DAWN - Opinion; 30 December, 2004

Published December 30, 2004

Rise in inflation rate

By Sultan Ahmed

Whether Pakistan raises modest short-term loans from the International Monetary Fund or not, there is no getting away from the influence of this monetary agency.

The IMF, being the bank of the last resort for countries in financial distress, also acts as an adviser to Pakistan's major donors such as the World Bank, the Asian Development Bank, the US and other western aid-givers. And its advice on economic matters to a borrowing country is taken seriously by the western donors and Japan. In addition, the IMF is also an international monetary watchdog which rings alarm bells before the economy of a significant country confronts a serious problem or a major region faces such a predicament.

Of course, when Pakistan got a loan from the IMF under the Poverty Reduction and Growth Facility of 1.5 billion dollars its advice had sounded too authoritarian and made our senior officials uncomfortable as they negotiated conditionalities of the loan with junior IMF officials.

Hence, Pakistan has terminated the PRGF and gave up two of the last tranches. The IMF wanted Pakistan to seek extension in the programme but the latter did not need that as its foreign exchange reserves even at the reduced 11.5 billion dollars are seen as quite adequate.

The IMF has now voiced its satisfaction with the economic performance of Pakistan, particularly its growth rate of over six per cent and its macro-economic achievements, which include a fiscal deficit of around three per cent.

In the last fiscal year the deficit declined to 2.4 per cent but in view of the 25 per cent increase in the development outlay the deficit this year may be 3.2 per cent or Rs. 199 billion, which is pretty good.

But the IMF is not satisfied with some major details of the financial management, like the large financial deficit in the power sector, which this year is estimated at Rs. 60 billion; the small increase in revenue collection despite the striking increase in economic growth, particularly in the industrial sector; the delay in passing on the high price of oil to the consumers; the failure of the government to privatize all the major organizations that were scheduled t be disposed of before December 31; and the number of tax exemptions, particularly for the richer groups. It is dissatisfied with the low spending on human capital development and the social sector.

It has, however, given four waivers to the government and they include extension of tax exemptions by the government, delayed announcement of tariff and subsidy policy for regional electricity tariff, publication of financial recovery plans for successor companies of WAPDA and provisions relating to international payments.

The government is however moving fast to satisfy the concerns of the IMF. The reorganization of Central Board of Revenue is making headway. There has been large transfers of middle-level staff. And the chairman of the CBR Abdullah Yusuf now says that until recently complaints of corruption were against junior officers in the regional office, but now the accusations are directed against the senior officials of the CBR.

He wants them to mend their ways quick lest the axe falls on them and following the reforms to be introduced in the CBR it is to be more autonomous than before. Anyway, the CBR is in the melting pot. What finally emerges remains to be seen.

The POL profits have been raised substantially after over six months. Simultaneously another report says oil consumption in the first five months of this financial year ending November has risen by 19 per cent following the higher consumption of furnace oil to produce power; the low level of water in the rivers mean lower hydel power output and heavier use of furnace oil which rose by 47 per cent in the five month period compared to the same period last year, while diesel oil consumption went up by eight per cent.

Privatization is also being speeded up despite the political tensions within the country and international uncertainties. More and more business groups from Saudi Arabia, Kuwait and UAE want to bid for the major enterprises. Compared to India, Pakistan's privatization has really moved very fast.

The government has now assured the IMF the fiscal responsibility law will be enacted before the end of the financial year. The standing committee on finance of the National Assembly has already approved it.

If the law comes into force the parliament will have better control over budget-making, revenue collection and expenditure, particularly on public borrowing and debt management.

It will then be for the parliament to exercise effective control over official expenditure or be as slack, as it has been, in the past and let the government manage the financial affairs of the country at will.

In a rather bright macro-economic picture of the country, one area of setback is the inflation rate which went up to 9.1 per cent by the end of last month. Inflation is not coming down below nine per cent, says Dr. Salman Shah, economic adviser to the prime minister.

The official target on the budget eve was five per cent for the current fiscal year. But even if the year does not end with a double-digit inflation, the current rate may prevail now until June.

The Asian Development Bank says that Pakistan will fail to achieve its inflation and current account balance targets after four years of impressive performance in keeping other macro-economic indicators on course and achieving 6.5 point GDP growth.

The current account deficit is due to the higher cost of oil imports and import of 1.5 million tonnes of wheat and larger import of machinery and raw materials for industries for larger exports. Increased exports, which are currently below the target, higher home remittances and rising foreign investment may reduce the current account deficit.

Shortage of essential food items and rising house rents pushed upward the consumer price-bases index. Add to that the higher price of POL, the rise on transportation costs and freight charges which push up food prices.

And if mutton and beef prices shot up earlier, the prices of chicken followed, fish prices have risen very high, and even prices of pulses have shot up hitting the poor very hard. The poor have no choice to get some relief from such rising inflation.

Prices of products made at home go up because of the higher cost of production and higher price of POL and the chemicals and inflated foreign rates. The food basket is costing more and more as apart from the higher prices of wheat, onion and potatoes prices of garlic, ginger lemon etc have shot up very high.

A rise in POL prices has a multiplier effect on prices and so is the rise in transport costs. The railways have already increased their fare by five per cent. Shortage of water which is projected at 47 per cent for the Kharif crops may result in lower production all round and push up the prices further.

The normal course is for the government to take steps to import the items in short supply and those whose prices have shot up very high. But imports in Pakistan are far more costly due to taxation and higher profits charged by the importers and their distributors. It is a sellers economy, through and through, with varied abuses to aggravate that.

In such an environment because of the higher profitability of the companies the Karachi Stock Exchange Index for 100 shares has crossed a historic 6,000, delighting the brokers and the speculators. And the chairman of the KSE Arif Habib says "the sky is the limit for the KSE index" to soar.

In such an ebullient environment Salman Shah says economic growth this year may be seven per cent, exceeding the projection of six per cent when the budget was presented and the recently revised 6.4 per cent because of the soaring oil prices and their impact not only on the Pakistan economy but also on the world economy. And the fiscal deficit will be 3 to 3.5 per cent. Prime Minister Shaukat Aziz has spoken of seven to eight per cent growth in the next two years and eventually 10 per cent growth.

The higher economic growth will be on account of a record cotton crop which may touch 14 million bales instead of the original target of 10.1 million bales and larger wheat crop, higher industrial investment and rise in production.

The banks say they have helped in the larger investment and may make further large investment. Interest rates are rising slowly, and he does not expect them touch double-digit this year. Meanwhile, there is a great deal of talk about Islamic banking by not only local bankers but also by those from the Gulf region.

While there is such exultation over the higher economic growth achieved and higher growth sought, the Social Policy and Development Centre headed by Kaiser Bengali says that growth is not enough to fight poverty.

He is right. The government, the World Bank and the Asian development Bank too accept that. Even the IMF called its last programme for Pakistan Poverty Reduction and Growth Facility, linking the two elements together.

Mr Bengali wants equitable distribution of the new incomes and wealth. The boom in property prices and the stock exchanges helps a small number of people who are largely speculators and not real investors. There is a great deal of manipulation in both the sectors. The result is higher rent for the poor and low income groups.

Far more has to be spent on education, public health and family planning. We have to keep the population growth down instead of a larger number of people getting less and less.

Otherwise there would be a rise in crimes, big time crimes, if not in terrorism. If massive unemployment means no incomes for a large number of persons, many of the recently employed are getting low wages as unskilled labour has become cheap.

While there is massive unemployment and under-employment, there is also an acute dearth of skilled persons. We need skilled and trained persons in most sectors of the economy and the government's promise of setting up such institutions has to become a reality.

A smaller population with low population growth, an educated and trained work force and large industrial and agricultural investment can lead to an end of our economic problems.

Ukraine's loss to Russia

By Mirza Aslam Beg

Irrespective of who emerges the winner in the ongoing tussle between opposition leader Viktor Yushchenko, who secured more than 50 per cent of the vote in Ukraine's recent presidential polls, and Prime Minister Viktor Yanukovych, who refuses to concede defeat, the writing is on the wall.

The apparent replay of the "Rose Revolution" has already created shock waves, leading to global tremors. Surprisingly, the European Union, which had shown a maturity of judgment in opposing the war on Iraq, has fallen for the neo-colonial ambitions implicit in the crisis.

It will now be facing a new challenge at its doorstep in a Ukraine that is split from within and is, at the same time, the focus of the contesting powers - Moscow, Washington and the EU.

It may be that Ukraine is another Afghanistan in the making. Russia's President Vladimir Putin rightly warns: "It is extremely dangerous trying to resolve political problems, outside the framework of the law - first the Rose Revolution, and then they will think up of something like blue. If you have permanent revolutions you risk plunging the past Soviet space into endless conflict."

The US miscalculated post-Cold War unipolarity, looking upon it more as an opportunity to maintain its global primacy and pre-eminence with the typical imperial arrogance evident in its infamous doctrine of "preemption".

It did not see the end of a bipolar world as an opportunity to attain the more sublime objective of extricating humanity from the morbid and conflict-ridden global order, due to tragedies that came in the wake of confrontational polarization of the two superpowers.

The peoples of the world had long aspired that during the post-Cold War era human security would be the abiding passion of the power wielders and to see a sharing of the world's enormous resources to ensure a win-win situation for every nation.

Unfortunately, this has not happened. The actions of the US, undoubtedly the indispensable military and economic power, have led to the emasculation of the UN. Washington has backed out of the Kyoto Protocol and has scrapped the Anti-Ballistic Missile Treaty.

It has rejected the International Court of Justice's authority and continues to support Israel that is inflicting tyranny on the helpless people of Palestine. US primacy, considered vital for the governance of the world, is essentially an authoritarian mindset and a desperate effort to consolidate control over energy resources, the fulcrum of economic power.

US strategists, particularly the proponents of realpolitik like Zbigniew Brzezinsky and Henry Kissinger, favoured a unipolar world. Therefore, Washington's primary thrust towards achieving its strategic objectives was to extend Nato, in order to minimize Russia's influence, by bringing traditional European partners of the former Soviet bloc into its fold.

Other actions towards this end included efforts to gain control of the oil wealth of the Middle Eastern and the Gulf, and eventually of the Central Asian energy reserves that would sustain America's geo-economic interests.

The war on terror, which led to massive destruction in Afghanistan and Iraq, is only a prelude to the fulfilment of Washington's strategic objectives of maintaining an unbridled unipolarity.

Unfortunately for the US, things have not gone the way they were planned. Afghanistan and Iraq have set the limits for America's military power. Russia, which hitherto had maintained a strategic silence, has now reached the point when it will take no more. It faced much embarrassment after the previous elections and ensuing turmoil in Ukraine that led to a re-poll.

Putin accused the US of interfering in the affairs of Ukraine, stating, "...this was not simply a struggle for power between the two Viktors, but was the beginning of a dangerous democratic transformation when Ukraine, after living almost entirely within the Russian space for a thousand years, turns towards the West and seeks membership in Nato and later the European Union."

Russia's disenchantment is becoming obvious. Moscow is now seeking to forge a strategic consensus with Beijing and New Delhi to challenge American power through a readjustment in the power equation. Multi polarity is the ultimate imperative.

As the first corrective step, therefore, Russia has turned towards South Asia, for the rearrangement of its priorities. Ahead of President Putin's December visit to India, Russia issued a clear warning: "If India will not fully honour our interests, then there is no need to attach strings, conditions and demands from Russia not to trade (in arms) with Pakistan.

Currently at the request of India, Moscow is not cooperating with Islamabad in the defence sector. Defence ties with India could come to a halt if India sought to mix its technologies with proposed purchases from the United States."

India conceded and the deal was signed, giving a clear message to Washington, as Putin put it: "The Russian Federation and the Republic of India are convinced that their bilateral cooperation in all forms, and their strategic partnership, contributes to the strengthening of regional and global goodwill and cooperation.

We have repeatedly called our American partners' attention to this reality. And eventually they realized the need to reach a political settlement in Iraq using the UN mechanisms.

I believe that the new administration will undoubtedly bear in mind the 'Iraqi lessons' when determining its foreign policy. The transformation in the global environment in the recent past stresses the need for a new international architecture based on a multi polar world."

The euphoria of New Delhi's strategic partnership with the US appears to be dissipating and the common objectives, as enunciated by Kissinger, are getting all the more blurred: "The emergence of India into great power status is one of the principal events of the next decade.

This is all the more true because the geographic area of most intense interest for India - the Muslim world and Central Asia - coincides with a major concern of the United States, and the interests of the two countries run parallel there in important respects."

Russia has always been sensitive about its security, creating territorial barriers which have gradually eroded. The expected loss of Ukraine, therefore, is considered a national disaster.

Ukraine is a pivotal player in this plan as not only is it currently a conduit for Russia's export of gas to Europe, its port of Sevastopol is home to the Russian fleet. Furthermore, Ukraine is perceived by Russia as an important safety buffer between it and Nato.

It is obvious that, irrespective of the election results, the Ukrainians are the losers. The nation stands divided and may serve as a "pawn" in a dangerous tug-of-war between Moscow, EU and Washington.

This development will have serious repercussions on the war in Iraq and Afghanistan, as the intensity of resistance is likely to increase. It will also abate nuclear proliferation, establishing the nuclear fault line, from Israel to Iran, Pakistan to India and South Korea to North Korea, with its fulcrum in Moscow and Beijing. The battle-lines seem to have been clearly drawn.

Many countries in the Muslim world will be affected by the outcome of the political battle in Kiev, because Ukraine is an important supplier of arms to them. Pakistan may be rightly worried about its Al Khalid MBT 2000 production, if supplies to vital components dry up or are delayed.

The loss of Ukraine may prompt Russia to develop its own strategy of pre-emption, adding a new dimension to confrontation. "It's hard to ignore, (that) Russia is on the opposite side of the barricades from the United States and this is a potentially very dangerous situation because both sides think they are right - and at the same time approaching a confrontation." Rightly, people are now talking of a Cold War stand off between the East and West.

While there will be a strategic renewal of relations where the US and Pakistan are concerned, as the latter country cannot wholly trust India on account of its track record, Islamabad must not make the mistake of going all out to accommodate Washington.

It must dexterously play its cards so that friction with Moscow is minimized. It must not find itself on the wrong side of the fence. Friendship with China must not be compromised and relations with Iran must improve. Historic opportunities await Pakistan for it to readjust its foreign policy and its geo-political priorities in conformity with the demands of a new world order.

The writer is a former chief of army staff.

The lonely masks of Narasimha Rao

By M.J. Akbar

Most politicians understand politics. Rather fewer understand power. P.V. Narasimha Rao was a master craftsman of power. He knew its first fundamental law. When you share power, you increase it. He had no particular qualms about whom he shared it with.

On one side might be a drunk MP just purchased (without his knowledge, naturally) by an intermediary; on the other side the swarthy self-caricature of the beady Chandraswami; on the third a list of astrologers as long as the train journey from Delhi to Chennai. If they served the cause they were welcome.

He knew the second law as well. You use power to either increase the number of your friends or to increase the number of your enemies. Paradoxically, he did both. He did not see power as the privilege of a coterie, a traditional fact of the Congress.

That was the principal reason why he did not allow his sons, also professional politicians, to interfere in Delhi - at least until relatives began to work the cream towards the end of his five years in power.

Which brings us to the most significant fact of his time in office. We think of him serving a single term as prime minister. He had two terms, split by December 6, 1992, the day on which the Babri Mosque was demolished while he remained deliberately indifferent. He changed in almost every sphere of governance, including the reformist economic policy for which he is justly lauded.

Rao's exceptional genius was his intellect which, when reinforced with his learning, became truly formidable. His finest skills were in evidence after he became prime minister as a consequence of a tragedy, the assassination of Rajiv Gandhi.

The shock, a thud across the heart of the nation, was compounded by an economic meltdown. If it takes a crisis to discover a man, then the hour had found Narasimha Rao.

He went on radio and television to deliver a startling message: most of what we had held sacred as economic policy had failed, and it was time to think outside quasi-socialism's tattered box.

The courage and drama of that challenge seems difficult to convey after a dozen years in which reform might have become the new quasi-socialism. He then broke every convention by selecting Dr Manmohan Singh as his finance minister, a bureaucrat known, in limited circles, for his integrity, both intellectual and fiscal.

This was a startling message too. The finance ministry was not going to be a cockpit of deals and deliveries. A non-political finance minister was a virtual oxymoron.

Narasimha Rao had found life when he was preparing for a quiet end. Weakened, physically and emotionally, by a bypass operation, he did not contest the 1991 general elections. But when destiny offered him an opportunity, he was determined to make his last hour also his finest.

He brought some unusual talents to the management of power. He was a master of absence. In other words, he could, when he wanted, dilute his presence to the point where he became minimalist. But it was always his choice.

Few remember, for instance, that he was home minister of India when anti-Sikh riots broke out across the country in the wake of Mrs Indira Gandhi's assassination. He was also a master of inaction. Inaction did not mean indecision. It simply meant that he had decided not to take a decision. He had learnt a great deal from his mentor, Mrs Gandhi. He was fond of one story about her.

When Mrs Gandhi was scouting for a candidate to become president, the choice narrowed down to Giani Zail Singh and Narasimha Rao, both ministers in her cabinet. Rao was scheduled to go to some godforsaken corner of the globe as the deadline approached.

His friends urged him to remain in Delhi, within Mrs Gandhi's proximity. He laughed off the suggestion. If Mrs Gandhi wanted to make him president of India she would summon him from Timbuktu if necessary. If she did not want to, he could be cleaning the mat outside the door and she would not.

I had the privilege - and I do not use the word lightly - of working with Narasimha Rao after he became prime minister. I prefer not to resort to reminiscence in a column, but the occasion suggests a reason to do so.

I had joined public life because of Rajiv Gandhi. Rajiv still has barely-disguised detractors, but I do want to reassert that he was one of the finest human beings to join Indian politics, which is why he was unfamiliar with its machinations.

He was trapped, by mistakes, in a gulf of communalism, unable to steer between a violent, aggressive Hindutva on one side and the hectoring, provocative hate mongering of the Shahi Imams and the Shahabuddins on the other.

Narasimha Rao had watched the process, and knew that seeds sown in the eighties would bear poison fruit under his watch. He found an extraordinarily cynical answer. He slept through the destruction of the Babri mosque. Later, privately, he explained that the BJP was destroying its principal emotive issue along with the mosque.

He was never very impressed with the quality of Muslim Congressmen. He had nothing but contempt for them after he bought out each one of them with a few tidbits after December 6.

Not a single Congress minister, official or MP resigned in protest after the destruction of the mosque. No one asked for his resignation after the initial shock. Each one queued up for promotion or office, which Rao was happy to offer.

As it turned out, I was the only person who resigned from government, when I discovered on the evening of December 6 what everyone else who had tried to call Rao knew that he took no action because he considered inaction the solution rather than the problem. But that was immaterial because I had had enough of politics by then. If the Congress wonders why Muslims in UP and Bihar still will not vote for the party, perhaps it might want to check out what its most prominent faces did in December 1992 and January 1993.

Once Narasimha Rao survived, he became a different and contradictory leader. The bold visionary of economic reform retreated as far as he could into conventional budgets that clearly exasperated Dr Manmohan Singh.

Perhaps he felt that votes were inextricable from the old dialectic. There may have been some political justification for this, but there was none for the sudden use of power to malign those who refused to be fully obedient.

M.L. Fotedar, who played a significant role in making Rao prime minister, Arjun Singh, Natwar Singh and Madhavrao Scindia are only the most significant names that come to mind.

Simultaneously, men like Chandraswami were given freedom to soar over the system. The crucial difference was just this: the man who recognized that power expanded when you shared it, now began to grasp power only for himself. He lost what he had received as well as what he had earned.

Rao had time for his own post-mortem, and did what he could to explain his political decisions. Strangely, for a politician in need of votes, he was loath to explain crucial events while in office. When he did explain, he was rather good at it.

He told voters, for instance, that they had nothing to fear from foreign capital, since the foreigner who had paid for the factory would never be able to lift that factory and take it away from India. His reticence over Babri enabled his foes to paint him in the colours they wanted, generally light saffron. But he lived long enough to see the ironies of life.

He was driven out of the leadership of the Congress for getting 145 seats in the Lok Sabha. A dozen years later the Congress is triumphant because it has won 142 seats in the same Lok Sabha. The wheels of party politics have been in a rut since 1991.

It was notable, and entirely apposite, that Rao should choose fiction as the medium for his autobiography. To the end he needed to camouflage his mind. But he must have entered each word into his computer with a thin smile that only occasionally expanded into an oblique laugh. The title was a give away, but inadequate.

Instead of The Insider the book should have been called The Lonely Insider. It was the loneliness of a long-distance Brahmin runner, for the intellectual in him was also the Brahmin in him.

He did not advertize his innate superiority of insight and scholarship. There was no need to. It was obvious. But he could never be one of the boys, if you see what I mean. Is that because he was always one of the adults?

The writer is editor-in-chief of The Asian Age, New Delhi.



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