|
| December 14, 2006 | Thursday | Ziqa'ad 22, 1427 |
Please Visit our Sponsor (Ads open in separate window)
Dealing with the Taliban
School sans basic facilities
Resolving the export crisis
THE World Bank and the International Monetary Fund have not, in their reports on the Pakistan economy, suggested anything radically new or any drastic cure for many of the problems it confronts. They have repeated the old remedies more forcefully while appreciating the progress the economy is making.
CAR-BOMB explosions and suicide bombings are now a daily affair in Iraq, especially in Baghdad. Tuesday’s massacre that left 71 dead and over 150 injured was gruesome because all its victims were poor labourers waiting to be hired. What is more, the killers, promising to give them jobs, lured them to the place where the carnage was to occur. Then a car-bomb went off and a suicide bomber blew himself up simultaneously, leaving more than 225 people dead, wounded or maimed for life. The crime was sectarian in nature and highlights the misery that has been the Iraqi people’s lot for the last more than three years. The Baathist regime, led by Mr Saddam Hussein, was a barbaric dictatorship which believed in the torture and physical elimination of dissidents. But there is no evidence that there was any sectarian trouble in Baathist Iraq or even earlier. This sectarian strife is one of the “gifts” which the US-led occupation has made to the Iraqi people, and there is no indication yet that the sectarian violence or resistance to the foreign troops is coming to an end. In fact, as time passes casualties keep mounting. So far, by estimates worked out by an American think-tank, the civilian casualty toll has reached the unbelievable figure of 600,000 dead. The number of injured must be in millions. This is higher than the German civilian casualties from allied bombings during World War II.
A greater danger from the continued violence is the possibility of Iraq’s break-up. Kurdistan in the north is already enjoying the status of an autonomous region with a president of its own, and it has already banned the flying of the Iraqi flag on government buildings. If it chooses not to secede, it will be for other reasons, for neither Turkey nor Iran, nor for that matter will the US possibly look favourably at a move that has the potential to destabilise the entire region and create problems particularly for Nato ally Turkey. Otherwise, the government in Baghdad just does not have the means or the moral authority to prevent Kurdistan’s secession. Iraq’s own security force has turned out to be a farce. It has neither cohesion nor motivation, and it is confirmed that militants have infiltrated the police to give their men an opportunity to get training. Many policemen go back to their militias or stay in the security force as informers. The government itself exercises no authority. Even though it is an elected government, it has the stigma of being installed by the US-led coalition.
The choice is now before the Republican administration to make. Regrettably, President George Bush has virtually rejected the bipartisan Iraq Study Group’s recommendation for a withdrawal of American troops by the first quarter of 2008. In his present frame of mind, President Bush seems likely to “stay the course”, and that will merely mean a continuation of the slaughter of the kind that occurred in Baghdad on Tuesday and a continuous increase in the American death toll, now nearing 3,000. For the next two years, President Bush will still be in the White House, and therefore has the authority to persist in his present Iraq policy. But that will only strengthen the chances of the Democratic presidential candidate’s victory in November 2008. In the interest of the Iraqi people, for whose benefit the invasion was supposedly launched, and in America’s own interest, President Bush should reconsider the ISG report.
THE assessment of the situation in North and South Waziristan by an international NGO which says that Pakistani authorities have buckled before the local militants sympathetic to the Taliban is too simplistic. This echoes, word for word, Kabul’s reading of the peace pacts signed between Islamabad and the militants residing along the Durand Line. After months of military action in which many lives were lost on both sides, the government agreed in September to a truce backed by guarantees that the militants would not indulge in subversive activities either in Afghanistan or in Pakistan. Thus, the fighting came to an end, and peace was restored. The truce was cited by independent observers as a model for Afghanistan where the government of President Hamid Karzai has its writ confined to the capital or at best to pockets under the control of his Northern Alliance partners. The rest of Afghanistan remains a lawless territory where the Taliban continue to strike with impunity. It may be Kabul’s frustration and the Northern Alliance’s long-standing grouse against Pakistan, of which the latter makes no secret, that leads Mr Karzai to repeatedly point an accusing finger at Islamabad for his own government’s failure to restore order in his country. His foreign backers, the Nato and the allied forces operating in Afghanistan seemingly know no better, for it is on their combined authority that the NGO in question has prepared its report in question. Pakistan has rebutted the allegations that Islamists in Waziristan are helping the Taliban to use its territory as a launching pad for subversive activities in Afghanistan — a denial that falls on deaf ears in Kabul.
Pakistan has a moral obligation to stop anyone from using its territory for attacks across the border but the safety of its own citizens is a duty it cannot shirk from. Pakistan must also come down hard on any black sheep in the ranks of its own security agencies, as alleged by Kabul, if indeed proof is provided that they are backing the Taliban. Meanwhile, irresponsible finger pointing must stop so that the real issues of security and terrorism in both the countries begin to be tackled.
A REPORT published in this newspaper on two primary schools in Sumbrial is quite shocking. After being told about the ‘success’ of the government’s “parha likha Punjab” programme, one did not quite expect the schools in the province to be in such a mess. Inarguably, the physical environment is one of the key determinants, though not the only one, of the quality of education imparted to students. The government itself has released data this year about schools without electricity (107,564), without drinking water (68,211) and without toilets (82,200). What incentives will children have to attend a school which does not even provide them the basic facilities? The large number of such institutions is intriguing because a huge chunk of the education budget is shown as going into improving the physical infrastructure of the existing schools. One can easily guess where the funds are going.
What is more intolerable is the role of the teachers in undermining education in the public sector. Their frequent absence from school is in some ways a bigger factor in driving children away from school and studies. A dedicated and motivated teacher, even if he/she is not very highly trained, can work miracles in getting children to attend school and acquire the literacy skills. According to official sources, there are 450,000 primary teachers in the government schools today, which is not a small number. How well trained they are is another matter however. What is more worrying is the fact that many of them are not working and absenteeism is pretty high contributing to the high drop-out rate. The need is for tighter supervision and monitoring of the teachers and the school administration by the education department. The school management committees that supposedly comprise the school staff and the parents representing the community also need to be activated. Since the parents feel that their voice is not heard, they have ceased to act as a pressure group they are supposed to be.
Governor of State Bank Dr Shamshad Akhtar has firmly rejected devaluation of the rupee as an option to solve Pakistan’s critical external account problems. Following wild speculation in the money market, she has threatened the speculators with punitive measures. The State Bank is not in the game of devaluation of the rupee and is not fixing exchange rates for the last six years. It is the market, she clarifies, which determines the exchange rate on the basis of demand for foreign exchange and supply. The State Bank may intervene at times to prevent excessive volatility, but what it buys from the interbank operations, it later puts it back in the market.
Since the floating or flexible exchange rate policy was adopted in the year 2000, the rupee has done pretty well against the dollar, although that was more due to the weakness of the dollar against stronger currencies like the Euro and others.
The IMF did not suggest devaluation of the rupee as a solution for Pakistan’s external account problems but thought it was one of the options to reduce imports and increase the exports. The fact is the devaluation of the rupee will create more problems than it solves. And it will throw Pakistan’s fiscal framework out of gear and create new fiscal problems for the government.
The governor’s warning had a good effect on the money market as the exchange rate of the rupee has steadied. The rupee has come down by 2 per cent against the dollar since January according to Reuters news agency and was at Rs 60.96 to a dollar last week. The rupee had touched its lowest against the dollar in two years.
But at a time when the Indian rupee goes for 44.7 to a dollar against Pakistan’s Rs61 for a dollar, we cannot afford further devaluation of the rupee. The Indian rupee has gained Rs1.50 to a dollar from 46.2 to a dollar a year ago. If you devalue the rupee now the Indian goods will become more costly to that extent.
Mr. John Wall, country director of the World Bank, says that the IMF did not suggest devaluation. It was only presenting an analysis of the situation, with possible options for the external account problems it faced. He wants further building up of the foreign exchange reserves and tightening of the monetary policy to strengthen the rupee at the present exchange rate.
Evidently the World Bank does not feel the need for devaluation and is calling for further measures to strengthen the rupee. He has also suggested increasing the exports and lowering the imports. He says the foreign reserves are enough to meet the imports needs but not to sustain an economic growth rate of 6-8 per cent for long. The foreign reserves are equal to six months imports.
The World Bank in its Economic Outlook says there is excessive liquidity in the economy and that has tended to increase the domestic demand and that is the driving force behind the domestic demand and high economic growth for the last few years. It has led to business expansion and increase in investment to 20.8 per cent of the GDP last year from 18.1 per cent the year before. The excess liquidity with money coming from various sources is highly inflationary and leads to high consumption and large imports.
As a result, says the bank, the country is not likely to meet its inflation target of 6.5 per cent for the current financial year, but may face 7-7.5 per cent inflation. If the present trend of price rise is any indication, the real inflation may be far higher, although it is now claimed by the government that the core inflation is coming down. The World Banks solution for excess liquidity is check on new large private sector loans and to increase the interest rates. But the State Bank is reluctant to increase interest rates lest that hampers investment and economic growth.
While the excess liquidity is promoting a mini-boom in affluent sections, the World Bank does not agree with the poverty reduction figures of the government. It says that poverty in 2004-05 was 29.2 per cent, a decline of five per cent from 35.4 per cent in 2000-2001 and well above 23.9 per cent poverty level claimed by the government and just 0.8 per cent below 30 per cent estimated in 1998-1999 when Gen Musharraf seized power. Poverty rate has increased since then to 34.4 per cent in 2000-2001. Poverty in the urban areas is 19.1 per cent and in rural areas 34 per cent.
The World Bank report talks of major risks in the economy both long-term and short-term if efforts are not made to solve the persisting problems beginning with the large budget deficit and the soaring rise in imports against the sluggish exports. Its Economic Outlook report talks of structural bottlenecks which are to be removed quick. What is more disturbing now are the new trade figures for July-November which show a deficit of 5.41 billion dollars. The deficit is higher by 18 per cent.
The Minister for Commerce Humayun Akhtar is however happy that exports during November were 24 per cent higher than those a year ago in the same month. But that is a small satisfaction. The whole year’s trade deficit may be $12.2 billion instead of the earlier estimated figure of $9.4 billion — more than the foreign exchange reserves of the country. The minister has no special or urgent cure for the unsustainable trade deficit. He says his ministry is preparing a paper on the export setback to determine whether Pakistan’s products had a level playing field with similar products from India and China. He wants to know whether high inflation in Pakistan was making its products less competitive in the world, if so the paper would suggest solutions.
Such a large trade deficit unless reduced quick would expand the deficit in the balance of payments which in the first quarter recorded $2.7 billion. The mistake of the government was not taking seriously the rise in exports in the first quarter by only 2.8 per cent compared to the performance the year before. Even now one does not see any sense of urgency to cope with the situation in the commerce ministry.
The commerce ministry and the government do not want to reduce imports even if they be of Rolls Royce cars and Porsches. The government fears reducing the imports would hurt the economic growth. Such a one-legged strategy is not enough. The government should come up with comprehensive measures to reduce the staggering trade deficit despite the high world price of oil.
Also persisting is the large budget deficit which this year will mean 4.5 per cent of the GDP from 3.3 per cent last year. The official expenditure goes on soaring, while the increase in revenues is small compared to that.
The tax system continues to underperform in fundamental ways, says the World Bank report. Tax revenue at 10.3 per cent of the GDP is well below the government’s spending needs. There is excessive reliance on indirect taxation and the revenues from six major items are more than half the revenues from the indirect taxes says the report.
Agriculture and services are outside the tax net and the provincial taxes form just one per cent of the GDP. There are limited incentives to the provinces to collect taxes says the report. The centre has a paternalistic approach to the provinces in respect of tax collection and distribution of the provincial tax revenues. Father knows best how to collect the provincial taxes and share it with them, although every five years there is a loud outcry when the National Finance commission announces this award. This year the president had to step in and announce his own award provisionally.
Recently there was a conference of Muslim taxation authorities from some 20 countries including Turkey which has made progress in tax collection. During the discussions it became obvious the problems of most Muslim countries were identical. There was lack of data and voluntary compliance was poor. Some argued when there is Zakat there is no need to collect taxes. If more revenues are needed, more Zakat should be collected. The delegates agreed to work together on the problems.
The people of Pakistan were told by the officials recently that the price of POL may be reduced by the middle of this month. There was some sense of relief. But now it seems the officials are wriggling out of that commitment arguing that the prices had risen again.
Meanwhile, the Opec oil producers propose a production cut so as to maintain the price level around 60 dollars a barrel. Gone are the days when the Opec wanted 18 dollars a barrel, then 24 dollars and then 36 dollars. Some of them are even eyeing the hundred dollar a barrel mark. Meanwhile the economic coordination committee of the government has approved a comprehensive alternate energy policy which should meet the demands of all those who would want to go in to this industry. And the Asian Development Bank has come up with a loan of $510 million for development of alternate energy in Pakistan to set up small hydropower plants in the Punjab and the Frontier province.
The World Bank wants the rate of investment to rise far above the current levels to sustain the high economic growth. It also wants an increase in national savings, although it has not suggested an increase in the banks’ deposit rates to encourage and reward savings. Instead, it has suggested an increase in the lending rates to the private sector.
The World Bank does not want the government to resort to bank borrowing or borrowing from the central bank as that will increase the money supply and aggravate the inflation.