Apr 11 - 17, 2011

Higher energy prices, fast falling incomes, monetary policy failure, unrestrained government borrowings all are telltale signs of our economy moving towards the much dreaded phase of hyperinflation. For those wishing to know the causes of the precipitating hyperinflation, reproduced below are the following lines from Niall Ferguson's book The Ascent Of Money: "Inflation is a monetary phenomenon, as Milton Friedman said. But hyperinflation is always and everywhere a political phenomenon, in the sense that it cannot occur without a fundamental malfunction of a country's political economy."

Our political economy started malfunctioning in 2007 when it came under a two-pronged attack-the onslaught of global financial meltdown and an uncalled-for domestic political upheaval that saw ouster of a regime which, despite its many weaknesses was performing in a far better way on the economic front with dollar and petrol prices pegged around Rs60, economic growth in the range of 7 percent, suicide attacks and killings of innocent at a bare minimum in comparison to those that have taken place between 2008-11.

What surprises most is the fact that those who have pushed the country to the brink of disaster are after the blood of the man who ran the previous regime. Of course, he must be extradited and punished for his crime of delaying the destruction of this country at the hands of the feudal elite. His 'crime' becomes more serious (in the eyes of the feudal elite) in view of the following commodity price comparison (the recent increase of 10-13 percent in POL products prices announced by the government on March 31 has not been factored in.


(25 MARCH 2008)
(25 MARCH 2011)
Petrol 62.81 76.58 13.77 21.9
High Speed Diesel 44.13 82.22 38.09 86.3
CNG 37.00 55.33 18.33 49.5
LPG 53.00 95.00 42.00 79.2
Wheat Flour (Atta # 2.5) 16.00 32.00 16.00 100.0
Basmati (Premium) 90.00 125.00 35.00 38.9
Basmati (Broken) 46.00 58.00 12.00 26.1
Masoor 85.00 100.00 15.00 17.6
Moong 50.00 150.00 100.00 200.0
Mash 62.00 160.00 98.00 158.1
Arhar 82.00 160.00 78.00 95.1
Gram Pulse 48.00 80.00 32.00 66.7
Basin 45.00 80.00 35.00 77.8
Sugar 25.00 68.00 43.00 172.0
Ghee (16 kg) 1700.00 2550.00 850.00 50.0
Dalda (5 kg) 720.00 975.00 255.00 35.4
Mutton 300.00 520.00 220.00 73.3
Beef (with bones) 170.00 300.00 130.00 76.5
Beef (without bones) 200.00 320.00 120.00 60.0
Poultry bird 112.00 154.00 42.00 37.5
Egg (per dozen) 49.00 69.00 20.00 40.8
Milk fresh (per liter) 40.00 70.00 30.00 75.00
Lipton YL Tea (200 gms) 70.00 125.00 55.00 78.6
Tetra Milk (Milk Pak) 44.00 70.00 26.00 59.1

We often hear of hyperinflation and envisage it as some species of inflation, thinking that perhaps we would be a little worse-off when it strikes. To have a glimpse of the horrific dimensions of this monster, a back-view of the history is taken in the following lines. After the World War-I (1923), the German inflation was 182 billion percent with prices 1.26 trillion times higher than those prevailing ten years back, and currency worth 49.7 million trillion Marks in circulation. One-trillion-Mark denominated currency notes were in use for daily transactions. A footnote in the book mentioned above reads: "The highest recorded inflation rate in history was in Hungary in July 1946, when prices increased by 4.19 quintrillion per cent (419 followed by sixteen zeros). By 1913, Argentina had developed into one of the leading rich countries of the world. Inapt economic, monetary and fiscal mismanagement brought down this country to a pitiable condition by the end of the twentieth century. Beside other factors, the root cause was monetary policy failure and political incompetence that transformed simple inflation into hyperinflation. Between 1945 and 1974, inflation in Argentina flirted with the double digits; afterwards it changed to treble digits, finally peaking in 1989 to 5000 percent.

Niall Ferguson's view of Argentina's economic demise is highly relevant to the conditions here in Pakistan. He writes "To understand Argentina's economic decline, it is once again necessary to see that inflation was a political as much as a monetary phenomenon. An oligarchy of landowners had sought to base the country's economy on agricultural exports to the English-speaking world, a model that failed comprehensively in the Depression. Large-scale immigration without (as in North America) the freeing of agriculture land for settlement had created a disproportionately large urban working class that was highly susceptible to populist mobilization."

Our economic policies too are biased towards generation of extra export revenues without caring for the long term implications of such short term and off-the-cuff measures. The negative side of export is that it encourages profiteering at the cost of low-income domestic consumers, under the garb of earning foreign exchange for inapt and corrupt governments. All such exports fall under the category of 'toxic exports'. In case of Pakistan, grain, fruits, vegetables, meat, fish, dairy products are brazenly exported to sustain external account position with little thought and regard for the undernourished and below-the-poverty-line masses. The food price inflation gets nourishment from the export-driven shortage of eatables for the undernourished. The views on inflation given in early twentieth century by the English economist John Maynard Keynes are as relevant to our inflationary economy as any other in the world. He said "By a continuing process of inflation, governments can confiscate secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some."

Will the monetary, fiscal, and political authorities check the heinous process of confiscating the wealth of the citizens of Pakistan? Will they stop helping the minority to become richer at the expense of the impoverished majority? Will they care to save this nation from the devastating effects of the impending hyperinflation?