Opening up the economy
The Nawaz Sharif Government has instituted far reaching changes in the Foreign Currency Regulations in a bid to make the domestic climate more conducive to foreign investment. This marks one of the most fundamental of the reforms needed to revitalize the economy and one must commend the courage of the present regime, especially the PM and the Finance Minister. All these changes were on the anvil during the previous PPP Government but unfortunately Ms Benazir mixed up her priorities, economic options were waylaid by personal greed of some of her party men and close relatives. Rumours abound that Senator Dr Mahbubul Haq was about to attempt such a departure from the norm when he was Finance Minister, the credit must rightly go to the mature, confident and unassuming Sartaj Aziz for ushering in these changes. Honesty in day-to-day dealing and a feet-on-the-ground approach accomplishes much more than flamboyant rhetoric dedicated to self-propagation. Dr Mahbubul Haq’s cerebral qualities are overshadowed by his known penchant to somersault on key ideological issues under pressure. To that extent and more, Sartaj Aziz dominates him, simply by his quiet demeanour, steadfastness and firm authority.
The most important step has been to allow free movement of foreign exchange in an out of the country in conjunction with allowing Pakistanis and foreigners to own and freely operate foreign currency accounts within and outside the country. Like Hong Kong and Dubai, Pakistan has become a free exchange area. This major step removes the psychological mindset and physical roadblock discouraging foreign investment, particularly private entrepreneurship. All our top businessmen have been maintaining foreign accounts illegally, by making it legal a mere technicality has been waived. There are risks manifest in loosening such controls, some suspect our currency may end up like in Latin America with rapid depreciation of the Pakistan Rupee against the US dollar, with possible flight of capital, on the other hand we have an economy which is buttressed by strong, positive factors like food self-autarky, a wide range of skilled blue and white collar manpower and an innovative, enterprising population with an avid and keen approach to commerce and industry.
Allowing foreign companies permission to borrow unlimited amount from local and foreign finance institutions and purchase of shares at will on the Stock Exchanges, private limited companies partnership, etc is again a Sartaj-given opportunity to revive our sick industries, particularly in the textile sector. Rid of foreign exchange controls, foreign private investors could purchase controlling interest in various idle industrial and commercial units at comparatively cheap cost, pump in badly needed capital and expertise to revive their functioning, thereby bringing these units back into the economic mainstream. There is always a danger of their taking the money away later to other ventures abroad but they cannot take the revived industry physically away. Without the commercial sophistication and technical expertise that foreign entrepreneurs can bring into Pakistan, we cannot hope to compete effectively in the open foreign markets. Given that our primary agriculture produce is raw cotton, to translate that commodity into value-added products one cannot stop at producing textiles alone but go on to an extensive garment industry and other downstream production. With the cost of labour in the Four Tigers, Korea, Hong Kong, Taiwan and Singapore becoming relatively expensive, teeth-to-tail exploitation of our national raw cotton wealth would mean an economic boom for us. The present economic and industrial wealth of the aforementioned nations originated mainly on their garment industries, phasing out gradually to electronics and then onto other medium and heavy industries including the high-tech field. Given that we have a far advanced production base in a wide spectrum of industries, we are better equipped than these nations in achieving economic prosperity.
The State Bank of Pakistan has now confirmed officially that effective March 1, 1991 Letters of Credit (LCs) can be opened up in most cases without obtaining import licences from the Chief Controller of Imports and Exports (CCI&E). Again, this is both a symbolic and physical delinking from artificial public sector controls suffocating the economy. Rather than bureaucratic checks, market realities would govern the imports of a wide range of commodities and items. It is true that these may be of individual risk to importers since everyone and his uncle may rush to import a particular item in great demand causing excess supply against requisite demand and commensurate drop in prices, artificially created favourite-trader monopolies are destroyed by this option, with informed credit institutions making a merit-based decision based on their evaluation of (1) market requirement and (2) profitability.
Bureaucratic corruption has be-devilled Pakistan since the creation of the country, this is a significant step to eradicate it. One must accept individual corporate disaster in contrast to the great boon to the common man who will have a choice of a variety of freely imported items at competitive prices.
The delaying of official bureaucratic notifications to match the PM’s announcement highlights the civil administration’s unspoken resistance, aghast at these “radical” changes that terminates their in-built ability to control market forces which is their “Sword of Damocles” over individual businessmen. The bureaucracy is thus deeply aggrieved. Planted rumours abound about a change in Government, ostensibly for other reasons but mainly because Nawaz Sharif is not going according to planned bureaucratic script. Ms Benazir had similar ambitions to open up the economy, she was hamstrung by a number of other reasons, including bureaucratic foot-dragging. That these changes are being effected by an ex-bureaucrat, Sartaj Aziz, is of great credit to the PM and to the Finance Minister personally. Rumours have been set afloat about Sartaj Aziz’s imminent shunting aside from the Finance Ministry.
There is certainly some danger in the running wild of the economy, our institutions are resilient enough to withstand those extraneous pressures that would imperil our hopes for economic emancipation, particularly because a parallel black economy has been operating in any case. Plans cannot be complete without making a few other important concurrent reforms in the energy and taxation sectors, given that the communications field is being given due emphasis.
The energy sector is greatly insufficient to even energise the existing sick industries. While WAPDA, KESC and other government utilities have worked to the best of their ability, this ability has never been put to the test against the competitiveness of the private sector, they cannot carry the future load themselves in the public sector. Their distribution facilities are corrupt and woefully inefficient, these need to be privatised so that the revenues they should actually generate comes back to the public coffers. The Ministry of Water and Power has totally failed to encourage the private sector to invest in viable projects, certain individuals in this particular bureaucracy are suspect in their competence, intention and honesty. It makes no sense to keep on people like Daud Beg or GM Ilias to look after the Private Power Cell year after year when it is now an established fact that the potential private investors who are willing to come to Pakistan have been frustrated either by their attitude and demands, professional and private or blatant misrepresentations. Unless these characters are removed from the controls of private power investment, potential investors in energy sector will remain shy in Pakistan, Nawaz Sharif and Sartaj Aziz can make every allowance, every initiative will fail because of the shortage of energy. Let Energy development be treated as any other industry and a reasonable tariff be offered to private entrepreneurs, particularly for using indigenous sources that will fuel electricity into our industrial grid.
Individual taxes make up Rs 3.5 billion out of the total Rs 15 billion revenues collected from income taxes. This Rs 3.5 billion (rendered by 500,000 salaried and 500,000 self-employed) is chicken-feed (less than 3%) of the total government revenues of Rs 120 billion. If the government were to enact positive reforms in the taxation sector by abolishing individual income tax at the Federal level in favour of community taxes imposed by Local Bodies this would make a psychological and physical change to a tax-haven status, an open invitation to private foreign enterprise. The decisions for fundamental reforms must not be delayed, besides the commercial feasibility of such an option it is morally incorrect to make 1 million people pay to maintain a nation of over 100 million just because they may be more hardworking, better educated and/or more enterprising.
In sum total, the changes announced by the Government are welcome, the momentum must be maintained. Man-made obstacles remain, elaborate technical ambushes have been planned by the entrenched bureaucracy which has not taken kindly to the changes made. It is in the interest of democracy that the Opposition should not fall into the trap of bureaucratic manipulation to change the Government. One surmises that, except for a die-hard few, all democratic elements want freedom, economic freedom always goes ahead of political freedom, can only be obtained by unshackling the economy from the grips of bureaucracy. In such an attempt, one must wish Godspeed to Sartaj Aziz, more power to him!
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