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| June 30, 2007 | Saturday | Jamadi-us-Sani 14, 1428 |
Rain havoc in the Frontier
Protecting children
Pitfalls of cash-and-carry privatisation
Green shoots in Gordon’s garden
AT the outset, let us get our concepts clear. The sale of land, a factory or a business is disinvestment. If sale proceeds of this disinvestment are ploughed back into creating new income-generating assets, the second transaction would qualify as an investment.
BARRING the guarded welcome by Palestinian President Mahmoud Abbas, no Arab leader has so far welcomed Mr Tony Blair’s appointment as the Quartet’s envoy for the Middle East. Hamas has rejected Mr Blair’s new role outright, the media from the Gulf to the Atlantic has reacted negatively, while Arab diplomats who wished not to be identified doubted that a man so closely identified with American policies could play the role of an honest broker. The most enthusiastic reaction has, of course, come from Israel, while the US has welcomed what obviously is its own decision. A brilliant man whose ‘new left’ policies did wonders for Britain in the post-Thatcher era, Mr Blair blundered in the realm of foreign policy. In preparing the phoney case for the Iraq war, the former Labour prime minister identified himself so closely with America that he was often called President George Bush’s poodle. The consequences of this blind support for American policies are there for all to see: the US-led forces have got hopelessly bogged down in Iraq, the civilian casualties range between 200,000 and 600,000, and there is no possibility yet of an Iraqi government being in a position to run the country after the coalition forces withdraw. The same is true of Afghanistan, where British troops, part of the US-led International Security Assistance Force, are engaged in military operations whose main victims are civilians.
Speaking in parliament in what was his last question hour, Mr Blair said that a solution to the Arab-Israeli conflict was possible but demanded “huge intensity and work” and that he would give “absolute priority” to a two-state solution. However, the amazing point to note is that the brief given by the Quartet skirts the two-state solution. Instead, the Quartet — the US, UN, EU and Russia — have charged him with the task of mobilising international assistance for the Palestinians and helping them with the development of their economy and institutions. Even stranger was the nebulous White House reaction which said that Mr Blair’s task was that of “an aggressive facilitator” who should try to “look for ways to make progress where in the past we have not seen the kind of progress we’d like.” Neither the Quartet’s brief nor the White House statement speaks of an Israeli withdrawal or of a sovereign Palestinian state.
This being the attitude of his sponsors, one can clearly see what chance of success Mr Blair has. His predecessor as the Quartet’s envoy, former World Bank chief James Wolfensohn, resigned in protest, because he clearly saw that any progress towards a two-state solution was not possible because of America’s unqualified support to Israel on this issue. The first requirement of a two-state solution is that Israel should stop building new Jewish settlements on the West Bank and expanding the existing ones. The roadmap, unveiled by President Bush in April 2003, is dead, because the president himself sabotaged it by saying that the 2005 deadline for the emergence of a Palestinian state was unrealistic. He also conceded that an Israeli withdrawal from the West Bank would not be total. This being the attitude of the sole superpower, one can only sympathise with Mr Blair. It is a cushy job, no doubt, for the former leader of the ‘new left’, but it is a job that is unlikely to bring him laurels.
THE NWFP and the Northern Areas are no strangers to flash floods and landslides. Dozens of people die and precious property is lost each year in the monsoon as torrential rains lash the north of the country and Azad Kashmir. The scale of the destruction, however, appears to be rising. Nature can be unforgiving at this time of the year but man cannot be absolved of the blame for this recurring and mounting misery either. Widespread deforestation over the last few decades has made the mountainous regions increasingly prone to landslides, and has led to the silting of lakes and riverbeds — which, in turn, raises the risk of flooding. On a global level, meanwhile, climate change caused by growing emissions of greenhouse gases is bringing increasingly erratic and severe weather to all parts of the world. Pakistan is no exception to this phenomenon, even though its contribution to climate change is insignificant compared to that of the industrialised nations. Exacerbating the effect of heavy rains are faster melting glaciers which are adding to water releases besides displacing boulders and large amounts of earth.
Already, with the rainy season just starting, nearly 60 lives have been lost in the Frontier, mostly because of landslides, flash floods and the collapse of houses weakened by rain. Several rivers are in high flood. Sadly, even if indiscriminate logging were to cease today and reforestation efforts doubled, it will take decades to recoup the losses from the slaughter that has already taken place. As such, the focus must now necessarily be on disaster management and the timely provision of relief to the affected. The survivors have to be shifted to safer places and given shelter and basic supplies. Later, the government must offer compensation for any loss of life and property so that the affected people can start rebuilding their lives as quickly as possible. Some preventive measures are also required, such as a proper drainage system. Flood warning and evacuation systems need to be strengthened and, wherever possible, the embankments of rivers and other waterways shored up. Every effort must be made to relieve human distress.
A RECENT seminar in Islamabad on the need for a protective environment for South Asian children should hopefully boost ongoing efforts to evolve a child protection policy at the national level. The promised document will address concerns regarding the physical and emotional abuse of children and all forms of discrimination, neglect and exploitation against them. It will be a difficult task, given that Pakistan is anything but a child-friendly country where most children are deprived of even basic rights, including education and proper healthcare. This is borne out by telltale statistics that show how poverty and a deficient social sector have subjected Pakistani children — especially girls who are often discriminated against even by parents — to utter neglect. Besides, at least 10 million children are engaged in labour, many in particularly hazardous occupations. The absence of any kind of monitoring by the government has emboldened many employers to force their young workers to undertake back-breaking labour for a pittance. A number of those working as domestic help (hidden from public view) are sexually abused. Even those children fortunate enough to be enrolled in schools or madressahs have a rough time as many are regularly subjected to corporal punishment and verbal abuse.
While there is limited legislation regarding the welfare of children, this too has not been implemented properly. The government has failed to live up to its international commitments to protect the most vulnerable section of society. It is only now that realisation is dawning about the extent of the damage done. Fortunately, this damage is not irreversible. If relevant government agencies coordinate their efforts to ensure that the young population is given a better deal, future generations of confident, well-balanced adults can do much to stem the rot.
But if the sale proceeds from disinvestment are paid to lenders to clear old debts and reduce trade deficit or are used for having good time globetrotting, then neither transaction qualifies as investment.
This is as true for individuals as it is for governments. Therefore, when publicly-owned enterprises in Pakistan are sold through an act of privatisation, that transaction is disinvestment. Now, the Privatisation Ordinance 2000 says that sale proceeds from privatisation would be applied 90 per cent for debt retirement and 10 per cent for poverty reduction, thus leaving nothing to be ploughed back into creating new income-generating assets.
That may be alright, since reducing debt and poverty are good objectives to pursue. But these goals do not have magic powers that could turn disinvestment into investment. Therefore, the Orwellian touch of labelling disinvestment as investment to jack up figures of foreign direct investment is not playing fair with the people of Pakistan.
But the issue is more serious than problems of creative accounting. The style of privatisation carried out in Pakistan resembles the cash-and-carry model with little effort going into critical areas that determine the success or failure of privatisation around the world — from the eligibility criteria for target selection and bidders to new injections of capital and technology and future plans regarding production, exports and employment.
As privatisation details are not being placed before the Council of Common Interest (CCI) or parliament, there is no way that people can learn about the important aspects of these disinvestments and gauge whether or not their legitimate interests are being protected through sale transactions. All those associated with the privatisation of publicly-owned enterprises owe fiduciary duties under corporate law towards the owners of enterprises — in this case the people — and are required by law to fulfil their duties, subject to ex post facto judicial review.
Only two examples of privatisation have come under public scrutiny, although many others are often mentioned in the press. Last year, through the case of privatisation of Pakistan Steel Mills in the Supreme Court, people came to know how the privatisation of the state entity was riddled with “omissions and commissions” and the deal was carried out in “indecent haste”.
This summer, the unending miseries inflicted upon the residents of Karachi, leading to power riots in some localities, have brought into focus the privatisation of KESC. Many are wishing that the privatisation of KESC was challenged in court like that of the Steel Mills. Showing rare unity of purpose, both the treasury and opposition members in Karachi’s city government have passed a resolution asking for a judicial inquiry into all aspects of the KESC privatisation to examine if fiduciary duties falling upon the functionaries who conducted the sale were duly fulfilled.
The problems of KESC were well known and essentially included the big gap between the supply and demand of power and huge transmission and distribution losses. Its privatisation was supposed to solve these problems, or so the government told the people.What seems to have happened is that, without solving the problems, the government walked away with the cash from the sale of the utility, leaving millions of residents at the mercy of unaccountable and squabbling new owners/management who are telling consumers there would be no relief from their miseries for another five years.
Even those who have been in favour of privatisation of state-owned enterprises are wondering whether the ills exposed in these two privatisations are typical of several of the 160 units so far privatised.
If an audit is conducted of the post-privatised fate of these units, apart from generating cash for the government, how many of these units would actually be found to have grown, expanded production and exports, reduced losses, improved efficiencies and service delivery with injections of new capital and technology?
Add to that the increasing momentum of dividend outflows from privatised units, and the economy may soon find itself up the creek, since several of these units are selling in domestic markets with no export earnings whatsoever.
The reasons why state-owned enterprises are privatised are not ideological but rational and economic. Inane and ideological slogans like “it is not the business of government to be in businesses” may be acceptable indulgence for marketing companies but do not sit well with policy discourse in governments that have important socio-economic responsibilities towards their citizens.
If Pakistan keeps conducting its privatisations on ideological grounds — as if publicly-owned enterprises are sinful and must quickly be got rid of by any and all means — it may well end up with results similar to another ideologically-driven exercise: privatisation in Russia.
Russian privatisation was used to sell off productive assets at throwaway prices or to give these to cronies of the government who instantly became billionaires. Several of them are now living abroad.
Ideologically driven Russian privatisation did not help expand production or improve efficiencies. Instead, the Russian economy shrank by about 30 per cent after being restructured through defective designing.
On the other hand, several publicly-owned companies after privatisation in China — like Haier now among the five biggest household electrical goods companies in the world — have grown tremendously by improving efficiencies of production and competitiveness in export markets.
There is another important reason why this cash-and-carry model needs to be urgently reviewed. Such a model is followed by cash-strapped countries in distress. They are drowning in debts and have no means of servicing these other than by selling off the family silver.
Inherent disadvantages lie in the cash-and-carry model since cash-strapped countries do not ask too many questions of prospective investors/buyers, as the purpose of the transaction is to raise cash for the country rather than expand and improve production of goods and services for the people. This seems to be the case with the KESC privatisation also.
But 9/11 changed the situation for Pakistan. Generous cash flows have been coming into the economy from aid flows, debt write-offs, waivers of sanctions, remittances from expatriates and diversion of Gulf investment. There is no reason for the government to still persist with the cash-and-carry model of privatisation now.
Government leaders have also been boasting of big reserves and surfeit of funds which have been tempting them to fund all kinds of grand activities including non-feasible projects. Therefore, the paradigm of a cash-strapped country selling its family silver to pay back its debt lost its validity for Pakistan after 9/11.
It is important for Pakistan to modify its privatisation policies before taking up further sale transactions. There is no reason to persist with its programme of disinvestment through the discredited cash-and-carry model of privatisation.
Let us also not forget that while the Chief Justice may have been made “non-functional”, the judgment of the apex court on the privatisation of the Steel Mills is very much functional and lays down the law on the subject, even if the cash-and-carry model is pursued.
The writer is a former head of the Board of Investment and federal secretary.
Email: smshah@alum.mit.edu
FROM a mix of old planks and new boards, Gordon Brown on Thursday managed to nail together a cabinet that lived up to his promise of considered change. He moved every minister apart from Des Browne at defence (and handed him the extra duty of Scotland) in a reshuffle that felt natural.
If there was less drama than some had predicted – no shock big name so far from business or the Conservatives – then there was also less brutality. While making some conciliatory gestures to opponents of the Iraq war, Mr Brown treated Tony Blair's supporters with tolerance and rewarded his own friends judiciously. This was no sudden takeover by a kilted Brownite horde, rushing over Hadrian's Wall to stick a dirk in the backs of old enemies.
For all the new red boxes handed out on Thursday, the reshaped top team is a recalibration of Labour's purpose in government, not a fundamental reconsideration. The new prime minister has shown himself ready to correct Mr Blair's errors – with a great improvement at the Foreign Office – but has done nothing revolutionary.
Mr Brown has been kind - too kind - to all the ministers who took part in Labour's deputy leadership contest. Peter Hain was lucky to secure promotion and Harriet Harman now lays claim to five titles and four jobs, the more partisan of which sits oddly with her impartial duties as leader of the house.
Education is split into two baronies, one for higher education and skills under John Denham (a welcome return for a capable opponent of the Iraq war) and one for children and schools, a sign of Mr Brown's focus on education.
— The Guardian, London