Economic fallout of Sept 11

THE fallout of the events of September 11 on Pakistan‘s economy is being widely debated. This article also attempts to contribute to this discussion by examining what is unfolding in the short-term, proposing policy and other instruments that the government could initiate to address the immediate problems and what is likely to occur in the long term.

The short term is going to be somewhat painful. Privatization of public sector units will have to be postponed (no one knows for how long); unless they are to be sold at highly discounted prices; there is an exodus of foreigners working on construction projects; foreign airlines have suspended their flights to Pakistan; war-risk premiums are higher; there have been freight hikes; foreign banks have levied additional charges of around five per cent for confirming L/Cs. There is also a slowing down of export orders, if not cancellations, or loss of fresh orders out of fear that Pakistani suppliers will not be able to meet their delivery schedules (or travel restrictions/lack of flights will make it difficult for foreign buyers to visit Pakistan), with possible longer-term implications, especially if the retaliatory strikes of the Americans to release their pent-up anger are protracted (since regaining customers and markets once lost would be exceedingly difficult to win back) and the recession in the world economy is prolonged.

From media reports it appears that the commerce minister has had some success in persuading the US government to lobby with American corporations not to abandon Pakistan at this time by cancelling orders. However, he does not seem to have gained any assurance on better access for Pakistani textiles to American markets. To my mind the latter will come about in due course ( for reasons that will be argued later below). But in terms of the strategy that the government has adopted to date the sequencing could have been a little better.

The government should be attending to the more immediate problems faced by Pakistani industry first. It can ease the pain and help the export sector and maintain its competitiveness by giving comfort to foreign airlines by agreeing to indemnify them for loss of aircraft. The World Bank and the ADB, I am sure, would be willing to provide cover for such an arrangement. This will not only assure foreign airlines but also send a strong signal to the international community of stability in the region. The government could also agree to pick up part of the additional costs of war risk insurance (for example, indemnification guarantee—-rather like those it has provided to PIA), enhance the availability of export credit for longer maturity periods, ensure speedier processing of duty drawback claims and stop the insensitive revenue collection agencies from continuing to be the bane of the private sector. The inimical attitude of these agencies towards the private sector has vitiated the environment for investment and production. In a blatant display of impunity they openly defy the orders of even the president by either dragging their feet on one pretext or another, when asked to implement government policy, or by reversing budgetary pronouncements.

If the weather holds out, good cotton, sugarcane and wheat crops will provide the cushion for the adverse effects on other sectors of the economy.

Contrary to popular belief (or is it wishes?) there will be little, if any, write-off. If part of the debt were to be pardoned (and that only of the bilateral variety) then the Americans would not have rescheduled the overdue instalments of the $379 million but would have written it off. Apart from the fact that this rescheduling was going to take place in any case, the reality is that Pakistan was overdue on its liabilities in respect of bilateral (govt- to- govt) debt and arrears had built up. All that the rescheduling has done is to ‘legalize‘ and regularize our legal default on this debt. So, all that donors have done is to make a virtue out of necessity.

What is more likely to happen is that our access to credit will become easier. The bulk of this additional debt will be concessional in nature (of interest rates below 1%) and have longer-term maturity. Moreover, the conditionalties that will accompany these loans will be softer than what we have become accustomed to in the recent past, giving Pakistan a somewhat longer timeframe to implement the reforms, thereby making the structural transformation less painful for the citizenry. By giving the government greater flexibility in choosing its policy instruments and expenditure priorities to prevent the slowing down of economic activity, the donor community will also be checking, if not arresting, the drift of the middle class (the constituency/class on whose base the foundations of a modern democracy can be built and sustained) away from mainstream political thought to the more religious political parties and militant groups. The revival of the economy, job opportunities arising from that and softer conditionalities of the IMF and World Bank will create a stake for the middle class in the new structure.

How we utilize these cheap loans will be crucial for our economic future. We will have to develop a much clearer set of priorities that will focus on a few critical areas requiring attention. We could, for instance, use these loans to repay our old loans carrying high interest rates. My fear is that knowing our style of governance, we could go back to our merry ways of not improving the way we conduct our affairs. Donors will be more generous but they would also expect us to do our bit to sort out the mess, much of which is our own creation.

The tremors unleashed by the terrorist attacks on September 11 have shaken the foundations of the international system and the global economy has lost its legs, with fears growing of a possible financial melt-down. From the debris strewn across the globe will emerge a realization that will be led by the global corporations, whose profitability and growth will be stunted by the restrictions being contemplated by the Americans and Europeans on the free flow of capital across geographical boundaries, easier movement of goods and services and freer travel. The views of the likes of Robert Fisk and Chomsky continue to be those of a minority, albeit articulate, which may not be able to temper conventional thinking still heavily driven by the cold war mindset and Huntingtonian characterizations of the clash between civilizations.

It will be the American corporations that will impress upon the US administration to rethink its strategy and persuade officialdom to examine the causes underlying the September 11 carnage. They will argue that the solutions cannot be found within the realm of idioms that characterized the cold war era as competition between nations and states, securing of oil supply lines, etc., that could be addressed through the physical destruction of enemy states. That this is a different kind of adversary; a handful of individuals resorting to terrorism to convey their frustrations arising from the failure of the West to address issues like Palestine, their support for unrepresentative repressive regimes in the region and the growing gap between rich and poor nations. They will be able to influence American policy by putting pressure on Washington to address this disgruntlement; otherwise their own growth will be affected.

Greater restrictions would be inappropriate instruments to resolve these issues, which may only succeed in deepening the recession in the global economy. One is convinced that eventually their point of view will prevail. And thanks to technology and the revolution in communications, the rapid pace at which the world reacts to changes in general these days makes it almost certain that this policy modification will not take long in coming. This change, that on the face of it should take place over a long time, will now come about in a much shorter period: earlier long-term meant 7 to 10 years, now the same results can be achieved in a smaller timeframe of 10 to 12 months.

The point here is to argue that one of the outcomes of a changed strategy would be easier market access for Pakistani products like textiles. There will be no cost to western countries for such freer trade arrangements. They are no longer in the business of manufacturing textile products and other low -value added items that we produce (in comparison with the high -value, knowledge-based, products that they produce). In fact, as a result of the opening up of their markets to our products not only that we will gain, their consumers will also benefit from cheaper goods that we will supply in competition with similarly placed countries. In other words, although it may not be that obvious today, there is a silver lining in this for the Pakistan‘s economy.

Playing politics on the hoof: LETTER FROM NEW DELHI

THIS is the worst of times. This is also the best of times. Both New Delhi and Islamabad should utilize the opportunity to come closer to each other. Even the core issue of Kashmir cannot come in the way because Pakistan President Pervez Musharraf has himself said that Kashmir will be taken up after “the dust” on Afghanistan “settles down”. And if America is to be believed, the dust will take several years to settle down since it is going to be a long-drawn war to root out the evil of terrorism.

That being the scenario, Kashmir takes a back seat. It may not be out of order to take up other pending matters between India and Pakistan. Since Kashmir has so many ramifications and touches the Taliban and their supporters in one way or the other, it is better to keep it aside for the time being.

Such attempts have been made in the past. Zulfikar Ali Bhutto once suggested to me at Rawalpindi that the Kashmir problem be frozen. This was a month before the Simla conference in 1972. In an interview to me, he said that it was not incumbent on him or his generation to solve the problem. It is the same interview in which he described the line of control (LoC) as “a line of peace”. But when asked to confirm the remark, he wriggled out of it at the Simla conference.

Another thought has come from his daughter, former Prime Minister Benazir Bhutto, now living outside Pakistan. She is said to have remarked that Kashmir is not solvable; the problem has to be managed. Her observation of not being solvable is understandable because neither Pakistan can take Kashmir from India forcibly, nor can India give it to Pakistan peacefully. She has not elaborated the management part.

Once Kashmir goes down in priority, the two countries can initiate discussion on other problems, including the bomb and the reduction of forces. In fact, there are so many problems and irritants that have piled up in the last 54 years. Prime Minister Atal Behari Vajpayee probably had some of them in mind when he told the Pakistan president on the phone not to concentrate on Kashmir alone. Islamabad does not seem to appreciate the impact that the solution of even a single outstanding problem would have on the people of the two countries. There will be a gush of goodwill which can help us go over one impediment after another.

Perhaps Secretary of State Powell’s visit to India and Pakistan has the making of such an effort. He wants to prepare the ground. But the suddenness in President Bush’s instructions to him to take the trip within days is a point of worry. Does America suspect that India is up to something?

Vajpayee in his letter to Bush made it clear that New Delhi’s cup of patience was full. Has Washington inferred — and it may have some other evidence — that India contemplates taking certain serious measures to stop militancy from across the border? Musharraf’s out-of-the-blue call to Vajpayee strengthens such a belief. Even Russian President Vladimir Putin’s 15-minute conversation with Vajpayee on the phone suggests something similar. Knowing Moscow’s proximity to New Delhi, Washington wanted Russia to find out what was in India’s mind.

There is no doubt that the Jaish Mohammed’s attack on the assembly building at Srinagar has made Vajpayee really angry. He was already upset over Musharraf’s warning to India to “lay off”. The attack has added fuel to the fire. Musharraf’s condemnation of the attack at a press conference goes some way to mollify Vajpayee. Musharraf gives the impression that America must have prodded him to do so. For, he hailed in the past such acts as freedom struggle.

Whatever the government is mulling over, the action should not be beyond the LoC. India is known for forbearance, not misadventure. Any retaliation at this time may turn into a war within war which even the friendliest elements may find it hard to appreciate. Pakistan can also retaliate. The very thought is too ominous to contemplate.

Prime Minister Tony Blair, who condemned the Jaish Mohammed’s attack on the assembly building during his speech in the House of Commons, was at pains to explain to the Indian leaders in New Delhi that their travails were understandable. But they could not be taken up at this time as their front state for operation was Pakistan.

New Delhi has not liked Blair’s defence. It was pointed out to him that the West did not wake up when India had drawn its attention to the fact that Pakistan was at the back of terrorism in Kashmir and other parts of India. But Blair was frank enough to say that everything else would be tackled after they had settled with Osama bin Laden.

Such a stand is reprehensible. Some British papers have criticized Blair for accepting Pakistan as an ally when the Taliban is its “product”. The Sunday Independent has gone to the extent of saying, “Our ‘friends’ are killers and crooks... We are playing politics on the hoof and allying ourselves to some of the nastiest butchers around.” Blair’s explanation that Britain condemns “terrorism in all its forms” is not adequate. And India can continue to talk about the West’s double standards. But it has to stop at that. It is an equal world but it is ruled by the “might is right” maxim. And as for being equal, some people are more equal than others, as Orwell said.

The opportunist role Islamabad has played, first in creating a force like the Taliban and then abandoning it is clear to the international community. And one can see how sentiments against the Musharraf regime are running high in his country. Protests in different parts of Pakistan show that the fundamentalists Musharraf coddled have come out on the streets. He has created a Frankenstein’s monster and he is now the worst sufferer.

Apparently, the immediate fallout is the removal of Lt Gen Aziz and Lt Gen Usmani from their posts because both have the reputation of belonging to the fundamentalist school of thought. But they are not alone. The late Zia-ul-Haq had nourished a fundamental fringe within the army. They are now colonels and brigadiers. Their number is not small. No doubt, though Musharraf has been given added protection by the CIA, has a major problem on his hand.

He has to fight fundamentalists within the armed forces, the administration and certain parts of the country. A sizable section of the people in Pakistan may be behind him in eliminating the jihadis, tablighs (teachers) and maulvis.

But this is all right as far as it goes. Musharraf has to lessen his problems. Better relations with India will help him do that. How can he evoke sympathy, much less confidence, when he goes on saying that the militants in Kashmir are freedom fighters? They are killing innocent in the name of religion. The militants in Kashmir, like those in Afghanistan, have given bad name to Islam.

Kashmir, Musharraf should have realized by now, is a symptom, not the disease. The disease is mistrust which has plagued the two countries from the day they were born in August 1947. Let both gain confidence by taking the problems other than Kashmir first. They may be able to reach some agreement.

Both sides must realize that our subcontinent is a backward region — economically, socially and morally. If they continue to waste their limited resources in confrontation as they have been doing, very soon it may be too late for us to span the gulf between the two countries.

A ‘no’ to liberal trade

THE WORLD Trade Organization’s fourth ministerial meeting is due to be held in Doha, Qatar in November. The brief period left before then will be crucial in determining the WTO’s future.

The European Union, Japan and the United States are pushing strongly for a new round of negotiations to further liberalize global trade. They want to expand the WTO’s mandate by negotiating new treaties or rules to include investors’ rights, competition policy, transparency in government procurement, trade facilitation and the environment.

The European Union is putting out a media spin that there is almost a consensus among WTO members in favour of such a “broad, comprehensive” round, and that only a couple of hard-line developing countries are opposed. Yet a large number of developing countries do not agree that Doha should launch negotiations on the proposed new issues.

They include Pakistan, India, Malaysia, Indonesia, Jamaica and Tanzania, representing the least developed countries, and Zimbabwe, representing the Africa Group.

Such countries point out that problems involved in implementing the existing WTO agreements have not been resolved. Many developing nations have not realized the benefits they expected because rich countries have been slow in applying their commitments to open their markets, especially in textiles and agriculture.—IPS

Extremism, terrorism and fundamentalism

THE late General Ziaul Haq likened Pakistani secularists to “snakes in the grass” that must be eliminated. Barry Goldwater, a celebrated American conservative and once a Republican candidate for president, held that extremism in defence of liberty was a great idea. President Ronald Reagan, justifying his administration’s aid to the Contras’ violence against a leftist government in Nicaragua, maintained that one man’s terrorist was another man’s freedom fighter.

We know also that yesterday’s terrorists can be today’s statesmen. Not all terrorists are fundamentalists, but given the need and the opportunity, fundamentalists and extremists are likely to resort to terrorism if they think it will advance their goals.

In a presentation made some three years ago (reproduced in Dawn on October 5), a friend of mine, the late Professor Eqbal Ahmed, pointed out that those who denounced terrorism failed to define it. He suggested that the dictionary meaning of the term (violence intended to inspire intense fear among a targeted group or people at large) might be taken as adequate, since it remained the same regardless of who the perpetrator of the act had been. Thus, state terrorism and state-sponsored terrorism were substantively no different from that perpetrated by non-state actors.

This is well taken. But one may go a step further and say that while acts of violence committed against the coercive capabilities of a state are acts of war, those directed against non-combatant civilians may be called acts of terror. While bombing an enemy’s military personnel or establishments is war, bombing a bus carrying children to school or a bazaar where housewives are shopping is terrorism. In this context, the element of intention is critical. Civilians get killed in conventional war also, but normally it is not the combatants’ intention to kill them. On the other hand, killing them is central to the terrorist’s intention.

Eqbal Ahmed was writing about international terrorism. My concerns today relate to fundamentalism and terrorism in our own midst.

Terrorism was not born yesterday. In our own part of the world, the first tightly disciplined and centrally directed terrorist organization, an extremist faction of the Ismaili sect, initially founded by Hasan bin Sabah and headquartered in Almut in northern Iran, operated for more than a hundred years during the eleventh and twelfth centuries. Its members, known as the “hashasheen” (“Assassins” in the West) killed many political and cultural notables — including Nizam al-Mulk, the famous vazir of the Seljuks in 1092 — in the hope of advancing an Ismaili revolution. Not unlike the suicide bombers of today, they were ready and willing to kill themselves upon completing their mission if escape appeared to be unlikely. I am not aware of another similar organization until our own time, but kings, invaders, and warlords have resorted to terrorism often enough.

Let us now turn to fundamentalism. Some of us are willing to concede that our notions of good and evil are partial in coverage; bound by time and place, they admit to a degree of tentativeness, and they are therefore open to reconsideration and revision. Others insist that their inherited notions of the good, preserved in their original and pure version, unblemished by indigenous and temporal influences, are eternally valid and cover all of human conduct, both private and social. Persons in this second group may be called fundamentalists. More often than not, and when they have the opportunity, they attempt to impose their version of the good upon others whom they regard as misguided.

The fundamentalist position is liable to produce conflict in Muslim polities, because many Muslims do not want an external agency, such as the state, to intrude upon their personal relationship with God and their prospect of attaining bliss in the Hereafter. Nor do they want the state to enforce all of the Sharia to regulate their social interaction. They find some of it to be insufficient or inapplicable for meeting the challenges of our time. Persons of this persuasion may, for facility of reference, be called liberals.

The Islamic fundamentalist dismisses the liberal position as heresy or as something approaching apostasy. Let us consider this matter a little further. Every law is meant to achieve an end, which may be the establishment of a desirable course of action, or it may be the eradication of something deemed to be undesirable. The fundamentalist and liberal Muslims could come together if they were to agree that while the ends of the Islamic law were eternal, the means of attaining them might vary with changes in the state of human knowledge, technology, and other relevant conditions. Thus, while theft and adultery are forever wrong, those guilty of them might receive penalties, or corrective treatment, different from that prescribed by the Sharia. But the fundamentalist will reject this approach to the law, because he considers all words of the Sharia, used to specify both ends and means, equally sacrosanct and eternally binding. He also rejects the proposition that meanings of words may change with time.

The fundamentalist regards the liberal as someone who brings evil into society through the backdoor of sophistry. According to him, what is half true is not true, what is half good is not good; what is not true is false, what is not good is evil. He views his contest with the liberal as one between good and evil. There is nothing then to discuss; the issue between them is not amenable to negotiation or compromise. If you do not accept the fundamentalist’s position, you are against him, and he must then treat you as an enemy. Evil cannot be defeated without destroying its agents. The liberal must be put out of commission, by force if necessary. That would be an act of service to God.

Fundamentalism and extremism tend to characterize all comprehensive ideologies that seek to regulate human conduct in all of its aspects-political, economic, social, and even personal. Marxism-Leninism is also such an ideology. Stalin’s regime in Russia and that of Mao in China killed millions of persons, including many within their own ranks, who were thought to be in the way of their ideology’s final victory. Liberation movements, fighting to overthrow their oppressor’s yoke, are also capable of acting in this fashion.

Fundamentalism and tolerance of the dissident do not go together. When fundamentalists and/or extremists have seized power, they will kill opponents without much regard to the niceties of the due process of law, and thus terrorize others into silent compliance. This is state-sponsored terrorism. When they are out of power but want it, they will use violence against government establishments and personnel and the public at large to show that those who do have power are not worthy of keeping it, for they can protect neither the public nor even themselves.

Looking at Pakistan, we see that the Islamic parties partake of a fundamentalist outlook, but until the advent of Ziaul Haq they were, for the most part, content with the modest influence they were able to exert on public policy. I think it is accurate to say also that none of them hoped, much less expected, to win control of government. But since then, and especially since the Taliban’s rise to rulership in Afghanistan, they have come to believe that power may be within their reach, if not by winning elections, then by resorting to violence. Fundamentalist terrorism in pursuit of ruling authority and power may not be far from erupting in Pakistan.

A variety of fundamentalist terrorism has been going on in the form of a Sunni-Shia conflict for quite a few years. Until recently, tension between these two groups lurked at a fairly low level. In my view, it has become intense because of a desire among the leaders of each group to fortify their own position, and clear the ground of opponents as much as possible, in anticipation that power will fall to the ulema. Some of this violence may also be attributed to the simple fanatic hatred that some individuals in each group entertain for the other.

In discussions of terrorism many commentators advise that its causes should be addressed. Insofar as it arises from intolerance of the dissident, ingrained in our culture, proneness to violence will not disappear until this frame of mind changes. Second, those in charge of affairs in Pakistan should make it clear by word and deed that the ulema are not about to attain power, and that there is then no need for them to fight one another in anticipation of that unlikely development. Third, the perpetrators of “hate crimes” should be awarded exemplary punishment to deter others with a similar inclination.

In Sunni-Shia conflict there is another “cause” to be considered. It is one particular Shia practice, more than any other, which causes the Sunnis grief and anger, that is denigrating the first three pious caliphs. If I remember correctly, Ayatollah Khomeini called upon his followers in Iran to stop this practice in order to promote Muslim unity. The Shia ulema in Pakistan might consider doing the same. The Sunnis, on their part, might do well to reconsider the necessity for having an organization such as the Sipah-e-Sahaba. All of the Sahaba, regardless of their views on the subject of succession to rule, have been gone for fourteen hundred years. Their preferences in the matter have no practical consequence in our day and age. So why go to war against fellow-Muslims on the pretext of defending their honour. Their honour needs no defending.