IRAN does not pose a threat to the United States because of its nuclear projects, its WMD, or its support to “terrorists organizations” as America claims, but in its attempt to reshape the global economic system by converting it from a petrodollar to a petro-euro system. Such conversion is looked upon as a declaration of economic warfare against the US as that would drastically reduce the revenues of the American corporations and eventually might cause an economic collapse.

In June 2004, Iran declared its intention to set up an international oil exchange (a bourse) denominated in the euro currency. Many oil-producing as well as oil-consuming countries had welcomed such a bourse. The reports had stated that this bourse may start functioning at the beginning of 2006. Naturally, such an oil bourse would compete against London’s International Petroleum Exchange (IPE) as well as against the New York Mercantile Exchange (NYMEX), both owned by American corporations.

Oil-consuming countries have no choice but to use the American dollar to purchase their oil, since the dollar has so far been the global standard monetary fund for oil exchange. This necessitates these countries to keep the dollar in their central banks as their reserve fund, thus strengthening the American economy. But if Iran, followed by other oil-producing countries, offered to accept the euro as another choice for oil exchange, the American economy would suffer as a consequence. We could witness this crisis at the end of 2005 and the beginning of 2006 when oil investors would have the choice to pay $57 a barrel of oil at the American NYMEX and at London’s IPE, or pay 37 euros at the Iranian oil bourse. Such a choice would reduce trade volumes at both the dollar-dependent NYMEX and the IPE.

Many countries had studied a possible conversion from the ever-weakening petrodollar to the gradually strengthening petro-euro system. The devaluation of the dollar was caused by the American economy shying away from manufacturing local products — except those of the military — by outsourcing the American jobs to the cheaper Third World countries and depending only on the general service sector, and by the huge cost of two major wars in Iraq and Afghanistan that are still going on. Foreign investors started withdrawing their money from the shaky American market causing further devaluation of the dollar.

A keen observer of the money market could have noticed that the devaluation of the American dollar had started since November 2002, while the purchasing power of the euro had moved upward to reach $1.34 as at present. Compared to the Japanese yen, the dollar had dropped from 104.45 to 103.90 yen. The British pound-sterling climbed another notch from $1.9122 to $1.9272. Economic reports published at the beginning of last month had pointed towards the deep dive of the American economy and to the quick rise of the deficit up to $665.90 billion at the end of 2004. The worse is still to come. These numbers worried the international banks, which had sent some warnings to the Bush administration.

In its economy war, Iran is treading the same path that Saddam Hussein did when he, in 2000, converted all his reserves from the dollar to the euro, and demanded payments in euro for Iraqi oil. Many economists then mocked Saddam because he had lost a lot of money in the process of conversion. Yet they were very surprised when he recuperated his losses within less than a year’s time because of the gains euro had made. The American administration became aware of the threat when central banks of many countries started keeping euros along with dollars as their monetary reserve and as an exchange fund for oil (Russian and Chinese central banks did in 2003).

To avoid an economic collapse the Bush administration hastened to invade and occupy Iraq under false excuses to make

an example of it to any country which may contemplate dropping the dollar, and to manipulate the Opec’s decisions by

controlling the second largest oil reserve. Iraqi oil sale was reverted to the petrodollar standard.

There is only one technical obstacle concerning the use of a euro-based oil exchange system, which is the lack of a euro-denominated oil pricing standard, or oil “marker” as it is referred to in the industry. The three current oil markers are US dollar denominated, which include the West Texas Intermediate crude (WTI), Norway Brent crude, and the UAE Dubai crude. Yet this did not stop Iran from requiring

payments in the euro currency for its European and Asian

oil exports since the spring of 2003.

Iran’s determination in using the petro-euro is encouraging other countries such as Russia and Latin American countries to follow suit, and even some Saudi investors, especially after the Saudi/American relations weakened lately. This determination had also provoked an aggressive American political campaign on the same excuses as were used against Iraq: weapons of mass destruction, support to “terrorist” Lebanese Hezbollah organization and threat to the peace process in the Middle East.

The question now is what would the American administration do? Will it invade Iran as it did in case of Iraq? The American troops are hopelessly struck in the Iraqi swamp. The global community — except for Britain and Italy — is not offering any military relief to the US. Thus an American strike against Iran is very unlikely. Iran is not Iraq; it has a more robust military power. It has anti-ship missiles based in Abu Mousa island that controls the strait of Hormuz at the entrance of the Gulf. Iran could easily close the strait thus blocking all naval traffic carrying Gulf oil to the rest of the world causing a global oil crisis.

The price of a barrel oil could reach up to $100. The US would not be able to topple the regime by spreading chaos the same way it did with Mussadaq’s regime in 1953 since Iranians are aware of such a trick. Besides, Iranians have a patriotic pride in their nuclear programme.

America has resorted to instigating and encouraging its military ‘illegitimate child’ — Israel — to strike at Iranian nuclear facilities the way it once did in Iraq. Leaked reports show that Israeli forces are preparing for such an attack expected to take place next June. Israel is afraid of an Iranian bomb because it will end its military hegemony in the Middle East.

Iran has invested a lot of money and effort to obtain nuclear technology and will never abandon it as is evident from its political rhetoric. Unlike Iraq, Iran would not keep quiet if Israel strikes at its nuclear facilities. Iran would retaliate aggressively which may lead to the destabilization of the whole Middle East region, including Israel, the Gulf states, Iraq, and even Afghanistan.

HOW can the authorities in Islamabad tap the large wealth and incomes of the expatriate Pakistanis living and working abroad? How can the resources available to the rich Pakistani community residents in North America become available for economic use in Pakistan? Is there a role for the government at all in turning to the expatriates for promoting development at home?

The government’s intervention in the past was not very helpful in bringing resources to Pakistan. In the mid-1970s, prime minister Zulfikar Ali Bhutto, aware of the enormous amount of aggregate income of the Pakistani workers in the Middle East, attempted to first channel the remittances through government owned banks and then tax them to generate resources for the public sector. He was told by his advisors that economic theory was on his side since some of the skills the workers were putting to use in the Middle East to earn large incomes had been acquired in government institutions. This was then the payback time.

Even if the government could find an economic reason for making such a move, it had not counted on the deep seated cultural antipathy of the citizens of Pakistan towards taxes. The workers simply stopped using government channels for sending remittances. They simply moved towards the hawala system, making it virtually impossible for the authorities to track incomes they could tax. Remittances moving through official channels declined significantly. A sobered government withdrew the tax.

The second attempt for tapping non-resident Pakistanis was made by prime minister Nawaz Sharif. He dispatched Sartaj Aziz, his finance minister, to address a gathering of Pakistani physicians in the United States, to ask them to make contributions to a special Prime Minister’s fund. The fund was being established to pay back a part of the rapidly increasing tax burden the country was carrying. This appeal to patriotism was rebuffed and an embarrassed Aziz returned home empty-handed.

There are several lessons to be learned from these attempts. A government that presides over a weak system of tax administration cannot hope to tax incomes earned abroad by its citizens working in foreign lands. Even the United States, which probably has one of the most efficient systems of tax collection in the world, does not target the incomes of its citizens if they are living abroad. It only taxes foreign incomes when they are earned by its residents.

Second, governments should not use a sense of patriotism to generate revenues for itself. There is, however, a bit of a history to support the view that on occasions such an approach can be justified. In the first decade or two after Pakistan’s birth, the government was able to appeal to its citizens to contribute to various funds established for specific purposes such as refugee relief or aid for victims of floods. Nawaz Sharif’s government was perhaps guided by these precedents. It did not succeed for the reason that reducing the burden of debt — especially when it was acquired by the government’s own profligacy — was not going to give rise to charitable impulses.

Reducing debt cannot be seen as providing relief to the victims of natural or man-made disasters and a debt relief fund was not the same thing as funds for refugee rehabilitation or flood relief. Besides, in the 1990s, much of the enthusiasm that had prompted the first generation of Pakistanis to contribute to various relief funds had largely dissipated.

These experiences do not suggest that governments have no role to play. They can make an important contribution by creating what economists now call an “enabling environment.” A government can contribute to the creation of opportunities which would be seen as attractive by potential investors. It can provide information through various mechanisms to the expatriate communities on the opportunities available in the homeland that could earn handsome dividends for the non-resident investor.

Governments can also target their citizens living and working abroad to raise funds through various kinds of bonds. This was done very successfully by India a few years ago through the flotation of “patriot bonds.” Although a sense of patriotism was invoked and billions of dollars flowed into these instruments, it was not because of the love of the homeland. Non-resident Indians bought the bonds for basically two reasons. They found the terms appealing and they had developed enormous confidence in their homeland’s economic future. I will return to these government roles next week.

In planning to tap resources from expatriate communities, it is important to recognize that the members of these groups send back money for a variety of reasons. At least four of these are important for purposes of policy. The first, and by far the most important reason is to help family and friends who are still living in the homeland. This is the principal motivation for remitting money for low-income migrants, or for migrants who have relatives and friends in the home country in need for financial assistance.

My guess is that some two-thirds to three-fourths of the current flow of remittances of some $4 billion a year coming into Pakistan is provided in response to this need. This type of flow has considerable economic benefits. It is not wasted by the recipients as was generally the belief in Pakistan in the 1970s and 1980s when billions of dollars flowed into the country’s poorer areas. While this is a good subject for policy research, it would be safe to assume that a significant amount of this flow goes into poverty redressal and into human development. It is put into health care, education, shelter, clothing, and improving the water supply.

All these are basic needs that the poor are not able to adequately satisfy from their own meagre resources. I have argued in some of my writings that remittances from abroad had a great deal to do with the sharp reduction in the incidence of poverty in the 1980s.

There are at least two roles governments can play in facilitating this type of flow and in making its use more efficient. They can help to bring down the cost of transmission by requiring the banking system to reduce what is called the float — the time that elapses between the placement of the amount at a particular bank for remittance and the time when it is released to the beneficiary. This is a popular way for the banks to increase their incomes from handling remittances. The government’s regulatory system can also prescribe the fee banks are allowed to charge these customers.

Governments can also help the recipients to handle the windfall incomes that remittances sometimes represent. They can introduce savings instruments the poor can use and which are easily accessible to them. Some countries use post offices to sell such instruments; in some other countries retail outlets have been allowed to charge a small commission for selling small denomination government bills to potential investors; in some places governments have used “mobile banks” that travel from village to village or between small towns to sell such instruments. Regulatory systems should also encourage commercial banks and thrift institutions to reach the small savers.

The second type of remittance by non-residents working abroad is charity, a significant proportion of which is given to the poor by the members of the expatriate communities on home visits. Some of this money also goes into the funding of non-government organizations that have developed programmes of assistance the expatriates like. Giving for charity depends on the average incomes of the communities resident abroad; the higher the incomes the more likely that this type of flow will go through organized channels.

Fund raising functions — dinners and various kinds of galas — have become part of the social life of the well-to-do expatriate communities in the United States. Most of these are sponsored by non-government organizations that have registered themselves with the authorities, and which allows them to receive contributions that are tax-exempt. In this way a dollar worth of contribution effectively pulls in about 20 to 25 cents worth of US government money into charity. Some of the better organized non-government organizations that began life in Pakistan have also set up affiliates in the United States to take advantage of this provision in the tax code. The Edhi Foundation and Shaukat Memorial Hospital are two examples of Pakistan-based charities that periodically bring their fund-raising activities to the United States.

The third type of remittance is of relatively recent origin and is directed at providing resource-starved social sectors of additional funds. The non-resident Indian community, the NRIs, have been very active in this area. A group of wealthy expatriates from India who had made fortunes in the sectors of finance and high-tech founded a foundation that raised hundreds of millions of dollars to fund the establishment of a world class business school in Hyderabad. The school is now up and running and is affiliated with the prestigious Wharton School of Pennsylvania University and Kellog School of Chicago University. Within a few years, the Hyderabad institute has put itself on the map for advance training in business and financial administration.

The Pakistani community in the United States had yet to move in this direction. If anything, Pakistan needs institutions such as the one in Hyderabad more than India does. What is perhaps keeping the Pakistani communities in the United States from venturing into this area is the same set of reasons that has inhibited human development at home. There is now some recognition that without skill development, Pakistan will not be able to modernize its economy and become fully integrated into the global economic system. This has led the private sector to invest in building institutions such as the Lahore University of Management Sciences and the Beacon House University, also at Lahore. Institutions such as these could become the focus of charitable giving by the Pakistani communities in the United States.

Pakistani expatriates in America are taking some interest in assisting organizations that aim to bring literacy to the more backward areas in the country. The Association of Pakistani Physicians of North America — better known by its acronym, Appna — played a pioneering role in this area. Some of the active members of this well established organization have founded non-government organizations that are raising money from the expatriates to establish and manage schools in several remote areas of the homeland. The innovative skills now being deployed by the management of the Human Development Foundation in Pakistan were learned by its founder while doing charity work under the aegis of Appna.

Finally, the fourth type of flow that produces the remittance stream is made up of various types of investments being made by the members of the expatriates community. There is an enormous potential in this flow; it could increase manifold from the current relatively low levels. I will return to this subject in the article next week.

I AM optimistic about this election. There is an uncertainty, an edgy volatility, that contradicts the doom-mongers who keep insisting that “no one cares” and keep talking our politics down.

Sometimes at elections the national mood is obvious. In 1997 there was a collective cheer when nearly two decades of Conservative rule ended. But today the voice of the people is unclear.

Some observers claim that what is happening is a permanent disconnection between politics and people. But I have travelled thousands of miles on the campaign trail — at local, national and byelection level — during this parliament. I also marched with a million protesters against the Iraq war. I agree the electorate is unsettled; but not uncaring. It’s time for democracy to reassert itself.

Iraq has been a catalyst. The dismay those protesters felt when the prime minister scorned their attempt to stop the war has turned to deep anger: an anger about the war; about the way we are led — the casual disregard for facts and the sidelining of cabinet and parliament; about an electoral system that permits a government to have enormous power without representing the way our votes are cast; and about the undermining of our liberal traditions of tolerance, fairness and justice — our civil liberties — justified by the “war on terror”.

Another catalyst is distaste. Distaste, and sometimes disgust, at the way Labour and the Conservatives are conducting themselves. If the past few weeks are any guide, the thrust of the Conservative campaign will be that hospital isn’t safe because you will catch a bug and die; the streets are awash with immigrants who need health checks; and gypsies may be massing at the bottom of your garden — but it’s alright, because Oliver Letwin (shadow chancellor) has found a magic formula to cut taxes, increase spending and pay off the national debt all at the same time. The politics of fear are mingled with the politics of fantasy.

Labour is no better. Principled points about policy have been pushed aside for the politics of the nursery. Their bogeyman is a Liberal Democrat surge putting Michael Howard into No 10. No one believes this fairytale: the Conservatives’ support has not increased since William Hague quit in 2001; they are out of the race in Scotland and Wales, and we are the challengers in urban Britain — especially northern cities where the Tories don’t even have any councillors; and they are failing to make inroads in Lib Dem territory in the southwest.

Yet Labour politicians keep repeating the stories, as Ken Livingstone on the morning of the Brent East byelection — forget what Labour could do for the people of Brent; just frighten the children with a non-existent Tory challenge. No wonder people mistrust Labour.

Yet there is a great political debate to be had at this election — a vital argument about what sort of country we want to live in.

Britain is the world’s fourth largest economy. This is a good country, with honourable traditions of decency and fairness. So how can it be right that the wealthiest 20 per cent pay a smaller percentage of their income in tax than the poorest 20 per cent? Why, in the 21st century, is a woman who has taken time out of working to care for elderly parents or young children not entitled to a pension in her own right? What is fair about a system of funding for our universities that discriminates against children from poorer backgrounds?

At this election, the Lib Dems will publish a manifesto that is unashamedly liberal in tone and democratic in execution; and affordable, credible and costed. Our outlook is contemporary. We have a green thread running through our policy proposals.

Our tax policies are progressive. A local income tax instead of the council tax is based on ability to pay. According to the independent Institute of Fiscal Studies, 75 per cent of families would be better off or no worse off, including six million pensioners who would pay no council tax at all. In addition, we would introduce a 50p top rate of tax on income over #100,000. This would affect the wealthiest one per cent of taxpayers and would pay for three specific policies: abolition of student top-up and tuition fees; introduction of free care, such as help with washing, dressing and feeding for elderly people with long-term degenerative illnesses; and smoothing in the transition from the unfair council tax to a local income tax.

Other policies would be funded by reprioritizing five billion pounds a year of spending. We would scrap some government departments such as trade and industry, transferring key functions elsewhere, and ditch the third stage of the Eurofighter. We would get rid of ineffective baby bonds and abandon the compulsory ID card, using that money more efficiently and effectively. We would create a “citizen’s pension” for the over-75s that would entitle women to their own pension, and we would increase that pension by #100 a month, not means-tested. We would reduce class sizes, put 10,000 more police officers on the streets and help first-time parents with an increased maternity income guarantee.

Policies reflect a party’s philosophy, but government is also about behaviour. In 2001, I had only just been elected leader. Over the course of this parliament, I believe we Liberal Democrats can be justly proud of our record in standing up for what we believe in — whether popular or not — and representing a large section of the population as an alternative to Labour and the Conservatives. We opposed the Iraq war; they backed it. We opposed student tuition fees. We were the first to call for a referendum on the European constitution.

In the recent controversial passage of anti-terrorism legislation, we put the principled case for judges rather than politicians making the decision to lock people up and for higher standards of evidence, forcing the government to concede that the act can be repealed in the next parliament. We oppose compulsory ID cards and favour quality local public services rather than false elements of “choice”. We have been united in putting our principles first in decision-making.

At this election, I will make the case for a Britain that is governed as a progressive, outward looking, environmentally friendly society. I favour multiculturalism and our traditions of tolerance and inclusiveness. I will continue to talk positively about sensible immigration and asylum policies, and I shall keep a wary liberal eye on issues of civil liberty where the executive seeks to undermine hard won rights.

I shall make the case — and that’s why I am optimistic about this election. It is clearly three-party politics. I won’t predict the outcome, but I do sense that our democracy is moving in a new direction.—Dawn/Guardian Service

The writer is the leader of Britain’s Liberal Democrats.

CHINA has been a traditional friend of Pakistan and changes of government in the two countries have not had adverse effects on their friendly relationship. Since recognizing the People’s Republic of China in 1950, successive governments in Pakistan have put in vigorous attempts to strengthen these ties further. In fact, friendship with China has been a cornerstone of our foreign policy since the late fifties.

China, against the tide of international opinion, maintained a very sympathetic attitude towards Pakistan during the 1971 conflict with India. The famous remark of Premier Chou-en-Lai to Dr Henry Kissinger, at the conclusion of the latter’s secret visit to Beijing, is indicative of Chinese sentiments.

He remarked, “Now that we have established contact, do not forget the friends in Pakistan. A bridge does not lose its importance just because it has been used.”

Since then, major political and economic changes have taken place in China. While Pakistan strengthened political ties with China, it has failed to foster deep economic ties with its giant neighbour.

Having lived in Beijing for some time, I have witnessed the significant economic development that has taken place on a rapid scale in China. Pakistan could have taken much advantage of this if only its foreign policy had been aligned with the dictates of emerging economic realities. On the contrary, India made the right moves and was able to attract investment from China towards various joint ventures.

Since the early ‘80s, China has been rebuilding and upgrading its economic system and is simultaneously rewriting and substantially revising its economic framework to function more efficiently in transactions with international markets and to meet internal needs arising from the country’s modernization desire and drive.

Pakistan can gain from China’s significant success in the launching of special economic zones. China initially set up four special economic zones i.e. Shenzhen, Shantau, Xiamen, Zhuhai and 13 open coastal cities.

These economic zones have undergone steady growth, achieved great successes and accumulated experience in their pioneering and exploratory work.

They have fully exploited the advantages of their proximity to international markets like Hong Kong, Taiwan and Macao.

With easy access to information and with greater foreign connections, these special economic zones have been successful in attracting foreign investment, introducing advanced technology and have energetically developed and produced readily marketable and highly competitive products, to expand exports.

A larger number of Hong Kong entrepreneurs transferred their production facilities to the special economic zones and it is estimated that these industries in the south of China, account for providing employment to over five million people. Our free economic zone, near Karachi is likely to suffer death from neglect if no immediate attention is given towards adopting new policies, laws and strategy.

Here, we can seek expertise from China.

It is predicted that China, known as the “factory of the world”, will surpass America’s GNP by 2020 AD. China’s economic modernization has been very successful. It has, in the past several years, consistently recorded a GDP growth in excess of nine per cent. With ever-increasing foreign trade and better management of financial resources, China has built up a substantial amount of foreign exchange reserves. China’s exports for last year stood at $593 billion and its per capita income was $540 as against our per capita income of $465. China’s liquid foreign exchange reserves stood at $610 billion.

While Pakistan has not been able to use increased trade opportunities in its favour, there have been overtures from Chinese state-owned corporations for an exchange of technical assistance. At present, there are only 31 Chinese companies operating in Pakistan in the oil and gas, IT, telecom, power generation, engineering, automobiles, infrastructure and mining sectors. With the progressive stance of our government to attract foreign direct investment, Chinese delegations have begun investment prospective visits.

Recently, they have shown keen interest and have been subsequently encouraged and ensured of facilitation in the setting up of an oil refinery and a steel mill in Punjab, mining of marble and granite in the NWFP and oil and gas exploration activities.

Moreover, with the WTO regime in force both nations are keen to convert the existing preferential trade arrangement into a mutually beneficial free trade agreement.

The trade volume between Pakistan and China during 2004 was $1.44 billion, in which the balance of trade was in favour of China to the extent of $865.6 million. There is, therefore, tremendous room for growth where Pakistan is concerned. Since the people of both countries identify with each other’s views and interests, there is a natural base for more enduring and closer cooperation in the form of strong economic and trade ties to reinforce the relationship.

Cooperation in banking is one area that Pakistan has unduly neglected. Currently, only one Pakistani bank has a presence, at the representative office level, in China. The performance in promoting trade deserves no comment. Also, we have failed to attract Chinese financial institutions to open branches in Pakistan.

The Bank of China, which had a presence until 1970, gifted all its branches to the National Bank of Pakistan and has since not returned. We must seek a full branch licence for our banks in China.

Simultaneously, we must impress upon our Chinese friends to establish a banking presence in Pakistan as this would significantly help in promoting Sino-Pakistan business relations.

The visit, therefore, of Prime Minister Wen Jiabao is solid proof of the vitality of friendly relations between China and Pakistan.

This meeting at the top level is bound to give a vigorous impetus to the growth of stronger bonds in the political, economic and trade spheres.

On the economic front, it is imperative that General Pervez Musharraf and Prime Minister Shaukat Aziz seize this excellent opportunity to impress upon the Chinese government to initiate movement of direct foreign investment into Pakistan by state-owned enterprises. Chinese corporations, banks, international trust and investment corporations and other non-banking financial institutions must be persuaded to set up their offices and operations in Pakistan. Pakistan must offer attractive incentives to these institutions.

The role of our embassy in Beijing must move towards building deeper economic, and not only political, ties. The recently established consulate-general’s office in Shanghai

is a positive step in this

direction.

The Pakistan foreign policy pundits must quickly come to terms with the fact that Prime Minister Wen Jiabao may not have any special pro-Pakistan feelings. Indeed, it is true that Chinese think tanks still rank Pakistan as the friendliest state, yet over the last two decades China has emerged to take on a pivotal role in global economy and politics.

While Pakistan can continue to expect unstinted support from China, under the present circumstances, our foreign office must bear in mind that China has its own legitimate long-term interests in the region.

While the Chinese may continuously offer us assurances that development of their relations with other South Asian countries would never be to the detriment of its friendship with Pakistan, the fact is that the think tanks in China today are not the generation of the Cold War era.

They are more open-minded, given to capitalistic overtures and pro-West. Islamabad must quickly take cognizance of this fact and make serious efforts to develop the friendship further at all levels both within government circles and at a people-to-people level.

While I am convinced that the ordinary Chinese still value their friendship with Pakistan, there is an entirely new leadership in China whose vision is based on the realities as they exist today.