Archive for December 20th, 2018

Pakistan’s privatisation dilemma as it seeks IMF bailout: Lessons from its privatisation history

December 20, 2018

Interesting piece from Prof Kamal Munir (Strategy and Policy) of Cambridge Judge Business School.

Reluctantly seeking an IMF bailout for its balance-of-payments crisis, Imran Khan’s nascent government in Pakistan has already devalued its currency, hiked utility rates and imposed new taxes in an effort to be “ready” for IMF reforms. As if these measures were not enough to make the government sufficiently unpopular, it now faces demands to immediately privatise large loss-making state-owned enterprises.

For a few reasons, the government has so far been reluctant to sell these off. Two reasons stand out in particular. First, selling of these state-owned enterprises is likely to generate significant unemployment. Politically speaking, this would be a highly unpopular move, as Khan’s new government promised to create millions of jobs within five years. Second, given the outstanding debts of Pakistan’s state-owned enterprises, there will be few takers unless the government clears up the balance sheets first.

Whichever course the government takes, it would be foolish to ignore the lessons from Pakistan’s troubled history of previous privatisations – three spring to mind.

He points how the previous three privatisations – telecom, energy and banking – backfired. As there was limited competition in telecom and energy, all it did was to transfer a public monopoly to becoming a private monopoly. In banking, the banks made gains mainly by lending to government and not to other sectors.

The key lesson:

consistent with the general history of privatisation in Pakistan, banking privatisation was great for the new owners. Many got bargain basement deals – while doing little for the cause of national economic development.

Above all, the government should realise that in the absence of a broader national development policy, privatisations are not going to yield the desired benefits. Before contemplating any sell off, the government needs to first figure out the roles it needs various institutions to play and devise appropriate regulatory and monitoring frameworks.

Goals such as maximising the value of an enterprise before its sale or enhancing its profitability, should be supplanted by aims that are in line with a larger development plan. In order to avoid the mistakes of previous governments, longer-term goals must be prioritised.


Rearranging the name of Consumer Financial Protection Bureau..

December 20, 2018

Came across this interesting controversy over names. Mick Mulavney, the former chief of CFPB wanted to change or rearrange the name of the watchdog to BCFP:

Mulvaney, who was installed by President Donald Trump as acting director of the bureau in November 2017, had maintained that he was only following the statute in insisting that the agency be called the Bureau of Consumer Financial Protection, or BCFP. He also rearranged the letters in the lobby of the agency’s office building.

Sen. Elizabeth Warren (D-Mass) on Monday asked the CFPB inspector general to investigate Mulvaney’s name-change decision, which she said would cost the agency between $9 million and $19 million, citing news reports.

Warren helped set up the bureau during the Obama administration in the wake of the financial crisis,

The new chief has decided to continue with CFPB:

Kathy Kraninger, the new director of the Consumer Financial Protection Bureau, is reversing the name change that her predecessor, Mick Mulvaney, tried to impose on the agency, according to an internal email Wednesday.

“I care much more about what we do than what we are called,” Kraninger wrote in the all-hands email, which was originally obtained by the consumer group Allied Progress. “As of December 17, 2018, I have officially halted all ongoing efforts to make changes to existing products and materials related to the name correction initiative.”

Kraninger’s decision to distance herself from Mulvaney, her former boss at the Office of Management and Budget who was just named acting White House chief of staff, came just a week after she was sworn in to lead the bureau.

Kraninger said that for reports, legal filings and other official business, the agency will use Mulvaney’s preferred name. “The name ‘Consumer Financial Protection Bureau’ and the existing CFPB logo will continue to be used on all other materials,” she said.


This reminds me of another similar story in India. The proposed name for IDFC was actually IFDC with Finance ahead of Development. The Government decided to bring D ahead of F! Thankfully, this happened before the institution came up unlike CFPB..


RBI MPC Minutes: MPC would run the risk of being considered neither current nor relevant!

December 20, 2018

Dr Ravindra Dholakia, MPC member does not mince words. His latest statement in the minutes of the MPC held in Dec-2018 is worth highlighting (HT: Avinash Tripathi for the pointer):

Drastic and sudden changes in external economic environment have taken place after the last meeting of MPC in October 2018. Should these changes evoke a response through an appropriate policy action? – yes, if they are not purely temporary and have reasonably long term impact on the economy. RBI’s own downward revision of the forecast of inflation 12 months ahead to a substantial extent in response to those developments, is a clear indication of their long-term impact on the economy. Thus, a policy response is called for. If there is no policy action in response to such a major favourable shock, MPC would run the risk of being considered neither current nor relevant!

With inflation forecast coming down by around 120 basis points and quarterly growth forecasts marginally revised downward opening up output gap going forward, there is hardly any justification in retaining calibrated tightening stance. In my opinion, this would be the right time to cut the rate and bring the unduly high real interest rates in the country back to around 2 per cent. It was, however, unfortunate that in October 2018, MPC had changed its stance to calibrated tightening with 5:1 majority despite my unsuccessful persuasion to maintain neutral stance. As a result, any rate cut is off the table for now and any such action would not be advisable at this point. The best we can do under the circumstance is to hold the rate, but change the stance to neutral to take care of all possible uncertainties. We should not deny any possibility of either a rate cut or a rate hike in the near future depending on data coming in.

43. More specific reasons for my vote on the rate and the stance are:


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