Pakistan – The coming economic tsunami

by yousuf nazar

PAKISTAN’S economic outlook for the next year or two is serious even if it manages to get the planned three billion dollars in external financial assistance in the next few months.

Its currency has lost 10 per cent against the US dollar since the beginning of the year, trade deficit has jumped by 50 per cent this year, Standard & Poor’s has cut its rating by a single notch to a B with a negative outlook on May 15, and its Euro bonds are being quoted at a spread of 500-600 basis points to the US treasuries compared to an average spread of 261 points for emerging markets bonds.

It is not unlikely that key macro indicators will deteriorate as follows:

— The GDP growth may drop sharply to three per cent or less from 6.6 per cent in 2007. This would imply a drop in the real per capita income of around 80 per cent of Pakistanis due to an approximate population growth rate of 2.4 per cent and skewed income distribution.

Financial speculators reap profits from global hunger

By Stefan Steinberg

A series of reports in the international media have drawn attention to the role of professional speculators and hedge funds in driving up the price of basic commodities—in particular, foodstuffs. The sharp increase in food prices in recent months has led to protests and riots in a number of countries across the globe.

On Tuesday, April 22, a UN spokesperson referred to a “silent tsunami” that threatens to plunge more than 100 million people on every continent into hunger. Josette Sheeran, executive director of the UN World Food Programme (WFP), noted: “This is the new face of hunger—the millions of people who were not in the urgent hunger category six months ago but now are.”

A recent article in the British New Statesman magazine, entitled “The Trading Frenzy That Sent Prices Soaring,” notes that increases in global population and the switch to bio-fuels are important factors in the rise of food prices, but then declares:

Amid mounting food crisis, governments fear revolution of the hungry

By Bill Van Auken at WSS
15 April 2008

Last week’s meetings in Washington of the International Monetary Fund, the World Bank and the Group of Seven were convened in the shadow of the worst financial crisis since the Great Depression of the 1930s. While Wall Street’s turmoil and the deepening credit crunch dominated discussions, leaders of the global financial institutions were forced to take note of the growing global food emergency, warning of the threat of widespread hunger and already emerging political instability.

The seven major capitalist powers in the G-7—the US, Japan, Germany, Britain, France, Italy and Canada—made virtually no mention of the global food crisis, referring in only one brief reference to the risk of “high oil and commodity prices.” Instead, they focused on the stability of the financial markets, promising measures to shore up investor confidence.

The IMF and World Bank, however, felt compelled to acknowledge the emerging worldwide catastrophe, in part because while these agencies are instruments of the main imperialist powers, they must posture as responsive to the needs of all countries. It would be too revealing for them to focus exclusively on the fate of major finance houses, while ignoring the fact that hundreds of millions across the planet are being threatened with starvation.

More decisive, however, is the realization that this crisis confronting the most impoverished countries and poorest sections of the world’s population is threatening to unleash a revolution of the hungry that could topple governments across large parts of the world.

Even as the IMF and World Bank were meeting, the government of Haiti was forced out in a no-confidence vote passed in response to several days of demonstrations and protests against rising food prices and hunger that swept all the country’s major cities. Clashes between protesters and United Nations occupation troops left at least five people dead and scores wounded and saw crowds attempt to storm the presidential palace.

Food prices in Haiti had risen on average by 40 percent in less than a year, with the cost of staples such as rice doubling.

The same essential story has been repeated in country after country, from Africa to the Middle East, south Asia and Latin America.

Pakistan: “Food-led” inflation?

An editorial from today’s Daily Times –

“The Federal Bureau of Statistics says that “food inflation” surged over 20 percent due to high prices of food and increase in domestic oil prices during March of the current fiscal year as compared with the corresponding period last year. The consumer price index (CPI) therefore has gone up by 14.12 percent, the highest in a decade during the month under review. On top of this, the wheat crop estimates have been drawn down from 24 million tons to 22 million tons, threatening to further push up “food-led” inflation in the country”.

The word “food-led” is misleading and might encourage the “economics of antagonism” which is unfortunately issuing from the finance ministry under Ishaq Dar, blaming the Shaukat Aziz government for the inflation. The fact is that food has actually become more expensive all over the world. The global increase has been of the order of 40 percent in one year. Added together with global oil and edible oil prices, the phenomenon is more “foreign-led” food inflation than just food-led. The Shaukat Aziz government has been punished by the 2008 elections. It is time to move on. Don’t forget that in 1999, too, the economy under Nawaz Sharif was “belly-up” and had to be rescued by Mr Aziz. *