On Economy, The Nation Forgot To Read Its Own Report

Feb 17th, 2010 | By | Category: The Nation

The Nation today contains a stark contradiction. The editorial page includes the headline: “Economy not reviving.” The Nation‘s editorial desk then goes on to explain that the economy is not reviving because of  government policies and cooperation with USA in the fight against militants. Unfortunately, the editorial desk did not read their own newspaper which featured the following headline on the Business page: “Pakistan economic recovery picking up: IMF”.

The Nation points to a drop in the KSE100 stock exchange index as a sign that the economy is on a decline. This is an old trick used to confuse people who don’t know a lot about economics. The fact is, stock markets rise and fall each day. If you select a day with a fall, you can say the economy is bad. If you a day with an increase, you can say its good. Does the increase in the KSE100 today mean that the economy is good? Actually, it is mostly meaningless.

A better way to look at a stock market index (including the KSE100) is to evaluate a long-term trend to see what it says about how institutional investors consider the risks and rewards of that market. Does the market show a long-term trend upwards? Or does it appear flat or (worse) headed down? Below is a one year chart that tracks the KSE100 generated by www.marketwatch.com:


KSE100 Over One Year Time

As you can see, the trend is actually on the increase. This is a good sign for the long term growth of the market and probably the economy as a whole. It does not mean things are perfect, but it also does not mean things are getting worse. Actually, a 100 point drop in a day is volatility that all advanced stock markets experience. Today the index is going up.

Let us look further at what The Nation‘s own Business page reported on the same day:

Listing positive trends Pakistan registered in recent months, the Fund said the exchange rate has remained stable at Rs. 84–85 per U.S. dollar and the international reserves position has strengthened (the banking system’s gross foreign exchange reserves, including the State Bank and commercial banks, reached US$14.3 billion in mid-February, of this total the State Bank held US$10.5 billion).

The early signs of recovery in some sectors and the improved external position are encouraging, although there are risks and challenges to Pakistan’s economic program.

“Economic growth in Pakistan is starting to recover; large-scale manufacturing output has started to increase, the improvement in the global economy has helped manufacturing exports, and private sector credit growth has picked up somewhat as businesses rebuild their working capital.”

As we can see, there are positive fundamental economic indicators in the Pakistani economy. Certainly, foreign direct investment (FDI) is down over the past six months. But that is only one important indicator – not the only one. Why did The Nation ignore the positive reporting in its own newspaper? Was it politically inconvenient?

The Nation is correct that a key obstacle to attracting FDI is political uncertainty and fear of instability. But The Nation presents an interesting solution for these fears:

If the government wants to attract foreign investment, it must ensure more support for its policies by aligning them to popular wishes, rather than trying to please the USA through them. Also, it must work on the specific factors which keep away foreign investors.

This shows a lack of familiarity with attitudes among the worlds economies. Let us refer to an article in today’s Financial Times – a UK financial newspaper – about security and stability in the country.

The capture on Pakistani soil of Mullah Abdul Ghani Baradar is evidence that the message is getting through. It will bring encouragement to those in western capitals who already viewed military campaigns in Malakand and Waziristan to root out Taliban fighters as a turning point for a military with an ingrained hatred of India, the world’s largest democracy.

After decades of supporting militant activities in neighbouring India and Afghanistan this is a big step for Islamabad. After all, the Taliban was in some measure a creation of Pakistan as it sought to expand its influence into Afghanistan at the end of the cold war.

A much bigger step, however, is what happens next. First, the arrests need to move to trials and then convictions. Arrests of militants in Pakistan seldom, if ever, lead to convictions. Pakistan’s neighbours are sceptical that the security forces have the will to do much more than round up the usual suspects and then release them. They talk of “revolving door” arrests in which militants and masterminds somehow have a Houdini-like ability to escape a law ill-equipped to prosecute terror cases.

Second, Pakistan’s army and civil society need to sustain the effort against militants. It may be tempting to answer pressure from the international community with a few arrests and strikes and then ease off. Equally, a strengthening militant threat within Pakistan itself may sap the will to dismantle their networks.

Third,the leadership of militant movements in the region has a remarkable ability to regenerate. Baitullah Mehsud, a formidable leader of the Pakistan Taliban, was quickly replaced by a clansman Hakimullah Mehsud. Hakimullah, who was killed recently by a US drone strike, will no doubt be replaced by another.

Bringing these leaders under control goes to the heart of Pakistan, created six decades ago at the end of British rule of India, becoming a modern unified state. Some analysts talk about Pakistan’s internal dynamics as clan warfare. They say a Punjabi and Muhajir (Muslim exiles from India) elite is in a clash with Pashtun and Baluch in a state still partially formed decades after the British hurriedly quit India in 1947.

The short-term goal is ending the war in Afghanistan. The longer-term ambition is to bring lasting stability to Pakistan and the region.

It is not for this blog to take any position on the wisdom of national security policies. But I will say that if The Nation thinks that abandoning the fight against militants at home and refusing to cooperate with NATO in Afghanistan is the stability that will attract foreign investment, they must be reading some international economic news that I have not seen.

One thing is for certain, though: Editorial writers at The Nation are not reading their own newspaper. If they were, they would not report one thing in the Business page, and then contradict it in their editorials.

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