PAKISTAN’S ‘unsettled questions’ are on full display, playing out on the streets of Islamabad and inside the hallowed halls of parliament. The witches’ cookbook has been taken out and dusted off, and another potion is brewing. A handful of protesters and their alleged sponsors are trying to wrest the centre of gravity back from the civilians, who have since 2008 managed to re-wire the system to ensure the perpetuation of their rule and the continuation of benefits accruing from the ‘system of spoils’.

An increasingly unaccountable and collusive elected kleptocracy is being challenged, albeit unconstitutionally, by those who have not shown any inclination to clean the stables when they had numerous chances in the past. In fact, the establishment’s book of potions follows a well-tested recipe, which has invariably left an unwanted toxic residue each time in the past.

It begins by a sprinkling of the most compromised politicians, who are coerced and cajoled to shape a ‘coalition of the willing’. The members of this alliance are promised a share of the power loot — but more importantly, and most damagingly from Pakistan’s perspective, an exemption from accountability and a clean ‘bill of health’ in terms of their past misdeeds. Malleable judges are the next required ingredient. The threat of across-the-board accountability is the next move on the chess board, after which all the pieces fall in place.

Gen Musharraf followed the exact same script — and derailed a historic once-in-a-lifetime opportunity to put Pakistan on the right path when he compromised and struck deals with the most corrupt politicians to cling on to power. The beneficiaries of his regime included the Chaudhrys of Gujrat and the MQM in Karachi. His final turn of the sword in the accountability framework was the infamous National Reconciliation Ordinance (NRO) which gave those who were accused of plundering Pakistan through the 1990s — such as Benazir Bhutto, Asif Zardari and Nawaz Sharif — a lifetime reprieve for their acts.

In doing so, Musharraf established what economists call a ‘moral hazard’. If for no other sin, he deserves to be tried under Article 6 for forever making a mockery of accountability and rule of law in this country by making them instruments of the power game and deal-making.

This time around, of course, there has been some innovation: the most compromised politicians have banded together under parliament’s roof and only a handful have so far joined the ‘other’ side.

On the civilian side, there is a witches’ cookbook too, of course. The recipe here involves ‘rigging’ the system through constitutional amendments to remove any challenges to the two-party game of thrones, seeking support from external actors, and undermining the army. For the PML-N, it also includes relying on a small coterie of family loyalists and hawks, setting up a collision course with the military, relying on a ‘friendly’ judiciary, and throwing in a motorway or two.

The two different recipes both have serious consequences for the economy.

Economic consequences

However noble the objectives of PTI and PAT, which is moot depending on which side of the fence one is on in this highly polarised situation, some long-lasting damage has been wreaked on the economy. Beyond the loss of production and output, the delay of export shipments and diversion of new export orders, the national loss of productivity , the logistics logjam with shipping containers and heavy transport being requisitioned etc., there have been three important, possibly long term, economic casualties.

The first casualty is the perception of political — and policy — stability, which is the bedrock of many long-term investment decisions. After a decade of volatility in the 1990s, Pakistan’s perception as a politically stable country was gradually being re-established. In fact, many investors, in particular foreign ones, had noted one ‘positive’ outcome of the May 2013 elections: the fact that almost all major political parties had a stake in the political system.

As a result of the strengthening perception of political stability in Pakistan among investors, more ‘investment scoping’ of potential projects appeared to be in progress — while political risk premiums for investing in or lending to Pakistani companies had also declined materially. With the latest turmoil surprising most observers with its timing, form as well as intensity, the political risk perception of the country is likely to have taken a significant battering, especially if the crisis does not wind down quickly. This is likely to drive away investment. Pakistan is already facing a serious issue of not only being unable to attract new foreign direct investment, but seeing outflows of existing investment.

The other hugely positive outcome of last year’s elections — without prejudice to the issue of rigging and PTI’s stance — was the spirit of competition that had been introduced between different provinces and political parties in the delivery of public services. I can’t speak for Sindh (the poster child of incompetence and corruption under the PPP) and Balochistan, but having interacted with the provincial governments in Punjab and KP, the sense of healthy competition among the different provinces was clear. For all its faults, democracy in Pakistan appeared to be delivering some fruit, however delayed and unripe.

The second casualty of the ongoing political crisis is likely to be economic reform. Even though the government’s reform plan is quite conservative and of limited ambition, it may be forced to scale it back even further and become overly cautious. In the longer run, a resort to confrontational politics may permanently stymie efforts to initiate wide-ranging and meaningful structural as well as institutional reforms — reforms that Pakistan’s economy so desperately needs.

Related to the foregoing point, an interesting change in PTI’s language on its economic deliverables is becoming discernible. Possibly reflecting a changing composition of its political support base with the disillusionment of many educated middle-class voters, and the attraction of a ‘new’ voter base from lower income stratum, Imran Khan has started talking about unemployment benefits, subsidies and entitlement programmes. If it signals more than a transient shift related to attracting people to its protest rally, it would mean that the ‘third option’ representing a movement for genuine change is now looking increasingly like a recycled version of the mainstream parties. If so, that would be a genuine setback for economic reform.

The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.

Published in Dawn, September 5th, 2014