24 August 2008

On July 22, Naveed Qamar, the minister for finance and privatization, arrived on the stock exchange floor. Gregarious and quick-witted, smiling beneath a large handlebar mustache, Qamar is fit to lead a pep rally. He underlined the grim economic realities and offered only $280 million in relief funds, yet by the next morning the KSE 100 had risen 4% in 24 hours. It wasn't the content of Qamar's speech that had mattered but the sense that someone in government was listening.
In one year real growth in gross domestic product had slowed from 7% to 5%, while the annual inflation rate had risen from 7% to 20%. The rupee was down 19% against the dollar since the start of martial law in November. With a budget deficit verging on 8% of gdp (the International Monetary Fund says a figure above 3% is a red flag), the nation's trade deficit up 52% in a year and a 25% drop in foreign direct investment over the same period, he was pinched on all sides. 
Experts at the imf and the Milken Institute in California say corruption and Musharraf's rapidly expanding defense budget threatened to bankrupt the government.
So Qamar is instead using the private sector to jump-start the government. He hosts dinners for business leaders at his home in a spacious bungalow in an elite Karachi neighborhood and has near daily meetings with the press at which he is alarmingly candid, hoping to stir up public demand for reform. He says his policies are "tough medicines, but they must be taken with the consent of the patient
Though born to a political family, Qamar's early interests were in business and technology. He traveled abroad to study computer science at the University of Manchester in the U.K. and earned his M.B.A. from California State University Los Angeles in 1979. After ten years teaching computer science, he entered politics while Benazir Bhutto was in office and optimism about Pakistani democracy, and the PPP in particular, was high. Qamar quickly made a name for himself, and when Bhutto was exiled amid corruption charges in the 1990s, he was among those who held her party together.
It is perhaps through his character and political savvy, rather than his business experience, that Qamar will pursue his fiscal goals. First, he wants to slash spending: The 2008--09 budget approved in June is not austere enough to trim the deficit this year, but it should slow its growth. The budget does halve funding for the National Accountability Bureau, a government corruption watchdog that's accused of policing political dissent, and cuts defense spending by 5%. Qamar says these are first steps toward curtailing the role of the military in civil affairs. Next year he plans to stop allowing government agencies to apply for extra funds if they outspend their initial allocations.

Most controversial is his plan to reduce and eventually eliminate consumer subsidies for food, heating oil and gasoline. Qamar says that because the government foots the bill for much of the cost of these staples, the budget took a brutal beating this year when prices jumped. Instead, he plans to offer incentives for new agricultural technologies to increase production and for energy innovations, while cutting tariffs on essential imports.

Meanwhile, Qamar wants to shore up the government's reserves. He vows not to borrow money from the central bank, supports raising interest rates and plans to raise $1.8 billion this year by selling government stakes in financial, energy and telecommunication companies.

Selling state-owned companies can be dangerous for a left-leaning administration, so Qamar has labeled the plan "Pro-People Privatization" (conveniently abbreviated as PPP) and promises that 10% of every outfit will be sold at a discount to its employees. Rafiq Bengali, the senior executive vice president of the National Bank of Pakistan in New York City, says most of the rest will go to foreign buyers, so Pakistan may recover last year's decline in investment. If all goes smoothly, Qamar's plan would bring the budget deficit down to 4.7% of gdp.

While Pakistan did post record growth rates under Musharraf and Aziz, it used foreign investment to mask the damage done by subsidies, tariffs and a loose monetary policy. The political turmoil has opened investors' eyes, and they likely won't open their wallets again until they see tightening on both the fiscal and monetary fronts.

While domestically he tosses out poverty-relief packages to sugarcoat subsidy cuts, Qamar is negotiating abroad. The U.K. has doubled its aid to $900 million, Saudi Arabia has agreed to provide $5 billion of crude oil for a deferred payment and Japan will install two 500-megawatt power plants. In early July Qamar raised eyebrows when he gave the go-ahead on a $7.4 billion natural gas pipeline from Iran's South Pars fields through Pakistan into India. Just two months in office, he had a deal with two heavyweight neighbors. These moves, says New Zealand's Robertson, reflect Qamar's long history with international organizations: Faced with a national economic crisis, he "thinks locally but acts globally."