IMF imposed financial
disciple is a need of the hour
By: Tarique Khan Javed,
President, Overseas Pakistani Investors Forum.
We do not deserve to be independent:
The previous regime prided it self in bring financial disciple during Oct 1999 and 2003 period. They bought down inflation from 12% in Nawaz period to 4%. This helped bring the interest rate to 8%. The low rate encouraged people to borrow and new initiatives and projects started on the assumption that rates will remain low for coming many years. For the first time in its history consumer lending for Cars, Home, Home appliances started in Pakistan. Average Pakistani started to leverage himself against upcoming salary and existing asset like ownership of home our business. The lending boom with good spread made Banks make record profits. The lending during period 2002 to 2008 is said to be more than all the lending since 1947.
Starting 2004 due to low revenue and increasing expenses like higher number of Ministers and their parks, large expensive foreign tours and Umrahs, lavish spending on Islamabad, new Military complex in Islamabad etc, financial disciple was abandon. State Bank got busy printing notes at the first request of Islamabad.
State Bank completely failed in its duty as protector of purchasing power of Pakistanis. It also violated the constitution by letting fiscal deficit cross the mandated maximum limit of 4.5% of GDP. Currently the deficit is 9%.
This nation does not deserve financial independence. We are like children who do not know what we are doing and what will be long term consequence of our actions.
Creeping inflation since 2004 has bought with it natural results like:
- Increase in interest rate (Phillips Curve).
- Depreciation of currency value in FX market.
- Drop in Export and increase in Imports.
- Drop in Equity market.
- Rapid increase in poverty.
- Social and political unrest.
- Confused investment climate locally.
- Flight of capital.
Delay in taking corrective actions on time has compounded the problems. Now we have run out of cash and options.
For a sick economy like Pakistan; Economic Doctors, be it the Ex Banker, Finance Advisor Mr. Shaukat Tarin, Independent Economist or IMF will prescribe very bitter pills. There is no escape from that.
Poor Advisor Finance:
Considering what has happened in the past and what is happening even now any pragmatic analyst can feel that Mr. Shaukat Tarin despite his good intentions will not be able to bring in the disciple he desires for. Recent incident of Stock market not opening on 27th Oct 2008; despite of his clear order is a case in point.
Mr. Tarin wants to bring down deficit to 5% but he will not be able to do so as political expediency of a Coalition government will always over rule him.
Therefore we need an external body to over look us and there can be no better institution than IMF.
As an Ex Lending Officer of a major International Bank; I can confirm that when lending to Cos we always put conditions like maximum leverage level, minimum liquidity level, minimum equity etc not for the sake of fund or showing our power but to protect the Co from over ambitious Managers. If not checked these well running go into deep trouble within a short span of time. This also applies to Countries.
For face saving Mr. Tarin has imposed on himself all the conditions which any Banker or IMF will impose on Pakistan given the circumstances. IMF is likely to endorse his plan with minor adjustment and give Pakistan USD 9.5 billion.
State Bank and National Debt Office:
One of the condition IMF must surly impose is the dismissal of Governor of State Bank and appointment of a man of high integrity and political will who can withstand pressures for printing notes beyond the projected economic growth rate. In the past I have proposed for this position name of Imran Khan, Mustafa Khar and Ex-General Aslam Baig. Such fearless Governor will pledge in front of the Nation that he will protect the purchasing power of Pakistan at the cost of his job. If pressurized he will report this to the nation and resign. Such a person should also be given power to control National Debt. In my opinion an independent National Debt and SBP supervisor is more important than an Independent Chief Justice. Because Pakistani have alternative justice system in the form of Jirga or impose there own justice by taking direct revenge, however they are completely powerless when State Bank prints extra notes and robs their hard earned money or National Debt Office borrows fund internally or externally and burdens them and their children to repay.
