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Archive for December, 1987

Metamorphosis in foreign relations when the time comes!

Some exceedingly worrisome changes have taken place in the Region, barely perceptible at this stage, nevertheless significantly ominous in their portents.

Rajiv Gandhi recently went to Washington and came back cock-a-hoop. Euphoric and buoyant, he talked to the members of the media in the aircraft on his way back from USA. Pakistan was dismissed by an irritated Gandhi as “one of the small countries” on India’s borders and as far as the “problem of Pakistan” was concerned he said, I quote, “we shall handle them when the time comes,” Unquote.

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Making dreams come true

After reaching a historic compromise to reduce budget deficits by almost US$ 75 billion over two years and a fairly upbeat visit of the Russian leader to Washington, the Reagan Administration looked forward to a weekend without unwelcome surprises but it was not to be. A record US$ 17.63 billion October trade deficit announced on Thursday Dec 10, 1987, has retarded the adjustment of global economic imbalances. The dollar continued its downward drift and was at a record 40 year low while the beginning of the rush to gold for shelter caused the crossing of the psychologically important US$ 500 an ounce for the first time since Feb 1983. The October trade deficit has been despite an increase in exports. An increase in import bill particularly from Japan and the four TIGERS of the Far East, Singapore, Hong Kong, Taiwan and S.Korea more than wiped out the export increase. While all this was happening, Karachi Stock Exchange maintained an upward trend with 179 fluctuations out of which 91 were higher and the index of share prices actually increased 6 points on Dec 14, 1987. As we live in an unreal world, sometimes it makes good sense to stage a comeback to reality by having a dream and making it come true.

Pakistan has a vast OUTBACK in Baluchistan’s hinterland and coastline. Peopled sparsely, this forbidding area is rich in metals and minerals; with a more than large hint of vast deposits of oil and gas. The present geo-political situation in the region immediately west i.e. the Persian Gulf and Iran, can be turned into an economic boon even without its raw material potential provided that the present Government has the will to ensure that long-term plans are executed in a short time. Tremendous effort has been put into development in the Baluchistan Province in the last decade but it needs more, an imaginative innovation to turn this sea of desolation into an ocean of plenty, attracting investment and capital-like bees to honey. Dreams are usually created on the frontiers of civilization.

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The arms bazaar

The defence industry has a historic role to play in the growth of the economy of any country. In simple layman’s language, whatever is imported for defence requirements adds to the foreign debt and whatever is exported reduces trade deficits. Considering that a fair percentage of our annual budget has to be necessarily earmarked for defence, given our insecure geo-political situation and erstwhile enemies, the need for indigenous manufacture of defence material cannot be over-emphasised. In the recently concluded Defence Technology Seminar which has become an annual international event of the Pakistan Ordnance Factories, Wah, in collaboration with Moensch Publishing of West Germany, the President of Pakistan said more or less the same.

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Closing the deficits

Spurred by the worsening situation President Reagan and the US Congress have reached a historic compromise aimed at significant budget cuts. This would certainly be more selective than the US$23 billion indiscriminate cut mandated by Gramm-Rudman legislation affecting budget programmes across-the-board. This budget reduction package will affect currency futures positively with a definite rise in the asset value of stocks and shares. Needless to say people across the world will see a lessening of the tension which has built up in the anticipation of Economic Apocalypse. Prudential-Bache Security analyst Jill Cotter had predicted that a US$ 30-32 billion cut would make the market ecstatic; the actual compromise between the White House and Congress has been a cut of US$30.2 billion fiscal 1988 and US$45.85 billion the following year. The bipartisan package contains an increase of revenues by US$9 billion without the raising of income taxes which President Reagan has maintained would be “deleterious to the economy.” Cynics abound in plenty eg. Paul Getman, senior economist of the Wefa Group, who said, “this is too little too late”, though even he conceded that “they are only a little better than the automatic across-the-board cuts that would have gone into effect”, because of Grumm-Rudman. A lot depends upon Japan and West Germany who have been pumping a lot of liquidity into the money market to keep interest rates down to prevent flight of capital from the US dollar. The next few weeks should be exceedingly interesting and one can only hope that the present mixed reaction becomes upbeat because with the sinking of the US dollar we are consigned to a one-way road ending in economic demise, a recession followed by a depression. The problem is that we do not have the economic depth to swing out of a trough as quickly and strongly as the western nations do —and they are not that fast either.

About a year ago, we argued that we should resource external aid only for our critical needs and balance foreign trade by means of Barter, Countertrade and other forms of bilateral and reciprocal agreements. That the message has been heard in government circles is reflected in the new innovative 3-4 years national trade policy but policy needs to be translated into action and action depends upon the current policy of the bureaucracy and not the politicians, as is the normal penchant of bureaucracy. Most of the current policy is dictated out of motivated interests, wherever it coincides there is general euphoria; whenever it fails bitter recriminations are directed everywhere else. Take external aid; Dr Mahbubul Haq, High Apostle of External Aid, who used to stress that we could not do without it, is now unabashedly proclaiming that we did very well whenever the aid was stopped eg. following the 1965 war when the import of wheat under US AID was curtailed the wheat production increased annually by 4% instead of niggardly 1.3% pre-stoppage. We would have been much better off, if the ‘BORN AGAIN’ philosophy had come before we built up the large external debt between US$ 12-15 billion, ending up paying over 30% of our annual exchange resources for recovery of the debt. The silver lining in this is that Dr Mahbubul Haq had the moral courage to make such an admission which incidentally accurately reflects what PM Junejo has been emphasizing right from the time he took office, increasing self-reliance. Nationalistic sentiments apart, we hope that the present confessionals will not stop once US AID is resumed, if it is resumed, truncation aside.

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