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Archive for July, 1998

It pays to be bold a (not reckless)

Edmund Burke writing “Thoughts and Details on Scarcity”, noted about the masses, “And having looked to Government for bread, on the very first day of scarcity they will turn and bite the hand that fed them”, unquote. PM Mian Nawaz Sharif may have cause to ponder on Burke’s observation, particularly when he looks at his so-called natural constituency, the business community. The PM and the Federal Finance Minister should refer to Field Marshal William Slim’s “Unofficial History”, in particular the chapter entitled “It pays to be bold”. The steps taken in the new economic regime with respect to foreign exchange and trade are in the right direction but they do not go far enough, they are still too little. The government may have bought some time and so it is still not too late to bring in radical changes that will restore confidence in Pakistan’s economy.

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Five Minutes to Midnight

The Punjab CM, Mr Shahbaz Sharif, and the Federal Finance Minister, Senator Sartaj Aziz, air-dashed to Abu Dhabi and Saudi Arabia this week in a desperate effort to get funds so as to keep the country from defaulting. The Nawaz Sharif regime inherited US $ 300 million only in foreign exchange reserves in early 1997 but had raised them to US$ 1.3 billion in about 18 months, the imposition of emergency on May 28 and the deep freeze of all foreign currency accounts changed all that. In the face of sanctions a temporary measure could have been overlooked by the investing public but when it became apparent that the Government was dead serious in wanting to Rupee-fy the deposited US dollars at the official rate, the public confidence rapidly eroded. Since then a rather erratic course has been followed with disastrous consequences.

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The Thin Green Line

Gen Babar seems to have a born-again reputation in Karachi, many admire him openly, many more surreptitiously. He was derided and reviled when at a very bloody price he brought peace to Karachi and gave Ms Bhutto a tenuous respite to launch desperately needed economic initiatives. Unfortunately she only initiated cosmetic proposals, high on rhetoric, meagre in substance. The root cause of Karachi’s problems being economic, this fissure is being exploited for narrow selfish ends, mainly on ethnic basis. A major part of the populace being Mohajir face acute economic disparity, maybe in lesser quantum than in other parts of the country but in much more concentrated density. The Central District and other areas like Landhi, Korangi, Orangi etc, are at best ghettos. While other communities share similar backward localities deprived of basic socio-economic facilities throughout the country, the maximum square miles of misery are populated by Mohajirs — thus MQM fulfilled the need for raising a voice in protest, formerly Mohajir Qaumi Movement eventually became the Muttahida Qaumi Movement, change of name but no change of character. In a change of substance and direction inasfar as the leader, Altaf Hussain, seems to have made an individual transition from leader in Pakistan to gradually assuming the role of leader of all displaced Indian (and Pakistani Muslims of Mohajir origin) all over the world, particularly in UK, USA and the Middle East. Looking beyond the Pakistan identity is a most dangerous development — a subtle but deliberate cleavage created in the body politic of the Pakistani nation. Whereas the great silent majority of Mohajirs want to live in peace and harmony despite their misery, privation and travails, a vocal militant minority is hell-bent in holding both their own ethnic minority and the entire country hostage, Karachi being the economic jugular vein of Pakistan.

The MQM continues to command adulation and respect amongst the Mohajir supporters. There are reservations about their militancy. There are also deep schisms with splinter groups like the Haqeeqis and Goga’s crowd (BACK) becoming quite potent, not quite the size to counter the mainline MQM but neither insignificant enough to be shrugged off as of only nuisance value. Of deep concern is the fact that a large number of MQM cadres were trained in India as terrorists, it is now an open question which master’s voice they now listen to. There is open-ended danger to the Federation in allowing them to run scot-free, a fact well-known to the PML(N) leadership. Yet the PML(N) persistently attempts appeasement to keep the political alliance intact, to keep the Sindh Government nominally a PML(N) one. For the sake of the party politics, the fate of the country has been thrown as a dice into the ring.

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Overcoming the FX Crisis, Pragmatically

Brutally expressed, there is no further credibility left in our written sovereign commitments. That erosion of confidence has seen a massive outflow of US dollars as witnessed by the depreciation of the Pakistani Rupee, the difference being unofficially upto Rs 9 at one time. From May 28 onwards there has been a series of ill-considered initiatives, starting with the deep-freeze of all foreign exchange accounts, that has undercut Pakistan’s future as a guarantor of any financial agreement or transaction. The net result is that inward foreign exchange remittances have mostly dried up, at least along the legal route and in the present environment, and for the foreseeable future, because no one is going to trust Pakistan’s word. The crucial element in the gameplan to the sanctions was remittances by expatriates, these will not be forthcoming anymore, unfortunately that confidence flow has dried out.

Why did things come to such a pass? Unfortunately out of the US $ 11 billion that came into the foreign currency accounts since 1992, almost 70% was used up by the Benazir-Zardari government. What the Caretaker Regime inherited in late 1996 was almost a bankrupt kitty, in turn they passed on only a few weeks of foreign exchange reserves to the Nawaz Sharif regime in 1997, about US $ 300 million only and that took some doing by Shahid Javed Burki who was looking after the Finance portfolio in the Caretaker regime. Fresh remittances and austerity measures had built up the Reserves to US$ 1.5 billion over the past 18 months. It is now a fact that withdrawals of almost US $ 150-200 million from May 23 onwards convinced the government that the nuclear blast would cause panic withdrawals because of the anticipated economic sanctions. The result was the imposition of emergency and the deep freeze of all foreign currency accounts. As a temporary measure it could have been overlooked by the investing public but when it became apparent that the government wanted to Rupee-fy the deposited US dollars on GoP terms, the public confidence rapidly eroded. Since then the erratic course followed has been a multiple disaster for the country. Since credibility is a must factor for those seeking to establish financial havens, we are a non-starter in this category. As this article goes into print, the zigzag policy persists and as Maxim suggested in last week’s (Saturday July 4) cartoon in THE NATION, someone would have to be mental to send money into Pakistan.

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Damage control

Even for a country used to rapid changes in its destiny, the months of May and June 1998 have at least equalled if not surpassed our past history of ups and downs. From the limits of despair on May 11 to the high point of euphoria on May 28 was a substantial change by any measure. We now begin July back in the throes of impending disaster, economic and political. Far from capitalising on their golden moments, the Mian Nawaz Sharif regime’s performance has been disappointing in not being able to exploit the opportunities it had at the beginning of June. The result has been sustained confusion and ambiguity that has made even the future of this country uncertain. As a confirmed admirer of Mian Nawaz Sharif for some time, it is sad to note that Mian Sahib has lost opportunity after opportunity to institutionalise a crisis management process, simply because he cannot seem to grow out of the flattery dished out by his inner circle.

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