Mosharraf Zaidi

http://www.mosharrafzaidi.com/2010/03/09/the-next-finance-minister-of-pakistan/
http://www.thenews.com.pk/daily_detail.asp?id=227913

Tuesday, March 09, 2010

by Mosharraf Zaidi

Like the achingly beautiful brunette bombshell that every man wants but no man has the courage to approach, it seems the finance minister’s job has become a victim of its own grandness. There are many ways to interpret the desperate difficulty that the present government is experiencing in finding someone that is willing to be finance minister for this country. Perhaps people worry that if Shaukat Tarin (not a man to shirk a good challenge) couldn’t handle the job, nobody really can. Perhaps a bad economy is scaring good people away from the job. Perhaps the allegations of unparalleled corruption within this PPP government are causing smart people to want to stay away from the job.

Of course, it’s important to remember that not everything that is broken today was handed to this government in any kind of usable condition. The intense opposition that President Asif Ali Zardari inspires may or may not always be fair, but a deeply problematic economic management paradigm goes far beyond this government. After all, we are less than three years removed from an era in which Pakistan’s economic managers were claiming the status of the new Asian Tiger for the country.

Experience must have made an entire generation of greying economic and financial savants truly wise men. From Ishrat Husain to Hafeez Pasha, not one of them wants to be finance minister. Indeed, anyone with professional pride seems to not want to touch the most powerful job that an apolitical shehri babu could ever aspire to in Pakistan. Begging the question, why do men for whom the apex of professional achievement is the finance minister’s job suddenly have cold feet?

The real answer has very little to do with the incompetence of the PPP government that is sometimes being lead by Prime Minister Yusuf Raza Gilani, sometimes by President Zardari, and most times by nobody at all. Smart economists know that one could replace this government with a PML-N government today, but the fate of the finance minister in such a government would not be much better than Shaukat Tarin’s. The problems inherent in the job of managing the Pakistani economy are not restricted to one kind of political party or another. Nor are those problems linked only to the performance of the global economy, or the prices of commodities like oil. The fundamental problem is much deeper, and worrying, and it is simple.

The traditional model of economic management is unsustainable in Pakistan.

This young and tortured country has only a very slim cadre of economic managers for as long as anyone that is old enough to be finance minister can remember. Since July of 1977 Pakistan has had 13 different men and women serve the country as ministers of finance. Of these 13, four had the chance to serve more than once–Shaheed Mohtarma Benazir Bhutto herself, Sartaj Aziz, Naveed Qamar and Ishaq Dar.

Of the 13 different folks that have been finance ministers, only three can legitimately be called serious politicians, capable of winning an election in Pakistan without the need to depend on the endorsement of any single family, group, or entity–the late Mian Yasin Khan Wattoo, Shaheed Mohtarma and the always classy Naveed Qamar. Many would argue that Ishaq Dar (a decent and competent man) qualifies as the fourth, but Mr Dar cannot win an election without the endorsement and strong support of the Sharif family.

More importantly, Mr Dar, rather than being a part of the thin group of politicians who have been finance minister, is clearly a member of the dominant club of Pakistani finance ministers that have limited autonomous political clout, but oodles of professional chops.

Since the summer of 1977, ten of the 13 ministers have either been career bureaucrats or finance and/or economics professionals. Often they have been both within the same career, including Sartaj Aziz, Ghulam Ishaq Khan, Shahid Javed Burki, and Mahbubul Haq.

The quintessential Pakistani finance ministers are the two that have enjoyed the longest tenures. Ghulam Ishaq Khan was finance minister from July 1977 to March 1985, and Shaukat Aziz was finance minister from November 1999 to November 2007. Both men served for approximately eight years. The most important common strain across these two was that neither would, even in their most courageous and brazen moments, have considered taxing the hands that fed them. The left hand being that of the feudal landowners that help sustain a skewed narrative of economics in Pakistan, and the right hand being that of the Pakistani military, whose appetite for fiscal expansion has never been institutionally challenged, or checked, in Pakistani history.

Simplistic derivations of why Aziz and Ghulam Ishaq Khan enjoyed sustained tenures as finance ministers will always produce a causal link between pure GDP growth and economic success. But the real measure of success in managing the economy has to be the citizen’s bottom line. Stock market and real-estate brokers may have enjoyed inflated profits during the Zia and Musharraf eras, but the dramatic falloff in economic performance upon the demise of each military strongman (and their trusted munshis) is the greatest proof of the myth of the GIK and Aziz economic success stories. The only real institutional success these finance ministers had was that they kept Pakistan from imposing the two most important kinds of taxes that this country now desperately needs to impose: a major tax on the wealth of large landowners, and a major “tax” on the unsustainable growth of the defence budget.

The reason that so many of Pakistan’s finance ministers have been ex-World Bank or IMF and ex-Citibank professionals has very little to do with the institutional success of the World Bank, the IMF or Citibank. It has to do with the raison d’etre of the finance ministry–whether it is being run by a military dictator or a legitimate government of the political elite. The finance ministry is the articulator of Pakistani financial need. Its primary function is to promote a narrative of Pakistan’s economy that will increase the flow of foreign funds into Pakistan. What better spokespersons than those that are straight from the belly of the beasts themselves?

During the GDP growth heyday of the Musharraf era, the fictional narrative was that Pakistan was an emerging market superpower. This was then marketed to investors so that they would pump money into the various Eurobonds and sukuks that helped ramp up Pakistan’s debt liabilities. During the GDP growth dog days of this PPP government, the fictional narrative has been that the Taliban are “60 miles from Islamabad,” and that Pakistan will be taken over by those Taliban. Unless, of course, wealthier countries begin to throw bigger bones Pakistan’s way.

By any means necessary, the bedrock of the management of the Pakistani economy has been to attract foreign money into Pakistan. This is ironic and stupefying, because those very managers, whether times are a-boomin’ or a-bustin’, stash their own wealth in banks outside Pakistan with alarming consistency.

The traditional model of economic management is unsustainable in Pakistan for two reasons. The first is that there are no more cons left to try. Serious security risks weaken the prospects for major FDI or portfolio investments into Pakistan in the near future. Concurrently, donor fatigue, and the exposure of the potential Taliban/Al-Qaeda domination of this country as a myth, means that the chapter of begging-bowl economics has come to a close. In short, Pakistan will actually have to begin looking at domestic economic supply-and-demand as the starting point for Pakistani macroeconomic analysis.

The second is that since there are no more cons left to try, there are no more decent, educated and serious babus left to take the finance minister’s job. Whatever poor soul does take this job will be saddled with an emotional (and most probably legal) toll that far outweighs the glamour of a black Corrolla and World Bank Spring Meetings. Shaukat Tarin is not alone in raising his hands to the sky, in prayer for the poor soul that is the next finance minister, whoever it is.