Why was the price – rise necessary?
Having written barely eight weeks ago about the Federal Government’s “austere monetary policy” and “tight fiscal control” which had kept inflation “within acceptable limits”, it is not very palatable to eat one’s words. In the face of the evidence at hand one has to. That Ms Benazir’s Government has increased fuel prices in a Mini-Budget barely 3 months from the annual Federal Budget is not the only problem, it potentially carries the force-multiplier effect of instituting double digit inflation, it is the type of economic time-bomb that brings political fortunes into question.
Why was the price rise necessary? Senior government officials are suggesting that this was necessary because of rise of international oil prices. Given that we had already been pegged at a much higher value than the one obtaining at the present this can be considered a patent untruth. Operating on the theory that the masses (and the intelligentsia) have a below par IQ value is adding insult to the injury of increasing taxes midstream.
Last year before the Federal Budget was announced, we read Ms Benazir’s lips to proclaim “no new taxes”. In the face of the existing realities this was quite a phenomenon, that the euphoria could not last was also apparent. The wonder is that the Federal Government almost got away with this blatant political ploy. But then, last year the Jordanian and Venezuelan riots (because of IMF-inspired price increase of essentials) were fresh in the minds of our political and economic planners and Armageddon was postponed for another day. Despite our fiscally-wise economic managers (and one does not include our Minister of State for Finance among them) one day one had to bite the bullet. Budgets are the realm of facing up to hard realities, not the figment of dreams, if so inspired, they tend to become nightmares.
Where has the Federal Government gone wrong? It has practiced a tight fiscal policy and pursued an austere monetary one, why has the budgetary house collapsed? The reasons are, (1) despite the Federal Government’s strict instructions, the Federal Government’s Ministries, Departments and semi-autonomous corporations have been overspending at will, one can lay down strictures, politically it has been difficult to enforce them (2) the failure of the State Bank of Pakistan to continue the even and realistic slide of the Pakistani rupee against the US dollar on the same scale as in March-April 1989 to peg it at a better par value — garner additional funds for the Federal exchequer, some even say that when avoiding the increase of taxes in the present Federal budget the rupee should have gone down by 10 per cent in a massive devaluation to 24 to the US dollar — and then stayed that way for a year and (3) massive corruption by the PPP faithful (and unfaithful) has caused the government’s till to be looted at will, most of the money finding its way into the deep pockets of the very undeserving few.
Contrary to the present massive spending binge, former PM Junejo will go down in history for literally enforcing the Suzuki-isation of the Budget, unfortunately Ms Benazir’s legacy to the poor is the Pajero-isation of the Budget. Where some Pajeros are necessary, to some of the PPP faithful (and unfaithful) they have become status symbols to be acquired at any political cost, case in point the controversial People’s Programme. One must hasten to add that all the Provincial Governments, PPP, IJI or the Balochs ensemble are equally guilty of the same. Purchases of new cars, air conditioners, furniture, renovation, etc everywhere you see the signs of opulence in a country where austerity should be a cardinal principle of rule. It all adds up to a massive deficit.
As the old saying goes the wife is the last to know, so the knowledge of the red ink hitting the ceiling came to Ms Benazir and her coterie of astute economic advisers as a traumatic shock rather late in the day. Hopefully, the realisation that her partymen have been on a money-spending binge will move Ms Benazir to take effective measures to bring them into line with her clear directives of strict financial discipline. Her task is Herculean, how can you look into every purchase made? Take the example of jute goods regularly purchased by RECP, thanks to the present obdurate policies, the price paid by RECP for the same volume of jute goods as for last year has doubled in this year, by about a cool Rs 160 million (without any commensurate rise in international prices) just because someone has probably put a few millions in someone’s personal coffers. Similarly, massive job appointments have been made, if the PPP faithful had been largely accommodated it would have been bearable, mostly sheer nepotism has ensured that only friends and relatives of party functionaries totally unconnected with Ms Benazir and her long struggle have benefited. This has added to the burden of the exchequer. While political largesse is an accepted part of democratic society, one must remember that there are tomorrows, the present impending situation is a simple manifestation.
Sixteen months into Ms Benazir’s regime, no one has accused her of being personally corrupt. But is she really blind to what is going on around her? Or for some as yet unclear reason is she reluctantly condoning massive corruption to swirl around her? One day the mud will stick on Ms Benazir. She must take positive steps to root out corruption. As prices skyrocket, double digit inflation is going to go out of control because of the fuel hike, Ms Benazir will have to use all her known political skills to keep the resentment among the masses boiling into anarchy and taking over the streets.
The banks are desperately short of liquidity, where has the money gone? Let each nationalised bank spell out all loans of Rs 5 million and above made during 1989 to date to see who are the beneficiaries for whom the banks have opened their coffers to the detriment of the masses. True, the BOI has cut all red tape for necessary investment, why is foreign investment shy? One reason could be the Dr Jekyll and Mr Hyde personality of those given the task of inviting foreign investment. In one case a foreign delegation came to meet the PM on invitation with the full intention of making the biggest single US investment since the inception of Pakistan, they were sidelined exactly two minutes before the scheduled meeting. The unkindest cut of all was that on the way out they were asked to assist in inviting more foreign investment into Pakistan! One is a witness to the fact that the US delegation walked out of the PM’s Secretariat shell-shocked, two members of that delegation who subsequently went to Indonesia were given state land at below market prices for their project, all utilities in one go and slightly more than 12 months later, are already running into full production.
The other reason for foreign investment being shy is the lack of liquidity with local banks. Where 50 investment companies should have been sanctioned and working, less than 5 are mobilising participant local funds, foreign investment will remain theoretically good in statistics but is practically non-existent on the ground. One hears about the Federal Minister shocking foreign delegations seeking concessions in certain areas by asking openly for contributions, ostensibly for “party funds”.
Theoretical glib-talk will get Ms Benazir and Pakistan nowhere, without the practical experience of real-time corporate entrepreneurs/managers with actual commercial transactions initiated with one’s own money, all the silver tongued theoretical projections in the world comes to naught. Ms Benazir’s cupboard is bare of private entrepreneurial skills and talent necessary to rejuvenate the economy. She is a nationalist, let her reach out beyond the party for the good of the nation, no bureaucrat can ever achieve the impossible in any national sphere. Her Economic Consultative Committee, headed by Mr Feroze Kaiser, is at best a debating club.
One of the major factors contributing to the budget deficit must be the necessary increased defence spending, this was completely unforeseen. When one’s friendly neighbour, India, increases defence spending by about 20 per cent in real terms (its defence budget is already seven times that of ours) and faced with the escalating problem of Kashmir, the Federal Government would be accused of criminal negligence (or being retarded) in not reacting in like manner. The problem is that our planners missed the opportunity of making the tax increases within hours and days of the announcement of the Indian Budget increases, this country’s masses are capable of making bigger sacrifices. Even if our Defence Budget was doubled we could not match the Indian defence budget escalation, however, we have to make some critical purchases urgently.
While there are reasons and reasons to criticise the fuel-hike, in effect a mid-term tax increase, we must not get carried away by ill-informed rhetoric in the streets. In the circumstances additional taxation was necessary, it could not have been avoided in the best of circumstances, because of the Kashmir situation it has become a dire necessity. While some of the explanations of the Federal Government do not gel, the country’s security situation demands circumspect behaviour by politicians across the broad political mainstream. India would like nothing better than that we are torn asunder at this juncture by internal strife. For the Federal Government it becomes incumbent to show that it is taking concrete steps to put its own house in order, particularly to curb corruption. For the opposition a culpable responsibility devolves to ensure that we are not faced with political crisis at this stage. At this critical crossroads Ms Benazir represents our best hope of making the Kashmir problem internationally alive to the world community. While the fuel-hike may be a bitter pill, for the sake of the country we must swallow it, hoping that Ms Benazir will institute sweeping corrective measures.
Leaders become great when they rise above themselves, nations reach greatness when they have the capacity to unite whatever the adversity. What is the legacy we are going to leave for our children?
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