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- Thursday, June 28, 2012 - From Print Edition

The prime reasons for the electricity crisis is that those in the Musharraf regime who made the feel-good consumer-oriented economic policies never thought about investing commensurately in massive generation to meet the manifold increase in demand for electricity, and power transmission and distribution

The Shaukat Aziz formula to keep everyone happy was Marie-Antoinette’s simplicity itself: let everyone have an air-conditioner, refrigerator, TV, washing machine, microwave oven, etc. If they cannot have bread, as she said, let them eat cake. Sold in their millions on easy instalments they added significantly to electricity consumption, the supply of which diminished in the face of required increases due to aging equipment, inefficiency and corruption. A child in Class 1 can figure out that when demand exceeds supply by such a wide margin and is force-multiplied by the increase in population, a crisis of multiple proportions is bound to occur.

The man who is our new prime minister added to the problems by diverting funds from the existing independent power producers (IPPs) to the scam of the rental power stations (RPPs) where money could be siphoned off conveniently. What can be more cynical than Zardari’s appointment of the person who is most responsible for the present shortages to reduce the power gap as chief executive of the country?

What does loadshedding cause besides acute discomfort to a large segment of the population? Electricity shortages mean less of manufacturing as well reduced services, massive unemployment and decreases in corporate revenues. The decreased labour activity cuts into the wages of a vast majority, thereby reducing their buying power, the means derived from less manufactured goods, curtailed services and unemployment causes a downturn in the economic cycle, money in short supply to pay salaries force-multiplies the recession into a possible depression. How many mutinies have taken place when the government of the day could not pay its soldiers?

The hot summer days without lights and fans for extended periods cause acute physical discomfort, exacerbated by the mental agony that the common man faces daily, with reduced wages and/or bereft of a job and not having the means to pay for food for his family, their medical needs and for their schooling, etc. When frustration crosses the patience threshold, it morphs into violence. The streets across the length and breadth of the country are witness to the public’s patience wearing thin, individuals getting together as crowds and turning into mobs, collectively venting their pent-up rage on whoever or whatever comes their way. Violence and mayhem ruling the streets take a heavy toll on the economy not only in material losses, but the time and effort to put things together again and to get them working.

Transfixed in the eye of the storm, the term “Catch-22” was probably invented specifically to describe the hapless predicament of the federal finance minister, Dr Abdul Hafeez Shaikh, damned if you will, damned if you won’t! Revenues dropping, tax collections going down, add to the cycle of despair that Hafeez Shaikh wakes up to every morning, to pay for Pakistan’s bills by scrounging around for money he does not have. As the succour of last resort, the IMF is the easy route. Not being able to pay for the oil, gas, etc., for generation adds to existing woes, with power stations shut down the gap between demand and supply of electricity increases. Assailed by all and sundry in the cabinet nobody is enthusiastic about collecting taxes. The circular debt has assumed alarming proportions, the present slowdown could well become the noose strangulating the economy and to a complete economic shutdown.

Hafeez Shaikh could well look at the Argentine model. The success of the “Kirchnerism strategy” was based on fiscal sobriety and a flat refusal to repay much of the $100 billion in foreign debt on which Argentina defaulted in 2002. This default was brought on by excessive borrowing in the 1990s, the collapse of the Argentine peso and draconian austerity demands from the IMF. Does that sound familiar? Argentina restricted its debt in most cases to some 30 percent of its value but did not reach agreements with all its creditors. While it still can’t access international credit markets because of its massive 2002 debt default, Argentina has become a showcase in less than a decade. This surge from basket case to showcase was only possible because of increased domestic consumption, high prices for commodity exports and increased social spending. The bottom line was to renege on the debt. The poverty rate in Argentina was cut by half and the country became the richest nation per capita in South America.

The tightening of import restrictions in Argentina has caused many nations to accuse Fernandez of illegal protectionism. Increased state currency controls have led to hoarding of US dollars as a hedge against inflation or a possible devaluation of the Argentine peso. Some informed economists believe this model could be emulated by Greece and other indebted disaster zones. The recent Greek election was a near run thing for the Euro, under the Syriza Party socialists Greece would have been only too happy to try to leave the Eurozone.

Cristina Fernandez is keeping up her defiant nationalist stance, her “colonialist” detractors are derided vehemently. She contrasts her economically booming Argentina to the recession-racked modern, developed countries like the US and Europe which are in real trouble and collapsing as models not to follow. Mark Weisbrot, a co-director of the liberal Centre for Economic and Policy Research in Washington says “Argentina proves a country doesn’t have to accept austerity policies that make your economy worse.” Why do we in Pakistan accept austerity measures that will beggar our population still further?

The standoff with the US continues. Among other things Pakistan wants an apology for the Salala incident and a transit fee of $5,000 per Nato container, the resumption of drone strikes are causing heartburn among the masses. The US government is reluctant to give that apology in a presidential election year, because the Republicans will use it to tar and feather Obama. What is of some mystery to Pakistan is why the US is reluctant to pay the transit fee. It is not huge, given that the US is spending far more using the much longer, more difficult Northern Distribution Network (NDN). The US has had something of a free ride for over a decade, more importantly our road network is in a shambles because of the heavy Nato traffic. The US needs the Pakistani transit route, and both countries must work out an amicable solution. Because of the emotive nature of the Salala incident, anything less than an apology will look like a sellout. No general of the Pakistani army will risk a wedge between the senior hierarchy and other ranks.

Hafeez Shaikh is between a rock and a hard place. Without a deal with the US, the IMF will likely not give the necessary funds, Pakistan can probably last till October without going bankrupt, with an IMF infusion, we could possibly go on to December.

The writer is a defence and political analyst. Email: isehgal@path