Introduction
The International Monetary Fund (IMF) is an international organization that engages in different measures to assist countries that require assistance following different economic situations such as financial crises. The organization has a global membership of approximately 182 countries that benefit from the financial aid provided by the organization in times of crisis. IMF has defined and established policies that explain how the member countries receive financial assistance during economic difficulties. The main objective of IMF is to assist the member countries in recover ing from a financial crisis through the provision of monetary funding that helps in enhancing the economic development of a given country. IMF assists countries in overcoming financial crises by providing monetary financing to aid in economic growth, resulting in the stability of the economy. IMF was established in 1947, and since then, it has assisted dozens of countries during financial crises.
Case of a Crisis Situation in a Country Where IMF Provided Assistance
Pakistan is one of the member countries that has benefited from the IMF organization. Pakistan, which is a country in the southern part of Asia, is among the top countries with the highest population across the world, with over 212.7 million people. The country became a member of the IMF in 1950. The move was attributed to uncertainties associated with the economy. Following the Indo-Pakistani War that took place in 1947 and 1948, the country experienced significant economic challenges. During the time, the country relied heavily on imports and did not take part in any form of export, which is a factor that contributed to economic instabilities. The situation within the country created the need to join the IMF to enhance the stability of the economy.
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In the early 1950s, Pakistan, which was a newly established country, experienced a financial crisis that influences a wide range of operations that concerned economic development (Husain, 2005). The financial crisis was attributed to reasons such as corruption and the existence of a volatile political situation. The Pakistani government experienced a significant challenge in trying to advance its macroeconomic policies attributed to an apparent lack of commitment on the part of the political leadership (Zaidi, 2005). Considering the mentioned reasons, the government could not meet different financial obligations, thereby resulting in a failed economy. The financial crisis deteriorated, leading to a situation where the government was unable to provide essential services such as healthcare services to the public . Facing the inability to meet the needs of the general population, the government decided to seek monetary funding, which would help in overcoming the crisis, that has affected the growth and development of the country.
In 1958, the government sought financial assistance from the IMF to overcome the financial crisis that was slowly impacting on a significant aspect of the economic development of the country ( McCartney, 2011 ). The request for assistance from the IMF was purposed to bail out the country out of the financial crisis. Additionally, it would create a better platform for the government to improve the economy through the support of different programs within the state. The assistance from the IMF would also help in enhancing the economy and attract global investors into the region. Additionally, the decision to seek assistance was attributed to the fact the country required to engage in the development of the infrastructure in a bid to support economic activities such as agriculture and tourism, which would help in boosting the economy. Considering that Pakistan had been a member of the IMF since 1950, the presentation of the request for assistance was approved effectively.
The Intervention
Considering that the main objective of IMF entails the provision of loans to countries facing financial crises to offer help to overcome the economic difficulties, Pakistan was granted the amount that had been requested. On December 8, 1958, Pakistan received a loan of $25,000, which was the required amount that would help in dealing with the financial crisis that had affected the development of the country (Dreher, Sturm, & Vreeland, 2009). The provision of the bailout loan during this time was a significant intervention for the country. As part of the intervention, IMF and Pakistan engaged in a standby agreement that defined various policies and procedures related to the loan offered. The strategies outlined within the agreement purposed to capitalize on enhancing the accountability of the loan, considering that the country faced a major issue that concerned corruption among leaders in the government.
Additionally, the IMF provided capitalized on the provision of guidance and advice on the strategies that would be implemented to overcome the issue of the financial crisis in the future. The organization guided the country, considering that the state had continued to experience economic challenges since its establishment in 1947. The guidance intervention was necessary for ensuring that the loan given would be used to achieve a positive impact, considering the need that was established relating to the financial crisis. Considering that the loan assistance provided timely help in the given country, it is an indicator of the fact that IMF can help a member country to overcome any economic crisis that may arise from the failure of the economy. Although the intervention acted as a relief for the country, that would help overcome a financial crisis. The response would pose a significant risk for the country considering that the assistance of the monetary funding was in the form of a loan that was due for payment based on the timeline stated within the stand by the agreement.
Key Variable of the State Before, During, and After the Intervention
When analyzing Pakistan concerning the bailout, it is essential to highlight variables that are evident before, during, and after the intervention by the IMF. The analysis is vital when expounding the critical factors that may have led to the country's decision to seek a bailout from the IMF. Additionally, this would help to ensure that the money sourced from IMF was utilized effectively to ensure that proper outcomes of the intervention were achieved. Engaging in a proper analysis of the utilization of the funds is necessary during the intervention as it helps in enhancing the achievement of goals and objectives associated with the intervention. The following is an analysis of critical variables that should be considered in evaluating the period before, during, and after the intervention.
Before the Intervention
Three months before the bailout by the IMF, in October 1958, Pakistan had experienced a coup d' é tat after the military under the command of General Ayub Khan ousted the then President of Pakistan, Iskander Mirza. The result of the coup was that the country experienced a significant challenge in trying to build its economic positioning, taking into account that a majority of the business suffered huge losses due to the declaration of martial law. From a financial point of view, it was clear that Pakistan was facing a major crisis that would affect its geopolitical position (Husain, 2005). The fact that Pakistan was experiencing an economic challenge meant that some of its neighboring countries were affected, attributed to the reduced trading capacities for Pakistan. That created the need to move to the IMF to seek a bailout that would have aided towards reviving the country ’ s economy as a way of improving its ability to attract investors.
The conflict arising during the coup resulted in a situation where a majority of the companies, some of which were international companies, close down in fear of an economic slowdown. The challenge for most of these companies was that the conditions in Pakistan became unfavorable for their operations, which meant that they were not in any position to advance their capacities to operate effectively. The Pakistani government experienced a significant challenge in trying to pursue sound macroeconomic policies that would be of value towards ensuring that the country remains economically viable. The fact that a considerable number of investors were turning away from Pakistan meant that its position as an economic hub in the region was being impacted in a meaningful way. Additionally, this also said that the country was not in any place to pursue its macroeconomic policies.
President Ayub Khan, who had forcibly assumed office, wrote to the director of the IMF, which was a position that was held by the United States with the aim being towards seeking a bailout. President Khan indicated that the country's macroeconomic policies were failing to meet their recommended objectives attributed to the fact that it was challenging for the state to attract investment. Additionally, the president also indicated that a bailout by the IMF was significant in seeking to ensure that Pakistan would be able to maintain its economic capacity that it had been able to build as part of its engagement in the region. The explanation given by President Khan was a key determinant of whether the IMF would approve a bailout that would direct at improving Pakistan's economic conditions.
During the Intervention
Specifically, Pakistan sought $25,000 from the IMF, which was intended to be pumped into the economy to help stimulate economic growth prospects. The money was used to assist in stabilizing the country's economy while considering that it had been affected significantly by the coup that the state had experienced. The Pakistani government used the money for purposes of increasing its expenditure within the consumer market as a way of ensuring that it would help towards stimulating economic growth (McCartney, 2011). The impact that this had on the economic structure of the country is that it created a situation where Pakistan was able to reposition itself as being a viable economy for investment. The Pakistani government believed in the need for having to seek an intervention that would ensure that the country can highlight itself as being rather attractive to international investors.
During the intervention, the IMF was involved in an in-depth evaluation of the economic conditions within Pakistan. The primary focus, in this case, entails analyzing the changes experienced in the country's political regime. The decision by the IMF to monitor the situation within Pakistan was driven by the need to ensure that the bailout provided was being utilized in a manner that would be of value to the Pakistani people. The money provided was also used to help in easing the tax burden on the consumers within Pakistan as a way of ensuring that the people would have much higher spending power. Generally, this was a critical policy approach adopted by the Pakistani government that would see taxes reduced to accommodate spending by the people, which was an essential step towards improving the country's economic condition to help attract investors.
After the Intervention
Immediately after the intervention by the IMF, it was clear that, indeed, Pakistan was rebuilding its economic positioning in the region, as it was able to attract notable investments, especially from international investors. The bailout by the IMF was of great importance for Pakistan in its bid towards ensuring that it would be able to deal with some of the understanding of economic challenges that it was facing. The country was considered as a critical commercial hub in the region attributed to the fact that it sought to capitalize on the changing dynamics on the consumer market. That means that Pakistan was not only able to restructure itself as a leading economy in the region but was able to able to propel economic stability as a critical aspect of consideration towards defining its capacity to attract investment.
Pakistan was able to pay the money loaned as part of the bailout by 1964, after which the country went ahead to request for other monetary facilities from the IMF. After the Pakistani government had repaid the loan by the IMF, it then borrowed a loan facility of $ 37,500 on March 16, 1965. The Pakistani government believed that the effective utilization of these loan facilities was essential to ensuring that the country would be able to promote its economic status. To date, Pakistan has been given at least 21 loan facilities by the IMF, all of which have been directed towards improving the country's economic conditions. The 1958 bailout of Pakistan by the IMF was a critical intervention that helped towards ensuring that Pakistan remains on a steady financial path. The continued financial interventions from IMF has helped in enhancing the economic growth and development of Pakistan and has helped to overcome the recurrence of financial crises.
Conclusion
The International Monetary Fund (IMF) is an international organization that engages in different measures to assist countries that require assistance following different economic situations such as financial crises. On December 8, 1958, Pakistan received a loan of $25,000, which was the requested amount that would help in dealing with the financial crisis that had affected the development of the country. IMF provided capitalized on the provision of guidance and advice on the strategies that would be implemented to overcome the issue of the financial crisis in the future. Three months before the bailout by the IMF, in October 1958, Pakistan had experienced a coup d' é tat after the military under the command of General Ayub Khan ousted the then President of Pakistan, Iskander Mirza. Pakistan sought $25,000 from the IMF, which was intended to be pumped into the economy to help stimulate economic growth prospects.
References
Dreher, A., Sturm, J. E., & Vreeland, J. R. (2009). Global horse trading: IMF loans for votes in the United Nations Security Council. European Economic Review , 53 (7), 742-757.
Zaidi, S. A. (2005). Issues in Pakistan's economy. OUP Catalogue .
McCartney, M. (2011). The Pakistan-the political economy of growth, stagnation, and the state, 1951-2009 . Routledge.
Husain, I. (2005, February). The economy of Pakistan: an overview. In Key Note Address at the Expo 2005 Conference held at Karachi on February (Vol. 3, p. 2005).
