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| February 05, 2007 | Monday | Muharram 16, 1428 |
Still struggling to survive
Walled city vandalism
Managing external competitiveness
Putin sets new record
IT IS now widely recognised that the cost of doing business in Pakistan is somewhat excessive. Other than the lack, and poor quality, of infrastructure and woefully inadequate availability, unreliable supply and feeble quality of energy/power, two factors — inflation and an overvalued exchange rate — have in recent times become key issues.
THE truth is out and this time it’s official. The latest Intergovernmental Panel on Climate Change report may finally consign greenhouse-effect deniers to the dustbin of environmental discourse, with little chance of being recycled. Despite mounting evidence to the contrary, dubious scientists funded by big business have periodically produced ‘findings’ that discount the possibility of a human hand in global warming. In their previous report issued in 2001, even the respected researchers of the IPCC were only 66 per cent certain that human activity was contributing to climate change. The degree of certainty has now risen to over 90 per cent — a dramatic shift that can be seen as a statement of fact. As the executive director of the United Nations Environment Programme put it, “February 2, 2007, may go down in history as the day when the question mark was removed from the question of whether climate change has anything to do with human activities.”
In its landmark report, the IPCC predicts that fossil-fuel pollution will cause a global temperature increase of between 3.2 to 7.2 degrees Fahrenheit (1.8C to 4C) by the end of the century, while sea levels are likely to rise by 11 to 17 inches. Tropical storms and heatwaves will become more intense, and arctic summer sea ice is likely to disappear by the latter half of the 21st century. An earlier report by UK government economist Sir Nicholas Stern warned that rising sea levels could displace up to 100 million people; melting glaciers could cause water shortages for 17 per cent of the world’s population; up to 40 per cent of animal and plant species may become extinct; and droughts may create tens or even hundreds of millions of ‘climate refugees’. Global warming, the Stern report predicted, can shrink the global economy by as much as 20 per cent a year. This assessment falsifies the largely discredited but oft-repeated argument that economic growth cannot be sacrificed at the altar of environmental protection. The truth is that prosperity cannot be sustained if the planet continues to be degraded at the current rate. Peace and security are also dependent on a healthy environment. The link between ecological degradation, shrinking resources, loss of livelihood and resulting conflict is firmly established and was acknowledged as such when Kenyan environmentalist Wangari Maathai was awarded the Nobel peace prize in 2004. Clearly, the environmental health of the planet can be ignored only at our collective peril.
Even officialdom seems to have seen the light. British Prime Minister Tony Blair, for one, has long insisted that global warming is a fact. Its consequences will be “disastrous”, he maintains, and the time to act is now — a view echoed by several other European and world leaders. Even some large American businesses are now advocating mandatory restrictions on emissions of carbon dioxide, the king of the greenhouse gases. The state of California has introduced relevant legislation and the new US Congress is similarly inclined. The current White House, however, is yet to be convinced and is fast becoming an international pariah on this count. French President Jacques Chirac sums up the dangers of inaction: “We are on the verge of the irreversible. Faced with this emergency, the time is not for half measures. The time is for a revolution — a revolution of our awareness, a revolution of the economy, a revolution of political action.”
WHILE it is heartening to be told by Erra officials that the post-earthquake reconstruction master plans for Muzaffarabad and Bagh have been finalised, it should be asked whether the government has made substantial progress on the rehabilitation and resettlement of survivors of the devastating 2005 earthquake. Erra has come in for a lot of flak on this score, especially in recent weeks when nearly two million people spent another winter in tents and makeshift shelters. There has been a rise in respiratory diseases and an outbreak of stomach ailments in areas where water supply facilities were damaged, forcing the local population to consume contaminated water. Although reconstruction efforts are going on, it is clear that these are slow-paced. This becomes apparent when temporary camps are closed down and their inmates are asked to return to their villages. On arrival, many of them find that living conditions are almost as inhospitable as they were in the days and weeks following the quake because the government has done little to rebuild the infrastructure.
It is true that the rehabilitation process in any region hit by a calamity as terrible as the 2005 quake would take several years to be completed. But the problem in Pakistan’s quake-hit zones is that in the absence of any kind of expertise in handling humanitarian crises — of even a lesser magnitude than the quake — there is poor planning and little coordination among the various agencies involved in the reconstruction work. This, together with inconsistent policies and a culture of red-tapism and corruption, has created hurdles in the way of a rapid process of reconstruction. Moreover, a consultative mechanism has been conspicuous by its absence. The government may have approached international consultants on a range of quake-related issues but has not taken the local people on board. As residents of the ravaged areas, they would be in the best position to identify their needs and suggest practical solutions. The government needs to rethink its approach and adopt a more realistic strategy of rehabilitating the survivors and ensuring their participation in the decision-making process.
HATS off to the Supreme Court, which on Friday directed the authorities concerned to rid Lahore’s historical quarter of encroachments and illegal buildings. Presiding over a full bench of the apex court on a suo motu plea, the Chief Justice of Pakistan held all the right people responsible for the pathetic state of affairs. The court rightly admonished the civic authorities responsible for the neglect of heritage sites and directed the Punjab archaeology department to conduct a fresh survey of protected monuments to ensure that these are not defaced by encroachments. The directive comes after news reports highlighted the vandalising in Lahore of a section of the walled city’s historical wall by unscrupulous elements who cut through it to build a multi-storey plaza in the old quarter. Earlier, the city district government, the local nazim and the archaeology department typically shirked from taking responsibility for the gross violation.
A chronic apathetic attitude on the part of officialdom towards national heritage is responsible for the generally ill-maintained historical monuments all around, and of which Jahangir’s tomb near Lahore is another glaring example. Often the local nazims are found to be in cohorts with the encroachment mafia, allowing violations to go unchecked. Another shameful incident on Friday, in Lahore again, in which the violators beat up federal archaeology department officials who had come to the city to clear Sikh-era tombs of a French general and his daughter of encroachments is the latest case in point. The sheer lawlessness involved leaves one frightened as to the fate of national heritage. The Supreme Court cannot possibly take notice of each and every violation. This calls for putting in place a systematic watch and ward mechanism under the higher judiciary as the last hope for guarding against commercial greed and corruption among those concerned.
They keep the costs of doing business higher than in our competitor countries, thereby adversely impacting on the competitiveness of domestic exports.
Economic information suggests that monetary policy should focus on core (non-oil and non-food inflation), instead of the inflation rate. Unfortunately, however, despite the decline in core inflation by two percentage points (now down to 5.5 per cent) that is controlled by good monetary management, the domestic rate of inflation continues to be high, hovering around nine per cent. For the general public, especially the poor, knowledge that core inflation has fallen by almost two percentage points (welcome though this news) brings little comfort, since food inflation at double digit rates is much more pernicious in keeping their purchasing power weak.
Prices of some products like oil and food tend to be affected more by supply and demand conditions than by monetary policy and, considering they carry a large weight in the Consumer Price Index (of 40 per cent), impact more heavily on overall inflation and expectations regarding inflation, emphasising yet again that prices of food and other essential items are key factors in determining inflationary pressures. As any rate, monetary policy is not a major determinant of inflation in Pakistan.
For maintaining employment and economic growth, the stabilization of the rate of inflation is a key factor. However, this assumes that the State Bank should monitor the core (using it as the anchor) and not the headline Consumer Price Index. But the sources of inflation in Pakistan are, to a great extent, non-monetary such as changes in output and availability of food (the supply chain covering production, availability and distribution), the marketed surplus and expansionary fiscal policies of the government (reflected in the budget deficit and the large borrowings directly from the State Bank at relatively low interest rates).
This does not, however, mean that the Sate Bank should not be mindful and on the alert by ensuring that its monetary policy is not contributing to this pressure. Moreover, globalisation has also made the economy more sensitive to inflation and thereby what is happening to real interest rates. Negligence on the part of the State Bank in this area could affect capital flows in and out of the country, despite the positive impact on remittance flows as a result of greater scrutiny of deposits and money held abroad by Pakistanis.
The point here is to argue that the State Bank, while targeting inflation, will have to look at the headline and not the core inflation rate, a task not easy since this requires greater focus on non-monetary polices (matters beyond its mandate), with only limited attention on monetary policy, to keep inflationary pressures subdued and sustain growth in output.
The rupee today is overvalued. The standard, and hackneyed, argument of government functionaries is that gone are the days when the price of the rupee was determined by the government. It is now determined by the market and since capital inflows, most of which are non-debt creating in nature (foreign remittances, privatisation receipts, donor grants and direct foreign investment), are largely financing the deficit on the external trade account, the value of the rupee continues to be steady.
Even if their contention that the market is determining the value of the rupee were to be accepted, the question is whether allowing foreign exchange inflows to keep the value of the rupee artificially higher (while also requiring monetary management to be more stringent) than it would be otherwise, is a good strategy for the profitability of our exports, especially considering that our domestic rate of inflation is significantly higher than that of our trading partners and competitors.
The lowering of the profitability rates and levels in the export and modern sectors of the economy is acting as a disincentive to invest in these sectors. Hence the movement in other activities like real estate and the stock exchanges, and, to some extent, in manufacturing for the domestic market in the more protected industries.
If China were to follow this course the value of the yuan would be appreciating (since it has a huge trade surplus with the rest of the world and is also experiencing large capital inflows). China, by not choosing to sharply revalue its currency upwards and maintain a highly competitive currency, has not only made it exceedingly difficult for the competitiveness of our exports but has also kept profitability and investment high in its exporting industries. So, who is suffering on account of this reality? If, when we find our strategy unsustainable (especially when there are no privation proceeds to finance part of the trade deficit), we decide to adjust the value of the rupee, some of our export markets would have been lost, having been captured by others, our re-entry in these markets is bound to be difficult, if not impossible.
Admittedly, managing the exchange rate is certainly not an easy task under the circumstances that we face now. But then policymakers need to understand the critical role played by the exchange rate and how to maintain competitiveness of industry without capital inflows hampering efforts to ensure just that.
The purpose here is to highlight an issue acquiring greater significance for social harmony with each passing day -- the large and growing inequalities of income and wealth (with inflation worsening these imbalances), owing partially to the failure of the non-agriculture sectors to provide adequate employment opportunities and thereby narrowing these differences. If the agriculture sector can somehow maintain a growth of around four per cent per annum, which for this year appears to be a target not likely to be achieved, and the rest of the economy grows at, say nine per cent, then the gap between agricultural and non-agricultural incomes will widen unless employment increases by five per cent per annum in the non-agricultural sector, which is the repository of close to 50 per cent of the labour force.
In our case, we have instead witnessed a steady growth in self-employment. This is a fallout of the poverty push rather than demand pull, resulting in a two-tiered labour market, with high salary jobs for a rather small segment of the workforce that has skills, with the rest suffering from lack of economic opportunities that barely provide subsistence wages-earning, making Pakistan appear two different countries.
The writer is former finance minister, Punjab.
VLADIMIR PUTIN on Thursday set a new record in the history of Russian press conferences. The president fielded questions for a total of three hours and 32 minutes (six minutes longer than last year's marathon) before 1,232 Russian and foreign journalists (another record).
Mr Putin was open, confident and in command. He reeled off economic indicators as if he were a second Gordon Brown. Mr Putin eschewed conspiracy theories about the murder of the exile Alexander Litvinenko, saying that the police investigation should take its course. He was a model constitutionalist on the question of his successor, saying it was not up to him to appoint one. And he was bullish about the economy. But which president would not be, with a gross domestic product that grew by up to 6.9 per cent last year?
For a fleeting moment, Russia looked, sounded and felt like a liberal democracy. But is it? It is resoundingly not, at least in the usual understanding of these words. The paradox of Russia today is that the richer it gets, the less democratic it becomes and the more the cause of human rights recedes -- a movement that was strong when the Soviet Union imploded 16 years ago.
If the transition of Poland from communist satellite to independent state drew Warsaw centripetally towards Europe's bosom, the rise of post-communist Russia has had a centrifugal effect on Moscow's strained ties with Europe. If it flirts with an economic union with Belarus, it is accused of empire-building. If it charges its neighbours the full cost of its energy, it is accused of throwing its weight around. Whatever it does, Russia stands at odds with Europe's values and interests.
If direct rule from the Kremlin is seen as autocratic outside Russia's borders, it is overwhelmingly popular inside them. When asked to rate the institutions they trust, Russians have least faith in police and prosecutors, followed by parliamentary deputies and government ministers. But Mr Putin, who appoints the ministers, is absolved of blame.
He stands alone in the people's pantheon as the politician who initiates, manages and gets things done. So the fact that the salary of a district doctor has tripled, or that the mother of a second-born child will receive the equivalent of $10,000 from the state to invest in housing or education, currently counts for more than the killing of journalists or the rigging of elections, even though everyone suffers from corrupt policemen and the absence of real political parties.
That Russia is moving towards - or trying to catch up with - European democracy can no longer be assumed. If the west wants to change Russia's behaviour, it has to understand that.
— The Guardian, London