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Balancing the Costs

When the Indians went public with their series of nuclear blasts in May 1998, we were already in serious economic straits. This is an enduring legacy of many past governments but more recently a gift of the Bhutto-Zardari combine that ruled over us from 1993 to 1996, the Mian Nawaz Sharif regime has since been fighting a losing battle. The Indian nuclear blasts presented us with an opportunity to come out of the nuclear closet but it was quite clear that the western powers would make us pay an economic price for the luxury of exploding the bomb. Even then, we could have perhaps survived on the strength of repatriation of salaries from Pakistanis abroad but the foreign exchange freeze of May 28 simply blew us apart. In one surgical strike on ourselves we stopped the in-flow of foreign exchange and destroyed our financial credibility for the future almost irretrievably. Take for example, the innovative US Dollar Bond Scheme recently unveiled by the PM, very lucrative but few takers. Not that the in-flow from Pakistani expatriate earnings has been eliminated altogether, it continues on the basis of “Hundi” but that credit is not counted officially in the exchequer’s data, remaining a part of the parallel economy. That the country has not come apart economically is very much because we are kept afloat by the unofficial sector.

Having shot ourselves in the foot with respect to one of the major props of our foreign exchange reserves, economic sanctions imposed on us by the US and other developed nations affected us in varying degree. Thanks to Indian belligerency after their own nuclear explosions, this proforma application by the US and others did not have much enthusiasm. However, if it had not been for China to start with, and then Saudi Arabia, UAE and Kuwait providing critical “bridge-financing” funds, we would have been bankrupt and in default, in fact we are already almost at the end of the grace period. At the same time IMF, bent on extracting its own pound of flesh, set conditions guaranteed to make the common man come out in the streets in violent protest. Such harsh terms would be unacceptable to any self-respecting government in Pakistan, caught in an economic vice, between the devil and the deep sea, we had few choices but to opt either for seeming confrontation or roll over and play dead. One may or may not agree with either Mian Nawaz Sharif or Ms Benazir, as different from each other as chalk from cheese, on any number of counts but they have one feature in common admirable in any leader, both not only have plenty of courage but on vital issues can stand their ground even to the perils of the seats — and their lives. It is only when they take up confrontation on extraneous issues less than a matter of life and death that one questions their judgement. On the core issue of routine IMF conditionalities like raising electricity tariffs, etc Mian Nawaz Sharif took the route of populism, lowering the tariffs by as much as 30%, positioning himself as a champion of the masses. This reduction was also meant to serve as a factor to stimulate the economy by lowering the price of production across the board. That premise fell apart at the altar of the greed of our industrial bosses who have not responded in kind, opting for profit-taking rather than passing on the benefit to the consumer.

This confrontation was mind-boggling, was it voodoo economics or Noora Kushti? In deep economic trouble, about to default on our repayments unless we got IMF funds and here we were, thumbing our nose at the IMF. Ishaq Dar, who was then only Federal Commerce Minister but a member of the PM’s inner circle had been made a member of the negotiating team in Washington at the last minute, was opting for being gung-ho rather than accept the IMF conditionalities. Obviously something here does not gel. In an earlier article I had written that Mian Nawaz Sharif and his close aides seemed to know something we did not, that he was gambling but that it was a well-calculated risk. The leader of a free country must take such risks to maintain self-respect and sovereignty.

During the course of the Washington meeting with IMF, both Economic Advisor Hafiz Pasha and Secretary Finance Moeen Afzal were opting to get the best deal by compromising with the IMF. However, the Governor of State Bank of Pakistan, Mohammad Yaqoob, took a different reading of the situation. Having served for long years in IMF and World Bank (and being an unreconciled rebel of the system thereof), he sensed that the world financial institutions were running scared because of the Asian economic disaster where their set-piece prescriptions had added to the economic woes rather than solving them. At the same time there were clear indications that the White House was pressurising the financial units to look at Pakistan with compassion and to come through. When Ishaq Dar got to Washington, Dr Yaqoob found a willing ear and both of them got through to the PM in Islamabad to get a green signal to stand their ground, effectively leaving Pasha and Moeen Afzal hanging out in the cold. Playing a game of chicken with the IMF, the PM raised the stakes by lowering the electricity tariffs 30% in the face of a tacit understanding for an increase of 15%. Obviously the talks stalled and the team flew back. The US Administration now got into the act in earnest and invited the PM for a State visit, the meeting with the US President being in early December. Not only is the White House concerned about Pakistan’s impending default situation but it is very concerned about nuclear proliferation and wanted Pakistan to sign the CTBT and make a commitment of sorts, restricting our nuclear potential. Moreover, the impending Shariah Bill (CA-15) in the face of the looming Taliban presence in Afghanistan gave indications of our vulnerability to destabilisation, with the prospect that the whole region could be drawn into the religious sectarian warfare. Domestic policy considerations about nuclear proliferation further fuelled the White House to come down hard on the side of Pakistan. Within days of the historic mid-term US elections in which the Democratic Party confounded skeptics by gaining rather than losing seats, US President Bill Clinton used his powers under an Amended Bill to lift sanctions partially against Pakistan. In sum, Pakistan’s days of adversity and misery worked in Pakistan’s favour. For a number of variable reasons the world needed that we be saved, to Mian Nawaz Sharif’s credit, he seems to have read his cues right and is gambling that confrontation will result in a good deal for Pakistan. If it works out why should we quibble about the means?

A complete change has taken place in the PM’s economic team. Ishaq Dar has taken over as Minister for Finance while retaining Commerce, Hafiz Pasha has asked to be relieved as Advisor. Moeen Afzal has resigned rather than be sent away from Finance to oblivion in Economic Affairs. Moinuddin Khan, having virtually sacrificed his international career at Standard Chartered Bank, made a larger-than-life heroic effort to re-create CBR. As a sop, he was offered the Chairman’s job in the Bank of Punjab, he refused the offer and opted to go back abroad. In his place, consummate bureaucrat and Dar confidante Iqbal Fareed has moved from Commerce to Finance. The SBP Governor managed to bring his confidante and Lahorite, Khalid Javed, back from retirement to Finance. One feels for people like Moinuddin Khan, an outstanding international technocrat, who was uprooted from a top-notch executive position in a major multi-national institution and brought in to perform a thankless job where brickbats are more in supply than bouquets. He was advised not to do so before he accepted the PM’s request to take the post of Chairman CBR, that he lasted as long as he did is a credit to him. His fate will serve as a deterrent example to other enthusiastic patriots who opted (or may try to opt) to help Mian Nawaz Sharif save Pakistan economically, there is no future for sacrifice in an environment where merit is a disqualifier. If there is a brain drain in Pakistan, count Moinuddin Khan’s experience as the final watershed.

There is a cost to the US consideration. The price may not be the nuclear rollback that everyone seems to be suspicious about but it will take the government its full credibility count to make both the intelligentsia and the masses believe what the government is serving out is the truth. As for the uniformed lot, after the episode of JK’s “principled” retirement, it will require real strength of character to stand up and be counted in the matter of truth versus public perception. One may well feel we have come out ahead in the balancing of costs but if there is no linkage with the solution of Kashmir and India does not succumb to international pressure on the nuclear issue, which it may well not, we may have lost out in the long run.

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