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Archive for May, 2003

Indispensable or Indefensible?

The President and the country are both at a crossroads, partly because of Pervez Musharraf’s own making in accepting convoluted legal advice complicating the constitutional situation but mostly due to the drastic changes in the geo-political circumstances since 9/11. While the full details of the deadlock on the LFO talks are still to be publicly aired, the crunch really lies in the President being the constitutional Head of State while hanging on to the office of the COAS. There is ample evidence to suggest there is room for compromise on all other issues but a major part of the Opposition bloc has shown no inclination to budge unless the comprehensive package includes the shedding of his Army uniform by the President. The Opposition have shown a penchant for freezing all Parliamentary work by making a violent nuisance of themselves in the Assemblies.

In any democracy the President cannot be the Army Chief concurrently. As long as Pervez Musharraf is COAS, this is not democracy but a continuation of the military regime, to suggest otherwise would be a farce. The democratic institutions may have been put in place but it would be incongruity to suggest that while one man holds power through the barrel of the gun we are a democracy. The gradual democratization process will not be complete until the COAS doffs his uniform. What the Opposition is suggesting is not wrong, theoretically.


Budget Season is On

n a recent Seminar Mr. Ishaq Dar put Mr. Shaukat Aziz and Dr Ishrat Hussain on the mat about the state of the economy by questioning the policies of the government as well as the statistics given out by the regime. A little more than three years ago, as the Finance Minister of Pakistan, he was engaged in implementing the same policies that every government has been following in fits and starts for the last ten years, the thrust of the airing of statistics was similarly positive. Giving US and Japan as example, Dar said if they had been reducing the budget deficit and debt the way the present regime was doing they would never have prospered. The US had the highest budget deficit in the world and was the largest borrower but still had the strongest economy in the world by far.
The dissemination of “positive” financial information depends upon who is in power, with control over the State media to propagate the “gospel truth”. I personally respect Dar for his integrity (if not his politics of misrouted passion), and agree that macro-political stability is more crucial than economic growth. Addressing the prime bankers of the country, Prime Minister Mir Zafarullah Khan Jamali also agreed in principle as any head of government with a sane head would do. The problem is that politicians as public officials rarely practice what they preach when out of power. Dr Ishrat Hussain, Governor State Bank of Pakistan (SBP), maintains that the culture of “thana, kutchery and tehsil” is sapping the vitality and energy of the nation. The SBP Governor should set an example in self-accountability by making public the statistics of the last five hundred appointments where SBP had either a direct or indirect role to play. SBP selections and appointments would then be tested on a “nepotism, sifarish and corruption” scale. The choice on merit, and merit alone, could act as a role model.
The primary responsibility of the State Bank of Pakistan (SBP) like any Central Bank is to control monetary policy and ensure soundness of financial systems, being provided by regulation and supervision. SBP must promote price stability in the context of micro-economic stability and growth, besides addressing as one of the policy-makers the micro imbalances in the economy which are (1) fiscal deficit (2) balance of payment deficit (3) saving and investment imbalance and (4) unsustainably high rate of increase in prices. SBP Reports tend to be full of data that take away the focus from SBP’s aim, the Reports should concentrate on SBP’s view of micro-economic imbalances and how these can be addressed and reduced, to be made sustainable at a manageable level i.e. fiscal deficit, inflation and balance of payment deficit should be workable and viable. There is no sense for the SBP Report to go out of this framework. The suspicion arises, why this window dressing on an otherwise credible report?
Within this framework we have, viz (1) monetary policy (2) exchange rate policy and (3) promotion of the health of the financial system, financial institutions and financial markets as the primary concerns of the SBP. In its Report the SBP talks only of monetary policy and of other areas but has made major omissions, e.g. the Report does not mention anything about the soundness of the financial system, for instance nothing is told about the outcome of supervision of financial system. The SBP should come out with an Annual and Half-yearly report on the state of affairs in the banking sector exclusively, namely the performance of banks, the quality of regulations, the result of supervision and the future course of the banking industry. This area has been completely neglected by SBP and the emphasis has all along been on micro-economic framework, which again has been combined with excessive data on the areas not directly concerned with the SBP. In the area of monetary policy not much homework seems to have been done. The recent sharp decline in discount rate may have benefited the government in terms of ridiculously low interest on T-bills but it has adversely affected three areas i.e. (1) profitability of SBP (2) of commercial banks and most of all (3) rate of return on deposits. In real terms the rate of return on bank deposits is going to be negative. There is thus a question mark on the advisability of the monetary policy.
It is the Finance Minister’s unenviable job to present the next budget in a Parliament in which a vocal minority is outrightly hostile, he will need a thick skin and a loud voice to keep reading the budget while being drowned out by catcalls of “LFO no, MUSHARRAF go”, i.e. if the present government-opposition parleys are stillborn. To his credit Shaukat Aziz insists that he will ensure availability of credit to business on low rates while removing the irritants faced by them on non-tax matters. That will take some doing. Presently there does not appear to be any serious conflict between various policies, balance of payments is not only viable but we have very comfortable level of Foreign Exchange (FE) Reserves, however this is not the result of present policies but largely of external factors after 9/11 and the policy initiated by former Governor SBP, Dr Mohammad Yaqub, of purchasing FE in the open market. The Rupee counterpart of the re-scheduled debt running to nearly Rs.300 billion has also been used for the improvement of government finances, this means that both the FE and Rupee liabilities have been deferred i.e. the present regime is taking the advantage, subsequent or later regimes/generations will bear the burden, “fly today, pay later!”.
A great deal is being made of the improvement of economic indicators; this is true to the extent of increase of FE reserves. The external sector has become strong as well as viable as a result of four major developments, namely (1) improvement in trade balance (2) benefit of re-schedulement of debt as well as direct assistance following the 9/11 incident (3) impressive increase in home remittances from about US$ 1 billion (2000-2001) to over US$2.4 billion (2001-2002), projecting US$ 4 billion (2002-2003) and (4) finally purchases from market. This has resulted in disappearance of the black market, unification of exchange rates and above all the US Dollar is no longer an alternative asset as it was during the period of FE accounts. One must also note that visibly the external sector has been liberalised. However if we look at such crucial indicators as growth rate in population, rate of national savings stagnating at 13%, increase in percentage of population below the poverty line rising from 29% to 35%, as well as the rising indicators of unemployment, these are not happy indicators. We must be concerned not only with the soundness of an economy over mid and long-term but are factors directly concerned with human welfare.
Mr. Arif Nizami has pointed out in a recent Seminar that the country has had to pay a heavy price to the international financial institutions for the reforms enacted. The Nation’s Editor correctly maintains that the country was on the brink of default and it is necessary to put spending money in the consumer’s pocket to jump-start the economy, to have the courage to do it sooner rather than later. The point arises, do our public officials, both politicians and bureaucrats, have the courage to recognize their failures in human resources management and inconsistent extraneous policies even as they build material resources for the State? Or are they simply engaged in making this nation wealthy at the cost of beggaring the nation’s population?


Roadmap to Peace?

Agra 2001 was one of the periodic highpoints of the India-Pakistan relationship, a similar climax of expectations was Vajpayee’s Lahore bus trip in 1999. The Indians had reason to feel aggrieved because of Kargil, when they received President Pervez Musharraf with open arms in New Delhi two years later that became a moot point. Or was their welcome feigned? There was expectation and excitement in the air in Agra that morning when the agreed draft was initialled, the gloom came later when it did not see the light of day, signalling a massive relationship slide. After 9/11 the world’s catchword was “terrorism”, the Indians soon realized that Pakistan’s stupidity in supporting the Taliban regime beyond a fail-safe point was being glossed over because of Pakistan’s primarily role as a US ally in the war against terrorism. The Indians hurriedly re-drew their gameplan to emasculate Pakistan, the raison d’etre the still unexplained attack on India’s Parliament. At the end of Dec 2001 the entire Indian Armed Forces (including the formations withdrawn from facing China and Bangladesh) was stationed en bloc in an offensive posture along Pakistan’s eastern border and along the LOC in Kashmir, subsequently the Indian High Commissioner was recalled permanently and in reciprocation his Pakistani counterpart was asked to leave. There was a further low-point, the Pakistan Deputy High Commissioner was expelled because of concocted and childish allegations, subsequently proven patently false by Indian courts.



Having spent 18 months on the knife-edge of a nuclear war, the result of a unilateral decision by India, for reasons that are still mind boggling, to put almost its entire Armed Forces on our doorstep, and only a week or so after Foreign Minister Yashwant Sinha was advocating a pre-emptive strike against Pakistan a la Iraq, Atal Behari Vajpayee offered unconditional talks on all issues including Jammu and Kashmir. There is a “blow-hot blow-cold” situation here since Sinha’s tone and tenor remains aggressively anti-Pakistan despite the peace moves, one is rather skeptical about the very sudden sea-change of heart.

Minding his political back by neither accepting Jamali’s spontaneous invitation or rejecting it, the Indian PM reciprocated Jamali’s further initiatives by announcing resumption of full diplomatic relations (by appointment of a permanent High Commissioner) and allowing of overflights. An Indian Foreign Office spokesman went to great lengths to emphasize that “overflights” was a part and parcel of any air transit agreement. A suspicion therefore arises, could the whole objective of the Indian diplomatic overdrive be only to re-open “overflights”? The Indians had themselves suspended “overflights” in the first place, and have been economically repenting ever since. The westward operations of Air India were seriously disrupted, devastating the Indian aviation industry. SARS has caused all Air India flights to the East to now cease, a few more weeks without overflights permission from Pakistan would bankrupt the prime Indian air carrier. Indians have a habit of camouflaging their faux pas by grand gestures, can anyone forget their “generosity” last year in recalling the Indian Navy as a “goodwill measure” from the Indian Ocean where it was positioned to blockade Karachi in case of war, this had been coupled with loud talk of “quarantining” Pakistan during peace, i.e. not allowing any sea traffic to and fro our ports. The badly maintained Indian Navy took a massive beating during the storm-ridden Arabian Sea’s summer months, it takes no genius to work out why the Indians needed to get their seasick sailors (and their ships) to the relative safety and comfort of their home ports. That is why the focus on overflights in supercession to everything else among confidence-building measures (CBMs) is rather suspicious. If the Indians are serious, call their bluff by requesting Vajpayee’s presence at an overdue SAARC “Heads of State” Meeting in Islamabad.


Changing Times

Pakistan’s constitutional crisis will soon come to a head, in the meantime no business will be transacted in the houses of Parliament, which is about par for the democratic course anyway. An 11-member Committee comprising both Coalition and Opposition representatives (five members each) was due to assemble to sort out the LFO impasse. Opposed tooth and nail by the Opposition, Ch Shujaat Hussain resigned as Chairman and gave way to Ch Amir Hussain, Speaker of the National Assembly. Very coincidentally and thanks to Yashwant Sinha’s “pre-emptive strike” gaffe, there were dramatic developments because Vajpayee’s sudden offer on talks on all issues including Kashmir, whether the India-Pakistan de-freeze goes any distance is still a matter of conjecture that depends upon the prevailing mood of India’s Parliament, there are enough mixed signals going around to confuse even the most adroit and knowledgeable of analysts. While fully engaged in domestic and external issues, what are the primary lessons we have learnt from Iraq i.e. if we have learnt any lessons at all?

The first lesson must be that things are not what they seem to be, that perception must not obscure actual facts. The Coalition went to war, ostensibly to (1) emasculate Iraq’s capacity to wage war using its suspected cache of “Weapons of Mass Destruction” (WMDs) (2) to effect regime change and (3) to destroy a perceived nexus between WMDs and international terrorism. Most muslims, and primarily Arabs, felt that these objectives were simply camouflage meant to hide the Coalition real aims i.e. (1) seize Iraq’s rich resources of oil wealth and (2) establish a long-term presence in Iraq that would facilitate dominance of the oil-rich region. The Coalition felt that the “liberation of Iraq” would cause a spontaneous outpouring of gratitude in the streets, on the other hand the Arabs hoped that the Iraqis would keep fighting a guerilla war long after actual combat operations were over, they did not expect the war to end so suddenly. Both assumptions were proved incorrect. The Coalition’s pronounced successful strategy was a high-tech “shock and awe” cataclysmic strike followed by a blitzkrieg cutting through the Iraqi Army like knife through butter, the blitzkrieg did happen but only against token resistance, most of the fighting was done by individual units and stray Fedayeen groupings. It is now clear that commanders up the line had been bought over by a combination of fear and the green of US Dollars, Tommy Franks may be clairvoyant but even he could not know that all highways and bridges would be usable and that not even one stretch of road would be mined. The war can be labeled as one of “shock and stealth”, right upto capturing Baghdad without a fight, far earlier than expected. With very few US troops available for policing, the resultant looting has been catastrophic for Iraqi society. In retrospect it is a good thing that the much-promised Iraqi warfare remained a figment of imagination, the ensuing destruction would have been meaningless in relation to the end result.


Good, Bad and Ugly

The death of the PAF Chief alongwith his wife and colleagues in an air crash was a tragedy that Pakistan could have done without. Of humble background, Air Chief Marshal Mushaf Mir rose by dint of sheer merit to the very top of his profession. The two Air Vice Marshals who died with him, Abdur Razzaq and Salem A. Nawaz, were upwardly mobile professional air warriors, the PAF’s loss was accentuated by their demise. While speculation will remain about the possible reason for the Fokker accident till an official enquiry is complete, prima facie it seems to be pilot error, the wrong height at the wrong place at the wrong time i.e. the approach to Kohat airfield was wrong. The mass out-pouring of grief confirms that this nation still recognizes and respects excellence and integrity. Because of the constant modernization that every Air Force needs, the development of our air war machine has been hampered by sanctions and shortage of funds. Of the three Services PAF has seen very hard times certainly because of lack of resources but more due to diminishing sources for acquisition of new equipment. Every one of its Chiefs, except for the much unlamented Shamim, provided the driving leadership necessary for a Service like the PAF to keep its cutting edge. Mushaf Mir had the hardest job of all, husbanding our meager (and constantly depleting) resources to keep the PAF in fighting trim. The PAF lost an outstanding leader, Pakistan lost one of its more illustrious sons. One can only hope and pray that Mushaf Mir’s successor will carry on his mission with the same spirit of dedication and integrity. One must also spare a prayer for Col (Retd) Sajid Ali, an old friend from Army Aviation, piloting the twin-engined Cessna that crashed in the Arabian Sea a few days ago close to Karachi off Cape Monze with foreign luminaries on board, including the Afghan Minister for Mines, Mr. Mohammedi. While Pakistani navy divers have brought up part of the wreckage from the sea, three bodies still remain unaccounted for.