Learning from Greek episode
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AS the world watched in nervousness how Greece fared at the negotiating table with its creditors after the referendum that endorsed Prime Minister Alexis Tsipras’s position on austerity, the economic leadership of Pakistan remained unruffled.
The lessons, if any, from the crisis are likely to be lost on the PML-N enthusiasts, who are rejoicing over the IMF’s credits and endorsements of government policies.
The Greek people’s verdict on July 5 had put to the test European leaders’ democratic credentials as much as it had exposed the limitations of the creditors’ economic policy advice, which disregards the consequences on the vulnerable segments of the population in the debtor country.
It is hard to say if the European Commission, the European Central Bank and the IMF accept their role in the worsening of the crisis in Greece by insisting on austerity, which has stifled the country’s growth, resulted in mass unemployment, and further compromised Athens’ ability to repay debts, pushing it deeper into depression.
If the European leaders stumbled, as some experts speculated, awaiting the EU decision on fresh Greek proposals, there was a possibility that the Greece referendum may turn out to be for the EU what the Seatle protests in 2000 were for the WTO or what the 2008 financial crisis meant for the US.
The world, however, rightly pinned its hopes that the crisis will soon be resolved amicably at a time when the nations have yet to step out of the long dark shadows of the global financial crisis.
Former finance minister Dr Hafiz Pasha finds the ruling party’s policy framework ‘strange,’ and does not expect the leadership to understand the gravity of the situation and prepare a set of options that can be availed to minimise the fallout of the European crisis on Pakistan.
“Europe is going to be in turmoil. Proper monitoring and swift policy adjustments will be required to sustain the gains achieved in the exports of value-added products to Europe. The ripples are already being felt in global capital and metal markets, and the situation can aggravate if the problem is allowed to linger,” he said over telephone from Lahore.
Commerce Minister Khurram Dastagir was away and the commerce secretary was not available. Ahmed Fasih, the ministry’s deputy secretary, dismissed the Greece situation as something that is happening in one of the EU’s 28 member-states that has been in trouble.
A committee has been constituted in the commerce ministry to monitor the developments in Europe
“A committee has been constituted in the commerce ministry to monitor the developments in Europe. We will share the findings as soon as they are ready. Besides, we do not have much bilateral trade with Greece to worry about. We think the future of our exports to the EU is quite secure under the GSP Plus. There was a 25pc increase in exports to the EU in the value-added textile sector last year, and we expect the trend to persist during the current fiscal year,” he said over phone from Islamabad.
S.M. Tanveer, chairman of the All Pakistan Textile Mills Association, was both alarmed and agitated. “We foresee danger in Europe. Any turmoil in our biggest export market can pose new challenges for distressed Pakistani manufacturers and exporters. The government should be on its toes to frame suitable interventions to safeguard the country’s trade interests in Europe,” he stated over phone from Lahore.
“The government should quit the policy of defending the value of the rupee through market interventions. The euro has devalued 26pc against the dollar over the last eight months. Over the same period, the rupee has gained over 5pc against the dollar. This has eroded our competitiveness relative to other trading nations. Look at Turkey or India; they readjusted their currencies down.”
A senior source in Islamabad informed that the IMF has hinted at a new parity around Rs106 to a dollar by the end of this calendar year.
When contacted, a top official in the finance ministry ruled out any such possibility.
“Please ignore the ignorant. The currency parity is not even on the agenda in the talks with the IMF. Yes, the reserves are relevant, but the market, and not the IMF or the government, fixes the exchange rate. It is State Bank’s responsibility to check manipulation. But the current monetary policy framework allows the interplay of demand and supply to determine the rate,” said the official who participates in review meetings with the Fund.
“I do not see any direct impact of the Greece crisis on Pakistan in the immediate future, but the government is closely following the developments in Europe. When commenting on the consequences of the euro’s devaluation on Pakistan, one must remember that our trade is primarily dollar-based, even when the destination of the merchandise is Europe.”
Some experts believe that the debt dispute is not really about money and economics, but about the terms of the relationship between the weak and the strong, and between the respect for democracy and the demands of power play.
“For me, the bigger issue is the attitude of the creditors towards the economies they chose to lend to. The desperate nations in need of external support often agree to harsh terms that fracture the natural process of development. The cost often applies disproportionately to the economically weaker segments. This unfair attitude of donors exposes the closely integrated world to the avoidable dangers of instability,” a female observer commented.
“The strong-arm tactics will not work because of the nature of the risks involved. The developments in Europe should be a strong reminder that blindly following the creditors’ advice can lead a country into a blind alley,” he said.
Published in Dawn, Economic & Business ,July 13th, 2015
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