Fi­nance Min­is­ter's dol­lar Dolby

The Pak Banker - - 4EDITORIAL - Dr Pervez Tahir

THE trou­ble with cap­i­tal­ism is that it does not know how to pre­vent cri­sis. The Great De­pres­sion of the 1930s, the Asian Con­ta­gion of the 1990s and the Great Re­ces­sion of not too long ago, are the ex­am­ples bear­ing ev­i­dence of this. Af­ter the cri­sis, some fire­fight­ing takes place. In­vari­ably, this in­volves ma­jor de­vi­a­tions from free mar­ket fun­da­men­tal­ism, in sup­port of the ac­tors who caused it in the first place. As the cel­e­brated Cam­bridge economist, Joan Robin­son, fa­mously ob­served: "Any gov­ern­ment which had both the power and the will to rem­edy the ma­jor de­fects of the cap­i­tal­ist sys­tem would have the will and the power to abol­ish it al­to­gether."

The latest tur­moil in the world fi­nan­cial mar­kets comes on the heels of fall­ing com­mod­ity prices, par­tic­u­larly the price of oil, and has been fanned by the Chi­nese ef­forts to re­spond, in their own time, to the long-stand­ing con­cerns of the United States and Europe about China's un­re­al­is­tic ex­change rate. Stocks crum­bled ear­lier, as in­vestors smelt the be­gin­ning of an in­ward drive to­wards Chi­nese con­sumers and in­fra­struc­ture de­vel­op­ment. With tremors be­ing felt in the largest econ­omy of the world, the im­pact can­not but be global. China has re­placed the United States, and the world has re­placed Europe in the old say­ing: when Amer­ica sneezes, Europe catches a cold. A round of com­pet­i­tive de­val­u­a­tions has fol­lowed the Chi­nese de­val­u­a­tion.

In this world­wide dis­tur­bance, Fi­nance Min­is­ter Ishaq Dar's ji­had against a strong dol­lar suf­fered a re­verse of 2.4 per cent in a sin­gle day. Luck­ily, he is too busy in­stalling an om­budsper­son for the MQM, giv­ing the State Bank of Pak­istan (SBP) an op­por­tu­nity to ex­er­cise some 'au­ton­omy', mainly through moral per­sua­sion and ex­hort­ing banks and money chang­ers to do what they can­not, and will not. It has not gone be­yond brag­ging about the strong fun­da­men­tals, which are good for the econ­omy. A pol­icy of piling up dol­lars through beg­ging, bor­row­ing and steal­ing rather than through earn­ings from ex­ports is a recipe for dis­as­ter. The first month of the new fis­cal year wit­nessed a 17 per cent de­cline in ex­ports. This was a con­tin­u­a­tion of the neg­a­tive trend set off in the pre­vi­ous fis­cal year, when a de­cline of around five per cent was posted.

Mr Dar's ji­hadist fer­vour for a stronger rupee added in­sult to the in­juries of ex­pen­sive yet dis­con­tin­u­ous energy sup­ply and the un­cer­tain­ties im­posed by the on­go­ing war on terror. As a mat­ter of fact, the hard-won mar­gin of pref­er­ence un­der the GSP Plus was con­sid­er­ably eroded by the fail­ure to have a sen­si­ble ex­change rate pol­icy. The textile group, con­tribut­ing more than half of the ex­ports and the main ben­e­fi­ciary of the GSP Plus, suf­fered an ab­so­lute de­cline, from $13.7 bil­lion in 2013-14 to $13.5 bil­lion in 2014-15. Clearly, there was ex­port di­ver­sion rather than cre­ation.

The ex­ter­nal sec­tor is the worst per­former in the PML-N's han­dling of the econ­omy. The share of ex­ports in Pak­istan's econ­omy has never been high enough. Un­der the stew­ard­ship of Mr Dar, how­ever, the ex­port-to-GDP ra­tio came down from 10.7 per cent in 2012-13 to 10.3 per cent in 2013-14. In 2014-15, the share plum­meted into the sin­gle digit of 8.9 per cent. This was the low­est ex­port-to-GDP ra­tio in the last 30 years. By look­ing the other way and con­tain­ing his en­thu­si­asm, and let­ting the SBP adopt a do-noth­ing stance, the fi­nance min­is­ter has re­duced the hiss­ing pro­duced by the cur­rent ups and downs in the rupee-dol­lar par­ity. Let's hope that Dar's dol­lar Dolby will work for the up­lift of Pak­istan's ex­port sec­tor.

P.S. The news that the dol­lar bill will have the face of a woman for the first time is per­haps a fac­tor in its rise!

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