The friends of Pakistan

Shaukat Tarin's plan 'B' envisages a $4 billion helping hand from the 'Friends' of Pakistan (FoP). Firstly, $4 billion won't be enough for bringing a semblance of stability in Pakistan's macroeconomic indicators and, secondly, from the look of things, hoping for such response from FoP is over-optimistic.
One of these 'friends' - Saudi Arabia - has taken an inexplicably long time to digest the fact that, $147 a barrel was a lethal oil price level even for the richest economies on this planet and for Pakistan - most unlikely to be on that brief list even in near future - it was simply shattering; what evidence is it waiting for to reach that conclusion confounds the poverty stricken but Saudi Arabia-loving Pakistanis.
In his press conference on returning from China, Tarin mentioned that (hinting at its spill-over effect) he had bluntly told the representatives of the FoP he met (in the US) to visualise the fallout from the escalating economic chaos in Pakistan. That Mr Tareen had to go to this extent reflects on the quality of reporting back home by the foreign missions of the FoP in Pakistan.
Let us wait and see what the coming FoP conference in Abu Dhabi does. Even if it does the unexpected - lend $4 billion to Pakistan - Tarin will need to borrow at least as much from elsewhere because, besides avoiding a default on external debt repayments ($3 billion in 2009), Pakistan must stabilise its exchange and interest rate, and inflation, for reviving confidence in its shaken markets.
Optimists see a silver lining in the falling oil price (which won't continue) and fall of the Rupee that will cut imports; makes sense alright but with domestic import-substitution industry in a pit (from where it will take time and effort to rise) imports won't contract. Besides, an overly depreciated Rupee is hurting the imported input-based export sector, and high landed cost of imports is escalating both inflation and social chaos.
Secondly, while oil may not touch $147 a barrel again, it won't stay below $90 a barrel for long. Don't forget that Saudis (less adamant on profiting) no longer call the shots in the oil market. Many Opec and non-Opec states (including those on sirat-e-mustaqeem) aren't bothered about their social responsibility. Quite unashamedly, these countries claim that oil price below $90 a barrel is an 'unfair' price.
This is in spite of the havoc oil price even at the $90 a barrel played with the global economy. What is worse is that none of these oil producers tells you what is its oil production cost, and how much profit it is earning even at $70 a barrel because they all consider themselves to be the sole judge of 'fairness'. British PM George Brown quite rightly calls this claim to a Godly status 'scandalous'.
Even if you accept that Pakistan will continue to get oil at $70 a barrel in the remaining three quarters of FY09, it will lower the oil import bill by $3 billion. But this won't plug the huge infrastructure gaps - eg power shortage - that will continue to cripple industrial productivity, and continue playing havoc with Pakistan's export, as well as import-substitution industries, neutralising the benefit of lower oil price.
Infrastructure deficiencies alone aren't to blame; Pakistan's exports (54% to the now recession-hit US and EU) will drop and that estimate ranges from 15 to 30%. In this developing scenario, Pakistan needs $10 billion for a 2-year period (as admitted by Dr Qaisar Bengali in a TV talk show on October 18) to implement economy re-structuring plans that make its export as well as import-substitution industries competitive enough to survive in a recessionary era demanding higher competitiveness.
Tarin knows this truth and has put a 30-day deadline on expectations from FoP to materialise. Should the FoP session in Abu Dhabi next month prove unproductive, he will activate his plan 'C' ie borrow from the IMF. Perhaps, he is anticipating it. That's why he mentioned that the nation had already made the sacrifices that borrowers of IMF funds must make. What a reputation for the IMF to have!
China is not a part of the FoP list for a very special reason; it is more than a friend because it doesn't ask embarrassing questions before offering help that the FoP insist on asking.
In keeping with that decades-old character, China has been the first to offer help in multiple ways the most crucial being investment and expertise in all crucially important fields that will support real productivity on competitive bases. The difference between FoP and China is that its leadership already knows what the FoP leadership must be told - the importance of maintaining regional stability that depends entirely on economic stability.
That's why China doesn't use guns to stabilise the region that it leads; it offers help to maximise the productivity of indigenous resources that give people right down to the lowest level a reason to strive for becoming an economically productive unit, not Taliban.
If one looks at the history of Chinese assistance, it always comes in the shape of physical investment and expertise to optimise its productivity. Rarely does it come in the shape of balance of payment support but this time China provided even that, which is yet another manifestation of its concern for alleviating Pakistan's hardships. The fresh Chinese assistance in exploration of natural resources, power generation, agriculture, and improving support infrastructure for over-land trade, will yield solid benefits but with a time lag.
In the meantime, Pakistan will remain handicapped by its trade, balance of payment and current account deficits, and the depreciating Rupee. These weaknesses must be addressed by medium-term borrowing because benefits of the $5 billion investment from China can't be reaped fully without stabilising Pakistan's macroeconomic indicators. On its own (ie by Mr Tareen) Pakistan has pledged to revamp its taxation system and plug the leaks in public expenditure.
What the FoP must understand is that this huge Chinese investment and Pakistan's endeavours to cuts its fiscal deficit will definitely generate the repayment capacity they are worried about. Time is of essence. The FoP can't go on evaluating the facts and figures indefinitely.
Each passing day makes things more difficult to manage. The sooner FoP offer help quicker will be a return to macroeconomic stability. While Pakistan's successive regimes carry the blame for its current predicament (overlooking for the moment the crippling economic sanctions imposed on Pakistan in the past by FoP), the failure of the seventh largest in the world won't be blamed entirely on Pakistan; (paralysed?) onlookers with the capacity to help will carry a part of that huge blame.
It is now clear what was the purpose of Robert Boucher's arrival, virtually as Zardari landed in Islamabad after his visit to China. The US will ensure that FoP don't match the consideration shown by the Peoples Republic of China; they must withhold help to force Pakistan into borrowing from the IMF.