War — sanction or no sanction

IN defiance of world opinion and in the face of stiff opposition from some of its own allies, the United States now seems determined to unleash war on Iraq. A full-scale offensive now seems only days away. Never since the founding of the United Nations has the United States found itself so isolated even from its own allies across the Atlantic as now. On Friday, in the Security Council, France and Germany found themselves in total agreement with America’s former foes, Russia and China, on the need for giving the UN weapons inspectors more time to pursue their work. All four made it clear they would not vote for a UN resolution authorizing punitive military action at a time when peaceful options were still available, with chief inspector Hans Blix saying that his team was receiving “proactive cooperation” from Baghdad. All the four said they were opposed to a second Security Council resolution authorizing war. China’s Foreign Minister Tang Jiaxuan said his country was not in favour of a second resolution, because “there is no reason to shut the door on peace”. German Foreign Minister Joschka Fischer found it “incomprehensible” that the world community should abandon political efforts to disarm Iraq, while Russian President Vladimir Putin told President George Bush on the telephone shortly before the Security Council session began that Moscow was determined to press for a peaceful solution. However, the most categorical stand against war was taken by France. As Foreign Minister Dominique de Villepin told the Security Council in no uncertain terms, Paris “will not allow” the passage of a resolution that would automatically authorize war. To these voices of sanity, Pakistan lent its full support when Permanent Representative Munir Akram pleaded for giving more time to the inspectors and called for delaying military action. As he put it: “The cost of delay .... is much less than the cost of war”.

As against all this, is America’s stubbornness and its inexplicable fixation with unleashing death and destruction on Iraq. Not that unilateralism bordering on chauvinism is something new for Washington under the Bush administration. It has been there even before 9/11 — what with the Kyoto protocol or the renunciation of the ABM Treaty. What, however, was shocking about George Bush’s latest speech was the total contempt he displayed for both the world community and the UN. Speaking at a prime time news conference at the White House on Thursday, he used words like “we really don’t need” twice — once for the UN and again for the world community. He told newsmen “We really don’t need the United Nations’ approval” for war and again “when it comes to our security we really don’t need anybody’s permission” for an attack on Iraq. These are words coming from the chief executive of a country one of whose great presidents founded the world body more than half a century ago.

Iraq, meanwhile, has continued with its destruction of weapons of mass destruction (WMDs). Mohammad ElBaradei, chief of the International Atomic Energy Agency, has termed the Anglo-American “evidence” about Iraq’s WMDs as “not authentic”. Truth and justice now do not seem to matter any more to the Bush administration and its sidekick, the Blair government. They have now introduced a new draft in the Security Council that has fixed March 17 as the deadline for Iraq to disarm. Obviously, Iraq cannot disarm any more than what it has already done. France or any other permanent member of the Security Council will obviously use the veto against the second resolution, but that would make little difference to President Bush and the hawks in his inner circles. Israel now wants to go for a “final solution” of the Palestinian question, and America’s war will make it easier for it to do so. However, these would be temporary gains. In the popular backlash against the US, the first to suffer will be the “moderate” pro-American regimes in the Middle East and on its periphery. This will only strengthen the forces of religious extremism and militancy, which America’s war on terror is designed to eliminate. In the longer run, America will get even more isolated in a region where it has vital economic and geopolitical interests.

A remarkable achievement

FOREIGN exchange reserves (FER), which have been going up steadily over the last two years, have now crossed the $10 billion mark, almost equal to the amount that we spend annually on financing imports. This is a remarkable achievement for a country which has rarely been able to meet even 70 per cent forex requirement of its annual import bill from its own resources and had to borrow to pay for the balance all the time. While the resources now available in the FER are our own and not borrowed — most of these, however, are not earned. Part of it has been purchased from the open market and the banking sector, some of it belongs to non-resident Pakistanis who have sent their savings from abroad and the balance is made up of generous grants received from bilateral donors. With all the variables holding on, one would expect the FER to keep on expanding, but it may not happen quite that way and may indeed start tapering off soon as we seem to have reached the limits of what we could get from the three sources mentioned above.

There is another problem with the present mix of the FER. As much as Rs. 390 billion has been injected into the local market by the State Bank of Pakistan in the process of purchasing 6.65 billion dollars from the banking system. Obviously, the infusion of such a large amount of rupees in the local market would have sent the domestic rate of inflation soaring. So, in order to avert this, about Rs. 238.6 billion of this amount or about 61.19 per cent was sterilized primarily through auctioning of the government paper. Still, the monetary impact of massive inflows of foreign exchange into the country in the first half of the current fiscal year caused the money supply to grow by 9.4 per cent (Rs. 166.4 billion) against the annual target of 10.8 per cent (Rs. 190 billion). The sterilization had its own cost as well because it reduced the profit of the SBP.

Under sterilization, the SBP passes on some of its T-bill holdings to scheduled banks to mop up liquidity generated by the purchase of foreign exchange. In the process, the SBP has suffered a reduction of five per cent in its earnings. However, the net loss to the SBP came down to about 3.75 per cent on each dollar added to the country’s reserves because it earns about 1.25 per cent of profit on foreign exchange purchases placed abroad. It is, therefore, time for us to make use of the fiscal space provided by the relatively large FER — to put the economy on an even keel, so that in due course of time the FER is filled with our own earned incomes from exports and other economically legitimate sources.