With the return of the PML-N to power, that dreaded old ghost of privatisation is back from the dead, with the full might of IMF propping it up. Ishaq Dar, who also holds the portfolio of privatisation, cannot hold his glee spilling out his intentions to put 32 public entities under the hammer. However, true to their form, the details provided so far by the PML-N government are sketchy at best. PIA seems to be the first one to go, with 26 per cent of its shares and a management handover being planned.
There seems to be two reasons for this current push for privatisation. First, in the opinion of both our and IMF’s economic planners it is perhaps the only reliable source of domestic funds to act a buffer to avoid the recurring nightmare of tipping over the fiscal cliff. Second, as judging from the history of both privatisation in Pakistan and by the PML-N itself, it is an easy and one of the least hassle free ways to earn large sums of money, in kickbacks and commissions.
The perpetual state of inaction and myopia on part of our policy makers has morphed easily manageable policy targets into gargantuan structural problems. The resultant set of policy mind-set (commonly present in both dictatorial and democratic dispensations) has resulted in creating rules and institutions so unabashedly extractive that our entire societal fabric is beset with fissures and upheaval.
The current IMF programme, Pakistan’s 9th, creates an impression to force feed the long-term structural reforms, but in fact it relies only upon extra-short-term measures to address the immediate problem of fiscal imbalances. The current drive for privatisation, along with steep and sudden hikes in electricity and fuel prices, is the obvious response.
Privatisation is a sensitive subject all over the world, arousing passionate, and often heated, emotions from both its opponents and proponents. The argument, that it is beyond the appropriate role of a government to run businesses like airlines and steel mills, appears sound and pragmatic at first. In Pakistan, state-run corporations are haemorrhaging more than Rs500 billion annually and are a major source of the fiscal quagmire we find ourselves in. Efforts to reform and turnaround these beleaguered entities will cost additional huge lumps of money, which we don’t have. So it is better to transfer their existing debt and future reform costs to some private sector firm willing to take up the challenge.
This may seem easy enough but the whole story is not as simple as it might seem. The empirical evidence, from our own past experiences and from all over the world, points to widely varying and unforeseen outcomes.
There has been no evidence that privatisation, as originally formulated and pushed forward by the propagators of the so-called Washington Consensus, has proven to be a game changer in pushing forward the overall growth trajectory of a country. In fact, the evidence shows that, in both middle-income and low-income countries, privatisation has brought far more harm than good.
There have been huge differences in the way privatisation has been carried out in developed and developing countries. In developing countries, privatisation has been pushed forward mainly under the guise of IMF stability programmes. The IMF always insists upon the quick disposal of public entities in order to reduce the public debt, without any regard to safeguard the long-term public interests and ensure the improvement in delivery of services. The havoc it has caused in many countries from Argentina to Bolivia to Russia is self evident. But, as it is with all kinds of fundamentalism, the proponents of market fundamentalism don’t seem to fathom the flaws in their failed theories, even as the evidence proves otherwise, and the IMF is the most extremist of these fundamentalists.
The privatisation laws in Pakistan, formed at the behest of the World Bank and the IMF, state that 90 per cent proceeds from the sale of the public entities should be used to retire the debt the country owes. This is one of the most perfect examples in the world of the neo-colonial policies of the international financial institutions and it is downright brutal. The level of debt we owe, to both foreign and domestic creditors, has never had a downward trajectory. The only direction it knows is up. So why sell our prized assets, which the poor people of Pakistan have financed through their blood and sweat, to pay for the mismanagement and corruption of the same ruling class hell bent on ruining their infrastructure just to make a quick buck.
Here the obvious questions arise that, why the government doesn’t fix its own house in order? Why there has been no earnest attempt to improve the performance of loss making public entities (it has been known to happen, like the turnaround of Pakistan Steel in early 2000s)? Why there is no drive against corruption (said to be in trillions of rupees)? Surely if a process of reducing non-developmental expenditure and an effective drive against corruption is begun in earnest, in a period of two to three years the desired fiscal space can be created which will bring long term stability and growth. To privatise, all the 31 intended entities will take much longer. Without the necessary reforms no matter how many entities may be sold, ultimately we will be back to square one. This is not a highly enlightened argument. It is common sense. Yet, the IMF agreement is silent about it.
Since the start of privatisation programme in 1991, GoP has so far netted Rs476.4 billion. Has it solved anything? In fact, since 1991 Pakistan has gone to the IMF six times. Yet, what has been learnt from the past? Time and again, we have found ourselves at the same juncture and have adopted the same course, one of expediency and not prudence, while the costs of this myopic behaviour have been rising ever higher.
Meanwhile, the pirates are already circling off our shores. They have chosen their prey. Let the privateering begin.