NOVA CSS ACADAMY

THE drumbeat of war in the Persian/Arab Gulf has become incessant[جو بغیر وقفے سے جاری رہے] in the past few weeks. Oil tankers have been mysteriously damaged. A US surveillance [نگرانی کرنے والا]drone has been shot down by Iran’s Revolutionary Guard (IRGC). Missiles have struck Saudi installations and Basra sites. The US has sent a naval armada [بحری جہازوں کا قافلہ] and 2,500 additional troops to the Gulf, intensified economic pressure and built the legal grounds for military operations against Iran.

The world is waking up to the potentially devastating [تباہ کن] consequences for the region and the world of this professedly unwanted yet inexorable [جسے روکا نہیں جا سکتا] march towards a US-Iran war.

The conflict may be ‘limited’ at the outset but could escalate [ کسی برائی یا تکلیف کا بڑھ جانا] rapidly, eg further attacks on oil tankers in the Hormuz, US ‘retaliation’ [جوابی حملہ] against IRGC gunboats and other naval vessels, Iranian missile strikes against US and GCC targets accompanied by attacks by Iranian or Shia militias against US personnel and installations in Iraq, Syria, Afghanistan and elsewhere, and missile and rocket attacks against Israel and Israeli-occupied territories by Hezbollah and other Iran-allied groups. To avoid such anticipated attacks, the US, and possibly Israel, could resort to major pre-emptive aerial strikes to eliminate Iran’s missile and naval capabilities.

However, even if such strikes are successful, Iran is unlikely to capitulate[مزاحمت ترک کرنا] (if its resilience during the Iran-Iraq war is any indication). Under external attack, there will be no popular movement in Iran to oust the regime (although President Rouhani and the ‘moderates’ may be replaced by the hardliners and the IRGC). To remove it, the US and its allies would need to launch a full-fledged invasion of Iran. Given the experience of Iraq and Afghanistan, neither Washington nor any regional power, has the stomach for it.

Even if Russia and China, which America has designated as its ‘rivals’, do not intervene, directly or indirectly, on Tehran’s behalf, the end-state of a war with Iran will be: one, chaos within Iran, with the possible eruption [اچانک پھوٹ پڑنا]of ethnic insurgencies [ بغاوتیں] in its peripheral provinces; two, a war of attrition [دشمن کی طاقت کمزور کرنے کیلئے جنگ لڑنا] led by the remnants [بچی کھچی] Iranian regular forces and Shia militias against US and allied forces and installations across the region; three, Tehran-inspired intensification of the conflicts in Iraq, Syria, Yemen, and Afghanistan; four, an Iranian denunciation [کسی معاہدے کو ماننے سے انکار کر دینا] of thenuclear non-proliferation treaty[ایٹمی ہتھاروں کے عدم پھیلاو کا معاہدہ] and eventual development of nuclear weapons; five, a major and extended interruption in oil exports from the Gulf, pushing prices to unprecedented heights, and six, a global economic recession.

War is thus a ‘lose-lose’ option for all those who would be involved in this conflict and even those who are not. Regardless of the culpability [کسی غلطی کی ذمہ داری] of those responsible for the reckless actions that have brought the region to the brink of war, common sense, and a sense of self-preservation dictate that the principal parties walk back from the precipice [عمودی چٹان].

Any endeavour [کوشش] towards de-escalation [کسی تکلیف یا پریشانی وغیرہ میں کمی لانا] will need to address the major causes of the crisis and respond to the concerns of all parties. Each of the elements of the current confrontation — nuclear proliferation, regional conflicts, economic sanctions, tanker and missile attacks — have been addressed, if at all, in piecemeal fashion so far. They are all interlinked and must be resolved comprehensively and concomitantly[مطابقت رکھتے ہوئے].

A first step away from the brink could be acceptance of the UN secretary general’s proposal to hold an independent inquiry into the tanker attacks of May and June. All parties should pledge not to resort to the use of force while this investigation is under way.

Simultaneously, the UN Security Council should demand: one, a halt to the Houthi missile attacks against Saudi and Emirati targets, two, a general ceasefire in Yemen; three, the opening of all avenues for the supply of humanitarian help to the Yemeni population; and four, the initiation of a summit-level dialogue between the main parties to evolve a political solution to the conflict.

Most importantly, the EU, the three European parties to the Iran nuclear deal, and Russia and China, with the support of the UN secretary general and General Assembly, should undertake a high-level diplomatic initiative to: 1) convince Tehran not to breach the limitations, especially on nuclear enrichment levels and stocks, contained in the deal; 2) set up an international mechanism (an Instex plus) to enable Iran to conduct trade as per the terms of the deal; 3) press the US to lift the unilateral sanctions it has imposed on Iran, at least progressively in response to reciprocal confidence-building measures undertaken by Iran; 4) secure Iran’s agreement to discuss and address the widespread concern regarding its policies across the region, including in Syria, Lebanon, Iraq, Yemen and Afghanistan; and 5) establish a mechanism to discuss a missile-and-arms-control regime in the region.

Despite Ayatollah Khamanei’s public rejection of talks with the US during the Japanese prime minister’s recent mediatory [ثلثی پر مبنی] visit to Tehran, Iran is unlikely to have closed all doors to dialogue. Some of Foreign Minister Javad Zarif’s recent statements have mentioned openness to discuss all issues. (He once told me that Iran had proposed a ‘grand bargain’ to the US in 2001-2; the response they received was Iran’s inclusion in the ‘axis of evil’ in president George W. Bush’s September 2002 speech at the UN General Assembly).

The Trump administration appears to be internally conflicted on its Iran policy. There is a general perception that hardliners — National Security Adviser John Bolton, and Secretary of State Mike Pompeo — are pushing President Trump towards a war with Iran. But Trump may be using them,

wittingly or otherwise, as part of his ‘art of the deal’ negotiating strategy. His main objective is to secure re-election in 2020. ‘Success’ in dealing with Iran would enhance his electoral prospects. But a war with an uncertain outcome is a risky strategy. He has notably responded cautiously to the drone downing. A major diplomatic success would be a preferable option for Trump.

Although Iran is not always an easy neighbour, Pakistan has multiple reasons to prevent a war against it. Over the past 40 years, several ‘independent’ Muslim states have been progressively attacked, subverted [کمزور کر دئے گئے] and neutralised: Egypt, Iraq, Syria, Libya, Sudan. If Iran is militarily and economically destroyed, who is next?

PAKISTAN’S federal budget announcement, followed by the prime minister’s midnight speech, mirrored the words of former Tory leader David Cameron a decade ago. He declared that “the age of irresponsibility is giving way to the age of austerity” and advocated for a new fiscal[related to budget or economics of the government] policy favoured by his party, which saw excessive government spending as the source of Britain’s economic crisis at the time.

While it is important to understand how Pakistan ended up with its extravagant [فضول خرچی پر مبنی] levels of public debt — and Prime Minister Imran Khan announced a commission to probe this — it is equally important to see what lessons can be learnt from a decade of Britain’s ‘age of austerity’ before embarking on [بیڑہ اٹھانا، کسی کام کا ذمہ لینا] one ourselves.

Britain’s policy of ‘fiscal consolidation’ was characterised by across-the-board cuts in public spending as well as increase in taxes. Social services, housing subsidies and welfare saw cuts of £30 billion in the last decade. Over 1.1 million public servants, including 200,000 police officers, were also laid off. Health and education budgets as well as public-sector salaries were officially frozen but saw a rapid decline in real terms. The policy also increased council tax, capital gains tax and, critically, VAT.

Pakistan seems to be following exactly the same prescription by significantly reducing development spending and undertaking cuts in health and education. Meanwhile, indirect taxes in the form of GST, levies, withholding taxes and other instruments have seen a sharp rise. The only increase in direct taxation has been in income tax, mostly from the salaried class, with no clarity on how the government plans to widen the tax net. The expectation is that these measures will increase revenue, bring the deficit under control and help avoid default on debt servicing.

The British experience, however, shows that not only did the government struggle to achieve its goals but the social, economic and political costs of austerity proved extremely prohibitive. The policy resulted in a prolonged recession as a result of negative economic growth, and led to an unprecedented rise in unemployment, poverty, mortality rates and homelessness.

Some studies also attribute increasing crime rates and social unrest to the policy. Worryingly, intensified competition for increasingly scarce [کمیاب] economic resources, job opportunities and overburdened public services led to the rise of extremist tendencies. This includes an exponential rise in anti-immigrant sentiment, Islamophobia and anti-Semitism. Far-right political parties benefited immensely from this situation and made huge electoral gains — successfully managing to put the UK on the path to international isolation as evident by Brexit.

For Pakistan, given its youth bulge, inflationary pressures, greater inequalities along ethnically concentrated geographic regions and urban demographics, history of political instability, violence along sectarian and religious lines, and a weak economic base, the potential social impact of such policies can be devastating[تباہ کن]. Politically, these will hit the middle class that forms the PTI’s core support base and the working class the most, making it difficult for the party to maintain its approval ratings.

The government must consider an alternative school of thought that argues that lower economic growth as a result of fiscally conservative policies leads to lower profits and wages as well as consumption. This results in decreased government revenue, meaning that the intended reduction in deficit (gap between government expenditure and revenue) remains elusive [پہنچ سے دور، جو ہاتھ نہ آئے] despite funding cuts and tax rise. The problem, therefore, lies not in government-spending per se, but in the sectors of the economy that this spending is directed towards.

Pakistan may have seen higher levels of growth in the last five years, however, these came on the back of investment/growth in unproductive sectors such as real estate and the stock market. The solution is to stimulate growth — even at the cost of higher debt — in manufacturing, agriculture and SMEs, by investing in infrastructure, technology and improving women’s labour participation. Subsidised health and education must be a priority at par with defence to ensure that our youth can innovate and compete in the global economy.

These measures will create jobs and increase economic activity, leading to greater consumption and higher government revenues. These efforts can be further augmented [تقویت ملنا،] by taxing less productive sectors such as real estate, particularly rental income, large dwellings and inheritances, and imported luxury goods to further reduce the deficit.

When David Cameron left office in 2016 after the embarrassment of Brexit and six painful years of austerity, Britain’s gross debt had increased from 52pc of the GDP (in 2008-09) to a whopping 86.5pc. PM Khan and the PTI would do well to avoid a similar fate.

CONTEMPLATION [غور و فکر]and discretion [طریقے سلیقے سے بات کرنا] used to be considered the virtues of respected scholars and official spokespersons. The lure [کشش]of fame on social media has birthed a new tribe of celebrity intellectuals who no longer debate but battle with a gluttony[ضرورت سے زیادہ] of words on Twitter. The government and other official Twitter accounts are often not policy-driven, and appear more in the business of discrediting critics.

This has eclipsed sensible discourse, especially, on the most curative [قابلِ علاج] moment in Pakistan’s postcolonial history since 1971 — the merger of Fata and KP. While our state has the uncanny ability to alienate [خود سے جدا اور غیر بنانا] those who have shared with us the intimacy of history, to be fair, the jingoism[شدت پسندی] is deafening on all sides.

Our patriots ‘volunteer’ austerity as if it’s charity for the underdeveloped provinces. Conspiracy theorists make comparisons between a separation (Bangladesh) and a merger (Fata). In the erudite [علم سے مالا مال]centre of Punjab bleed the hearts of scholar-activists enamoured [محبت میں گرفتار]of the courageous leaders of Waziristan but who scoff at [ہتک آمیز بات کرنا] any mundane [دلچسپی سے خالی] ‘centrist’ efforts to maximise practical benefits for tribal communities.

Professor of ethnicity Lisa Lowe recalls colonial encounters as ‘intimacies’ but we can say that these intimacies continue in postcolonial times. The pre-conditions in the newly merged areas are hierarchical, militarised, and under- and unevenly developed. Basic human indices reveal the lowest quality of living standards in Pakistan. Gender gaps confirm the precariousness [خطرے سے دوچار] of life and livelihood.

The only hope is elected representatives.

Not only are 85 per cent of women in the merged areas uneducated, under 8pc of adult women are literate; the net attendance ratio for primary school girls is 26pc; the maternal mortality rate is 395, less than half the births are delivered by skilled attendants and underage marriage, fertility rates and domestic violence are the highest in the country.

Development and service delivery are lopsided[غیر عادلانہ,غیر متوازن]. Lady Health Workers are few. On average, 70pc of enrolled children attend government schools rather than private ones, although the reverse is true for South Waziristan. The prime minister won’t be pleased but nearly 90pc of social protection in the merged areas is covered by the Benazir Income Support Programme albeit[اگرچہ کہ] unevenly distributed.

Women’s overall labour force participation is in single digits; other than transport and storage, over 70pc of women’s employment in Bajaur and South Waziristan is in construction. Non-traditional occupation is likely due to “distress sale of labour” rather than the result of empowerment. In Khyber, where literacy/ education rates are the highest, women work in the service sector.

The first surveys after the 25th Amendment challenge notions about a homogenous heart of darkness that hosts permanent anti-imperialist warriors, oppressed veiled women, and elders who jealously guard pashtunwali. Most respondents in the merged areas do not cite ‘culture’ or ‘the state’ as barriers to health, education or employment. They complain of failure of delivery, its poor quality and an over-securitised regime. Sounds intimately familiar.

Data can carry loud silences — about property, distribution of resources, religious practices, decision-making, and minorities’ status. These gaps must be filled but not through the predatory way [شکار کرنے کی خاطر] that research and development is conducted in Pakistan.

Neoliberal academia and humanitarian agencies make lucrative careers under the guise of [کی آڑ میں] benefiting the ‘natives’. All through the ‘war on terror’, tribal communities were pathologised [مرض کی تشخیص کرنا]as victims of imperialism or villains of terrorism. None of this helped KP make a merger plan. Between colonial archives and postcolonial exploitation[استحصال], the only hope is elected representatives — jailing them is stupidity.

Meeting these challenges does not require heroism — just an urgent, pragmatic people-led, financially sound strategy and its implementation. It used to be part of the task of colonial administrators to render Africans as enslaveable property, the Chinese as supplementary labour, Indians as illiterate wasters, Pakhtuns as intractable[hard to control] warriors, and oriental women as odalisques [لونڈیاں].

Demonising nationalists as traitors was a colonial tactic that led to identity politics and physical separation. Merging requires the opposite — not taming, erasing or turning the indigenous[مقامی لوگ یا چیزیں] into the outlier but a respectful melding [مکسچر]. Settler-colonial attitudes towards labour, women or political leaders, or attempts to ‘askari-seize’ or expropriate resources, or displacements, or using divide-and-rule tactics spell disaster.

Narratives can be controlled but not tipping points. Discontent cannot be crushed, just channelled. There may be four million Twitter users to chastise [جن کی خبر لی جائے] in Pakistan but that’s still less than the population of these areas. Isn’t it worth quitting the virtual game called ‘peace for change’ and ensuring that this real-life event is allowed to proceed in a democratic way for which it is we, who must change for peace?

The writer is author of Faith and Feminism in Pakistan.

Published in Dawn, June 23rd, 2019

A 20-billion rupee bailout {یہ کالم محض کاپی پیسٹ کیا گیا ہے}

THE Karachi Stock Exchange was established in 1949. When the Lahore and Islamabad stock exchanges were de-licensed in 2016, the three stock markets were consolidated into one entity, the Pakistan Stock Exchange. While the PSX garners a fair amount of media coverage, it is instructive to study what its actual contribution to the Pakistan economy has been.

In its simplest form, a stock exchange provides a platform where companies looking to raise capital are matched with investors looking to invest profitably. Judged by this parameter, does the PSX add value? Let us look at some numbers.

Presently there are 558 companies listed on the PSX; this number has ranged between 557 and 560 over the last five years. The earliest data available on the PSX website is for 2001, when there were 747 listed companies. That’s right, the number of companies has actually declined over the years. This is due in part to companies de-listing or merging with one another. More importantly, it is due to pitifully few new listings; the numbers for the last five financial years are: 2018:6, 2017:5, 2016:4, 2015:9, 2014:5. The story is little different if you go back further, say 10 or 20 years. In 2019, only one company has listed. PSX fares poorly in its first core function, ie helping companies raise capital.

PSX fares even more poorly in its second core function, ie as a platform for investors. The total number of investors in Pakistan is 231,793, or 0.1 per cent of the country’s population (National Clearing Company of Pakistan Ltd data, March 2019). A regional comparison is telling. Bangladesh, with a comparable per capita GDP, has 2.8 million investors. That works out to 1.65pc of its population.

A global measure of the size and significance of any stock market is the market capitalisation to GDP ratio, expressed as a percentage value. Market capitalisation is the value of all listed companies. In general, developed countries with developed financial markets have a higher ratio. According to World Bank figures — the latest available are for 2017 — the ratio for high-income countries is 138pc, while for low- and middle-income countries it is 67pc. At PSX, from 2008 to 2018 this ratio has ranged between 16pc and 34pc. Again, a regional comparison is telling. Some country ratios from the World Bank data are: India 88pc, Bangladesh 35pc, Saudi Arabia 66pc, UAE 63pc. PSX’s ratio, 30pc in 2017 and down to 20pc currently, is one of the lowest.

Most observers would conclude therefore that PSX plays a relatively insignificant role in Pakistan’s economy. Seventy years after its inception it has still not matured to the level of a serious capital market, even by regional standards. The reasons for this are manifold, and while Dawn editorials have pointed out some of these, they lie outside the scope of this article.

It is intriguing, therefore, that the PSX should qualify for government support at this time of economic distress, when resources are scarce and all sections of society are being asked to share the pain through the difficult period ahead.

The government, from among all of its pressing tasks, has managed to conjure a bailout fund of Rs20 billion for the stock market. According to the Ministry of Finance, the Economic Coordination Committee on May 30 approved the issuance of a sovereign guarantee for investment in the National Investment Trust State Enterprise Fund. The reported broad outlines are that NIT will manage the fund, which will invest in state-owned enterprises with the objective of supporting the market as a whole. Also, the usual suspects from state-owned financial institutions (FIs) — State Life Insurance Corporation (SLIC), Employees Old Age Benefits Institution (EOBI), National Bank of Pakistan (NBP), etc — will be rounded up to invest in the fund.

Here a number of questions arise for the above FIs, the Securities and Exchange Commission of Pakistan (SECP) — the apex regulator for the country’s capital markets — and the government itself.

Does the FIs’ mandate include bailing out the market? Unequivocally, no. It is hoped that the FIs’ boards, fully seized of their fiduciary responsibilities, will decline to participate in the fund. Their fiduciary responsibilities, if it needs spelling out, are to their unit holders (NIT), policy holders (SLIC), pensioners (EOBI) and depositors (NBP).

Should the government underwrite the investment risk of financial markets? Unequivocally, no. The only justification for government intervention is in case of systemic risk to the financial system. The Asian crisis of 1997-98 and global financial crisis of 2007-08 were instances of significant government intervention because entire countries, indeed the global economic system, was at risk. Is that the condition in Pakistan? No. First, the market has an insignificant role in the economy. Secondly, the quantum of market decline is not extraordinary. As of mid-June, the KSE-100 index is down less than 10pc in 2019 and less than 20pc in a one-year period. The claim that there is a crisis is risible.

So, to the larger question: do our governments understand their job? This is a question not directed at the PTI government specifically, but governments in general. The primary responsibility for the stock market lies with the SECP. It should advise the finance ministry on the measures, if any, that need to be taken. This advice cannot be reactive to market movements or to the clamour of market participants. Instead it should be based on considered, rigorously developed policy and guide government responses to any and all situations, whether born of a crisis or in the routine.

The International Organisation of Securities Commissions, the global association of securities regulators (SECP is a member), has three core objectives of securities regulation: protecting investors; ensuring that markets are fair, efficient and transparent; and reducing systemic risk. Everything flows from these objectives. We would do well to heed these basics.