IN last week’s article, I said that there were four hurdles to be crossed before the seven “stans,” including Pakistan, could come together into a workable and sustainable regional economic, political and trading arrangement. One of these hurdles was to improve the quality of governance in the region which has been poor - and for a long time - in all the “stans.”

A good way to start this discussion is to quote from a recent editorial in The Washington Post on “Securing Central Asia.” The Post was troubled by the “manifestly bogus referendum” staged by President Islam Karimov of Uzbekistan a few weeks ago that extended his term of office by two years. Mr. Karimov received 92 per cent of the vote, roughly the same proportion he received when he was elected to office a few years ago. No truly democratic leader can have this kind of approval rating and the world knows that Mr. Karimov does not evoke that kind of love in his country. “...the Bush administration must be prepared to link the continuance of the military relationship to democratic change, both in Uzbekistan and in the other states of Central Asia,” advised the newspaper. “As useful as the [military] bases may be for current operations in Afghanistan, a larger US interest lies in acting now to ensure that Central Asia does not become the next Afghanistan.”

But it is not just the American interest that is at stake in this region. Representative forms of government need to be promoted since there is now ample amount of evidence from around the world that, without adequate representation of the people in the institutions of government, economic and social development does not take place. Or, if it takes place, it happens for a relatively short period of time beyond which it cannot be easily sustained.

There are some western analysts who are giving up all hope of getting democracy to work in countries such as the “stans.” Among them is Robert Kaplan, whose books have been read by Presidents Bill Clinton and George W. Bush and who is now advising the American military establishment. According to him, “concepts like democracy, human rights and social order have little meaning in such places. The concept of nationhood itself becomes largely illusory.” This is a negative view of why democracy, based on western liberalism, would not — in fact, could not — work in eastern societies. But there is another view, according to which the East does not need western liberal democracies.

There was a time — and that was not very long ago - when several East Asian leaders believed that the rapid development in their region was the consequence of what they called the “Asian values.” By this they meant a paternalistic form of government which could decide what was good for the citizens and also decide how people should go about attaining it. The break-neck speed at which most of East Asia grew in the seventies and eighties under the watchful eyes of essentially paternalistic states seemed to justify that claim.

The deep Asian crisis of the late nineties was a sobering event from which some countries in the region have still to recover. Those who have recovered — such as Korea — are now much more democratic than they were during the “miracle years” of the seventies and eighties. That Korea recovered more rapidly than other East Asian countries was due in part to its ability to develop more representative democratic institutions than other countries in the region.

On the other hand, Pakistan’s experience points in the other direction. Its economy performed the best when the country was under the rule of the military. The period of Ayub Khan (1958-69) was a golden era of Pakistan’s economic history. The government of General Zia ul-Haq (1977-88) did a number of wrong things including making terribly fuzzy the line between religion and the state. Nonetheless, this period also saw a rapid rate of economic growth.

Conversely, the return of democracy in the 1990s produced a wasted decade of stagnant growth, mounting debt and increasing poverty. In the twenty-eight months General Musharraf has been in power, the rapid economic slide of the nineties has been successfully arrested. Should we conclude from this that democracy has been bad for economic development in Pakistan while the governments led by the military have overseen rapid economic growth?

What is the lesson for the “stans” from the experience of East Asia? What can the “stans” learn from Pakistan’s fitful experiments with democracy? One important lesson to be drawn from these two experiences is to make the institutions of state responsive to the wishes and aspirations of all people. This did not happen during the miracle years in East Asia. It is highly unlikely that the phenomenon of “crony capitalism” that was to send East Asia into a deep crisis would have taken as strong a hold on the regional economies had institutions fully representative of the people been allowed to provide an appropriate check on the policymakers in Bangkok, Jakarta and Seoul. Similarly, Pakistan’s wasted decade was not caused by the return of democracy. It happened because the form the democracy took in the country did not allow true and full representation to the various segments of the population.

The same lessons can be learnt by the “stans” from the experience of East Asia and Pakistan. The type of democracy that is good for economic development results from the careful nurturing of a variety of institutions that must work together to provide full and effective participation to the people. The process takes time, energy, and dedication. It also requires a consensus in society about the direction to be taken.

Democracy can only come to the “stans” if these countries succeed in introducing political systems that not only give voice to the people but also listen and positively react to this voice. But before proceeding forward with this line of thinking, let me step back a little and provide a bit of history of how modern economic thinking eschewed political development; why political science was thoroughly ignored by contemporary development economists.

That economics and politics are closely intertwined has been recognized ever since economics developed into a separate discipline. The pioneers of this science chose to call it political economy since they were trying to understand how human behaviour, often articulated by political institutions, affected economic choices. Nonetheless, as economists moved towards a greater use of mathematics, statistics and econometrics to understand economic behaviour and relationships, they distanced themselves from such softer disciplines as political science, sociology, anthropology and history. This trend is now being corrected in particular by the exponents of a sub-discipline called institutional economics.

There is now increasing understanding among economists that sustained economic development is only possible in societies that have robust institutions in place. By “institutions” the economists not only mean organizations but the rules on the basis of which these organizations are managed. The institutional structure in all Central Asian “stans” is exceedingly weak. Pakistan has the strongest institutional foundation in this group of countries and is also in the process of finding ways to strengthen it.

As such it could lead the way for the countries of the region. Let me, therefore, stay with the case of Pakistan. What are some of the basic principles that need to be followed as Pakistan begins the tasks of providing itself with a strong institutional foundation? I will underscore at least three of them.

First, institutions must fully represent the people they serve. This is as true of sports clubs, labour unions, school systems as it is of such political institutions as political parties and parliaments. Pakistan has failed to achieve that objective. In spite of holding several general elections, it failed to create a body of institutions that represented the people. Political institutions — in particular political parties — continued to be dominated by an individual, or a family, or a small group of people. If political parties are not democratic they cannot lead the society towards democracy. Among the reforms Pakistan must introduce into the political system is the reform of the political party structure.

Second, organizations to become institutions must be governed by a system of rules that is supported by the majority of the people they serve. A game can only be played when those who play in it and those who view it are comfortable with the rules that are followed. There is nothing “absolute” about the rules that are to be observed in playing a particular game. That a one-day cricket match will have each side bowl fifty overs is not something that was ordained by a high authority. It evolved out of an understanding among the sponsors of the game, those who manage it, those who play and those who watch it. Similarly a successful political organization must have a set of rules that are diligently observed after being articulated by those who choose to be its associates.

The third principle behind successful institutions is that the people served by them must have recourse to some authority when something goes terribly wrong. The Americans call this “checks and balances.” If a part of the system goes awry, it can be put back on track by some of the other parts. That is exactly what happened in 2000 when the accepted process of counting votes could not produce a president following the US elections held in November.

The Supreme Court came in to balance the system and restore the disturbed equilibrium. Zia ul-Haq’s eighth amendment of the 1973 Constitution introduced a form of checks and balances in the system the politicians had failed to manage prudently and effectively. The amendment gave the president the authority to dismiss an errant prime minister and the national assembly that supported him. Once the politicians settled down in Islamabad they contrived to rid the Constitution of the 8th amendment. What followed was a period of chaos and anarchy which saw unchecked political power go crazy.

Could Pakistan return to some form of democracy which betters its own record and defies Kaplan’s grim and pessimistic conclusion reached in several articles and books — in particular in the best-selling book titled “The Coming Anarchy” — that much of the Third World’s least functional societies were headed towards a meltdown?

I will answer this question following my recent visit to Pakistan undertaken to present a report I have written together with Professor Muhammad Waseem on what would it take to make Pakistan a truly democratic society. Until next week, then.

PRESIDENT Musharraf envisages a debt-free Pakistan five years from now. If that could be achieved, it will be a tremendous achievement.

The period he has indicated to achieve the miracle is the same he intends to remain in office after the October general elections. He has been very emphatic that during this period the fiscal and monetary reforms introduced by his administration would not be rolled back by the elected leaders to come.

Pakistan spends Rs 378 billion or three fourth of its tax revenues on debt-servicing . What Gen Musharraf possibly means is relief from only the 37 billion dollars of external debt, and not from the Rs 1,893 billion of domestic debt as well, which is not repaid every year but rolled over year after year.

But the domestic debt consumes a hefty Rs 198 billion in interest payments at reduced rates, while the interest on external debt, which though larger, is only Rs 62 billion.

But if we can achieve relief from total foreign debt in five years that, too, will be a major achievement causing great positive impact to the balance of payments, boosting the foreign exchange reserves further, strengthening the rupee and making larger funds available for imports, particularly machinery for industrial development.

But can the regime achieve it? While we are trying to get old bilateral loans written off or rescheduled for payments over a long period at reduced rates of interest, we will be repaying the multilateral loans of the World Bank, IMF and the Asian Development Bank, which are known as preferred or priority loans. We honoured those loans punctiliously during our most difficult days when the foreign exchange crunch was very acute.

In addition we are seeking large new loans from these multilateral institutions not only for financing development but also for varied economic and social sector reforms, including banking and corporate sector reforms, capital market reforms, and legal and police reforms for which the total aid sought may exceed two billion dollars.

We have also to pay back the commercial loans which the banks and companies are not writing off. Some of the new aid like the 600 million dollars for budgetary support from the US 30 million dollars from Japan or the doubled aid of 7 million dollars from Norway, are grants. But we are told, for example, Pakistan will get 6.466 billion dollars as balance of payments support between 2001 and 2005, but out of that only 1,095 million dollars would be grants. The rest will be loans.

The fact that if Pakistan becomes an external debt-free country is not enough as we will still have to pay Rs. 198 billion a year interest on domestic debt which is a very heavy burden, although reduction in interest rates may ease that burden partially. What matters to an indebted country is what it has done with that debt, whether it used it well and created repayment capacity? The US is today the most indebted country in the world in terms of the quantum of debt but it is also the richest country in the world with the licence to print the world’s currency. And in terms of its GDP the ratio of debt is very small, and it is not disturbed by that.

If we had used that debt to develop the country and created the means to repay the loans from such investment, the debt would have become a kind of asset. If we had spent the loans on social sector development, promoted education and public health and made the country environmentally safer our ultimate repayment capacity would have been strengthened. We did not do that either judging by the nominal literary rate of under 40 per cent and effective literacy rate of 15 per cent, while that rate may not be more than five per cent among women.

The fact is that while the West was giving us large aid, as during the last Afghan war against the Russians, the donors did not monitor how well we were spending that money. A great deal went down the drain as through social action programme I and II. To make up for that the IMF and World Bank have become doubly strict and are monitoring the aid utilisation far more carefully.

The new report of the World Bank on the “Role and effectiveness of Development Assistance” says the aid is increasingly a catalyst for change, making it possible for people to increase their incomes and to live longer, healthier and more productive lives.” But that is the kind of aid that is well targeted, and its utilisation monitored effectively, and the promised results ensured.

If instead of middle men or the bureaucrats or vested interests siphon away much of that aid, while leaving it to the people to repay the loans, they will be the losers for such aid instead of real beneficiaries. If, as in Karachi, more and more World Bank funds for water supply means less and less water for the people and those who pay do not actually get the water for years, that is a classic case of aid abused or embezzled. But we may be told the increase in population in Pakistan is far more than the targeted increase in water supply and hence the increasing gap.

What greater case of miscarriage of social justice can we have than the promised benefits or paid for supply not reaching the masses while they are forced to repay the loans or service them? Hence the case now for the write-off is strong, but these who benefited by the misused aid thrive in our midst.

We are now talking of getting the interest on loans on the rescheduled loans to be reduced, if not written off. For that matter, Dr Mahbubul Haq as finance minister and minister for planning used to argue he was getting foreign loans on an average of 2 per cent while he was paying 18 per cent on several national savings schemes. That disparity in the interest of external and domestic loans still remains, although the national savings now get a maximum of 12 per cent on new loans.

The total debt of over Rs 4,000 billion as external as well as domestic loans was built up as a result of sustained large budget deficit which at its peak had risen to 10 per cent of the GDP inclusive of the public sector debt. Dr Mahbubul Haq used to protest then that the large deficit was being incurred to meet the current consumption of the government and not its development outlay.

The development outlay has been coming down and down and last year it was a minuscule 2.3 per cent of the GDP. While the current expenditure in the 1970s and development expenditure were almost equal and the current expenditure then went on increasing, firstly due to the rise in defence outlay, then the bureaucratic explosion, and finally as the debt servicing cost went on increasing or as the debt fattened on itself.

If instead much of the aid, and our own resources has gone towards development we would have been neither so undeveloped as we are today nor to heavily indebted nor socially so backward. And if the Public Accounts Committee had done a better job and checked squandering of resources as Mr H.U. Beg’s committee is trying to do now, we would have found far better uses for the aid and much better returns.

We have also seen how the number of people living below the poverty line of a dollar a day has doubled in Pakistan within ten years, while the stagnant economic growth did not improve the lot of the people living above the poverty line. But the incomes of the top 20 per cent of the rich improved steadily because of the lop-sided socio-political structure.

But now under the initiative of the World Bank and others steps are being taken to increase the micro-credit facilities, and help the small and medium enterprises which were largely neglected in the past. While the success fo these schemes should increase economic activities in the country it should help reduce the absolute poverty of the poor and increase their job opportunities.

Dr Ishrat Husain, whose stewardship of the State Bank of Pakistan, has been praised by the President, says that he has managed to raise the foreign exchange reserves to over 5 billion dollars he would not allow that be squandered as through the Motorway and the mindless taxi scheme, which benefited the wrong people. President Musharraf on his part wants the autonomy of the State bank to be preserved and strengthened. And that is proper instead of letting the politicians or the bureaucrats with political leanings play wit the monetary policy.

The fact is we have come to strange in which an independent central bank is an article of faith with the financial experts. And is also fully backed by the IMF and the World Bank which would insist on protecting the integrity of the State Bank of Pakistan in the coming years.

In fact, the IMF and other international agencies would stand by the economic reforms of President Musharraf which are in fact their own reforms or standard prescription for all countries in financial distress with Turkey and Argentina as other examples.

ON the steps of Lincoln Memorial on August 28, 1963 Dr Martin Luther King stirred a generation of impressionable Americans with a speech entitled: ‘I have a dream.’ His words inspired and strengthened the civil rights movement that was on at that time and heralded an era of anti-racial protest. Even today, the speech inspires the Americans of all faiths, nationalities, creeds or colours.

Sixteen years earlier, a Lincoln Inn’s barrister, Mohammed Ali Jinnah, had a similar dream, which he shared with the Constituent Assembly of Pakistan at Karachi on August 11, 1947: “...you will find that in course of time Hindus would cease to be Hindus and Muslims would cease to be Muslims, not in the religious sense because that is the personal faith of each individual, but in the political sense as citizens of the state.” Jinnah’s vision for Pakistan to be a modern secular state has been well documented, but tragically no political leader or military general paid heed to it.

India’s display of brinkmanship in recent weeks forced US Secretary of State Colin Powell to make an emergency trip to South Asia. Powell had a dual mission not only to appease a bellicose India, but also to cajole Pakistan into taking action against the perpetrators of an attack on the Indian parliament building and the extremist religious organizations.

Since the events of September 11, Pakistan has managed to steal India’s thunder forcing Atal Behari Vajpayee and other hawkish Hindu nationalists to take a back seat. On the other hand much of Pakistan’s immediate debt payments have been restructured, foreign exchange reserves have reached record highs, the rupee has gained value and above all, the country’s image has taken a turn for the better.

As long as the United States continues to support Gen. Musharraf and the ‘agencies’ are kept in check, there is a chance that extremism and cross-border terrorism will abate. India would be well advised to assuage its aggressive stance and start a dialogue with Pakistan.

The setting for President Musharraf’s address on January 12 was much less dramatic than the backdrop of awe-inspiring Lincoln Memorial. However, in its own right the president’s words have the potential for creating a profoundly positive affect on the psyche of our nation. “The day of reckoning has come. Do we want Pakistan to become a theocratic state? Do we believe religious education alone is enough for governance, or do we want Pakistan to emerge as a dynamic modern Islamic state? The verdict of the masses is in favour of a modern progressive Islamic state.”

Previously when Pakistan was under a military rule, General Zia used what political analysts call a “military-mosque alliance” to legitimize his power-base. Zia was on a mission of religious crusade. President Musharraf’s vision is for a forward-looking and secular Islamic state.

Some government measures have indeed been encouraging: the arrest of more than two thousand religious extremists, banning militant groups and organizations, freezing their bank accounts, ordering ‘agencies’ to stop backing terrorist groups inside Kashmir and the vow to transform the madressahs into modern educational institutions.

Pakistan now has a chance to pick itself up and start the long, arduous process of rehabilitation. It is time to act and seize the initiative. Pakistan’s strength lies in diversity, its weakness in the lack of faith and resolve.

IT WAS a sombre six-month anniversary here on Monday. Viewers of US news networks abroad might have thought the media and government went somewhat overboard in recalling the Sept 11 attacks and that there was too much patriotic hype. But for the Americans, the attacks constituted a convulsive event that has seared the consciousness of many.

Many tragic stories were recalled, and a documentary, simply titled 9/11, was shown on Sunday night that captured the agony and bewilderment of the people who were witness to the downing of the Trade Centre Towers in New York.

The CBS documentary has been made by two French brothers who were already working with the New York fire department on a film on fire-fighters when the twin towers were struck. They went with fire crews to the scene moments after the attacks and were able to film hitherto unseen footage of the scene inside the tower basements and in the streets outside. The confusion of fire fighters confronted with a crisis of this magnitude was evident, and it was clear that those in the lobby of the first tower could not even imagine that the whole building was about to collapse.

There is a particularly poignant shot of a fire chief praying, practically moments before he was killed and his body carried away from the rubble by his colleagues.

But beyond the grieving, in which everyone shares, there are questions to be asked about America’s response to the tragedy. The importance of the “why” question has still not been fully realized here and indeed has not been tackled with any degree of seriousness — why was America singled out for the attack and why does it continue to inspire so much hostility abroad. This is not a religious question, and unless it is understood that this is not a religious question but a political question, US policy will continue to rest entirely on military response and military threats.

Reading a paperback the other day, a sentence suddenly came out from the small print to shake you up: When blood is their argument, all argument is to be merely bloody. If violence is the argument of choice of terrorists, then the US is falling into the trap of countering the threat with more violence without addressing any of the underlying political causes. Madeline Bunting writing in The Guardian of London on March 11 brilliantly and bluntly stated: Will US leaders ever grasp the perception common outside America that never has a nation squandered sympathy and moral advantage so quickly and with such wantonness?

“What,” the Guardian piece asked, “happens to the mentality of a country when it’s not loved, only feared? What patterns of aggressive defensiveness take root? These are the questions that trigger anxiety: as the memory of September 11 inevitably fades, it is not so much Islamist hijackers as US bombs that make the world feel a precarious place ..... America has become a problem, and every commentator is visibly wriggling around it, wrestling with how to accommodate George Bush’s America with a lifetime of respect for American creativity, meritocracy and cultural vibrancy.”

It is sad to see that at even such a poignant moment as the White House remembrance marking the half-yearly anniversary of the Sept 11 attacks, President George Bush continued with his post 9/11 aggressive and belligerent tone, and talked of a new phase of the “war against terrorism”. The administration attitude is further reinforced by the leaked Pentagon nuclear posture review, whose most important, but generally overlooked, aspect is that it raises the nuclear threshold to a new level. It suggests that the US should be prepared to use nuclear weapons in case an ally is attacked even with conventional weapons as in the possible scenario of an Arab-Israeli conflict or an attack from North Korea on South Korea.

The president did not refer to Iraq during his White House speech, but the momentum for some kind of action against that country is almost beginning to look unstoppable. This is despite deep misgivings inside Congress and among politicians abroad, particularly Europe. The State Department continues to stress the need for Iraq to comply with United Nations resolutions on weapons inspections, hoping to mollify the war talk elsewhere in the administration, but even in the state’s diplomatic circles, inspections appear to be slowly receding into the background. One view is that compliance by Iraq should be sought through some kind of an armed inspection regime, probably working under UN control.

Jessica Mathews, president of Carnegie Endowment for International Peace, has advised the administration that a regime change in Iraq may not accomplish the non-proliferation goal since a successor regime may be as committed to acquiring nuclear weapons. She says rather than seek to oust President Saddam Hussein from power, the US goal ought to be to prevent him from acquiring weapons of mass destruction. “Inability to make a clear choice between these two aims was the Clinton administration’s costliest foreign policy error .... The Bush administration seems prepared to make a choice but the wrong one.”