Capitalism Comes a Cropper!

#14 contd....

http://www.ibnlive.com/news/world-markets-fall--indian-markets-sink --markets-close/76637-7.html

I have never seen such free fall of Sensex....

Arjun...
I am sure, india is not in much better shape than Pakistan...within one year INR dropped from 39.xx to 49.xx...inflation rose from 3-4 to 11-12...there is no point thumping chest....IT companies are not honoring offer letter to fresh engineering graduates, automobile sector growth downfalled...I am sure, within 1-2 years, we will be able to recover, but for the time being, we are in hot soup (may not be in boiling water)...

Re: # 6
Ijaj....
Rising input costs and cheap electronics goods import from China is major source of problem for economics in most of the countries...

zarrar...
what pakistan and india will gain from free trade, unless and until they have complimenting skills and resources?

arjun
great insight. only you seem to attack pakistan more than find solutions. It is only in india's interest that pakistan is stabilized and cross border economic mutual consent is reached. a stable pakistan will mean india can send its exports to a close neighbor and receive imports at a fair price. benefitting both countries. going to the moon will achieve as much as taking a piss directly in the wind. what india and pakistan both need is a trade agreement. free trade. lase faire.

cheers

http://aawsat.com/english/news.asp?section=2&id=14498

Caught Between the Moon and the “Begging Bowl�

23/10/2008

By Tariq Alhomayed

Let us look at two statements released by the neighboring countries of India and Pakistan. On one hand we have India, the population of which exceeds one billion, saying, “We are going to the moon for the first time. China has gone earlier, but today we are trying to catch them.� In Pakistan, on the other hand, which has a population of 172 million, a finance official stated that the country is seeking to borrow four billion dollars to avoid defaulting on its debt.

What a sad paradox between a country that is celebrating its mission to the moon and another that is moaning about the pressure of debts and the fear of bankruptcy.

Pakistan, which celebrated reaching its last agreement with the International Monetary Fund [IMF] three years ago when former president General Pervez Musharraf said, “We have broken the begging bowl,� and whose incumbent president [Asif Ali Zardari] once said that his country would rather tighten its belt than turn to the IMF for help, today finds itself in desperate need of financial aid since there are warnings that its economy is deteriorating sharply. This is indicative of a grave and imminent danger as Pakistan is a nuclear country that is threatened by an ocean of religious extremism.

This is the danger of the Pakistani situation and it is within the rights of countries to be hesitant about offering Pakistan aid today in view of the stifling economic crisis that has afflicted the world. But at the same time, there is still the danger that Pakistan could fall into the hands of extremists and subsequently, threaten vital parts of the world because Pakistan is a nuclear power. If Pakistan came under the control of extremists, this would be an international crisis.

If Afghanistan, with its mountains and caves, was able to strike the world a hefty blow, imagine what nuclear Pakistan could do. The Pakistanis, primarily, must take this matter into consideration; their country needs them to take a stand.

Some time ago, we took part in a meeting with a European official attended by Pakistani media figures. The discussion tackled the political conflict in Pakistan and there was virtually a unanimous agreement that Pakistan faces no danger because of democracy.

In Pakistan today, we are witnessing the direct opposite of that; there is a fundamental difference between lively democratic debate and the battle to gain political or personal influence. What we are seeing in Lebanon could be considered a fiercer example of that; it is where partisan or individual interests are given more importance than the wider interests i.e. the interests of the country.

As long as democratic debate continues or spreads in democratic societies, it will never affect the state institutions that represent the real foundations of the state and we have seen how institutions can be dragged into political conflict in Pakistan.

The solution to saving Pakistan must come from Pakistan itself by defining the dangers and the priorities and by taking a decisive stand in the war against terror and the internal political conflict. Pakistan’s problem is that it is a critical and nuclear state but within the country, problems are hindering its real progression.

Therefore, neglecting Pakistan would be disastrous and to rescue it amid these economic circumstances would require a miracle. Pakistan’s situation forces one to think what if Iran − a country that is threatened today by the decrease in oil prices − was to become a nuclear power as well. Should its neighbors rush to save it so that its weapons would not fall into the hands of its extremists?

did somebody call my name?

Read the Barack Conspiracy that Chowk staff censored in favor of publishing an article recommending art lessons for OBL by the shrink.

Read the Barack Conspiracy here

http://chowk.com/ilogs/69522/40823

masadi is finally indicated

In a nutshell:

Capitalism without the CAPITAL! Paper-money not backed by GOLD; plastic-money not backed by anything at all!

Those who don't regard the conspiracies as the truth are indeed doomed.

Its basically this.
Credit crunch: short term solution, SBP releases some cash but its just ice on a wound that wouldn't close.
we need this:
lots of moolah and not the Mullah.
remitnces of at least 15$ US which is adequately placed in various instruments which yield a multiplier effect. infrastructure is one. KSE is another, however, i don't think its a long term solution to our major problem. Major problem being POWER. need to invest in POWER. we have 5 rivers running through the heart of the country (all downstream) and we can't harness even a light bulbs worth of shit from it.

I commented on the same on 14 April 2006,

I have been commenting on Pakistan`s economy time and again. Some of the facts I append below will suit either argument.

1. It was the informal sector of Pakistan`s economy that sustained the GDP during the sanctions and also created a vibrant parallel economy. This sector was brought to the knees through the Sales Tax. Much of the plants were closed and substituted by cheap imports from China. Result: retardation of the domestic growth and import substitution. Value added taxes failed to serve the purpose they were meant for.

2. Consumerism has increased manifold in the middle and rich class while the low middle class has fallen into the poverty line. The prices of daily commodities have risen threefold in the past 5 years but salaries have not even doubled. So the demand has been satisfied for a limited few through credit cards, leasings, real estate etc. Those who cannot efford these have fallen by the way.

3. It is not the farmer who benefits from the high prices of sugar and wheat but rather the middleman and various lenders of fertilizers, pesticides, fuel and hard cash. Average farmer is far below where he was.

4. The benefits of low interest rates were never passed to the consumers. They were absorbed by big and not so big borrowers as a booty and not recycled into growth. In fact the low interest rates had an adverse effect on people who had put their lifetime savings in banks and other schemes against monthly payback terms. These people last their subsistence, took the money out of banks and invariably lost it to swindlers.

Cheerios
http://www.chowk.com/interacts/10535/1/0/0

Zarrar Bhai,

A very insightful article.

As far as the bailout is concerned, the government should know its priorities. They should invest anywhere but on the bailout on the greedy, who never paid a single dime in government kitty when they were making huge profits...

#3 Posted by ijaz_gul on October 22, 2008 1:16:19 pm

zeemax called it in march 2006..I've rubbed his boneheaded "abizaid visit pakiland has US by the balls " analysis but whatever I may think of him, credit where it's due..

#61 Posted by zeemax on March 13, 2006 7:33:25 am

Pakistan has a robust economy... Shaukat Aziz when he was the Finance Minister has borne fruit ... All sectors of the economy are growing ... the foreign exchange reserves are high ... There are now over 23 million mobile phone users in Pakistan ..

Dost saheb, all of above is simply not true as a description of Pakistan economy. Pakistan economy in fact is in deep trouble due to blunders by this government. They have lost a historical opportunity which is rare to arise. Allow me to explain:

1) Before 11 Sept 2001, the economy was at a standstill, nothing happening, and the forex reserves were around the same level as June 1998 i.e. post detonation. Never mind the official figures. They are just false. There was hardly anything in the kitty to fund imports and the Rupee was at $/65.

2) Reverse capital flight took place after 11 Sept 2001 and an estimated 14 billion dollars entered Pakistan all of a sudden within two months. With these dollars the Government built up it`s reserves, prepaid lots of expensive loans, and was able to lower domestic lending rates from 21% to 2% because of too much liquidity floating around. That resulted in huge profits for the large corporate borrowers, made bubbles in the stock market and real estate (both tripled), and the Rupee strengthened to $/57.50. All of this was because the economy was not able to absorb the huge inflows. The money had to go somewhere.

3) The government had hoped that with the cheap rates and stuff, there will be new industrial investment. That didn`t happen. Only thing that happened was better capacity utilization. The domestic industrialist knows no sector which can compete in a WTO regime. So they pocketed the higher profits and that`s it. The banks were awash with liquidity with no borrowers so they started to lend retail in credit cards, auto loans and things like that. That`s where the consumer boom began when the consumer rates were at 7% and the auto assembly industry picked up. Nothing else. The consumer growth accounted for the *official* figure of 8% growth. BUT and it`s a big BUT, it also resulted in much higher imports because the production never increased, only assembly of vehicles and other consumer durables. It also resulted in core inflation of 11% plus.

4) Now the chickens are coming home to roost. Consumer loans are now re-priced at 14%, getting out of reach of the happy consumer`s paying capacity; trade deficit for 2005-2006 is expected to hit 9 billion dollars by June when the *actual* reserves are down to around the same amount (Don`t believe that $12 billion stuff). The cellular phone revolution didn`t do anything for the economy other than the initial FDI, and import coverage of available foreign exchange has gone down from 11 months to six months. The *Logistic Support* payments from USA have waned and will completely stop shortly.

5) The Government will manage to tide over another year through sale of Pakistan Telecom etc., but after that the balance of payments will be in severe red. Oil is not likely to come down, only rise. The deregulation/elimination of wheat, sugar support prices has hit the farmer hard and now they`re shifting to other cash crops resulting in sugar prices hitting Rs. 45/kg from Rs. 27/kg. People are real angry.

The lost historic opportunity I mentioned earlier is that a $14 billion windfall after 9/11 was almost Rs. One hundred billion. If only the Government had absorbed it through issue of its securities, instead of letting it lose in the market, it could have spent it on infrastructure and state enterprises to replace private investment which wasn`t forthcoming, and avoided the speculative bubbles which are bound to burst.

Stupid. Pakistan only had a breather because of 9/11. It wasted that surprisingly opportune time to amend. Now Pakistan has to wait for another 9/11.

So, in my opinion, its better to accept the LOC as permanent border, and make a trade pact with India. Pakistan cannot survive in the manner it is proceeding.

insightful indeed!
Just a question.
I was told by an economic Czar yesteday that the present crises in Pakistan began in January 2006. He refused to reveal more.
What is your guess on this?

i write in the business recorder. most of the stuff is general knowledge

yaar thanks for the update. did you cut and paste from a various sites or just copy a timeline piece from some place?