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Archive for December, 1988

A Year of Satisfaction

This has been a year of mixed fortunes for Pakistan, in final evaluation it must be regarded as a satisfactory period, successfully negotiated. In economic terms we are in such desperate straits that the requirement for Banks collecting Haj money to be deposited with the State Bank of Pakistan after a 14-day period has been shortened to 24 hours. The financial cupboard is bare and that is not a political statement, it is a testament of failure of policy that has tragic overtones for a hapless population. It is not fair but the government of Ms. Benazir is likely to be saddled with galloping inflation and widespread unemployment, which is not a legacy of Gen. Zia (who had no pretensions of being an economic genius) but a heritage from the Junejo period, compounded in the last six months by the chameleon policies of the most powerful economic technocrat ever in Pakistan. If there is a lesson to all this, it must be that essentially all Third World countries should treat acquired foreign qualifications in economic management with care, if not outright suspicion. There is a sick joke going around that while previously the first prize for good economic management was the Chairmanship of the Senate (sic Mr. Ghulam Ishaq Khan), it may now well be the ultimate reward for ruining the economy of Pakistan, perhaps the only appointment in the country from where Dr Haq cannot cause further harm to the economy.

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Interacting dreams with realities

Geographical realities are increasingly dictating regional interaction between states. If like-mindedness is the thread that draws nations together on a single platform, the fabric that binds them together must be economic. Purely on that premise, the SAARC Head of State/Government exercise is a natural forum for enhancing economic cooperation, much more than envisaged for ASEAN and COMECON and similar to the European Common Market which existed very much in the minds of planners searching for a suitable role model.

Economic interaction within the SAARC boundaries almost pre-dates history, is not a new concept but is a revival on a regional basis of ancient relationships and practices, it fails miserably to take into account polarization due to religious beliefs, compounded further by ethnic rivalries. This has been further exacerbated by the Superpower pretensions of hegemonistic India, the net result being that each independent nation on India’s periphery (and some subjugated ones within its boundaries) have some sort of a grievance and/or conflict with India, some of the member nations having literally been rendered speechless by the sheer force of Indian armed might. It is a sad commentary that what is perceived to be the largest democracy in the world is perhaps the only country in the comity of nations (barring Israel which has its survivability at stake) which resorts to gunboat diplomacy pre-dating the First World War. With this political background, the SAARC countries annual meeting may be welcome from the point of view of an exercise in regional public relations but it is most likely to remain moribund in further development.

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State trading vehicles

A lot of controversy has been generated by the decision to scale down the working of the State’s trading vehicles, eliminating the Trading Corporation of Pakistan (TCP) altogether. This is in keeping with the stated objectives of successive Administrations to reverse the tide of nationalisation to one of deregulation and disinvestment in the search to establish a liberal economy. While the need of the hour may be a free enterprise system, certain safeguards are necessary for Third World countries in an increasingly protectionist world of developed countries. Very much like we use quotas to protect the right of citizens of extremely backward areas, selected public sector enterprises that act for the common good of the nation are in vogue even in the most advanced of economies.

Margaret Thatcher may have been the one person most visible internationally for dismantling guided economies and State enterprises, but the man most responsible for the trend was Deng Tsao Peng. The gradual dismantling of the socialist system in China was initiated by him in the mid-70s and his measured approach is much more conducive for application in Third World economies. The most devastating example has been the collapse of the Soviet socialist empire which generally followed a pell-mell line in trying to speed up the Thatcher oriented model, much more suited for developed countries having sound financial infra-structure. The China experiment also succeeded because Deng Tsao Peng kept economic reforms way ahead of the loosening of the political controls, the abysmal failure in the former Soviet Union has been because Gorbachev put Glasnost (openness) ahead of Perestroika (economic reforms), thus raising the expectations of the people before the system could deliver. The result is the disintegration of the Soviet empire and untold economic misery for the people. To protect the whole structure from dissolving into anarchy which is a short step from returning to the fold of communism, Russian President Boris Yeltsin is rapidly trying to reverse (and/or curtail) the liberties that the Russian people had become used to over the past couple of years. The one lesson that you learn from all the successes and failures of the last decade is that no one should try and thrust a particular system down any country’s throat. Every country has to evolve its own system in keeping with the genius of its people and its own socio-economic peculiarities. Instead of imposing theoretical university-crafted models the system evolved has to be pragmatic and flexible in order to ensure interaction of local conditions with the requirements of the modern world.

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State trading vehicles

Third World countries are finding it increasingly difficult to find markets abroad for their products. Growing protectionism among the developed countries is seriously affecting the capabilities of the Less Developed Countries (LDCs) in meeting their debt obligations, economy sustenance measures, potential for development, etc. Caught in a vortex of despair, many countries have had to assume financial role models ill-suited for the genius of their people. This is compounded by the fact that their own leaders have below average capabilities in economy management. Without discussing threadbare the logic behind mixed economies, one can safely say that each Third World country has to have its own make, the mix of private industry and public ventures being in suitable ratio in each separate case. Countries like Pakistan need to have their prime commodities under state control. What oil is to Saudi Arabia, raw cotton and rice is to Pakistan. Saudi Arabia can afford to put some of its oil into private hands but does not do so simply because oil is the prime (and almost only) economic sustenance of the Kingdom.

One of the better conceived plans of the last PPP regime was to create the Rice Export Corporation of Pakistan (RECP) and the Cotton Export Corporation of Pakistan (CEC). Despite many aberrations (mostly due to bureaucratic inefficiency), these two Corporations have performed relatively spectacularly in an extremely bad economic environment. The major stumbling-block has been the appointment of bureaucrats to run the affairs, however nobody can deny that Mr Riaz Naik of RECP and Mr Nusrat Hasan of CEC were superb technocrats, managing the Corporations during their terms of office effectively and profitably. These were exceptions to the rule, Mr Saleem Abbas Jilani, another exceptional technocrat, not having spent enough time at either RECP (or Pakistan Steel) to leave a lasting corporate identity. Because of CEC and RECP, Pakistan cotton and rice have respectively made a niche for themselves in a strongly competitive international market, a case of nationalisation being good for the country rather than the usually held reverse view. It has taken many years of sustained marketing to reach these exalted heights. Privatisation is not going to benefit anyone but a few traders. In Bangladesh, where raw jute trade is privatised, it has got an official price (and a market price), the market price being usually 30% or more below the official price the balance being remitted to buyers under the table. In this way the world market price of raw jute is undercut by Bangladesh itself — since the economy of Bangladesh is almost totally dependant on raw jute, this is a horrendous Catch-22 situation. It is further compounded by the fact that jute goods manufacturing, previously under Government management, has been partly privatised, net result is that Bangladesh has seriously compromised the prime facet of its economy, under the relentless pressure of IMF for de-nationalisation. It has taken us many years to become a major force in raw cotton and rice, the process of privatisation will drive us right back from where we started and this has to be thought out well before further implementation. What has to be done is to improve the quality of the Corporation by inducting better manpower, not an impossible task given better service conditions. Only by inducting efficient and knowledgeable personnel, particularly at the higher echelons from the business community, into these trading units will we be able to compete internationally. While industry needs to be de-nationalised across the board except for certain critical areas vital for the country, the trading of raw cotton and rice must remain exceptions.

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Deja vu?

The state of the economy is precarious. The head of government did not resort to subterfuges and minced no words in confirming what was more than just a suspicion, in the past few months we had reached a climax of sorts in being systematically sold down the river, flags waving and bands playing. While surreptitiously and simultaneously signing away our options, our ex-financial genius (and part-time politician) was extolling the health of the economy, so much for intellectual honesty. Safe within the portals of the Senate, he now informs us that he had only signed a “Letter of Intent” and not an agreement which, he remonstrates, the present government is free to re-negotiate, conveniently papering over the fact that an Intent is an agreement in principle and successor governments run the risk of being ostracised if they do not honour sovereign commitments once made. Irrespective of the fact that the state of the economy justified the agreement in principle and the extent is not disputed in the circumstances, the manner and timing is simply deplorable, so was the Hobson’s Choice given to any new government. It was a loaded weapon and Ms. Benazir’s decision to avoid adventurism was pragmatic inasfar as it avoided the Catch-22 type trap manifest in re-opening the arguments, more power to the new government’s financial brain trust that they chose to roll with the punch.

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Camelot comes to Islamabad

Procedural delays having been very wisely hastened up, Ms Benazir Bhutto has become the Prime Minister of Pakistan, coming to power with the utmost goodwill from among the masses, even from those who did not vote for her party. This is as it should be as she has ceased to be just the head of the PPP majority group in the National Assembly and becomes the executive leader of the government of the country.

Ms Bhutto must reach out to her political opponents. Magnanimity in victory usually gives dividends beyond compare. This is a nation full of sentimental fools and except for the most hard-bitten, they will respond to accommodation and compromise. Being tempered by long struggle she stands to gain everything by displaying her innate girdle of steel only when absolutely necessary. She has travelled a long political road, most of the MRD components were hardtime foes of her late father, yet she managed a political compromise with them. It is imperative that she opens a dialogue with the leaders of the opposition as soon as possible.

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