Daily Times

To a history buff, it is crystal clear that wars have always been and will always be a turning point for nations, and that only time decides who actually won; unfortunately, the problem is that, “justice time” can reserve such judgements for decades or even centuries. Which is perhaps the reason that in the ancient world, the Oracle at Delphi talked in riddles when it came to questions about war, which was most unfortunate for Croesus; but for all you know Lydia might have been the eventual winner — it did end up being part of Turkey today.

Irrespective of who is deemed the winner or who the loser, eventually, the immediate cost of war is horribly tragic when it comes to human loss and phenomenally devastating when it comes to loss of wealth. An F-16, with all accessories, albeit not sure what they might be, based on a Google search, costs approximately $ 50 million, which is equivalent to the annual minimum wage of 34,000 Pakistanis. Okay, do not get bored, this is not another article about how the defence budget is impoverishing Pakistan. Perceptively speaking, if you do not have the money to see it through, avoid a war but if a war is thrust upon you, find the money quickly to wage it to the end, or you are done.

Traditional conflicts between nations and civilisations, those that involve planes and tanks, or even a nuclear arsenal, cost a lot of money and while independent observers may believe that any kind of warfare is inherently insane, military strategists at least claim to have a handle upon the what, why and how of conventional warfare. But that landscape is changing. Well for one, ever since the internet, there has always been all that noise of cyber wars. Thankfully, since Pakistan can hardly be deemed ‘automated’, there is no risk on that count, well at least for the foreseeable future. On the other hand, currency wars, or financial battles, which some might categorise as ramblings of conspiracy theorists, might even be a reality because after all we do have a currency and a financial sector.

The stories about the US starting all these wars in this region just to protect the dollar’s position as the international currency, rather than to secure oil, are getting rather boring, even perhaps for those who understand why the American economy is different from the rest of the economies on this globe, and why perhaps they would want to maintain this status quo; with a $ 19 trillion debt they have too! But the noise on the financial grapevine is even more ominous with stories, or conspiracies for some, ranging from how and why the eastern powers are hoarding gold, a recession bigger than 2008 just around the corner, the ultimate currency war being waged against Yuan, the global assets bubbles, property and stocks, which were fuelled by the quantitative easing by western central banks, and how central banks conspire to protect the too big to fail banks and why.

Articles floating around the internet aside, but when they start writing books about how the ‘masters of the universe’ can bring any nation to its knees, and give details of how Soros broke the bank of England, the Asian crisis and the Russian crisis, it does get a bit worrisome and you start wondering whether that can happen to Pakistan. On the other hand, we apparently do not need an enemy to wage a shadow war; we seemingly are self sufficient and proficient as far as creating our own financial crisis. As the government asserts, Pakistan, due to past follies, had no choice but to accept, with all its imperialist type conditionalities, the IMF’s programme to avoid bankruptcy. That might be true considering that the no one from the opposition has argued this position, albeit that could also be because no one in the opposition understands the economy anyway.

Past follies aside, what steps have we taken to alleviate Pakistan’s dependency on aid and IMF programmes? Are we moving towards economic stability? Well, for one thing, ever increasing foreign debt, according to economic analysts, is a fore bearer of financial crises, something even the China-Pakistan Economic Corridor (CPEC) cannot do much about. And then there is that debate about how much of the CPEC is aid and how much is more debt. The key indicator, and tighten your seat belts, is not the GDP, it is the net trade balance, and continuing deficits are a ticking time bomb for Pakistan. All those debates about fiscal deficits, privatisation, GDP, tax base and what not will all seem trivial if the trade balance is not brought into control and for the record even the Central Bank agrees with this assertion, albeit diplomatically.

Ignoring the argument that we can do a great job of shooting ourselves in the foot, let us focus on how susceptible Pakistan is to a war on finance. According to the State Bank of Pakistan (SBP), foreign portfolio investment, which primarily represents stock, currently is in excess of $ 11 billion, more than one trillion rupees of which translates into 15 percent of market capitalisation of the Pakistan Stock Exchange. Admittedly, all details are not available about the portfolio but let us just work with what we have. Now let us assume that Spectre, an evil organisation from the James Bond movies, controls this portfolio and suddenly starts dumping shares on the stock exchange. The spoilers who will argue that such a possibility is remote since the perpetrator will himself incur huge loses are reminded that the objective of a war on finance is not profits but financial anarchy leading to chaos.

So, what would a sudden dumping of this foreign portfolio trigger? Well, a collapse of the stock exchange index since as soon as sustained selling by foreign investors commences there will be a bear party all across, collapse of the rupee as the dollars get repatriated, which repatriation might be as high as 50 percent of the investment after accounting for portfolio loses with everybody else jumping in to buy dollars to protect their savings, depletion of foreign exchange reserves held by the SBP, portfolio losses in banks and corporations resulting in a consequent significant increase in nonperforming loans, and the worst case scenario can get pretty bad. When the Chinese stock market had tremors a few weeks ago, their Central Bank had the reserves to intervene. Pakistan’s reserves are at record levels; they are perhaps not sufficient to defend the economy in the case of a deliberate malicious attack. And let there be no doubt — without money, waging any other kind of war was, is and will be impossible and improbable.

Admittedly, this sounds like something straight out of, and well it is actually based on, Hollywood, but sometimes in all that noise on the internet there are signals, The objective of building such scenarios is not about beating the doomsday drum but to open the doors of imagination; winning guns and tanks war is essential but if we lose the financial war, how will we ever buy the guns and tanks? Different kinds of wars need different kinds of weapons and a different kind of strategy, and the world is already engaged in different kinds of war.

The writer is a chartered accountant based in Islamabad. He can be reached at syed.bakhtiyarkazmi@gmail.com and on twitter @leaccountant