Central banker for hire: In Ishrat Husain’s nomination, a signal about IMF bailout

Interim administration likely to negotiate a new package with the international lender.

KARACHI:

Ishrat Husain’s nomination for interim prime minister is confirmation of an expectation among many of Pakistan’s economic policy cognoscenti: that the inevitable negotiations with the International Monetary Fund for yet another bailout will take place under the interim administration.

The IMF is royally annoyed at the fact that Pakistan effectively took as much money from the last bailout as possible and then bolted before implementing any of the structural reforms that it promised. So this time, the IMF is insisting not just that the reforms take place before it hands over any cash, it is also insisting that the government seek broad political consensus for those reforms.

The job of the interim prime minister, therefore, is to have enough credibility to negotiate a reasonable bailout package with the IMF, construct a budget loaded with unpopular cutbacks that comply with the IMF’s conditions, and then hand over the Money Bill like a ticking time bomb to the new Parliament which will have no option but to pass it, since it will take office so close to the June 30 deadline for approving a budget.

This is where Ishrat Husain – currently the dean of the Institute of Business Administration in Karachi – comes in, with an array of skills and a résumé that seems almost tailor-made for the job at hand.

He started his career in 1964 in the civil service of Pakistan so he has a fair grasp of how the bureaucracy works. He has worked at the World Bank for two decades between 1979 and 1999 and so is well-versed in the language of Washington-based international lenders. He has a PhD in economics from Boston University, which lends him intellectual credibility. And his tenure as governor of the State Bank of Pakistan from 1999 to 2006 is remembered as an era of monetary stability and low interest rates, earning him the business community’s trust.

His one apparent flaw is that he is not a politician. Yet in this scenario, that works out as an asset. He will not arouse any insecurities among the politicians currently vying for the job: they know that Husain poses no political threat to them. (Abdul Hafeez Shaikh also has many of the same qualities, but unfortunately is tainted by his stint at the helm of the finance ministry for much of the current administration’s term.)

The only question remains as to whether or not Parliament will implement the reforms that the IMF demands. There are three reasons to hope that they will in fact undertake the tough, but necessary policy changes that the IMF will insist upon.

Firstly, Ishrat Husain is respected across the political spectrum so few will doubt that he negotiated the best deal possible for Pakistan. Second, the IMF will not actually hand over any cash until the reforms are implemented (and by early 2014, the government will be desperate for that cash). But finally, and most importantly, the incoming government will have adequate political cover to blame the unpopular measures on the previous government or Husain himself but secretly be glad to be able to do what is necessary to get the nation’s economy back on track.

If Husain is in fact appointed the interim prime minister, here is what will happen next: he will initially be hailed as a wise choice. (Expect the stock market to go through the roof.) Then he will engage in talks with the IMF, and hand over the deal that all serious policy analysts already know is coming. At that point, politicians and the media will erupt in universal condemnation of Husain’s efforts, accusing him of selling the national interest down the river. But he will have done what is required of him.

Published in The Express Tribune, March 16^th, 2013.