The march of folly in Pakistan is systemic and unending
https://arab.news/w9n66
The American historian and author, Barbara Tuchman, observes in her book, The March of Folly: “A phenomenon noticeable throughout history regardless of place or period is the pursuit by governments of policies contrary to their own interests. Mankind, it seems, makes a poorer performance of government than of almost any other human activity.”
Pakistan’s history is replete with examples of this. From the first imposition of martial law to innumerable unsound decisions in East Pakistan that led to its separation to the Kargil conflict, and to the current political and economic imbroglio that arguably can be attributed to regime change, the Pakistani governing class through history has advanced policies that are invariably detrimental to the state and its people. The recklessness of such actions was evident at the time, yet carried out.
Tuchman compellingly asks: “Why... did the Trojan rulers drag that suspicious-looking wooden horse inside their walls despite every reason to suspect a Greek trick? Why did successive ministries of George III insist on coercing rather than conciliating the American colonies though repeatedly advised by many counsellors that the harm done must be greater than any possible gain?” Similarly, it behooves asking why the Pakistani state repeatedly adopted policies that are clearly counter-productive for itself and all those it governs. Importantly, it is perceived to be so not merely in hindsight but in their own time, especially in light of viable alternative courses of action that were available. Finally, and most perversely, these policies have been that of institutions rather than the whim of an individual ruler, and have persisted across several regimes of different hues.
While many reasons have been offered for the institutionalized failures, including that of elite capture, a much simpler explanation may be that of irredeemable folly and perversity deeply entrenched within state institutions. For instance, it was obvious to the key players in the political theatre of regime change, that a fragile economy that is dependent on the International Monetary Fund (IMF) bail-out program can ill-afford political instability. Yet, Prime Minister Imran Khan was deposed, albeit through constitutional means, to kick open a pandora’s box of economic tumult.
The buildup and eventual unleashing of another round of inflation on the public already groaning under its burden is predicted by almost all independent economists, yet it has failed to deter Dar.
Javed Hassan
The chronicles of economic woes that were foretold, became manifestly evident with the dramatic worsening of Pakistan’s credit rating, the spiking up of credit default swap premiums, and the precipitous drop in Eurobond prices. Pakistan was shut out of international credit markets. Despite all the warnings of potential chaos that political uncertainty would unleash, the protagonists leading the charge to dethrone Imran Khan refused to weigh the limited gains there were to be attained against the considerable depletion of political capital they could consequently suffer. More tragically, little consideration was given to the misery of rampaging inflation and a dramatic slowdown in the economy that would be heaped upon a hapless public.
Since refusing to take heed of experience is a recurrent theme in Pakistani politics, the Pakistan Democratic Movement (PDM) government decided to bring back Ishaq Dar as Finance Minister. The ever-combative Finance Minister, having failed to talk down the dollar-rupee parity to below 200 as promised, implemented a policy to peg the rupee rate at around 225 via a host of administrative measures. Resultantly, an undocumented curb market for currency transactions has grown rapidly where the dollar-rupee parity is at a 10-15 percent premium to the interbank rate. This has not only encouraged more of the workers’ remittances to be channeled through informal means such as hawala/hundi, but also prompted exporters to delay the conversion to rupees of export dollar proceeds in anticipation of future depreciation. With market participants holding onto greenbacks the liquidity is tightening and putting further upward pressure on the spread between the curb market rate and the interbank rate.
An artificially inflated Pakistani rupee not only distorts consumer prices but mis-prices state-determined electricity, gas, and petroleum tariffs, which has significant fiscal implications. It is for this reason, inter-alia, that a market-determined currency regime underpins the IMF program. The 9th program review that is overdue is unlikely to be completed successfully without reversing the distortive peg. As in 2018 when Dar’s policy was abandoned, the rupee will almost certainly depreciate close to its market value and prices across the entire economy adjust upwards. The buildup and eventual unleashing of another round of inflation on the public already groaning under its burden is predicted by almost all independent economists, yet it has failed to deter Dar. Thus, once more demonstrating that the march of folly is an irremediable reality of Pakistan.
– Javed Hassan has worked in senior executive positions both in the profit and non-profit sector in Pakistan and internationally. He’s an investment banker by training.
Twitter: @javedhassan
