Neoliberalism And Elite Capture in Pakistan: The Nawaz Sharif Era

In the 1990s Pakistan found itself at a dangerous crossroads. Parliamentary democracy had just been restored after military dictator Zia’s death in an air crash. Political culture reflected immaturity of ruling classes, state institutions were weak and the economy was becoming dependent on Structural Adjustment Programs led by the IMF. At this moment the Pakistani middle classes elevated a businessman-politician, Nawaz Sharif, to the stature of national leader.

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This didn’t merely represent a change of government. This was in fact the arrival of a new economic order where the distinction between public power and private wealth increasingly became blurred.

In 1988, parliamentary democracy was restored in Pakistan. Military dictator General Zia died in a plane crash. Benazir Bhutto became the Prime Minister. Those were years of momentous changes on the world stage. The Soviet Union—one of the poles in the bipolar world of the Cold War—was about to find its place in the dustbin of history. Euphoric voices claiming victory over the second authoritarian ideology of Communism (after the defeat of the first authoritarian ideology of Fascism in the Second World War) were coming from the intellectual circles of Western capitals.

Some of these claims, like, the End of History claim—were funny. Interestingly, the West, which was about to claim victory over planned economies and societies of the Soviet Block, was led by the United States and Britain—the two countries whose leaders were espousing neo-liberal economic paradigms and business practices in their societies.

With the collapse of Soviet Communism, it was a liberal democracy coupled with neoliberal economic thought that occupied the top ladder of victory on the world stage. Under Washington’s—and financial institutions led by it, including IMF and World Bank—influence neo-liberal economic thought started to penetrate deep into Soviet Bloc countries of Eastern Europe. Deregulation of trade and financial markets, privatization of public sector enterprises and corporations, and minimum role of the state in economic and financial matters became essential policy options for countries of the Eastern Block and new emerging states in the former Soviet Union.

Washington and the financial institutions it led started pushing for free trade among sovereign countries at the international level. The panacea offered by neo-liberal economic thought started to quickly spread into every nook and corner of the world—there was no one to resist.

Under the Structural Adjustment Program agreed upon between the successive governments in Islamabad and Washington, the IMF and World Bank government’s regulatory powers were greatly seized, the government drastically decreased support to the agricultural sector and almost stopped subsidizing. The growing power of the capital and increased influence of transnational companies pushed the Pakistani state away from the role of a welfare state.

Nawaz Sharif and his government represented the influence of big money on Pakistani society. This was clear when Nawaz Sharif’s government enacted legislation that made a reversal of the privatization process legally impossible, “The new laws were not only about the favoritism for privatization but provided an edge to corporations over the government. Among many other provisions, it affirms that the privatized unit cannot be taken back for any reason,” reads a research paper on the influence of neo-liberal thought on the policy-making processes in Pakistan in the 1990s.

By the time Benazir Bhutto and Nawaz Sharif started playing musical chairs in Islamabad, Pakistan’s economy became deeply dependent on foreign financial assistance. The Zia regime received massive financial and military assistance from Washington after it became part of American CIA secret operations to militarily assist Afghan Mujahideen against Soviet occupation forces in Afghanistan.

But General Zia was the first one to request a bailout package from the IMF on the conditions of structural adjustment in the economic system. Zia, however, was reluctant to get entangled in IMF conditionalities which were deeply unpopular with Pakistani masses. He was already extremely unpopular and decided to discontinue the IMF program after receiving the first tranche. Benazir and Nawaz Sharif governments, faced with financial crunch in the wake of US sanctions and drastic reductions in foreign remittance in the wake of the First Gulf War, succumbed to the pressure of the circumstances and entered Structural Adjustment Programs with the IMF for financial assistance.

The 1990s saw a steep rise in poverty, with poverty increasing from 26.6% in 1993 to 32.2% in 1999, and the number of poor increasing by over 12 million people. “The content of economic policies that have been pursued in Pakistan since 1991 (till the end of the decade of 1990s) by different regimes is almost identical. What has been missing is their continuous and consistent implementation with abrupt swings in priorities resulting in incomplete projects or cost overruns”.

The practical form of neo-liberalism assumed in Pakistani society was Structural Adjustment Programs offered by the IMF to successive civilian and military governments in the post-Zia period. The IMF started offering Structural Adjustments Programs to economically unstable countries as conditionalities in return for loans in the early 1980s. Structural adjustment programs were free-market reforms offered as conditions for extending loans on the assumption that they would make the nation in question more competitive and encourage economic growth.

IMF reforms took place amid a political culture that was defined by four crucial factors. First, the death of a military dictator has restored democracy in a society which lacks strong political institutions. Second, the military-bureaucratic elite still dominated the political structures. Third, political parties were weak and patronage driven. Fourth, economic policy making processes were under foreign influence.

In the meantime, the Soviets withdrew from Afghanistan, which led to a factional civil war between Mujahideen groups who were previously engaged in armed struggle against Russian forces. Afghanistan became a hub of international terrorism as foreign fighters—especially Arab fighters. Pakistani society saw a steep rise in religiously inspired militancy and extremism.

Ironically, the rise of ultra-rightist groups in Pakistani society coincided with the penetration of neo-liberalism as an economic thought in the power corridors of Pakistan. The traditional left, part of which was engaged in alluring cultural productions in the early four or five decades of Pakistan’s existence, got buried in this process. There was nobody left in society to draw attention to cruelties associated with social and economic inequalities, a phenomenon that assumed horrendous form in the 1990s.

Society started to be fed with Islamist-led propaganda with implicit justifications for glaring social and economic inequalities—inequalities that started to be generally perceived as an act of God.

Islamist groups in Pakistan generally fought against communism in the Cold War era—an era that witnessed deep ideological conflicts in Pakistani society. Pakistani Islamists saw the sanctity of Private property as the first principle—Maulana Maududi particularly advocated that Islam gave sanctity to property rights, a principle which made Islam distinct from communism—based on which they opposed Soviet communism.

Pakistani Islamists were claiming their victory in the collapse of Soviet communism after the Cold War and were ascribing this collapse to the Islamist-led valiant struggle of Afghan people against communism in Afghanistan. Islamist ideologies like Maulana Maududi supported the rights of feudalism in opposition to land reforms in his political career. Islamist parties’ alliances with the big industrialists and wealthy traders are well-documented facts in Pakistan’s political history.

The financial support offered by urban traders to post-Islamist and religiously inspired militant groups is also a well-known fact. It is difficult to establish any direct link between the operations of neo-liberal economic thought in Pakistani society and religious groups in our society. But one thing is for sure, the first facilitator of neo-liberal economic thought in Pakistan’s political history is also considered the chief sponsor of Islamists in the society. Yes, I am referring to General Zia-ul-Haq.

Besides, the overly noisy Islamists never opposed the operations of neo-liberalism that started in the Zia era and continued and were accepted by the ruling parties in the post-Zia period. Of course, Islamists opposed IMF loans and conditionalities attached to them on the point that these conditionalities acted against Pakistan’s sovereignty.

Pakistani Islamists’ ideologies were close to free market philosophies and have never made social and economic inequalities the main plank of their political campaigns. It would not be an exaggeration to suggest that primarily because these Islamist ideologies were projected in fully developed form in our society during the Cold War and in opposition to left-oriented intellectuals and left-of-center political parties, these ideologies developed an inclination to be supportive of policies and ideas espoused by Pakistani state machinery to spawn a framework of social and economic inequalities in our society.

Islamists were the partners of Pakistan’s military establishment during the Cold War. In contrast, look at how Islamist ideologies were developed and projected in neighboring Iran, where Islamists like Ali Shariati were presenting a synthesis of Islamic teachings on social equality and Marxist thought on erasing social and economic inequalities in Iranian society.

The chief sponsor of Islamists in our society, General Zia-ul-Haq sounded like a pragmatist when he withdrew from IMF’s Structural Adjustment Program, which he first signed in 1982, received its first tranche and after sensing that the conditionalities of withdrawing subsidies and increasing electricity and gas tariffs would make him more unpopular than he already was among Pakistani masses. After Nawaz Sharif replaced Benazir’s first short-lived government, he launched the first substantial package of structural adjustments to the economy, “Controls on foreign exchange were lifted, the first batch of state assets were privatized, business and industry were deregulated, and public expenditures on social programs were curtailed”.

Benazir again became the Prime Minister for the second time in 1993 when an Extended Structural Adjustment Facility (ESAf) loan of $1.5 billion was signed up to be disbursed in installments, “a new regressive General Sales Tax was imposed on 268 items, import duties were further reduced and later in October 1995, the rupee as devalued by another 7 percent”. The Benazir government, however, failed to meet the other important condition of the ESAP loan, the cutting of the budget deficit from 5.6 % of the GNP to 4.0 %, with over 80 percent of the budget revenues tied up in debt servicing and defense expenditure. As a result, the ESAF loan was suspended after payment of the first tranche.

It took long and intense negotiations in Washington before the World Bank/IMF authorities agreed to replace the ESAF concession loan with a $600 million standby loan at a 5.0 percent rate of interest. After becoming prime minister for the second time Sharif continued the path of structural reforms.
In the post-Zia period almost all political leaders were pursuing the same economic policies under the influence of the IMF.

But Nawaz Sharif’s rise represented a change in the political culture of society. He was seen as the representative of the new middle class in Pakistani society which had emerged with the spread of modest levels of affluence in the urban areas. Traditionally Pakistani leaders used to come from feudal backgrounds. Nawaz Sharif was an industrialist. He started his politics with an alliance with traders and urban capital. Right from the start he was pro-privatization of nationalized industry. In western liberal democracies, capitalism is constrained by legal and representative institutions. In Pakistan’s fragile democracy, neoliberal reforms strengthened already dominant elites while weakening the state’s social obligations.

Remember 1990s was a time when many calamities hit Pakistan’s economy. Cotton crops collapsed repeatedly during the decade of the 1990s. The First Gulf War forced the Gulf States to send Pakistani labor back home with the result that foreign remittances were dramatically reduced, thus forcing more Pakistani families below the poverty line. Any disruption in agricultural production in rural Pakistan always forces more people in Pakistani society below poverty.

Two things happened, first, cotton crops collapsed, and secondly, IMF conditionalities forced Pakistani governments to withdraw subsidies to farmers, as a result small farmers were badly affected.

Neo-liberalism now is so well entrenched in our power structure and in the thought process of our ruling elites that now unregulated and unabated operations of big money are considered a process naturally built into our economic and social system

In the developing situation, the Washington twins—IMF and World Bank— were compelled to do something about their image without changing their ideological commitment to neoliberal globalization. The IMF came up with the novel idea of integrating poverty reduction with its structural adjustment agenda. In September 1999, it changed the name of its Extended Structural Adjustment Facility (ESAF) to Poverty Reduction Growth Facility (PRGF).

This reformulated lending procedure was ready when a month later the Nawaz Sharif government was swept aside by yet another military coup. The economic managers of the new administration under the leadership of a new finance minister, no stranger to the financial world of Washington, had little problem producing Pakistan’s first comprehensive Poverty Reduction Strategy Paper (PRSP) required to qualify for the PRGF loan” reads a report by Pakistan Institute of Development Economics authored by Hassan Gerdazi.

Neo-liberalism now is so well entrenched in our power structure and in the thought process of our ruling elites that now unregulated and unabated operations of big money are considered a process naturally built into our economic and social system. We only talk about the poor as if they only deserve crumbs from the fruits of affluence and resources of society, which only the upper crusts of the society deserve—this crust includes military officials, members of the ruling party, bureaucrats, top capitalists, big traders, intelligence bosses and many more, but not the downtrodden. We have been taking IMF-prescribed panacea for our economic ills since 1982.

We are still taking the IMF-prescribed structural adjustment plan as a pill to improve our economic health. Our political and ruling elite know this panacea has never worked. Our political elite knows that IMF conditionalities will deprive them of their vote bank. PPP is a classic example as its vote bank in Punjab and Khyber Pakhtunkhwa went away after the last PPP government implemented the conditionalities of IMF in return for many loans needed for liquidity requirements of the state and government.

Some Pakistani economists believe that structural Adjustments prescribed by the IMF are the need of the hour and they could have improved the health of our economy if they were consistently and continuously implemented. This never happened. There is however no disagreement among economists that IMF programs have proved deadly for the Pakistani poor. Why do the Pakistani political class sacrifice their vote for short-term financial liquidity is a question that needs answers.

To me, it appears that the Pakistani political class is essentially the worst example of pathetically opportunistic people. Besides, our political culture cannot innovate—our political leaders cannot think out of the box. In the policy-making process, they don’t dominate; it’s the military and civilian bureaucracy that dominates the decision-making processes. The irony is that our political class not only failed in ensuring the financial viability of the Pakistani state, but it could not also ensure their continued popularity in their constituencies because of their forced surrender before the IMF and World Bank.

With the advent of neoliberalism, the Pakistani state lost its hinge at the political and strategic level. Since 1982, there have been several developments in and around Pakistan that are beyond our capacity to control or influence. However, we lacked consistent policies and a political ideology to make our presence felt at the regional and international levels.

Crumbs for the poor and subsidies for the filthy rich will not revive our economy. IMF and World Bank loans might improve liquidity problems for the pompous state machinery and ostentatious political class. But potentially these loans and the conditionalities attached with them will make major segments of the Pakistani population inefficient cogs in the machine of the state—cogs that have no creative and productive function except to live a miserable and uncertain life which is dependent on crumbs dropped by the state.

We do need structural adjustment, but those should not be directed at making most Pakistanis inefficient cogs. We need structural adjustments which will make most of the Pakistani population a productive part of our economy.

The problem with Pakistan’s economy was not only privatization and IMF loans. It was that IMF programs were introduced in a political environment where democratic institutions were weak, accountability mechanisms were fragile and political power was already concentrated among elites. In such an environment the businessman-politician with neoliberal tools only accelerated the capture of the state by wealth.