A Differing View Point
A few weeks ago the Economist publicized ‘Pakistan- The most Dangerous Nation in the world’, on its front page. Last week, on the 26th of Jan 2008, the magazine on page 84, in a subtle manner, with a space relative to one forth of a full sheet anecdotes Pakistan as the best performing stock market in Asia since the turn of the year.
Even if i was to overshadow the contrasting range in publicity, one would wonder: how can a country transcend from the most dangerous nation in the world on the one hand, to the best performing stock exchange (measured in terms of decline in share prices) on the other, in the space of 2 months. Furthermore, the very nature of the stock market, which is predominantly driven by perception and speculation make it an extremely interesting case of study.
Interestingly enough, the transition is attributed to the lack of foreigners in its market, which means fewer people to panic about the security situation in the country or worry about the subprime implications. The economy is expected to grow between 6.5% and 7%, economic fundamentals seem to be strong, companies are paying good dividends; further expanding, moving towards a faze of specialisation and maturity. If anything, the forthcoming elections are seen as a stagnating block for the economy. On the whole a contrasting picture to the political realities, that is if we underwrite the wheat and energy crisis and predominantly focus on the gains of the rich and capitalist. This breeds many questions, how much do the political institutions effect the elite economy of a country such as Pakistan? Is type, nature or pure stability of the institution the most significant factor for growth or vice versa? and most importantly, is it first best institutions or the second best institutions (Dani Rodrik 2008) which are most desirable?
The answers may not be as clear. However, it is obvious that the country benefited from the lack of foreigners in it’s market. For once, Pakistan was not criticized for its shortcomings relative to the first best view of the world- maybe it’s unintended realities will path the way to economic juice-even if not justice. Efficiency (increase the size of the pie) relative to equity (evenly distribute the pie) is the neoliberal policy stance (first best policy) and eventual outcome atleast in the short run, which if any, is practiced and followed by the policy men in Islamabad who map the future economic path of Pakistan.
However, as clearly indicative upon evaluation of the performance of Pakistan’s stock market since the turn of the year, it can be noted that second best policy (context driven policy) stands superior to first best policy (encourage foriegn portfolio investment to juice up the domestic economy). However unintentional, it achieved the desired outcome (growth) of the first best mindset. Although suboptimal in the long run, it can be an optimal strategy for the short run especially for transitioning economies. Therefore, to my understanding this further reinforces the belief and application in tailor-made context driven mindset relative to a universally applied policy approach.
The End
Category: Columns, Economic Wheel
Another point to note is that the investors today are indifferent to all the terrorist scenario. Like the oil crisis occured in the 20th century the recovery was far too slow compared to the after effects of 9/11. Investors (foreign or local) are quite vulnerable to these things as they happen quite often. Also to note is that the Karachi Stock Exchange was the least hit by the current US condition in Asia. The Bombay Stock exchange fell by 1500 points(rounded off) while the KSE-100 only by 28 points.