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Archive for January, 1988

Re-establishing Business Morality

A system of free enterprise is meant to be just that, the absolute freedom for the citizens of the country to exercise in any enterprise of their choosing, within the laws of the land, without any hindrance from any quarter. As a statement of intention, the aforegoing is quite unambiguous and needs no elucidation of any kind, the qualification being manifest in the phrase “within the laws of land”. The creation of Pakistan embodied free enterprise as a prime working principle because the Hindu economic domination was so overpowering pre-1947, in undivided India it would have been translated into economic subjugation.

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Till Debt Do Us Apart

The man with “a nice smile but with an iron teeth” became TIME’s Man of the Year for 1987. Gromyko’s description of Gorbachev may have done him justice but the prized nomination should have gone to the unnamed whizkid in the Bank of Boston who convinced his superiors that they should simply write-off US$ 200 million owed to them by Latin American countries. Being a portion of the Bank’s outstanding credit (only 25%),writing-off on instalments will make no real dent in the annual profits of the shareholders and is a realistic way of calling a spade a shovel. For debt-ridden Latin Americanos it was a heaven-sent boon of long-term effect even though the accounting procedure has not changed the legal status of the debt which remains repayable, with the Bank having every right to keep asking. The fact remains that the Bank of Boston realistically recognized that the indebted countries did not (and would not) have the wherewithal to pay the interest alone, what to talk of the Principal sum and decided to correct an anomaly while keeping a potential Sword of Damocles hanging over the debtor’s heads. It was a welcome precedent and one that should be adopted by all the western creditor-banks so that billions of US dollars of accrued debt in the name of Third World countries are written off in stages which are not so painful to the creditor banks or their respected shareholders. The catch would be that the banks could not justify giving further loans to the defaulting countries once the debt is written off since their shareholders would not accept it unless the debt had been repaid in part at least. Our premise is that since the countries involved will not have to ask for more loans to pay the interests due and the instalments on the Principal Sum, the vicious cycle should come to a stop — or at least the effects would be minimised. They would hardly be masochist enough to want to go deeper in debt which is the only other alternative. One supposes that one could live with such a situation where all one’s debts are written off.

In any case loan packages will be that much more difficult to put together in the future according to analysts. So be it! Dr Mahbubul Haq tells us now, US$ 12 billion in debt and 25 years later, that Pakistan does exceedingly well everytime AID is stopped. Despite Islamic strictures we are a gambling nation and I am willing to bet that the Born Again ex-High Apostle of External Aid is right this time around. If not then we will be in real trouble for the next quarter century and owe all to the good doctor’s gift of the gab and our gullibility. The silver lining in all of this is that by end of the next 25 years we should get used to being in deep monetary trouble. But in defence of the Federal Minister for Planning and Commerce one can quote Edward N Westcott, “the only man who can change his mind is a man that’s got one”.

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Correcting a parallax error

Our revenue gathering arrangements have an inbuilt system of leaks that result in a major portion of funds that would normally go to the public exchequer being siphoned off into the black economy. This seems to be an irreversible ex-osmosis mainly because of the latent fear omnipresent that the so-called guardians of the white economy may confiscate a fair amount for themselves if discovered. These funds find their way to foreign banks abroad and to real estate within the country, depending upon the level of sophistication. From time to time, various schemes are launched by the Government to encourage black money to be converted into white money without much success with a resultant sea of floating millions thumbing its paper noses at the naive (and the stupid) trapped within the white economy. To confound the perils of the Government further, our revenue collection agencies are themselves thoroughly ridden with members of the black economy who use every new law designed to unearth millions into personal revenue collection subterfuges.

Once upon a time, not so long ago, one was mesmerised by the brilliant records of some of our well-known economists in and out of Government and willing to believe that their patriotism and loyalty would allow their academic knowledge and world experience to contribute to the overall benefit of the nation. We forgot conveniently that most of them owe their loyalties to false gods, one which gives them prestige and money in the first world which not only permits them to look at their Third World brethren with ill-concealed contempt but allows them to pontificate imperiously with a first world slant on the issues involved. The tragedy is that on such people we must depend for fiscal models which will ameliorate our present lot by drawing capital into the white economy from the black. As knowledgeable a person as the Governor of the State Bank of Pakistan, Mr V A Jafarey and formerly Deputy Chairman Planning Commission, has taken the structural weaknesses of the economy to task. In an atmosphere where corruption is rampant and tax evasion endemic, he has emphasised the need to adjust the imbalances in the economy before they become critical, an over-riding concern arises to correct what amounts to more than a human error. But mere platitudes serves no purpose, the executive authority of the Government’s financial genius must be used to put an effective plan into place and then for the sake of the poor people of this country, put it into effect. Such is the power of those who do not pay taxes on their ill-gotten millions that at this point of time we are more likely to agree with Bernard Berenson’s assertion that “Governments last as long as the under-taxed can defend themselves against the over-taxed”, in this case the vast middle class.

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Looking Forward with Hope

The Annual Report of the State Bank of Pakistan for the financial year 1986-87 examines a number of imponderables, drawing attention particularly to the malaise in the economy because of weaknesses in financial and planning policy of the Government. Despite adverse weather conditions, a higher growth rate of 7 percent was achieved but with no significant remedies for structural weaknesses such as deterioration in public finances and the balance of payment situation, with the Government forced to resource to bank borrowing for budgetary support, particularly in view of the adverse public reaction to the initial annual budget. The significant achievement of the State Bank Report was that it was candid and gave a lucid summary of the ills pervading the body economic. Congratulations are in order to the authors of the Report for expressing with candour for the first time the deep need to restructure the basis for economic planning. It is a clear signal to others involved in the business of statistics that the business of Government is apt to suffer if perceived through rose-tinted glasses.

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The winds of change

Mr. Gorbachev went to Washington three weeks ago, ostensibly for a platonic mission of peace but more so because the Russian people needed an economic respite to ameliorate their present lot. The inordinate amount of funds being pumped into the Soviet war machine is detracting from the collective aspirations of the Soviets to better the quality of their present life. Mr Gorbachev, holding aloft olive branches, arrived in Washington on Dec 7, a day synonymous in US history with Pearl Harbour and the crippling of the US Pacific Fleet by Japan almost half a century ago. While the Super-Powers sat down to re-structure the world according to their perceptions and security needs, the two countries that lost the Second World War in 1945 were probably laughing themselves sick because the German Deutsche Mark and the Japanese Yen are engaged in an economic war of sorts which has pushed the US dollar to a 40 year low and the US economy almost to the brink of disaster.

The Russian economy and Rouble do not even come into contention, having been bludgeoned equally by socialistic economic inadequacies and the Soviet occupation of Afghanistan. Meanwhile the not so-hidden war goes on, fought by proxies in distant lands, while the two conflicting ideologies sit down to negotiate a safer world for themselves. The immediate impact of the INF treaty is the elimination of an entire category of missiles from each other’s armoury. This is indeed a welcome and giant step forward in the elusive search for peace. While for the Russians the long term goal is economic, the Americans are happy in that it is another milestone in the safeguarding of their present way of life and therefore the central theme for both the parties remains the same.

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