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Dar strikes again

Updated February 06, 2014


— File photo
— File photo

Ostensibly autonomous and with a fixed three-year term under his belt, governor of the State Bank is supposed to be one of the safest and most secure jobs in Pakistan.

But with the ouster of Yaseen Anwar last week, the SBP governorship has begun to resemble the prime ministerial hot seat of the 1990s: Anwar, two years, three months; Shahid Kardar, 10 months; Salim Reza, one year.

So what has gone wrong at the State Bank of Pakistan and will the likely announcement of Mohammad Aurangzeb, a private-sector banker in Singapore, as the next governor help end the turmoil at the top in the SBP?

In conversations with Dawn, senior government officials, bankers and IFI representatives offered their opinions on the ouster of Anwar and what his likely replacement means for the stewardship of the economy in the year ahead.

With the fearsome and all-powerful Ishaq Dar dominating the fiscal and economic landscape at the moment, most only agreed to speak on the condition of anonymity.“(Yaseen) Anwar’s problem was that he did not quite understand just how important the exchange rate is to Dar,” a senior government official said.

The official and others familiar with the wrangling between the SBP and finance ministry claimed that while Dar always intended to replace the PPP-appointee Anwar, the decision was expedited by Anwar not sharing Dar’s obsession with artificially slowing the slide of the rupee against the US dollar.

But the principal problem for Anwar, who is believed to have lobbied then-President Asif Zardari to appoint him as SBP governor in a much-speculated-about quid pro quo, was less about policy differences and more about Dar wanting his own team.

“Dar is a control freak. He doesn’t just want his way, he wants things done in the exact manner he wants them done,” a PML-N member of the government’s economic team said.

What about the autonomy and independence of the State Bank? “Autonomy of the State Bank is a flawed concept,” a finance ministry official said.

A former state banker was more blunt: “Some of us think governments worry about monetary policy. They don’t give a s**t. Borrowing? You have this gorilla in the room (the government) and he wants to write a cheque (government borrowing). What are you (the SBP) going to do? Dishonour it?”

The former state banker continued: “All they care about is the banks and regulations and NPLs (non-performing loans).”

That lop-sided focus – on the SBP’s banking-sector role as opposed to its other mandates: setting monetary policy to help spur growth and control inflation and encouraging development-oriented growth – was reflected in the words of the PML-N leader speaking on condition of anonymity:

“Look, if it’s Aurangzeb (as the next SBP governor), he’s going to do what Dar tells him to do. But there’s so much that can be done in terms of focusing on the banks and working on the debt profile and structure. The government could save $500m a year just by better managing its debt.”

An IFI representative said, “The problem is, the government believes that good economic policy is made by businessmen and bankers, not by economists. But the fundamental problem is that for the next two years, you’re stuck with the IMF.

“You need someone at the SBP who can talk to the economists sitting on the other side of the table in their own language. Will a banker (Aurangzeb) be able to do that?” the IFI representative asked.

Shahid Kardar, Yasin Anwar’s predecessor who lasted less than a year, suggested the real problem is systemic: “The economy is in the ICU and someone else is paying our bills. Outside the ICU, the patient has to also do something to make himself better, to exercise maybe. So why would you want to leave?”

Where does that leave Dar, the micromanaging finance minister who is reinforcing his old reputation for putting arch-loyalty and total control ahead of everything else, and his plans for the economy?

“He (Dar) needs all this control because the margins of error are so small. The head is barely above the water. And the plan is the same as it’s always been in Pakistan: keep the head above water,” a government official said.