ECONOMIC MANAGERS NEED TO ACT TOGETHER
Oct 13 - 19, 2008
While the President is engaged on some more important global fronts, the PM seems to be surrounded by the feudal lords who wielded little influence on previous governments economic policies. The two-time increase in wheat support prices ñ from Rs. 510 to Rs. 925 ñ brings windfall for the 70 percent growers holding large size arable lands. The small size growers will no doubt benefit from the price increase but that will be at the expense of the urban bottom-line-poor.
The chances of a bigger wheat crop are also there, but what is really going to hurt the economy is the unexpected boost to the feudal wealth which will be used to finance imported luxuries. The hatred of feudal for Shaukat Aziz now stands fully explained as he kept the wheat support prices under stern check knowing that in the absence of meaningful and radical land reforms any wheat support price increase will be counter productive. To exploit the immense potential of agriculture sector, the long-due land reforms that have now become the crying need will have to be undertaken. With the default threat already knocking at our door, we will have to resort to some extraordinary measures to ward off the extraordinary crises.
The induction of Mr. Shaukat Tarin in the capacity of financial advisor to the PM has added another echelon to our economic managers' hierarchy. Our economic and financial issues will now be tackled at three different levels - the Ministry of Finance, the State Bank and the newly inducted PM's advisory team (hope that Mr. Tarin will engage some experts to assist him). We cross our fingers and hope that no uniformity and consensus issues raise their ugly heads to delay the process of economic revival and financial rehabilitation. Our optimism notwithstanding, the following quote from DAWN makes an interesting reading:
"He (Mr. Tarin) described the central bank's move to inject $100 million as inadequate, underlining the difference in perception between the country's financial managers."
The inaugural statement of the newly appointed advisor to the PM is, as expected, directed at the "wrong" policies of the previous government. According to him, an artificial parity of the dollar between Rs.60 and Rs.62 was maintained. It should now not be difficult to understand that the parity around Rs.60 was maintained by an expanding economy and constantly growing foreign exchange reserves that touched a high mark of $17 billion and that the current distorted parity of Rs.80 is the gift of a derailed economy and fast shrinking reserves that have come down to $8 billion during a short period of less than a year.
THE COST OF DELAYED ACTIONS
The present state of our economy owes much to the adventurism on one hand and our inability to act timely on the other. We indulged in an unnecessary political adventure to dislodge a stable government with an excellent record of economic growth. Then we faltered by choosing to be a silent spectator when the economy was tumbling under the shocks of unwarranted political intervention. The state bank failed to exercise its authority by allowing swift exit of investment to Dubai which is said to have sucked, according to a highly unbalanced estimate, $5 billion to $30 billion. Assuming the outflow to be on the lower side of the estimate, we could have been much comfortable if $5 billion was made to stay in the country by forcing the foreign currency dealers to put down their shutters for some prescribed period of time. When the ship of economy is sinking, the free market concept becomes meaningless. Economic emergency is something that has to be imposed essentially at some point in time.
After elections, when the stock market was still flirting with the 15000 level, our economic managers failed to take sound policy measures to forestall any major downslide that was not difficult to anticipate in the face of an acrimonious political environment.
THE DELAYED WINDOW DRESSING MEASURES
Destabilized economies become a breeding ground for rumors. The seizure of bank lockers and freezing of foreign currency accounts are the popular kites that are seen flying all around during catastrophic times. The rumors have been put to rest by the state bank and the newly appointed advisor to the PM. The state bank has also taken some measures that include lowering of CRR from nine to seven per cent and injection of $100 million into the market. Incidentally, an equal amount is reported to have been invested by Pakistani investors in a Dubai real estate market show in a single day. This is national crime of the highest magnitude. Successive governments' failure to frame laws to punish domestic investors who multiply their wealth during good times and desert the country when their wealth is most needed by the domestic economy is a burning question. Perhaps the ruling elite know that at some time or the other, they themselves might be in need of such immunities.
Having said that, the country's economic managers now need to join forces and forge immaculate coordination to be able to impart resilience and buoyancy to the fast sagging economy. For this, they will have to come out of the "blame game" syndrome. What the previous government did is now history. It will be compared with what follows from your side. It takes nothing to tell what wrong others have done but it certainly takes a lot to show what right you are capable of doing.