- How well did the government do?
Two questions this week. One political and one economic. So, first the Kartarpur euphoria. Reviving a long dead promise, putting smiles on faces of Sikh yatrees and winning PR points is all very nice, but what exactly did we achieve at the government level? Governments have no permanent friends or enemies, only permanent interests, don’t they?
Besides, Nawaz Sharif was all for contact with India since well before Vajpayee came to Lahore. But he wanted it at the top level. And he also wanted some protocol – PM should meet PM, FM should meet FM, etc. This time, didn’t Sushma Swaraj make it clear, more than once, that Indian ministers praising the Corridor at Kartarpur were there for their own worship? They did not represent the government and there’s no chance of the talks reviving. Still, Foreign Minister Shah Mehmood tweeted that the Corridor business was in larger national interest.
But what interest precisely? We are not even taking to them, trading being a far off thing. Musharraf went much further with the Confidence Building Measures (CBMs), but where did that get him? Also, what if Nawaz had done this when Imran was in opposition? Anybody remember Shirin Mazari’s fiery speech in parliament that if India will keep the LoC hot we should just shut down Wagha border?
And now the economic/financial front. You won’t find anybody, unless you’re in government, who would say what just happened to the rupee was normal. Once, when all this business about devaluation began, it fell by 8-10 dollars without any warning and PTI just ran riot through the local press. Future finance minister Asad Umar criticised the government for selling dollars, ultimately, to stem the fall in the rupee when the reserves were so thin.
But isn’t that exactly what happened late last week? Just why the rupee fell so suddenly to its lowest ever against the dollar notwithstanding, for the moment, how did it turn around so suddenly just as the market was close to closing? There’s not a word on it from the government, save all will be well, so the only explanation is that they also sold dollars to keep the rupee from going completely through the floor.
Wasn’t that ‘Darnomics’ not so long ago? There’s more. Surely there has to be some sense to the devaluation. It was the sixth such drop in just a few months, after all. And if you connect the dots you’ll notice how the government is posturing towards an IMF program around January. Whichever way they spin it a weaker rupee is part of it, just like the Rs91 billion they are going to squeese out of consumers in gas tariffs. Just like the cut in subsidies pretty much across the board.
You won’t find anybody, unless you’re in government, who would say what just happened to the rupee was normal
And what if market brokers told you that bankers told them that they had official knowledge about the devaluation before the market opened? That would explain how the rupee was at its lowest value at the opening bell. Word was that this was in preparation for the IMF bailout.
Sadly, though, they do not talk about the impact this devaluation, and like moves, has on our foreign debt. It’s for the government to give the figures, but the near 30pc drop in the rupee must have impacted debt deliverables well into the billions. And since we need more aid since we are unable to pay back our debts, aren’t we going round in circles here?
This, most likely, is the homework that the IMF expects to be done by January, which is when the program is likely. So, expect more austerity till then. It’s anybody’s guess why the finance minister still raises hopes about avoiding a Fund program when the writing is clearly on the wall.
Then, finally, there’s the 150bps hike in the state bank’s interest rate, far more hawkish than market expectations of 100bps. That’s as contractionary a monetary policy as you can have. How well that suits designs of a very expansionary fiscal policy remains to be seen, of course. But it means we might already be in recession – you only need two quarters of negative growth to confirm it.
This realisation will now feed into the stock market index; and it’s not likely to be taken very well by foreign investors. That means the index sheds a good 10-15 percent from here. Write that down somewhere.
PTI has sold the Kartarpur Corridor to the maximum this week, while doing its best to dilute the currency crisis. Yet, since the market is the final arbiter, it doesn’t quite seem to have bagged a great deal.
