The budget and parliament

PAKISTANI parliamentarians did well to invite a former finance and foreign minister of India to speak on budget-making in his country and how the parliament there controls public spending. What he said was news to many here because the art of budget-making in India has been rather fine-tuned and also made very elaborate.

The Indian parliament discusses budget for 75 days. The standing committees of various ministries discuss it for three weeks before the Lok Sabah approves it. Parliament receives supplementary budgets three times a year, unlike once in Pakistan when all the excess spending is done. The finance minister presents an implementation statement about how the money voted had been spent.

The Pakistani parliamentarians want a similar active role for themselves in budget making. But in reality many members are absent during the question hour that precedes the budget debate. Speaker Chaudhry Amir Hussain this time asked the minister for parliamentary affairs to take down the names of the absent ministers of state and parliamentary secretaries and report them to the prime minister. The speaker deplored the absence of most of the ministers and their failure to answer questions about their ministries or even depute another minister to answer on their behalf.

On the other side, the Sindh government has asked the federal government to cut down the number of ministers’ visits to Karachi taking place at the same time as this requires too many police escorts and several APCs. Other provincial capitals too have similar problems of security arrangements because of ministers’ frequent trips. When there are large cabinets at the centre and in the provinces, not only too much money is spent on their salaries and perquisites but also far more office space and official vehicles are needed.

The personal staff appointed to serve the ministers can also be very large. A great deal of money is spent on their domestic and foreign travels and on the security staff as they move around the capital. And when they come to Karachi their security arrangements have to be adequate. The Sindh government already finds it difficult to provide security escorts to its own large number of ministers.

The formal budget debate in parliament is usually brief, now reduced to 50 hours, and with too many interruptions. The sessions start late for want of quorum and are interrupted by prayer breaks and finally adjourned again for want of quorum as many members go to their hostels early or have to attend some parties in the capital. The ruling party members seldom criticise the budget and instead strongly support the government to make up for the opposition’s criticism. As a whole we get a rather sterile and highly repetitive debate.

When it comes to the standing committees of various ministries, they are far from assertive or effective and do not meet often although they are large in number to correspond to the increasing number of ministries . The budgets are not scrutinised well before they are passed.

We have nothing like an annual implementation report submitted to parliament before the new budget is debated. It is time we adopted such a practice so that people get to know how the money voted was spent before more money is voted in, and why large sums approved for education or public health sectors or other welfare measures were not spent. When we have a Public Sector Development Programme (PSDP) of Rs415 billion, a great deal of public scrutiny is called for.

As for the supplementary budgets, which are presented three times in a year in India, we have one such budget presented towards the end of the session each year and voted hurriedly. Members are told by ministers that the money had already been spent, even if it is very large, and it is no use crying over spilt milk.

As the budget gets bigger and bigger and the PSDP gets larger, it is necessary the government gets advance approval of parliament for spending vast sums or wasting it simply because the money had already been spent. The current year’s supplementary budget includes the expenditure of hundreds of millions of rupees on acquiring and maintaining a VVIP plane and payment of heavy import duty on bullet proof Mercedes cars. The document is to be presented to parliament on June 15. If the standing committee of the ministry of finance insists and makes an issue of that, sanction for such a large extra expenditure should be sought before “the milk is spilt”.

An annual performance report on the basis of the sanctions obtained, money spent and not spent on essential projects should be presented to parliament every year, if the government has to be truly accountable to it and the people.

Finally, there is a public accounts committee of the National Assembly which gets report of mis-spending or waste quite late and is largely ineffective. The reports sent to it should be made more effective by the auditor-general by submitting reports of official misdeeds well in time so that the culprits could be held accountable and the lost or wasted funds could be recovered. Now not because of such budgetary lapses or delays, but due to the failure in respect of certain countries’ return to democracy that the House of Representatives in Washington has cut the US aid to them from $550 million to $300 million. The US Congress holds that Pakistan has not done enough to improve upon democracy and human rights. The bill adopted by the House quoted “the increasing lack of respect for human rights, specially women’s rights and the lack of progress for improving democratic governance and the rule of law” as chief reasons for reducing Pakistan’s aid. The number of members who voted for the bill was as large as 373 while only 34 voted against it. The Pakistan government appears to have taken the vote lightly and continues in the usual manner.

While the World Bank and the Asian development Bank continue their aid for the five dams for economic reasons, the US administration have a politico-economic approach to Pakistan. And not all together ignore the lack of real democracy with a president in uniform for seven years now. In this regard how the coming presidential and parliamentary elections are held is important.

The US aid cut, though not yet final, comes at a time when the trade deficit of Pakistan has risen to $10.68 billion against $5.50 billion in May last year and the total trade deficit is four billion dollars. Exports till May were $14.75 billion against $12.65 billion in the same period last year. Imports in the 11 month period recorded a growth of $25.598 billion. June is not likely to improve the balance of payments much because of the high price of oil which is not coming down.

Now the Senate wants to make itself heard on the budget and has come up with 37 recommendations and has called for a dearness allowance of 17.5 per cent to all government employees instead of 15 per cent. The anomaly in this recommendation is that the higher salaried group will gain far more than the low salaried. The increase in the dearness allowance should have been in two slabs with a higher slab for the group 1-16 grades.

Some of the members of parliament who were critical of the budget proposals were delighted to be told that all the members of parliament would also get the enhanced allowances. The Senate standing committee on finance also wants a two per cent of the profits of banks and financial institutions to be spent on education and public health. With the banks making such large profits, they could easily afford to spend a small part of that on education and public health.

The Senate wants to have a say in budget making through the courtesy of the National Assembly which has to find some time to discuss the 37 suggestions, as done in India. But the National Assembly has only 50 hours for the budget debate and that is not enough on accommodating Senate’s proposals as well. So the time span for the budget debate in the NA has to be expanded. Lok Sabha in India allots some specific time for this purpose every year.

Meanwhile, after a great deal of uproar the monopoly control authority, before it is converted into competition commission, has come up with token fines on 32 sugar mills which will not hurt the mills financially or otherwise as they are in a large group. However, people do not see any improvement in prices of the essential or non-essential goods. Not everyone can reach the utility stores as transport is too costly. The government is trying to do more to improve the supplies. The import of half a million tones of sugar has been arranged for and gram importers are to get a subsidy of eight rupees a bag.

The State Bank has affirmed its resolve to further tighten monetary control. The World Bank has asked the government to control the liquidity in the banking system as the banks are going into new areas of lending with which they are not familiar. That can be hazardous and the banks have to be cautious, says the World Bank. The excess money in the market is keeping the demand up and the prices high. The IMF too blames the State Bank and the banks and says that monetary factors push up inflation which is now said to be eight per cent while in fact it is higher.

Inflation is supposed to come down to 6.5 per cent next year. But it has always been above the modest official admissions.

The World Bank has identified Pakistan as one of the growing consumption-led economies in the world on lax fiscal and monetary policies. India is also now consumption-led. If the consumption in Pakistan was that of domestically produced goods, it may be acceptable but it is fed by imports which have caused a large external trade deficit. This policy cannot be continued for long despite the home remittance of four billion dollars. In fact, the heavy imports are sustaining the economic growth and causing widespread unemployment.

Why China is so reasonable

Last month, China’s trade surplus was $13 billion. That’s over $150 billion a year. So why does China still keep its head down and go along with almost everything that the “international community” (also known as “the West”) proposes? You can even bomb the Chinese embassy in Belgrade (by mistake, of course). They just smile and suck it up.

One reason is that China’s trade surplus is big, but it isn’t really all that impressive given the size of the country. $150 billion a year in a country of 1.3 billion people is an annual trade surplus per capita of about $120. That’s not wealth beyond the dreams of avarice. It’s not even enough to justify giving up the day job. And it really does not threaten to upset the entire global economy, despite what some people will tell you.

The situation is complicated by the fact that China runs a truly enormous trade surplus with the United States, which causes great angst in America. That is partly counter-balanced by hefty Chinese trade deficits with most of the countries in South-East Asia, the Middle East and Africa from which it buys its raw materials, but it is true that China is racking up a huge surplus in its trade with the United States — while America is recording the largest trade deficit that any country has ever had: over $700 billion this year, if current trends persist.

So China is the next superpower and America is the next Spain, right? You can make a good living writing that sort of twaddle, but no. China is not going to turn into a superpower, though it will certainly be one of the leading world powers one or two decades from now. And the American economy is not going to collapse, although it will no longer dominate the world. The main loss America suffers will be a somewhat diminished sense of its own importance.

Some of the statistics of Chinese growth are very impressive, like the fact that automobile production rose 21.6 per cent in China last year while car plants were shutting down because of over-capacity all across the West. What the Chinese leadership sees, however, is an economy in which far too large a share of production and of employment still depends on foreign investment and foreign customers. The domestic consumer market that would finally make the Chinese economic miracle self-sustaining and irreversible is gradually coming into existence, but it will probably be fifteen years before it becomes the main source of demand for Chinese goods.

So in the meantime, China must not do anything that would disrupt the flow of inward investment and outbound goods. They talk in Beijing of the “fifteen-year window” that is China’s one shot at becoming a fully developed country, and keeping that window open requires a tranquil international environment. It requires, above all, good relations with the United States and Japan, so China bends over backwards to avoid major confrontations with them.

There are a few red lines for China, as for any country: formal independence for Taiwan, for example. But Beijing isn’t going to bring down the US economy by dumping the mountain of US dollars it holds, because it needs American consumers to go on buying Chinese goods. And it isn’t going to use its growing wealth to expand militarily, despite all the excited talk about the Chinese “military build-up” in the United States. There is no profit in that.

And what about the fabled exchange rate, the under-valued Chinese currency which allegedly lets China steal jobs from the older industrialised countries? The renminbi really is under-valued, probably by as much as 40 per cent, but it isn’t the main reason for China’s success, nor is Beijing going to be forced to revalue it according to somebody else’s timetable.

We have been here before. Back in the mid-1980s, it was Japan that was allegedly going to take over the planet. The Japanese economy had been growing at around ten per cent a year for three decades, and the Japanese were starting to buy up significant chunks of American industry and real estate, and pundits were predicting that the heavens would shortly fall. The Japanese yen was seriously undervalued, too, and the experts decided that that was the problem.

So they fixed it. The finance ministers of the major industrialised powers got together in New York and said publicly that the US dollar was too high (the famous Plaza Pact). Their declared lack of faith in the dollar was a self-fulfilling prophecy: it duly fell against the yen, Japanese exports became less competitive — and Japan went into 15-year period of low or no growth from which it is only now emerging. Problem solved.

But that isn’t going to happen in this case, because an under-valued currency is only a small part of China’s competitive advantage. In the 1980s, Japanese wages were already in the same range as American wages; China’s real edge is a relatively well-educated workforce that will work for about one-tenth of American wages. You could revalue the renminbi by 40 per cent tomorrow, and most existing and planned foreign investments in China would still make money.

In other words, there is no need to panick. Things are likely to continue down the present track for quite a while yet. —Copyright

Cruel and illegal

THE demented logic of Dr Strangelove hung like a ghost this weekend over the US military’s response to the suicide of three prisoners at Guantanamo Bay. Announcing the news, the first successful suicides since detainees began to arrive in 2002, the camp’s commander, Rear-Admiral Harry Harris, said the deaths were “not an act of desperation but an act of asymmetric warfare committed against us”.

That cold and odious language lacked the humanity present even in President Bush’s expression of “serious concern”, but is entirely in keeping with the clinical illegality of America’s treatment of terror suspects since 2001.

In one sense, the three deaths change nothing: international law and opinion has already condemned Guantanamo Bay as a disgrace to a country which claims to fight its battles on behalf of freedom. In practical terms the policy of extracting suspects from around the world and holding them indefinitely without legal process has been established as a shameful failure: most of the prisoners have had minimal or no connection to terror and America’s claim to hold an Al Qaeda hardcore has never been tested in court.

Almost certainly, it never will be, given that their conditions of capture and detention, including torture, make the judicial prosecution of suspects now a near- impossibility. One by one, Guantanamo Bay’s defenders have fallen away and the camp has become a burden even to the people who set it up. President Bush now says he wants it emptied - though that hardly sits with the current construction of a $30m new detention facility.

Suicide has a primal potency which can shock in a way other human acts do not. This was true, in a very different context, of the death of Dr David Kelly and it makes it probable that the deaths of the three detainees, two Saudi and one Yemani, will redouble attention on Guantanamo.

In the Arab world, it will further darken America and Britain’s reputations, already sullied by images of abuse at Abu Ghraib and the orange suits, shackles and hoods of Camps X-Ray and Delta. The US military has argued that the 41 unsuccessful suicide attempts at the base so far, together with hunger strikes — including eight prisoners now — are a political act intended to capture world opinion. In that sense, Rear-Admiral Harris’s distasteful remarks are nothing new: but whether the act is calculated or not, the effect on world opinion will be the same.

What is most horrific about Guantanamo is not the way prisoners are treated physically - though details of forced feeding through the nose in the UN’s recent report are grotesque — but the abandonment of judicial process by a nation whose identity is built on constitutional rights. In Britain this has been expressed forcefully this year in speeches by the former law lord Lord Steyn and by the attorney-general Lord Goldsmith.

—The Guardian, London

How the ‘second track’ began

A WIDE range of “second track” contacts are now routine between Indians and Pakistanis, a welcome and helpful part of the political landscape of South Asia. While basic “people-to-people” meetings contribute to mutual understanding, private unofficial contacts on security matters help specifically to reduce the danger of renewed crises.

This year marks the 25th anniversary of the first of these meetings. As it happened, the beginnings of the process were in fact in Washington — appropriately enough in an era when all manner of things were ascribed to the “foreign hand.”

As Jimmy Carter’s administration was drawing to a close in 1981, we in the White House’s National Security Council staff had little to cheer about. American hostages remained in Iran and the collapse of US-Soviet relations after Moscow’s invasion of Afghanistan had forced Carter to reorient his policies. The original emphasis on issues such as non-proliferation, human rights and economic development had given way to a renewed Cold War, and things looked no better on the South Asian front.

Not only did Afghanistan hang as a heavy cloud over the subcontinent, Carter and Zia were unable to do more than paper over the bitterness that had separated them before the Soviet invasion, and the heady hopes of better Indo-US relations that had characterised the early Carter-Desai era had fallen on notably bad days with the return of Indira Gandhi and the reorientation of American policy to deal with the perceived renewed threat from the Soviet Union.

On the ground in South Asia, relations between Pakistan and India were again growing tense. While neither was yet armed with nuclear weapons, that risk was growing, and even conventional wars between the two had brought unconscionable costs. There was a dangerous absence of communication between New Delhi and Islamabad, and that which did exist ranged from sullen to shrill. Each side had to divine the strategic posture and intentions of the other from propaganda pronouncements, espionage of questionable quality, occasional firing across the border, and loud demarches by foreign ministries that were committed to their own version of a relentless Cold War.

Washington had learned at least one useful thing from its Cold War experience with the Soviet Union: that an ongoing dialogue between Soviet and American strategic thinkers — both civilians in the think tanks and individuals inside the respective military establishments — had made a significant contribution to the detente process. The dialogue had become institutionalised and, over the years, valuable personal contacts grew and each side had come to understand better the mindset of the other. The esoterica of command and control issues and deterrence theory, shared at these meetings, had helped reduce the danger of nuclear war.

Since this level of communication was totally lacking in South Asia, the NSC staff decided to explore the possibility of getting a process of dialogue started as a last, modest contribution of the waning Carter presidency. One thing was clear from the beginning: the record of the United States as a mediator (some would say meddler) in South Asian affairs was not stellar and if contacts between Pakistan and India were to be stimulated, the obvious step of inviting Indians and Pakistanis to discuss their bilateral problems at Camp David or some other secluded spot in the United States would be the kiss of death. Any get-together should be in a broader context, under non-American auspices, and outside the United States.

The solution proved simple enough. We believed that South Asian delegates might feel most comfortable (and be least conspicuous) in London, so after contacts with the British government, we approached the International Institute of Strategic Studies in London with the suggestion that it sponsor and provide the venue for a meeting on security issues in South Asia. In this way, the Indo-Pakistani encounter could be embedded within a larger gathering that included other South Asians, and Europeans and Americans as well. The IISS responded with alacrity, but required help with funding.

While there are pots of money in various obscure places in the US government where the trivial sums involved could easily be found, it was decided not to use these lest the fact of American government involvement become conspicuous and blight the project. The non-governmental Ford and Rockefeller Foundations were more than willing to help out and in short time the invitations were issued. The meeting, on the intentionally broad topic of “Security in South Asia”, was held on July 21-23, 1981, just five months after the Carter administration and its NSC staff had passed into history.

The choice of the delegates from the two sides was left to the IISS. Most important was the inclusion of Pakistanis and Indians who were influential in setting the terms of the domestic intellectual debate on strategic matters, and who had at least some presence in their respective corridors of power. While there were no designated leaders, K. Subrahmanyam (then director of the Institute for Defence Studies and Analyses in New Delhi) and Noor Hussain (director of the Institute of Strategic Studies, Islamabad) enjoyed pride of place in their respective delegations. Peter Lyon from the University of London’s Institute of Commonwealth Studies provided the theme paper and various invitees prepared papers in advance, responding to some of Lyon’s ideas.

No one expected a major breakthrough and there was none. Both sides generally stated familiar positions, but they had at least begun talking to each other directly. A considerable amount of back-and-forth did take place at the meetings, the inevitable posturing was kept within reasonable bounds, and informal conversations after meals (and generous nightcaps) established contacts that could develop in the future.

The dialogue of strategic thinkers from the subcontinent did in fact become institutionalised in the following decades. Further contributions were made from the American side by, among others, the series of meetings organised by Robert Scalapino and Leo Rose of the University of California at Berkeley and, later, the Neemrana meetings in which the late Paul Kreisberg paid a key facilitating role. With the growing normalisation of Indo-Pakistani relations in recent years, further impetus from outside has hardly been needed.

It would be overstating the case to ascribe decisive influence to the second-track process. The role of a specific gathering is probably even harder to assess, but the ice-breaking session in London is well worth remembering as a first step in a process that has provided at least some steadying influence in an erratic and often dangerous bilateral relationship.

As it happened, the other — rather more widely reported — event that was going on in London in the summer of 1981 was the wedding of Charles and Diana. By comparison, the Indo-Pakistani strategic dialogue that was quietly launched a quarter century ago looks to have been a smashing success.

The writer teaches South Asian affairs at Johns Hopkins University in Baltimore, US. He was a senior member of the National Security Council staff in the Carter administration.