That political uncertainty does have an extremely detrimental effect on a country's economics is well-documented. In this context, it is extremely relevant to evaluate the extent of political uncertainty that has once again reared its head in the country and is not only effecting our fledgling democratic institutions, with implications for all of us, but also our very standard of living.
The statement that this is the third time there has been a bid to remove the President from the Presidency, a little over a year after he was elected by the parliament, is being attributed to none other than the President himself. And one would tend to agree with this assessment. The three serious issues corresponding to the three bids to remove him are the complete restoration of the November 3, 2007 judiciary, the Kerry-Lugar bill and the most recent National Reconciliation Ordinance.
Analysts are amazed that a man who, without an overall majority in the parliament, had skilfully manipulated to install his own men in the country's key posts, including the presidency, the prime minister's office, the chairman of the senate, nonetheless, failed three times to exhibit political wisdom that would have allowed him to deal with the three issues in a timely and effective manner. President Zardari, they argue, could easily have taken credit, instead of being forced to give in at the twelfth hour on all three issues, when it had become clear to every Pakistani man, woman and child that he capitulated only when failure was imminent.
The reason the President made a catastrophic political mistake three times, in about a year, is being attributed to a flaw that may be extolled in the annals of true friendship but is a recipe for political disaster in a politician: to put friendship above merit and contribution to the party, dismissing PPP stalwarts close to Benazir Bhutto, who had a constituency unlike his favourites and to keep the powers that Musharraf amassed for as long as possible within a democratic dispensation. On Friday, the President directed the government he controls to repeal the seventeenth amendment before March, a deadline that was later denied by his spokesman. The denial may have been considered politic as it is unlikely that a date so much in advance, in return for political support at present, would have led to any agreement with the Opposition. The reason is evident: the mounting 'trust-deficit' against him.
Supporters of democracy argue that it is critical to identify Zardari's detractors who, they claim, belong to the not so-amorphous establishment in this country. There is no other viable explanation for what they regard as the volte-face of the MQM on the issue of NRO, followed by Altaf Hussain's advice to the President to make a sacrifice, read at worst as resigning or at best, giving up all his powers under the seventeenth amendment and to become a titular head of state, as envisaged in the original constitution. Nawaz Sharif's opposition to the NRO is more sustained however it did, according to these very same supporters, gather considerable momentum recently. This, they further state, was after some leaders of the PML (N) met with the establishment, though there is general agreement that the establishment continues to mistrust Nawaz Sharif. Political skeptics in this country, and that is a growing breed, are unwilling to accede to either the MQM or PML (N), opposing the NRO purely on principles. Be that as it may, there is little doubt that refusal to support the NRO is, by any definition, a principled stand, irrespective of the underlying reasons that maybe attributed to its opposition.
Zardari stalwarts are alleging that their co-chairman is being victimised by the establishment, the same way their truly populist former leaders, namely Z.A. Bhutto and his daughter, were victimised. There are few takers for this as the President has been unable to gain the popularity, on either the scale or range, of his predecessors, either within or outside the party. His meeting with Aitzaz Ahsan, after evicting him from the party's Executive Committee, was too blatantly fumbled a move to be appreciated, even by Ahsan.
The President also seems reluctant to take the support of the only party that may support his bid to remain in the Presidency: the PML (N). This support would not be because of any love lost between the two, but because the PML (N) is, at present, the only party vehemently opposed to any strengthening of the army in the country's politics. Maybe the rationale is that the President is unwilling to give the pound of flesh that the PML (N) wants to extract from him in return: giving up all his powers under the seventeenth amendment, though many argue that the President can not really dismiss the parliament, as it is doubtful if he can convince General Kayani to come to his aid to enforce the dismissal. Thus, these powers are largely symbolic for the President.
Be that as it may the President's diplomatic thrust to maintain the status quo is focused on the parliamentarians. His complete disregard for the public, in his own hour of need, may perhaps be the final straw on the camel's back (camel, defined as the hardy people of this country). Thus, unprecedented levels of load shedding, rising food prices, sugar and cement crisis, appointments based on nepotism, that a mere one year down the line have contributed to a dramatic rise in corruption that is well-documented, and poor governance are factors that would ensure that few would come out of their homes in support of the President. This disregard for the public appears inexplicable as even Musharraf, a dictator, had forced his political supporters, the PML(Q), to organize a huge rally in his support, on May 12, to send a message to his detractors that he still had the public's backing.
Without public support, which is fairly well-known, the clouds of political uncertainty are extending their tentacles deeper into the hapless economy. Donors remain concerned about political stability. Each assistance package, drafted by multilateral and/or bilaterals alike, identifies a common risk to the success of the proposed project/programme: political uncertainty. And the onus will remain on the government and by extension, President Zardari who continues to call all the shots.
Perhaps the first deleterious impact of political uncertainty is on investment which, in turn, contributes to a decline in productivity and a consequent decrease in tax revenue, sourced to productivity. The trickle-down effect on other major macroeconomic indicators is but a short step away: it includes declining exports, due to a decline in productivity, higher unemployment levels, rising inflation; and if the government does not attempt to reduce its consumption, commensurate to the decline in its tax revenue, then a higher budget deficit would increase reliance on either internal borrowing, a highly inflationary policy, or on external borrowing, a condition that increases dependence on foreign countries with a resulting decline in flexibility in setting an independent foreign policy.
Ever since the advent of democracy in Pakistan last year, all the above key macroeconomic variables have shown a degree of stress. According to the recently released State Bank Annual Report 2008-09, a report that ought to have been compiled and released prior to the presentation of the budget before the parliament, to maximise its usefulness to the economic managers, states "Pakistan saw a sharp reversal of the earlier net portfolio investment receipts, and foreign direct investment inflows fell sharply, even as the access to international capital markets disappeared." Investment declined from 22 percent of Gross Domestic Product in fiscal year 2007-2008, essentially a year where Musharraf's influence on economic policies remained pervasive for at least eight to nine months of the fiscal year, to 19.7 percent in 2008-09. Large-scale manufacturing sector registered a whopping decline of 7.7 percent during last year, in comparison to the previous year. And a 2.3 percent decline in investment would partly account for the decline in tax revenue as a percentage of GDP, from 10.2 percent in 2007-08 to 9.2 percent in 2008-09.
The budget deficit did not rise and declined from 7.6 percent of the GDP in the Musharraf era to 5.2 percent last year. The credit, however, for belt-tightening rests with the International Monetary Fund (IMF), rather than on the government, which had vainly tried to resist IMF assistance, hoping against hope as it turned out to access huge grants from the Friends of Democratic Pakistan, an initiative of President Zardari. Ironically, even though external resources have not been even close to adequate to meet our requirements and give a comfort level to the Ministry of Finance, the country's foreign policy remains hostage to US dictates, or such is the perception. Thus the cost to the economy of continued political instability has been considerable and serious efforts are required to ensure that the situation eases somewhat.
The situation cannot be sustained as it is and one would hope that the President, as well as a selection of a more appropriate team of advisors, together with the leaders of the Opposition begin to make some political 'sacrifices' in the national interest, sacrifice defined as resolving all issues by consensus in letter and spirit. But that, unfortunately, continues to appear to be a pipe dream.
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