1/n: This is an excellent reflection on Atif Mian’s article. At its core, this is really about what is your theory of change. The first one (call it technocratic) involves appealing to the consciousness of ruling elites and convincing them to reform, often at their own expense.
**
2/n: This view is very comforting. Who controls power can be entirely discounted. As professionals, we don’t have to disassociate ourselves with extractive elites and risk paying professional or financial cost in terms of career progression or privileges. **
3/n: It would be great if this worldview was closer to reality. If appealing to elite’s conscious can work, everyone wins …
1/n: This is an excellent reflection on Atif Mian’s article. At its core, this is really about what is your theory of change. The first one (call it technocratic) involves appealing to the consciousness of ruling elites and convincing them to reform, often at their own expense.
**
2/n: This view is very comforting. Who controls power can be entirely discounted. As professionals, we don’t have to disassociate ourselves with extractive elites and risk paying professional or financial cost in terms of career progression or privileges. **
3/n: It would be great if this worldview was closer to reality. If appealing to elite’s conscious can work, everyone wins except perhaps the elite group. No social disruption, no personal cost, no inconvenience of taking moral stands. **
4/n: The other view (call it political) brings who controls power at the centre of everything. It is the incentives of the elite group which determine what policies get adopted. Technocrats appealing to elites’ good conscious is lazy if not self-serving. **
5/n: If the interests of ruling elites differ from those of society, society should struggle to remove or displace them. This resonates with the words of Frederick Douglass, an African-American reformist, "Power conceded nothing without demand. It never did and it never will." **
6/n: Recent research also echo’s similar feeling. In a well cited paper, Richard Doner and co-authors argue that the emergence of ‘developmental states’ is not due to goodness of elites but due to the threat of mass unrest, national insecurity, and drying up of revenue sources. **
7/n: There are plenty of examples where countries which underwent significant econ transformation also saw a dramatic change in their power structure in preceding period: England, US, France, China, Vietnam etc. In other cases, ruling elites were destroyed by war: Germany, Japan. **
8/n: Indeed, there are plenty of cases where political upheaval did not change power structures and only replaced one extractive group with another. In other cases, the change was hijacked by external players to install or reinstate their favourite group. **
n/n: In the end, this leaves one with an uncomfortable thought: a choice between staying intellectually lazy vs arguing for taking risks which may prove costly. Who does what will also depend on who ranks where in social hierarchy. For masses, the risk may very well be worth it! **
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More from @ajpirzada
Aug 2, 2023
With the Army Chief now part of SIFC Apex Committee, we may see the biggest regulatory capture of our history. The military, which already runs 50 commercial entities, is now effectively in a position to bypass any law which collides with its interests. dawn.com/news/1272211
According to the new law, the SIFC, which includes army chief, has the powers to "recommend, where appropriate, additional incentives or relaxation in the regulatory and policy framework" for any ‘individual’ investment proposal it deems fit.
This is the first step towards undoing any transparency that was left in the system. Any individual investment can be treated in a special way for whatever reason. There is no level playing field anymore.
Read 11 tweets
May 21, 2023
🧵 Here is one way to understanding why taxing ‘reserves’ may be a bad idea. To understand this, lets consider Lucky Cement as an example. Note that its balance sheet shows 132bn in ‘reserves’ (see at the very end). But what r these ‘reserves’? That is where it gets interesting.
In simple terms, these were profits that were not paid out in dividends but were held back. But held back as what? Note, Lucky Cement has only close to 1bn in cash and deposits. This only means these profits were invested in different types of assets - both short and long-term.
We see the same for Indus Motor. It has 57b in reserves on its balance sheet. However, on the asset side, it only has 3.5bn in cash & deposits. Meaning, much of the profits have been invested in other assets. For Indus Motor, it largely takes the form of short-term investments.
Read 10 tweets
Jan 31, 2023
🧵 Debt restructuring of 1999-2001: Pak external debt servicing burden back in 1998 was 41% of its foreign income (same as today). In the following year, Pak went on to seek debt relief from Paris Club. As a result, $3.3bn of its debt was rescheduled over 20 yrs with 10 yr grace.
$610million worth of Eurobonds were also restructured in Dec 1999 to comply with the requirements of Paris Club that Pak should secure similar treatment from other private creditors. Another $415million which was owed to commercial banks was also restructured in the same month.
In January 2001, Pak had another round of debt restructuring with the Paris Club, amounting to $1.8bn. In all this, the domestic debt was left as it is. The result was that even though Pak total debt stock remained the same, the external debt servicing burden reduced by 50%.
Read 7 tweets
Dec 31, 2022
🧵on Growth: As of 2018, Pakistan had one of the lowest capital-to-output ratio across the world. This has decreased from the peak of 3 in 1977 to 1.6 in 2018. This 🧵 explains why it matters and what we can do to reverse this.
Let’s first put this in perspective. The decline in capital-to-output ratio we see for Pak is the exact opposite of what we see in the region. The ratio has remained stable for India. However, both Bangladesh and China have accumulated much more capital over the same time period.
Why do we care? Because it matters for growth. As Jones (2016) notes, growth of output per worker (y/l) depends on the growth rate of capital-to-output ratio (k/y), growth in human capital (h/l), and growth in productivity (z).
Read 13 tweets
Dec 27, 2022
🧵 Understanding DAR’s Folly: Imagine, u think rupee will loose its value by a significant amount in near future. It will then make sense for u to convert whatever rupees u hold to $. If everyone believes so and starts doing the same, rupee will indeed end up loosing its value.
Govt will then be forced to increase both fuel and electricity prices. Inflation will increase, growth will slowdown, and the electorate will complain a lot more. Now here comes a tricky problem: should govt let it happen? or, prevent it with administrative measures?
An ideal answer will be that the government should stay away from the administrative measures and take measures to restore people’s faith in the stability of the currency. That way, people wont have any reason to convert rupees to dollars and the crisis will be over.
Read 13 tweets
Nov 25, 2022
1/5: Let’s be a bit more careful here. Bloomberg’s model estimates the probability of default to be only around 17% just a month before default. So, if the model is to be trusted, 10% is pretty bad.
2/5: As far as CDS is concerned, the paper assessing Bloomberg’s model clearly suggests that CDS is a better indicator than whatever the Bloomberg model is telling us. Hard to disagree when the model only throws out a default probability of 17% one month before it happens.
3/5: This is bec CDS r more forward looking than the model. As the paper notes, "Argentina also gives an example of how CDS spreads can increase years before a default actually happens, thus reflecting current long term market sentiment rather than actual, one year default risk."
Read 6 tweets