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Closing the deficits

Spurred by the worsening situation President Reagan and the US Congress have reached a historic compromise aimed at significant budget cuts. This would certainly be more selective than the US$23 billion indiscriminate cut mandated by Gramm-Rudman legislation affecting budget programmes across-the-board. This budget reduction package will affect currency futures positively with a definite rise in the asset value of stocks and shares. Needless to say people across the world will see a lessening of the tension which has built up in the anticipation of Economic Apocalypse. Prudential-Bache Security analyst Jill Cotter had predicted that a US$ 30-32 billion cut would make the market ecstatic; the actual compromise between the White House and Congress has been a cut of US$30.2 billion fiscal 1988 and US$45.85 billion the following year. The bipartisan package contains an increase of revenues by US$9 billion without the raising of income taxes which President Reagan has maintained would be “deleterious to the economy.” Cynics abound in plenty eg. Paul Getman, senior economist of the Wefa Group, who said, “this is too little too late”, though even he conceded that “they are only a little better than the automatic across-the-board cuts that would have gone into effect”, because of Grumm-Rudman. A lot depends upon Japan and West Germany who have been pumping a lot of liquidity into the money market to keep interest rates down to prevent flight of capital from the US dollar. The next few weeks should be exceedingly interesting and one can only hope that the present mixed reaction becomes upbeat because with the sinking of the US dollar we are consigned to a one-way road ending in economic demise, a recession followed by a depression. The problem is that we do not have the economic depth to swing out of a trough as quickly and strongly as the western nations do —and they are not that fast either.

About a year ago, we argued that we should resource external aid only for our critical needs and balance foreign trade by means of Barter, Countertrade and other forms of bilateral and reciprocal agreements. That the message has been heard in government circles is reflected in the new innovative 3-4 years national trade policy but policy needs to be translated into action and action depends upon the current policy of the bureaucracy and not the politicians, as is the normal penchant of bureaucracy. Most of the current policy is dictated out of motivated interests, wherever it coincides there is general euphoria; whenever it fails bitter recriminations are directed everywhere else. Take external aid; Dr Mahbubul Haq, High Apostle of External Aid, who used to stress that we could not do without it, is now unabashedly proclaiming that we did very well whenever the aid was stopped eg. following the 1965 war when the import of wheat under US AID was curtailed  the wheat production increased annually by 4% instead of niggardly 1.3% pre-stoppage. We would have been much better off, if the ‘BORN AGAIN’ philosophy had come before we built up the large external debt between US$ 12-15 billion, ending up paying over 30% of our annual exchange resources for recovery of the debt. The silver lining in this is that Dr Mahbubul Haq had the moral courage to make such an admission which incidentally accurately reflects what PM Junejo has been emphasizing right from the time he took office, increasing self-reliance. Nationalistic sentiments apart, we hope that the present confessionals will not stop once US AID is resumed, if it is resumed, truncation aside.

Quibbling with Mr Tariq Mustapha, Secretary Defence Production, on the extent of defence purchases within the country whether it is 20% or 25% will not make any difference; why are we still giving short shrift to those manufacturers who arrive with genuine transfer of technology proposals and persist in purchasing defence material from outside which is well within our indigenous capability to manufacture? There is such a thing as an AID-syndrome (no pun intended) and our reliance on US AID has led us to a state of material-addiction which may be fatal for us (again no similarity intended). The hard fact of life is that no one bothers to listen to anything that we say in the news media and basically it becomes an exercise in self-articulation, though one does suspect (or piously hope) that secretly our planners may be reading what we write and picking up the right ideas from time to time to make “innovative” trade policies in the name of economic well-being of the nation. We do not grudge the lack of acknowledgement that maybe otherwise be paid to us in a different society as long as it does some good. The problem lies in the knowledge that despite this flagrant copycatting, the “innovative” trade policies remains abortive in the “innovative” portions. Somewhat like Nelson’s “England expects every man to do his duty”, one expects our WHIZKIDS technocrats to be particularly WHIZZY, given the prevailing economic circumstances in Pakistan.

Somewhere in all the economic mumbo-jumbo is a salient fact that hammers at you incessantly i.e that we are living far beyond our economic well-being. From time to time we take symbolic steps like the SUZUKI-ing of our bureaucrats but we fail to really control non-developmental expenditure. If a major country like the US with its vast resources can be subject to economic uncertainties because of budget and trade deficits, our descent into an economic abyss is a certain conclusion — not a mere prophecy.

Like our fate in the World Cup Cricket semi-final (and thereafter), the pieces suddenly seem to be falling apart. Nationhood may not be a game but for economic well-being you have to choose the right players, particularly in the Ministries of Finance, Economic Affairs and Commerce. Political personalities apart, this has to be in the ranks of the civil service policy-draftsman and executors. The sales of rice and cotton or the purchase of sugar, fertilizer and edible oils requires commodity specialists when done on the international market; the market having a very short shrift for fools. Now and then, the position and personality are compatible like Ms Abid Hussain and Sami Qureshi in the CECP but mostly it becomes a game of hit and miss, in a “demand” situation when you are selling you are a king or if you are in a “surplus” situation when you are buying — but if the reverse becomes true, some of our worthy Chairmen of Corporations would have been exposed as the “Clown Princes of Commerce”. There is one particular person, no gentleman, who very much like Professor Leacock’s neglected hero “jumps onto his horse and gallops off in all directions”. This commercial butterfly has got so much airtime, PIA (in consultation with IATA) has probably decided to give him his aviation wings. The problem is that all this is not humorous at all when translated into economic realities because this person may be engaged in building up his performance graph at the cost of the nation’s farmers as he continues selling the standing crop well under the international market price. This man is just symbolic of the nations ills, a bureaucratic dilettante having a whale of a time at the nation’s expense. But can you stop him? Not while bureaucracy is alive and well in Pakistan! So we might as well get used to the misery, both in the present and in the future. Winston Churchill kept predicting Second World War, but the people, particularly the politicians, got fed up with him. That he was proved right came as no solace to him. Today, we have a list of economic intellectuals prophesizing economic doom but those who matter and should listen do not even seem to bother. Maybe we are all wrong and would be happy in being proved so, but perhaps Islamabad could sit up and show some concern by sending their dilettante appointees onto greener pastures. Market forces require strong signals from the Administration particularly in Third World countries where economies are subject to greater state control and react to signals accordingly.

Hopefully, now that the local elections are behind them, the government will start to govern the economy.

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