LOWER inflation is better than devaluation of the rupee, says the State Bank of Pakistan in its second quarterly report to parliament for the period ending December 31st. Almost everyone will agree with this assertion in a world wary of inflation. While inflation can do serious injury to the economy, devaluation has pernicious consequences when the rupee already has a very low exchange rate of over 50 rupees a dollar.

Devaluation would, in fact, exacerbate inflation by pushing up the prices of all imports in a country in which imported inflation has been the bane of the economy for long. Devaluation would increase food prices at a time when we are importing wheat, sugar, palm oil, pulses and a variety of vegetables and meat from neighbouring countries.

The import target for the current year is $21 billion against the exports for $17 billion. The import target has already been reached within the first nine months of the year. One estimate is the total import for the year may rise to $27 billion by June 3O. This seems almost certain keeping in view the rise of world oil price to almost $75 a barrel and after the world price of sugar has shot up and we are now importing about 0.4 million tones of cement as well.

Part of the large foreign exchange deficit will be covered by the rising home remittances which by the end of the financial year may touch $4.5 billion, leaving a lot more of the deficit to be covered by other sources. The government will also be helped by the foreign direct investment of $2.22 billion and the portfolio investment of $407 million for the first nine months of the year. Much of the FDI has come through privatization particularly of the PTCL.

A rather tight monetary policy, as advocated by the State Bank, may reduce the possible deficit to some extent but the government does not intend to tighten the money supply and private bank credit enough as that may arrest the fast growth of the economy which this year may be around 6.5 per cent instead of 8.4 per cent last year. Too much money is afloat and it will take some time before its inflationary impact could be restrained.

Devaluation will make all imports more costly including machinery for industrial expansion, computers for developing the IT sector and that will hurt the industrial growth. Foreign education will also become more costly.

The exchange rate of the rupee is already over 60 rupees to a dollar against India‘s 45.25 rupees and that can reduce the demand for Indian goods by making them more costly. Devaluation will also make defence procurement more costly at a time when we are obtaining 95 advanced fighter planes including F-16s from the US.

Devaluation will also increase expenditure of our embassies in terms of rupees and the cost of sending too many delegations abroad will become too high. The National Assembly debated the ill-effects of high inflation rate for three days together and various suggestions were made to reduce it. But the government insisted that because of its anti-inflationary measures, the rate of inflation has come down and the State Bank says the inflation rate in 2006 will be around eight per cent which is pretty high following the preceding level of inflation.

The federal government also blamed the provincial governments for not taking enough steps to bring down the prices. The opposition, on the other hand, has urged the government to reduce the high development surcharge on oil so as to ease the price of petroleum products, but the government does not want to lose the part of revenue by doing. It expects to collect Rs 690 billion as tax revenues or even more this year. In fact, the Central Board of Revenue wants to achieve its target of 1.5 million taxpayers by the end of the financial year. Currently, there are 1.34 million taxpayers.

So there is no relief for the consumers except through larger import of sugar, cement, vegetables and meat which has been arranged for. President Musharraf during his many meetings with Prime Minister Shaukat Aziz has raised the issue of high inflation rate and called for urgent steps for its reduction. He wants the common man to feel the beneficial impact of the high economic growth after several years of low growth, and not continue to bear the burden of inflation indefinitely.

It is true that a high economic growth rate is usually accompanied by a rise in inflation rate, but if appropriate preventive measures are taken, money supply is kept restrained and the supply side of the economy is well taken care of, the baneful effects of inflation can be contained. But the measures to be taken should be effective in real sense, instead of taking good policy decisions but leaving them half-way.

In fact, sustained inflation will make development more costly and slow down the rate of growth. High inflation rate is a self-defeating mechanism for high growth and should be avoided.

Meanwhile, preparations are under way for the new budget which would become effective from July 1 and various quarters are pressing their claims for tax exemptions or tax reduction. The prospering Karachi Stock Exchange has called for a five year exemption from capital gains tax which is now valid until June 30, 2007. Its members want the tax bonanza to last forever as the index hovers around 12,000.

While promising no new taxes this year, the Central Board of Revenue is computerising all property dealings in the country, which will cover both land and real estate. The CBR wants a proper database to be prepared.

The government has also formulated a public sector development programme for next year with an outlay of Rs 342 billion, which means Rs 100 billion more than the PSDP allocation this year. The provinces will get Rs58 billion more this year compared to 54 billion it got last year. Apart from the increased federal assistance to the provinces, no more development funds will be provided from the federal PSDP allocation. The centre argues that since a larger share of the federally collected revenues has been given to the provinces, they cannot claim any more. But the provinces don’t accept that argument and want more out of the new PSDP programme.

Along with the dispute between the centre and the provinces over the share of the development funds, the quarrel is getting increasingly contentious. Meanwhile there has been no final decision on the National Finance Commission award on which President Musharraf was to arbitrate. The provinces are very assertive and a compromise has to be found.

Meanwhile, the planning commission is to play a more important role than before. It has been revamped with the prime minister as its president and ten of the federal ministers as its members. The provinces do not seem to figure anywhere and they may not accept the decision of the centre.

Meanwhile more money is coming in the form of aid and loans to the centre. The Asian Development Bank is to give four billion dollars in the next two years. It has already given a total of $15.8 billion. Canada has written off its loans worth $392 million so that the money can be spent on education, particularly teachers’ training. Italy has written off $200 million, a half of which was to meet the expenditure on Afghan refugees and the other half to pay for the reconstruction work in earthquake-hit area. Germany has written off $62 million so that it can be spent on the reconstruction work.

Such inflow of funds is inducing the provinces to demand more particularly in view of the fact that they have to spend a great deal on law and order. So the centre has to find a balance, instead of letting the provinces gang up against it.

Meanwhile, the president is promising more water and power for the poor and the prime minister is doing the same. But while waiting for the new services to begin, people find the services they were getting so far on payment vanishing. That is true in respect of water and power in Karachi. Power breakdowns or load shedding now cover a long period and are frequent.

If a family has to pay Rs 1,200 to Rs 2,000 for a tanker of water in Clifton after waiting for days, it is a horrid development. We are now told the long term power shortage in the country will be 31 per cent. The Sindh rivers now are short of water by 45 per cent. The problem for many people right now is not waiting for the new services, but saving what they already get. The grandiose schemes announced and lofty intentions held forth before them do not cause any excitement when the little water they get and power they receive break down too frequently despite their high cost.

THE prophecy was almost right. It said that the Shah dynasty in Nepal would last for twelve generations, so King Gyanendra is pushing the edge of the envelope. His brother Birendra, whose murder in 2001 brought Gyanendra to the throne, was already the twelfth generation. Even if Gyanendra was technically of the same generation, it already felt a bit like cheating.

It feels a lot more like cheating now. Three weeks of non-violent mass protests (and 14 demonstrators’ deaths) have forced King Gyanendra to surrender the absolute powers he seized last year, and parliament has already been recalled. Only fear of imminent overthrow forced him to make these concessions, but he is still trying to split the opposition — and it looks like he is succeeding.

What forced Gyanendra to retreat was an alliance forged last November between the seven mainstream political parties and the Maoist rebels who were the king’s main excuse for seizing power and dismissing parliament in the first place. That alliance was a marriage of convenience, however, and as soon as Gyanendra offered to reinstate parliament, the politicians fell over one another in their eagerness to say yes. But the deal may play differently among the protesters, most of them under 30, who have no patience for the monarchy and no loyalty to the established parties.

It is certainly playing very differently with the Maoists, who promptly denounced the politicians as traitors to the anti-monarchical alliance the two sides had made. “The minimum demand is a free election to a constituent assembly,” said senior Maoist leader Baburam Bhattarai on Tuesday. The next few days will decide whether the Maoists resume the ten-year guerilla war that has already killed 13,000 people and given them effective control of at least half the country’s territory.

Only a few days ago, Bamdev Gautam, the leading negotiator for the mainstream political parties, was saying: “Many Nepalis have given their lives to remove the king. We are not going back....” For a moment the political parties, the youthful protesters, and the Maoists were all on the same page, and there was hope that Nepal could escape the calamity of a Maoist revolutionary victory that seems to await it. But the king is still on his throne, and the hope is evaporating fast. Taming the Maoists and bringing them inside the political system is the highest priority in Nepal, where the peasants are so downtrodden and desperate that a radically anti-urban, anti-foreign, anti-intellectual revolution like the one that devastated Cambodia thirty years ago is a real possibility. There are alarming similarities of ideology and operational style between the Khmer Rouge of the early 1970s and the Nepalese Maoists today. Nepal needs change, but it does not need the killing fields.

Nobody knows how close the Maoists are to a military victory in Nepal, especially since India might well send in troops to prevent such a monster from emerging on its northern borders, but they have been making rapid progress in recent years. They might ultimately win power in a democracy, too, for they have real support among the semi-educated rural young, but they would then be constrained by constitutional rules and democratic norms. (Surprisingly, the prize of democratic legitimacy often makes people behave better.) Whereas if they won power through military victory, they could put even their most extreme political fantasies into practice.

The great virtue of Gyanendra’s royal coup last year was that it enabled all of Nepal’s other main political actors to unite behind the single cause of rolling back his take-over. The legal political parties never formally committed themselves to the overthrow of the monarchy, but that was implicit in their promise to create an interim assembly whose main job would be to draft a new constitution for Nepal. The changes being considered were so radical that they seemed likely to tempt the Maoists into giving up their revolt and entering normal democratic politics.

Gyanendra’s strategy now is to break the alliance between the old political parties and the Maoist rebels in order to save his throne. With parliament restored but no new republican constitution, the old-line politicos can resume their habitual games, whose principal function is to give each urban political party and faction a turn at looting the public purse. If their deal with a chastened king survives, the Maoists will go back to war and Nepal’s future is grim.

The choice lies in the hands of the tens of thousands of young people who have been demonstrating in the streets of Kathmandu for the past three weeks. They wanted real change, a goal that they correctly saw as linked to an end to the monarchy and a new constitution, although beyond that their ideas were not very clear.

If they press on with their demonstrations despite the deal struck between the political leaders and the monarchy, then the king could be gone in a week and Nepal could end up with a more inclusive democratic system that brings the Maoists in from the cold. If they settle now for a return to the system that failed Nepal for the past fifteen years, then the changes they may eventually face instead, after a Maoist military victory, would not be at all to their taste.

—Copyright

THE “generals’ revolt” against Defence Secretary Donald Rumsfeld has provoked debate on both sides of the Atlantic about the proper boundaries of military protest. Many people who oppose the Iraq war and deplore Rumsfeld are nonetheless troubled by the notion of senior officers, even retired ones, openly criticizing political leadership.

But in truth, retired soldiers have always been outspoken about the alleged blunders of successor warlords, uniformed and otherwise. During Britain’s colonial conflicts and in both world wars, through Korea and Vietnam, hoary old American and British warriors wrote frequently to newspapers, deploring this decision or that, exploiting their credentials to criticize governments and commanders.

During the Iraq campaigns of 1991 and 2003, I heard British chiefs of staff express their fervent desire for veterans to get themselves off television screens. We may assume that, as chairman of the US Joint Chiefs of Staff today, Gen. Peter Pace feels the same way.

Winston Churchill’s wartime chief of staff, Gen. Hastings “Pug” Ismay, charmingly described in his memoirs how, in 1940, lunches at his old army club in London became intolerable because at every mouthful, he was beset by veterans explaining how his master should properly be running the war. In self-defence, Ismay resorted to lunching at White’s, a venerable aristocratic institution where few members had noticed that a conflict was taking place.

In the past, however, there was a clear demarcation between those issues for which governments were responsible in war — high policy and the appointment of commanders — and those of which generals were in charge: field operations. Administrations in the United States and Britain sometimes perished for starting the wrong wars or mismanaging the big issues — Lyndon Johnson over Vietnam, Britain’s Asquith government in 1916. When battles were lost, however, it was generals’ heads that rolled, not politicians’.

The great progressive change since 1945 is that the conduct of limited wars has become intensely political. The interventions of civilian leaders are ever more detailed and explicit in matters that were once deemed military turf. Gen. Douglas MacArthur was sacked in Korea in 1951 for conduct no more imperious than his World War II norm in the Pacific. The general failed to understand that the principle on which he had always justified his own mandate — when wars start, politicians must leave soldiers to run them — was a dead letter in the nuclear age.

Yet how far should the process go of political engagement in military operations? This issue lies at the heart of the tensions between senior US soldiers and Rumsfeld, and it will persist through all wars. The military — and there is no doubt that many serving officers share the unhappiness voiced by retired colleagues — does not question the government’s prerogative to make policy. It is dismayed, however, by attempts to second-guess Iraqi battles out of Washington.

Modern communications make feasible a high degree of micromanagement. Defence Secretary Robert McNamara’s interventions in Vietnam are well known and were bitterly unpopular with soldiers at the time. A notable example of the new relationship between field commanders and governments was seen during the Falklands War in May 1982. The British senior officer on the spot, Brig. Julian Thompson, wanted simply to keep an eye on the Argentine garrison at Goose Green settlement rather than attack it, and to advance toward Port Stanley.

In London, however, it was deemed vital to secure a quick, conspicuous military success to forestall stalemate and a US-imposed ceasefire. Thompson was ordered to attack Goose Green immediately or be sacked. The British got their little victory, but it was a battle fought in deference to perceived political necessity, not military judgment.

Thompson afterward lamented the countless hours he was obliged to spend arguing by satellite link with a headquarters 8,000 miles away, rather than directing his troops. This is what is new. Technology empowers political leaders to intervene in even local, small-unit actions.

There is another strand. The post-Vietnam generation of US generals is much more cautious about overseas operations, especially against insurgencies, than were their predecessors of the Westmoreland — never mind MacArthur — eras. — Dawn/ Washington Post Service

The writer is a British journalist and historian.

ARE we really engaged in a process of societal transformation? Is our growing intolerance towards others an indication of that? If we are moving towards any change, it is undoubtedly for the worse. No society can be changed through edicts.

The change must come from within. It is a long process in which every individual must be involved. Looking at ourselves nearly 60 years after independence, there is a sense of dismay. But our frustration is of our own making.

Wrong priorities, faulty premises and unrealistic dreams lead to distressing conclusions. Any comparison with neighbouring India irritates our rulers. But we can talk about another Muslim country, Malaysia, which has made phenomenal progress despite many limitations. It has racial problems but it has learnt to solve them through democratic means.

Eleven general elections have taken place in Malaysia since it gained independence in the 1950s, and practically all have been impartial. The other notable feature of the Malaysian political system is the total absence of military interventions. For a visitor used to the situation prevailing in Pakistan, the absence of any uniformed person anywhere in the country is an unbelievable sight. Islam is the religion of the state. But it does not interfere with the affairs of the administration. Misplaced stress on rituals is not welcomed.

Nobody can inflict any harm on our religion. In India, Hindutva, so widely condemned, could not drive away the Muslims, nor convert them. Earlier the Shudhi movement had failed in a similar manner. Religion is a personal matter. Innumerable faiths are practised in the world. People have the freedom to choose any one of them. There is no coercion,

Seen in this perspective, it can be said that before partition Islam was not in danger in India. But the Muslim community was. Muslims freely practise their faith in India today. But what held them back from progress then (and does so today in a global context) was their stunted vision and lack of initiative to keep pace with the changing world.

Mohammad Ali Jinnah was aware of this fact. He wanted Muslims to be part of a flourishing, expanding world order. He used religious slogans and relied heavily on the lexicon of faith in order to assemble Muslims speaking different languages and having varied cultures on a single platform. For the success of his movement this was an essential strategy which worked wonders. He knew the limitations of his two-nation theory. That explains why on the eve of independence he advised the Muslims staying back in India to remain loyal to the government of India.

Some of the top Muslim League leaders might not have been aware of the implications of the Pakistan movement, but the Muslims of the minority provinces knew what it would mean. The partition plan did not include any provision for the total exchange of population between India and Pakistan. Neither was the idea conceived at any stage, nor was it a practical solution.

During the days of the freedom movement, and even today, it is stressed that Pakistan is a great citadel of Islam. There are already over 50 such citadels in the world where normal laws governing national life are enforced. While Europe has evolved a mechanism to function as an integrated region, and has a common market and a common currency, Muslim countries have failed to make any move in that direction.

The Muslims of India could not catch up with the changing world because they continued to cling to old values. Although many reformers including Sir Syed Ahmad Khan had emphasised the need for modern, westernised education, only a minority took to the idea. Even Sir Syed favoured education only for a limited section of the population. The concept of the ‘ashrafia’ and the reluctance to educate women eventually harmed the growth of an enlightened, balanced society.

Why has Pakistan lagged behind in so many areas? It is because the two countries which achieved independence practically on the same day followed two different paths. The two priority items on India’s agenda were constitution-making and the integration of over 600 princely states into the Indian union. India achieved both these objectives in a few years. It could do so because even when engaged in the liberation movement, it had set up various committees to prepare policy papers on various aspects of the country. The committees worked tirelessly and by 1947, India was well-equipped to deal with all administrative issues.

The situation was totally different in Pakistan. It was not political leaders but hardened bureaucrats at the helm of affairs. They were to take political decisions for which they were not trained.

It would be wrong to think that the founder of Pakistan did not have the vision to understand the implications of governing a new country. He knew that the Muslims of India could be unified by a strong binding force — Islam. He was aware of the fact that his two-nation theory was only intended to mobilise the Muslims and convince the British rulers that Hindus and Muslims could not live together without any well-defined plan for the protection of the minority community. This is evident from the fact that Jinnah had accepted the Cabinet Mission Plan which had no provision for the partition of the country.

After independence the two countries followed two different courses. India continued to strengthen its democratic institutions.We wasted many years before coming up with a constitution. Moreover, we did nothing to change the structure of land holdings. Big landlords and jagirdars flourished with no regard for the poor. Two parallel systems operated in the country with impunity. The sardars had their own defined territories, their own forts, armies and prisons. Their word was the law. This situation was largely accepted by the ruling elite of the country. As a result there was practically no development in those areas and the people continued to live like serfs.

Democratic institutions were not allowed to be strengthened. Frequent army interventions further weakened the base of society. The military rulers knew that they could not stay in power without any dependable political crutches.Ayub invented basic democrats, Yahya, perhaps, had no political ambitions, Zia recruited a band of religious zealots to support him. At one stage, federal cabinet meetings during the Zia era used to start with sermons by his favoured religious scholars. (This was almost the same pattern of reciting from Mao’s quotations from his famous red book before starting any work. Thankfully, China has discontinued this ritual).

General Pervez Musharraf knows that the style of his military predecessors will not work in a changed situation. He has come up with the concept of enlightened moderation and societal transformation. But societies do not change through catchy slogans and beautiful phrases. Nor do they change by using helicopter gunships and landmines to quell unrest. That is a lesson that people who respect history learn faster than others.