Economic coup amidst high tension politics

It seems Hafeez Shaikh was launched into high tension politics to divert attention from the coup he was planning. Never in any of the 22 International Monetary Fund (IMF) programmes following the unjust economic dispensation hatched together for the 22 families was a finance minister able to achieve precision landing. State Bank autonomy, the fate of the state-owned enterprises and the long list of exemptions in the Corporate Income Tax have all been superconducted through most resistance. All that remains is the legislative concurrence, failing which the ordinance factory will become operational.

Of the three, the State Bank autonomy should be the major concern. The State Bank was born autonomous, as it was established by the Quaid himself in 1948, a time when the finance ministry itself knew nothing about controlling it. Even with 51% ownership acquired under the State Bank Act of 1956, the ministry had to tolerate annual lectures by the governors on the state of the economy. The government sponsored Credit Enquiry Commission report in 1959 could not influence credit allocation in the direction desired by the government. It had to be nationalised in 1974 by shedding the 49% private stake to budget credit as well as revenues. In 1993, the first move towards autonomy was inspired by the IMF and pushed by a World Banker, Moin Qureshi. When the parliament considered the ordinance in 1994, the teeth were pulled out by adding the Fiscal and Monetary Coordination Board under the finance minister. Another amendment in 2015 gave birth to a somewhat autonomous Monetary Policy Committee. Following the current IMF programme, the State Bank attempted to push new legislation last April, but the finance ministry stood in the way. As corona forced the IMF, the government and the State Bank to turn their attention to relief, the autonomy as well as other conditionalities were stayed.

While the economy faces the third coming of corona, the extent of the State Bank autonomy pulled out of a hat makes the governor more powerful than the prime minister. While the latter can be voted out by the parliament, the former only has to present an annual report. This is a regression, as the State Bank already submits quarterly reports to the parliament, an inconsequential exercise. Even under the existing law, the government has to bring to the notice of the parliament any supersession of the State Bank’s board. The National Accountability Bureau (NAB), Federal Investigation Agency (FIA) and Auditor General of Pakistan (AGP) can investigate the prime minister, but not the governor. Such unlimited power to an unelected office is justified by the objective of controlling inflation. The State Bank can regulate supply and demand of money, but not the supply of goods, the common cause of rising prices. To contend that the inflation target would still be set and monitored by the National Economic Council is naïve. The trouble is that the IMF and its local cohorts are living in a dead past. The Washington Consensus invoking neoliberal ideas has been buried in one developing economy after another. Again, the champions of autonomy in the developed world were seen acting against their will in the 2009 financial crisis. No sane economist would like to see the State Bank as an executing agency of the finance ministry. But the bill cleared by the cabinet goes well beyond. The relationship between autonomy and inflation is clear neither in developed economies nor in developing economies that religiously imported the concept, mostly as part of an IMF programme. What is clear is that independence from the government does not mean independence from the elite that has captured the state.

Published in The Express Tribune, March 12^th, 2021.

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