Mir Mohammad Ali Khan |
The greatest economy in the world according to most financial experts is The United States Of America. Yet it has seen 13 recessions since 1929. It has seen an unemployment rate as high as 24.6% during one of those recessions. It has seen 9800 banks declare bankruptcy between 1929 and 1934. Yes, 9800.
That was not a typo. It has seen full blown depressions to mild recessions of just a few years ago. Its economy has seesawed like waves in the ocean yet it has survived and grown. Its external loan as of today has crossed $20 trillion dollars. That’s approximately 600 years of Pakistan budget.
Debt market financing after more debt market financing. New loans to pay back old ones. More new loans to payback more present loans.
How did and does America survive every time after such behemoth crisis? How do other countries survive financial crisis? And why do some countries don’t even after all the help? Well, the answer is in one sentence, America reinvents itself after every crisis and other countries don’t.
After 1929 it launched what is called “The New Deal” by Franklin D. Roosevelt; A social and economic contract with its people to bring the nation out of its financial abyss. It literally reinvented itself, changed all the policies that did not work.
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Opposition and the rulers got together with each other to lift the country out of the dungeons of uncertainty. Yes, a unique idea that any opposition and the ruling elite would cooperate with each other and put their differences aside. They did and that is what made them great.
America has reinvented itself several times; from an agricultural state to an industrial giant to a technology heaven to a world financial hub. Whatever did not work or was outdated, they stopped funding it and worked on innovation.
And then there are countries like Argentina whose reinvention was to repeat its past mistakes so many times that it could not differentiate between what works and what does not. It has had the greatest of leaders, one of whom I was very close to, in the 1990’s and to whom I had advised in financial capacity professionally, yet the sincerity and the greatness of those leaders could not uplift Argentina out of its crisis.
Pakistan needs to think out of the box. Way out. Far out. Pakistan needs to invest in its people rather than its industries alone.
Why? Because they refused to listen to new ideas and worked day and night on the old ones. Because the old ones were popular ideas and elections are won on popular decisions. Well, Elections went fine but the nation did not do great.
No country in recent history has been helped by the lenders and the economists as much as Argentina has been helped. IMF program after the IMF program. Debt market financing after more debt market financing. New loans to pay back old ones. More new loans to payback more present loans. Without an effort to raise revenues. No emphasis on increasing income. All energies spent on managing the financial crisis.
And the moment the financial crisis was averted temporarily, the entire nation jumped with joy until it faced another financial crisis. This time only a bigger one.
And thus a term was coined in the financial circles of the world called, “THE ARGENTINIAN PARADOX”; because it was absolutely absurd of the Argentinian government to repeat its mistakes and expect a different result.
Argentinian economy reminds me so much of the Pakistani economy and its leadership reminds me so much of the Pakistani leadership. The same spirit of wanting to do well but being afraid to try anything other than the run of the mill ideas and policies. Running from pillar to post to borrow money without clamping down on macro expenses.
Trying to keep its farmers happy at the cost of all technological innovations. Supporting its industries with subsidies upon subsidies and not putting that money to use somewhere else and asking its industries to become more competitive internationally. Least amount of investments in Hi-Tech and all money poured into Low Tech ideas.
With all our good intentions and old ideas, we do not want to become known as a country that is remembered by a title called “The Pakistani Paradox”.
Importing everything in sight and yet wanting to export finished products from the imported raw material which eventually rendered its non-price competition. Forget about the eventual low quality.
We don’t want to see a “Pakistani Paradox”. We absolutely do not want to. It’s a great effort by the PM to put out the immediate fire by borrowing to balance our payments crises. But so did Argentina; repeatedly and with success.
It also made a huge Economic Advisory Council. But the mistake was that it had one huge council to address all economic issues. The council never was able to agree upon anything because of its size which led to varying opinions. And not all economists or Advisors had a specialty in every financial field.
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I had insisted at that time that they form 5 different smaller Advisory Council instead of one big giant and overloaded one. One for Fiscal policy reforms. One for Agricultural reforms. One for export reforms. One for Capital & Debt markets reforms. One for energy crisis reforms and one for reduction of debt policy and reforms.
And my suggestion was that no council should be more than 5 people. It should be a full-time council. Multiple ones. Working every day and reporting to the President on a weekly basis with suggestions. It never happened and the huge Advisory Council finally agreed to never agree upon anything.
It’s a great effort by the PM to put out the immediate fire by borrowing to balance our payments crises.
This is what we need in Pakistan as well. We need to identify the highest growth areas of the next 10 years and invest in them simultaneously while we address corruption and reforms. We cannot just make textile exporters happy at the cost of other industries that have a huge potential to generate revenues for us internationally.
Pakistan needs new ideas. Pakistan needs the reformation of a committee that does reforms. Pakistan needs to think out of the box. Way out. Far out. Pakistan needs to invest in its people rather than its industries alone.
Good intentions alone do not generate good results. Good intentions with the courage to reinvent your economy bring results. With all our good intentions and old ideas, we do not want to become known as a country that is remembered by a title called “The Pakistani Paradox”.
Mir Muhammad Ali Khan is the first Muslim founder of an Investment Bank on Wall Street. He is the author of 4 books and has published over 800 articles. The views expressed in this article are author’s own and do not necessarily reflect the editorial policy of Global Village Space.