There are three basic issues that warrant attention for economic sustainability insofar as Pakistan is concerned. First, the limitation of laws in Islam, next the global monetary regime based on the Bretton Woods Conference of 1944 and the brewing global disorder based on the aftermath of QE (quantitative ease) program now unwinding. This article became necessary after observing right in our neighborhood, the plight of the Iranian Riyals and the Turkish Lira losing there bite and sliding. In the same category of nation states and or emerging markets, are India, Pakistan, Indonesia, Argentina, South Africa, Angola, Ghana, Ethiopia, Mozambique, Chile, Poland and Hungary, to name a few. We are in the eye of a storm, which has to be averted and warded off for good as a recurring menace, by some basic domestic measures plus the legal reversion to our ideology.
Our ideology is opposed to what transpired between 44 countries with 730 attending members in 1944 at Bretton Woods Conference held at the Mount Washington Hotel. Creation of The Bank of International Settlements and the concept reserve currency of the world were acts of profiteering from value in exchange of printed-paper. After the outcome of the 2ndWorld war becoming apparent this interest based money management regime was engineered with the very foundation based on deception and piracy. The medium of exchange has since become a tool for colonization and heist with value being determined by an organization (TBoIS) at will. To up the ante the asset base of gold to issue the printed-paper by various countries was yet again washed away by a mechanism of trade balance soon after the French President Charles De ‘Gaulle spoke up of this deceptive order. In my understanding of economics from the periscope of our ideology value for value is fundamental and therefore printed-paper cannot be taken as a commodity. Yet again the interest bearing feature is another ‘no go’ area. This stands to reason and is the bastion of equity and fair play. Based on the writ of our constitutional requirements and as enshrined in the ethos of our ideology we have to instantly cease and desist from playing along this game of robbers engineered to rob the planet. No interest based borrowing or lending and certainly no unilateral determination of a reserve currency for trading. For Nation States the difference between domestic consumption in value terms, less the domestic production is at the root of determining the value of any medium of exchange within the borders; and for external trading it has to be based on a common value denominator like gold. It is incumbent upon us nation states to buy / import in our own currency with trading partners and sell / export in the currency of the importers. The modern trading communication tool for banks must be based on an indigenous IT regime, which cannot be subverted by third party / country interference affecting the independence of trade and its volumes. It is imperative for nation states threatened by this perilous situation to convene and re-draft the money management order based on equity instead of ‘good-will’ determined by an alien and biased institution. Japan today is a good example for the interest free monetary regime they have managed to put into place precipitating hyper production levels. The foreign debt strictly from the perspective of our ideology should be settled one for one.
The brewing storm on the battlefield of the global economy is another tsunami that has to be warded off and without being complacent. After the 2008 financial crises central banks responded by reducing interest rates to historic lows and indulged in buying low-risk assets from private banks, and effectively pumping $ 15 trillion in new money into the global financial system. This policy better known as QE (quantitative easing) inundated banks with excess liquidity, and there was a gold rush like phenomena, where investors went looking for high yield. A large share of this money went to countries like ours because the profits were unmatched compared to the domestic markets of Europe and the United States. Referring to the reports by the Institute of International Finance most countries borrowing stood in foreign currency debt, which is way in excess of their annual economic output. The corresponding effects spill over onto the lending countries too, as debt servicing will become inadequate and further inflow of capital will therefore have to cease. This will lead to runs on currencies and in the line of fire I see India, Pakistan, Argentina and South Africa. The fear is that the trading in any value will diminish and the foreign hold will get strengthened. According to the Bank of International Settlements the Dollar dominated debt in the world is $. 11.4 trillion since 2009, with emerging markets owing $. 3.7 trillion. This is like a checkmate created for the Belt and Road Chinese initiative because they are not available for bailouts with a cooling economy whilst between now and 2025 the borrowing countries will have to find at least 2.7 trillion to debt service. To cap this the US Federal Reserves is moving to a policy of tightening and unwinding its QE program in the face of a buoyant domestic economy. They are poised to raise interest rates at least five times in the next 15 months and this will make debt servicing unaffordable except through major political concessions. We may find ourselves squeezed between rising borrowing costs and diminished capital inflows and a stronger US Dollar.
Financial managers beware!
Mirza Shahnawaz Agha