The Case of the Missing Report – Part 2

January 30, 2025
bill
Debriefing 101, IMF
1 Comment

Today, we solve the ‘Case of the Missing Report’. Recall from – The Case of the Missing Report – Part 1 – that the Asian Development Bank published a report I had written (with Randy Wray and Jesus Felipe) – A Reinterpretation of Pakistan’s ‘economic crisis’ and options for policymakers (draft version) – in June 2009 as part of work I was undertaking for the Bank at the time on economic development in Central Asia. The report was published on June 1, 2009 as an official ADB Economics Working Paper No. 163 after our presentations were enthusiastically received at the Bank during seminars we gave. The Report was indexed by the major bibliographic and indexing services and evidence of that report still exists today. For example, the Asian Regional Integration Center provides a link to some 30 records covering – Pakistan – including our ADB paper with the official publication date. The ‘official’ link to the publication – https://www.adb.org/Documents/Working-Papers/2009/Economics-WP163.pdf – however, now returns a ‘Page not Found’ error. Then, if you search for ADB Economics Working Paper No. 163 on the ADB WWW Site you will find another paper – The Optimal Structure of Technology Adoption and Creation: Basic Research vs. Development in the Presence of Distance to Frontier – which somehow became Working Paper No 163 and was also published in June 2009. So what gives? How did our ADB Economics Working Paper No. 163 disappear from the face of the Earth to be replaced by another ADB Working Paper No. 163, all in the space of a day or so? In this Part 2 of the ‘Case of the Missing Report’, I provide the solution to the mystery.

The reason I can now talk about this publicly is because our co-author Jesus Felipe, who was at the time a senior economist with the ADB has now left the organisation and is currently a professor of economics at De La Salle University in Manila.

That means he is no longer under the authority of the ADB and that means I am free to talk about this case without harming his professional career.

But before we solve the ‘Case of the Missing Report’, let’s consider the immediate period following the ADBs publication of our work as ADB Economics Working Paper No. 163 on June 1, 2009.

The media storm that followed the publication on June 1, 2009

The initial press response was amazing.

In the first few days of June 2009 following the publication of our report by the ADB, a number of press stories discussed the recommendations.

For example:

1. http://www.thenews.com.pk/daily_detail.asp?id=181085 – status no longer available.

2. Standby Arrangement – ADB raises serious reservations over IMF Conditionalities (June 4, 2009) – no longer available but I kept the text that was published at the time.

3. ADB suggests medium-term policy package for Pakistan (June 5, 2009) – no longer available but I kept the text that was published at the time.

4. ADB report says Pakistan `living beyond its means` (June 3, 2009) – still publicly available on-line.

5. IMF programme no solution to Pak economic ills: ADB (June 4, 2009) – still publicly available on-line.

The first major report came on June 3, 2009 and was written by Amin Ahmed in the Dawn E-Paper – ADB report says Pakistan ‘living beyond its means’.

Dawn is “Pakistan’s most trusted outlet for the breaking, latest and top news across the country and the world”.

The article however seemed to get the message of our work somewhat muddled.

It took our reporting of the IMF position that Pakistan’s “burgeoning current account deficit indicates Pakistan was ‘living beyond its means’ with excessive domestic demand boosting imports and fuelling the inflation which restrict exports” as if it was our own position and called it an “orthodox interpretation of the external financial situation of the country”.

It went further and claimed that we argued that “both monetary and fiscal policy ought to be tightened to encourage such capital flows even as this reduces the need for them”.

And then when the journalist reached the next section of the Report the message changes dramatically (because this was our own contrary analysis of the IMF’s position):

The report recommended that tax and spending reform should be formulated to accomplish economic, social, and political objectives rather than to hit a deficit target. The government will find it very difficult to achieve its budget deficit target even if it were to cut spending on social services like education, health, etc. and development expenditures drastically.

This is because such draconian cuts would likely throw the economy into a deep recession that would reduce tax revenues.

It also noted that:

… the report … [notes] … that there was still latitude within the constrained policy environment to pursue more sustainable outcomes than those established by the limited horizons set by the IMF agreement.

1. “Pakistan needs to foster conditions that will reduce its dependence on imports … However, the orthodox solution to a current account deficit will actually make it more difficult for Pakistan to reduce dependence on imports.”

2. “For the medium-term, the report suggests a package of policies that includes reorient emphasis towards employment-creating policies and away from growth for-its-own-sake policies; reformulate tax and transfer policy; address the external deficit and the fall in international reserves in a manner that does not lead to domestic stagnation, unemployment, and poverty.”

The AAJ News article (June 4, 2008) Standby Arrangement – ADB raises serious reservations over IMF Conditionalities – (no longer available but I kept the text that was published at the time) – said that:

The Asian Development Bank (ADB) has surprised the economists of the country, saying that the IMF programme loan of $7.6 billion under Stand By Arrangement with its conditions is not the right recipe for Pakistan’s economic ills.

It quoted us:

‘Indeed, we believe that the IMF conditions will reduce the capacity to engineer a solution to the problems of inflation and falling foreign currency reserves without increasing the unemployed buffer stock,’ said Jesus Felipe, William Mitchell and L. Randall Wray, the authors of the ADB’s report titled A Reinterpretation of Pakistan’s Economic Crisis and Options for Policymakers released here on Wednesday.

‘While the IMF statement suggested it is keenly aware of the need to deploy a socially acceptable solution, we consider that a policy strategy based on fiscal austerity will create unacceptable levels of socio-economic hardship in Pakistan,’ the report said.

It went on to detail the main findings of our Report.

On June 4, 2009, the Business Recorder (article now suppressed) wrote from Islamabad that:

The Asian Development Bank (ADB) has raised serious objections on IMF conditionalities under the “standby arrangement”, with the argument that the IMF agreement reflects “conventional” approach to dealing with macroeconomic imbalances in Pakistan.

An ADB working paper on the assessment of IMF program and its conditionalities, released on Wednesday, contains policy advice that differs markedly from that of the International Monetary Fund ….

The article was highly supportive of the IMF program and hostile to our work.

It said basically the ADB should butt out:

… multilaterals have areas of expertise that they strictly adhere to in the spirit of harmonisation among the multilaterals so as not to duplicate efforts. IMF remains the institution that has the necessary expertise to deal with macroeconomic issues.

At the end of this article, the Business Recorder wrote:

[NOTE: The Working Paper was pulled off the ADB series on June 5, 2009 and its number in the index replaced by another title and paper altogether]

Another article (June 5, 2009) – ADB suggests medium-term policy package for Pakistan – (no longer available on-line) – said our ADB Report:

… has suggested that policymakers in Pakistan should adopt a package of policies that include reorient emphasis toward employment-creating policies and away from growth for-its-own-sake policies.

It correctly noted that:

1. “a comprehensive job creation program can play an important role in moving the economy to full employment while simultaneously enhancing wages and prices stability.”

2. “Pakistan is an economy characterized by vastly underutilized resources. These resources are available for production and can help the economy respond in real terms to a sustained increase in nominal demand for goods and services.”

3. That “there may be supply bottlenecks that can retard growth.”

4. “concentrating exclusively on the financial problems will not provide a long-term solution and a sustainable development path … austerity programs, derived from the premise that Pakistan has been living beyond its means, will reduce the capacity of the government to engineer a solution to the structural problems that afflict the country.”

5. “the existence of very large underutilized resources indicates that Pakistan is living below its means. The austerity approach to policy may restore foreign reserves and slow inflation but it provides no sustainable path to engineer the conditions that will support growth. Once growth is reactivated, the same structural impediments that were dormant during the austerity period would return to endanger economic stability.”

6. “the size of the budget or of the deficit … should be analyzed in the context of the objectives to be achieved, in particular, how to keep the total spending in the economy at the rate necessary to ensure that all the goods that is possible to produce are purchased. In this sense, the idea of balancing the budget (over a decade, during a year, or at the end of each fortnight) becomes a meaningless objective.”

In a followup article by Hussain H. Zaidi – Hoping for a bailout (August 23, 2009) – challenged “whether the IMF programme offers a credible solution to the country’s macro-economic problems”, which was obviously the topic of our own work.

The author concluded that the “IMF-sponsored programme is a bailout and not a development package” and will “contribute little to reducing trade deficit, which is the major component of the current account deficit and source of the balance of payment (BoP) problem.”

The author also said that the “restrictive monetary and fiscal policies may aggravate the supply-side inflation mainly by acting as a drag on growth and investment. Already, the growth rate has fallen from 5.8 percent in FY08 to 2 percent in FY09 including 7.7 percent negative growth of large-scale manufacturing.”

Then our Report was referred to:

A report titled “A Reinterpretation of Pakistan’s Economic Crisis and Options for Policymakers” released in June last by the Asian Development Bank (ADB) maintained that the IMF programme was no solution to Pakistan’s problem. The report builds on the arguments of economist Joseph Stiglitz, who said, “Stabilisation policy cannot be separated from growth policy. Failure to stabilise may hurt growth, but stabilisation, in the traditional sense of the term (price stability and fiscal adjustment), does not necessarily lead to economic growth.” The report suggests that rather than pursue a restrictive fiscal policy, the government should mobilise domestic resources to improve incomes and overcome supply-side constraints.

The conclusion – “the government should shore up the productive capacity of the economy for which it needs to step up the level of investment. This entails increase in public spending through an expansionary fiscal policy. Once the economy gets momentum, public revenue will increase provided loopholes in tax collection are plugged.”

The sheep start to panic

As these media reports were coming out, some senior official in the ADB (I won’t name names) felt insecure and an official disclaimer was issued to the media on June 5, 2009.

The Daily Times, which is a leading media source in Lahore and which had published a story on our Report (June 4, 2009) bowed to pressure from the ADB and published the disclaimer on June 5.

The Daily Times link – http://archives.dailytimes.com.pk/national/05-Jun-2009/adb-clarifies-news-article-on-pakistan-economic-package – now triggers a ‘404 Not Found’ error.

But the disclaimer is still visible via this site – ADB clarifies news article on Pakistan economic package – which is interesting in itself.

The disclaimer read:

LAHORE: Daily Times wishes to clarify a news item printed in the paper on June 4 regarding the Asian Development Bank (ADB) suggesting a medium-term policy package for Pakistan.

The Asian Development Bank clarified the news item, “Asian Development Bank (ADB) suggests medium-term policy package for Pakistan”, printed in Daily Times on Thursday.

“We would like to clarify that the views expressed in the Economics Working Paper No 163: A Reinterpretation of Pakistan’s “Economic Crisis” and Options for Policymakers, available on the ADB website, are personal to the authors and do not at all represent the official position of the ADB. In fact, these papers carry the prominent disclaimer that the views expressed do not reflect those of the ADB, its executive directors or those of the members they represent,” the ADB said. “The Economics Working Papers only provide a forum for stimulating discussion and eliciting feedback on key contemporary economic development issues. ADB, however, does not express its official views and perspective through these papers. Unfortunately, your correspondent seems to have missed this point. Let us also add that the ADB fully agrees with and supports the economic stabilisation programme prepared and being executed by the government with support from the International Monetary Fund.”

So that is a standard sort of disclaimer and it said nothing more than the note we included in the Report itself that the views expressed in the document were our own.

But, that didn’t settle the issue.

Our document was then pulled by the ADB later on June 5, 2009, 4 days after it was published.

The Groupthink bullies flex their muscles

My knowledge of the events that followed came from various sources including my contacts from within the IMF.

None of this information came directly from Professor Jesus Felipe, while he was working for the ADB.

First, it appears that the Minister of Finance in Pakistan rang the President of the Asian Development Bank and suggested that the Government would no longer be willing to borrow from the ADB.

He also apparently demanded action against the writers and a withdrawal of the paper.

Second within minutes of that phone call, a very senior IMF official (I think the head) rang the ADB boss threatening the organisation.

I believe the ADB was told categorically by the IMF bully that only the IMF does international macroeconomic assessment and that the ADB should learn its place in the rankings of multilateral institutions and stick to making loans to Asian governments.

The IMF demanded that our Report be withdrawn.

Third, there was some internal angst within the ADB about which I won’t comment further – ‘hauling over the coals’ might suffice.

Fourth, on the same day, the ADB decided to eliminate our Report and took it off their WWW publication site.

Gone forever.

The ADB then fills the gap in its numbering – No. 163 – with some other report that satisfies the IMF and the Ministry of Finance.

Case solved.