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Trade and linkage factor

About six months ago, the PPP Government organised an excellent round of pre-Budget Seminars. Almost none of the advice proffered by a composite crew of respected economists, businessmen, journalists and retired bureaucrats was taken by the makers of the Budget (which did not include many PPP politicos) but the exercise by itself was extremely informative, well worth the effort. Mr Ehsanul Haq Peracha, the then beleaguered Finance Minister, neatly dodged the final session in Karachi but people like AGN Kazi and V.A. Jafarey had earlier contributed to clearing the general misconceptions surrounding the actual framing of the Budget. Given the statistics about the stagnant nature of Revenues and increasing obligations it became clear that the Government had very little room to manoeuvre. In the circumstances, Budget-making is pretty up and down high school stuff dished out by a particular financial elite among the bureaucracy.

Arrogant in the stance that whatever may be the opinion of the intelligentsia cuts no ice with them, the bureaucracy adopts an extremely condescending attitude towards any advice rendered, this includes the Born-Again retired bureaucrats. One has great respect for their knowledge and experience but the know-it-all demeanour of some of them is sickening, the thought that these programmed individuals have the authority to make or break the financial destiny of the nation by their decisions is enough to cause recurring nightmares. On a suggestion that Pakistan’s debt crisis called for the Government to make a request for a Debt Moratorium followed by Waiver and/or Debt Rescheduling, the senior officials of the Ministries of Planning and Finance winced as if a stray cat had brought something smelly through the door. More in contempt than in sheer scorn, they looked at each other before informing us that the proposition was impossible as “it would destroy Pakistan’s international financial credibility”, a policy entirely in keeping with the stated stance of the world’s financial institutions to which they owe their undying loyalty (rather than to their own nation). The plight of our misery-laden masses groaning under the increasing Debt Burden and inflation evokes only fleeting attention, passing mention as a nagging statistic. These people are failures, one of the good old Dictums of War is that you never reinforce failure, you simply sack them! Determine the affiliation of our bureaucrats in any capacity (past or present) with any of the world’s public financial institutions and they should then be separated from the nation’s financial policy making.

More foreign exchange can be earned by increasing exports, even more important in today’s competitive world market is how to hold down imports. Due to IMF pressure, Pakistan has increasingly gone in the other direction, becoming a consumer-oriented society. With liberal imports our local products have not been able to hold their own, a visit to any of the shopping centres will show our local biscuits competing hopelessly against foreign biscuits, now imported legally, utilising our hard earned foreign exchange. Badly strapped for foreign exchange, such frivolous imports amounts to criminal culpability. Our traditional exports are deliberately excluded from world markets by selective application of quota restrictions by the well-developed nations, whereas a combination of international pressure and our own willing bureaucratic collaboration allows liberal imports of luxury consumer items without any linkage with our exports worth the name.

Vested interest in bureaucracy manipulates situations to their advantage, take the question of the Barter Accords signed/recently renewed with Bulgaria, Sweden and Finland, Hungary and Czechoslovakia. During the three-day period in November that PM Nawaz Sharif was sworn in and the Federal Cabinet first met for government business, three of the Barter Accords were swiftly renewed, becoming the first act of the new Government, in actual fact the Government is so beset with other problems that they are probably not even aware that the bureaucracy had surreptitiously hocked away (on their political shoulders) US$ 250-300 million worth of Pakistan’s exports while paying a premium of 12-15% on our imports. Bulgaria, Sweden and/or Finland etc can hardly supply wheat, palm oil, sugar or Urea/DAP fertilisers to us, these will come from USA, Australia, Canada, etc (wheat), Malaysia (palm oil), Middle East, USA, Canada (Urea/DAP fertiliser) and so on, why this largesse is given away defies explanation! Bulgaria makes Muslims change their names and/or deports them to Turkey, we reciprocate by giving them “Most Favoured Nation” status. You may well ask, why this 12-15% premium is given year after year to countries which have acted actively against our national interest? What must Turkey, our fast friend, be thinking about this cosy relationship with Bulgaria? The Barter Accords are a clear case of fraud and chicanery, these Accords are cheating Pakistan in the name of sovereign trade.

Supposed to be bilateral sovereign agreements, our exports are meant to go to the country with which we sign the Accord and we, in reciprocation, import goods and commodities originating from that country. A clause, inserted in the Accord, says the origin and/or destination can be changed in special circumstances by mutual agreement, this “change” has now become a matter of daily routine. In exports, the FRAUD continues, take Naphtha for example. Our Naphtha is given for international tender in LOTS of 10000-12000 MT by the National Refinery Ltd (under PERAC). Mostly Barter countries win as they have a positive handicap price advantage of 2-3% from the 12-15% that WE give them. Winning the tender, the Barter country simply runs another “private tender bid” from international purchasers of Naphtha cutting down the 2-3% premium even further to maybe 1-2%, thus giving a neat profit of 11-12% for our Barter “partners”. According to the Barter Accord the Naphtha is supposed to go to Bulgaria, it leaves our shores for Bulgaria via Aden (Socotra Island), funnily enough it always lands up in Singapore. Everybody in the bureaucracy from TOP to BOTTOM knows this SCAM is going on. PERAC or National Refinery (NRL) are least concerned, wanting a better price they do not emulate the Cotton Export Corporation of Pakistan, compensating the bid evaluation for the Barter price advantage. The Ministry of Commerce officials are supposed to enforce the Accord, they simply look the other way — the only conclusion possible is that they are paid to look the other way.
 Why has the great Barter fraud escaped the attention of our holier-than-thou guardians of the inner Sanctum for two decades unless they were willing collaborators to this recurring State crime? Kickbacks through contracts, procurements, consultancies, etc invite public attention and scrutiny at one stage or another, who among the general public or the intelligentsia really knows about the GIFT premium being doled out regularly except the Accord partners and some bureaucrats with vested interests? The US$ 100 million Bulgarian Accord may be taken as a case in point as to how the SCAM works. Bulgaria (adding its premium) has US$ 112-117 million worth of credit from Pakistan to export goods and commodities from Pakistan while Pakistan has US$100 million to import goods and commodities from Bulgaria. Pakistan’s shortfall in goods and commodities like wheat, palm oil, sugar etc none of which come from Bulgaria (or from any of our Barter partners) and all of which can be bought at more competitive prices from the international market, are routed through the Barter for want of funds (!!). For Pakistan’s traditional exports in the LIST of US 100 million amounting to about US$ 50-60 million Bulgaria does not need to pay a single penny as premium to our manufacturers/producers/exporters, for balance US$ 40 million (of our non-traditional exports), Bulgaria uses the consideration of 4-5% premium as a sweetener to get our exporters to route their normal exports through the Pak-Bulgaria Barter, i.e. about US$ 2 million. Earmarking approximately US$ 1 million for bank charges, etc, Bulgaria is thus gifted more than US$ 10 million annually from Pakistan by the international trading of COMMODITIES which DO NOT GO or COME from BULGARIA. Mind boggling perhaps, but true! Possible Special Trading Agreements (STAs) with Third World countries like Sri Lanka, Bangladesh, Indonesia, Turkey, etc do not excite officials in the Ministry of Finance and Commerce who (1) do not permit the STAs because they say (tongue in cheek) that it runs afoul of IMF parameters (2) do not allow any premium because the trade is supposed to be equitable (as it is supposed to be and should be). Most important since the premium is not allowed and there is no possible profit for them, (3) why should the Ministry officials be interested in such STAs? Premium to our Barter partners may be against the national interest but not against their natural interests.

If the Government of Pakistan wants to come to grips with Debt Repayment it has to have a definite linkage between imports and exports. To strike a workable balance we must recognize that our reciprocal trade needs to be increased with Third World countries on the concept of complementary economy rather than try and sell our engineering goods to advanced countries in the “Coals-to-Newcastle” premise. We must scrap all the Barter Accords without delay, it is a one-way profit trade, all to Pakistan’s detriment.

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