January 14, 2002	Monday	Shawwal 29, 1422

FEARS have haunted planners and many other people in Pakistan during the last three months regarding the prospects for the economy.

According to initial estimates prepared by the Ministry of Finance and the Planning Commission in the form of a joint report, it would be very difficult to achieve various economic and fiscal targets like revenue generation, budget and trade deficits, balance of payments, exports etc.

The other fears included the following:

* For the past decade, armed conflicts going on in Kashmir and Afghanistan have had an adverse impact on Pakistan’s economy and politics. What if the Afghan conflict continues for a long period, and the broad-based government that has taken over in Kabul fails to take roots? This view emanates from the Afghan behaviour of the last two decades.

* The increased flow of Afghan refugees would be an added burden on the economy.

* As a result of large-scale persecution of Muslims in the West, many of them may return to Pakistan and consequently squeeze the economy.

However, the way things ware moving, none of these fears appear to have a chance of materialising in the near future. Matters seem to have been resolved by circumstances, it seems, in a way that the Pakistan government could not have foreseen before the current situation developed, because of its nurturing of the ‘strategic depth theory’ and the consequent support for the Taliban. The pressure that forced them to take the 180-degree turn proved to be a blessing in disguise.

On the contrary, official circles now seem to be inspired by the prospects of economic revival from expected aid flows in the wake of the Pakistan government’s ‘unstinted support’ for the US ‘war against terrorism’ and the reports of western intent of ‘reconstruction’ of Afghanistan.

In fact, the “chief executive secretariate has advised almost all the federal ministers and provincial governors to interact with public and private sector companies in different fields and areas of operation to ensure their presence in the war-ravaged country.

While this has raised high hopes in a certain segment of the people, the majority in Pakistan seem still not to be so sure on this question. Uppermost in their minds are doubts about the actual returns when the final balance sheet is drawn up. Even if the expected flows of dollars actually materialize — and there certainly have been gradual but steady developments to that end — there is the question of how intelligently we use the aid in a productive way, given the past record of our officialdom, our present [national] state of disarray, and the precarious regional environment. The economic scenario in general the world over is not one to raise high hopes either. Finally the larger question of whether the aid-seekers have ever been able to make true progress and development through the aid is to be considered — the current plight of Argentina being an eye opener.

The answer to the last question is both, yes and no. The answer is ‘yes’ when we consider the post-war example of the big financial flows through the Marshall Plan that helped rehabilitate Europe after the Second World War. During the Cold War, some East Asian economies, notably Japan, South Korea and Taiwan, initially benefited from the Western perception of being ‘front-line’ states in the fight against communism, and made rapid strides in comparison with their other Asian neighbours.

The answer is ‘no’, if we keep the plight of many Third World states that failed to attain development, or were bogged down in problems caused by uneven development with attendant political and socio economic problems, despite the aid. The reasons for the success or failure of each have to be kept in mind.

Among the reasons for the success of the war-torn Europe in benefiting from the Marshall Plan was the presence of some essential ingredients — institutions, technology, infrastructure, and strong rehabilitation plans, plus the political will of the governments concerned. Externally, the perceived ‘Soviet threat’ rallied the people and brought forth their resilience. The same can be said about Japan. Taiwan and South Korea succeeded partly because of their prior stress on training the requisite manpower base through education and because the flows were indeed very large and very fast.

In general, political will and the necessary organizational infrastructure are the two pre-requisites to make successful use of aid flows as well as benefit from the opportunities that may present themselves in the ‘reconstruction activity’ in Afghanistan, in that order. Strong financial institutions capable of utilising resources optimally for financing developing on the basis of economic considerations and not political patronage as in the past, are required. We also need to develop what is known as human capital. Externally, continued confrontation with India not only undermines security but also seriously restricts our options, as it professedly did in the current basis.

As it becomes clearer, how much of the incoming ‘aid’ is grant, how much loan, and at what terms, and how many existing loans are being re-scheduled, the other thing that now seems definite in the context of Afghanistan, at least for considerable time to come, is that the West is not going to walk away from Afghanistan, lest the volatile state again become a sanctuary for terrorists. This is a reality we have to live with, and the pragmatic approach would be to try to turn this to Pakistan’s advantage, both economic and political, in order not only to revive the economy but secure our eastern and north- western borders while at the same time, turn the public opinion away from religious extremism towards a more balanced approach, specially with regard to questions relating to foreign relations and the economy.

It will be difficult to deny the benefits that have accrued from current developments. The United States has agreed to defer loan repayments, that according to the economists, would amount to a write-off of about 35-40 per cent of loans amounting to $3.0 to $ 4.0 billion . An economic aid package of one billion dollars spread over three years has been announced by the USA in addition to the already committed $800 million cash grant and $600 million for Afghan refugees. Also, the World Bank and the ADB project loans worth over $2 billion were announced a month back, and the IMF executive board recently sanctioned a loan of $1.3 billion for the Poverty Alleviation Programme.

Similarly, the EU countries and Japan have announced smaller concessionary loans and grants and sanctions imposed on political grounds earlier have been lifted. The EU has also allowed increase in Pakistan’s textile quotas, though the agreement provides a preferential trade package, envisaging a reduction in tariffs. The latest relief is that offered by the Paris Club - a $12 billion ‘stock re-profiling of loans for 38 years under which Pakistan would have to pay nothing in debt se