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April 26, 2019

What failed Asad Umar


April 26, 2019

Transpose Ishaq Dar in place of Asad Umar with the same set of economic challenges that Asad Umar faced eight months back when he started off as finance minister: mounting debt, expanding deficits, and a serious balance of payments crisis. Essentially a frail, emaciated and a dying patient fit only for an ICU recovery. Knowing well the disease that ailed the patient and got him to this dismal state, Dar would have also known the cure.

Imagine it needed about ten grammes of a strong antibiotic with other medicine to treat the patient. Dar’s treatment plan would have been different. Ever the consummate political-economist than an honest economic broker, he would have divided the dose over time, saving the patient the inability to ingest a one-time ten gram or a two-time five grammes dose. That may have kept the patient in the ICU for longer, but would have kept him alive, while adding some farcical chicanery of a transitional high to make the patient feel happier. Sentiment yes; substance no.

Umar turned the episode into a one-time ten-grammes trauma. So consumed was he by the curse of the twin-deficits and the urgency to pay off some looming dollars that he shut the system down to plug the leak even as he ran around to gather what was to be given out in dues. He got his dollars – borrowed them – but he shut the economy down to save it from further loss. And then attempted a reset of it by massively devaluing the rupee, placing all his eggs in the exporters’ basket. That didn’t materialize. But in the bargain everything – imports, some essentials like oil and gas and others for keeping life going – became exorbitantly expensive. That kicked in incomparable inflation as it crushed the poor, which is 70 percent of Pakistan.

The rise in the cost of utilities was another bummer. Again sensitive to political exaggeration, Dar had shelved the need to periodically raise the prices for both industrial and domestic consumers. He in fact borrowed heavily to subsidise the cost of the utilities to keep the political fall-out to the minimum. He thus saved himself and his party political consequence even as he added debt to the national kitty, kicking the can further down for those to follow and face the repercussions. Did Umar then miss the trick as he stuck to a more altruistic route to recovery? Yes, and also failed to appreciate the already precarious state of the patient and his ability to absorb added shocks.

The patient survived the treatment plan, and that makes it doubly tragic. Having suffered immediacy and an aggressive attempt at rehabilitation, the hard work done, Asad Umar was shown the door. He had made his share of errors in conception and treatment, but the patient somehow lived through. The economy could have gotten better though the rupee still sits shallow to the dollar; imports are down but those that are essential cost far more. Textile exporters still haven’t got their act together despite special favours targeted at them while others continue to park their profits abroad.

Utilities remain excessively high while productivity across the economic spectrum is in the negative. Inflation and the basis points are on a steep rise, slowing the economy to a standstill. Deficits still show a yawning gap and if indeed the trade balance seems marginally better, it is at the cost of a stagnant the economy. Asad’s plan was defective but it wasn’t all his fault. He was also guided by the moralistic rhetoric of his leader’s exhortations against an exploitative political and economic elite.

There are two other things about Asad Umar which weren’t widely known. He wasn’t a Big Business guy, despite the background, and meant to seriously tax their gains. Big Business thus was wary of Umar and had their knives out when the moment offered itself to de-seat him. Umar was also a reluctant partner to the amnesty scheme but meant it to be a bitter-sweet pill as he sought to rope in the wayward businessman more used to the laissez faire profiteering. Clearly he despised subsidies and tax reliefs and was instrumental in pursuing those with money with punitive and coercive extraction. Money doesn’t like being so treated and has remained hidden. Principally he was right; in an economic sense, given our particularities, he wasn’t. His preference had to give way to the pervasiveness of the latter.

The IMF too didn’t find favour with Umar; both he and his leader had despised the thought of reverting to an imperial tool of the hegemonistic ‘West’. Yet he had to; a necessary evil for limping economies. Only another stand-by arrangement would get the country through its second year of liabilities; the first having been paid out by Pakistan’s brotherly Muslim nations. IMF programmes are prescriptive and austere even when meant to recover economies in peril. Most of these engender low growth, hardly the antidote for poorly performing economies. It is probable that in the many rounds of discussions, the IMF found in Umar a reluctant partner – one who would resist, was idealistic, and perhaps a tad too assertive. Unsure whether their prescriptions would be fastidiously obeyed, they may have wished for someone of comfort. In-walked Hafiz Shaikh and out-walked Asad Umar.

Asad Umar was a man swimming against the tide. He was surrounded by too many contradictions: in idealism and harsh realities; in exhorted goals and dubious means; in defective but sustaining structures; and nationhood built around such conflicted existence. Pakistan has found those contradictions even as deformities have entrenched. Asad Umar wasn’t wrong in his idealism – except tactically, in shutting the economy down and in not making the cure palliative for an already fragile patient – he just happened to be operating in a fraught environment. In the end those in the hunt – within the party, in the business circles who feared his intent, as indeed his own idealism and the inability to comprehend fully the environment in which he functioned – pushed him out rather too early. A man can become a victim of his own faith and altruism. That is when he stops listening to others. And that is when the knives are out.

Umar’s sacking is a loss to his leader, Imran Khan, because that opens him up next for direct barbs even as the party lost face with the departure of a popular name. It brings the Pakistani economy back to ground zero for a new beginning, likely more sedated, more controlled and prescriptive – status quo. Imran Khan should have stood by his man despite his political opposition’s tirade against the initial missteps of a key minister. Instead, IK was himself rushed into a misstep by the growing storm of criticism.

Pakistan’s economy, with all its contradictions – as indeed state and society – needs to be managed, and only incrementally tweaked to correction. There is little scope for wholesale changes. The open-mouthed alligators around leave little margin of safety. I think Asad Umar would agree to that.

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