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Showing posts from September, 2009

On Zubair's Reply--Rethinking Pakistan's economy

Thank you Zubair for a nice comment! On the Tyranny of MacroeconomicsI have often lamented that we Pakistanis do not engage in civilized debate and too quickly get into the mode of “argument and personal attacks.” Zubair’s comment is heartening and welcome as an offer to expand a debate so that all of us can learn.Zubair argues that “There is little doubt in the argument that unless macroeconomic conditions are right and sustainable, economic development cannot be maintained.” Frankly on the surface this statement looks like “motherhood and apple pie” but dig a little deeper and you begin to worry. Think about it! Zubair’s statement can be rephrased in medical terms as “There is little doubt in the argument that unless vital signs (body temperature and blood pressure) are right and sustainable, “life” cannot be maintained.” Does that mean that treatment should focus only on maintaining those vital signs without treating the underlying cause! Most of us know that if a patient has cance…

Zubair Iqbal's reply

ConYour comments, though oft-repeated, are valuable and should be considered for continued progress toward an alternative solution--if possible--for Pakistan's economic malaise.

There is little doubt in the argument that unless macroeconomic conditions are right and sustainable, economic development cannot be maintained. Hence, there is little merit is being flippant about macroeconomics, even by a Nobel laureate. I agree that one should not disregard the building blocks--which in cases such as subsidies to maintain a "wrong" exchange rate and promote protectionism are a cause of macroeconomic imbalances--but a tighter macroeconomic stance strictly adhered to, would force corrections to prices and, thus, help restore sustainable growth.

"Conditionality" has been given a bad name by countries like Pakistan which have been able to break it and still continue to obtain financing. I agree conditionality works only if strictly enforced--it is in the long term interest…

Comments on Zubair Iqbal’s “PAKISTAN’S CURRENT ECONOMIC CRISIS—AN IMPERFECT STORM"

Nice piece by Zubair! It is typical of most economic writing (other examples are Ashfaq and Meekal) in Pakistan which has now been conditioned to think “macro-first” ignoring the underlying micro and institutional problems.Written in typical IMF fashion giving primacy to macroeconomics assuming that it is independent o political economy, institutions and governance.For example“It has become fashionable to trace the current economic malady to “wrong” growth strategy of the past 60 years. This is neither meaningful nor helpful in understanding the current policy imperatives. Yes, there has been a secular weakening of institutions but that is not an excuse for inappropriate policies. ???” This is what Krugman calls the dark age of macroeconomics. Failure of underlying institutions and lack of policymaking capacity can only manifest itself through poor policy choices. Add to that the deliberate attempt by the powers that be to destroy policymaking capacity (case in point Tariq Hasan at HE…

PAKISTAN’S CURRENT ECONOMIC CRISIS—AN IMPERFECT STORM

Prepared byZubair IqbalRetired Economist IMF, Current Adjunct Scholar MEI(Middle East Institute, Washington, D.C.) The current economic crisis in Pakistan can be traced not only to the continuation of inappropriate macroeconomic policies but also to a sudden and debilitating weakening of the international economic and financial environment. Given the weaker domestic economic foundations, Pakistan’s economy was more seriously affected by external forces than its competitors. Interestingly, the issues—sharply declining growth, rising unemployment, increasing poverty, high inflation, and widening external imbalances—are easy to grasp, policy options to address them are also not difficult to articulate, but there is seemingly a singular lack of will to implement the needed reforms in a timely fashion. In particular, political inaptitude, lack of national consensus on economic objectives, and a continued misreading of the depth of challenges faced by the economy-- in the face of a worse…