 – the swap loan was extended due to American recognition that South Korea would not accept IMF tutelage. It would rather start a political clash with its long term allies. Providing state funded stimulus to offset crises has been standard policy of imperialist governments. It should be remembered that during 2008 Trump strongly supported Obama’s bailout and rescue packages – especially those extended to car companies in Detroit. On the other hand imperialist governments have often deliberately engineered currency crisis to achieve regime changes as the president of Venezuela and Turkey and the prime minister of Malaysia have repeatedly asserted. Emergent economies reliant on raw material and commodity exports have suffered enormous setbacks –witness the fate of Brazil, Russia and South Africa. All major ‘emergent’ economies have been under constant fear of collapsing commodity prices (since 2014) and global interest rate fluctuations. In 2016, even China experienced massive flight of capital as hundreds of billions of dollars fled from China in search of safe haven on a monthly basis.To stem this outflow the Chinese Central Bank through massive market intervention stabilized the Yuan and capital controls were rigorously imposed. A reduction in foreign exchange reserves (from 4 trillion in 2016 to about $3 trillion in 2017) was countered. This was accomplished by a large scale stimulus package and a macroeconomic and industrial strategy to hasten domestic demand and manage over capacity in key industries – the One Belt One Road (OBOR) is a key component of this strategy. Despite this massive state intervention, imperialist policy makers widely applauded Xi’s speeches at the Davos forum in January 2017 and January 2018. This shows that imperialist business elites and policymakers do not subscribe to Vodoo doctrines – they pay no attention to these theories in crisis management. Vodoo theory and the policy presumptions which emanate from it are employed mainly as means for disciplining their third world client states and depriving them of their hard won national sovereignty. C.7. Determination of Output, Employment, Investment and Profit Now let us look at the macroeconomic dynamics underlying IMF program projections. There are of course several IMF “occasional papers” on the Pakistani economy but how they are used to generate the macroeconomic values of key variables has not been made explicit in the EFF documentation. However, the expected response to policy initiatives undertaken by the Program is indicative of standard Vodoo assumptions. This and the following sub sections will seek to assess the validity of the theoretical paradigm underlying these projections.

We recognize that our approach in this assessment is not as realistic as it ought to be. The micro-foundations of the IMF’s projections are grounded in hedonistic utilitarianism – every consumer/producer/ policymaker compulsively seeks never-ending increase in income/wealth/ capital accumulation. In Pakistan there are millions of people (not all of them mustadafeen but also owners of halal businesses) who regard ma’ash(economic life) as a means for achieving salvation in the hereafter (ma’adh). This is the mass base of the Islamic parties and we are continuously mobilizing and institutionalizing it to combat the systemic dominance of capitalist individuality and rationality. As part of this struggle we will do our utmost to thwart the implementation of the IMF policy agenda. Nevertheless we also recognize that the systemic impact of the Islamic struggle on the Pakistani economy remains weak and capitalist rationality and individuality remains systemically dominant. It is therefore realistic to ask whether the policymakers will achieve what the IMF says they will achieve by following its policy agenda. The process of determination of output and employment has been a subject of debate among several economic schools – classical, Vodooists, Marxists, Keynesians, post-Keynesians neo Vodooists etc. In the Vodoo conception the aggregate supply curve is invariant to changes in effective demand induced by fiscal or monetary initiatives. It is a vertical straight line and its movement to the right depends on autonomous technological “shocks” and on getting prices “right”. In the absence of perfect markets it is impossible to tell what the “right” prices are. The IMF contention is that the “right” prices (both commodity and factor) are those with which imperialist markets and governments confront Pakistan. Pakistan can realize its “potential” output only by abject surrender to imperialist state policies and global monopolistic market forces. Other schools – notably Keynesians and post-Keynesians – dispute this version. In their view growth can be induced by fiscal and monetary measures to stimulate aggregate demand. The Keynesian aggregate supply curve is upward sloping to the right – it is not a vertical straight line. The aggregate supply, aggregate demand “equilibrium” generated by market forces may not necessarily lead to a full employment of labor and capital – i.e. the realization of potential output. And even if an “equilibrating” force is operational (as indicated by the Hicksian IS-LM modification) it may take too long to fully work itself out and restore full employment equilibrium. In the Keynesian perception it is changes in output which adjusts savings to investment levels. Here output is seen to be a positive function of the rate of profit and a negative function of the rate of interest. Investment is driven by profit expectations and the multiplier mechanism. Raising investment (particularly state investment) is thus crucially important for achieving “potential” output and growth. It is also fueled by the creation of private and public purchasing power (especially the growth of public debt).

In the classical (both neo-Ricardian and neo-Marxist) conception maximum output growth is a function of the growth of profit. In neo-Ricardian systems the maximum (optimal) growth rate is the maximum profit rate revealed by the total absorption of surplus in new investment and consumption. In Marx’s two sector model, the self-expanding sustainable output growth rate is also seen as a consequence of the full employment of surplus (i.e. excess of production value on cost of production). Profit is the excess of the value of output over cost including the cost of finance. Interest payments are a deduction from profit and hence variations in interest rates necessarily negatively effect profits. Hence both profit and prices of production are determined by interest rates and by the debt policies of investors (both private firms and government) – the higher the net debt of a firm, the higher its corresponding price of production). Monetary policy therefore influences not just interest rates but also prices and the profit level. In the classical view profits are also crucially influenced by the real and in the Keynesian view by the money wage rate. Monetary policy initiatives are thus capable of both raising profit levels and lowering costs of production (by reducing financing costs). This is amply illustrated by the near zero rate policies of Europe and America during the past two decades. Investment is also influenced by bank lending policies – low reserve to deposit ratio enhances bank lending. Increases in money supply (Mo, M1, M2, M3) can also have output and investment enhancing impact. Aggregate investment especially autonomous investment is also heavily influenced by profit expectations. If expectations are depressed – reflecting low anticipated profit rates – many genuine investment opportunities will be missed and growth stifled. Firms and individuals will hoard money and aggregate demand will be suppressed. Capacity utilization rates also respond to profit expectations and it is investment (especially autonomous investment) which determines the level and rate of output growth in both new-Keynesian and post-classical perspectives. Savings are not independent of investment. This is so because savings and investment are usually undertaken by the same entities and financing out of retained earnings is becoming a dominant feature of advanced financial systems. The saving decision passively adapts to investment needs. In a typical capitalist economy savings is an endogenous variable (Blecker, 1997). Normally, business savings and investments are highly correlated and for an economy such as Pakistan with low income levels it is particularly unrealistic to ignore this fact and assume (as both Vodoo and orthodox Keynesians do) that savings are done extensively by households. C.8. Usury/Interest Interest is the lifeblood of capitalism (Maududi, 1963, p. 24). Capital typically valorizes itself through compound interest aggregation (usury) and asset price speculation (gharar). In this sub-section we will critically assess some theories of the determination of interest as well as theories pertaining to the impact of interest rate changes on investment, profit and prices.

As we have seen usury is a part of surplus (gross profit) – the “pound of flesh” Shylock extracts. Almost all economic theorists agree that there is no such thing as a natural rate of interest – so it should not be treated as a cost of production (from the point of view of the economy as a whole) but as a part of the surplus generated by capitalist transactions. Usury rates have been described as “the price of production of finance” (Pamico, 1988, p. 12) and the most efficient producer of finance (the bank, the NBFI) with the lowest unit fixed and transaction cost determines the market competitive usury rate. This “competitive” loan usury rate regulates capital accumulation by serving as a benchmark for the average “competitive” rate of profit. The “competitive” usury rate is also the “competitive” profit rate of banks/NBFIs. The (main) source of bank/NBFI profits is the making of loans (and gharar transactions). Loan issue is however limited by the reserve ratio which banks have to maintain. In the Vodoo perspective the reserve rate is determined on the basis of the experiences of the most efficient producer of the finance. Usury rates charged by banks are based upon the “competitive” bank profit (difference between their usurious and gharar earnings and their fixed and operating cost. In the Vodoo perspective the interest rate ought to be entirely market dependent – it is thus paradoxical that the IMF insists on forcing the State Bank to raise its base rate. Both Vodoo and Keynesian economics seem to regard the production of finance as a non-capitalist activity. In their perspectives, the market rate of interest is determined by preferences and expectations. Some post-Keynesians regard bank usury rates as monopolistically determined arbitrary mark up on bank transaction costs. Others (Rogers, 1989) says that the going usury rate is purely conventional and has no basis in the capitalist transactional system. Recognizing the basis of usury structures in the profit maximizing behavior of “producers of finance” should not of course obscure the vital role of speculations in the determination of usury rates and gharar (stocks and bonds) prices. As George Soros argues expectations effect both actual financial prices and fundamentals but are also affected by them (Soros, 2009). Typically it is sudden change in expectations which transforms financial booms into bursts. Usually the “competitive” market determined usury rate (or rather the term structure of usury rates) will follow the profit rate – for usury is a part of gross profit. There is of course does not guarantee that usurious and gharar rates may not periodically exceed the “general” (average) rate of profit in a capitalist economy given the important role of expectations and monopolistic markuppractices. Given this there is simply no way to identify an optimal proportionality factor linking gross profits to “competitive” usury/Gharar rates or the bank loan or reserve rates. Usury rate structures are also impacted upon by the general price level and the variations in the fixed and transactional costs of “the producer of finance”. This relationship between usury rate structures (the yield curve) and the price level illustrates that the “competitive” usury rate structure is price variant and that there is no such a thing as “a natural rate of interest” –almost all economic schools agree on this point (McCullock, 1982). The term structure of usury rates is determined by the “turbulent equalization” of profit rates among “producers of finance”. In the Vodoo (and the classical) perspective the base interest rate is also seen as being determined by market competition. Assessments of risks associated with expectations thus play a crucial role in the determination of both base usury rates and the yield curve.

The non-efficiency of financial markets has been illustrated by the vigorously erratic movements of usury and gharar rates over long time periods – variations which reflect the predominance of irrational expectations in their determination (Shaikh, 2016, figure 10.8). Even assorting a direction of causation between usury and profit is problematic for in a capitalist economy causation runs both ways – that is why Sarrafa argues that “the profit rate (is) determined by the interest rate set by the Bank of England or the stock exchange” (1960, p. 33). Similarly the structure of usury rates has a bidirectional causation relationship with the demand for aggregate (real) output and credit demand. Without taking account of this bi-directional relationship between usury/gharar rates, profit, prices and expectations the simple minded Vodoo/IMF message is that the central bank will follow the market in the determination of the base rate. In the post-Keynesian view,while the central bank (should) arbitrarily determine the base rate the term structure of usury rates should be allowed to be determined (on the basis of the base rate) by the commercial banking system on the basis of thearbitrarily determined profit margins. Post-Keynesians see no objective basis for the determination for the base usury rate or for the structure of interest rates (Wray, 1990). It is thus abundantly clear that there is no “natural usury rate” even in a capitalist economy. Which market should the state bank follow in determining the base rate? In the Vodoo/IMF view it is of course the international market, highly monopolized and overwhelmed by arbitrary speculation and reflecting changes fundamentals of these metropolitan imperialist countries – Pakistan is almost an invisible player here and changes in Pakistani fundamentals play no role at all in effecting global usury and gharar rates. Tying the base rate to imperialist market rates is an effective means of abandoning even the base rate as policy instrument. It amounts to committing financial suicide. There is ample empirical proof that financial liberalization has seriously hurt poor countries (Prassad et al, 2002). Rigorous capital controls are also required to maintain the desired base rate for current account deficits put pressure on interest rate structures would only be effectively countered by the imposition of capital controls – as the Chinese experience of 2016/17 has shown. Depreciation of national currencies as response to imperialist market trends is also a major cause of usury structure vulnerability. Post-Keynesian recognize that market determined usury rate structures are pro-cyclical. Expectations play a key role in capitalist markets. A fear of financial distress triggers a flight of capital from financial to real assets, thus driving up the market usury rates precisely at a time when their lowering is desirable. Crisis proneness of the financial system of course increases with the endogenisation of money supply – reserve money (M0) is usually a small and falling component of monetary assets (M3). The IMF recommendation to drastically limit the issuance of reserve money is a recommendation for increasing the crisis proness of the Pakistani financial system and enhancing its vulnerability to international market shocks and disturbances. This also makes clear the fact that determination of usury rate structures is influenced by forces of the demand and supply of loanable funds.

Interest rate increases are expected to impact negatively on investment – the more the global Shylocks takes away from the gross profit of Pakistani business the less the incentive to plough in new money (given capitalist rationality). Pamico (1988) has shown how reducing M0 and raising the base rate would not only jack up the interest rate structure and the price (level, as liquidity discount vary) it would also lower the real wage rate – so that restrictive monetary policy imposes a wage loss on the mustadafeen. Jacking up interest rate structures is expected by the IMF to have a positive impact on the rate of profit – due to it negative impact on real wages. But if firms are heavily leveraged and have low ROA ratios – as is the case with regard to Pakistan’s textile and national chemical sector firms for such forms even the prime rate changed by banks on investment accounts may easily exceed the gross profit rate – interest rate increases will lead to bankruptcies and plant closure and massive unemployment. Since no such thing as a natural usury rate exists, the IMF’s recommendation of linking domestic usury structures to capricious global market rates may in Pakistan may well have a negative impact on both aggregate and average profitability. Even in “normal” times and circumstances it is impossible to determine the “right” proportionality of the usury rate to the gross profit rate. Emergent economies in general have avoided following restrictive monetary policies – thus Malaysia lowered the central bank usury rate in the wake of the 1997 crisis and embarked on a very liberal lending policy for Malaysian Development Berhad (IMDB). The Bank of South Korea responded to this crisis by offering low cost foreign loan guarantees worth $100 billion. The Korean government offered a further $50 billion in liquidity backstops. The Fed’s $50 billion swap loan extended to South Korea further enhanced liquidity. The American Fed has stuck to a low usury policy for 37 years – since Greenspan took office in 1982. Its minuscule usury rate increase during 2012-13 generated a “taper tantrum” throughout the capitalist world but has proved to be nothing more than “crying wolf”. Usury rates have been staying put in 2019 and the American president is screaming for their reduction. Everyone knows that a significant rise in the base rate will strangle the sickly global economic recovery that in 2019 is performing out in any case. During the “taper tantrum” of 2013-2016 there were frequent calls from Brazil, Indonesia, even China that the Fed should take account of the likely global impact of its interest rate policy. But of course the Fed is not a global central bank. It is a national central bank answerable to national political institutions – also it is a Master not the Slave of the IMF. IMF recommendations are the subject of j in Fed offices. The vulnerability of emergent markets’ financial systems to the usury shocks emanating from the Fed was graphically demonstrated during the taper tantrum year. What Morgan Stanley calls the fragile five economies – Brazil, India, Indonesia, South Africa and Turkey – are particularly vulnerable to global usury rate shocks – market usury rates were jacked up on a defensive measure in countries due to actual and anticipated global bond yields but they were also accompanied by the implementation of rigorous capital controls. Paradoxically contradictory to the IMF mantra, emergent markets with the strongest fundamentals and the most “efficient” financial systems (attracting billions of foreign capital inflows) suffered the greatest vulnerability so that talk of “building up of tremendous distortions in interest rates” was common not just in emergent markets but in America itself where the relationship between the Fed and leading market firms was seen to “increasingly resemble the contorted psycho drama of a risky marriage” – a marriage built on shaky foundations. At any moment the balance might be upset by a single policy shift or a market mood change. The consequences for the entire global economy may be deeply unpredictable (Tovre, 2018, 481-82).

Seeking refuge in swap arrangements was a typical response to fears of the slowdown of quantitative easing and the raising of interest rates by the Fed. In September 2013, India negotiated an increase in its swap loan arrangements from $10 billion to $15 billion from Japan. In December that year, Singapore, Thailand and Malaysia sought enhanced swap arrangements with Japan. Swap levels extension was seen as crucial to the growth stimulus effort. No “emergent economy of East Asia went begging bowl in hand to the IMF. The IMF did it not object to the pursuit of a lax monetary policy – usury rate suppression easing quantitative extension of swaps by the metropolitan capitalist countries or in the leading emergent economies in the post 2008 period. In 2016-17 it applauded the imposition of capital controls, the huge credit expansion and the maintenance of a new fixed exchange rate for the year by the Chinese government. In the eyes of the IMF never ending pursuit of a tight monetary policy is a recipe only for poor indebted countries for it ensures that this continue to enable them to supply Shylock with his pound of flesh. Central bank ‘independence’ is also strictly for poor indebted countries as the Creating Opportunities for Investors, Consumers and Entrepreneurs (Choice)Act of 2018 in the US has shown. This represents a significant dilution of the Dodd Frank legislation. The Choice Act is an all-outattack on the Fed’s autonomy and independence. Under the Act the US legislature demands total transparency of all Fed deliberations. It requires the Fed’s monitoring committees (FOMC) to declare a mathematical rule to justify its usury rate changes. Trump’s continued pressure on the Fed to reduce usury rates is indicative of the US government’s desire to totally subordinate the Fed to the legislature and the executive. “Independent” central banks are of course not independent at all. They are the tools used by global usury markets and imperialist governments to subject poor countries’ governments to subordinate their economies to the interests of imperialist forces. The monetary policy they articulate has the specific purpose of shoring up of the imperialist system. C.9. Exchange Rates Stable nominal exchange rates are essential for export success (Agorn and Thssee 1983). The “free market” has not been allowed to determine the exchange value of their currencies by Japan, South Korea, Taiwan, China and Malaysia during their periods of rigorous export growth. Financial liberalization leaves the real exchange rate at the mercy of fickle short term capital movements. Even minuscule movements in trade and capital flows can produce enormous unmanageable swings in the real exchange rate. As Saraffa has shown changes in the (intentional) relative prices of goods necessarily effect the relative costs of producing these goods. Hence comparative costs need not change in the “right” direction in response to changes into real exchange rates. Domestic productivity growth may not be responsive to real exchange rate variation. Moreover real exchange rate changes are responsive both to movements in the trade balance and the balance on the capital account. If they move in opposite direction movements in the real exchange rate as well as its macroeconomic impact becomes indeterminate.

With flexible (floating or managed) exchange rates national producers are forever confronted with arbitrary changes in their costs and prices in response to a constantly fluctuating exchange rate. National producers must continuously adjust their prices to remain competitive in global, national markets as the dollar values of exports and imports of international reserves and obligations changes from moment to moment. Moreover, in the case of an economy such as Pakistan, which is a miniscule player in global commodity, service and finance markets, variation in the “free” international valuation of its currency has no relation whatsoever to changes in domestic productivity. There is simply no natural relationship between national cost/price structures and a freely determined exchanged rate value of the Rupee. Purchasing power parity (PPP) theory on which Vodoo exchange rate theory is based in principle untestable because it assumes that the basketof consumer goods on the basis of which the estimates are constructed is the same in Pakistan as in its major trading partners (America, the EU, and the Gulf countries). It also assumes that the tradable to non-tradable price ratio is the same in Pakistan, America, the EU and Saudi Arabia and the UAE. These are manifestly absurd assumptions. Real exchange rate estimations are subject to very wide “spectaculative” fluctuation over both the short and the long run (Issard, 1995). This fluctuation is exacerbated because “free” or exchange rate variations stimulate short capital flight. This can have a disastrous impact on investment growth as it enhances both uncertainty and risk of putting in new money. The real exchange rate is effected by its fundamentals productivity growth within national economy (to which the IMF pays no attention at all in its recommendations) autonomous capital flow and the difference between the domestic usury rates and a average of trade and investor partner usury rates. While national productivity growth and price level may be amenable to national policy initiatives, control is surrendered to imperialism where averages of global interest rates and commodity prices are taken as a benchmark. Since the composition of the Pakistani price index is significantly different from that of its major trading partners, changes in the real exchange rate does not reflect changes in productivity levels within the national economy. Short term capital movements trigger real exchange rate movement and as Harrod pointed out more than sixty years ago, macroeconomic policy “adjustments” in response to real exchange rate variation may not reflect changes in the competition of the natural price indices or productivity growth variations in global and (globally determined) national usury rates and structures also exacerbate real exchange rates. Association of changes in the real exchange rate and labor productivity growth are extremely weak (Shaikh, 2016, p. 530-53). Real effective exchange rate variations are also caused by equity return differences between Pakistan and our major trading partners – this was graphically illustrated by the ten percent devaluation of the Indian Rupee during the “taper tantrum” period (2011-14).

Even if the Law of One Price (LOP) held at the individual commodity level Purchasing Power Parity at the aggregate level is necessarily violated because of the difference in the composition of the price basket and the ratio of tradable to non-tradable between Pakistan and her major trading partners. Variation in the real effective exchange rates is thus unlikely to be even an approximate measure of productivity growth of the Pakistani economy. The impact of national productivity growth on the real exchange rate is unidirectional. Changes in national productivity growth lower national costs of production (the leading example is that of China) thus affecting the real exchange rate. But there is no evidence to show that changes in the real exchange of enhances productivity growth. Nevertheless, unidirectional relationship between the real exchange rate and domestic cost structures illustrates that changes in the real exchange rate are rarely sufficient to connect correct balance of payment imbalances. Devaluation will not itself eliminate trade imbalances – especially in the case of Pakistan where the elasticity of the global demand for its exports is low. Exports have remained stagnant despite a near fifty percent devaluation of the Pakistani rupee during 2018-20. The near universal experience of most poor countries forced by the IMF to devalue has increased dependence on foreign debt capital. Depreciation of the exchange rate in the case of Pakistan reflects an increase in economic distress not an improvement in global competitiveness. Depressing real wages through devaluation tantamount to imposing the cost of adjusting the Pakistani economy in the interest of the imperialist capital markets on the mustadafeen and mukhlaseen-e-deen in Pakistan. The massive devaluation that occurred in the wake of the 2008 crisis in East Asia – between mid-2008 and mid-2009 when the Korean Won depreciated by 60 percent was countered by the imposition of strict capital controls, the injection of dollar liquidity and the desperate negotiation of swap loans with Japan and the Fed by the crisis stricken East Asian governments. China fixed its exchange rate in 1994 and since then has been pursuing a strict managed exchange rate policy tolerating only miniscule adjustments in the value of the Yuan despite immense American pressure. When the taper tantrum hit the Turkish economy in July 2013, Turkish president Tayyib Erdogan was in no doubt at all that the political turmoil it caused was a result of an international conspiracy – a conspiracy by foreign forces, bankers and international and local media outlets – long seeking regime change. Erdogan discussed the connection between Turkish private banks, international financial groups, Silicon Valley ruled social media (‘the internet lobby’) and Israel (Financial Times, 2013). The prime minister of Malaysia and the finance ministers of Indonesia and Brazil were in those days voicing similar concerns (in a low key) and demanding ‘clarification’ from the Fed as was China.

As Theresa Mar the British prime minister said in October 2016, “if you believe you are a citizen of the world you are a citizen of nowhere, you don’t understand citizenship” (The Times, 2016). The myth of “global citizenship is popularized by the agents of imperialism to legitimate a devaluation of citizenship rights and to transfer national sovereignty to global capital markets and imperialist armed forces. Maintaining national exchange rate stability over long periods of time through the imposition of rigorous capital controls and a targeted balance of trade policy is an essential weapon for safeguarding national sovereignty. The 2016 downturn in the Chinese economy and the associated financial sector imbalances were checked by the Chinese government’s successful intervention to prevent a further slide in the value of the Yuan, through the establishment of a new peg, the imposition of state capital controls and 20 percent reduction in China’s dollar reserves. C.10. Taxation and Fiscal Policy In capitalist countries the government (local, provincial, federal) enjoys a monopoly over taxation. Taxation is distasteful for the general public because in most capitalist economies for most of the time it is a means for transferring resources from the poor and the mustadafeen to capitalist elites who do everything in their power to resist and avoid taxation of their own resources. Capitalist governments therefore have a built in incentive for increasing “deficit financing” (the printing of fiat money and increased borrowing). Monetizing the public debt is a usual tactic employed by capitalist governments to stimulate the economy –and avoid taxation increases. Since May 2009, the US Fed has poured trillions of dollars into the financial system in this manner. This continued reliance of capitalist governments on borrowings and ‘deficit financing’ reflects the limits on taxable capacity that are very quickly approached in capitalist fiscal and financial systems. Trump’s highly popular cutting of (corporate) taxes in 2017-18 shows that even in America national taxable capacity is being exhausted. The IMF suggests that monetizing the public debt will necessarily fuel inflation – this is blatantly false specially in Pakistan where inflation in supply side phenomenon the post 2009 experiences of the United States, the EU and Japan Shows that during the last decade despite massive public debt monetization inflation has been avoided by a suppression of real wages. But authors of the “Modern Charterlist Schools” argue that expanding government expenditure need not lead to inflation or declining real wages. In their view if the government directly employs all the labor the private sector cannot at a fixed money wage – the state acting as an employer of the last resort (ELR) – it could ensue both full employment and price stability. Further there is no evidence in the case of the Pakistani economy of public investment “crowding out” private investment. Quite the contrary, the elasticity of private to public investment in Pakistan is significantly private and relatively high (Zaidi, 2009).

Historically, increased taxes have been a means for reducing effective demand of the poor and the mustadafeen, not of the rich elites and corporations. Contrary to IMF advice, Bell (2000) suggests that reducing commercial – rather than central bank – borrowing by the government can have a stabilizing effect on the economy as it reduces bank reserves and supposedly induces a downward revision of the usury rate structures. Monetizing the public debt can be a means for ensuring full employment and stability of prices provided that the State Bank acts as an accommodative agency of the state – and not as a hireling of imperialist financial markets. The IMF conception of “responsible” fiscal management is rooted in a vision of globally integrated perfectly competitive markets which almost instantly adjust producing full employment and stable price and usury structures as government interference. In money and credit creation, price determination and trade protection is reduced. The IMF knows very well that this vision is an idiot’s dream but it continues to propagandize this narrative in order to conceal the vicious competition and the arbitrary political determination of market outputs that is routinely generated by global capitalist functionings.Immiserising the mustadafeen in countries such as Pakistan is a sought after objective of imperialist sponsored fiscal management strategy. Reducing budget deficit measures has historically laid the burden of fiscal adjustment on the poor and the mustadafeen. Both increased indirect taxation and reduced public expenditure have been employed to achieve this purpose the “Laffer Curve” myth – that lower tax rates yield greater aggregate revenue – is of course nonsense. “Expanding the tax base” is a means for torturing the mustadafeen, especially small businesses making the living of halal rizq more and more difficult. The collapse of small businesses generated by tax base widening inducing measures clear the ground for increased monopolization of the economy by multinational corporations, global finance and big businesses. Cutting back public expenditure during an economic slowdown is asking for trouble. Government spending plays a major role in speeding up recovery. The most positive impact of public funding on economic growth is realized when the government directly employs people in the manufacturing and the public service sectors – as the experience of the US in the past Great Depression and that of Britain during 1945-51 has shown. Expanding military expenditure – provided it is domestically integrated and not predominantly externally sourced – has also been a major historical stimulant. During 1943-1945 the American budget deficit averaged 25 percent of GDP and the economy grew strongly. The experience of the post 2008 period is that when government expenditure was directed toward banks and corporations, this did not adequately influence growth of investment and output. These funds have usually been sequestered. Banks have used them to pay off debts, build up portfolios and corporations have held on to them as safe hoards. When the government directly provided employment (Britain 1945, America 1934-37) consumer spending boomed and the economy was stablised.

The IMF is ideologically based against public employment growth. Such programs are essential for stimulating labor productivity growth especially through the channeling of public investment in technology intensive ‘capital goods’ enterprises. It is significant that the words ‘productivity growth’ do not occur in the IMF’s EFF 2019-23 documentation. This is because as the experience of most poor countries shows productivity growth occurs over very long periods and in any case as immersing – i.e. real wage depressing – process. Especially in a war economy the government must govern the market to stimulate both productivity and profitability. This is also true in times of economic slowdown. During the 2008-10 period, tax rates were cut in Indonesia and government revenue fell despite this public budget deficit rose. In Malaysia in spring 2019 a government stimulus of $1.4 billion was provided for the economy. This stimulus included both tax cuts and the provision of credit guarantees. In October 2008 the South Korean government provided a $50 billion fund for restructuring non-performing loans and a $31.3 billion bond market stabilization fund. The government launched a gigantic $94 billion construction program for the period 2009-13 including large investments in nuclear power, the railways system and the $15 billion for Four Major Rivers Restoration Project. The London G20 meeting of 2010 estimated that a total of $5 trillion stimulus spending was required to offset the economic downturn. During 2008-10 a total $10.9 trillion was spent through discretionary spending and tax measures in the 20 OECD countries – Brazil spent nearly $30 billion in its 2008-10 stimulus package, India over $25 billion, Indonesia $12 billion, Saudi Arabia $45 billion and China $340 billion (IMF, 2010). Asian countries share of global stimulus spending during 2008-10 was estimated at about a third (31.8%) of the total. The periodic QE measures of US and European central banks provided strong fiscal stimulus to these economies. Trump is also an enthusiastic tax cutter and the Troubled Asset Relief (TARP) program initiated by Obama remains effectively operative under Trump. The US Fed has been mandated since the time of Jimmy Carter to achieve full employment and it is in pursuit of this target that the Fed balance sheet expanded to $4.6 trillion in 2010. QEs are designed to achieve this purpose. The American deficit contrr to balloon in the Trump years. The tax cuts of 2017 and 2018 threaten to add $1.5 trillion to the national debt since the anticipated expenditure cuts following the tax cuts have not been instituted. American public debt will also soar because Trump plans to increase expenditure in the army and the navy. He plans to spend an estimated $700 billion for this purpose during 2017-2027. His tax cuts mean that the federal tax share of American GDP could fall to 17 percent. The total stimulus for military expansion during 2017-27 is expected to be $104 trillion. In 2016 China also launched a massive fiscal stimulus and credit expansion programs to stave off a crisis in domestic demand. Interestingly the Davos meeting – and the IMF representative at this meeting – in 2017 loudly applauded China’s stimulus providing initiatives as being extended to stave off another global economic downturn. It is certain that as the US-China trade war heats up the Chinese government will resort to massive fiscal injections into the economy to stimulate domestic demand.

Integrating into a slowly stagnating financially vulnerable and crisis prone global economy is highly risky for poor countries. Even Brazil, Russia, South Africa and Turkey have suffered major shocks from the post 2008 upheavals in global financial and commodity markets – oil exporters have been particularly hard hit, global shocks transmit suddenly and unexpectedly. Global integration produces sudden ruptures that cannot be anticipated or forecast and which are deeply complex. Many such rupublics demand urgent policy mediations but as the level of global integration of a small poor economy increases, its policymakers’ ability to respond to global shocks is methodically reduced. The global economy is a social formation, overwhelmingly dominated by the political, economic and technological forces of global capital. Integrating poor countries to this malicious, malevolent and malfunctioning network is a means for depriving them of their national sovereignty and making them subservient to capitalist imperialism. Breaking free of this imperialist stranglehold is both possible and necessary for Pakistan. D. the IMF’s EFF (2019-23) Program The eclectic critique of Vodoo theory presented in the section C enables us to identify assumptions underlying the current EFF. D.1. Assumptions of the EFF The global economy will not experience slowdown or stagnation during the Program period or in its (at least) immediate aftermath. Global markets – commodity, financial and services – continue to function perfectly or at least that the price and output structures generated by the functioning of global markets strictly mimics of non-existent theoretically assumed perfect markets. Market and macroeconomic “equilibrium” are stable over time and/or on a steady state growth path – it is not a turbulent, violent, unpredictable never-ending process that provides no basis for the articulation of policies that requireaugmentation of national sovereignty. Capitalist competition is a gentle, law and reason governed process, not a vicious dog eat dog struggle for slaughtering the weak and accentuating monopolistic market control. Capitalist (utility/profit maximization) individuality is universally dominant and capitalist rationality universally valid. The ongoing struggle to subject the global economic order to American national order – the struggle between neoliberalism and paleoconservatism – will not effect its existing systems of market governance and organization. Economic wellbeing is served by the marketization of social order. Marketization of society requires a de-sovereignization of states (except America) by subjecting them to the will (political and financial) of capital and by increasing their surveillance capacity to monitor, punish, frustrate and inhibit social and economic practices which seek to circumvent imperialist hegemony. Regulatory processes designed to achieve state de-sovereignization will not be subject to capture by social forces that resist national state de-sovereignization.

The implementation of state de-sovereignization policies is compatible with the flourishing of democracy (especially at the local level) in subordinated states. By adopting neoliberal policies de-sovereignised states will automatically absorb all shocks emanating from autonomous changes in imperialist political strategies and global financial and commodity market contigencies. The tax capability of most poor states (especially Pakistan) has been grossly under exploited during the “pre-reform” period. Tax revenues from poor economies will not be channeled to meet the credit needs of major global market players. Foreign debt (and associated debt service payments) of poor countries is not continuingly increased due to the pressure and operations of global capital and money markets. Retaining and strengthening domestic and global creditor confidence should be the prime determinant of de-sovereignizing state macro policy. Processes of price setting in global bond, loan and currency markets are competitive mimicking “perfect” market practices. The domination of financial markets by a handful of secretive oligopolistic conglomerations does not distort “perfectly” competitive price structures. Policies for improving debt servicing capability will necessarily have a positive impact on GDP growth. There exists a “representative” individual who aggregates the supply and demand responses of all economic agents so that the macro economy is solidly grounded on hedonistic utilitarian micro foundations. Autonomous changes in money demand do not impact positively on output growth but only lead to an increase in the price level. Expectations are “rational” adequately forecastable and based on (near) perfect knowledge implying that market related information is a free good. Capital and money markets function “efficiently” and the shock adjustment period is instantaneous or at least very short. System endogenous adjustment of interest rate structure (the central bank basic rate) following market trends is sufficient to quickly restore full employment and realise potential output. Capitalist crises are always caused by “government failure” to submit to market discipline and that these crises are self-correcting – anti-cyclical policy measures worsens these crises. Inflation is necessarily a demand side phenomenon. Free trade and state unimpeded access to financial markets benefits all participating countries at all times. Allowing markets to function freely will produce steady state growth and economic variables will in the short run not overshoot or undershoot their “equilibrium” value. Monopolistic/oligopolistic domination of markets does not lead to a systemic distancing of prices from their potentialy competitive values even in the short run. Financial markets are driven by rational expectations - financial markets are “efficient” in that they generate mimicked competitive prices. The operation of free commodity and financial markets automatically generates the realization of potential output and full employment equilibrium and allocates reserves both efficiently and equitably.

Increasing exposure to global financial and commodity markets enhances the efficiency and equity of national market transactions. The episodic dismantling of global trade and financial systems by the Trump administration (and the retaliatory responses of China and the EU) make no difference to the efficiency and equity of the operation of the markets nor does it reduce the benefit of integrating with them in the national economies of poor countries. Competition does not lead to continuous disorderly fluctuations in prices. Increase in factor productivity of a firm does not affect its price setting capability in competitive markets. Arbitrary monopolistic markup is not added to prices. Demand structures in global markets are not oligopolistic with a few major buyers dominating and prices are never “administered”. Sustainable export growth does not require successful import substitution and the practice of targeted, discriminatory trade and exchange rate policies. Depressing national real wages is the only way to stimulate productivity growth and thus achieve enhanced competitiveness in global markets. Globalization does not require a continuation of the massacre, slaughter and genocide that has characterized its history – Red Indians, Vietnam, Afghanistan, Syria, Iraq, Palestine, Nicaragua, Libya, Mali – destruction of the power of non-metropolitan countries and transfer of economic resources from them to capitalist centers (Europe, America, China) through unequal exchange mechanisms. State policies designed to promote import substituting industrialization, targeted protection and technological and managerial skill upgrade induce productivity growth and market competitiveness are harmful. The growth and stability of the global economy is not highly dependent on (and vulnerable to) changes in the policies of the metropolitan countries (especially America and China). The globalized world is ruled by markets not by imperialist governments. The globalized economy is not politicized. Globalization is not an artifact of legislation and political construction deliberately crafted to serve the interests of the imperialist countries. The IMF is not an instrument of global financial diplomacy –a sub-office of the US State Department. Trade and financial liberalization does not erode the national sovereignty anddoes not increase vulnerability to export demand downturns, import price escalations and foreign exchange and interest rate shocks. State subsidization and support is not necessary for overcoming crises and extension of global swap loans have not deliberately been extended by American and Japan to bolster up the state support effort in emergent economies. It is not the standard policy of all capitalist governments to heavily intervene in markets to stave of recurrent capitalist crises. The economic success of ‘open’ poor economies is not highly vulnerable to commodity price shocks. Financial liberalisation and dependence on global interest rates does not lead to massive capital flight from poor countries.

The IMF has not supported state intervention in markets and imposition of capital controls by China, South Korea, Brazil, Malaysia and Indonesia in the wake of the 2008 crises and in 2017 and 2018. Vodoo theoretical and policy programs are not employed principally by imperialism to justify victimization of poor countries. They do not provide a basis for contra cyclical management policies adopted by the imperialist countries themselves. The aggregate supply curve is invariant to changes in money demand. The movement of the aggregate supply curve to the right is determined by autonomous technological changes and polices that “get prices right”. Autonomous money demand expansion leads only to pressure on prices. The “right prices” are those with which imperialist financial and commodity markets confront poor countries. “Stability” can only be achieved in poor countries by submitting to the discipline of global markets and the imperialist policymakers who dominate these markets. Market determined ‘equilibrium’ generated by the pure interaction of market forces generates full employment and potential output levels. Market disequilibrium are quickly corrected by the independent movements of aggregate supply and demand which ensure a recovery of full employment/ potential output in an unspecified “short run”. Autonomous – especially state – investment growth cannot cause realization of potential output. Interest rates are not see a cost of production, monetary policy initiatives (lowering interest rates) cannot stimulate an increase in profits and or influence prices. The impact of rising debt (both public and private) on profits and prices is also ignored. Role of expectations in influencing investment and hoarding decisions is also ignored. Saving always “adjusts” to investment and the saving rates does not depend on investment. The relationship between savings and investment is unidirectional not bidirectional. Savings are undertaken mainly by households – and not primarily by the government or the corporate sectors. The central bank base rate should follow the market loan and deposit rate trends. These are determined by the difference between the usury/gharar earnings of banks and their cost of production of finance. The reserve ratio – the ratio of reserves to deposits – and the loan ratio – the ratio of loans to deposits – should also be set by the banks (not the central banks) on the basis of the average profitability of the banking sector. The production of finance is a non-capitalist activity. Monopolistic tendencies do not affect interest/deposit/loan rate setting policies of the banking sector. The role of expectations and speculation in the setting of usury and gharar (stocks and bonds) transactions is ignored as is the relationship between expectations and market fundamentals. The possibility of usury/ghararrates overshooting profit rates (due to monopolistic pricing of finance or ‘rational expectations’) is not recognized. This may lead to large scale bankruptcies.

Bidirectional causality in the determination of interest and profit rates is not recognized nor is the bidirectional causation relationship between the structure of usury rates with aggregate demand or credit demand recognized. The State Bank should follow the highly monopolized speculation ridden driven by metropolitan marketfundamental, global markets(in which Pakistan is almost invisible) in setting the Pakistani ‘base rates’. In the case of Pakistan capital controls are not required to reduce the balance of payments deficits. Market determined usury rate fluctuations can never be pro-cyclical. While M1, and M3 are endogenous MO is exogenously determined by the State Bank. There is no recognition of the impact of usury rate increases on the real wage rate – especially the highly negative impact of restricting MO growth on real wages. It can also negatively impact upon employment growth. The IMF model provides no justification of the fact that emergent economies have generally avoided following restrictionist monetary policies as has America and the EU and there is a global consensus that raising of interest rates will lead to a petering out of the sluggish global recovery that occurred in 2016/2017. That the US Fed takes account of the impacts of its monetary policy changes on the economies of the poor countries. That contrary to the experience of the major emergent economies which suffered the greatest shocks during 2008-2010 and (anticipated) shocks during 2013-16 strengthening financial systems will reduce global financial vulnerability. The talk of “building up distortions in interest rate structures” was not common in both metropolitan and emergent markets during 2013-16. The relationship between the Fed and major global market players does not reflect a “rocky marriage” – a marriage built upon shaking foundations subject to unpredictable policy and market mood shocks. Swap arrangements have not been widely used by emergent markets as defensive mechanisms for warding off global financial shocks. No explanation is offered for the fact that the IMFdid not object to the pursuit of a lax monetary policy – QE, interest rate suppression, extension of subsidies, imposition of capital controls during 2008-2019 by metropolitan and emergent economies countries. The imposition of restrictionist monetary policy is essentially a means for enabling poor countries to continue to give Shylock his pound of flesh and that the associated talk of “structural change” is merely a false cover for this. The proposed enhancement of the ‘independence’ of the State Bank is anything other than an attempt to subordinate it to international capital and money markets and the decision of the Fed. Stable nominal exchange rates are not required for export success. State management of exchange rate has not been standard policy in emergent economies during periods of rapid export growth. Liberalization does not leave the real exchange rate at the mercy of volatile short term capital movements.

There is no necessary link between changes in real exchange rates and changes in comparative costs. Domestic cost structures always change in the “right” directions in response to changes in the real exchange rates. Price/ wage ‘stickiness’ does not exist. Domestic productivity growth is always responsive to changes in real exchange rates. The macro-economic impact of real exchange rate changes is never indeterminate. Continuing adjustment to fluctuations in real exchange rate (to import and export prices and values of capital receipts and obligation) does not increase the volatility of domestic cost and revenue structure. Despite the fact that Pakistan is a miniscule player in global markets changes in its REER fully reflect changes in factor productivity within the Pakistani economy. The commodity consumption of the Pakistani price basket and the tradable/non-tradable mix of its output is identical to that of its major economic partners – USA, Europe, Saudi Arabia and the UAE. Non FATF capital flight is not a problem and capital controls should be avoided. Variation in global usury rates as they affect Pakistan’s REER are always beneficial and the fact that the Pakistani government cannot influence them need not be taken into account in adjusting our macro-economy to continuing fluctuations in REER. Similarly account need not be taken of the adverse impact of commodity prices – such adverse impacts simply cannot exist. Determination of national usury and price structures does not increase REER fluctuations. Fluctuations in relative equity rates do not intensify REER fluctuations. The Purchasing Power Parity doctrine holds for transactions between Pakistan and her global partners. Currency depreciation (in accordance with variations in the effective exchange rate) is enough to correct balance of payment deficit. Price elasticity of the demand for Pakistani exports is such that devaluation in accordance with real exchange rate movements can eliminate trade imbalances. Accelerated depreciation does not lead to increased dependence on foreign debt. The necessary real wage depressing impact of devaluation is not recognized. Capital controls and extension of swap loans are not necessary for arresting whole scale currency devaluation. International financers, imperialist governments and local banks and media groups never combine to create currency collapse in order to achieve regime change as they did recently in Turkey, Brazil and Venezuela. Reducing tax rates will increase aggregate tax revenue (the Laffer effect). Monetization of the public debt is not necessary for stimulating the economy. Pakistani taxation capability is far in excess of existing taxation levels. Monetizing the public debt will necessarily fuel inflation while raising taxation to pay off foreign debt will not. Does not explain how and why massive monetization of public debt by the US, EU, China and Japan did not lead to inflation during 2008-2019. If the government acts as ‘employer of the last resort’ (the new Chartist view) it can avoid both unemployment and inflation.

Public investment “crowds out” private investment. Increased taxation will not increase the maldistribution of income and lower the real wage rate. Switching from central to commercial bank borrowing by the government will not have an inflationary impact. Widening the tax base is not a means for making the earning of Halal rizq more and more difficult and increased monopolization of the economy. Increasing defense expenditure has a negative impact on growth. Public investment growth (especially in heavy industries) is not necessary for stimulating factor productivity growth. Global economic shocks do not transmit to poor economies suddenly and unexpectedly. Integration into global markets does not reduce the power of poor countries to react efficiently to unexpected, unforecastable global market shocks. The global economy is not overwhelmingly dominated by the political, financial and technological powers of the imperialist countries. Altogether there are 115 assumptions which break down as follows: False:1, 2, 3, 4, 11, 13, 14, 16, 18, 20, 21, 23, 24, 25, 26, 27, 28, 29, 31, 32, 33, 35, 36, 37, 39, 40, 41, 42, 43, 44, 45, 46,49, 50, 52, 53, 54, 57, 58, 60, 61, 62, 63, 64, 65, 68, 70, 74, 75, 76, 80, 81, 82, 85, 86, 87, 88, 89, 91, 93, 94, 96, 98, 101, 102, 104, 107, 108, 110, 112, 113, 114, 115 Not verified: 6, 8, 10, 12, 17, 19, 22, 30, 34, 46, 48, 67, 72, 73, 79, 83, 90, 95, 99, 100, 103, 106, 109, 111 Untestable Ideological: 5, 7, 15, 55, 59, 51, 105 Thus about two thirds percent of these assumptions are manifestly false. It is clear that the global capitalist system does not function in accordance with thepresumptions underlying IMF’s EFF (2019-2023). Another (6 percent) are ideological and in principle not verifiable. 22 percent are verifiable but contrary evidence has been produced sometimes they hold, sometimes they do not. Thus an over whelming Kropation of the presumptions underlying the IMF projections are open to very serious doubt. This illustrates that the IMF programme is premised on extremely shaky theoretical foundations. It is premised on a deliberate misunderstanding – with intention to deceive – of the functioning of global capitalist economy. The programme may succeed in that Pakistan is continuously able to pay Shylock his pound of flesh – but the chances of its success in ensuring sustainable growth of the Pakistani economy are non-existenal. Playing along with the IMF amounts to committing national suicide. D.2. The IMF’s EFF 2019-23 D.2.1. Stated Objectives The stated objectives of the failed IMF’s EFF 2013-16 and that of the current EFF 2019-23 are almost similar. These are of course not the real objectives of these programmes – the real unstated objective is to ensure that Pakistan continues to pay Shylock his pound of flesh regularly (does not default). In this respect only has EFF 2013-16 has been successful and the EFF 2019-23 program may also succeed in this respect. In all other respects EFF 2019-23 will like EFF 2013-16 certainly fail in achieving any of its stated objectives. These objective have been extracted from two documents IMF Country Report No. 19/21 and IMF Country Report No. 13/287.

Both the failed EFF 2013-16 and the current EFF are ostensibly committed to the achievement of the following short and medium term objectives: Reduce the risk of a short term crisis (i.e. the possibility of an international debt default) In the medium term achieve high and more inclusive growth Fiscal consolidation – i.e. reduction of the primary fiscal deficit (exclusive of payments to domestic and global Shylocks) Jacking up of energy prices Reorienting monetary policy to build up international reserves Jacking up of taxation revenue Liberalize the trade regime Privatizing public enterprise Central bank independence – i.e. subservience to global capital markets and the Fed. In addition EFF 2019-23 includes the following objectives: The operation of a flexible market based exchange rate regime Strengthen economic management systems and institutions and subordinate commitment to the implementation of the fiscal consolidation programme Provision of measures for empowerment of women to ensure defeminisation of Pakistani society Eliminate central bank financing of the fiscal deficit Ensure strict compliance with FATF qualification criteria It is clear that Vodoo economics inspires the macroeconomic framework of both the failed EFF 2013-16 and EFF 2019-23. Like the American military, EFF 2019-23 asks Pakistan to “do more”, do more to accentuate the process of de-sovereignization of the Pakistani state, do more to submit to imperialist hegemony. D.2.2. Upfront Measures The IMF commands to “do more” to subordinate Pakistan to imperialist dictates is evident from the “upfront” actions of our governments to persuade the IMF to initiate these programmes. Upfront measures (those which the government implemented prior to the launch of the EFFs) for the EFF 2013-16: are Increased aggregate tax revenue by anticipated receipts 0.75 percent of GDP achieved by an increase in the GST rate, higher personal income tax rates, higher excesses, increase in withholding tax rates. Imposition of a new gas levy Periodic increase in electricity prices Imposition of a new levy on movable assets Reduction in subsidies on electricity Reduction in ministries non-wage current expenditure Reduction in public capital spending Include 300,000 new tax payers in the tax base Increase in risk based tax audit To build up reserves SBP purchased $125 billion in the interbank market by July 2013 SBP to ensure that all banks achieve capital adequacy benchmark ratios by December 2013 Commitment to pay of Rs.503 billion of circular debt to energy companies by August 2013, Rs.342 trillion paid of by end June 2019. Determination of base tariff rate by NEPRA reduced to 90 days Commitment to transfer to private management of DISCO and NTDC by December 2013 Commercialization of WAPDA and introduction of “competitive” pricing and direct contracting between power producers and direct electricity producers Periodic increase in gas tariff Modification of tariff structure by December 2013 and phase out of trade SROs by June 2014 Extending to India, most favored nation trading status

Plan full privatizing/restructuring 30 public sector firms to be finalized by September 2013 Part privatization of PIA by December 2013 and a large scale retrenchment of PIA employees by June 2014- PIA by which time 26 percent of shares will be sold to private investors Agreement to privatize several other enterprises in the financial sector (all three government owned banks except NBP) and energy sector. Transaction advisors to be hired by December 2013. Minority share of two blue chip government companies also to be sold Upfront measures of the EFF 2019-23 programme are as follows: The 2019-20 federal budget was designed strictly in accordance with IMF instructions Commitment to maintaining a flexible market determined exchange rate; in effect tolerate continuous depreciation of the Pakistani Rupee which increased throughout the post Ishaq Dar period Dismissal of the incumbent state bank governor and the federal minister of finance and the appointment of IMF hireling Raza Baqir and Hafiz Shaikh in their place Dismissal of the FBR Chief and appointment of the IMF nominee Shabbar Zaidi in his place Budget 2019-20 envisages a reduction of the non-usury related (primay) budget deficit to 0.6 percent of GDP from 1.8 percent of GDP in 2018-19 Tax exemptions of exportable sectors withdrawn Sales tax on petroleum products Preferential taxes for sugar, steel, edible oil, medium and large retailers abolished and GST 17 percent tax rate imposed Income tax threshold reduced Commitment to increase tax base to eliminate halal rizq through intensified state persecutions Tax rate for top income groups increased Withholding tax on telecom services introduced Credit available for machinery imports “rationalized” i.e reduced Higher federal excise duties levied on cement, cigarette and soft drinks Customs duty rates on import of liquefied natural gas (LNG) and luxury goods Cap on wages of federal and provincial government employees Increase budgetary expenditure on BISP by 0.4 percent of GDP in FY 19/20 Commitment to create a Pakistan Infrastructure Bank under the surveillance of imperialist financial agencies Commitment to lengthen the maturity of domestice public debt Signing of a formal written agreement between the federal and provincial governments endorsing the IMF imposed fiscal strategy. Detailed provincial revenue and surplus targets have been agreed upon for FY 2020. The anticipated NFA will be subject to these agreements and associated targets (This shows that despite its clamor against rising prices and growing unemployment the People’s Party ruling Sindh fully supports the IMF’s EFF programme. This is because like all other secular parties in Pakistan it is an imperialist pawn.) Provision of Rs.1,000 ($6) to every recipient of the BISP during FY2020 Launching financial inclusive programme for women in banks to accelerate social de-feminisation by October 2019 Subjecting BISP financing to donor surveillance Commitment that SBP intervention in the foreign exchange market will be limited and will be subservient to imperialist capital and currency market trends.

SBP’s policy rate increased by over 250 percent before start of IMF’s EFF. Commitment to seek policy rate above inflation (i.e. in double figure) through FY 2020 End central bank financing of the budget deficit Amend the SBP Act by December 2019 to subject it completely to imperialist surveillance and governance Lengthen the service tenure term of the IMF stooge – Raza Baqir – the governor imposed upon SBP in May 2019 from three to six years Commitment to relax exchange restriction (i.e. capital controls), remove the requirement to fully prefund letters of credit and the requirement to restrict advance payments on imports against LOC or impose any other import restriction during FY 2019/20 By August 2019, identify “terror” financing risks, complete cash assessment, impose financial sanctions as mandated by the imperialist powers, apply risk based financial supervision of financial institutions and demonstrate enforcement of violation of imperialist import sanctions Increased electricity tariff by 10 percent in July 2019, further increase introduced in August 2019. Commitment to continuously raise electricity rates on a quarterly basis throughout FY2020 IMF to develop a circular debt reduction policy which the government will introduce during FY20 Introduction of automatically quarterly energy prices increase Gas tariff increase from July 2019 and amendment of OGDA Act by December 2019 to speed up mobilization of automatic periodic tariff increase Commitment to privatize profit making state enterprises Attempt to privatize public enterprises in power, banking and hotel sector during FY20 and to sell off government minority shares in a petroleum firm Develop a comprehensive list of public companies to be privatized and/or liquidated by September 2020 PIA and Pakistan Steel Mills to be subjected to imperialist auditor surveillance (who will in effect conduct due diligence exercises) by December 2019 IMF will prepare a new law for state owned enterprises for promulgation by September 2020 The IMF will also determine the constitution and operational procedure of, a state holding company to be established in FY2020. This holding company will restructure and rehabilitate Pakistani state enterprises so that they can be sold off to the imperialists The programme also facilitates Indian sabotage as there is a commitment to “improve” trading across borders by “liberalizing” administrative procedure This is a draconian list. It illustrates that following Nawaz Sharif’s footsteps Imran Khan surrendered national sovereignty to the imperialists and their agents most abjectly in 2019 – and had been preparing to do this from the day he took office in August 2018 (or perhaps even earlier). Despite this abject surrender the IMF does not trust him and has devised a strict system of surveillance and espionage to ensure that its commands are obeyed to the best of its servants’ abilities. This is evident from the surveillance mechanisms were structured into the programme. D.3. IMF Surveillance and Espionage Mechanisms

Most of the IMF’s surveillance and espionage mechanisms are identified in the Technical Memorandum of Understanding included in the EFF agreement but they exclude the two most important IMF initiatives in this regard. Below we list the surveillance and espionage mechanisms that the IMF has crafted to ensure the implementation of the EFF. The dismissal of the minister of finance and the SBP governor who had lead the negotiations with the IMF during November 2018 to May 2019. This meant that the Pakistan brief to these negotiations was contemptuously discarded and the IMF staff dictated the terms of the Agreement. The appointment of IMF quisling hireling Raza Baqar and IMF fellow travelers quislings Hafeez Shaikh and Shabbar Zaidi as governor SBP, Federal Minister of Finance and Economic Affairs and Chairman FBR respectively. This amounts to a total surrender of Pakistan’s economic policymaking process to the imperialists. Baqar, Shaikh and Zaidi are primarily answerable to the IMF not to the Pakistani government. Their mandate is to ensure that the commands of their imperialist masters are obeyed and these commands take precedence over all other obligations of the Pakistani government. The programme is subject to quarterly reviews, the meeting of quarterly performance criteria and continuous performance criteria Establishment of an agreement between the IMF on the one hand and the SBP and Ministry of Finance on the other to monitor the use of IMF funds for budget support. Principally these funds will be used for paying of the foreign principle and usury obligations on the fiscal current account. The Technical Memorandum of Understanding describes in detail how the implementation of the quarterly and continuous targets will be assessed. Definitions are established for measurement of Net International Reserves of SBP (NIR), Gross International Reserves of SBP, Reserve related liabilities of the SBP, gross sale of foreign exchange, aggregate net reserve in foreign exchange derivatives, net purchase of foreign exchange, net domestic assets (NDA) of SBP, reserve money (MO), stock of net foreign currency swaps, general government budget deficit, net external financing, change in net domestic credit from the banking sector, change in net domestic non-banking financing, primary budget deficit, net external budget financing, net government budgetary borrowing from SBP, liability management operation, cash transfer (BISP)’s pending, FBR net tax revenue, net accumulation of tax refund arrears, power sector payment arrears, and electricity tariff pricing formulas. Data to be continually supplied to the IMF on a daily, weekly, fortnightly, monthly and annual basis throughout the programme period is as follows. Daily: international reserves, SBP swap operation Interbank rapo volume and usury rate Weekly: SBP balance sheet summary SBP repo and open market operations Fortnightly: Bank excess reserves in local currency T. Bill and bond operations Monthly: Consolidated balance sheet of commercial banks

Weighted average of exchange rates Term breakdown of swap/forward contracts Outstanding, swap/forward transactions Sectorial distribution of loans and deposits Capital adequacy ratios of all financial institutions Banks’ net foreign exchange position Workers’ remittances Detailed BOT Disbursement and outstanding stock of government debt State of the federal budget (actual) Detailed financing plan for the country for the next 12 months Total general government spending Detailed price index Index of core inflation Total revenue collection Quarterly: Net international reserves Net foreign financing Bank loan maturities Banking sector core financial liability indicators Results of banks’ stress tests Privatization receipts Foreign assistance received State of government borrowing State of government SBP borrowing GST refunds data Number of taxpayers Detailed data on value of imports and duty paid Company audit data Detailed power sector statistics Detailed DISCO statistics Energy arrears UFC losses BISP cash transfers Ministry of Finance financial statement including cash flow, income statement and operational indicators for PIA, Pakistan Steel Mills and Pakistan Railways Annual: Notified relevant legislation enacted Consolidated general government (federal and provincial) budget This is a comprehensive list for total sabotaging of the Pakistani economy by the imperialists. The definitions and methods of measurement of programme variables are all in accord with IMF standards and no account is taken of deviation from Pakistani definitions and methods of measurement of these items. Assessing programme implementation on these bases tantamounts to assessing Pakistan’s complete transformation into a vassal imperialist economy totally devoid of any elements, whatsoever, of its national sovereignty. Our key policymaking institutions – the State Bank, the federal ministry of finance, provincial departments of finance, the federal board of revenue and the ministries of petroleum, water and power have become pawns and clerks serving the IMF and reporting compliance to its draconian policy directives on a daily, weekly, fortnightly, monthly, quarterly and annual bases – all for a meager $6 billion. D.4. IMF Policies The IMF macroeconomic framework anticipates real GDP growth to decline to 2.4 percent in FY20, equal 3 percent in FY21 and rise to 5 percent in FY2022/23 – average GDP growth during the EFF programme period is thus expected to be 3.6 percent. During the previous four year FY2016 to FY2019 GDP grew by 4.8 percent average annually – thus GDP growth rate is expected to be cut by a quarter during the programme period in contrast with medium term trends. The inflation rate is expected to be 13 percent in FY20, 8.3 percent in FY21 and fall to 5 percent by end of the programme period. Inflation during the programme period is expected to average 8.1 percent as against 4.6 percent during the previous three years – thus inflation is expected to double during the programme period as compared to medium term trends. No estimates/forecasts have been provided by the IMF for REER but given that an 8 percent inflation rate is likely to be almost three times higher for Pakistan’s in comparison with major trading partners,the market driven nominal exchange rate is sure to depreciate significantly during the programme period.

Gross capital formation is expected to decline to 14.7 percent of GDP in FY20 and to average 15.6 percent over the programme period down from 16 percent during the previous four years – a decline in the investment/GDP ratio of about 4 percent. Government gross capital formation stagnates at 3.6 percent during the programme period. Government saving is expected to average just 2.6 percent of GDP during the programme period. Total national savings are expected to average 14 percent of GDP during FY20 to FY23, one of the lowest saving ratios,in Asian Government sector saving is anticipated to average minus 4.2 of GDP despite a massive increase in tax revenue which is expected to increase from 12.6 percent of GDP in FY19 to 17.6 percent of GDP by FY23 – a near 40 percent increase in this ratio. Development expenditure is expected to fall from 4.2 percent in Nawaz Sharif’s last year of office to 3.3 percent of GDP in FY20 and to average 3.6 percent of GDP during the programme period. Current expenditure will decrease from 27.1 percent of GDP in FY19 to 23.4 percent in FY20 and average 22.9 percent of GDP during the programme period – not significantly different is a ratio from that of the previous three years. Primary fiscal balance is expected to increase from minus 1.6 percent of GDP in FY19 to as high as 2.7 percent of GDP by FY23. While the overall fiscal balance is expected to remain negative averaging minus 4.6 percent throughout the programme period. This shows that a gigantic proportion of government revenue and foreign capital inflows will be continued to be devoted to paying Shylock his pound of flesh. Net foreign capital inflows are expected to increase from 10.9 percent of GDP in FY21 to rise to 11 percent of GDP by end of programme period. Net foreign direct investment inflows are expected to rise from 1.8 percent in FY19 to 4.4 percent of GDP in FY23 – averaging 3.2 percent of GDP throughout the programme period. The domestic to foreign investment ratio is thus expected to rise from 14.4 percent in FY19 to 34.9 percent – a fantastically unrealistic expectation. The current account deficit is expected to fall from minus 4.6 percent of GDP in 2019 to minus 1.7 percent of GDP by FY23 but to rise again to 1.8 percent of GDP in FY24. Official reserves which were 16.1 percent of GDP in FY17 are expected to fall to 11.2 percent in FY20, rise to 14.5 percent of GDP in Fy21 and jump dramatically to 24.9 percent in FY23. Government estimated debt which was 70 percent of GDP in 2017 is expected to rise to 70.8 percent by FY23 and to average 76.0 percent over the programme period. Pakistan’s gross external financing requirements are expected to increase from US$25.1 billion in FY19 to US$31.2 billion in FY24 with their GDP share invariant as an average of 9.5 percent during the programme period. During the programme period Pakistan will pay its foreign usurers a total sum of about 140 billion in amortization and usury payments – usury payments will amount to about $34 billion. Private sector amortization will amount to $33.5 billion over FY20 to FY24 – about 24 percent of total amortization changes. Amortization of short term borrowing of both the government and private sector amounts to as much as $101.8 billion – i.e. about 73 percent of amortization changes. Short term borrowing and commercial borrowing is of course much more expensive, carrying market determined usury changes.

The balance of trade deficit is not expected to decline significantly during the programme period. IMF forecasts exports to grow at an annual average rate of about 9 percent during FY19 to FY23 while imports are expected to grow at an annual average rate of about 7 percent. The trade deficit is expected to rise slightly during the first two years of the programme. Imran Khan’s import curbs are expected to peter out during FY20 and the IMF has strictly forbidden the imposition of any further import constraints during the programme period. The balance on goods, services and income account is expected to remain highly negative during the programme period averaging about $56 billion. Workers’ remittances are forecast to increase from $21.5 billion in FY19 to about $25 billion in FY23. Foreign direct and portfolio investment is expected to rise from $600 million in FY 19 (DFI = $1.8 billion PFI minus $1.2 billion PFI) to about $ 6 billion in FY23. Terms of trade are expected to decline throughout the programme period. According to IMF projections Pakistan will borrow $44 billion from private sector and $61.6 billion from foreign government during the programme period – a total of $117.7 billion. Actually this limit will probably be exceeded during FY20. Besides this rollover of short term debt will amount to $43.2 billion during FY20 to FY23 - $25.3 billion (59 percent of the total) is expected to be rollover of private sector credit which will involve the payment of higher usury rates. According to IMF projections the share of direct tax in total tax revenue during the programme period will be just 32.7 percent with very minor fluctuations during FY20 to FY23. The share of non tax revenue in total government revenue during the programme period is forecast at just 10.4 percent. Grants are expected to amount to Rs.319 billion ($2.2 billion) at the programme exchange rate of Rs.141 = $ and $ 2 billion at the August 2019 exchange rate. The grant to total government revenue ratio works out at 0.8 percent during the plan period. قومے فروختندہ – ادچہ ارزان فروختندہ According to IMF projections total expenditure of the government is to rise from Rs.8300 billion in FY19 to Rs.13810 billion in FY23 (up 66 percent). Current expenditure is expected to increase from Rs.7190 billion in FY19 to Rs.11475 billion in FY23 (up 60 percent). Usury payments (both domestic and foreign) are expected to rise from Rs.1994 billion in FY19 to Rs.3305 billion – up 65 percent – FY2023. The share of total usury payments in current expenditure during the plan period works out at 31.4 percent. This estimate does not include usury payments by the provincial and local governments. Foreign usury and principal repayments are expected to increase from Rs261 billion in FY19 to Rs.506 billion (up 94 percent) during the programme period. Foreign usury and principal repayments as a proportion of current expectation is expected to increase by as much as 22.2 percent during FY19 to FY23. IMF budget support amounts to just Rs.109 billion ($773 million) at programme exchange rates. This is 0.26 percent of current expenditure.

According to IMF projections defense expenditure is to rise from Rs.1484 billion in FY20 to Rs.2553 billion and to average 15.4 percent during the programme period. Subsidies expenditure totals just Rs.1293 billion – 3 percent of current expenditure during the programme period. Development expenditure is to grow from Rs.1484 billion in FY20 to Rs.2333 billion in FY23, lower than the rate of current expenditure growth duringthe programme period. External funding of the budget deficit will amount to 43.4 percent during the programme period declining from 56.7 percent in FY20 to 39 percent in FY23. The IMF share of deficit financing will be just 11.5 percent. The IMF expects no revenue from privatization during the programme period. The monetary forecasts are even more fantastic. Estimations are provided only for FY2020 during which NFA is expected to increase by Rs.354 billion – during FY2019 NFA contracted by Rs.1233 billion. Net domestic assets grew by Rs.18945 billion in FY19. However IMF forecasts for the whole of FY 19 show NDA to equal Rs.18130 – down 4.3 percent over the end of FY19 level. During FY20 not credit to the private sector is forecast as growing by 4.7 percent while net claims on government are expected to grow by 7.6 percent. Despite this ‘broad money’ (M2 not M3)is expected to contract by nearly 20 percent by end FY23 – signaling a sharp fall in the loan-deposit ratio. Rupee deposits are expected to increase from Rs.11578 billion in FY19 to Rs.12973 billion (up 12.6 percent) in FY20 and foreign currency deposits are forecast to increase by 22.6 percent during FY20. The share of foreign currency deposits in total bank deposits is expected to increase to 8.5 percent. Reserve money (Mo) is expected to increase from Rs.6345 billion in FY19 to Rs.7202 billion (up 13.5 percent) in FY20 and Mo/M2 ratio is expected to remain constant at about 36 percent during FY20. E. Assessment The IMF forecasts are subject to extremely wide margins of error. This becomes evident if we compare the IMF forecasts for the previous EFF (2013-16) with actual outcomes for the FY2014-2018 period for which IMF presented its forecasts. This is done in Table A. Table: A Difference between Actual Outcomes and IMF forecasts for major macroeconomic statistics with IMF’s EFF module 2014-2015. Item Discrepancy between actual outcome and IMF forecast for FY2014-2018 (average) (percent) GDP growth rate CPIC percent) 26.5 14.84 Gross saving / percent of GDP) 13.46 Gross Investment percent of GDP 21.22 Current account balance ($m) 141.61 Gross reserves ($ billion) 15.59 Extended debt ($ billion) 64.33 Government revenue as percent of GDP 5.8 Tax revenue (as percent of GDP) 3.14 Government expenditure of percent GDP 7.61 Current expenditure as percent of GDP 2.91 Development expenditure as of GDP 14.85 Exports of as percent GDP 32.35 Source: IMF Country Report no. 13/287 Government of Pakistan: Pakistan Economic Survey 2018-19 In most cases deviations of actuals during 2013-18 from IMF forecasts are so large that they make the forecasts virtually meaningless. This is particularly true of the forecasts for:

Current account balance External debt FDI GDP growth Gross capital formation CPI Inflation On the other hand deviation in, tax receipts, total budget expenditure and current expenditure were modest showing that the government followed the fiscal strategy of the EFF 2013-16 programme for most of the programme period. Average deviation (simple unweighted) of actuals from forecasts for the 14 variables listed in Table A works out at 27.6 percent. There is every reason to believe that the forecasts for the FY2020 to FY2023 period are far more inaccurate and unrealistic than the forecasts for the FY13-18 period. This is because the main thrust of both EFF programmes was to subordinate the Pakistani economy to global markets and imperialist policies. The 2013-18 period was a period of modest global recovery and macroeconomic stability. In contrast the 2020 to 2023 period is likely to see another recession beginning in America in 2020 or 2021 and gradually spreading to the EU, China and the so-called emergent economies. Moreover as the Americans flee Afghanistan like whipped dogs with their tails between their legs, the coalition support fund will collapse and imperialist lifelines will no longer be avoidable for puppet regimes throughout the Middle East. Linking Pakistan’s economy to the global economy during this period (or indeed ever) is nothing short of madness. EFF 2020-2023 forecasts an average annual GDP growth rate of 3.7 percent during the programme period – given a population annual growth of 2.4 percent, real per capita income is expected to rise by about 1 percent on average. During this period the gross capital formation ratio is forecast at 15.82 percent – as against 16.1 percent during the previous three years. While GDP growth rises from 2.4 percent in FY20 to 5.0 percent (more than double) according to the programme forecasts the investment GDP rate risesfrom only 14.7 percent in FY20 to 16.4 percent (up just 11.5 percent) in FY23 – a sharp increase in the incremental outpur- capital ratio is anticipated in these programmes implying relative de-industrialisation. But where will this increase in capital productivity come from? The words “productivity” and “productivity growth” donot occur in the EFF agreement documents and although stresses the direct impact of its policies on “structural change” it sees structural change as entirely as a financial – not a real sector phenomenon. Even if the “structural change” – fiscal and monetary tightening and enhanced global money market exposure – is achieved how will this transmit to the real sector, to production levels, to technological absorption capability, to employment growth to profitability of enterprise. This is a crucial weakness of Vodoo macroeconomics. It is purely focused on exchange transactions and is silent about production sector dynamics. In the Vodoo perspective the aggregate supply curve shifts to the right essentially for reasons unknown. As several UNIDO studies (1999) have shown productivity growth in the real economy is largely determined by with an increase in the technological intensity of aggregate production and in a consequent rise of capital goods industries in manufacturing value added (MVA). This issue does not at all concern the EFF policy programmes (for Pakistan or any other country). A recent study of the determinants of growth in Pakistan shows that real GDP growth has no relationship with trade openness, borrowed money, real exchange rate, external debt, foreign direct investment and domestic credit to private sector and the only significant positive impact on GDP growth in that of gross capital formation and remittances (Gilal et al. 2019). This shows that changes in financial sector policies (fiscal, monetary, exchange rate changes) have virtually no impact on growth or structural changes in the real economy and determination of the two real sector variables – gross domestic capital formation and workers’ remittances – are neither identified nor of any concern in the EFF policy proposals.

The EFF leaves the government with three policy instruments only for unleashing “the magic of the market” and that too very modestly – remember GDP per capita is expected to grow by about one percent per annum during 2020-2023. These three policy instruments are: Tax (especially indirect tax) revenue Usury rates and money supply (especially MO) Nominal exchange rate As we have seen (Table A) the government has been most successful in meeting EFF (2013-16) gross revenue and tax receipts charges and we can expect the government to religiously follow the EFF 2020-23 strategy during this period – for national elections are not due until the beginning of FY24 (although some departures from IMF strictures may be expected during the second half of FY23 – the FY24 budget will probably be an expansionary one) but it will probably leave no positive impact on growth or structural change in the real sector. This is because government investment as a proportion of GDP is projected to fall from 4.1 percent during FY17 to FY19 to 3.6 percent of GDP during FY20 to FY23. Increased government revenues will be spent on usury payments (to both domestic and global Shylocks) and for the government’s current expenditure and as the Gilal (2019, p. 49-50) study has shown both. They are negatively associated with growth and also of course with real sector structural changes – for public investment is vitally important for technological upgrade and for reviving the capital goods industries. There are two major goals of enhancing the tax base initiatives (a) increasing resources for foreign and domestic usury and gharar payments (b) reducing the scope for halal business and accelerating the monopolization of the economy. This will of course be resisted by the mukhliseen-e-deen and manufacturers and traders who seek to remain outside the usury and gharar markets. The extent to which this resistance can be overcome remains an open question. The EFF proposed tax structure is viciously regressive as is the whole of the EFF program. Despite its hypocritical talk of “poverty reduction and social protection” no estimations of expenditure envisaged in this regard are included among its projections. The focus here is exclusively on an expansion of the corruption ridden Benazir Income Support Program. Nothing at all is said about the viciously inequitable pattern of income and wealth distribution in Pakistan. No measures are proposed for reducing income and wealth inequalities. The EFF’s poverty related measures include (a) stimulus for accelerating the de-feminisation of Pakistani Muslim women (b) provision of a one off Rs.1000 ($6) grant to approximately 5 million BISP beneficiaries (total cost in FY20=Rs.5 million ($34000) (c) launching the ‘one woman’s account for accelerated defeminization (d) providing a ‘girl bonus’ of Rs.250 ($1.50) for girl students on a quarterly basis (e) unspecified increase in BISP cash transfer to recipients in the future. Allocations in this regard are so meager that no poverty reduction targets are envisaged in the EFF quantitative performance criteria on the basis which of the government’s performance will be evaluated on a quarterly basis. The structural conditionalities related to poverty reduction are purely administrative – expansion of BISP’s banking contracts for defeminization of Pakistani Muslim women and denying them halal rizq, updating the BISP data base and expanding the provision of girls’ education under the BISP program. Dates are set for the implementation of these structural conditionalities. In the federal budget for FY20 the government has allocated Rs.190 million ($1.2 million assuming that the Rupee-dollar exchange rate stabilizes at the Rs.157=$1) for ‘social protection’. This is 2.6 percent of total current expenditure set against the Rs.3.98 trillion the government has allocated for domestic and foreign usury payments in the FY2020 budget, This illustrates the ‘priority’ that the supposedly populist government assign to poverty reduction.

The meager resources allocated to ‘social protection’ do not even marginally mitigate the colossal regressive impact of Imran Khan’s fiscal, monetary and exchange rate policies – absolute poverty levels will probably increase during the period due to growth deceleration, harassment and persecution of the hala sector and the mustadafeen and expanded monopolization and domination of the national economy by imperialism. Moreover the tax revenue estimates of the EFF are not based on a careful assessment of Pakistan’s taxable capacity which may actually decline as the pattern of income distribution implodes and the resistance to the persecution of the mukhliseen-e-deen and the mustadafeen increases. Existing signs are ominous. The budget deficit has soared to 8.9 percent of GDP in FY19 and there has been a record shortfall in FBR revenue receipts while government’s current expenditure has soared. It is also almost certain that the Laffer effect will not appear in Pakistan – a reduction of corporate and bank tax rates will be accompanied by a decline in tax revenue from these tax sources. Corruption under the Tahreek-e-Insaf regime is no lower than that under previous secular regimes and this, there is no guarantee that increased government revenue will not be illegally appropriated in the form of illicit expenditure fraudulent payments and bribe. There is also the likelihood that tax revenue will be increasingly channeled for foreign usury, gharar and principal payments or for transfer to global markets (through capital flight). Raising taxation levels will of course depress the economy and contribute to the massive growth of underemployment – it is significant that no estimation of the employment impact of the IMF’s macroeconomic strategy are given in the EFF program papers. Nor are any estimates of Pakistan’s (potential) full employment output levels given in these projections. The impact of increased taxation on real wage growth is also ignored. Tax increases are accompanied by massive cuts in government subsidization of real economic activity. This is again likely to be a major negative impact on income and price levels throughout the economy. The presumption that a tight fiscal and monetary policy will lead to the emergence of the ‘right prices’ structures in Pakistani markets is entirely fallacious. This is because these ‘right prices’ are seen to be those produced by continuous adjustment to continually fluctuating global prices determined in markets where Pakistan has a minimal presence and is always a necessarily a price taker. Reformulating Pakistani price and cost structures in accordance with global market trends makes no sense at all. The stagnation of state expenditure – its virtually complete withdrawal from the commodity producing sector – as envisaged by the EFF program heralds accelerated de-industrialization and technological retardation of the Pakistani economy – public investment is a primary source of capital industry growth in almost all emergent economies.

This has usually involved a monetization of the public debt in most ‘emergent economies’ which the EFF program faults without suggesting any other source for funding public investment and no evidence is presented to show that monetization of the public debt will necessarily fuel inflation which in Pakistan in a demand side phenomenon. The experience of the metropolitan countries during 2008-2019 shows that monetization of the public debt has not lead to any upsurge in inflationary pressure. Moreover Uray and the New Chartist School have shown that if government acts as ‘employer of the last resort’ it can avoid both unemployment and inflation. The IMF provides no evidence for refuting this argument and it is particularly significant that government which in its 2018 election manifesto promised to create 10 million new jobs during FY2019 to FY2023 has timidly accepted IMF’s commands in this regard. The decline in public investment in Pakistan will not only lead to technological retardation but it will also lead to the growth of aggregate unemployment and underemployment because the growth elasticity of private to public investment in Pakistan is high and positive – here public investment ‘crowds in’ private investment, it does not ‘crowd it out’ contrary to IMF expectations. The growth of public investment is also a major cause of factor productivity growth especially in a poor economy. This is completely ignored in the EFF strategy as is the likely inflationary impact of shifting from central bank to commercial bank financing of the budget deficit. Usury rate structures are another key variable in the EFF policy package manipulation of which is regarded as necessary to achieve ‘structural adjustment’ and ‘sustainable’ growth. The policy rate was arbitrarily jacked up to 13.25 percent by Raza Baqir, the IMF quisling hireling governor of the State Bank immediately after his appointment – despite the fact that global interest rates remained below 2 percent and the bale rate in India is below 5 percent. The IMF mantra is that usury rate structure when adjusted to global market trends will be capable of absorbing all shocks emanating from the global economy (both economic and political). This is contrary to the experience of all metropolitan and ‘emergent’ capitalist economies over the medium term business cycle. We also know of course that usury rate escalation will jack up foreign and domestic outstanding debt and debt service charges in rupees and since usury is a cost of production a rise in usury rates will also lower profits in the real economy and increased prices. Setting international usury rates as benchmarks for Pakistan’s monetary policy management makes no economic sense for we are a minuscule player (almost invisible) in global financial markets and play no role whatever in the determination of global loans, bond and currency market trends. Global financial markets are highly monopolized reflecting sudden expectation variations and can in no sense be described as ‘efficient’.

The IMF has provided no evidence to demonstrate its primary presumption – that improved debt servicing capability enhances sustainable growth. Quite the contrary in many notable cases – Iceland, Ecuador, even Pakistan during 2002-2007 – revitalization of growth has required a reduction and re-scheduling of the external debt burden. The imperialist bias of the IMF program is most clearly evident in its complete silence about the possibility of reducing the debt and debt servicing burden on Pakistan through negotiations with its public and private foreign creditors and through a rationalization of the domestic debt burden as has been achieved in Argentina, Bolivia,Ecudo and Iceland through institution of an audit of external debt and drastic conciliation of ‘odious debt’. There is no proof that reducing usury rates and increasing money demand is necessarily inflationary. Low interest rates and high monetary asset growth have been accompanied by historically low inflationary levels in America, Europe and Japan during 2008-2019. It is also of course manifestly absurd to believe that when the SBP follows pro market determined usury rates in setting the base rate, it quickly restores full employment equilibrium in response to external shocks. All the evidence in the capitalist world – in America, Europe, Japan and the emergent economies – is that in periods of economic difficulties it is the commercial banks that follow the central banks’ lead and depend on its arbitrary – arbitrary because a ‘natural’ interest rate simply does not exist – manipulation of the policy rate. The IMF does not recognize the extreme monopolization of global financial markets, the exceptionally dominant role of ‘irrational’ expectations in the determination of their functioning nor the bi-directional relationship between expectational fluctuations and macroeconomic fundamentals. An increased expectation of a global downturn can have a disastrous impact on the Pakistani economy through both its current capital accounts depending on the degree of ‘openness’ that its pro-imperialist rulers have crafted. Increasing exposure to global financial markets is likely to increase the inefficiency and inequity of national markets since as prices are subjected to global market processes they become less reflective of domestic cost and productivity structures. Financial liberalization necessarily erodes national sovereignty and dealing with economic downturns in response to global shocks has invariably involved the imposition of capital controls – which the IMF prohibits – in the emergent markets. This is because financial liberalization normally leads to massive capital flight from emergent and poor countries especially in periods of economic downturn. Subordination to global usury and gharar markets does not ‘stabilize’ poor economies. It is an important means for destabilizing them. The IMF does not recognize that in capitalist dominated economies usury is a cost of production from the point of view of the non-financial capitalist of accessing the financial markets. A rise in the interest rate structures necessarily negatively impacts upon profit levels and also of course jacks up the price level. One the other hand it does not necessarily increase savings – for this depends on the interest elasticity of the savings function. In Pakistan the interest elasticity of household savings – which is the bulk of aggregate savings is nationally low. Corporate hoarding is high, self-financing of corporate investment is low. Bank lending at the long end of the market is also notoriously low. Thus while high and rising interest rates continue to depress investment, they will almost certainly not lead to an increase in savings.

According to IMF estimates (Table A2) non-government saving as a percent of GDP is expected to decline from 15.9 percent in FY20 to 13.6 percent in FY23 while total national saving rise from 12.1 percent in FY20 to 14.2 percent in FY23. The source of this increase is government sector saving which is forecast to rise from minus 3.8 percent in FY20 to 1.2 percent in FY23. The gross capital formation rate is forecast to rise from 14.7 percent of GDP in FY20 to 16.4 percent in FY23. Paradoxically despite the IMF emphasis on state withdrawal from the economy it is the state – and not the corporate sector which is expected to finance Pakistan’s economic recovery. Why? There are in any case absurdly optimistic forecasts. If usury rates remain high – and probably rising – during the program period as the EFF envisages both corporate and public enterprise sector profitability and investment will plummet and savings will assuredly stagnate. If interest rates are high and rising banks will become more conservative lenders for risk associated with the growth of non-performing loans (the infected proportion of the loan portfolio) will rise while deposits, which as we have seen are interest inelastic will stagnate. Therefore the bank determined relatively low credit to deposit ratio will continue to remain low throughout the program period and the bank determined reserve ratio will probably remain high.Non-financial, agricultural, manufacturing and service enterprises will remain credit starved especially for project financing. In any case the banking sector in Pakistan will be subjected to increased monopolization trends. Usury term structures will not reflect opportunities for real sector profitability and productivity growth in the economy. The possibility of usury/gharar frequently overshooting gross profit rates – leading bankruptcies is very real and already visible in Lahore, Faisalabad, Multan and Karachi. The IMF simply closes eyes to the fact that market determined usury (and foreign exchange rates) can often be pro-cyclical. The EFF program regards MO as being exogenously determined by the SBP. This is a simplistic view. The relationship between MO, M1, M2 and M3 growth is undoubtedly bi-directional and it is often the case that the SBP is forced to expand or contract MO volumes in response to movements in the other monetary aggregates. If as the IMF program envisages the SBP is to become a ‘market follower’ the dependence of MO on variations in the other monetary aggregates will probably increase and there will remain no justification for regarding MO as an exogenously determined variable. As the financial sector is liberalized MO growth/contraction will be as much under global financial market pressure as the other monetary aggregates. The IMF should remember that the production of finance is a capitalist activity (Vodoo theory on the whole ignores this fact) and all monetary assets are subject to the same capital valorization laws. Nothing – absolutely nothing – is exogenous to the capital system as Meszaros so often asserted (Meszaros, 1995). The capitalist state is an agent of capital. It has no power to act from outside the capital system. Since capital markets are forever subject to irrational expectations interest rate structures are often ‘distorted’ not neatly in tandem with gross profitability rates and long term rates following short term rates. These ‘distortions’ are reflected in all monetary aggregates – not just M2 and M3.

The IMF takes no account of the impact of jacking up the usury rate structure on the real wage rate. The word ‘wages’ does not appear anywhere in the EFF proposals. As we have seen the primary aim of the IMF’s program is to reduce Pakistan’s national sovereignty and a reduction of national sovereignty requires an increased disempowerment of the masses for which falling absolute poverty levels cannot compensate. Reducing real wages is a means for mass disempowerment through ensuring that all the gains of factor productivity growth (if any) are transferred to domestic and national usurious and gharar cntrollers and to the imperialist powers. De-sovereignization of poor states requires intensification of debt servicing, growth of both public and private debt and subjection of the ‘independent’ central banks of these countries to the authority of global financial markets, surveillance agencies (including IMF) and the Fed. This real aim of the IMF is concealed in the IMF’s discourse about ‘structural adjustment’ which is erroneously seen as a financial and not a real sector phenomenon. The third policy instrument in the IMF package mandates linking the nominal exchange rate to REER (and also implicitly the fictitious equilibrium Effective Exchange Rate ERER). Empirical studies have shown that REER is determined by terms of trade, trade openness, net capital inflows, government consumption and workers’ remittances. Total relative factor productivity is also seen as a determinant but since it is measured in response to the US it is meaningless (Janjua 2007, Hyder et al, 2000). Trade openness leads to REER depreciation as does a decline in terms of trade. Increase in government expenditure also contributes to real exchange depreciation. As against this net capital inflow and workers’ remittances inflows lead to an appreciation of the Pakistani Rupee. The impact of gross domestic capital formation in Hyder’s estimation is ambiguous and statistically insignificant in one estimation and marginally significant in the other. Hyder estimates wide fluctuations in REER for both the short and the long run (Hyder et al. 2006, pp. 246-247, 250-251). It is evident that none of the REER’s determinants (except perhaps government expenditure) is under the control of Pakistan’s government. The government can do nothing to improve our terms of trade, remittance inflows or trade openness. The IMF has mandated in the EFF 2019-23 that no further import restrictions will be imposed during the period and in NTB’s will gradually be phased out. Tying the nominal exchange rate to REER amounts to abandoning the exchange rate as a policy variable and surrendering our current and capital accounts to the tender mercies of oligopoly dominated global money and capital markets. Given the frequent fluctuations of REER in response to global market trends over which we have no control we can only expect arbitrary fluctuations leading to catastrophic macroeconomic upheavals in our national exchange rate. During Imran Khan’s rule the rupee has depreciated from about 105 to 159 per US dollar (September 2019).

In April 2015 the IMF prepared its macroeconomic projections for the EFF program at a rupee-dollar exchange rate of Rs141=$1. The IMF must be surprised at this massive devaluation of the succeeding month. Will it redo its calculation (especially of debt sustainability)? It is significant that the EFF papers provide no forecasts for REER or of the nominal exchange rate (let alone the fictitious ERER) for FY2020 to 2023. An annual double digit devaluation throughout the program period is not an unlikely outcome. The program provides no measures for controling the systemic overshooting/undershooting its presumed ‘equilibrium’ level periodically. Nor does it take into account the possibility of massive unexpected foreign exchange variation shocks on the national economy – measures such as those taken by China, South Korea and Malaysia to which the IMF has not objected. There is no reason to believe that linking the nominal exchange rate to REER will stabilize the macroeconomy – quite the contrary it will increase exposure to unforeseeable and uncontrollable foreign currency market shocks. The disastrous impact of accelerated devaluation on the price level is also passed over silently. The EFF papers also pay no attention to the impact of necessarily irrational expectations (both national and global) on the determination of REER. Capital controls to stabilize the exchange rate – approved by the IMF in the case of China and South Korea in the recent past – are a strict “no-no” in the EFF program. The IMF also does not recognize that stable nominal exchange rates have proved to be a pre-requisite for both export and investment growth through the long boom period enjoyed by the Asian Tigers and China. The IMF does not recognize that there is no necessary link between changes in the exchange rates and comparative cost structures. It does not recognize that changes in the domestic cost structures in response to changes in REER do not always move in the anticipated (‘right’) direction. The ‘stickiness’ of domestic price and wage structure is not recognized. As we have seen in the case of Pakistan the relationship between productivity growth and REER is indeterminate and ambiguous. There is no reason to behave that productivity growth will respond positively to changes in REER and of course changes in total factor productivity of Pakistan’s major trading partners (US, Europe, Saudi Arabia, UAE, China) are not in the least effected by changes in Pakistan’s REER. To assume that adjusting the nominal exchange rate to changes in REER will contribute to factor productivity growth is pure folly. What can be said with certainty is that linking the nominal exchange rate to REER will almost certainly increase the volatility of domestic price/cost and revenue structure and enhance the uncertainty and riskiness associated with investment. REER in any case an inadequate measure of global competitiveness since it is based on purchasing power parity, theory which presumes that the commodity composition and the tradable to non-tradable balance of Pakistan and her major trading partners (US, EU, China, the Gulf countries) is identical – a manifestly absurd presumption.

The relationship between exchange rate, usury rate and price is multidimensional. Variation in global usury rates as they effect Pakistan’s REER can be perverse. Similarly global commodity price movements can also impact REER to produce unforeseen negative consequences. This is also true of global equity price variation which can cause wide fluctuations in REER. None of this is taken into account in the EFF analysis. It is simply not true that depreciation of the currency in response to REER fluctuations is sufficient to correct balance of payments (or balance of trade) deficits. This depends on the demand elasticities of exports and imports (which in the case of Pakistan are low) and the impact of this devaluation on the capital account (which in the case of Pakistan is small and uncertain). On the other hand depreciation leads to a blooming of debt both domestic and global and debt service charges. In Pakistan devaluation has also been a factor in fuelling inflation and depressing real wages. Accelerated depreciation of national currencies is often deliberately crafted by imperialist governments in collaboration with local and global banks and financial instruments. In the 21st century this has been the case in Turkey, Indonesia, Brazil, Zimbabwe, Venezuela etc. where devaluation has been used as a weapon by imperialist states and global finance to achieve desired regime change surrendering the foreign exchange rate to global market forces in providing a weapon to imperialist powers to use wherever they wish to try to destabilize the political system. Pakistan’s vulnerability in this regard is very great given the imperialist desires to destroy our nuclear capability. According to EFF estimates baseline external debt is to grow from 30.17 percent of GDP during FY17 to FY19 to 42.52 percent of GDP during FY20 to FY23. The external debt to annual exports earnings ratio is expected to average 313.35 percent during 2016-19. This is expected to rise to 331.25 percent during FY20 to FY23. Gross financings are expected to rise from $21.8 billion on average during FY16 to FY19 to an annual average of $25.70 billion during FY20 to FY23. It is thus clear that the aggregate volume of external debt and the debt service serving will continue to rise during the program period. Moreover the debt projections are of course entirely speculative and therefore subject to very wide margins of error. The IMF itself recognizes that these estimates are ‘subject to high uncertainty’ (IMF 2019, p. 42) and everything depends on China, Saudi Arabia and the UAE sticking to the (presumed) commitment to maintain ‘their exposure well beyond the program period’ (IMF 2019, p. 42). China, Saudi Arabia and Emirate commitments have of course nothing to do with the EFF program. These countries did not stipulate any macroeconomic conditions in providing bilateral funds and a violation of IMF conditionalities will in all probability not affect bilateral financing from these countries which depends mainly on Pakistan’s support for their regional geopolitical strategies – it is only the trivial financing from multilateral imperialist agencies (the World Bank, Asian Development Bank, Islamic Development Bank) and perhaps the EU that is subject to IMF program performance.

The manageability of external debt is premised on unrealistic assumptions in the current account deficit, non-debt capital inflows and economic growth expectations. Equally crucial is the assumption that non EFF credit inflow from China, Saudi Arabia and the UAE will continue to flow in well beyond the program period thus lowering gross financing needs. No account is taken of the vulnerability of external debt stock and flow to interest rate, global price and exchange rate shocks. External debt of most poor countries has been rising rapidly since the crisis years of 2008 and 2009. This is because it is in the interest of the financial markets to fuel poor emergent economies indebtedness as a means for portfolio diversification and achieving arbitrage advantages – so short term and speculative financing has risen while DFI flows have stagnated. The global economy is subject to frequent violent upheavals which are invariantly transmitted from the core economies to the periphery. It is dominated by monopolistic markets and subject to imperialist policy control. Competition within it cannot mimic perfect competition for perfectly competitive markets have never existed and can never exist within capitalist order. The fragility and vulnerabilities of global markets is currently being enhanced by the ongoing struggle between American paleoconservatism and neoliberalism. The national capacity for absorptions of global shocks declines drastically as exposure to global markets and subjection to imperialist policies increases. Moreover there is no evidence to show that exposure to global markets increases the efficiency or equity of national market operations. Globalization requires a continuation of the massacres and plunder that characterizes its history – Red Indians, Vietnam, Afghanistan, Syria – it is an artifact of legislative and political construction especially designed to serve the interests of imperialist powers and the IMF is an instrument for the execution of imperialist financial policy – a sub-office of the US state department. Trade and financial liberalization necessarily erode national sovereignty. Vodoo theoretical and policy discourse are deliberately crafted by imperialist agencies such as the IMF to justify continued exploitation and victimization of poor peripheral economies. Surrender to globalization necessarily mean (a) increased ineffectiveness of state policies in peripheral capital economies (b) loss of market competitiveness (c) rising distributional inequalities (d) enhanced capital flight during periods of upheaval and (e) intensification of de-stabilization tendencies in the macroeconomy. The truth of the above statement can be verified with reference to Pakistan’s experience which has been liberalizing/globalizing since when Benazir Bhutto first took office in 1988. Entering EFF 2019-23 is sliding down further on this slippery slope – one stage near committing national suicide. And what is the IMF offering for thisre-colonization of Pakistan – for turning Pakistan’s rulers into satraps of the American empire? The EFF envisages an immediate transfer of about $1 billion at the commencement of the agreement and another $5 billion as a quarterly basis on the basis of IMF quarterly and semi-annual review reports. Pakistan’s gross external financing requirements for the program period amount to $109 billion (approximately). Thus the direct IMF financing amounts to 5.8 percent – a share that cannot realistically be described even as ‘peanuts’ or ‘trivial’. Pakistan’s gross external financing needs have been estimated by the IMF at $25.6 billion for FY20. For this year Saudi Arabia provided $6.3 billion, the UAE $6.2 billion, China $3 billion – i.e. total of $15.5 billion. The IMF’s $1 billion loan is completely dwarfed by the Saudi Arabia and the Emirate loans which each have provided six times as much financing for FY20 as the IMF. The IMF’s loan amounts to 3.9 percent of gross financing requirements for FY20. Financing from China, the UAE and Saudi Arabia is not conditional on compliance with IMF structures. Hafeez Shaikh’s parroting IMF projection that $38 billion will be provided by international financers during the program period is of course just “pie in the sky” given the uncertainties of global political and economic developments.

The sad fact is that Imran Khan has sold Pakistan’s economic sovereignty to gain imperialist support for his tottering regime and in the interests of the capitalist elites which dominate his government and his party. F. The Alternative We are Islamic revolutionaries and committed to an overthrow of global capitalist order. It was toward a religious social formation – Christianity – that capitalism originally subverted and it is incumbent upon religious – Islamic – forces to rescue man from the corrupt, exploitative world that capitalism has created. But overthrowing capitalism will be an arduous long term historical pross – after all it took capitalism about four centuries to comprehensively deconstruct the Christian life-world and we in Pakistan are disadvantageously placed to struggle against global capitalism. This is so for two reasons. Though significant demographically, Pakistan is a small, peripheral national economy with minimal impact on global transactional structure. Secondly, within Pakistan Islamic political forces are weak with tenuous organizational links with their socially strong mass base. Their ability to influence national macroeconomic policymaking is negligible. Nevertheless we feel it to be our duty to spell out brief details of a macroeconomic strategy which can safeguard Pakistan’s national strengthening and reduce the imperialist stranglehold on our political and economic policymaking process. We feel this is all the more necessary because no secular party has opposed Pakistan’s subordination to imperialism through this IMF program. F.1. Objective of the Alternative Program Our fundamental objection to the IMF program is that it deprives Pakistan of its national sovereignty and articulates a macroeconomic strategy which enhances the powerlessness of the mukhliseen-e-deen and the mustadafeen. The primary objective of our proposed strategy is to enhance Pakistan’s national power and eliminate the powerlessness of the mukhliseen-e-deen and the mustadafeen. Economic growth or reduction in (absolute and relative) poverty does not necessarily translate into national power or the power of the mustadafeen and the mukhliseen-e-deen. Witness the abject powerlessness of all oil rich-Arab states, vis-à-vis Israel. Moreover, Syedina Isa and Syedina Muhammad (peace and blessings of Allah be upon both our masters) were the poorest of the poor but they have had proved to be the most powerful forces in mankind’s history. Poverty is a virtue in both Islamic and Christian order and Syedina Isa (upon whom be peace and Allah’s blessings) has said “What will it benefit a man if he gains the whole world but loses his soul. سبب کچھ اور ہے تو جس کو خود سمجھتا ہے زوال بندہ مومن کا بے زری سے نہیں Economic wealth which does not translate into an augmentation of national power and the power of the mustadafeen and mukhliseen-e-deen is a weapon in the hands of the enemy. Our economic strategy is therefore focused on the augmentation of national power and the power of mustadafeen and the mukhliseen-e-deen.

فضائے بدر پیدا کرفرشتہ تیری نصرت کو اتر سکتے ہیں گردوں سے قطار اندر قطار اب بھی F.2. Militarization of the Economy Pakistan faces a very serious existential threat today from India, America and Israel. Hindutva’s dominance over Indian society and politics should be seen for what it is – an epochal permanent phenomenon. Secular forces have been comprehensively routed in Indian society and politics and will never again achieve a comeback. Annihilating Pakistan is the primary objective of Hindutva politics – an objective the abandonment of which means the annihilation of Hindutva itself. Hindutva is the Nazisation of traditional Hinduism. We must remember that Nazism could only be defeated by war. We must prepare to defeat Hindutva through armed struggle and conquest. America and Israel are Hindutva’s natural allies. Their animosity to Pakistan is fueled by their intentions to destroy our nuclear capacity and both America and Israel have established spy networks and espionage systems sabotaging Pakistan’s polity and society. Defense against this continuous imperialist onslaugh also requires a militarization of the economy. Since the advent of liberalization (i.e. after 1988) our defense spending especially in conspriction to India and Israel has been trivial and the IMF calls for its virtual stagnation during the EFF program period. This amounts to committing national suicide. Militarization of the economy requires the immediate introduction of mass consumption and the institutionalization of a people’s army. It must be stressed that the survival of Pakistan – and the liberation of Kashmir – depends crucially on our ability to fight a protracted people’s war in which every Pakistani is armed and organized to combat the enemy. Institutionalized military cooperation with Iran, Afghanistan and Turkey is vitally important in this respect as such cooperation would give us geostrategic military depth. A people’s army armed to the teeth is the only deterrent to imperialist sabotage and Indian aggression as the expansion of Afghanistan, Vietnam and Venezuela have shown. The structural change that we seek in the economy is the integration of all major sectors with military production and consumption. Pakistan’s dependence on imperialist sources for weapons procurement is alarmingly high. We need to be completely self-sufficient in small arms production and in the production of anti-aircraft weaponry. We need to at least double the size of our woefully under funded nuclear development program. Militarization of the economy requires a major expansion of the capital goods industries which have suffered neglect for the last seventy years and this is a major cause of our technological backwardness. All capital goods industries (including the ICT industries) must be owned and operated by the military and their growth must serve as the major propeller of output and employment growth throughout the economy. In this respect a major expans related expenditure – at least doubling annually during the next quinquiniem is neccesary.

F.3. Macroeconomic Stance Initiatives for militarizing the economy will of course be vehemently opposed by the metropoliton of imperialist countries and their Pakistani quislings – but it may not necessarily be opposed by regional powers or by China Saudi Arabia loudly applauded Pakistan’s acquisition of nuclear capability and China is actively aware of Pakistan’s role as a deterrent to Hindutva expansionism. Nevertheless imperialist hostility will be profound and we may expect the imposition of escalating sanctions over the medium to long run (although these are rarely prohibitive as is shown in the case of both Russia and Iran). Some sanctions on technological imports are already in place and the good news is that CSR funding has almost dried up. We must learn from Iran how to effectively cope with xxxxxx and foreseeable sanction. We therefore propose a reorientation of the macroeconomic strategy to focus attention on the growth of productivity within the domestic economy while deliberately crafting reduced dependence on foreign capital, foreign trade and imperialist economic support. Stimulus should be provided principally for the growth of domestic consumption and investment and the de-incentivization of flows of (public and private) foreign capital. Domestic cost structures – and not international prices – should be seen as a basis for investment decisions and reducing annual budget deficit should not be a primary concern. Instead government expenditure must be guided by its impact on factor productivity growth. Government’s current expenditure must be ruthlessly cut. The existing 34 odd federal ministries must be reduced to ten and a concomitant reduction should be achieved in the size of provincial and local administration. The government surveillance machinery –monitored and overseen as it is by imperialist powers – should be restructured down to focus exclusively on India, America and Israeli espionage activities. There must be a major expansion in the public (including military) investment from its existing miserable level. The government must accept its responsibility to serve as the employer of the last resort. A key component of the domestic demand stimulating macroeconomic strategy must be the promotion of the halal economy – consisting of over 95 percent of local business and accounting for a very large share of total employment. Profits of these businesses should not be subjected to tax and tax monitoring and surveillance mechanisms currently in place should be comprehensively dismantled. These businesses do not rely on usury or gharar. Alternatives financing and alternatives to usury and gharar financing must be developed to facilitate the expansion of the halal sector – Islamic banking does not have this purpose, its loan portfolio is heavily monopolized and its operations have become thoroughly integrated into usury and gharar markets. It serves as a conduit for the transfer of trillions of Rupees from Pakistan to America and Europe.

Monopolistic tendencies are growing rapidly in Pakistan’s urban economy – especially evident in FMCG trade, opening of malls, franchising and restaurant business. This “crowds out” and seriously disadvantages the halal sector. Controlling monopolistic tendencies – and especially prohibiting mall based entertainment businesses (especially fawahish) can be a primary means both for discouraging conspicuous competition and for enhancing efficient pricing in accordance with real production costs. F.4. Foreign Trade Pakistan’s export to gross production ratio is low and the export portfolio can be described as structurally deformed in that despite seventy years of industrialization the share of technology intensive goods in Pakistan’s export portfolio remains miniscule. It is necessary to identify and incentivize export champion firms (including some in the halal sector) that can rapidly increase market share in the right (i.e. technology intensive) goods in the right (i.e. Iran, Turkey, African) countries. So targeted (as against liberalized) export promotion policies require joint venturing and the establishment of bilateral supply chains with carefully chosen investment partners in targeted countries – Malaysia, Indonesia and perhaps Thailand can also be included in this group. As the experience of the Asian Tigers, China and Japan have so graphically shown the success of a targeted export promotion policy depends crucially upon successful import substitution. Export expansion and import substitution are two sides of the same coin. A successful import substitution policy is much more than a stimulus to output growth. It is a means for achieving national technological upgrade. A successful import substitution policy requires an economy to move up its production structure from low to high technology intensity levels. Successful import substitution is indispensable for capital goods sector growth. This is the common lesson from the American, German, Japanese, Soveit Chinese and Korean experience. Liberalization kills the ability of an economy to import substitute. Pakistan’s import substation program of the 1950s and 1960s did not fail because it led to (largely imaginary) ‘welfare losses’ for the consumer but because it failed to achieve a technological upgrade of our production structure. TheIMF program is suicidal for Pakistan because its implementation will impede factor productivity growth and technological upgrade of our economy. A targeted export strategy necessarily requires the support of a targeted protectionist regime – this has been the experience of all metropolitan and emergent economies during the initial industrialization stage – Britain, Netherlands (during the colonial period), America, Germany, Japan, the USSR China and South Korea. The WTO stranghold limits the scope for the use of tariffs as a protectionist device, it must be remembered that WTO is a dying organization and Trump may well kill it during his second term. We must be ready to explore the scope for selective tariff escalation as and when the opportunity arises (especially in the context of FCMG trade and trade in services). We must learn from China the adroit manipulation of non-tariff barriers (which the IMF program prohibits) to serve our national purposes and of course we must immediately return to a fixed exchange ratio regime. Manipulating NTBs necessarily requires protracted negotiations with our selected trade partners and as far as possible these negotiations should involve companies in the importing countries likely to be effected by our and our partners’ NTB regime changes.

F.5. Exchange Rate and Polices At the time of independence the rate of exchange between the Pakistani Rupee and the US dollar was Rs.3.31 for one US$. From 1947 to 1982 we remained on a fixed exchange rate regime. The managed float system was introduced in the first Peoples’ Party government in 1989-90 and except for eleven months during 1998-1999 (in the immediate aftermath of our nuclear explosion) a “dirty float” system remained operative until May 2019 when the IMF forced us to switch to a “free” (i.e. oligopolistic, speculative) market determined exchange rate system leading to a catastrophic devaluation of the Rupee over a few months. The fixed exchange rate system served the Pakistani economy well. During the three decades (1947-1981) of its existence inflation remained exceptionally low, growth relatively high and there were several spurts of investment growth. Both the capital and the current account were stabilized and Pakistan did not face an external indebtedness problem. It was American sponsorship of the Benazir Bhutto government which enabled the IMF and the World Bank through their Structural Adjustment and Financial Sector Adjustment Loans (FSAL) programs to force exchange rate liberalization. The consequences have been disastrous. Growth rates have fallen. Inflation has risen. The current account deficit has ballooned. External indebtedness has become a nightmare. The consequence of linking the exchange rate to speculatively determined global market rates has been truly catastrophic. Growth rates are at the lowest level in Pakistan’s seventy-two year’s history. Inflation is in double figures and likely to remain in double figures throughout the program period. Real wages have fallen dramatically. Usury rates have skyrocketed. Investor confidence has plummeted. Unemployment and under-employment is growing rapidly. Factories are being closed all over Punjab and Sindh. The pattern of income and wealth distribution is becoming more and more skewed. Adopting a market based exchange rate regime makes no sense at all. The price elasticity of our import and export demand is low. Global capital flows are minimally influenced by our macro-fundamentals. They are entirely politically determined by imperialist policy changes vis-à-vis Pakistan. Devaluation feeds the ballooning of the rupee, value of external debt and thus leads to an increase in the current account deficit. Adopting a market determined exchange rate system is a deliberate means for accelerating de-stabilization of our economy. All democratic governments have supported the abandonment of the fixed exchange rate regimes. This is because Pakistan’s secular political parties are dominated by plutocrats – agents of imperialism – and the operation of the floating exchange rate regimes have facilitated capital flight in which Pakistan’s plutocracy – both business and political – is heavily involved. Capital flight has accelerated since Benazir’s first government took office in 1988. Accurate estimates of total capital flight from Pakistan during 1988-2019 are not available but it undoubtedly amounts to hundreds of billions of dollars. FTAF surveillance does nothing to moderate this flow (which is quite legal according to capitalist law) and the Imran Khan’s government despite its tall claims of “bringing back looted wealth” has not been successful in bringing back one cent of this money. Its amnesty schemes show that the effort to “bring back looted wealth” has clearly been abandoned.

An Islamic government will immediately adopt a fixed exchange rate system and impose strict capital controls on both the current and capital accounts of our balance of payments. It is pertinent to say that the IMF approved of the imposition of capital controls by China in 2016 and 2017 and by several East Asian countries in the wake of the 1997 crisis in that region. F.6. Monetary Policy Market based monetary policy was first introduced in the early 1990s under IMF and World Bank pressure (especially the implementation of FSAL measures). It is the principal source of the growth of public sector domestic debt; the growth of governments indebtedness and the loss of the state’s control over the monetary system. From 1974 to 1991 we operated a credit planning system in which the SBP determined both changes in the supply of money and credit of Usury rates charged to different sectors were also mandated by the SBP. All banks – except foreign banks – were nationalized and the Pakistan Banking Council ensured that operation of the banking system including that of the SBP served to facilitate growth. During Zia’s era (1977-1988) the system worked very well with high growth, low inflation, enhanced financial sector confidence, investor confidence upsurge and manageable indebtedness (both domestic and external). The system was abandoned by Benazir Bhutto and Nawaz Sharif to facilitate capital flight from Pakistan and to accommodate imperialist policy pressure being exerted by the IMF and the World Bank. We call for a nationalization of all banks (including Islamic and foreign banks) and non-bank financial institutions. We demand the immediate implementation of the Tanzeel-ur-Rahman Commission report of 1979 on the elimination of usury from the financial system. This calls for severe restrictions on money market operations and end to SBP subservience to global money markets (which the IMF calls central bank’s independence). We demand a recreation of the Pakistan Banking Council to ensure that the principle purpose of monetary management is facilitating the type of growth which leads to the empowerment of the mustadafeen and mukhliseen-e-deen. The introduction of the Tanzeel-ur-Rahman recommendations will also involve major restrictions on gharar (stock market) activities. As Islamic parties we are irrevocably committed to an elimination of all usurious and gharar transactional forms from the Pakistani economy but abolishing usury/gharar is abolishing capitalism itself and must therefore be a long drawm historical process. It must be stressed that the growth of Islamic banking and finance are no means for achieving this (the Tanzeel-ur-Rahma commission did not recommend the establishment of private and public sector Islamic banks). Quite the contrary Islamic banking facilitates the integration of Sharia compliant transactions into capitalist markets and thus provides a basis for the Islamic legitimation of capitalist order (in the same way as Protestant apologetics legitimated usury transactions on Christian grounds in the sixteenth and seventeenth centuries in Europe). Trillions of dollars are being transferred from Muslim countries to global gharar and usury markets in metropolitan imperialist countries. Therefore Islamic banks must be nationalized and integrated within a unified tamveeli system by Muslim countries which seek to promote their national self-reliance.

Implementing the Tanzeel-ur-Rehman recommendations is a first step in the direction of limiting usury and gharar operations. The micro foundation of the usury system can be eroded by the gradual development of a mass based tamveeli system managed by the mosques and madrassahs (as a quasi-public sector operation) based on channeling the savings of the mukhliseen-e-deen to profitable investment channels through an expansion of musharika and mudaraba transections. This can provide a basis for a significant expansion of non-debt money within the economy – the experiences of Hezbollah, Hamas, Sirikat-e-Islam and Dar al Arqam can be drawn upon and also the progress made by the Islamic regime in Iran for limiting the scope of usury transitions. Islamic parties will actively support the development of a mass based tamveeli system in Pakistan. E.7. Debt Management As of June 2019 Pakistan’s external debt was composed of (a) commercial bank borrowings of 11.2 percent (b) bonds of 8.5 percent (c) loan from China 18.5 percent, Arab countries 10.1 percent (d) multinational (ADB, WB, EDB, IDB, IFAD, NURAID etc.) loans 39.7 percent and Paris Club loans 13.2 percent (major donors’ Japan $ 5.7 billion, France $1.6 billion, Germany $1.4 billion, America $1.3 billion). Total pay off of this amount during the program period is estimated at $37.9 billion (Paris Club $29 billion, China $7.5 billion, Arab countries $8.3 billion, multinationals $6.1 billion, banks $7.5 billion, IMF $5 billion). Despite this reduction in existing outstanding debt, external financing requirements are expected to increase by about 9 percent from FY19 to FY23. This means a rapid growth in external indebtedness as the total volume of external borrowings skyrockets throughout the program period. Iceland and several Latin American countries (Ecuador, Argentine, Bolivia, Venezuela) have from time to time successfully re-negotiated their debt obligations for both public and private sector creditors. Audit of foreign debt enabled both Argentina and Ecudor to write of an significant proportion of odious debt institute orininal charges against world bank ficials uln had sanctioned it leading to their expulrion from there corectnesc. and Musharraf’s government successfully negotiated a major program of debt repayment scheduling in the early 2000s. Debt default is a common routinized phenomenon in capital and money markets and many mechanisms have been institutionalized to deal with it. Pakistan’s external outstanding debt is trivial in comparison to the global debt volume – about $80 billion out of at least $10 trillion (approximately). A total cancellation of Pakistan’s debt will not even be noticed in global markets and imperialist treasures. Pakistan’s external debt is not even a drop in the ocean of global debt. Our government will immediately enter into negotiations with all public and private creditors to re-negotiate repayment terms on the basis of a rigorous audit of all external debt contract – the American government should probably be excluded from these negotiations as its lending to Pakistan has always been of a political nature its first target was the Nizamuddin government of 1953. In these negotiations we should seek (a) a complete cancellation of interest charges on external borrowing (arguing that usury payments are forbidden in both Christianity and Islam), (b) a significant write off of annual repayments of principle and linking of debt servising charges to foreign exchange earnings (exports and workers’ remittances). These negotiations should be preceded by a complete moratorium on all external debt servicing for FY20. External debt servicing charges for FY20 amount to about Rs.1.5 trillion. Gross revenue receipts for FY20 would then be increased by about 44 percent. This money should be used to increase employment generating public investment and enhanced subsidization of the gas, electricity and stable food sector and military build up.

There have been several successful experiences of external debt reduction. In the recent past Iceland and Ecuador and Argentina and Bolivia have successfully negotiated substantial write offs of their debt by their international creditors. The most important success stories of the unilateral cancelation of debt are Cuba (1898 and the early 1960s), the USSR (1918-20), China (1950) and Vietnam (French debt 1975). Since we are a Muslim country, the chances of achieving a significant reduction of debt obligations are minimal through negotiation as far as the Paris Club countries and the imperialist multinational agencies are concerned. On the other hand serious negotiations with China and the Arab countries (which account for about a third of our existing outstanding external debt portfolio) for a significant reduction may lead to positive results, provided we play our political cards carefully. Many commercial lenders (and it must be remembered that 90 percent of ‘commercial lending’ is by Chinese banks and financial institutions) may be expected to take a realistic view and agree to debt reduction and/or to a conversion of debt to equity financing in joint ventures. Thus we estimate that of the $86 billion external debt about $31 billion (loans from China, both public and commercial and from the Arab countries) can be subjected to negotiated settlement and the settlement achieved can be a basis for negotiation for debt reduction with the imperialist multilateral agencies. The imperialist multilateral agencies and the Paris Club lenders are extremely unlikely to respond positively however. This is because we are a Muslim country and Islamophobia and racialism hold Western societies and government in a vice like grip. Nevertheless the imperialists probably are not in a position to send in an occupation army to collect their debts – they have not been able to do so even in Venezuela, North Korea and Iran. They will probably respond to the imposition of a debt payment moratorium by restricting our access to global public financing and private capital markets. This may be followed in due course by the imposition of periodically tightening international trade sanctions. The experience of Russia, Iran and North Korea have shown that despite imperialist media propaganda sanctions are rarely effective. In 1998 when we exploded our nuclear device sanctions were immediately imposed upon us by the imperialists and remained in place during 1998-2001. During that period the economy grew robustly, inflation was almost non-existent and the rupee remained solid. Pakistan is not a banana republic and though sanctions will create some pain it will probably be much less than the pain imposed upon our masses by the subjugation to global market price structures and imperialist policies that the IMF has mandated. Less than seven percent of national production is exported, less than fifteen percent of national consumption is import sourced. DFI and PFI are trivial components of gross capital formation. The share of external sector public financing in investment is miniscule. The real economy is not dependent on the external sector and effective import substitution can further reduce this dependence.

Pakistan is thus in a strong position to absorb sanction shock. Disengaging from the global economy can have long term benefits for the global economy is teetering on the verge of a major crisis and subject to exceptionally high levels of vulnerability and uncertainties. Countries which are least integrated with global markets are best able to absorb shocks transmitted from panicked financial and commodity markets. At this stage of capitalist development a nationally self-reliant macroeconomic strategy must be adopted to stave of the havoc created by turbulently disequiliberating global market forces. Building a nationally self-reliant economy in a peripheral country such as Pakistan is also a small first step towards our eventual goal of de-constructing global capitalist order – a step which is already being taken by the Islamic regime in Iran. Domestic public debt is very high, currently estimated at about Rs.20 trillion and arising rapidly due to usury rate escalation and accelerated depreciation of the Rupee. About 60 percent of this consists of short term government borrowings from SBP and from commercial banks. The rest is sourced by national saving certificate scheme borrowings from the masses. A re-profiling of this debt – as the IMF recommends – makes no sense for the yield curve is ‘normal’ and usury rates. On long term borrowings are higher than on short term borrowings. Borrowings from the SBP are purely ‘fictitious capital’ providing a basis for the creation of debt money through Treasury Bill purchases and sales. During the credit planning period (1974-1992) government borrowings from the SBP were determined by the development (public investment) needs of the economy. Usury rates on government borrowings from the banking system were usually negative in real terms – averaging about 2 percent during 1975-1989. We propose that government borrowings from the SBP – transfer of financial resources from one branch of the government to the other – should be costless and be determined by the development financing needs formulated in a medium term credit plan for the next quinquinium. Borrowings from commercial banks and other financial institutions by the government should be re-structured on the basis of modaraba/musharka transactional forms – with banks’ share of gross profits being linked to the profitability of the investment of borrowed funds. This means that bank financing of government current expenditure be strictly limited. Rates of return on NSS funds should also reflect public investment profitability but they should not be allowed to fall below CPI growth in any given year which may mean significant subsidization of NSS earnings. We also envisage a reduction in public borrowing requirements as government’s control of the usury structure increases. The FY20 budget envisages an expenditure of Rs.2.5 trillion on domestic usury payments – about 43 percent of government current expenditure. A significant reduction in debt service payments can be achieved by introduction of the measures proposed above and thus money can be used for investment financing and enhanced subsidization made available for the commodity and service providing sectors and for military expansion.

The scope for constraining government expenditure is limited although some reduction seems feasible. Thus military service pensions are forecast to increase by 26 percent in FY2020 and to amount to Rs.330 million. Given the fact that an increasing proportion of ex-service employees are re-employed at military owned businesses and other corporation a case may be made for suspending pension payments during periods of such employment. In any case all pension payment should be linked to the CPI index. Increase in FY20 in civil pension payments exceeded CPI growth in that year. There is also scope for a significant reduction in expenditure on executive and legislative organs and ministries – which now exceed 36 at the federal level and are also increasing in size rapidly in the provinces. Expenditure on these government bodies is expected to increase FY20 – In 31.4 in FY20 percent. Actual expenditure on these bodies in FY19 was 27 percent higher than original estimates. The public administrative bureaucracy is bloated and there stables must be ruthlessly cleared of the unproductive pen pushers and their hangers on who inhabit them. Ishrat Hussain, former governor of the SBP and currently advisor to the PM on institutional reform has proved to be totally inefficient in revamping the public service, both at the State Bank and at the federal level – a fifty percent reduction in expenditure on legislative, executive and ministerial bodies thus saving about Rs.2.3 trillion for public investment and subsidization. Some reduction can also be achieved in defense service expenditure (estimated at Rs.1.15 trillion for FY20), sepoys deployed for the service of officers are an unnecessary burden on the public exchequer and officers should be asked to pay for their services themselves. Despite the savings we advocate an increase in government expenditure and the maintenance of a budget deficit of between 12 to 15 percent of GDP during the next equilibrium to be financed entirely by domestic sources. Maintaining a high fiscal deficit during the recovery period has been the norm by both metropolitan and emergent economies (America, China, South Korea, and Malaysia), the inflationary impact of the policies can be mitigated by strict price controls (appointment of muhtasibs in all commodity and service markets), introduction of nation’s maintenance of fixed exchange ration and capital controls and holding down of usury rates. Some efforts may also be made to increase revenues through measures such as augmenting the government non-tax income increasing the corporate and banking sector tax rate to at least 50 percent and doubling the income tax rate on all non halal income (salaried and non-salaried) exceeding Rs.1 million annually (at FY2020 prices). Finally it may be noted that the FY20 budget allocates a sum of just Rs.470 million (0.006 percent of total current expenditure) for its environmental program – down from Rs.1.27 billion in FY19 – down 63 percent. Pakistan is facing a very severe environmental threat particularly with reference to water stress, deforestation and water pollution.

A major shortcoming of the EFF is the victimization of the mustadafeen through the gentrification of urban centers – involving mass destruction of their houses and closure of their means of halal livelihood. This further exacerbates the environmental crisis. We will put an immediate end to this mass destruction and ensure rehabilitation of the mustadafeen and revival of their halal business. Construction of skyscrapers and malls will be totally banned and serious attempts will be made to reconstruct Islamic bazaars architecturally. Emphasis will be laid on promoting the use of alternative energy sources and coal mining in particular will be discouraged. Publically funded programs for desalination of water, construction of dams and reforestation will be launched. Most importantly the environmental impact of all major enterprises will be strictly assessed and the full cost of environmental depletion will be laid on them through taxation measures. E. 10. Alternative Policies: A Summary Below we summarize these alternative policies. The fundamental objective of our policies is to increase the power of the nation state, of the mustadafeen and the mukhliseen-e-deen and to safeguard and enhance national sovereignty. Our primary concern is to reconstruct economic transactions so that they are instrumentalized for the promotion of the Islamic values-Sbar, Shukar, Infaq fqar and Jihad. Increasing growth and reducing both absolute and relative poverty are promoted only to the extent that they facilitate national empowerment and the empowerment of the mustadafeen and the mukhliseen-e-deen. Introduction of mass conscription and the mobilization of a people’s army and preparation for fighting people’s war. Enhanced military cooperation with Iran, Turkey and Afghanistan and the initiation of joint commads. Integration of all major economic sectors with military production and consumption Achievement of self-sufficiency in small arms production, increased air defense capability and reduction of dependence on imperialist sources for arm procurement Double the size of the nuclear development program Military investment in the capital goods industries and all capital goods industries (including ICT) be exclusively owned and managed by the military Substantial and sustained increase in the military budget Preparations to deal with the imposition of sanctions by imperialist powers Focus of macroeconomic policy to be on growth of domestic demand and productivity rather than on the external sector Reduced dependence on foreign trade, foreign capital inflows (both public and private), de-incentivization of DFI and PFI Domestic costs will be taken as reference basis for determining of prices, not globally market determined usury and exchange rates Significant increase in public investment determined by factor productivity growth Government to act as ‘employer of last resort’ Promotion of the halal economy, total tax exemption of its profits. Refocusing of surveillance mechanisms on sources of imperialist and Indian and Israeli espionage.

Development of non-usurious and gharar financing mechanism for halal sector financing Anti-monopoly measures to be implemented with special reference to the FMCG sector Ban on shopping malls, entertainment industries and franchising Identify and incentivize national champion firms (including those in the halal sector) which have the capability to rapidly increase technology intensive exports especially in Iran, Turkey and the African countries Promotion of supply chain linkages and joint ventures with carefully chosen investment partners from Iran, Turkey and Malaysia Promotion and incentivisation of import substituting production especially in the intermediate and capital goods sectors Development of a targeted protectionist regime involving reintroduction of tariffs where necessary and feasible and adroit use of an NTB strategy constructed on the bases of mutually beneficial trade agreements with partner countries Adoption of a fixed exchange rate regime. Devaluation is a deliberate attempt to both de-sovereignize and destabilize the macro economy. A fluctuating exchange rate regime facilitates capital flight. Impose strict capital controls on both the current and capital account Nationalize all bank and financial institutions Abandon market based monetary policy and revert to credit planning. Market based monetary policy is the principal cause of public sector domestic debt growth, bad loans in the banking sector and loss of control of the monetary sector by the state Strict subordination of the SBP to the government, revival of the Pakistan Business Council, allocation of credit and its pricing to be determined by the SBP/ PBC. Implementation of al recommendations of the 1979 Tanzeel-ur-Rahman report on the financial system The imposition of strict controls on the money market and severance of SBP ties to global money markets Restriction on gharar transactions Establishing of a Tamveeli system involving Musharka and Mudarba financing at the mass level to erode the micro foundations of usury financing and enable the creation and expension of non-debt money Negotiate external debt reduction with both public and private sector creditors on the basis of audit of outstanding external debt with a proposal to link principal repayments to foreign exchange earnings Cancel all usurious payments immediately Prepare for the imposition of sanctions by imperialist countries Conduct strict environmental audit on all mega and medium size projects in both the public and private sectors and through taxation impose the full cost of environmental depletion on public and private sector corporation Encourage alternative energy, water purification and de-salination and reforestation projects through both public and private sector investment. Statistical Appendix IMF Projections Table A.1. Pakistan: Selected Economic Indicators, 2014/15-2019/20 1/ Table A.2. Pakistan: Medium-Term Macroeconomic Framework, Program Scenario, 2016/17-2023/24 Table A.3. Pakistan: Balance of Payments, Program Scenario, 2016/17-2023/24 (in millions of U.S. dollars, unless otherwise indicated)

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