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Archive for October, 1989

Limited warfare and economics

Nations that value their freedom have to pay a steep economic price to maintain credible military deterrents. In the context of the developed world, industrial activity in the military field leads to employment opportunities and in fact acts as an economic force-multiplier. For third world countries who have to divert precious foreign exchange for expensive military equipment it has a commensurate retarding effect on the economy. The cost of waging war is always high, for the victor as well as the vanquished; a stalemate is worse. Hitler raised Germany economically pre-World War Two by building a vast military machine. At the end of the war Germany lay devastated and so did all the countries in the vicinity. Great Britain, nominally one of the victors, had to dissemble its vast empire. The Iran-Iraq war recently is an example of senseless attrition. While material can be replaced, the human cost is always unacceptable.

Sometimes countries are placed in a geopolitical context where it becomes necessary to make economic sacrifices to build an effective military machine so that the higher price of war may be avoided. In our case, the unbridled arming by India, bent upon becoming a superpower at the cost of its poverty-stricken masses, hundreds of millions being below the starvation-threshold, makes it necessary for us to maintain a relative military balance. Recent examples of military and economic brow-beating respectively are Sri Lanka and Nepal, in the stage-managing of the drama in Maldives the actual truth still remains unclear. This region remains at the mercy of Indian adventurism, one has to be on constant guard at all places. Siachen is a case in point where the concept of fighting a war at such altitudes is unimaginable but the Indians have made it a bleeding reality for us as well as for themselves, shortly Wular Dam threatens to become another flash point. India’s propensity to create crisis after crisis vis-a-vis Pakistan gives us no alternatives, the question of the acceptance of Indian hegemony in any form does not arise. We have geared up our economy to support large military forces, tenuously treading a fine line to avoid being overwhelmed by the cost.


How to Attract Investment

he Federal Government has recently launched a major investment effort in the public sector, this is in utter contrast to the recently (and oft) stated intention of the PM to go in for privatisation of the nationalised industries. The question arises, is this a major shift of policy, a volte-face on earlier pronouncements or is there more to it than meets the economic eye? On the face of it the Federal Government’s machinery is emanating conflicting signals, not surprising that along with other “encounters of the strange kind” we have been blind-sided by them. Mr Ali Nawaz Shah, Federal Minister for Industries, accompanied by Mr Tariq Sayeed, President Federation of Pakistan Chambers of Commerce and Industry, and a high level delegation visited the US to solicit foreign investment in late August this year. Widely reported in the business media, he reiterated PM Benazir’s avowed intention to go the Thatcher route, her Ambassador-at-Large, Happy Minwala, has been negotiating happily and willy-nilly with investment banks (Rothschilds in particular) along with other consultancy firms in the UK to devise ways and means to accomplish such an eventuality. On the other hand, Raja Shahid Zafar, Federal Minister of State for Production, has uncovered a series of initiatives in the public sector which must have been some time in the works and could not have been plucked out of thin air. It would be interesting to note where the money is going to come from, rich Arab uncles are running scarce (and scared) these days!


Reorganising the Banking Sector

Third World countries that aspire for economic prosperity have to ensure that their financial sectors are adequately equipped to fuel sustained growth. Financial institutions are the bedrock on which to plan the building of industry and commerce in a world perennially short of development funds, lately Less Developed Countries (LDCs) are concentrating their energies on revitalizing this sector. In Pakistan, we pay a lot of lip-service to such notions, in actual practice we consign reformation ideas to the dustbin and progress is far from satisfactory.


Attracting Foreign Investment

Third World countries blessed with large populations but hamstrung by limited resources must be extremely careful in choosing the direction their economies must take, particularly if they want to attract foreign investment and entrepreneurial skills to bolster their economic threshold and stay ahead of the population explosion. There can be no definitive role model, each nation has different needs peculiar to its relative circumstances, but one thing is certain, the Soviet model of a controlled economy has been a total failure, as exposed in the west by Thatcher’s revitalization of the moribund British economy by wholesale dismantling of the public sector by disinvestment across the board. The COMECON countries are now all following the devolution route that China took in 1979, anathema to socialistic thinking but an economic boon for its consumer-product starved masses. The chief aberration in the obsolete Soviet system was a bureaucratic penchant for central control and organisation, a “guided” method from top to bottom while the basic requirement for economic emancipation of the masses is that while the parameters may be laid out, the free enterprise system envisages incentive, ability and performance for individual as well as collective rewards in an openly competitive environment rather than arbitrary bureaucracy imposed fiat. A genuine free enterprise system attracts external investment by the force of its rewards, with clear-cut profit-motivated objectives.