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The case against reforms

February 10, 2013


REFORM or sink. That’s the message the outside powers are trying to impress on Pakistan’s civilian political leaders ahead of the next election cycle.

The thinking is fairly straightforward: Pakistan’s macroeconomic outlook is dismal and unless some fundamental reforms are undertaken soon, the country will be trapped in a low-growth, high-insecurity cycle for a generation or beyond.

The desired reforms?

Improve the tax-to-GDP ratio — more revenue is essential if the country is to be pulled out of the disastrous spiral of high borrowing and high expenditure.

Fix the power sector — growth is being choked by the desperate shortage of electricity and the state’s finances will collapse under the weight of hundreds of billions of rupees being shelled out annually to prop up a broken electricity sector.

Curtail borrowing from the domestic market — the banks are having such an easy time lending to the government that they’re ignoring the private sector; without private investment picking up, the medium-term trajectory of the economy can only be down, down, down.

Why press for reforms now?

Again, the thinking is fairly straightforward: whoever comes to power after the election, the government — weak or strong — will have some political capital to spend at the very beginning and so a small window of opportunity to push through reforms that six months or a year later will become politically untenable.

The message and the logic are both impeccable: Pakistan desperately needs economic reforms and the warm glow of a fresh mandate from the electorate will give the government a chance to push through unpopular reforms.

Here’s the problem: it won’t happen.

Start with the PPP. Let’s assume the party leads it’s unwieldy coalition back to power. What next?

The single most terrifying thing about the PPP? Party leaders genuinely believe Asif Zardari is some kind of economic wizard.

Waxing lyrical about your leaders is one of those squeamish necessities of politics here. But it becomes something else when that hype is internalised.

From leading the country through a perilous international financial crisis and recession to navigating the pitfalls of domestic special interests and markets, the PPP sells Zardari as a Nobel Prize-winning economist or the second coming of Nassim Nicolas Taleb.

If you’ve already got a hero in your midst, why would you need to reinvent yourself?

The PPP won’t do it, push through desperately needed but painful reforms, that is.

Turn to the PML-N. On paper, the N-League has a better economic team than the PPP — how could it not when compared to zero?

But scratch the surface and the same superficiality and misplaced confidence is evident: fixing Pakistan is just about a few steps — and please, don’t talk about taxing traders as one of those steps — that are primarily about management, not reforms.

For the PML-N there is no trade-off between better economic management and political exigencies — though the two are of course fundamentally interconnected.

The PTI? It talks a good reforms talk but it has yet to walk the reforms walk — and the same electables that maybe, perhaps, who knows will catapult the PTI to power or junior-coalition-partner status will be answerable to the same electorate that Asif Zardari and Nawaz Sharif are answerable to.

And therein lies the basic problem: seen from the outside, through rational, reasonable and sensible eyes, the political mainstream in Pakistan is irrational, unreasonable and insensible.

A little pain now and the long-term benefits would be enormous. Improving the tax base would mean more money to spend on public services. Fixing the power sector would mean more jobs through small and big business flourishing. Curtailing borrowing would help put the brakes on inflationary pressures, essentially a tax on the people.

A rising tide lifts all boats — to use a terrible cliché — the outside powers are essentially arguing.

But Pakistani politics is about individual boats — about a personalised, patronage-driven style of politics that often works at cross purposes to the common good.

The most offensive thing you can say to a Pakistani politician is that they don’t do enough for their voters.

As far as they’re concerned, they do. They go to weddings and funerals, they get the kids into school, they get the young adults jobs, and they keep the delinquents out of jail.

They transfer money to the family patriarch when the family land is flooded or destroyed and to the matriarch when the economic going gets really tough.

They work, and they work damn hard, thank you very much, the politicians know and believe.

Of course, there are the subjective wishes of the electorate and then there is objective reality: ignore the macro for the micro, the collective for the individual, long enough and wantonly enough, and reality will eventually bite.

But when will reality bite, savagely and life-threateningly, not the death by a thousand cuts we’re currently suffering?

Because reforms won’t come unless there is absolutely no alternative.

Raise the tax base? Not unless the federal government can’t pay its dues: debt obligations, salaries of a bloated bureaucracy and the expensive toys for the spoilt boys.

Best guess: that’s another three to four years off.

Fix the electricity sector? Not unless it actually, definitively collapses, say, with the default of Pakistan State Oil, the lynchpin of the power sector and most connected to the global markets.

Best guess: that’s another year or two away.

Stop borrowing from the local banks? Not unless a massive inflationary spiral is triggered or the banks’ lopsided balance sheets threaten unmanageable risk.

Best guess: that’s several years away from happening.

No unavoidable agony, no immediate desperation, no imminent collapse — no reform. Not by the politicians.

No matter what anyone else wants or says.

The writer is a member of staff. Twitter: @cyalm