ONE of the issues that surfaces every year for budget-makers in Pakistan is the search for fiscal space. This year the trillion-plus budget continues to be squeezed on both sides by two large, seemingly fixed liabilities: debt servicing and defence spending. Despite defence absorbing more than a quarter of the national wealth, the subject, unlike debt servicing, has become inured from public debate and exempt from any parliamentary accountability.

A milestone, in fact, was crossed this year in the National Assembly as the young finance minister of state chose to ignore the inexplicable escalation in the defence budget and shied away from even mentioning the actual figure. Given the constant talk of transparency and good governance emanating from the government, it is not just surprising but shocking that the defence budget in Pakistan remains above public scrutiny as well as the law.

If lawmakers in Pakistan cannot discuss, let alone question the allocations and management of this chunk of the country’s wealth, then it is clear that once again, almost 30 per cent of the budgeted amount will remain out of parliament’s purview. This in turn means that the army’s business interests will also remain outside the public accountability mechanism.

Without explanation, the formal defence allocation account appears as a two-line statement divided into defence administration and defence services in the federal consolidated fund in the demands for grants and appropriations every year. As it stands, this year’s official defence budget itself posts a price hike of Rs 30 billion at Rs. 223 billion over last year’s allocation for Rs 193 billion in absolute terms. No doubt, as in previous years, this amount too will be subject to a revised estimate. Last year, for instance, official defence expenditure showed a difference of Rs 23 billion between initial and revised estimates for 2004-5.

The first glaring problem that arises with this defence budget is that it does more to conceal the allocation made than to enable its disclosure. To start with, the actual amount presented does not cover many expenses that accrue to defence. This is an accounting trend that has emerged over the last few years, when the international donor community has insisted that the military budget be reduced.

When parliamentarians or donors read the allocation for defence over the next fiscal year, it will not include the military pensions, which now run into 35.6 billion rupees. Nor will the defence outlay include Rs 1.4 billion demanded separately for the combatant accounts of the defence division which include the Maritime Security Forces and others with dotted line or direct reports to the military, Rs 40, 723 million in salaries for defence production, Rs 7.2 billion spent on the civil armed forces, Rs 3.7 billion for the Pakistan Rangers, Rs 1.5 billion for the Frontier Constabulary, Rs 359 million for the Pakistan Coast Guards, nor the one billion rupees set aside for military schools, cantonments and other residuals.

The Atomic Energy Commission too, which falls under the control of the Strategic Plans Division, has been allotted separate funds, yet the two billion rupees demanded this year is charged to civilian expenses under the cabinet division. But while the arguments for guns-versus-butter continue to rage in many places, this year’s Rs 272 billion development budget gets squeezed into carrying a load for the defence division as development expenditure worth Rs 642 million.

So essentially, even if the amount for military pensions is restored to the overall defence account and all the expenses mentioned above are added up, a revised figure of Rs 277 billion emerges, which demonstrates a clear rise of 43 per cent over last year’s official figure and a 14 per cent hike on the ‘hidden’ budget for last year. For 2004-5, this hidden budget amounts to Rs 242 billion instead of the Rs 193 billion figure that conceals military expenditures in civilian accounts. After specific claims that that there would be no rise in the defence budget, no credible explanation was even offered about the compulsions that propel this jump of 14 per cent.

The second question being asked is why Pakistan now needs a huge defence budget that is close to four per cent of its GDP, when India is spending 2.8 per cent? When the entire justification for maintaining a high defence budget is negated by the welcome downturn in hostilities with India, the rationale for Pakistan remaining hostage to its Cold War garrison-state identity should also naturally be under review. For a country that has fallen behind all of South Asia in its human development index, including Nepal and Bhutan, an urgent redefinition of outdated concepts of national security is surely expected.

But that is not all. The question of maintaining the eighth largest standing army in the world, when huge undisclosed amounts on the nuclear option are disbursed, becomes critical, for the simple reason that the nuclear deterrent capability was meant to substantially reduce the need for such a large conventional force. As it stands, one of the many reasons for continued high defence spending remains a large percentage of wasted resources which has arisen out of lack of oversight from non-military sources. While purchases of bullet proof limousines by the cabinet division can be questioned because they fall under civilian oversight, no such queries can be directed at the luxury cars and goods purchased by the military, its appointment of surplus employees, nor the expenditure accruing from duplication of activities or wrongdoing. From 1977 onwards, when Ziaul Haq began the practice of maintaining funds by the corps commanders who were at liberty to use them at their discretion, many scandals over money being siphoned for political activities have surfaced.

The inter-services intelligence agencies remain above the law and unaccountable, even though they reportedly absorb seven to 11 per cent of the military’s budget and use secret funds and ghost bank accounts to destabilize civilian political parties and their governments. The Mehran Bank scandal is an example of such financial corruption, when bribes worth Rs 14 million were unearthed as paid out by the ISI to manipulate the 1990 elections, a fact which was admitted in court by General Aslam Beg, the former COAS.

The third problem with this budget is that despite public clamour about the military’s vast real estate holdings, no equation is factored in to provide for the creeping militarization of the mainstream economy. The issue which is now constantly questioned without any satisfactory response is the size and quantum of the military’s holdings in what are traditionally commercial sectors.

The military’s four major welfare foundations are increasingly the subject of growing public disquiet because they pay no direct taxes on their corporate activities, operate as virtual monopolies, and elbow out civilian private enterprise in their subsidized operations. They function as military welfare trusts but provide a haven for retired and serving military officers who run a multitude of corporate ventures ranging from sugar, cereal, fertilizer production to running airlines, real estate, education, advertizing and others.

The four military foundations — the Army Welfare Trust, the Fauji Foundation, Bahria Foundation and Shaheen Foundation — for instance, now run a parallel commercial empire, but end up leaving scant traces of the net financial burden they impose on the public sector, because large allocations are made from the opaque defence budget.

Despite the fact that most of the foundations were raised with initial funding from the public sector and the sale of evacuee properties after 1971, their profits remain sky high because they remain above scrutiny even in their tendering for contracts and other market activities. The Fauji Foundation’s recent and controversial sale of Khoshki Sugar Mill at a low bid of Rs 300 million against the highest bid of Rs 387 million damages the institutional reputation of the military. The fact that government service rules prohibit public servants from running private enterprises is often ignored, while the military control of Pakistan’s public sector continues unabated as retired generals and brigadiers pick up lucrative posts and double pensions to run everything from public utilities, universities and accountability and national reconstruction boards.

The military as a class does itself a disservice when it allows rumour to replace public disclosure. Perhaps many of its legitimate procurement and modernization demands will then not be eclipsed by the paper-trail of undocumented purchases and irregularities unearthed by the auditor-general for Defence if it develops an institutionalized mechanism of requisitioning public money for its needs.

Unsurprisingly, it becomes difficult to forego development funds, even if they are poorly managed and often under-utilized, for an institution that fiercely protects its privileges and political role in the country by demanding immunity for itself while advocating accountability for others.

We the people, as they say, are not opposed to the military’s spending money in principle. We don’t even mind occasionally upgrading the proverbial barracks, but only if we know where the money is going.

The writer is a member of the National Assembly.
srehman1@comsats.net.pk

SEVEN million jobs are to be created in the next five years to solve the massive unemployment problem. That is one of the objectives of the Medium Term Development Facility, the National Defence Council was told last week by the planning commission, which has been brought back to life.

That works out to an average employment creation of 14 million a year for the next five years ending 2010, which is a strenuous task, in the face of too many uncertainties.

The employment creation target, as announced by the finance minister in his budget speech, is 11.3 million which is below the total of the new entrants to the job market and far below the vast pool of the unemployed in the country. The new entrants to the job market are high in number because of the large population of 155 million and the high population growth. Now more women too are forced to seek employment compared to the low 11.16 per cent share they had in the labour force.

Job creation depends on the totality of the investment, which according the Planning Commission is Rs7,932 billion for the Medium Term Framework which works to an average of Rs1,600 billion per year until 2010. The outlay for the Public Sector Development Programme for next financial year is Rs272 billion including a foreign aid component of Rs65 billion. The federal share of the PSDP is Rs204 billion and the provincial share Rs68 billion. In addition Wapda and National Highway Authority would spend Rs34 billion outside the PSDP for execution of their schemes which means further job creation.

The current rate of unemployment in Pakistan is 7.5 per cent says the Planning Commission, and that will be reduced to four per cent at the end of the five year period. And that works out to an unemployment reduction of 0.7 per cent per year.

To begin with, the unemployment rate is higher than 7.5 per cent, and certainly far higher than the 3.48 per cent, as claimed in the Economic Survey. The unemployment rate in Pakistan cannot be much less than that of Germany which is 11.8 per cent, or that of France (10.2 per cent) or Belgium (12.3 per cent). Employment and unemployment rates in these countries with strong trade unions are well documented while that is done rather casually in Pakistan or simply in a formalistic manner.

Unemployment in Pakistan cannot be as low as 7.5 per cent unless the casual or seasonal work in the farm sector is treated as regular employment as the families are too proud to admit that their sons are not working. And the number of those employed in the large informal sector is more the result of guess-work than serious calculation, and is not based on documentation.

The country needs far better or more accurate employment and unemployment figures prepared with the full cooperation of the employers who now hide full facts about the employment as they deny the basic right of many workers. Labour reforms are essential in this sector so that the country can have more reliable employment figures and map out the future employment strategy on the basis of that. The cooperation of the labour unions should also be sought in this area and the labour unions placed on a better footing.

The country also needs productivity surveys so that a far higher productivity could be achieved and sustained on a regular basis. Such studies are also essential to address the complaints of the foreign investors that while wages are low in Pakistan our productivity, too, is low and our labour is not cheap in reality, unlike the Chinese, where there is greater labour discipline and productivity.

The same holds good, they argue, if we compared the productivity of our workers with those of other East Asian countries where the administrations are less rigid.

Investment, employment and production go together. What we produce now should be more of the value added in a quality conscious world so that our skills earn far more than the material contents of our exports. Even for domestic consumption we cannot afford to import raw materials and energy and manufacture shoddy goods which are wasted soon. If we focus on quality production and durable goods our import bill will go down and the trade deficit will reduce. We have to become a quality-conscious nation in every sector even when the population pressure make us opt for cheaper goods and casual labour.

Adding to our cost of production is the increasing security cost. Better security has to be paid for in the factories, in homes of the managers, and as they move around in vehicles full of armed guards. That reduces the per capita production of the employees. And that must be made up by enhancing the productivity of the workers, by reducing the number of holidays, particularly suddenly announced holidays and work stoppages caused by prolonged traffic jams as a result of VVIP movements. If we have to get the best out of our large investment, inflation has to be low instead of the double digit infliction that retards our progress, and the rupee should not continue to be devalued. Already the new budget has been prepared on the basis of Rs61 for a dollar instead of the current Rs60. And if the rupee goes down against the dollar our imports, particularly oil, will become more costly and our exports get far less in terms of dollars. Along with that the Hundi system will be thriving with full vigour and undermine the four billion dollars we are getting this year as the record home remittances.

What that means is the full committed investment must actually be made and its total benefits realised. It should neither be diluted by the domestic inflation nor devaluation. Nor should corruption be allowed to eat into the investment and made less productive.

Prime Minister Shaukat Aziz has also proposed food at fair prices for five basic commodities, beginning with wheat. He has directed the utility stores to sell wheat at Rs11.50 per kilo. As the utility stores are too few in number, and confined to a few cities he has asked them to make use of vans to carry Atta to areas outside its perimetre. Even if the utility stores do what the prime minister wants competently, it can serve only a very small number of people.

To begin with the government has to make available to the utility stores enough Atta for widespread distribution. And he has to make available to them enough number of vans along with the necessary infrastructure.

He has also asked the provincial government to release the wheat stocks and promised to replenish that from the federal stocks. The chief ministers of provinces have also been brought into the fight against inflation and they will be provided with the inflation figures regularly. The provincial governments are the ones competent to fight inflation and enforce fair price measures. But all this touches only the fringe of the problem.

Now the private sector has been allowed to import wheat to increase the supply. They can import from anywhere in the world, except India which does not have regular quarantine system. How India responds to that exclusion remains to be seen.

The import of five basic food items — meat, live animals, tomatoes, onions and garlic had been allowed earlier, from India. Mr Shaukat Aziz had said the announcement of duty-free import of these items had stabilized their prices within the country; but now he admits the prices of those items had gone up following the budget. In fact, no import from India has taken place.

India is now said to argue that either such items should be allowed on a permanent basis and not on an one-time basis. How this problem is solved, remains to be seen.

When it comes to effective steps between India and Pakistan things do not move fast. It may be better for the government of Pakistan to consult India in advance before making such formal announcements so that needless arguments could be avoided.

Mr Shaukat Aziz has also promised to reduce Atta prices further at a later stage. As against what the government believes is the prevailing price of Atta in Pakistan, two women parliamentarians told the Senate recently that in their parts of Balochistan they had come across roti selling at Rs. 6 and Rs. 7 which is ghastly. That happens in a world far removed from the orbit of the utility stores.

He spoke of reducing prices of five basic food items beginning with wheat. Sugar is to come next. He did not specify the other three basic food items the prices of which are to be reduced. Instead of adopting an ad hoc policy, and failing, or getting delayed in the receipt of the commodities, the government should be able to secure its supply sources and be able to depend on them without fail.

It may be better to have a long term arrangement with India if not a permanent one. The arrangement could initially be for a period of five years or seven. When hoarders know the government has such a standing arrangement with India or any other supply source they may not resort to hoarding or market manipulation as often as possible. The agreement for meat supply could be initially for five years as our efforts to promote cattle farming commercially have not been a success.

But now Shaukat Aziz is talking of setting up 100 model dairy farms and 25 to 30 wholesale milk stores. President Musharraf, now on a visit to Australia and New Zealand, is to seek the assistance of those countries in this area in view of their vast expertise.

The fact is that Pakistan has a large population which is fond of meat. Its need for food items of various kind is very large. The efforts to restrict mass consumption of food, meat in particular, at weddings have been a failure. So the government has to arrange for enough food items and crack down on hoarders and market manipulators. And it has to ensure adequate and steady supply of the items in short supply.

If the per capita income has risen from 500 to 730 dollars since the year 2000, food consumption, particularly quality food, would rise substantially. The government has to accommodate such demands, more so when the rich and the powerful live it up and make a show of their financial success.

If the poor man’s basic needs are not met while the rich enjoy their financial success, there will be social convulsions, rise in big time crimes and ultimately in terror acts.

THE long-term solution is to invest many billions of dollars and a huge amount of political capital in persuading peasant families throughout China and Southeast Asia to change the way they raise their poultry.

The urgent short-term task is to develop a way of mass-producing influenza vaccine far faster than is now possible. It’s urgent because “the world is in the gravest possible danger of a global pandemic,” as Dr Shigeru Omi, Western Pacific regional director of the World Health Organisation, told an emergency conference on avian flu held in Vietnam two months ago.

The H5N1 avian flu virus first crossed into human beings in 1997, but it has clearly been mutating in recent years in ways that make it more capable of moving from birds to people. The spate of human infections in mid 2003 in China and Southeast Asia was so serious that over 100 million domestic birds were killed or died in those countries before it subsided in early 2004, but there was only a few months’ respite before bird-to-human transmission began again last June.

The virus has now appeared in wild birds who can carry

the virus far beyond its original reservoir in domestic chickens in southern China and Southeast Asia: in late May China closed all its nature parks after 178 migratory geese were found dead from the virus in Qinghai province in the northwest.

The most recent outbreak has so far killed 53 people in Vietnam, Thailand and Cambodia — and even more ominously, the first probable case of human-to-human transmission was recorded last September in Vietnam.

The danger of a global flu pandemic that could be as bad as or worse than the “Spanish influenza” outbreak of 1918-19 (which killed 40 to 50 million people, half of them young, healthy adults) comes from the fact that a strain of influenza virus that normally affects only birds can swap genes with a strain that is highly infectious between human beings.

If people with the human type of influenza should also be infected with the avian type (through direct contact with infected poultry), the gene swap can easily occur — and direct human-to-human transmission becomes possible. At that point, given current patterns of international travel, the world might be only weeks away from a global pandemic.

We don’t know if avian flu viruses swapping genes with human types caused the lethal Spanish influenza, but that was certainly the source of the much milder “Asian flu” outbreak in 1957-58 (which killed 70,000 people in the United States alone) and the “Hong Kong flu” pandemic in 1968-69 (50,000 US deaths). Given the rate at which influenza viruses mutate, we are overdue for another pandemic — and this one could be a monster.

The H5N1 virus is resistant to most anti-viral drugs, and in the avian form it has been getting steadily stronger. Early outbreaks killed around 10 per cent of poultry flocks; more recent ones have been killing up to 90 per cent.

In people who have caught avian flu, the death rate has been horrendous: 50 to 75 per cent of those infected. A gene-swapped version that is directly communicable between human beings might be less lethal, but it could still far exceed the one to two per cent fatality rate of the Spanish influenza.

To make matters worse, this version of avian flu has a long incubation period. Unlike

the SARS virus that killed 774 people two years ago, it may

be very hard to stop before

it spreads into the general population.

“When people were transmitting the (SARS) virus they were already showing signs, so it could be picked up at airports with temperature (detectors),” explained World Health Organization spokesman Peter Cordingley. “With (avian) flu you can be infectious before you show any signs.” If human-to-human infections start to spread, there could be not only huge loss of life, but global economic chaos as air travel is shut down to contain the spread, borders are closed, and essential services break down because too many of their workers are off sick or just hiding from the flu at home.

Governments are already arming themselves to deal with this pandemic — on April 1, President George W. Bush added, “influenza caused by novel or reemergent influenza viruses that are causing, or have the potential to cause, a pandemic” to the list of diseases for which a quarantine can be declared — but there is no vaccine. As things stand now, none could be available for months after the pandemic begins. That is why five teams of scientists, writing in a recent edition of the journal Nature, urged a permanent global task force to react quickly to outbreaks of bird flu. If it is not done, they warned, millions will die.

The first opportunity to create such a task force will be at the G-8 summit in Scotland next month, and its first priority must be to develop new and easily produced vaccines to deal with the expected outbreak.

But lasting progress, as Dr Samuel Jutzi of the UN’s Food and Agriculture Organization said at the Vietnam meeting

in March, depends on “addressing the transmission of the

virus where it occurs, in poul-

try, specifically free-range chickens and wetland-dwelling ducks.”

In other words, a couple of hundred million Asian peasants have to be persuaded to stop living in the same space as their poultry. A tall order, but a necessary one. — Copyright

FACED with the EU’s biggest crisis for two decades — the French and Dutch rejection of the constitution — European politicians and much of the media are lowering themselves to the occasion. Absurd name-calling and rows over who is most to blame swamp the fundamental issues.

In Britain sordid anti-Gallic prejudice rears its head. Jacques Chirac is accused of trying to divert attention from the no vote by talking of ending Britain’s rebate. Wrong, and wrong. The rebate has been on the agenda for months and was always destined to be part of the discussions for the EU’s long-term budget that was meant to be agreed this summer. And every EU member, not just France, is unhappy with the UK rebate.

The sniping and swiping make it almost inevitable that Thursday’s summit of European leaders will fail to address the big picture. Arguments over the EU budget and whether other countries should continue with their referendums threaten to take up most of the time. Yet Europe has never been in greater need of a new vision to make the union relevant to generations for whom the founding concept of preventing war among European states has become old hat.

The no votes in France and the Netherlands were not a victory for the make-Europe-history camp. They came from people who want a different kind of Europe rather than no EU at all. Europe’s leaders ought to launch a far-reaching search for ways to respond.

Europe’s identity cannot be based on a glorified heritage celebration. Pride in castles and cathedrals is all right for the design of euro banknotes. But promoting a sense of loyalty that encourages European citizens to feel their continent has distinctive values, institutions and objectives has to rest on something deeper and more forward-looking.

Elections are decided by swings, and the indisputable fact in France and the Netherlands is that many centre-left voters with progressive internationalist and pro-EU views switched to the no side. Peter Mandelson accepted that in his thoughtful Fabian lecture on Monday. He even criticized the Barroso commission for not making the case for social justice. But he too fell into the trap of name-calling and distortion when he derided “populism of the left that rejects globalization”.

What most social democrats want is to manage globalization, not reject it. They do not accept the Mandelson view that the welfare state is “outlived”. So for Blair and other supporters of a neo-liberal agenda to argue that now is the time to speed up deregulation and the dismantling of social rights goes against the message from France and Holland.

Nor is support for the social model exclusive to “old Europe”. Poles and Hungarians undoubtedly want the freedom to work anywhere in Europe, including in “old Europe” where wages are higher, but there is no evidence that these “new” Europeans do not value decent social services, state-subsidised pensions and welfare benefits in their own countries.

So this should be the first part of the vision around which the EU rekindles popular support — harmonization rather than competition. Instead of a race to the bottom, Europe should raise social standards to a common level throughout the union, in maximum hours worked, minimum wages, trade union rights and welfare provision.

Some argue that this will prevent Europe competing with Asia for global business. But, unless they mean European wages should drop to Asian levels, there is no way to compete. Trade barriers are a legitimate medium-term defence, and the United States and the European Union maintain them. Neither practises rampant free trade. Globalization can and should be regulated, as Mandelson was doing with his textile agreement with China last week.

It is right to lower tariffs and quotas on food and processed raw materials from small developing countries that have nothing else to trade. But European barriers to industrial exports from countries such as China and India with huge internal markets for their own manufactures are fair.

A second source of European pride is the parliamentary system. In the USSR’s dying years, when Soviet citizens and eastern Europeans eagerly looked at the options for multiparty politics, they appealed to the West for advice. Regrettably, Europe spoke too softly and, almost by default, Russians came to believe that the American tradition of strong executive presidents was the universal democratic norm. This was reinforced when the West backed Yeltsin as he sought to emasculate the fledgling Russian parliament in the early 1990s.

Most other ex-Soviet republics followed suit and created strong presidencies. Europe ought to have highlighted the fact that, with a few exceptions such as France and Finland (and even their systems are only semi-presidential, since they also have prime ministers chosen from the leading parties), Europe’s parliamentary tradition offers a greater choice of parties, less of a TV-dominated and personality-based beauty contest, more restraints on corporate lobbyists and unfair political financing, plus a bigger chance of removing unpopular governments before the end of their term — in short, more democracy — than the American system.

Improvements are needed, in particular proportional representation in Britain, as well as more powers for the European parliament and better rights for national parliaments to discuss European commission proposals. (These reforms were in the constitution and ought eventually to be salvaged.) But constant talk of a “democratic deficit” ought not to obscure the point that the parliamentary model is a distinctive European achievement, and source of emulation for other countries.

Europe’s social model and parliamentary traditions illustrate the differences that have developed between this continent’s values and institutions and those of the US, in spite of common origins. The time has come for Europe to put flesh on this transatlantic division and develop an independent foreign policy. This too can be a rallying point for Europeans, as well as giving the EU a different profile around the world.

Saying Europe’s international voice should be louder is a commonplace. Calling for a “counterweight” to the US is unrealistic, given American predominance. Independence is enough. On some issues Europe will agree with Washington, on others not, but the key to genuine freedom of action has to be the ending of the formal transatlantic alliance.

Since the cold war Europe faces no threats that require an automatic triggering of US support. Nato is no longer a crutch. It is a leg-iron preventing Europe from taking action on its own, and a device for US pressure — most recently the bullying of current and would-be Nato members to commit troops to the chaos of postwar Iraq. There is no way Macedonia, Ukraine, Georgia, let alone the Netherlands, would have sent forces if Nato did not exist (though some have since had the courage to withdraw).

A vision for Europe that is proud and distinctive has many features to call on: no torture or death penalty, civilized inner cities with pedestrian precincts, multicultural tolerance, sustainable use of energy, independent public broadcasting and restrictions on gun use. But the social model, parliament and international independence are the biggest three. — Dawn/Guardian Service