IMF program after all

  • Getting worse before getting better

There seems more than a grain of truth in news circulating about the government finally signing a bailout program with the IMF. Hopefully they will not deny it any longer any let some sense of sanity return to the capital market as well. Going by the grapevine, the program is going to be to the tune of $12 billion. That, if true, makes sense considering the strained state of the deficit. First the government claimed it was shocked at the state of affairs, although all it had to do was visit the state bank website, especially since it was contesting the election.

Then it considered novel ways of overcoming it. But those just largely failed and, despite the PR value, only added to the long term debt at the end of the day without raising any real hopes of surviving the outgoing fiscal. IMF, therefore, was only a ‘sooner or later’ question. And there’s plenty to suggest that, since we were staring nothing less than default square in the face, it would have been better to shake on a deal immediately after taking office. That would have avoided the uncertainty of the last seven months, which had a pronounced effect on foreign investment; direct as well as portfolio.

But let’s still see where we stand on the eve of signing. Inflation, year-on-year for February, just clocked in at just under eight-and-a-half percent, highest in six or so years. The rupee has already been sent through the floor. Interest rates are very high. Gas, petrol and electricity prices have been raised. Yet there’ll be a lot more readjustment now under a probable Fund umbrella. And the Average Joe, who just bore the brunt of the government’s failed adventurism, must go through the whole process all over again. So, brace for yet more austerity. It will certainly get a lot worse before it gets any better.