December 21, 2003	Sunday	Shawwal 26, 1424

KARACHI, Dec 20: Over the years, economic reforms have tended to end crony capitalism, to provide even-playing field for all economic agents and to improve efficiency, productivity and global competitiveness. Big international players have responded by modernising their production facilities but a large number of local companies have yet to show marked improvement. The low level of human development and technology with which the businesses still work, are seen as major snags.

On top of the economic agenda has been fiscal stability and discipline and integration of the financial system into the global market. The government’s balance-sheet has improved and the globalization policy has been lauded by international financial institutions.

Many businesses are on a growth path. Yet economic growth has been a jobless one and poverty is on the rise. And an investment-led growth has eluded us. Foreign capital spending has been restricted to multinationals operating in Pakistan and in existing businesses. Domestic investment is at low levels.

As it would appear both the local and foreign investors are shy of making large-scale investments despite the compulsion of multinational companies to relocate their manufacturing as well as service industries in developing states to remain globally competitive. India and China have benefited but neighbouring Pakistan is excluded.

Islamabad is in the mainstream of international politics and an active participant in the war against terror. All multilateral agencies like the IMF, World Bank and Asian Bank are on board. International credit ratings of Pakistan have improved. Yet foreign investment has fallen sharply this year. How can this phenomenon be explained? The answer is simple. It is only those facing problems who find solutions.

In the present phase, solutions would come on the back of cultural change in economics, politics and business. The change has to be propelled by home-grown and domestic-driven solutions. The country has to be pulled out from its stagnant political culture, casting a dark shadow on the economy. We need a modern culture so far stifled by feudal mindset.

Perhaps, the issue of cultural changes hinges on two key problems. One is political stability flowing from a democratic system that avoids political breakdowns and ends rotation between military and constitutional rule. The nation has to demonstrate maturity to local and foreign investors in handling of state affairs and in enforcing rule of law. Only a democratic dispensation can convince investors to have a fresh look.

The second problem is the normalization of relations with India in the context of freedom struggle of the Kashmiri people. Regional tensions do not create a congenial environment for investment.

According to all indications, the good news is that progress is being made on both the fronts. The prolonged negotiations between MMA and the government appears to be coming close to a successful completion. And the expectation is that the agreement on controversial clauses of the Legal Framework Order would lead to further democratization of the Constitution, though it may still contain deviations from the democratic principles. Perhaps, a step by step approach, may be more practical for strengthening democratic institutions than the required changes in one broad sweep that may have the potential of upsetting things.

Linked to representative democracy is the issue of disputes with India. President Musharraf is making a serious bid to normalise relations with India and to come to grips with the sensitive Kashmir problem. On the key issue of Kashmir, the government needs not only to build a national consensus but must seek approval of all major component parties within the Parliament. National reconciliation based on democratization of the Constitution must precede any solution of Kashmir dispute. Reconciliation does not necessarily mean inclusion of two mainstream secular parties in the government. But any flexibility shown by the government on the 50-year international dispute must have national support.

If Pakistan normalises its relations with India and succeeds in setting up a stable democracy, it would speed up a culture change. A modern culture is the most powerful tool for economic, political and social progress.