Fiscal uncertainty

September 10th, 2012

It's an important question, and admittedly a delicate one. Can Pakistan’s foreign exchange reserves hold up through the election cycle? In an interview to Dawn, the finance minister says yes, but leaves the door open to any exigency that might arise given the uncertainties that are about to be unleashed with the election cycle. He says “if the situation warrants, one can consider … a new arrangement with the [International Monetary] Fund” but sees it fit to expand no further. It’s an entirely appropriate response, given the enormity of the implications. Nobody should want to stir sentiment in the money markets by speculating or sensationalising news and views regarding the reserves.

But likewise, nobody should seek to create a false sense of security either, because it’s precisely when there is a perceived disconnect between the mood being conveyed by the government and reality as seen by the stakeholders that uncontrollable events tend to break out. A false sense of security is exactly how we created the stock market crisis in 2008, which nearly became a systemic financial crisis. We don’t want a repeat of that episode again, and it’s worth our while to remember that the election cycle of 2007 and 2008 began with “record high reserves” and ended with Pakistan rushing to the IMF for rapid emergency assistance.

The timeline for the election cycle begins with the announcement of the election schedule, and continues to the announcement and arrival of a caretaker set-up, to the conduct of polls, and then the tallying up of the new parliamentary arithmetic and parleys to form a ruling coalition, and then the summoning of the next assemblies and election of the new prime minister and appointment of the full cabinet. By the time this cycle ends, and we have a new cabinet in place, we will be close to or past the end of this fiscal year. The finance minister can reassure us that the economy will be looked after while he occupies the office, but what happens between the arrival of the caretaker and formation of the next cabinet is the real question at hand. That time period is when our reserves situation will be at its most delicate, and the fiscal facts of life will be mute and helpless. It’s worth a thought to consider how things could play out in that intervening period.

‘Coin flip race’

September 10th, 2012

With the Democratic Party formally nominating President Barack Obama as its candidate on Thursday, the election has become what the media is calling a ‘coin flip race’. Even though the president still enjoys a slight edge over Mitt Romney, the Republican nominee is making rapid gains and hitting President Obama hard where he is vulnerable — the economy: 8.2 per cent unemployment, three million jobless; and unsatisfactory healthcare. Mr Romney — with a personal fortune of $250m — claims he can fix the economy, though the Obama camp derides him because of his corporate background, saying it is big business that would gain at the expense of the American people. They have a point, for Mr Romney’s election pledge includes a brazen tilt in favour of the profit-maximising industrial conglomerates — tax relief for the rich and cuts in government spending.

President Obama inherited his predecessor’s mess, with a $3tr deficit. The economy was in recession because of the bank crash, and it goes to President Obama’s credit that he avoided a second recession by reviving the auto industry. The issue today is the American middle class, which feels squeezed and finds it difficult to maintain its lifestyle. Mr Romney’s cuts, the Democrats allege, could affect even education and research, thus further hitting the middle class. Very embarrassing for Mr Romney, his own policies on healthcare, gun control and abortion as Massachusetts governor bear a striking resemblance to the Obama policies he is criticising. In foreign affairs President Obama claims successes: he has ended the Iraq war, the Afghan pullout is set for 2014, Al Qaeda has been crippled and Osama bin Laden taken care of. Mr Romney, he says, is “new to foreign policy”, though the Republicans claim that America’s image in the Muslim world is worse than what it was under the Bush administration. Basically it is domestic issues rather than foreign policy that would determine the outcome of
the presidential race.

The Muslim world will judge the man in the White House by his policies towards the Palestinian issue and watch whether his anti-terror policies acquire an anti-Islamist hue.

Clogged drains

September 10th, 2012

Come the monsoons and many city dwellers start dreading the prospects of urban flooding. And as a picture published in this newspaper recently — of a storm-drain in Karachi oozing with mounds of garbage — showed, these fears are not unfounded. The picture belies the civic agencies’ claims of being prepared for the rains. During the recent spell of wet weather Peshawar and Karachi seem to have borne the brunt of rain-related havoc. Thankfully, the damage was limited, but that was more due to the fact that less rain was received, at least in Karachi. Still, problems were caused which could have been avoided with proper urban planning. Low-lying areas in both cities were flooded, while prolonged power outages due to creaky infrastructure were also reported. Traffic jams were also a major problem, especially in Karachi, mostly caused by panicky motorists in a rush to get home to avoid getting caught in a flood of water. However, traffic officials in the metropolis also attributed the gridlock to drainage issues, as stagnant water caused bottlenecks.

Clearing clogged drains to allow for the proper drainage of rainwater is the best solution to minimise the effects of urban flooding. Yet civic agencies across the country fail to realise this year after year. In Karachi there are spots that are notorious for drainage problems, while Peshawar’s sewerage system is also in bad shape. These deficiencies need to be addressed to prevent perennial flooding and the ensuing havoc. The need to clear clogged drains was highlighted several times before the arrival of the monsoons, but these warnings were not taken seriously. And it is not as if the rains came suddenly — the authorities had plenty of time to prepare as this year’s monsoons came quite late in the season. If rainwater drainage issues continue to be ignored by the civic bodies, it will only add to citizens’ woes.