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Public Accounts Committee

OPPORTUNITIES FOR THE GOVT

The balance of payment crisis has been aggravated by major currency devaluations taking place over the past few months, the Rupee plunging 15% since December last. Surprisingly the currency has appreciated by 4% .e. Rs 7.00 since Imran Khan’s elections on July 25. The State Bank having had to raise interest rates, the current-account gap widened by 43% in the last fiscal year with foreign-exchange reserves dropping alarmingly to $ 9.1 billion. While a China- sponsored “bailout” is rumoured, the newly elected govt might approach the International Monetary Fund (IMF). These loans come typically with strings attached i.e. curbing fiscal deficits, tighter monetary policy, etc one can expect even tougher conditions given that many structural reforms promised to the IMF were either delayed or not done by the previous govt. The US being front and center in any IMF initiative, one can also expect another boat of “do more”.

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Stock Market and Yupsters

The dollar took another beating on the world currency markets as a direct result of the US trade figures for February which showed the deficit increase by over US$ 1.4 billion, reversing the trend of the past few months. The US dollar promptly bounced back buoyed by the positive trade figures for March. At the moment it is going both ways. The earlier downturn triggered a sympathetic fall in the Dow Jones Index, the gnomes on Wall Street bringing it down a sharp 100 points or so. On the other hand, the Geneva Accord on Afghanistan fetched nary a blush and served as a significant example of the prevailing perceptions of various forces to paper agreements that (1) the Russians are using the Accord as a mere propaganda ploy as a backdrop of the Reagan-Gorbachev Summit in Moscow in May 1988, having no real intention to go back and (2) the world of paper currency is increasingly getting divorced from happenings that are not real to them. There was a time when an honest to goodness “happening” on the international scene would act as a stimulant pushing share prices in either direction but the frenetic pace of panic selling/speculative buying is now linked to the vagaries of Corporate behaviour, Superpowers and Multi-nationals included. Having had their bits and chips snipped to the extent of trading within a span of 50 points up or down, computers are programmed to go into a limbo thereafter, while the market adjusts itself to real time. This fail-safe mechanism is meant to avoid a Wall Street meltdown a la Chernobyl, which almost happened on Black Monday last October when programmed computers set off a chain reaction almost leading to economic apocalypse.

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