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Archive for January, 1994

Financial Credibility

The enactment of the State Bank of Pakistan (SBP) Ordinance of October 5, 1993 by the Moeen Qureshi Administration giving the SBP considerable powers of autonomy with respect to monetary policy and the subsequent repeal by the present Ms Benazir regime as well as a fresh Ordinance replacing it thereof on Jan 1, 1994 has aroused quite a level of intellectual discourse within the economically knowledgeable both within and outside the country. The question of the impact on economic management has become of topical content and needless to say, well-wishers are looking forward to some kind of equitable working arrangement separating fiscal policy from monetary policy which would be in the best interest of the country’s economy.

The principal question to answer is what should be the level of autonomy of a Central Bank in a country like Pakistan? It is commonly believed that in developing countries Central Banks are (and must be) universally subordinated to the Government in the overall economic interest. The factual relationship could be the other way around, mainly that Third World countries have remained backward because among other things they have not allowed the development of various institutions vitally necessary for the emancipation of the economy. This is not much unlike the process of democracy building its roots in a country, dependant mostly on strong policies rather than the frequent holding of elections or number of political parties, etc. It is extremely important that developing countries promote institutions like the Central Bank, the various planning agencies and related financial institutions so that they can graduate into financial maturity. It is a tragedy that in Pakistan there is no tradition of commercial banks or other financial institutions having full-fledged Policy and Research Departments. Therefore, our Economic Analysis is generally very poor and usually not backed up by the information data that is the prime pre-requisite of carrying out such evaluation e.g. credit rating and project appraisal agencies in the private sector, it being understood that public institutions will always be under pressure to produce favourable data for the government in power. The aforementioned must constitute the backbone of correct decision-making for resource allocation by the government.


Banking on Trouble

One of the most important Ordinances enacted by the Moeen Qureshi Caretaker Administration was the State Bank of Pakistan (SBP) Ordinance of October 1993. This gave virtual autonomy to the SBP thereby separating the governance of fiscal and monetary policies. This Ordinance was due to expire on Feb 5, 1994 if it was not passed by the NA or the Senate but it was repealed on Jan 1, 1994 and replaced with another which has considerably curtailed the independent status of the SBP. To understand the intricacies of the how and what for, one must come to layman’s terms with certain economic facts that govern fiscal and monetary policies and the mutual relationship thereof.

Market oriented economies have three principal objectives, viz. (1) economic growth (2) financial stability and (3) viability of external sector of the economy. While economic growth is self-explanatory, financial stability requires price stabilization, maintenance of people’s confidence in the currency of the country and the viability of financial institutions while persevering with consistency in financial policies. To maintain the viability of external sector of the economy there should not be a unsustainable large balance of payments deficit and that automatic inflows over the mid-term period should take care of balance of payments problems. To achieve these three micro-economic objectives there are two sets of approaches, viz. (1), market oriented and (2) centrally planned, centrally directed approach i.e. State ownership, complete regulation and direction, etc.


Gunfight at the OK Corral

The Birth Anniversary of late Zulfikar Ali Bhutto the founder-Chairman of PPP, was celebrated with some fervour by his heirs and their supporters, principally in Larkana and at his gravesite nearby in Garhi Khuda Baksh. If he had been alive, the late lamented leader would probably have wished that the fireworks display would have been of the non-lethal kind and better targeted in the air than at each other between his surviving siblings. At least three innocent people lost their lives in the firefight between the police and Murtaza supporters including a policeman on duty who died a lingering death due to a bullet-inflicted stomach wound. What had been taken universally as a stage-managed farce in continuation of the drama (the incarceration of Mir Murtaza Bhutto) played out to placate the doubts of those who were turned off at the Prodigal Son’s terrorist connections (Al-Zulfikar, RAW, etc) has suddenly turned deathly serious. The entire exercise may or may not have been a “Noora Kushti” meant to distance the PPP hierarchy from the terrorist overtones acquired by extremists among the Party elements over the Martial Law years, the initiation of a cycle of bloodletting has created new dynamics, unleashing demons lower down the pecking order that may run totally out of control. Others may revel in the never ending misadventures of the Bhutto family as regards familial peace and harmony but this is a continuing tragedy that must come to an end. For the sake of the Bhutto family and the Pakistan Peoples Party, sane counsel must prevail to terminate this insanity. While the functioning of the government may not have come to a standstill, it has certainly been severely affected to the detriment of the people of Pakistan. Despite her personal travails (and possible anguish), Ms Benazir has managed an extremely brave front, essentially remaining a class act.


The Cracks Widen

For the first few weeks after coming to Federal power, the Ms Benazir government could do no wrong. Instead of rushing into many things at one time, it adopted a more deliberate posture. While its authority in the Sindh Assembly was undeniable, the PPP-PML (J) combine increased its majority in Punjab to make a comfortable government. The PPP masterpiece was the process leading up to the election of Farooq Ahmad Khan Leghari as President. In contrast to this high point, the PML (N) Opposition touched its lowest ebb, the final desperate offers of the Presidential candidacy to all comers gave the impression of desperation and total disarray. Yet ten weeks into what should be an unquestioned rule, the PPP is caught up in a series of self-created problems as well as the impossibility of governing a country like Pakistan by adopting the safe course of status quo and survive, more so when the intelligentsia and the people have got used to the dynamism and movement of constant initiatives and change which was the hallmark of the Nawaz Sharif regime. Even the caretaker regime of Moeen Qureshi recognised this. While frenetic activity by itself may not necessarily mean development and progress, the general public tends to have a positive view of their leaders as striving hard on their behalf for economic emancipation. The psychology of public perception drives Third World populations rather than any acknowledged fact, therefore, any government that shows indications of inactivity, indeed of apathy in letting some widely hailed ordinances lapse, may soon find itself in deep trouble.