Economic Stabilization Requires Better Governance and Political Stability, Will PM Khan Deliver?
By Misbah U Azam
CA
Venezuela – the Petrostate – is in an economic crisis. The inflation is so high that a cup of coffee today costs as much as the monthly rent of a one-bedroom apartment did a decade ago. Economists believe that the countries which rely heavily on their natural resources are often vulnerable to the “Dutch disease” because the foreign capital starts pumping into the economy, increasing the value of the local currency amid skyrocketing imports.
All the labor and capital get sucked into the natural resource while other sectors, like agriculture and manufacturing, remain deprived of any growth. Venezuela’s imports grew almost 500% between 2004 and 2008 and the GDP growth rate went down almost 350% during the same period. The crisis continued after Hugo Chavez’s death in 2013, and the new leader, Nicolas Maduro, also has had to face hyperinflation, climbing hunger, disease, crime and death rates, and massive emigration from the country.
According to an UNHCR report (November 2018), around 3 million people had emigrated from Venezuela to Colombia (over one million), Peru (over half a million), Ecuador (over 220,000), Argentina (130,000), Chile (over 100,000) and Brazil (85,000).
What brought Venezuela – a country which has the world’s largest oil reserves – to economic and political ruin?
Experts believe that although the drop in oil prices is one factor, the main causes of economic melt-down were years of poor governance, political instability and economic mismanagement which had driven what was once one of Latin America’s most prosperous countries to a nightmarish economic disaster.
So much for the claim that “oil producing countries always have great economies”.
Pakistan’s economic managers have a lot to learn from the economic disaster of Venezuela. After mismanaging the economy for the last 8 months, the government in Pakistan is now expecting that changing its economic team would do some miracle and all pledges of Imran Khan will suddenly come to fruition.
For the first 6-7 months, they hid their incompetence behind the political rhetoric that mismanagement during the last 10 years was the reason for the economic woes. When the media stopped buying this logic, the government began to promise good news about an imaginary 205 million tons (approximately 1.5B barrels) of off-shore oil reserves, which would – according to a boasting federal minister – change the country’s fortunes overnight.
Experts argue that even if that large amount of oil is discovered it would take another 5-10 years before it will be available for production and due to the highly sophisticated techniques of extraction, the price may be much higher than expected.
Another problem could be the reaction of oil-producing countries around the region who would be losing their monopoly. The South China Sea region – which is home to a wealth of natural resources, fisheries, trade routes, and military bases – can be one example. The Ministry of Geological Resources and Mining of the People’s Republic of China estimates that the South China Sea contains 17.7 billion tons (approximately 130 billion barrels) of crude oil (Kuwait has around 13 billion tons of crude oil reserves), though other sources claim that the reserves of oil in the South China Sea may only be about 1.1 billion tons.
All of this is at stake due to the increasingly frequent diplomatic standoffs among the countries in the region, including Philippines, Vietnam, Taiwan, Malaysia, and Brunei. So it is yet to be seen how the countries in the region and the US, Russia, and China would respond if the reserves are really found.
All said, the PTI experiment has turned out to be a miserable failure. The Khan government has not been able to deliver in any sector of governance. Media reports suggest that even the new economic team of non-elected technocrats has been nominated on the demand of the International Monetary Fund (IMF). Now, the IMF will negotiate with its own ex-employees who may not be reporting to the civilian government.
On the other side, the opposition is getting ready to make its move in the coming days. They have already sensed the vulnerabilities of Khan’s team and also the panic among those who brought them in power. After Eid al-Azha there may be more pressure applied by the opposition parties on the government.
In order to salvage the experiment, there are strong chances that a move to bring about an in-house change will be made after the budget by luring the turncoats from PTI and the opposition parties. The defections from the two main opposition parties, namely PML-N and PPP, have proved that they could hardly have an impact on the parties’ support base but PTI has a lot more to lose if such a move is made.
Some commentators argue that the main reason for economic troubles in Venezuela was that the Venezuelan leadership was somewhat hostile towards the US and the US contributed to their economic problems in order to punish them, while Pakistan is friendlier to the US and so the US would not want to destabilize Pakistan.
The argument does hold some truth, especially if one adds the Nuclear State dimension to the equation. But if we take a closer look, it isn’t something we can rely on. The US has already decided to leave Afghanistan and right now it is trying to cut some kind of deal with the Taliban. And it is the Taliban now who’re delaying the talks. The imminent defeat means US will soon be blaming Pakistan for its disastrous campaign in Afghanistan. Consequently, the US would exert economic pressure on us.
Meanwhile, Imran Khan’s incompetent government is already struggling with a deteriorating economy and after virtually handing over its financial control to the IMF, a disaster is certainly looming. The opposition, which is already convinced that the elections of 2018 were flawed and heavily rigged, will exploit the public sentiment and misery.
India, on the other hand, is increasing pressure on the eastern front. Pakistan requires a massive military budget to deal with any future adventurism by the wily neighbor.
If we don’t correct the course, Pakistan could well be the next Venezuela.
But it can be avoided if Pakistan improves its relations with its neighbors, especially India. In the past, the establishment sabotaged all efforts by the civilian governments to create Indian business stakes in Pakistan’s stability. But let bygones be bygones. Now, the PTI government needs to create political harmony in the country instead of continuing their hate campaign which is causing further instability.
Prime Minister Khan needs to stop humiliating the opposition leaders and their voters. Let the courts deal with their cases. For, if he can’t rise above his ego, there’s hardly a chance his government would survive the coming assault.
In his interview in 1867, with St Petersburgische ZeitungIt, the German aristocrat and statesman Otto Von Bismark described politics as “an art of possible”. However, a leading proponent of 20th-century American liberalism, John Kenneth Galbraith, disagreed. He wrote to President John F Kennedy in 1962 that he believes that “politics is not the art of possible, it consists of choosing between the disastrous and unpalatable”. Now Khan has to prove that he might be unpalatable, but at least not a disaster. – Naya Daur
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