At Penpoint
- Greece provides an example of Pakistan’s future
Inexorably, Pakistan comes closer and closer to its tryst with the Financial Action Task Force (FATF) and its decision on whether Pakistan has to be taken off its grey list, put on the black list or taken off all lists. That de-listing has gained additional importance, because the International Monetary Fund has made it clear that the $6 billion package it has agreed with Pakistan is contingent upon the FATF giving its clearance.
That means the Washington Consensus has put another layer on top of Pakistan, for the IMF’s money is not as important as the approval of Pakistan’s economic policies as the loan implies. The other Washington-Consensus institutions, like the World Bank and the Asian Development Bank, are also likely to make loans to Pakistan, but perhaps more importantly, Pakistan can then approach the international capital markets with more confidence.
FATF is expected to make its decision based on the interests of the individual member states rather any objective measure. Thus, pressure is going to mount on Pakistan, which is by no means out of the woods. The FATF decision will not just result in it being subjected to sanctions, but also no IMF package, no World Bank package, no ADB package, no going to the international capital markets, in short, default.
Of course, if Pakistan was ‘Too Big to Fail’, it would not be allowed to default. There was indeed a time when, just after the East Asian housing crisis, the whole world was on the verge of a downturn, when Pakistan or any other country, could not be allowed to default, for fear of the ‘butterfly effect’: the flapping of its wings by a butterfly may be enough to disturb the atmosphere enough to cause a cyclone. The worry was that if Pakistan (or any other country) defaulted, the whole global financial system could collapse, plunging the world into a depression worse than that of the 1930s.
Does that worry exist today? Not in the same degree, but the world does seem vulnerable, mainly because there are both unresolved trade talks as well as a US-China trade war in operation. Another difference with the 1930s is that the USA then was relatively unencumbered by debt. The Great Depression is supposed to have been ended by the massive armament programmes by the great powers, especially the USA, to fight World War II. That involved taking on unheard-of debts. The USA has already taken on huge amounts of debt, in an effort to spend its way out of the downturn. Can it take on any more? Can Europe?
Europe provides one paradigm for what has seems to have been done with Pakistan. Greece is a bit of a paradox. It is very much part of Europe; indeed it is the cradle of modern European civilisation (through Athens, Sparta and the other city-states). However, it is also the sort of beginning of Asia. Racially, it is Mediterranean, and was under Ottoman rule until 1830. It came into the Eurozone, and despite its fecklessness, accepted the European Central Bank’s restrictions. It came unstuck in around 2010, and remains in trouble to this day. It actually made a payment to the IMF late, a level to which Pakistan has not yet risen. It also suffered from corruption, the most common way of avoiding the high taxation.
The example of the 1979 Iranian Revolution should not be ignored. Just because that Revolution may have run out of steam, and because it was buoyed by oil, does not mean that it could not happen here
One reason mentioned for its troubles was the fact that it no longer had control over its currency– it couldn’t devalue the euro to increase exports. Its statistics were questioned, and it was not allowed to access capital markets. It has been in similar fashion that the Pakistan economy has been taken over. The Finance Minister, the Governor State Bank and the Chairman FBR have all been changed.
However, the economy seems to be working at cross-purposes, with different goals sought by different players. First, there is the government, which not only wants to satisfy the various players, but to do so in a way that will ensure its re-election. Then there is the IMF and other international finance institutions, who want Pakistan to keep paying. They are not particularly interested in whether or not the government is re-elected, though they have no objection if it does. The people of Pakistan want things to go on as before, in which they can import like there is no tomorrow, all he while paying no taxes. The military wants the country to afford it, and does not like the IMF’s subtext that military expenditures must be cut. However, it too wants the country kept solvent.
According to one narrative Imran Khan and his PTI was supposed to perform the task of economic stabilisation in a way that ensured that the world kept on believing the falsehoods that were peddled to it about the jihadi groups, which were used both in the hope of bringing Afghanistan under Pakistani influence, and thus out of Indian, as well as in Held Kashmir.
Imran has proved unable to make the world accept these things. He has not been written off, but as the realisation sinks in among his sponsors that he is unequal to the task he has been set, there is also the realisation that the opposition parties do not have a solution. As the previous military government showed, military rule is not the solution either. So, what is?
The problem is that there are no solutions except to give some force on the right its head. But as the Asia Bibi case illustrated, they too have touch-button issues which get them branded as extremists. Also, those forces do not get votes. Perhaps the worst thing of all is that they do not accept the Constitution, as shown by the refusal in 1977 and 1999 to abrogate the Constitution.
There is a very real danger of everything falling apart, because a force without a solution refuses to allow anyone else in. If that does not happen, and forces come in which reject the Washington consensus, the Westphalian sovereignty model, and the banking system, then the establishment would not be to blame. They tried.
The example of the 1979 Iranian Revolution should not be ignored. Just because that Revolution may have run out of steam, and because it was buoyed by oil, does not mean that it could not happen here. There too, an out-of-the-box solution was proposed. India might be used to contain Pakistan if it was to go too far out of line, but for the time being, it does not seem Pakistan will be allowed to escape the Washington Consensus.