My decision to support President Pervez Musharraf's referendum ....our first article for Pakistani media..
Pakistan have never had it so good.
(A treatise on the GDP of a nation and its
relationship to good political decision making.)
A story from rag to riches!!
Iqbal Latif and Rehan latif
It was refreshing to hear President Musharraf
mentioning that KSE index breaking the 1800 threshold
was one of the accomplishments arising from his good
governance. I can imagine that many an economist must
have worked on his referendum speech as it contained
numerous references to real economic progress that the
nation has made. Any student of Global political
economy realise it well that there is a very strong
relationship between economic and political stability
whilst ensuring transparency and index of a country’s
stock market. The president pitched it right and did
prove the point that had it not been for the prompt
decisions post 11th September and his agenda of
prosperity and transparency, the economic fortunes of
Pakistan would have been quite different.
In the comparative contemporary history of nations,
one cannot recall many instances where close calls of
destruction have been imposed over-night and avoided
so brilliantly as in the case of Pakistan.
Saddam Hussein, who until 15th Jan 1991, was entreated
by James Baker to withdraw from Kuwait and save his
armies from certain destruction. At that crossroad on
15th Jan, Sadam refused refused in Geneva to carry out
the latter's request and within 38 days, his entire
army was annihilated. On a lighter note, sometime it
may have been that he must have read the minds of our
“strategic defiance” theorist like General Aslam Beg.
Another example in recent history was President
Milosevic who led his nation to total destruction and
got his GDP bombed out of existence. President
Musharraf was at such a crossroad. His wrong
decisions, based on foolish confrontation, would have
led Pakistan on the course of Iraq and Yugoslavia that
could have resulted into the ultimate isolation and
fragmentation of our nation.
It is his brave and courageous decision to lead
Pakistan towards the right direction, when as a state,
we found ourselves at a crossroad. This was the moment
of truth for Pakistan! For the last so many years,
economic pundits and self-styled gurus within the
intelligentsia of Pakistan had forecasted that the
virus of Talebanisation would rise like a storm from
Afghanistan and engulf the nation. It would have been
an accurate forecast had not been for the President
foresight and fortitude.
An incorrect decision would have ensured that instead
of Pakistan being talebanised, our leadership would
have led Pakistan through the same route of
self-destruction. Those chief strategists of defiance
and depth who wanted confrontation cannot even imagine
the consequences of such a path for Pakistan's
economy.
The story of Pakistan since 9-11 is a legendary story
of rags to riches. We really struck gold in shape of
our ensured survival and let there be no doubt about
it, our very survival as an economic and political
entity was at stake. When it mattered the most, we
sided with the world community, and in the process
saved our economy and our nation from certain
annihilation. Truly a close call averted! How many of
us can truly comprehend it, I don't know however there
would have been no GDP, no internal remittances, no
forex reserves. In the absence of a viable economy
there would have been no fortress of Islam to save.
The first time, in our 55 years of history since
Jinnah, someone batted for Pakistan with the greatest
of flair and imagination. Amen!
Up until 11th September, no other country has been
viewed so negatively by its own people as a state that
was about to implode. A nation with four seasons and
140 million cubic feet of water flow was importing a
billon $ worth of wheat annually until 1998. The
vagaries of weather and ill planning constituted the
root for the most prominent of economic evils. The
ever-growing ambition to lead the Islamic world by
compromising the priorities of the country had become
our national agenda. When President Musharraf called
for Pakistan first, it was a new song that had a new
theme. The nation was up in arms to save their
brethren Taleban from pulverisation, ready to be
pulverized themselves, a collective suicide drama was
set in motion.
The decision facing President Musharraf after
September 11th was straightforward it was either
assured destruction where all our enemies would have
joined hand to go to war or a display of brinkmanship
that assured Pakistani safety and integrity. Would he
give in tamely to the emotional hot heads and Islamic
radicals, who with infantile-like temper tantrums,
loud threats and unfailing stance would have taken
Pakistan to a point of no return. Continuous harrying
was employed to bully our previous, weaker willed
decision makers to decide on choices that were
consistently disappointing to both the international
community and inevitability harmful to the over all
good of our economy. The nation had always cared about
others irrespective of what they thought about
Pakistan, and the role of self-assumed ‘global chaudry
of Islam’ suited our character.
For example, after the euphoria of the nuclear tests
that Pakistan carried out in May 1998, the economic
punishment meted out to Pakistan almost brought about
virtual bankruptcy with official foreign exchange
reserves falling to $400 million by November 1998.
The government was barely able to sustain minimum
essential debt service payments and both private
investor confidence and the sovereign credit rating
declined to among the world's lowest. It is estimated
by the Global financial experts like IFCI, that over
5.8 billion dollars left Pakistan after the nuclear
test i.e. from 1998 to 2001. Four hundred thousand
people applied for immigration and 6800 of the most
well educated families left Pakistan. Flight of
capital is a tragedy, but the flight of intellectual
capital was the bigger calamity. Senior economic
editors forecasting a bleak future and imminent
collapse of Pakistan spilt gallons of ink.
The nation who was prepared to eat grass ditched the
country on first signs of sanctions. The risk of
‘bankruptcy’ of nation made the favourites of ‘after
dinner’ discussions amongst the elite, who would after
converting all their rupees in $’s, love to talk about
bleak future projection hinting $ rupees parity to
range from a low of 100 to high of 1000. The twin
threat of ‘Talebinisation’ and failure of the economy
as a result of declared ‘pariah state status was all
but bought by the monied and intellectual pundits. In
a total reversal of fortunes and greatest good luck
for Pakistan when it mattered the most Pakistan made a
momentous decision that helped the country to get out
of the bottomless pit of ‘Talebinisation’ and spectre
of economic bankruptcy. In a stroke of genius at the
juncture and crossroads Pakistan made the right
choices, a virtue that is not very common within the
Islamic polity and Muslim ummah. Never to miss a
chance to miss an opportunity has been the hallmark
for the nation.
With over $5 billion foreign exchange reserve as at
the beginning of March 2002, it is a 16% increase from
three months ago and a far cry from the depths of
despair we had found ourselves in 1998. Pakistan
recorded a notable surplus of $1.2 billion on its
balance of payments for the year ending December 2001
and the surplus was broad-based as all the
sub-categories of the current account showed a
noticeable improvement. These included shrinkage in
trade deficit, narrowing of gap in services account
and considerable remittances. The twelve-month rate of
consumer price inflation declined to 3 percent and the
improvement in strength of Pakistan's official
reserves has strengthened confidence in the Rupee.
During the last fiscal year the deficit fell sharply
to 5.2 percent of GDP as CBR revenue rose by 9 percent
over and above the rate of inflation.
As in all international dealings, there is the little
matter of “Show me the money.” And Pakistan was
promised a fistful of dollars and some for their
troubles and have been duly rewarded. Over $12.5
billion Pakistani debts have been rescheduled and some
written off, all previous sanction have been removed,
while America has provided over $600 million in
economic assistance for poverty alleviation. The very
donor and aid agencies that had turned their backs on
Pakistan, have started providing loans for much need
economic restructuring with the IMF supporting a $1.3
billion economic program for Pakistan. Indeed, rare
praise was also bestowed upon Pakistan by the IMF wise
men for keeping its economic program on track.
The biggest success story is the Karachi Stock
Exchange phenomenal bullish run in the last 6 months,
rising over 46%, belying the new investor confidence
and ever improving maturity of Pakistani firms. They
were the best performing Asian market in the last
quarter and with strong fundamentals still look good
for further increases. In my humble opinion, the KSE
Price Earnings of 9 is unheard of in any developing
market and with lower risk premium across the board
and lower inflation and much higher foreign reserves,
it is plausible that it will move up to 12. Average
dividend yield of 7% is a very respectable figure,
especially at a time when US and UK investors are
complaining at the ever reducing dividend pay outs by
firms over there. In comparison, the current dividend
yield (dividends/price) for the stocks comprising the
Dow is 1.51%. Barring a major catastrophic setback to
Pakistan, like war with India, the KSE has the
potential to break many more barriers.
Perhaps the weakest link has been the persistent and
increasing decline in exports with a 3% decrease
comparable to the eight month period last year. This
can be attributable to foreign buyers increased
wariness after the September 11th attacks, of the war
shifting over to Pakistan and leading to a rush for
cancellation or postponement of export orders as well
as the disruption in communication and transportation
services. Since export orders have a time lag of two
to three months, the situation should improve in the
forth-coming months especially with the resumption of
foreign airlines and ship lines, and increasing
investor confidence within the country.
The term "You've never had it so good" was made
famous in the late 1950s, at the peak of post-World
War II affluence in Britain, by Tory Prime Minister
Harold Macmillan. Much the same can be now said for
Pakistan. The economy appears to be going from
strength to strength, along with the stock market.
Analysts keep warning darkly of trouble at the border,
restless factions within Pakistan waiting to explode,
and the continued instability of the region. Pakistan
sits at the confluence of 2.5 billion people and is
now considered, now more than ever, as one of the most
strategic partners to the USA. An unstable Pakistan is
a harbinger of major trouble that could potentially
engulf the entire Islamic World that extends from
Morocco to Malaysia. Hence, Pakistan markets will be
attended upon and potentially be a major benefactor
from these new strategic developments. So long as the
powers to be within Pakistan do not mix religion or
dirty politics into the economic equation, there is
undoubtedly an exciting chance for Pakistan to cement
and try to consolidate on their promising start. Let
the good times roll! |
