Lessons for Pakistan
Despite flaunting itself as a super power, the US is losing clout abroad while its economy continues to face debilitating challenges. The Obama administration had to struggle hard to overcome the after-effects of the 2008 economic crisis and recession. The brinkmanship characterising the two parties, one controlling the Senate and the other the House, has stopped the passage of the budget leading to the closure of the government for the first time in 17 years. The bone of contention between the Republican dominated House and the Senate controlled by Demcorats is the Affordable Care Act, commonly known as Obamacare. The Republicans have voted more than 40 times to defang the Act since it became law in 2010. The shutting down of the government is the most audacious attack on the Act. With the budget in the limbo, the government stands debarred from spending money on numerous departments. While the freeze on expenditure does not apply to essential services and pensioners, its impact is still devastating. About 800,000 federal workers will not get their salary checks till the Congress passes a Continuing Resolution providing a short-term bridge to ensure sufficient time to pass a budget for the remainder of the fiscal year. Its passage depends on which of the two parties blinks first. A shutdown of a few days might do little damage, but keeping in view the strongly entrenched positions taken by the Senate and the House, there is a likelihood of the shutdown lasting a week or more. This would create a perception of uncertainty, spread anxiety among consumers and businesses and hold back economic activity.
As if this was not enough, another crucial battle between the two parties looms ahead that could end up, if fought with the same ferocity, in the US turning into a defaulter. In case the Republicans fail to defund Obamacare this time, their opposition to raising the debt ceiling necessitated by a huge budget deficit will increase. The Congress is required to raise the$16.7 trillion debt limit by October 17 or the nation will begin running short of cash to pay its bills. Failing to raise the debt ceiling would require the government to cut spending by about a third, potentially forcing delays in Social Security checks and military pay. The Treasury is scheduled to ask investors for $120 billion in loans. In case doubts are created about the US ability to pay back, the investors are likely to demand higher interest rates, which would cause rates to spike throughout the financial system. A lengthy shutdown followed by a default would create a situation like the 2008 recession. If confidence is lost in the US willingness to pay its bills on time, the country could lose the world’s trust.
This has a lesson for Pakistan. Politicians must not resort to brinkmanship. People’s interests should have precedence over party interests. Unless this is ensured political rivalries could upset the apple cart.
