Politics and markets

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It is common knowledge in the complicated world of capital markets that while fundamentals do matter, the marketplace acts primarily on sentiment. Seen in this backdrop, periodic ‘talk up’ of market sentiment by prominent figures in advanced economies makes sense, especially when they are without viable options to turn things around. As a result, while the market eventually reverts to fundamentals, it gets breather-windows, when investment picks up and signs of recovery provide hope of better times around the corner. Across Europe and the United States, even in the bleakest of times, central figures have postured towards optimism, bidding up the market to ensure solvency. That such windows have become few and far between is less a fire-fighting failure and more an indication of how deep the current downturn is, but that’s another matter.
In Pakistan, if political agitation and cross-party rivalry were not bad enough, we have yet another potential existential dilemma for the government as pieces from the memogate disaster fall where they may. And regardless whether the presidency, sources in the government, the ambassador’s seat in Washington, or more shady characters have been at play, two things are assured. One, heads will roll, one way or another. Two, and more importantly, the drama will deal another tragic and unnecessary blow to our weak and strained financial markets, already suffering from investors fleeing for safer pastures.
The norms of democracy dictate that whenever political uncertainty reaches a critical threshold, all parties should proactively calm matters, as well as public sentiment, or risk compromising their own political and social habitat. Unfortunately, such understanding is missing in even our most astute politicians. In some bizarre cases, self-perceived notions of party loyalty run counter to the country’s bigger interests. We must inculcate an understanding of the strong correlation between politics and the marketplace. Not only will it provide some manner of support to the economy, it will also make our politicians more aware, of their own duties as well as the greater national interest.