The Aly Gates Test

The Aly Gates Test
Majyd Aziz

The problem with the packaging of the US$ 11 billion IMF loan for Pakistan was that there wasn't much honesty about what needed to be done to transform the economy from a traditional system to an open market-based system. The government took the money, but then was unable to carry through with the agreed conditions.

It's worth remembering that the 23-month Stand-By Arrangement of US$ 7.6 billion approved on November 24, 2008 by the IMF under its exceptional access policy, aimed to restore macroeconomic stability and investor confidence through a tightening of macroeconomic policies, and also was directed towards social stability and adequate support for the poor. It was signed on the dotted line by then Finance Minister Shaukat Tarin and then Governor State Bank of Pakistan Dr Shamshad Akhtar. Another Arrangement of US$ 3.23 was approved on August 07, 2009 and signed by Shaukat Tarin and, at that time, Governor of State Bank of Pakistan Salim Raza.

Pakistan’s economic managers, whether they be Finance Ministers, Governors of State Bank of Pakistan, or even heads of the Planning Commission etc have, for whatever reasons, been tagged as “imported” due to their past affiliations and also due to their inherent disconnect with the ground realities at home. This perception or impression is further magnified by the inability of these economic managers to put their ideas and vision into proper and pragmatic implementation. Notwithstanding their vast experience, their acknowledged caliber, and their influence with International Finance Institutions, the fact remains that they faced an uphill task dealing with politicians, bureaucracy, landed feudal, and trade and industry.

The ensuing result has been the inability of these economic managers to adhere to the conditionalities of the IMF loans for many a reason, and hence, even though Pakistan is diligently discharging its debt repayment obligations to IMF, there is still an uncertain situation whether IMF and Pakistan would come to an agreement for future disbursements. Thus, since May 2010, the program has been suspended when IMF refused to release the remaining US$ 3.7 billion due to non-compliance of the conditionalities. Although the agreement was extended for nine months until September 2011, the disbursements were not resumed due to the inability of both the government and IMF to come to an understanding.

Over the past few years, Pakistan has also faced financial upheaval like many other countries and regions. This is the time for the economic managers to learn lessons from the 1997 Asian Meltdown when the Korean businessmen and their buddies, in Indonesia, Malaysia, Thailand, etc, fell on hard times because of cronyism and duplicity. They lied to each other and to their banks about the state of their businesses. They scratched each other's backs and chose to ignore all signs of weakness. Because they were able to protect themselves from competition all these many years, they created too many "successful" firms all trying to do the same things, all highly leveraged, in a largely competitive international market place. As the leveraging got shorter and shorter, the likelihood of problems became an obvious inevitability. They did pay heavily due to the "massacre" of their currencies, economies, and other macro fundamentals. Many countries became dependent on the IMF bowl of soup. They blamed George Soros and others like him, but no matter how they cut the cloth, the paramount blame lay with the political hierarchy and the businessmen of these Asian Tigers.

However, the Asian Tigers came out of this imbroglio; they liberalized their economy, they took the needed bitter hits, and they became tougher competitors. Why? A prime reason was that they have a terrific, well-educated, and disciplined work force, and they have knowledgeable, if chastened entrepreneurs. They took their medicine, they suffered, but then, in slow but calculated motion, they worked off their financial sector problems.

The Chinese used to send more than 12000 students annually to the US for graduate study for years. Maybe the number is down today, but all in all, that is technology transfer. Moreover, when the U.S. economy turns sour, they take a plane back to the home country. Even if a few thousand stay over in USA, yet China gets real world class technical knowledge, experience, and transfer. And, the icing on the cake is that most of these students in technological disciplines usually get graduate fellowships in USA universities.

Pakistan can compete internationally, as it has demonstrated all these years. The government needs to focus on educating the people, on creating a competent, skilled, and sophisticated work force that creates superior value, and is not dependent on protectionism. Leave protectionism to the Indians and other SAARC nations.

Another imperative way to look at Pakistan's needs is the "Aly Gates Test". Can a nerdy Pakistani come back from USA, start a business, find capital at a reasonable price that doesn't tie his hands, not have to take VIP partners, not have tax collectors take him to the cleaners, not have petty government functionaries hound and harass him, doesn’t fall victim to extortionists and street criminals, and sincerely also have recourse to honest courts in the event of commercial disputes? When the answer is yes, Pakistan is getting close to being a competitive state. If an "Aly Gates" can't come along, then where will sound development come from?

What is Pakistan offering to the potential "Aly Gates"? The late Indian Premier, Rajiv Gandhi, offered such a marvelous and tempting package to the Indians working in California’s Silicon Valley, that Bangalore became the Silicon Valley of the world. It is hoped that when the new government is placed in power, the next Prime Minister would take a lesson from this episode and get the many "Aly Gates" back into Pakistan, very soon. Waiting for the foreign investor or imported finance and economic managers is not the only panacea for the nation's economic ills. All these years, Pakistan has been in a state of plus ca change, plus c'est la meme chose. (The more things change, the more they stay the same).
(The writer is Former President of Karachi Chamber of Commerce and Industry)

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MAJYD AZIZ March 25, 2013