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Why Pakistan Risk?

Marketing blurb, read at your own risk

I liked David Beim as soon as I walked into his room. He had just graded my Corporate Finance exemption exam at Columbia and given me the permission to take a higher level course. The secretary of the Finance Faculty had asked me to come and meet him because Professor Beim still had some reservations about my rash decision. Corporate Finance was a core course and skipping the foundation in a four term degree program could some time lead to interesting consequences.

The interesting consequences turned out to be Emerging Financial Markets, the higher level course I ended up taking instead of Corporate Finance. Taught by Beim and Charlie Calomiris, the course was based on a book funded by the Citi Corp of the same title. Over the next few months, I interviewed him for Bottom line, our school newspaper, worked with him as he advised the Integrity Board on ethics and finally took home an interesting lesson on corporate governance and board responsibility when I asked him to join the board of Avicena, venture number one.

In emerging financial markets Beim talked about what it took for a national economy to actually emerge. He spoke about the three pillars that actually drove emergence. Legal control (the rule of law and the sanctity of ownership), information and control (asymmetric, institutions of information, governance and accounting standards) and finally Inflation and currency stability. With case studies covering Hungary, Hanoi, Gazprom, Peregrine Investments and Bolivia we reviewed again and again the importance of these three pillars and their interconnectivity. It was in emerging financial markets that I tried to do a case on the run on the Pakistani rupees (circa 1998) and failed.

A year ago we got hit by a second run on the Pakistani currency. It was a game of sentiments. Once panic hits a nation of 160 million heads, there is not much that one can do. But I tried, here, here and here. In a short span of a few months the rupee went from the low 60’s to the high 80’s and then slid back. The level and quality of financial analysis done during the crisis was “pardon my French” poor. Respectable mainstream publications in Pakistan were linking the rupee dollar exchange rate to the price of gasoline on the street. Others were worrying about the possibility of default and yet others were recommending that we collectively short this country dry. Economics is a dismal science, in Pakistan it just turned depressing.

I am not a treasurer nor am I an economist. I am an arithmetician. I play with numbers, I try and document risk. I started building excel spreadsheets at the age of 14, a full twenty three years ago. I run a small business and I can read reasonably well. I have worked with customers here in Pakistan, in the Middle East, the Far East, Europe, UK, Japan, the East Coast and the West. I have failed twice, started and winded down LLC’s, borrowed and raised money, made and lost companies. But someone as dim witted as me could see that it was sheer panic and nothing else. If the rupee wasn’t justified at 60 to a dollar, it was certainly not justified at 87.6 to a dollar.

I have my own personal reasons for doing Pakistan Risk Review. Some of them are even shamelessly commercial. But as Beim pointed out in emerging financial markets, till we document, standardize and share numbers on the underlying dynamics of an economy, we cannot understand it. Till we do all of the above in a consistent, defensible, and regular manner, we cannot expect it to emerge.

Ten year ago David Beim told me that the reason why Pakistan wasn’t there on any of the graphs in his book, the Economist, or in his class at Columbia was because only limited, inconsistent data was available on this country.

Today between the work done in the last decade at SBP, SECP, FSB, KASB, Invisor Securities and finally at Pakistan Risk Review, David shouldn’t have any excuse.

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