| 15 January 2004 | Thursday | 22 Ziqa'ad 1424 |
Saddam's capture
Strengthening the financial sector
The recently concluded Saarc summit in Islamabad clearly marks a turning point in the history of the subcontinent. Fortunately, it marks a change for the better. In the past fifty-six years, India and Pakistan have had a very difficult relationship, and there have been only a few periods of sunshine. One could perhaps name the signing of the Indus Water Treaty in 1960 and the Desai era of 1977-79 as relatively amicable periods in the bilateral relationship.
On the other hand, there have been two all-out wars in 1965 and 1971, apart from the more limited Kashmir war of 1948. There were serious war scares in 1950, 1951, and 1987. More recently, in 2001-02, the two countries came close to a most dangerous confrontation when the possibility of a nuclear conflagration, resulting in unimaginable mass destruction, seemed to loom large in the horizon.
Against this background, the conciliatory mood recently in Islamabad has come as a pleasant surprise to everyone. On the one hand, the Saarc came out of the doldrums and took some historic steps forward, particularly in the economic domain. On the other hand, there was a definite progress in the bilateral relationship of the two major member countries of the organization viz.
India and Pakistan. In fact, the Saarc moved forward because India and Pakistan worked together to secure the far-reaching agreement on Safta, which opens the road to unprecedented trade collaboration in the region.
No doubt, the process towards normalization had started almost nine months ago when Prime Minister Vajpayee stretched a hand of friendship towards Pakistan. But the two countries made little headway until November 2003 when Prime Minister Jamali announced a unilateral ceasefire along the Line of Control (LoC) in Kashmir. The pace of normalization then picked up and several steps were announced by both sides for the restoration of severed communications links between the two countries.
Still, it seemed that India was reluctant to grasp the opportunity offered by the Saarc summit in Islamabad to open a high-level political dialogue with Pakistan. It kept insisting that India's participation would be confined to the multilateral forum only. There was reluctance on Vajpayee's part to meet President Musharraf.
It was only after his arrival in Islamabad that the Indian side confirmed that the meeting would take place but, even then, described it as a "courtesy call." As it turned out, the courtesy call lasted over an hour and was instrumental in producing the joint statement the following day.
The joint statement contains two main points. Firstly, India and Pakistan agreed to resume their "composite" dialogue in February 2004. The two leaders were confident that this would lead to a peaceful settlement of all bilateral issues, including Jammu and Kashmir, to the satisfaction of both sides. Secondly, the president of Pakistan reassured that he would not permit any territory under Pakistan's control to be used to support terrorism in any manner.
The two leaders agreed that a constructive dialogue would promote progress towards the common objective of peace, security and economic development for our peoples and for future generations.
How should one evaluate these sudden developments? Until two months ago (Jamali's unilateral ceasefire offer), there seemed hardly any movement in bilateral relations. Even on the eve of his arrival in Islamabad for the Saarc summit, Vajpayee seemed non-committal about a meeting with the president of the host country. Such a meeting is standard protocol and if it had not been held, it would have marked a snub to the host country. The indications are that some hectic behind-the-scenes diplomacy took place in the past few days.
The Indians were able to secure a categorical assurance from Pakistan president that he would not permit "any territory under Pakistan's control" (i.e. including Azad Kashmir) to be used to support terrorism in any manner. For the past several years, India had laid down a condition for the resumption of negotiations with Pakistan viz. an end to what they called "cross-border terrorism."
Pakistan has, of course, denied all along that there was any such activity going on. It had also assured the countries seeking to improve Indo-Pakistan relations, including the US, that it would not allow any infiltration across the LoC. These countries were not completely convinced that this was the actual position on the ground. India certainly kept complaining that the infiltration had not stopped. However, in the joint statement, India has secured a more categorical promise on this score.
Perhaps, in addition to the joint statement, there are other reasons for India's willingness to return to the negotiating table with Pakistan. The two recent murderous attacks on President Musharraf have proved beyond doubt that he is the target of the Islamic extremists and not their instigator, as had been alleged by India for quite some time.
Hence, India's assumption of Musharraf's alleged guilt - which was the basis for India's anger since the attack on Indian parliament in December 2001 - has been belied. In fact, the international community is now conscious that Musharraf's departure would be a blow to the cause of moderation and would give a boost to Al Qaeda, the Taliban and the Islamic Jihadists in this part of the world.
Another factor could have influenced India to reconsider its stance. The resolution of Pakistan's long-running constitutional deadlock and the big vote of confidence given by the Pakistani legislators to Musharraf's presidency, on the eve of the Saarc summit, might have convinced Vajpayee that India could not expect any changes in Islamabad and had to do business with Musharraf in the foreseeable future.
There are some other factors that could have influenced the Indian leadership to choose the path of compromise. India did try to intimidate Pakistan militarily during 2002 by massing its troops on the border and issuing repeated threats of dire action. However, Pakistan held its nerve and refused to be cowed down. Over a period of time, the Indian military threats became counter-productive. India incurred massive expenditure in this fruitless exercise.
Moreover, Indian bellicosity alarmed important capitals in the world, which brought pressure on New Delhi to act responsibly. Clearly, India was isolated on this issue. If anything, the Indian military threat induced the international community to exert pressure on both India and Pakistan to resolve their differences.
Two other factors could be identified in India's decision to come to a modus vivendi with Pakistan. Prime Minister Vajpayee has the ambition to go down in history as a peacemaker between India and Pakistan. Even as foreign minister in 1977-79, he had sought to improve relations with Pakistan. Since becoming prime minister, he took two major initiatives - the Lahore bus diplomacy in 1999 and the Agra summit in 2001 - to improve relations with Pakistan.
In April 2003, he launched his "last" effort, which is now assuming a concrete shape. The second factor influencing Vajpayee could be the success of the BJP in recent state elections, which suggested that the Indian voter was happy with the policy of improvement of bilateral relations with Pakistan. This being so, the Islamabad initiative could be a key factor in winning the General Elections. Hence, both Vajpayee's personal ambitions for a place in history and his instincts as a vote-catching politician could account for the latest peace moves.
Having said the above, a note of caution must still be sounded. Indo-Pakistan relations have had a very rocky history. There are powerful vested interests in both countries that might seek to derail the path to peace. A grave terrorist incident in India could be staged to throw a spanner in the works. New Delhi and Islamabad must show a sense of maturity and not allow agents provocateurs to destroy the peace process.
It is time for India and Pakistan to face the strategic realities. The first of these realities is that war is no longer an option between these two nuclear powers. War would mean horrible destruction for both. The second strategic reality is that the real problem of the subcontinent is poverty and under-development.
The big sufferers of the futile confrontation of the past 56 years have been the masses in the two countries, those living below the poverty line. At the altar of jingoistic nationalism, these millions have been left to survive in appalling conditions. Other countries in the region have left India and Pakistan far behind on the road to progress.
The leadership in the two countries must make a strategic choice in favour of peace. One hopes that this choice was made at Islamabad. Now, it is for the negotiators of the two sides, starting next month, to rise to the occasion and answer the call of destiny. The media, the political parties and public opinion must help them.
The writer is a former ambassador of Pakistan.
Saddam's capture
Just eleven days ahead of Christmas, on December 14, Saddam was nabbed by Col. James Hickey, who commanded the code-named 'Operation Red Dawn'. There could be no better Santa Claus gift for Bush and Tony, their cronies and allies.
Yes, the 'Ace' is a captive now, but his capture is not only met with aloha, but with a mixture of revolt and dismay, in the Arab world. Whether pro-American or anti-Israeli, moderate or militant, few in the volatile region expect the arrest would do much to promote peace.
The capture of the man viewed as both hero and menace of the Arab world is seen as anti-climactic, after the American-led invasion of Iraq. Other than in Iraq and Kuwait, which Saddam invaded in 1990, most Arabs across the region appeared dismayed and embarrassed over how US troops arrested the bedraggled Saddam near his hometown of Tikrit.
"There is disappointment in nationalist circles in the way he was captured, that he didn't commit suicide so he wouldn't undergo an embarrassing interrogation," Victor Nahmias, an Arab affairs expert, said on state-run Israel Radio. "Here was the symbol of heroism and here is an American non-Muslim (tugging) at his beard. It's hard for proud Arabs to take."
That may explain why many Arabs ignored the event. In Nablus, residents turned out to watch thousands of Hamas members march through the streets in a parade marking the militant organization's anniversary. They carried fake weapons: bombs, rocket-propelled grenades and Qassem rockets.
Saddam's arrest appeared unlikely to ease the Israeli- Palestinian conflict, which did abate at the end of the first Persian Gulf War, in 1991. On Sunday, Israeli authorities issued 42 warnings of imminent terrorist attacks, and militants in Gaza fired 17 mortar shells at Jewish settlements.
The widely hated Iraqi dictator had become a hero to average Arabs in recent months, a symbol of resistance to America's military might in the region since the Sept. 11 terrorist attacks. The demise of his regime - once the banner of pan-Arab unity - came to symbolize Arab weakness.
Iraq is a diverse nation of 25 million people constituting of three important ethnic groups, Arabs 75-80 per cent, Kurdish 15- 20 per cent, Turkoman, Assyrian or others 5 per cent. It will need all its political energy and goodwill to deal with the fall- out of the power shift, which leaves the once powerful Sunnis on the sidelines and promotes the Shias to the forefront as the country's most dominant group.
Under an agreement signed on Nov. 15, the U.S.-led coalition will hand over sovereignty to a provisional government by July 1. But with 16 months left until Iraqis hold their first free general election, the country remains entangled in a web of uncertainty.
The long-oppressed Shias are eagerly waiting to translate their numbers into political power. Sunnis are struggling to maintain relevance while the Kurds are trying to ensure that autonomy for their northern homeland survives.
Radical religious groups, meanwhile, are trying to influence the process, and the small Christian minority says it's concerned about the growing presence of Muslim militants. This means an ethnic and sectarian violence to brew.
Across the Arab world, the ambiguity that has shadowed the entire American effort to replace Iraq's totalitarian government was reinforced by the indignity of Saddam's capture.
While Arabs harbour no particular love for the deposed dictator or similarly oppressive governments, they despair when they see that an outside power can humiliate the Arab world by capturing such a significant figure with relative impunity, underscoring their own impotence.
Palestinians were angry when the Americans toppled Saddam's regime last spring, said Mohammed Horani, a legislator from Palestinian leader Yasser Arafat's Fatah party. "It's a symbolic thing that happened today, although as a Palestinian, I can say no Arab man would like to see an Arab president arrested in this way."
"On the one hand, we are very happy, relieved that this man is out of the picture," said Khaled Batarfi, managing editor of Al Madina, a newspaper in Jeddah, Saudi Arabia. "On the other hand, to see him so humiliated - he is an Arab president after all," he said. "Whether you love him or hate him, he is still a member of the family. He did not fight like his sons; he went like a dog or a cave-man, so they feel sorry more for Arab pride than for the man himself."
Elsewhere, though, many Arabs said that at a minimum they would have preferred. "It is a shameful day in the history of the Arab nation when a prominent Arab president is caught by foreign occupiers and not the Iraqi people," said Abu Khaled, a Damascus taxi driver who gave only his nickname.
"In the absence of Saddam, the Americans will have no excuses; they will not be able to explain away the resistance as something related to him," said Abdel Bari Taha, a Yemeni political analyst. "The Americans will come to realize that resistance is coming from the Iraqi people, not his followers or the Baath Party," he said. (NY Times, Dec. 16)
Many had hoped the capture of Saddam Hussein would put an end to the insurgency that has been carrying out deadly attacks against US troops and Iraqi targets. But any such wishfulness was swiftly crushed when suicide bombers killed eight Iraqi policemen and injured at least 30 civilians in two suicide bomb attacks in Baghdad (December 16). It may well be a clear indication that the resistance to US occupation will continue despite the capture of the former Iraqi leader.
Jordanian political scientist Labib Kamhawi said it served as a warning to other Middle Eastern dictators who cast their lot with the United States, as Saddam once did. "Most of them are friendly to America," Kamhawi said. With Saddam gone, America's fight is no longer against him, but the Iraqi people, he added. "Americans will be looked at now exactly as the Israelis, who are occupying the West Bank."
The region's only glowing response came from Jerusalem, where Israeli prime minister Ariel Sharon lauded the capture as a "great day for the democratic world, for the fighters of freedom and justice and those who fight against terror."
Most Arab governments, now fearing a backlash from their constituents, whose anti-American sentiment has grown since the occupation of Iraq, didn't issue any statements about the arrest. The writer is a researcher.
Strengthening the financial sector
In a period in which Pakistan needs large scale fixed investment for massive job creation, the banks in the country are merrily offering a large variety of consumer credit.
The banks have good reasons to do so as they find credit card loans very lucrative. They charge far higher interest rates on such loans than the ones given for fixed investment and even commercial loans. Consumer loans are rather small, less risky and meant for short periods and advanced against visible, though mobile, assets with a large first instalment paid by the consumer. Most of the customers are properly employed or properly engaged.
Major foreign banks like the Citibank initiated the consumer credit and Pakistani banks followed them. And as the competition becomes more intense the MCB has come up with car loans at 8.5 per cent interest. And even a bi-national investment institution like Pak-Libya Holding has come up with a variety of consumer credit offerings. Meanwhile, the National Bank of Pakistan says it offered loans worth Rs 100 billion to the private sector last year of which consumer credit played a small part.
The problem with consumer credit is that it mostly finances purchase of luxury goods like Rolex watches, in addition to computers and foreign-made cars assembled here. Housing finance is a major exception but the amount lent for housing is very small compared to the vast needs of the people.
So consumer credit in terms of employment-creation has a small role to pay, while it increases luxury imports. Hence, the government and the State Bank of Pakistan have to take positive steps to encourage investment credit on a large scale, and for expansion and renovation of the existing industries. The small and medium industries should also be helped with adequate credit at low interest rates. And the more so when the Securities and Exchange Commission considers promotion of these industries vital to the development of the corporate sector.
The SECP chairman Dr Tariq Hasan says the Commission has initiated a research study to review the impact of SMEs on the prevailing laws and regulations and suggest appropriate measures in the legal and regulatory framework.
Meanwhile, a new study by the IMF says high levels of national debt can depress economic growth in low income countries, like Pakistan, through its impact on efficiency of resource use. When the debt-servicing cost of the government is Rs 257 billion out of the tax revenue of Rs. 459 billion as it was last year it will have little to spend on development and the social sector, after meeting the defence outlay of Rs. 160 billion. Economic growth in such a country is bound to be stunted.
The fact is even after the debt has come down, and interest rates on both external and domestic loans have been reduced, the government will still spend Rs. 256 billion on debt servicing this year. And that is so because when the old debts were repaid new loans were negotiated and the interest rates on domestic debt have been slow to come down. And the cuts in interest rates already effected have caused a great deal of heart-burn among the savers.
The IMF study holds that a debt of 50 per cent of the GDP as a safe threshold but the debt burden of Pakistan now is 90.2 per cent of the GDP. But that is to come down to 66 per cent of the GDP by the year 2007-8. That should happen without fail, and the government is taking appropriate steps in that direction. While the interest rate on old loans are being slashed, new loans are being obtained at greatly low rates.
The IMF study says the falling debt servicing cost has led to higher economic growth, unlike the stagnation of the 1990s when heavy debt to the extent of 104 per cent of the GDP pushed down economic growth. The study says that a one per cent increase in public debt may lower economic growth by 0.2 per cent of the GDP The fact is that if less goes into investment and on the infra-structure the lower will be the economic growth.
The fact is that when the government needs more and more money, and that is not available through vastly enhanced tax revenues, it has to borrow from banks and the public at high interest rates. In the earlier years despite the high interest rates which rose to 18 per cent WAPDA could not sell its bonds readily. The government had to step in to help what has been proverbially regarded as a white elephant.
Even now if something like Rs 60 billion given to WAPDA AND KESC as subsidy could be saved, the government would have far more funds for development and the social sector. Hence the urgency for privatization of KESC and the 12 WAPDA units.
Meanwhile the financial sector of the country as a whole is being strengthened and regulated better. The State Bank of Pakistan is adopting a new system of monitoring, surveillance and supervision of banks and development finance institutions, says the governor Dr. Ishrat Husain. He refers to it as "a paradigm shift." It will come into effect during this quarter and will be formally known as Institutional Risk Assessment Framework aimed at ensuring continuous and proactive monitoring of banks and DFIs.
With now over 80 per cent of the banks in private hands following steady privatization the new move will discourage private sector from taking excessive and unmanageable risks and help take timely remedial measures. Such protective steps are essential as major banks abroad are known to have indulged in unfair or unethical practices and come to grief.
Along with that leasing companies and Modarabas are to be assisted by the Securities and Exchange Commission to seek multi-dimensional growth to achieve an enhanced role in the financial sector of the economy. The chairman of SECP wants the leasing companies to give attention to the areas outside the few cities in which they operate. He said leasing had acquired a multi-dimensional and multi-product role in the world. Pakistan will have to catch up with that trend. He urged the leasing companies to play a larger role in helping the SMEs.
Meanwhile privatization is facing a setback in its effort to sell weak public sector units to Pakistanis. After the first bidder had opted out of the deal to buy Thatta Cement, the second bidder too had opted out. He had to buy 90 per cent of the shares at Rs. 10.75 per share. Neither of the two bidders had the resource to buy the shares as their resources were tied up elsewhere following litigation.
The option for the Privatization Commission is to sell such companies to foreigners or its shares to the public through the stock exchanges. But the foreign investors are interested only in good clean companies and the public wants to buy shares of only profit-making companies.
Foreign fund management companies are also showing interest in Pakistan now. The Crosby Securities of the US has come up with a mutual fund of Rs. 1.50 billion with the name of Crosby Dragon Fund. Thirty per cent, instead of usual 10 to 15 per cent, of its shares would be offered to the general public, says Robert Owen, chairman of the Crosby Group.
Finance Minister Shaukat Aziz, who met him, urged him to attract foreign portfolio investment to Pakistan and Mr Owen has agreed. It will be interesting to see the competition between local mutual funds and foreign company-operated funds in Pakistan.
Following India-Pakistan agreement to promote friendly relations, foreign investors see a bright future of the region and are ready to invest more in the area. The minimum they needed was free movement between the two countries which had remained largely blocked for the last two years. Now a Saudi industrial group proposes to invest 100 million dollars on a billet-making plant at Port Qasim. And a ten member delegation of the Al Tawariqi group is here to finalise the details.