Army and the rupee

An old Indian friend, editor of an international newspaper in the Gulf, asked last week if it was alright to run a story suggesting that “Pakistan’s military does indeed exercise influence on everything, including the dollar-rupee rate”.

He decided against it, fortunately, because he reckoned that feeding something this controversial, even if it’s just asking questions, to an Imran Khan-loving expat population already spitting venom against the army wherever it goes, that too from a non-Pakistani source, might not be the best thing to do.

But it goes to show that the rupee’s near-3pc rise in less than a week has got everybody talking. And since this happened immediately after the army chief assured business leaders that speculators illegally manipulating the market would be sorted out, it’s only natural that the military is being credited with – in some cases even blamed for – intervening in the currency market.

That’s only partially true, though, because while there’s no doubt that checking illegal rupee speculation and smuggling would stop its precipitous fall, at least for a while, the sudden turnaround rally is still largely sentimental.

Markets, especially fundamentally depressed ones, are notorious for their mood swings. Therefore, unless the army’s influence can extend from apprehending currency manipulators to addressing structural problems in the current account, this rupee rally will prove little different than the market cheer that greeted a chest-thumping Ishaq Dar back to the finance ministry not too long ago; only to suffer its worst collapse on record not much later.

That’s still not to say that the military is not the potential game changer in the government’s last-ditch attempt to turn the economy around. Its muscle will be crucial in squeezing taxes out of all the big fish that politicians have dared not touch all these decades.

That’s no mean feat in itself because it’s the surest and quickest way to create enough fiscal space to get the IMF to budge on steep energy tariffs that have triggered social revolt that, if not addressed immediately, can and will snowball into an unmanageable problem. That’ll force the kind of loss of confidence in the local market that will send the rupee tumbling to levels unimaginable even by today’s dismal standards.

Let’s not forget, also, that the military conducts financial/economic diplomacy far more effectively than the country’s political elite, even when our prized democrats are in power. It was General Bajwa who got the Chinese to extend an emergency loan after they turned down a request from the Khan government – to pay back the Saudis because they suddenly pulled back their loan after a fallout with the civilian (Khan) government of the time.

Even now, part of the sentiment pushing up the rupee against all odds is the outside chance of substantial Saudi/Emirati/Qatari investment, to the tune of tens of billions of dollars; which, once again, the so-called establishment is negotiating.

Yet, welcome and desperately needed as the army’s helping hand in civilian matters is at this time, the present situation requires it to put all its energy, attention and resources back into its day job. Because TTP’s resurgence poses a grave threat not just to the country’s security, but also its economy.

Just the other day OICCI (overseas investors’ chamber of commerce and industry) suggested that the government set up a task force to attract private sector-led foreign investment, which makes a lot of sense. FDI is an essential component of the current account, after all, but it will not come unless there is calm in the markets and around the borders.

Experiments like expecting the Taliban to honour their word and contain TTP, and an over-eager civilian government trying to “repatriate” TTP fighters in the former tribal area, have clearly failed. It’s equally obvious that the enemy will regroup and come back each time we send it across the Durand Line with its tail between its legs.

That is why it is crucial to wipe it out completely to end the cycle of people dying, markets rattling, investors fleeing and the rupee collapsing each time a brainwashed militant blows himself up in public or uses stolen American artillery against Pakistani security forces.

And that, without a doubt, is going to create friction with Kabul. That’s a troubling grey area because the military must also factor in the probability of the Taliban openly backing TTP and ISIS in their respective jihads against Pakistan if Islamabad turns up the heat too fast.

The only “known knowns” (thank you Donald Rumsfeld) in all this are that TTP must be crushed, and it will have to be done in Afghanistan, for which the Afghan government will have to cooperate.

And since the best civilian governments have ever been able to do about these things is fall all over themselves, it’s up to the military once again to hammer out how to get all this done without aggravating border tensions, putting innocent lives at risk and provoking another great fall of the rupee – one from which it might never recover. What good is it, at the end of the day, to go through all the trouble of helping the government rescue the economy only to have TTP’s bombs and bullets send it crashing through the floor all over again? My friend in Dubai still appreciates that the Pakistani army exercises considerable influence on the rupee, but in a very different way than he did before.

Copyright Business Recorder, 2023