PRESIDENT Musharraf’s visit to Japan from March 12 to 15, 2002 was one of his most meaningful visits abroad, and one that he himself described as highly successful. Japan is a major power, having the largest economy in Asia and the second largest in the world. It has also been the largest source of development aid since the end of the cold war, and is one of our leading trade partners. The country is also assuming an increasingly high profile role in political and strategic issues, and had been visited by the Indian prime minister recently.

The president’s visit coincided with the 50th anniversary of diplomatic relations between the two countries. It therefore assumed all-round importance, as the past progress in those relations was reviewed and the prospects for conferring greater content on them were examined. As a result, the range of issues discussed covered the entire gamut of matters of mutual concern.

First of all, we might evaluate the importance attached to the visit by Japan. The president met not only the prime minister for extensive discussions but was also received by Emperor Akihito who greeted him at the entrance of the Palace, as a special gesture of courtesy. The leaders of the two houses of the Japanese parliament called on him, and the six major business houses of the country entertained him at a special dinner. He also addressed representatives of the large Pakistani community in Japan.

Perhaps the most significant outcome of the visit was the stand taken by the Japanese prime minister on the Kashmir issue. He underlined the necessity of resolving it through dialogue, as its settlement was important not only for India and Pakistan, but for the entire international community. As the Indian prime minister had also discussed the situation in South Asia with him, the Japanese prime minister’s stand constituted powerful support for the stance Pakistan has adopted on the need for the resumption of a dialogue between India and Pakistan. President Musharraf requested the Japanese government to use its influence to promote de-escalation between India and Pakistan, to be followed by a return to the negotiating table. A conflict between the nuclear-armed neighbours was unthinkable, and ultimately, their differences would have to be settled through peaceful parleys.

The Japanese prime minister also applauded the courageous stand taken by the Pakistani president on the issue of terrorism, and the key role Pakistan is playing in this regard. This indirectly refutes the plea made by India that Pakistan has to demonstrate its commitment to the fight against terrorism. During the president’s visit, the international media were highlighting the resort to terrorism and violence by extremist Hindu groups in India that were allied to the ruling BJP.

As the only country against which nuclear weapons were used during the Second World War, Japan plays a prominent role in promoting nuclear non-proliferation, and general disarmament. The president was able to assuage Japanese concerns by underlining that Pakistan had always supported these goals, and that the nuclear tests in 1998 had been initiated by India and Pakistan had no choice but to demonstrate its deterrence capability. Pakistan was ready to join in any regional arrangements to promote nuclear stability, and would adhere to the commitments it had made on a moratorium on testing, as well as on not transferring nuclear technology to other countries. Pakistan was also keen to take up nuclear restraint and risk reduction whenever a dialogue was resumed with India. Similarly, Pakistan had given careful consideration to signing the CTBT, which required a national consensus before action could be taken.

Japanese concerns on political and security issues having been met, the way was cleared to expand the horizons of economic cooperation, where several key concerns were taken up.

The primary concern for Pakistan is to reduce the debt burden, which takes up almost two-thirds of the federal revenue. Japan is the largest bilateral debtor, with liabilities of $8.5 billion. Japan had already participated in a debt relief exercise as a member of the Paris Club. Since the Japanese Constitution rules out debt forgiveness, the only manner in which relief could be given is by reducing the interest rate. This was discussed and the Japanese side promised to look into the matter, keeping in view Pakistan’s need for further relief.

Given the large area of economic and technical cooperation, the absence of institutional arrangements to discuss the various aspects had been felt. A decision was taken to establish a joint economic council at the ministerial level that would meet every year alternately in the two countries.

Trade and investment issues were also taken up, with the commerce ministers of the two sides participating in the discussions. At present, there is a considerable deficit on the Pakistan side, whose annual exports total around $200 million, while Japanese exports come to $700 million. The Pakistan side urged the Japanese side to increase imports of value added goods from Pakistan. The establishment of Japanese plants in Pakistan that would take advantage of low labour costs and send their products to the land-locked countries of Central Asia, as well as Afghanistan, would be actively considered, though this possibility is contingent upon the stabilization of Afghanistan.

The Japanese side has been manifesting interest for many years in the utilization of the transit facilities in Pakistan for access to Central Asia. The various infrastructure projects in Pakistan, such as motorways and ports, could facilitate the process of setting up of manufacturing plants by Japanese multinationals to cater to the whole region encompassing the Gulf and Central Asia. One of the major projects that are being completed with Japanese assistance is that of the Kohat Tunnel, that would shorten distances between many parts of NWFP and FATA. Japan showed readiness to continue its support to this project.

The ground for continued economic and technical cooperation was made smooth during the visit by reassurances both on the political and economic roadmap in Pakistan. Japan has noted the priority attached by the present government to rationalizing the economic and fiscal policies that has resulted in the stabilization of the inflation rate and a substantial reduction in the fiscal deficit. The importance attached to increasing exports was appreciated, and the launching of social action programmes designed to reduce poverty and generate employment opportunities welcomed. Japan’s future support to these programmes will be assured as Pakistan is on course to fulfil its commitments for the restoration of democracy.

The discussions on Afghanistan covered both the political situation in that country as well as the need for economic reconstruction after two decades of destruction as a result of foreign occupation and civil war. Japan’s interest in this respect can be gauged from the fact that Japan hosted the donors’ conference in Tokyo in early January in which Pakistan also participated. An important result of the visit could be cooperation in the reconstruction efforts, as Pakistan has the longest border with Afghanistan as well as the principal transit routes from the sea.

During the two and a half years he has headed the military government, President Musharraf has visited nearly all the major countries of the world. The visit to Japan would rank, in its political and economic impact, with his other major visits to the US and China. Japan is poised to take its place on the Security Council of the UN, having not only the world’s second largest economy but also being the largest source of development aid. By its geographical position, it interacts strategically with China, Russia and the US. As such, it is a principal actor in the Asia-Pacific region, which has become the world’s fastest growing region.

One feature of Japan deserves special note, as the rationale for greater interaction between Pakistan and the Land of the Rising Sun. It is a resource poor country that has risen to economic and technological eminence through the acquisition of scientific skills, and the exercise of discipline. Its being an Asian country makes it an inspiration for other Asian countries, including Pakistan, which are still grappling with backwardness and under-development. We stand to gain from Japan, not only through trade and investment, but also by learning from its experience. The closer ties resulting from the latest visit should open the door to greater cooperation and interaction in the years to come.

The Japanese prime minister accepted an invitation to come to Pakistan. One would hope that an early visit from him would cement the economic ties explored during the Musharraf visit. Politically, not only this region but the world as a whole would also applaud a greater role by Japan in lowering tensions in South Asia, and promoting a dialogue to take up the large agenda of Indo-Pakistan problems, including the core issue of Kashmir. Japan is uniquely qualified to play such a role.

IN rural areas of Bangladesh, most girls marry at a very young age — not because they wish to, but because their families cannot afford to send them to school.

In some districts, however — Narsingdi, for instance — that is changing. Girls’ enrolment in secondary schools has more than doubled. In three years, the proportion of married women in the 16-to-19 age bracket dropped from 72 to 64 per cent, and in the 13-to-15 bracket from 29 to 14 per cent. Families in those districts are getting smaller, and more women are employed, with higher incomes. The headmaster of one Narsingdi school says that when he began teaching 30 years ago he could not have imagined so many girls attending school.

The benefits will reach far beyond those individual girls. The results will include lower birth rates, better health practices, fewer children dying in infancy, a healthier and more productive labour force.

What made this change happen? Money. Since 1993, girls attending a secondary school receive a small cash stipend, while the school receives a tuition assistance payment. “The stipend has worked magic,” says the headmaster. The scheme, sponsored by the Bangladesh government and financed by the World Bank, is now to be expanded, to affect up to 1.5 million girls.

That is development. It is not something abstract. It is real change in the lives of real people — million upon million of individual men, women and children, all of them eager to improve their own lives, if only they are given the chance.

At present they are denied that chance. Well over a billion people — one fifth of the human race — are forced to live on less than one dollar a day. They go to bed hungry every night. They do not even have water that they can drink without grave risk of disease.

Development means enabling those people, and another two billion who are only marginally better off, to build themselves a better life.

Eighteen months ago, the political leaders of the world agreed, at the millennium summit in New York, that we must use the first 15 years of this new century to begin a major onslaught on poverty, illiteracy and disease. And they set a clear set of targets, by which to measure success or failure: the millennium development goals. Those goals will not be reached without resources: human resources, natural resources, and also crucially — as the example of the girls in Narsingdi shows — financial resources.

That is why President George W. Bush and more than 50 other heads of state — as well as cabinet members, business leaders, foundation executives and not-for-profit groups — will be going this week to Monterrey, Mexico, to discuss financing for development. The fate of millions of people depends on us getting this right.

Leaders from the developing world will also be there.

They are not asking for hand-outs. They know that they themselves must adopt the right policies to mobilize private investment, from their own citizens and from abroad. They have to embrace the market, ensure economic stability, collect taxes in a transparent and accountable way, fight corruption, uphold the rule of law and protect property rights.

What they do ask is a fair chance to trade their way out of poverty, without having to face tariffs and quotas or to compete against subsidized products from rich countries. Many are also asking for relief from unsustainable debts. And many are saying that, in order to do without hand-outs, they need a helping hand up, in the form of increased aid from wealthier countries.

Until now, most developed countries have reacted with scepticism to this request — feeling that too much aid was wasted in previous decades, by corrupt or inefficient governments. But they also realize that we live in one world, not two; and that no one in this world can feel comfortable, or safe, while so many are suffering and deprived.

And now they are also realizing that there is a global deal on the table: where developing countries adopt market-oriented policies, strengthen their institutions, fight corruption, respect human rights and the rule of law, and spend more on the needs of the poor, rich countries can support them with trade, aid, investment and debt relief.

Last Thursday President Bush announced an important American contribution, when he pledged $5 billion of additional spending over three years for a “millennium challenge account”, to help developing countries improve their economies and standards of living.

On the same day the European Union announced that by 2006 its members would increase their development assistance by $4 billion a year, so as to reach an average of 0.39 per cent of gross national product — a significant step towards the greed UN target of 0.7 per cent.

These amounts will not be sufficient by themselves. All economic studies agree that, to achieve the millennium development goals, we need an increase of at least $ 50 billion a year in worldwide official aid — a doubling of present levels. But these decisions do suggest that the argument on principle ha snow been won. All governments accept that official aid is only one element in the mix, but an essential one. Aid is much more effective than it was 20 years ago, for a number of reasons. More of it is focused on building up the capacity of recipient countries to run their own economies, and less is tied to the business or geopolitical interests of the donor countries.

If that global deal is clinched in Monterrey this week, many more girls, in Africa, Asia and Latin America, will go to school like their sisters in Narsingdi; millions of children will grow up to be productive members of their societies, instead of falling victim to AIDS, tuberculosis or malaria; and the world as a whole will be much, much better off.

The author is Secretary-General of the United Nations

NON-performing loans continue to be a major stumbling block in the way of rapid and adequate economic recovery and despite the best efforts of banks under the whip lash of the State Bank of Pakistan the total of the non-performing loans on December 31 last was as large as Rs 308.5 billion — about 40 per cent of the total bank advances.

With that volume of resources of banks and development finance institutions blocked for long in this manner the financial institutions feel terribly handicapped while trying to function in the modern manner with low interest rates for borrowers.

Lending rates have been coming down, and export refinance is now available at 7 per cent while investment loans based on locally manufactured machinery are available at 11 per cent. But for the average small borrower the interest rate is 15 to 16 per cent, while for the privileged borrowers the rate may be 11 to 12 per cent. But compared to the low rate of 2 to 5 per cent prevailing in many East Asian countries and the far lower rate in the West, not to talk of Japan’s 0.2 per cent rate, the interest rates in Pakistan are very high and inhibit economic revival.

Investors and traders want not only enough credit but also at reasonable and competitive rates. And exporters need credit, and not only export re-finance at international rates, to rise above foreign competitive. But the banks argue that as long as they have such large loan default or the larger non-performing loans, large surplus staff and the high 50 per cent income tax on their profits, not to talk of provincial and other taxes of around 10 per cent, they can’t make loans cheap.

Instead they have been giving too little to the depositors, particularly the small depositors with no clout, making the lives of pensioners, widows and others who depend on their savings income miserable. The government argues that inflation has come down and so they should accept the low deposit rates. But that is not the experience of the pensioners and others who live on the income from savings, which many of them are now being forced to eat up.

The State Bank is doing two things simultaneously. On one side it is using international accounting practices to determine the real extent of the non-performing loans instead of letting the banks in distress to hide such loans here and there under various heads. So the total of the NPL now include Rs 82.8 billion taken to suspense accounts by banks and Rs 110.8 billion held as provisions made by commercial banks and DFIs against the NPLs.

The position of the DFIs and specialised banks in respect of non-performing loans is so bad, their total comes to Rs 114 billion while the NPL of commercial banks, which are large is Rs 194.6 billion. But according to the net NPL, that is minus the provisions made against such loans plus mark up taken to the suspense account, the amount is Rs 114.9 billion.

Though the amount of default involved is too large for a poor country, and the poor small depositors are paying for that, this is not a problem peculiar to Pakistan. If East Asia was hit hard by that in 1997 and 98, the US was hit by the Savings and Loan Association scandal which cost the tax payers eventually around 400 billion dollars.

Japan is said to have defaulted loans of 700 billion dollars. India too has a large default, but the Indian leaders do not want to make too much of a fuss and let the loan default deter economic growth. Even China with a socialist or mixed economy has a large loan default following the large financial failure of the public sector units.

So we need not only a very critical approach to the problem which will not go away for wishing that but also a cool analytical approach. And the solutions devised have to be practical and applied scrupulously however unpopular or unethical that is. There is no simple and easy way out of the problem. The country has to pay a painful price for solving the problem or getting over the rough hump of bad debt.

Varied are the causes of the bad debt in Pakistan. 1. They begin with the large political loans which reached their peak at the time of the second administration of Nawaz Sharif. The politicians or their dependents who received large bank loans assumed they would not have to repay. 2. Large loans obtained in return for generous kickbacks to the senior bank executives who disregarded all the rules of lending. 3. Large loans were given without adequate collateral. 4. Collateral initially provided for was allowed to vanish and then some of the borrowers themselves vanished.

The fact is that while political leaders who were suspected of approving the bad loans have been punished, or dislodged from office and disgraced, the errant bankers have not been punished or even publicly identified and disgraced.

Banks and life insurance companies wee nationalised in 1974 to prevent accumulation of capital in few hands and their possible misuse, but as it happened instead of the private bankers controlling the banks deposits the bank executives, often nominees of the bureaucrats in the finance ministry, in Islamabad, came to use the loans freely, got many of their relatives appointed as bank officers and promoted them to top positions rather too quick.

As a result of such misuse of banks funds and other factors, about 4,000 industrial units became sick five years ago, and they made the banks financially sicker and beyond early recovery. And in private sector banks like Bankers Equity collapsed even the largest official DFI, the National Development Finance Corporation too collapsed in a rash of scandals and merged eventually with the National Bank of Pakistan.

If the larger banks like the Habib Bank and the United Bank are surviving — they are now marked for privatization — that is because of their reserves or larger resources. And there would have been a run on these banks as well if they had not been owned by the government and it had not guaranteed their deposits. And the National Bank’s position has been far better as its transactions have been largely official and so was not undermined by the large private sector default.

The public sector banks are now trying to rehabilitate themselves by cutting down the number of their branches and the size of their staff, and reducing their deposit rates. But they are not able to give the kind of golden handshake they should be giving to their long serving staff because of paucity of resources which is hurting the retrenched.

The Corporate and Industrial Restructuring Corporation is trying to rehabilitate some of the too many sick units. But its progress has been too low and it is too cautious. A report by a committee set up by the State Bank said only half the sick units were revivable. The other half were under litigation.

Another report said the CIRC would dispose of 980 units within six years. A recent report said that finance minister Shaukat Aziz had directed CIRC to put on auction 10 sick units every month. I don’t think things under CIRC are moving so fast. Excessive caution on the part of CIRC and fear of charges of partisanship seem to stand in the way in a very difficult area.

Of course, many of the sick units are too sick to be rehabilitated. And some of the owners of these units are not interested in rehabilitating them. A committee headed by the late Shaukat Mirza found that a number of the owners of such units were not traceable and some of those tracked down were not interested in restoring their units. They had large bank loans at the installation stage and later, and do not want to return them or reinvest them on their derelict factories.

But not all the units closed down following gross misuse of their facilities by their owners. Consumer preferences changed in the country and they preferred other goods than made by such factories even after they were modified. The technology changed, and new machinery which produced the same goods cheaper and more economically came into vogue. Cost of production in Pakistan went on increasing particularly the electricity rates and transportation costs. Smuggling in of the same kinds of goods cheaper increased. If they came in via Afghanistan earlier, they had been coming via Dubai in recent years. For some units the loss of East Pakistan markets made a large difference.

And there has also been sustained devaluation of the rupee. Investors who had borrowed at Rs 3.35 and 4.75 to a dollar and later at Rs. 9.90 to a dollar had to repay at around Rs 60 to dollar. Interest rates too kept on rising and went up to 25 per cent in the days of Moeen Qureshi as caretaker prime minister. As the interest rate kept on soaring the default of the bank loans kept on increasing and the total became staggering.

THE official word in Washington this week was that Operation Anaconda in eastern Afghanistan had been successful and was being ended. US and coalition troops were being flown back to their base camps on Tuesday.

But the official claim is now being closely scrutinized in the media. As its name implied — anaconda being a non-poisonous snake that kills its prey by squeezing — the operation was meant to surround, corner and annihilate remaining pockets of Al Qaeda and Taliban resistance in Afghanistan by catching them in a vice. The fighters, it was said, would have to surrender or be killed. It was predicted that it would last 72 hours or so.

However, the operation did not quite run to script. The moment it began, it encountered trouble, with the Al Qaeda/Taliban men turning out to be better armed and organized than anticipated. Eight American servicemen were killed in the first few hours, marking the highest battlefield toll suffered by the US since the Afghanistan campaign began. At one of the Pentagon briefings, it was said that the fight put up by the enemy showed a level of organization which indicated the presence of high-level Taliban or Al Qaeda leaders.

In the event, the operation continued for almost a fortnight. No one surrendered. Officials say at least a couple of hundred fighters were killed, but there is no body count to support the claim despite a cave-by-cave search in the area around Shahikot. No notable Al Qaeda or Taliban leader has been reported dead.

In fact, it is feared that many men may have escaped into the countryside or across Afghanistan’s borders. It is admitted that they have the will and the means to regroup in smaller numbers and the ability to communicate among themselves. Beyond Operation Anaconda, Osama bin Laden and Mulla Mohammad Omar also still remain untraceable, though the Bush administration is now seeking to get the message across that the campaign was not about individuals. But public memory is not as short as to forget President George Bush’s remark that he wanted bin Laden alive or dead.

The way the Taliban were routed in the early days of the campaign from their urban strongholds no doubt led to the false impression that they and their Al Qaeda companions would prove easy game in the rest of the country also. That clearly has not happened, and US troops will probably be kept busy for some time to come before the claim can be honestly asserted that Afghanistan can no longer provide sanctuary for “terrorists”.

Whether the inability to show substantial results to the public in terms of high-ranking Taliban/Al Qaeda men killed or captured will lead to diminished political support for the Bush administration remains to be seen. The administration argument that it has freed Afghanistan of Taliban rule remains strong, and is further reinforced by the reaction of the Afghans themselves in Kabul and the main cities. President Bush continues to enjoy high approval ratings in public opinion polls.

While the administration is losing no time in spreading its campaign to other countries where a terrorist threat is perceived to exist, it is difficult to see much enthusiasm in Congress for any significant expansion of the ‘war on terrorism’ till conditions in Afghanistan have been brought fully under control.

There will be even grater trepidation in allowing the administration to launch a military strike against Iraq, and even some Republican legislators are worried about the possible repercussions of such a move, particularly if the Israel-Palestine confrontation remains unresolved.

There is fear that harsh reprisals may spawn even more acts of terrorism directed against America.