During the last couple of years, the most-discussed issue in almost all forums and media in Pakistan is the growing rate of poverty and unemployment. Initially it was easier for the fund managers of the military regime to put the entire blame on the policies of democratic governments of 1988-99.

However, after more than three years of military and semi-military rule, the arguments against the policies of 1988-99 are no more tenable.

The former officials of the World Bank and other international agencies, who now hold reins of the economy, have several things to boast about. The major item being the rising foreign exchange reserves, which were mere $699 million in 1999 and have now crossed the mark of $10.5 billion. However one should not overlook that this rise is mostly due to the events of 11th, September 2001 and our role in the subsequent events. The critiques have time and again asked the fund managers to prove their contribution and indicate the measures which have resulted in this astronomical boost in foreign exchange reserves. But no plausible answer has been given as yet.

One should not forget that in May 1998, Nawaz Sharif was asked not to test the atomic device and was offered $5.billion in exchange. Nawaz refused to accept this offer which was made at least five times by the then US President Clinton himself. Had Nawaz accepted that offer, the sanctions would not have been imposed on Pakistan and the foreign exchange reserves on 12th Oct 1999 would have been $7-8 billion.

Leaving aside this discussion, we should look into the real causes of the situation where despite tall claims of macro economic stability, no signs are found which would lead to the reduction in poverty, unemployment and microeconomic development. The macro economic indicators might be good, but why micro economic indices are the worst? The answer lies in the approach of our economy and fund managers. They are excellent bankers. have vast experience of accounting of finances but they do not seem to be well aware about the poverty alleviation measures.

They have been told that if macroeconomic stability is achieved, the development gains will automatically trickle down to the lower segments of the society. After three years of the so-called macroeconomic stability, these economic managers are embarrassed to see that the promised trickle-down of the growth and stability is not visible at all. It has rather yielded strange results. The 2002-3 saw the highest GDP growth of 5.1 per cent in last five to six years but it also witnessed the highest increase,in last 20 years, of 7.8 per cent in unemployment.

Unfortunately, Pakistan never had good development economists -turned- politicians. Whenever a general or a politician comes to power he finds himself helpless in economic and financial matters as nobody, around him seems to be in a position to manage the economy. The rulers therefore seek help from fund managers, bankers and chartered accountants, since they enjoy a vast experience of working in the western world.

Benazir had V.H.Jafri,a former Governor of the State Bank, Nawaz had Sartaj Aziz, a World Bank official and Ishaq Dar —a chartered accountant and the military regime found Dr Ishrat Hussain, Shaukat Aziz and Hafiz Shaikh who are all former World Bank employees. We even made a former World Bank employee as the Prime Minister of Pakistan for a short while.

All these persons are good fund managers and accountants; they can perform well in a developed economy or in a multinational corporation, but all of them badly lack the vision to understand the so-called ‘ground realities’ of an underdeveloped economy like Pakistan. They have their own set of values and policies which they learned during their jobs at the World Bank and other international agencies, but have no acumen to find out home-grown solutions. And if some development economist or a politician tries to show them any light, they make a joke of his proposals and create a bundle of excuses against the home-grown solutions.

The present fund managers are happy to place $8 billion in foreign banks on low interest of 2 per cent per annum, but are not ready to let just a fraction of this amount to be given as loan for the import of sophisticated and hi-tech machinery for the local industry on low interest rate of 4-5 per cent. They are well aware that after the implementation of the WTO in 2005, the local industry would be in worst position in the international market; it would hardly be able to match the ISO standards. Yet they are not helpful, they seem to be interested in making this economy a traders’ economy.

These fund managers holding important position in the State Bank of Pakistan and the ministry of finance, are not ready to utilize even 10 per cent of the swelling foreign exchange reserve for the poverty alleviation projects. They out-rightly reject this proposal and say that it will increase the money supply in the market and may cause inflation. They claim that the World Bank and the IMF have told them to keep the rate of inflation below 4 per cent per annum. Apparently they are in no position to tell the international agencies that a slight increase in inflation would not only help reduce the poverty but would also boost the current stagnant economy of Pakistan. In spite of the unprecedented facility of debt rescheduling, they could not use the resultant fiscal space for development. They have been directed by the World Bank and the IMF to keep the fiscal deficit lower than 4 per cent. These fund managers are well aware of the fact that during the last 10 years (1992-2002), on many an occasion the deficit financing went as high as 7 per cent, without causing any major problem. And now when the position of foreign exchange reserves and foreign remittances is good, the increased deficit financing may not have any adverse effect on the value of the rupee.

These fund managers kept their entire foreign exchange reserves in the US dollars. Had they deposited just a half of it in euro, the present reserve would have been equal to $12.0 billion. These expert fund managers could not foresee that euro would increase by more than 20 per cent during 2001-2003. This shows how badly they managed the funds entrusted in their expert hands.

These fund managers have total support of the President. The Prime minister who is believed to have the typical village wisdom knows very little about economics. He belongs to the ‘class’ which believes that poverty may be eliminated by providing free food to the poor. Not realizing that if this could be possible there would have been no poor in our country because in almost each city and town we have ‘mazars’ where ‘lungar’ facilities are going on since so many centuries.

Strongly enough, even a person like Mr. Imran Khan of Tehrik-e-Insaf, when asked in a TV interview to suggest measures for the poverty alleviation, said that the government should start ‘lungar’. He said that he had started a lungar in his Shaukat Khanum Memorial Hospital, Lahore. This is the evidence of the poor knowledge of development economics in our political leaders. They are ready to give ‘khairat’ but not the rights to the poor.

Finding no hope in our political leadership, one is compelled to request again our fund managers to do something really worthwhile for microeconomic development. They should realize that their job is not to merely pile up foreign exchange reserves, or to keep the inflation below 4 per cent. They are expected to perform some thing more. They are very finely placed, they now have the strength to say ‘no’ to at least few demands of the World Bank and the IMF. They no more need the support of the IMF, while the World Bank is not that fussy, particularly when it feels that additional money generated through a little higher fiscal deficit and even at the cost of slight increase in inflation is meant for development of social sectors and poverty alleviation.

Our fund managers and planners should open their tightly closed fist a bit; and take the following measures: 1. The target fixed for this year (2003-04) monetary growth is Rs230 billion, while last year actual monetary growth was Rs289.29 billion. The total monetary growth last year was as high as 16 per cent, and yet inflation remained below 4 per cent. The National Credit Consultative Council, (NCCC), the State Bank of Pakistan (SBP) and the ministry of finance should revise the target of current year growth and increase the proposed amount of monetary growth from Rs230 to Rs300 billion. It would still be only 15 per cent i.e. less than last year’s growth, and would not have adverse effect on the rate of inflation.The additional credit of Rs70 billion should mostly go for small and medium loans, to help create better employment and business opportunities.

2.The SBP should grant loan (‘Qarz-i-Hasna’) of $1 billion to the provinces, each province getting its share on population basis. The provinces should deposit these US dollars in the National Bank of Pakistan which should encash these dollars in Pak Rupees as and when required by them for their social sector development projects.

This measure would ensure that a part of foreign exchange reserve would just change hands; from the SBP it will go to provinces and from provinces it will go to the NBP, as such the reserves would still remain under the control of the SBP. This simple measure would enable the provinces to spend more than double of their previous year’s spending on development of social sectors. Provinces and districts badly need this money; the people of Pakistan need this money.

3. Fiscal planners have envisaged a development budget of Rs161 billion for the current year (2003-04). This is 20 per cent high than last tear; a good increase. But they could still increase it by another 20 per cent and could have allocated Rs200 billion.This would increase the fiscal deficit by only 0.5 per cent. This cost is too low and the benefits are very high.

4. Local industry needs immediate revamping to face the challenges of 2005 and after. This industry should be encouraged to import high tech and latest machinery in textile and engineering sectors, it should have the facility of long term foreign currency loans at low interest rate of 4-5 per cent. In the next couple of years at least $500 million per year, should be earmarked for this propose alone.

If of all the above proposed measures, just two are implemented with the required seriousness, the GDP growth rate for the current year would easily cross the mark of 7 per cent. These measures would reduce poverty by a good margin,cut unemployment and increase exports and above all it will also ensure the equitable distribution of income.

The other day President Gen. Musharraf said on TV that everyone criticized his government’s economic policies but nobody suggested measures to correct the situation. He now has the proposals. He has all the resources and strength to see them through. And even if the IMF and the World Bank have some objections, he knows well to cross the bridge when it comes to that. This year he got a package of $ 3 billion, his next visit to US may yield another $3 billion for Pakistan, he knows how to negotiate these packages.