Ending bailouts

If Ishaq Dar is going to turn down bailout pleas from one company, he has to turn them down from all of them.

Is it possible that Pakistan is moving towards a culture where it is politically unacceptable to use taxpayer money to bail out grossly overstaffed and inefficient state-owned enterprises? The investment certainly seems to be trying to do so, though we wish it had a clearer strategy for it.

In a somewhat unusual occurrence, the economic coordination committee of the cabinet (ECC) on July 18 rejected the plea by Pakistan Railways for the federal government to assume debt taken on by it for buying Chinese locomotives. Finance Minister Ishaq Dar was explicit in his reasoning: he did not want to have a line outside his door of executives from state-owned companies, each asking for a handout from the treasury. That is a fair point and we thank the minister for making it. But if he is going to show tough love to the commercial wards of the state, he should do it a little more consistently.

For instance, just one week before he turned down the Railways, the minister agreed to a Rs7 billion bailout of another state-owned transportation company, PIA. While it is true that the minister gave PIA considerably less than what it was asking for, and made it a point to berate the management for not having a turnaround plan, that inconsistency in responses is unlikely to afford Dar the luxury of being firm with everybody. If he is going to turn down bailout pleas from one company, he has to turn them down from all of them.

While we applaud the minister’s efforts to be more prudent with public money, we do urge him to be more pragmatic. Some state-owned companies have liabilities that far exceed their assets and have no way of raising capital from the banks without, at least, explicit financial guarantees from the government, if not actual government cash. Reviving these companies without one last bailout is impossible. The finance minister’s job, then, is to make sure that the last bailout really is the very last one these companies need.

Published in The Express Tribune, July 20^th, 2013.

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