OUR record of continued recklessness in economic management, broken promises of fundamental reform and perpetually looking towards the international community for handouts is well documented.

Unsurprisingly then even our old friends like Saudi Arabia and China turned a deaf ear to our screams for help. Hence, despite the public chest thumping on the variety of options that the country had to raise funds to avoid default, Pakistan finds itself back in the IMF’s parlour.

The IMF is unfairly being given a bad name simply for demanding that we live within our means. How we achieve this is driven by our own priorities and political compulsions. So, what measures would one take to develop a sustainable growth path? Most of the proposals are well known and have been tabled repeatedly. In the short term (about two years) the adjustment will be painful. The real test of this democratically elected government would be how equitably it distributes this burden based on the abilities of different socio-economic groups to bear it.

The budget deficit needs sharp trimming through a combination of expenditure reduction on a durable basis and resource mobilisation. The cuts in expenditure need to come from a drastic pruning of the terribly designed and ridiculously sized development programme, the postponement of low-priority activities and the odiously lavish spending to keep those holding public office in good humour. Cuts can also be effected by reducing defence expenditure (now $34 per capita as against only $23 per capita on education and health combined).

This should be undertaken though the military, while resisting a review of its expenditures, will vehemently argue that such a strategy will seriously hamper the fight against terror. There is also the need to phase out subsidies (more quickly for the higher-income groups) on electricity, air travel (PIA), and fertilisers — a beginning has already been made in some of these.

With a tax-to-GDP ratio below 11 per cent the system essentially attempts to tax only those who can be taxed instead of those who should be taxed. Thus, the affluent segments of society in this country have been having a ball at the expense of the poor and the honest taxpayer.

There is a need to broaden the tax base and achieve horizontal equity among different interest and income groups, instead of selectively choosing some sectors for special treatment.

Incomes from all sources above a certain threshold should be subjected to taxation. We should withdraw income tax and general sales tax exemptions (services are still outside the sales tax net and agricultural income is not taxed) and impose, say, a capital gains tax on transactions in property and quoted shares — the latter as things improve, since this would be the wrong time to introduce such a levy.

Furthermore, as is the case in most civilised countries, worldwide incomes of all Pakistani citizens should be subject to tax and not just their incomes earned from commercial and taxable activities within Pakistan. Such a requirement would ensure that all politicians and segments of the elite with known assets and sources of income abroad would become taxable.

In any civilised country the poor, the dispossessed and indigent (now over 70 million in Pakistan — which is more than what the population of the country was in 1972) would have first right over the resources of the state. Not so here, where the adjustments required to stave off external bankruptcy and even to maintain some of the privileges reserved by the governing classes for themselves would necessarily be structural in nature. For example, Islamabad has three times the number of ministries compared to the US which has 100 million more people and an economy 130 times ours.

In the interest of transparency, accountability and good governance all members of the national and provincial legislatures and holders of public office (e.g. advisers, judges of the Supreme Court and high courts, the president, governors, chiefs of the armed forces, etc.) should be required to publicly declare their sources of income, annual incomes, assets held and income tax paid. This rule should apply to a period of two years prior to taking office, throughout the period of office and two years after relinquishing it. Thus we will at least know what our rulers contribute to the exchequer before they devise strategies and instruments to raise more revenues from us.

Inclusive and sustainable pro-poor growth of this country has to be anchored in agriculture, from which 45 per cent of the workforce directly earns its livelihood. Supporting such groups is not only required for poverty reduction but also to bring more stability in growth. Such growth will, apart from creating employment opportunities through increased demand for goods and services that are produced domestically and are less import intensive, also ensure stability as the consumption patterns of these groups are more stable in nature.

The efficiency of the industrial structure, whose growth is hampered by the lack of an educated and trained labour force, also needs to be improved by changing the incentive structure through a speedy removal of the anti-export bias in the industrial and import tariff policy, which has only been nominally addressed through the unintended depreciation in the exchange rate.

The above discussion is not to suggest that it will only be a struggle and that too over the longish haul. The adjustments required could turn out to be less painful and also have a shorter duration. There are some silver linings in the horizon which could lighten our burden.

The sharp fall in commodity prices in recent weeks (e.g. the international prices of petrol, edible oil, wheat and rubber have come down by more than 40 per cent from their levels earlier this year) will not only narrow our trade deficit but also ease pressure on domestic inflation.

The withdrawal of anti-dumping duties in Europe on our home textiles which comprise 40 per cent of our textile exports should provide a much needed stimulus. The depreciation of the rupee should assist exporters of our cheaper goods despite the looming recession in the US and Europe.

To conclude one wonders if the next time around the international community will finally come to the conclusion that the only option left for it would be to, once and for all, take out the two worrying factors (our nuclear arsenal and the terrorists) that force it to come to our assistance, and let us stew in our own juice.

THERE is an old saying that no good deed goes unpunished. This definitely is so in the case of the Higher Education Commission.

Recently, Dr Pervez Hoodbhoy, an eminent physicist, wrote an assessment of the HEC in this paper (Oct 21, 2008). Since he is passionate about the subject and well meaning, it is important to see if his observations are correct.

Let me state for the record and upfront that he admits that the HEC spearheaded “the first serious effort to rescue a failed university system.” Implication: when the HEC began its work, the university system had already failed and needed resurrection.

Now to the presumed shortfalls of the HEC. Dr Hoodbhoy observes that the HEC’s initiatives failed due to the absence of a system of checks and balances. While international organisations may have approved of the HEC’s efforts, they failed to conduct independent investigations, relying instead “exclusively on what the HEC had to say about itself.” The selection method used for sending scholars abroad is alleged to have “amounted to a simple numeracy and literacy high-school-level test”.

Is he right? No. Consider the issue of checks and balances. The HEC is the first ministerial-level body to have fully implemented the SAP accounting system under which its entire financial operations have been computerised in conformity with international best-practice accounting standards. Not only does the HEC have internal auditors in addition to being audited by the federal government, but its accounts are also audited by independent commercial auditors whose report is presented to the board of governors of the HEC.

Now to the sloppiness of the international organisations, the journal Nature and the World Bank that swallowed hook, line and sinker the HEC’s assessment of itself, it must be pointed out that Nature is regarded by the international scientific community as one of the most prestigious scientific journals in the world. The idea that Nature would rely simply on the HEC’s own material to approve of the latter’s efforts cannot really be taken seriously.

In the case of the World Bank, the Bank was actually asked by the Ministry of Finance to conduct an external performance audit of the work done by the HEC. The Bank sent a team containing a number of independent education and finance experts which came at least six times to Pakistan, met the HEC and university officials and also paid visits to various universities. All data provided by the HEC was double-checked by the Bank’s experts. It would appear then that their report is based on their own findings and not what the HEC presumably fed them. Unless one were to have a rather low impression of the Bank’s team.

Most recently, USAID reviewed the HEC’s efforts and concluded that the HEC’s “progress to date has been remarkable — indeed, in terms of value added, better than any other developing country this team has reviewed over the last two decades”.

Dr Hoodbhoy has also found dubious the selection mechanism used to send scholars overseas. This is how it works: it involves a nationwide advertisement, a check that candidates meet minimum academic levels and standards, and a GRE-type test administered by the National Testing Service. Those candidates who emerge successful from this process are then interviewed by a team of international scholars from the country where the students are going and it is that team which finalises the merit list. The result: every country to which the HEC has sent scholars has asked for more. Had our procedures been flawed, as Dr Hoodbhoy claims, that would not have been the case.

However, leaving aside these criticisms, there is also a fundamental error in Dr Hoodbhoy’s article. He argues that the money spent by the HEC would have been better spent on colleges and vocational training institutes.

There are two problems here. One, the HEC does not have jurisdiction either over colleges (which are controlled by provincial governments) or over vocational training institutes. So, the HEC cannot be faulted for not spending money on either colleges or vocational training. Two, there is no reason to think that higher education must come at the cost of college education or vice versa. All levels must be tended to, but for its part the HEC’s brief did not cover colleges and vocational institutes.

Dr Hoodbhoy is also unhappy over the tenure-track system of faculty appointments and the increased salaries paid to tenured professors. This is odd because he himself has worked hard to implement the tenure-track system at Quaid-i-Azam University. So far as the HEC is concerned, the tenure-track system of appointments is helping to attract qualified people towards academia and is crucial to the success of the PhD scholarship programme.

Publications by Pakistani scholars in the world’s best scientific journals have increased by more than 400 per cent since the HEC initiated operations in 2002. Dr Hoodbhoy has earlier criticised this increase on the basis that the publications are of no value and have not been cited in other publications. This too is not correct. The dramatic increase in citations of Pakistani scientific work led ScienceWatch.com to declare Pakistan a “Rising Star” in five separate fields in its most recent issue.

Interestingly, one of the largest increases in publications came from Quaid-i-Azam University, especially its physics department. Dr Hoodbhoy works in that department, along with seven of the top 10 physics researchers in Pakistan, though he is not in the ranking (as ranked on the basis of internationally recognised criteria).

One of the biggest and most beneficial changes in Pakistan’s higher education system has been the development by the HEC of an IT infrastructure. Every single university in Pakistan now has a computer network as well as access to a high-speed Internet connection along with access to one of the world’s finest digital library systems. Many now also have access to video conferencing allowing them to interact with their colleagues worldwide in real time.

To take but one HEC programme more than 150 students awarded scholarships for PhD studies abroad have now returned to take up faculty positions in the country. The first person to return is now an assistant professor at Islamia College University, Peshawar. With more than 2,500 scholars set to return over the next five years, the future of higher education in Pakistan is brighter than ever. It is important, therefore, to look at the facts before criticising and negating the best efforts of others.

The writer is executive director, Higher Education Commission, Islamabad.

BUDAPEST has been transformed over the past decade from a down-at-heel haven of post-Communist nostalgia to a lively and prosperous metropolis on the Danube, with smart restaurants and stylish urban apartments.

Yet Hungary last week became the latest country forced to take a $25bn rescue package from international donors, as it was driven to the brink of bankruptcy by the credit crunch.

Little more than a year ago, City investment banks were holding glitzy seminars extolling the virtues of emerging Europe as a one-way bet on the benefits of catch-up capitalism, and cash was flooding into the region. Now, the former darlings of the international markets are lining up for handouts.

Hungary’s rescue has been the largest, but it is not alone. Iceland has already received help; Ukraine and Belarus are in negotiations with the IMF; and, in another extraordinary move, the US Federal Reserve last week offered to provide dollars in exchange for local currency to cash-strapped central banks in South Korea, Mexico, Brazil and Singapore.

The speed at which these various financial lifeboats have been launched reveals a deep international fear: that the jarring shock suffered by investors around the world will force them to bail out of all but the safest markets, draining credit from vulnerable countries.

That could even mean the aftershocks of the financial crisis are felt as far away as Africa - and as the IMF rides to the rescue in central Europe, anti-poverty campaigners are becoming increasingly alarmed that the fate of the world’s poor will be forgotten in the maelstrom.

Ngozi Okonjo-Iweala, the former Nigerian finance minister who is now managing director of the World Bank, warns that the progress many African countries have made over the past decade could be at risk. ‘We are worried that the financial crisis will compound other crises: food, fuel, fertiliser. These are hitting poor countries, and hitting Africa particularly hard,’ she says.

For the time being, though, the focus is on eastern Europe - and the size of the bailout to Hungary has put the IMF firmly back in business. After several years of rare calm in the world economy, it has found its role once again.

Controversy is already raging about the conditions countries have been forced to meet to unlock IMF cash. The fund faced fierce criticism after the Asian financial crisis of the late nineties for imposing political straitjackets on the countries it helped.

Iceland has had to shove its interest rates up to 18 per cent, having cut them as recently as a fortnight ago. That should help to underpin its currency, the krona, whose plunge has made the country’s vast foreign debts harder to afford. But, in the short term, it will exacerbate borrowers’ difficulties.

In Belarus, meanwhile, the government is reportedly under pressure to privatise its banking sector: precisely the opposite course of action taken by the US and Britain, where billions of dollars of public cash have been spent nationalising all or part of many battered banks.

In Hungary, drastic budget cuts are part of the IMF package. Romania is rumoured to have turned down IMF help because the government was unwilling to sign up to sharp reductions in public spending.

However, Barbara Nestor, eastern European economist at Commerzbank, says Bucharest is unlikely to be able to hold out for long, because if Romania is the only country in the region without an aid package, it will be singled out by investors. ‘Market pressure could eventually lead it to co-operate,’ she says.

Neil Shearing, central Europe economist at consultancy Capital Economics, predicts that the spending reductions demanded by the IMF will bring about a painful downturn. ‘We now expect most of the region to enter recession this year,’ he says. ‘We expect further IMF packages, and they come with strings attached: they only lend to you if they think they’re going to get the money back, and that means cutting government spending by as much as 1 per cent of GDP.’

So while the US and Britain are slashing interest rates, and allowing public spending to rise to prevent the recession from becoming too severe, emerging economies will be urged to push up borrowing costs and cut back on government budgets, to demonstrate to the world’s financial markets that they have learnt the error of their ways.

Laszlo Andor, Hungarian director of the European Bank of Reconstruction and Development, says ironically, the downturn now in store could help Budapest meet the strict targets for joining the European single currency.

— The Guardian, London