DAWN - Opinion; December 31, 2005

December 31, 2005


Time to look to the East

By Dr Ishrat Husain

ONE of the most dynamic regions of the world today and likely to remain so in the next several decades is East Asia (including Japan, China, Korea, Taiwan, Hong Kong, Australia and New Zealand). The East Asia summit that was held at Kuala Lumpur recently was a path-breaking event in which 10 Asian countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Viet Nam), along with China, Japan, Korea, Australia, New Zealand and India participated. This summit could become a precursor for a long drawn process for an emerging East Asian Community.

The critical importance of East Asian countries can be realized from the fact that this group contains one half of the world population, one-fourth of world GDP, is the fastest growing region in the world and provides hundreds of billions of dollars of its net savings to finance the current account deficit of the United States. Intra-regional trade among the Asian countries accounts for 54 per cent of the total trade and the links in the global supply chain led by Japan and China are quite strong in the region; a substantial part of foreign direct investment to developing world is channelled to these countries. China has become the world’s manufacturing factory while India is the largest beneficiary of outsourcing of services.

At the Emerging Markets Forum held at Oxford on December 9-11, co-chaired by former President Fidel Ramos of the Philippines and former managing director of the IMF, Michel Camdessus, which I had the privilege of attending, there was almost a consensus that the Asian region is going to continue as a growth engine for the world economy in the near term. President Haruhiko Kuroda of the Asian Development Bank (ADB) outlined at the forum his vision of Asia’s future.

The four pillars through which the integration and cooperation will be strengthened among the Asian countries are: (a) development of regional infrastructure such as ports, roads, airports, shipping and trade facilitation through which goods and people can cross borders easily; (b) harmonization of taxation, regulations, laws, etc., so that the transaction costs of doing business within the region can be minimized; (c) pooling of financial resources and utilizing them within the region for development, crisis prevention and crisis management; and (d) increased trade of goods and services to capture global market shares. The ADB under the dynamic and visionary leadership of President Karoda has committed to assist the member countries to fulfil this agenda and we in Pakistan should take full advantage of this initiative. How can we go about this ?

Pakistan’s public policy makers and businessmen have, for historical reasons, remained too much attached to the United States and Europe and have paid scanty attention to this dynamic region. Simple arithmetic demonstrates the superiority of an approach tilted towards the East. The US economy is expected to grow at an average of three per cent and European economy would be lucky to reach an average two per cent growth. There is already a hollowing out of manufacturing in the US and Europe as they remain confined to high-tech industries such as aviation, aerospace, etc., while the rest of manufacturing is shifting to East Asia, particularly to China.

The share of manufacturing in the US GDP has dwindled to 15 per cent while jobs created in manufacturing are even fewer. Demographics is also not going to help the US and Europe as the proportion of old-age population rises relative to working-age population, creating a shift in the demand pattern away from goods and services typically produced in countries such as Pakistan. East Asian economy, despite the slow growth of Japan, is projected to grow at an annual rate of seven per cent.

Per capita incomes in this region having one-third of world population will therefore double every 12-14 years and the emerging middle classes of these countries, equivalent to the entire population of the US and Europe, will absorb increasing volumes of commodities, goods and services. All these goods and services cannot be found within their own borders. They will source them from the least-cost producers but the dynamics of sourcing has changed and is likely to change even more dramatically in the future. Instead of the final product originating from one single country, reliance will be placed on a global supply chain — exactly the way China is operating at present.

China orders and imports inputs, parts, raw materials, components from different countries of the world, processes, assembles and integrates them in the form of finished manufactured goods and re-exports them to the rest of the world, including the countries from where parts of the supply chain are procured.

Pakistan’s manufacturing establishment has not yet taken to this new mode of specialization of production and international trade and is therefore not part of the global supply chain. It continues to combine all the activities vertically — from raw materials, designing, processing, manufacturing and shipping under one umbrella. This approach has resulted in a lot of missed opportunities for Pakistani exporters. They have to unbundle their activities, specialize in a particular component of the global supply chain, in which they have a comparative advantage, produce that in bulk either in-house or through outsourcing and subcontracting and arrange delivery of these components in the fastest turnaround time at a low-cost maintaining of high standards of quality.

The emphasis has to shift from doing everything yourself to managing quality standards, logistics arrangements, delivery on time and cost controls but producing in bulk — literally in millions because of the economies of scale. The managerial, human and technical skills required for this new way of doing business have to be reoriented, retained and retooled.

In terms of financial integration, Pakistan has to actively participate in the Chiang Mai initiative of Asian central banks and also in the Asian bond market initiative. These initiatives will enable Pakistan to deepen its links with the financial markets in Asia and also with the region’s Central Banks. Pakistan should also encourage the quality commercial banks from Eat Asia region to establish their branches or set up joint venture banks here. Pakistani banks operating in Hong Kong and Singapore have to play a more vital role in promoting trade between East Asia and Pakistan.

The Pakistan government’s initiatives in developing Gwadar port as the hub for the Central Asian and Western China transit trade and the energy pipeline corridors are extremely timely. But to get them implemented in the fastest possible time and produce end results, they have to be saved from the routine inter-ministerial and inter-governmental bickering and rivalries that characterize public administration.

High-powered autonomous operational bodies headed by highly competent chief executives accountable to their Boards and ultimately to the parliament should handle all the affairs pertaining to these infrastructure projects to save ourselves from the embarrassment of delayed completion and huge cost overruns. The world around us is not going to stand still and if we fail to deliver on time and within the expected cost structure we will be heavily penalized as the business will slip away from our hands to some other smart country and we will keep on blaming each other and finding scapegoats.

The eastward looking strategy can be successful only if we have a change in the mindset — from a negative, obstructive, can’t-be-done way of thinking and doing to a more agile, proactive and can do type of attitude. Until that happens, the chances of Pakistan benefiting from the vast potential of East Asian region will remain subdued.

To sum up, the vast economic potential of East Asian economies has not yet been fully tapped by Pakistan. This requires a change in the organization of production and distribution by our manufacturers as well as a change in the composition and organization of public sector bodies created to develop the cross-border and transit infrastructure projects and last but not least a change in the mindset of policy-makers and private entrepreneurs.

The writer is the former governor, State Bank of Pakistan.

Democracy’s high price

A YEAR after Ukraine’s Orange Revolution, Russia’s effort to combat the spread of democracy in Eastern Europe continues unabated. Its latest weapon is natural gas.

As the heating season got underway this month, Moscow announced through its state-controlled energy company, Gazprom, that it would more than triple the price it charges Ukraine for gas supplies, to $160 per 1,000 cubic meters. When Ukraine’s government sought to negotiate a more gradual increase, Moscow threatened to raise the price further, to more than $200, or cut off supplies as of Jan. 1.

Russian President Vladimir Putin chose to trigger this crisis just as Ukraine approaches a crucial parliamentary election on March 26. Thanks to Mr Putin, soaring energy prices for Ukrainian consumers may be a punishing issue for the former Orange revolutionaries.

Next door in Belarus, pro-Moscow President Alexander Lukashenko has no such worries.

He, too, has an election coming up, on March 19; he abruptly scheduled it last week, the day after holding a summit meeting with Mr. Putin. At that meeting, Mr Putin agreed to hold the price of gas for Belarus steady next year, at $46 per 1,000 cubic meters. Belarus’s democratic opposition, which had been preparing for a presidential election in July, was left with one week to register its candidate and just a few more to campaign, without the benefit of mass media, money or the right to free assembly.

Western leaders tended to assume after the Orange Revolution that Ukraine had turned the corner toward democracy and could be expected to follow the path of other former European communist states, such as Poland and Hungary.

Belarus, they hoped, might be next: President Bush publicly singled it out as “Europe’s last dictatorship,” and both Congress and the European Union approved multimillion-dollar programmes to support pro-democracy movements.

But the attention of Western governments to Eastern Europe has slackened in recent months while Mr. Putin has stayed focused.

He has never accepted the Orange Revolution, describing it as a plot by Western intelligence agencies. He has directed much of his foreign and domestic policy in the past year to stopping similar democratic movements in Eurasia while making sure no such cause can arise in Russia.

March could be a landmark in his counterrevolution: first the reelection of Mr. Lukashenko, who can be counted on to use fraud and violence against his opponents; then, one week later, a Ukrainian election that could greatly weaken the pro-democracy parties Mr. Putin unsuccessfully tried to suppress a year ago. That may not be all.

An official statement describing Mr Putin’s meeting with Mr Lukashenko last week promised new steps toward a long-discussed “union” that could eliminate Belarus as an independent state, including the finalization of a union constitution and the adoption by Belarus of the Russian ruble.

Will the West stand up for democracy in Belarus and Ukraine? So far there’s not much sign of it. The European Union decided shortly after Mr Lukashenko’s announcement to postpone the launch of a radio service intended to provide uncensored information to Belarusans. Poland’s foreign minister, Stefan Meller, spoke with Secretary of State Condoleezza Rice about Ukraine’s gas price problems during a visit to Washington this week, but they did not reach agreement on a concrete response. Many in the administration remain unwilling to react to, or even acknowledge, Mr. Putin’s aggressive campaign to undermine Mr. Bush’s pro-democracy policy. As U.S. lassitude continues, Mr. Putin’s price keeps going up. — The Washington Post

It was waiting to happen

By Kuldip Nayar

WHEN I met Prime Minister Manmohan Singh and his security adviser, M.K. Nayarayan, barely 24 hours before the Bangalore shootout, they were worried about terrorist attacks in the country because such were the intelligence reports. Narayanan was more specific and said that the target could be Bangalore or Hyderabad because the two cities had come to symbolize India’s high technology and fast growth.

Narayanan had no doubt that there was a nexus between the terrorists from Bangladesh and the ISI of Pakistan. They were spreading in the country and looking for soft targets. “It is a serious situation,” he said. He had been vainly requesting top Pakistani and Bangladesh officials to stop terrorism in India.

The prime minister said that despite the promise by President General Pervez Musharraf to him last August not to allow cross-border terrorism, it had not stopped. The training camps were intact and the apparatus of terrorism had not been dismantled in any way. Narayanan said that the infiltration had increased and that cross-border terrorism was “higher than before.”

There was anguish in the prime minister’s voice when he said that he was prepared to talk to Pakistan on any subject, Kashmir or whatever else, and try to find a solution but what could he do in the face of unabated cross-border terrorism? “I still have faith in General Musharraf and hope he will do something to stop it,” said the prime minister.

My plan was to use the entire conversation with the prime minister in next week’s column because I wanted to comment on the BJP’s session at Mumbai this week. The terrorists’ attack on the Indian Institute of Science at Bangalore made me write a bit about the apprehensions the prime minister and his security adviser expressed over the terrorist activities one evening before they stuck.

Talking about the BJP, the party is in a mess. The 25th birth anniversary coincides with the unearthing of mass burials from the pogrom in Gujarat. The RSS, the party’s founder, chides it through its weekly, Organizer, for not having “a clearer vision of its political understanding.” The RSS point man in the BJP, Sanjay Joshi, resigns from the party’s general secretaryship following the videotapes of his sexual escapades.

The BJP has also the distinction of having in its ranks six MPs who were ousted from the Lok Sabha for accepting bribes for asking questions in the House. And a relatively lesser known person, former UP chief minister Rajnath Singh, will take over the reins of the party from L.K. Advani who is quitting the presidentship unceremoniously but has assured the RSS that it was like water without which the BJP, a fish, could not survive.

Yet, the party confidently says that it is the only alternative to the ruling Congress. The BJP believes that people will turn to it because between now and the next general election in three and a half years’ time, even a miracle cannot change the plight of the common man. He may vote negatively but this will be to the BJP’s gain. The economic angle may well be true.

Benefits of the seven to eight per cent annual growth in the 18-month-old Congress rule have not trickled down to the lower half. It is also true that the BJP has emerged over the years as an all-India party with 137 seats in the present Lok Sabha.

Where the BJP’s calculations go awry are in its failure to appreciate the strength of India’s secular ethos as well as the constitution. The party was defeated at the Lok Sabha polls — it lost 43 seats — and it was mainly because of its parochial Hindutva image. The party’s human resource development Minister, Murli Manohar Joshi, created a scare among the minorities when he changed history books and appointed the RSS-minded people to top positions in the field of education. Indeed, Gujarat chief minister Narendra Modi’s planned killing of Muslims in the state was another reason that drove the minorities and a substantial number of lower castes to the Congress.

No doubt, he won in Gujarat but he made the BJP lose the rest of India. The party is averse to criticism of him, even when mass burials have been unearthed because the RSS, which provides the BJP with workers at the grassroots level, is behind him. Modi is a typical example of an order where one man changes people. He has proved to the BJP that ethnic cleansing is the way to polarize the society and get votes. But how can the party which wants to come to power in New Delhi afford to do so? No single party can get a majority in the Lok Sabha in the foreseeable future.

The National Demcoratic Alliance (NDA), which the BJP leads and which has ruled the country, is shaky. Nitish Kumar, who defeated Lalu Yadav in Bihar, has distanced himself from the BJP. This was seen in the last session of parliament. Chandrababu Naidu of the Telugu Desam in Andhra Pradesh parted company with the BJP several months ago. The National Conference in Jammu and Kashmir jettisoned the BJP the day it lost power in the centre.

In fact, the BJP is impaled on the horns of a dilemma. It cannot do without the NDA. Nor can it cut its umbilical cord with the RSS. Most of its members who have imbibed Hindutva from childhood find themselves without clothes in the absence of links with the RSS. The BJP also has grievances against the secular forces. They did not support it when it was keeping itself aloof from the RSS.

Giving an undertaking to the NDA constituents not to build a temple at the site where the Babri Masjid stood before destruction was a big affront to the RSS. So was the promise not to touch Article 370 which gave a special status to Jammu and Kashmir.

The two are the main planks of the RSS. Still the BJP kept them aside to form the NDA government. However, the BJP found to its dismay in the last general elections that its image continued to remain that of a Hindu party. The BJP does not realize that the reason for its defeat was the misgivings about its secular stance.

The party has not been bold or consistent enough to confront the RSS. One stern glance from it makes the BJP look for cover. Whether the NDA survives after the BJP’s abject surrender to the RSS is yet to be seen. However, what can be seen is that the BJP is back to square one: the mandir issue. The country may see secular forces arrayed against communal forces. It is a pity that the Congress is yet to frame its strategy for the battle of tomorrow. And incidents like the one at Bangalore will be used by communal forces to divide society.

The writer is a leading columnist based in New Delhi.

© DAWN Group of Newspapers, 2005