THE 2005-06 budget announced on Monday is in many ways a finely crafted growth and export-oriented budget. Its very positive features include the those that have a direct bearing on this sustainability of growth, higher exports, higher allocations for development, tax concessions, reduction in duties and reliefs for low income groups.

These are evident from: a) elimination of GST on inputs of the textile, leather, carpet and sports goods industries. This indeed is a major step that will reduce the cost of doing business. In particular, the textile industry that exports 95 per cent of its production will be saved from the drudgery of obtaining sales tax refunds. b) Reduction in the rates of individual and corporate income tax. c) Rationalization and reduction of customs duties, particularly for inputs and machinery of the agriculture sector. d) A sharp increase in development expenditures (although this begs the question if a government machinery that has failed to make much headway in the execution of the significantly smaller development programme for the year just ended, can implement a programme of this increased size.).

This discussion will, however, focus on the areas on which the budget speech chose to remain silent. To begin with, despite the several welcome tax concessions, it is assumed that the healthy increase in government revenues will come from growth and improved administrative efficiency, although the tax-to-GDP ratio may, in fact, continue to remain stagnant, if it does not actually fall. Whereas on the face of it, the assumption is not unreasonable, much will depend on the tax collection capabilities of the CBR during the year, since revenue collection during the last two years has not matched the growth in those sectors and sub-sectors of the economy liable to both income and sales taxes.

It will take time to put the genie of inflation back into the bottle. There is a huge monetary overhang that will take its time to work through the system, keeping the rate of inflation high for much of the year. Better monetary management will be required, which in turn will call for a further tightening of interest rates (including making them positive in real terms as currently they are below the rate of inflation) that would most probably affect investment levels and thereby the growth rate. In any case, it is not quite clear how the economy, with little spare capacity, can be expected to grow at seven per cent, with an even lower savings and investment to GDP ratio.

Moreover, managing the impact of higher interest rates on consumer finance will be a trifle tricky. Apart from affecting their capability to service existing loans, it would make consumers shy of additional borrowings thereby reducing the demand for consumer durables that had fuelled both demand and production of these items through cheap finance in recent years.

The third area of concern is the huge trade deficit which would be expected to widen further, at least in the short-term, because of the lowering of import duties, although some of this would also benefit exports and thereby partly have a salutary impact on export earnings. Whereas this deficit will have to be met from remittances and external borrowing, one factor constraining growth in exports that is not being acknowledged is the overvalued exchange rate.

With our inflation rate substantially higher than that of our competitors and trading partners, the will have to bite the bullet and allow the rupee to depreciate by at least five to six per cent in order to maintain international competitiveness and the profitability of exports for Pakistani exporters.

Of course, the downward adjustment of the exchange rate will increase the cost of imports, thereby feeding inflation as well as adversely impact upon confidence in the currency. But there is hardly any option left on this front, and the quicker this revision is effected, the more manageable will be the side effects.

How will the government enforce the minimum wage of Rs3,000 considering its miserable failure in implementing the minimum wage of Rs2,500, announced as far back as 2001. As it is, the minimum wage law does not extend to agricultural workers while the government has exempted itself from the ambit of the law. Nor does the government require its contractors on infrastructure projects to pay their labourers minimum wages. Therefore, it has no moral authority to ask others to implement it.

Moreover, even the new minimum wage of Rs.3,000 per month will fail to compensate workers for inflation, thereby failing to protect the living standard of workers, a professed objective of minimum wage legislation; the 1992 minimum wage of Rs1,500 adjusted for inflation works out to Rs3,875 in 2005.

Our findings from the government’s labour force survey of 2003-04 are that the wages of elementary workers, the focus of the minimum wage legislation, grew only slightly, resulting in a large erosion of real wages from Rs2,671 in 1997-98 to Rs2,374 in 2003-04, i.e. real wages are lower in 2003-04 than in 1997-98 in both urban and rural areas, even before the double- digit inflation of 2004-05 hit them.

In fact, 26 per cent of all wage earners and 14 per cent of regular workers were earning less than the prescribed minimum in 2003-04, highlighting the poor implementation of the minimum wage legislation.

Finally, the perception that will gain wide currency will be that the incentives to invest in speculative and non-productive activities (like real estate) continue to be stronger than those for investments in real and productive sectors of the economy; and that the bulk of the budgetary benefits and incentives are either meant for affluent segments of the population or those occupying the ranks of the civil and military bureaucracies, the assemblies, and their friends and relatives. The gap between the rich and poor will widen, and regional disparities will be accentuated as more and more resources are retained by Islamabad for funding its own portfolio of development schemes.

The writer is former finance minister, Punjab.

WHENEVER a trade pact comes to American Congress, its supporters warn the people that if we don’t pass the agreement our economy will be hurt and our trading partners will be devastated.

An annual US trade deficit that has gone from $38 billion to $617 billion in a dozen years makes those claims hard to believe. And since Congress passed President Bush’s trade promotion authority three years ago, we have lost one-sixth of our manufacturing jobs.

When the proponents of trade agreements have nothing left to sell, the name-calling and misrepresentations begin. Now that the Central American Free Trade Agreement (Cafta) has been sent to Congress, its supporters are calling its opponents isolationists, or protectionists, or even anti-democratic. They claim that those who oppose this trade agreement are simply special interests opposed to trade, that they don’t care about the poor in the developing world, that they want to pull up the ladder and keep out foreigners. For a change, let’s look at the facts.

The combined economic output of the Central American countries is about $62 billion, equivalent to that of Columbus, Ohio, or Memphis, Tenn. Annual per capita income of a Nicaraguan worker is about $2,300, less than one-sixteenth of an American’s. Cafta will not enable Central American workers to buy cars made in Ohio, or software developed in Seattle, or prime beef from Nebraska.

Cafta is about US companies moving plants to Honduras, outsourcing jobs to El Salvador and exploiting cheap labour in Guatemala. Opposition to Cafta is deep and broad in the United States: workers who are anxious about their jobs, their pensions, their health care; school districts that lose revenue with every plant shutdown; small businesses that can’t compete with corporations using cheap labour to undercut the market.

Opposition is just as deep and broad in Central America. More than 8,000 Guatemalan workers protested against Cafta in March; the police responded with tear gas. In El Salvador, tens of thousands protested the agreement; the Salvadoran legislature responded by passing it in the middle of the night with no notice and little debate.

In Costa Rica 30,000 protesters took to the streets last fall. And Costa Rican President Abel Pacheco announced this month that his country would not ratify Cafta unless an independent commission could determine that the agreement will not hurt the working poor.

What really makes sense is a trade policy that lifts workers up in rich and poor countries alike while respecting human rights and democratic principles. Workers’ rights should enjoy the same guaranteed protections as Cafta provides to prescription drug companies. Environmental and food safety laws deserve the same legal standing that Cafta extends to CDs and Hollywood films.—Dawn/Washington Post Service

The writer is a Democratic representative from Ohio and author of “Myths of Free Trade.”

IN MANY parts the Economic Survey for 2004-05 the executive summary of which I was able to peruse on Sunday, makes a pleasant reading. After all, who would fail to find positive the fact that the growth rate will be 8.4 per cent in 04-05 and that there has been not only a spectacular 12.5 per cent growth in the manufacturing sector but, even more importantly, agricultural production went up by 7.5 per cent?

There was a record level crops of cotton — 14.6 million bales as against 10.million bales a year earlier — and wheat — 21 million tons as against 19.5 million tons a year earlier. Who would not find encouraging the reduction of the debt servicing liability from 54.4 per cent of revenue expenditure in 2000-01 to 25.6 per cent in 2004-05, and the increase in poverty reduction and social sector related expenditure from Rs156 billion in the first nine months of the last financial year to 191 billion in the same period of the current financial year? One can also welcome the information that defence expenditure, even while growing in absolute terms, is now 22.4 per cent of the total outlay as against 23.3 per cent last year.

And yet there are flies in the ointment not spelt out in the survey itself. Let me first focus on what I regard as the most important, that is education. The most impressive part of the government’s efforts in the education sector has undoubtedly been the manifold increase in the allocation of funds to universities and other institutions of higher learning. Critics may carp about the equitable distribution of these additional resources and their rational utilization but these are minor details that in the course of time will hopefully be set right.

The most important element, however, from the point of view of the title of this article is what the survey has to say about the madressahs. The survey maintains that formal education has been introduced in 8,000 madaris (primary 4,000, middle and secondary 3,000 and intermediate in 1,000) but it then goes on to say that formal education subjects would be introduced.

The round figures for the madaris and the future tense suggest that this has not really moved to the implementation phase. It lends credence to what is generally being said about the madaris resisting the introduction of formal education and the government not proceeding to recruit or making the madaris recruit the teachers needed to teach these subjects.

Apparently some 8,000 madaris have registered with the ministry of education but moving ahead from such registration to enforcing a revised curricula and the auditing of madaris accounts are by steps that have yet to be taken. It goes without saying, of course, that the 8,000 madaris registered represent only a portion of the total number in the country. Estimates on this have run as high as 41,000 though if I recall correctly the government’s own rather incomplete survey had identified some 13,500 madaris.

In an article last year in February titled The Enemy Within I had quoted the following excerpt from a NY Times report of an interview with President Musharraf, “When he spoke about his own efforts to combat fundamentalism in Pakistan, he conceded that some areas, like the reform of hard-line Islamic religious schools, or madressahs, had proceeded slowly. ‘You must understand, I don’t have a magic wand,’ he said. He said his biggest problem was getting the lower rungs of Pakistan’s government to function. ‘There is really a very big gap between policy formulation and policy implementation,’ he said. ‘For a developing country, this gap is very large.’

In the 16 months that have passed since the interview was published it appears that the gap between policy formulation and implementation has been bridged only on paper. The reality on the ground remains almost exactly as it was. Is this attributable to poor governance alone or are there more sinister forces at work?

Perhaps it is poor governance. The same newspaper that carried the full text of the executive summary of the Economic Survey also had an article which quoted a World Bank report as maintaining that there had been no improvement in good governance indices in Pakistan. Since the World Bank is favourably disposed at this time towards both the country and the government in power this cannot be dismissed as a form of “pressure”.

Perhaps it is also poor governance that has permitted the attacks on shrines and mosques which in recent days have come as an agonizing reminder that Pakistan’s sectarian differences are being accentuated as more and more efforts with a focus on the outer trappings of religiosity are being made by the religious political parties and as the mainstream moderate political parties continue to be denied space.

Perhaps it is poor governance that allows these parties to call on the strength of the much vaunted street power — for strikes in Pakistan’s premier city resulting, according to reports that appeared only a day before the Economic Survey in daily production losses of between 40 and 80 per cent.

Perhaps it is indicative of poor governance that the strike is called in a city which is not in a province governed by the MMA and the provincial government does nothing to protect the livelihood of the people it represents.

But this is far too facile an explanation unless we accept the thesis of doomsayers who have termed Pakistan a “failed state.” After all, the most stable institution of Pakistan, with the most disciplined body of forces at its command, is at the helm of affairs in Islamabad. President Musharraf and, implicitly if not explicitly, his institution are committed to the concept of “enlightened moderation” which in turn derives from the vision of Pakistan that inspired the Quaid.

President Musharraf has been the target of assassination attempts as have some of his closest associates. There cannot be any doubt that the extremists who instigated or master minded these attacks are symbiotically linked to the fomenters of sectarian strife and the political use of such strife to dislocate economic activity. He has every incentive to ensure that the gap between the government’s declaratory policy and its operational policy is effectively bridged. The military government — if it sets aside political considerations — has the advantage of being able to deal ruthlessly with those who frustrate this objective.

Since I don’t usually write on domestic affairs, let me add that much of what I have said is reflective of the concerns that were expressed along with praise of our anti-terrorism efforts at recent meetings with western friends. There was only muted mention of the “failed state” but somewhat more direct expressions of frustration at what was seen as being, at the very least, the lack of resolve by Islamabad. “A soft government in a soft state” is how one friend put it. Particularly baffling was the president’s interview to a local paper in which he said that his personal view was that women should have the right to run the marathon but since the majority of Pakistanis was opposed to such races they should not be held.

The mention of foreign affairs reminds me of another element that I have written about before and which inhibits our economic growth and saps our moral fibre. We have produced a record 21 million tons of wheat but procurement in Punjab has fallen short of target and one can assume that as happened last year, Punjab will try and block the movement of wheat out of the province into the NWFP negating the concept of a united country. Valuable resources will be spent on importing 1.5 million tons of wheat at prices higher than we pay our farmers. One does not need to be a rocket scientist to appreciate that the shortage will arise largely because wheat and wheat flour will be smuggled across the border to Afghanistan.

The irony is that the Pakistani consumer will pay more for the imported wheat while the Afghan consumer will also pay a far higher price than he would for wheat or wheat flour imported by the government or received by it as assistance. The only beneficiaries will be the smugglers and those officials who connive with them. It would be far better if we were to make wheat a part of our aid package for Afghanistan. We would at least get credit for the valuable foreign exchange we would be spending on importing wheat.

Apropos smuggling, it was not surprising to read a report presumably based on briefings from the CBR that the annual smuggling of highly taxed items into Pakistan is worth about $6 billion. Officials apparently were suggesting that since they were powerless to stop the smuggling the solution lay in reducing or eliminating tax on the foreign commodities involved and to eliminate GST and excise duties on the Pakistani items that were re-imported. The suggestion, it seems to me is eminently sensible but it raises questions about the porosity of our borders.

When the smuggling of goods cannot be stopped can we stop or do we even try to stop the infiltration of people of which we hear constant complaints from our Afghan friends? Many of them believe that the human traffic is something that we are encouraging or at least conniving at and that this is a factor contributing to the turmoil in Afghanistan. Not a good augury for the stability of Afghanistan — a stability that we will need if there is to be trade with Central Asia and if Turkmenistan gas is to flow to Pakistan and through Pakistan to India.

Our economic performance has been noteworthy even if poverty alleviation is not immediately apparent. The greater liberalization we are embarked on is again positive. But realizing our full potential will require us to take a more hard-nosed attitude towards the fomenters of internal strife and towards those intent on creating chaos in Afghanistan. Let there be no doubt there is more than a symbolic connection between the bomb blasts in Karachi and Islamabad and the suicide attack on the Kandahar mosque.

The writer is a former foreign secretary.

WHEN some groups of Muslim women of the Islamic Republic of Pakistan were being badgered by their maulvi brothers in Gujranwala for daring to run in a marathon, at just about the same time two Muslim women of the Islamic Republic of Iran were on their way to the Himalayas to try and conquer Mount Everest, a feat which they ultimately performed without let or hindrance from their maulvi brothers.

Their deed was a triumph for the whole Muslim world. The only question that arises out of these two events is: is Pakistan more of an Islamic republic than Iran?

Before I proceed any further, let me make it plain that I am not a Shia, but ever since Islam in the person of Imam Khomeini inflicted a crushing defeat on the Shah of Iran, and laid the foundations of a truly Islamic republic in his country, I have been a votary and advocate of the clerical regime. Let me also make it clear that I did not become a sudden admirer the day the Imam landed in Tehran.

It took me a couple of years to arrive at the conclusion that the new Iran represented the true spirit of my faith, the spirit of learning, research, discovery and science — the spirit that was at the back of the magnificent Islamic rule in Spain, the glories of Baghdad and the conquering zeal of the Ottoman empire, though that was long before the Turks began posing as Europeans by wearing a suit and tie.

The most honest attribute of today’s Iran is that it is not apologetic about being religious and theocratic. We are so apologetic that as soon as one of our educated citizens mentions his country’s name to a foreigner, he hastens to add, “Actually we are a secular nation but for some reasons, which I can’t clarify, we have to call ourselves Islamic.” The tragedy is that no one in this world believes that Pakistan is a secular state or even an Islamic state.

Ignorant as we are about most things in the world, we laugh at the ‘chador’ of the Iranian woman, forgetting that with her face open to the world, she has more rights and opportunities than her so-called enlightened sister in Pakistan. There is no restriction on her going into any profession selected by her for her independent existence or as a housewife. You will say that the Pakistani woman too is unrestricted. I will at once agree with you, but add that she is, except for choosing her own husband in the rural areas, in the application of the primitive and cruel institution of karo-kari, in being deprived of her right to property in some highly educated and politically powerful sections of the population, and, of course, in the matter of participating in a marathon in Gujranwala!

But to tell you the truth, this Mount Everest thing even took me by surprise and I was left open-mouthed, as were many of my friends and relations who still try to feel superior by describing the Iranian regime as orthodox. As a proof of our superiority they boast that we are a nuclear power, while Iran is only fumbling with efforts to become one. Let us be honest with ourselves. If we were at the stage at which Iran finds itself today, do you think we would have had the guts to continue with our programme in the face of US opposition?

I once complained to the man in charge of publicity in the Iranian embassy in Islamabad that his set-up does not tell our people the whole truth about Iran’s advances in science, engineering, defence manufacture and culture. He didn’t say anything but he did smile faintly when I said that probably Iran held back many developments and many facts about its real national progress so that the other Islamic republic should not feel embarrassed by making a comparison.

Moving from the status of women to other fields, let us take films. Ever since independence our film industry has been trying to produce a movie that, far from expecting to win a prize at the film festivals that are held in places like Cannes and Venice and Moscow, could just be accepted for exhibition as a mere sample of our “advance” in that medium. But no, we have failed. But feature films made in Iran are a commonplace at these festivals and have even come away with a prize or two.

Reading about Iran in the Western press, which is otherwise biased against that country in many respects, one finds the cleric rulers bent upon making it as modern as any nation, except, of course, in thought and ideology. In industrial manufacture it appears that Iran wants to be known as a country that can produce anything, howsoever sophisticated it may be.

The way it fought the eight-year war with Saddam Hussain’s Iraq, bolstered as the latter was with material assistance from the United States, is a golden chapter of its recent history. Equipped with primitive means of warfare but armed with the proud spirit of Islam, it prevented itself from being run over, which was a very great achievement indeed.

I want to restrict myself in this piece to Iran’s women and to the selflessness of its leaders. Every day we read of our masses going crazy in Karachi after an accident or something for which the government was not even remotely responsible, and burning down banks, public transport and even school buildings.

Have you ever heard of any so-called popular leader, from the Muslim League or the Jamaat-e-Islami, or the MQM or the PPP, rushing to the spot and advising them to desist from this mindless arson? No, never. But let me tell you of what I read in a respected British journal once.

When the revolution against the Shah and his western sponsors was at its height (so wrote that journal) there were sometimes crowds as large as a million angry souls on the streets of Tehran.

And they were really incensed by the murderous deeds of the Shah’s army and police and secret agencies. And yet, with the capital clogged with these hundreds of thousands of protesters, no shop window was broken, no car was burnt, and not even a lamp-post was bent.

How did this come to be? Simply because the religious leaders, most of them still in exile, had exhorted the people that this was not to happen. No public or private property was to come to the least harm. Isn’t this unbelievable? They listened to these leaders because they trusted them to be upright and unselfish.

I think that is enough for a brief review of the two Islamic republics.

THE NPT review conference which collapsed with a whimper at the end of May went practically unnoticed in Pakistan. This indifference can be attributed to the fact that Islamabad, along with New Delhi and Tel Aviv, was not present at the conference which brought 188 NPT signatories together in New York for their five-yearly exercise.

Another reason for not taking note of the event is the apathy in this country towards nuclear weapons. The conference ended a day before the seventh anniversary of Pakistan’s own nuclear tests at Chaghai. It might seem rather strange that apart from a few peace activists no one even remembered that catastrophic day when Pakistan opted for the road which can prove to be self-destructive.

With Hiroshima nearly 60 years behind us, the world appears to have forgotten the horrors of the nuclear war, notwithstanding a desperate campaign by the activists from Hiroshima to keep alive the memory of the devastation caused by nuclear arms. Had it not been so, the NPT review conference would not have collapsed so ignominiously as it did on May 27. As UN Secretary General Kofi Annan pointed out in an article in the International Herald Tribune, “a vital opportunity was missed to repair ‘cracks’ in each of the 35-year-old accord’s pillars — non-proliferation, disarmament and peaceful uses of nuclear technology”.

Given the deep disagreement between the haves and the have-nots of nuclear weapons, it is not surprising that no substantive agreement could be reached. With each state focusing on the ‘pillar’ that suited it most, the conference saw a lot of fireworks behind closed doors and no serious debate to reach a compromise.

Some countries did not even consider the conference important enough to merit a high profile representation. This sent wrong signals to the world. The US secretary of state, Condoleeza Rice, did not address the review conference, though it was being held at a stone’s throw from the UN headquarters in New York.

Mr Annan had warned at the start of the moot in early May that an integrated approach was essential if success was to be achieved. He had appealed to the delegates to address all the three ‘pillars’ simultaneously. That never happened. The nuclear weapon states refused to acknowledge their own responsibility in the matter and mounted a vicious attack on the so-called “culprits,” such as Iran and North Korea.

The secretary general and several others are optimistic about the NPT regime which they believe is still intact. But is it? When the NPT was signed in 1968 and came into force in 1970, the fundamental premise was that the world was neatly divided between the nuclear weapons states (the US, Britain, France, Russia and China) and the non-nuclear states which comprised the rest of the world.

This divide was expected to be temporary. While the have-nots would commit themselves not to acquire nuclear arms capacity, the nuclear club would move towards disarmament. Since it was agreed that it would not be fair to deny the have-nots the advantages of nuclear energy for peaceful and development purposes, they were to be allowed to have access to nuclear power but under stringent regulations by the IAEA.

As it turned out to be this arrangement could not be sustained after it was decided in 1995 that the NPT would be extended indefinitely. First, the nuclear weapons states showed no inclination to move towards disarmament. In fact, the US actually began retrogressing on its earlier commitments.

It refused to ratify the CTBT in 1999. In 2001 it withdrew from the ABM treaty. The non-nuclear states were dejected but could not do much about it.

In 1998 India and Pakistan, which had been proclaimed as non-nuclear states, went in for nuclear explosions. They became de facto nuclear states along with Israel whose status has not been formalized either, though it is known to have nuclear weapons.

North Korea pulled out of the treaty in 2002 and in 2004 announced that it had the nuclear bomb. With these developments, the NPT has received a severe jolt.

In the 2000 review conference, the big powers had accepted 13 steps in the agreed programme of action. They included the ratification of the CTBT and commitment to the ABM treaty. With the US reneging on these commitments the situation has changed entirely. In last month’s review conference, the participants refused to even reaffirm their commitment to the 13 steps spelt out earlier.

In this scenario, can you really hold Iran, North Korea and others responsible for their nuclear adventure?

Another message to have emerged from the NPT review conference is that nuclear weapons are an evil only when they are in the hands of the ‘evil guys’ — the states or non-state actors who are not trusted by Washington — but nuclear weapons in the hands of America and its allies are acceptable as they provide security. By the same token, the nuclear bomb in Israel’s arsenal is nothing to worry about.

But North Korea and Iran (which the US suspects is making the bomb) are not the ‘good guys’ deserving of this weapon.

It is time all countries that have the nuclear bomb realized that it is an evil they could all do without. It only gives a false sense of security to the weaker states when it actually makes them more vulnerable, as it is suspected that they will launch the first strike or act irresponsibly. The big powers with nuclear weapons are not in an enviable position either.

They have to maintain a balance of terror (mutual assured destruction) to preempt a nuclear war but when brinkmanship is practised a nuclear holocaust can be sparked by accident.

It is time to make this world free of nuclear weapons. Turning swords into ploughshare, will fetch greater benefits to the Third World countries. It will help them generate savings that can be channelled into human resources development. That brings real prosperity and security to a state.