DAWN - Opinion; June 07, 2007

07 Jun 2007


New budget, new promises

By Sultan Ahmed

THE merry ministerial chorus that there will be no new taxes in the coming budget is not something new. The same has been said for several years during the pre-budget season. That does not mean there will be no readjustments in the existing taxes or regularisation of the old taxes for the greater gain of the Central Board of Revenue.

However, as this is the election year, the prime minister who is also the finance minister will be cautious and President Musharraf will be even more alert in this regard following the convulsions caused by the judicial crisis. The fact is that the new budget envisages a total outlay of almost two trillion rupees which marks an enormous increase in the current budgetary outlay. And that will include a part of the development expenditure to be met by the private sector through the public-private partnership which is to make headway in Pakistan now, imitating the European models including that of Britain.

Although Chairman of the Central Board of Revenue Abdullah Yusuf has been stressing at 10.50 per cent of the GDP, the tax-GDP ratio in Pakistan is too low and that is to be raised to 14 to 15 per cent within 5 years.

The World Bank and the Asian Development Bank which have been funding major development projects in Pakistan have also wanted that for long and miss no opportunity to underscore the urgency for such augmentation of the revenues. It is also a fact that despite the expected increase in the tax revenues next year without additional taxes, the financial or revenue deficit will be four per cent of the GDP which is high, though not by earlier standards. The percentage of the deficit is low but the volume of the deficit involved is very large because of the higher economic growth and that will express itself in terms of far larger public debt.

Despite the fact that the public sector development programme next year is to be a high 520 billion, that is only seven per cent of the GDP in a developing country with vast unemployment and under-employment. Anyway it is better than the three per cent PSDP outlay of the 1990s which was much too small.

The need for larger tax collection is too obvious. And its scope is also too evident because of the blooming business all round and the flourishing banking. And yet the government is not opting to collect the easily collectible taxes like the capital gains tax on trading in the stock exchanges and better taxing of the service sector. The zooming Karachi Stock Exchange index has touched its highest point of 13,000 and so the scope for taxing capital gains is plenty.

The hope that the hefty sales tax of 15 per cent may be reduced to 12 per cent if not to 10 per cent is not expected to materialise. That is one of the reasons why many prices are high.

Mr Navaid Ahsan, secretary general, ministry of finance, told journalists and others in Karachi that 40 per cent of the PSDP of rupees 520 billion will be spent on infrastructure and 47 per cent on the social sector. What happened to the early commitment of the government to spend four per cent of the GDP on education from next year along with a substantial increase in the outlay on the health sector?

We have not been given a specific figure of how much will be spent on power development to overcome the current gap of 1.5 million megawatts which may rise to 2.5 million megawatts next year. Currently many homes are facing load-shedding not once or twice but four to six times a day and, as a result, the black-out and the lighted periods are almost equal. We have however been told that Rs40 billion has been earmarked for the mega dams which will be used mostly for preparing feasibility and buying land for the dams. We are also told that Rs200 billion would be spent on subsidies, mostly on power.

The budget makers have two domestic problems and two external problems. The first is inflation rate which is officially at 8 per cent while the food inflation rate is at 10.5 per cent. Even supplies in plenty like that of wheat are a victim of price manipulators who hoard, control the movements and profiteer. Vegetable prices are at their peak. Imported food items like palm oil and milk powder are also high-priced. So are the local eggs. The prime minister promises to make supplies available in plenty but how exactly to do that, he is not sure in such vexing conditions.

The government is trying to solve the problem partly by raising the salaries of the federal employees by 15 per cent and pensions by 10 per cent. The provinces have to look after their own employees but they are in a quandary as they don’t have the money and will ultimately force the central government to pay up. The minimum wages of workers are also to be raised to keep them in good humour in an election year.

The State Bank of Pakistan’s tight monetary policy, which is to continue next year, has its benefits and also its limits in an economy in which the liquidity is very high and easily earned large incomes are in plenty. The government is in a dilemma as it does not know what to do next as traders remain defiant and continue to create shortages and make profits. Prime minister’s solution is to sell more and more essential goods through the utility stores but these are small in number. So, they are to be increased now by 500 and they are to sell medicines as well. Even in spite of the rise in their number, they will remain too small compared to shops which are readily and easily available to the consumers.

Since it is an election year the government is determined to hold down prices of essential items. So, it is subsidising the sale of sugar by a rupee a kilo and lower the prices of various kinds of pulses and rice. But from the indications given that the heavy import duty on palm oil is not being reduced, that would be very disappointing to the consumers. But President Musharraf has said the quality of life of the poor will change after the new budget. But a larger role being given to utility stores alone cannot do the trick.

The second problem is the fiscal deficit which next year will be four per cent of the GDP or about Rs700 million, the same as this year. That will be met through external and domestic borrowing and printing of additional currency notes which will add to the national debt substantially.

Governor of the State Bank Dr Shamshad Akhtar feels disturbed by the heavy bank borrowing by the government and making it print extra currency notes for its needs which has aggravated inflation this year too. Dr Akhtar would want the government to borrow through treasury bills and federal investment bonds and reduce the liquidity in the market instead of adding to the money in circulation and add to the demand pressure, resulting in higher inflation. But the government finds borrowing through the State Bank easier and more convenient.

The National Assembly which is charged with checking excess borrowing by the government should keep a sharp eye on its borrowing keeping in view that the tax revenues are larger than expectations. Otherwise too much of the taxes paid will go towards debt servicing and not development. And that will happen at a time when the assets of the nation are being liquidated through a rapid process of privatisation.

The third problem is the mounting trade deficit which is already 11 billion dollars after the first 10 months of the financial year. The year could end up with a total deficit of 14 or more billion dollars and that is causing a large current account deficit which is expected to be a high five per cent of the GDP and such a large current deficit is occurring despite the home remittances of $5 billion and foreign investment of $6 billion which are record figures. The World Bank and the Asian Development bank have been cautioning Pakistan against such large deficits as Pakistan cannot sustain them and maintain a high growth rate.

The solution has come through larger exports in a world in which many countries have achieved high growth through exports, particularly South-East Asian states. The import bill cannot go down much as next year’s oil import bill is expected to be 8.8 billion dollars. But what we are achieving is high growth with low exports depending primarily on agriculture and the service sector.

Mr Ahsan says the government has sent three reports to the National Assembly. They relate to (1) economic management, (2) debt management and (3) fiscal management. They cover the financial system as a whole. The standing committee of the ministry of finance should study the reports in detail with the help of consultants if necessary. They cover the entire financial and economic sector and the National Assembly can get control over the financial sector.

He has also said that the investment in Pakistan will rise to 23.8 per cent of the GNP next year from 23 per cent in the current year. That is happy news as for long the rate of investment has been as low as 17 and 16 per cent while a 25 per cent investment was held as ideal. Now it has come to 23.8 per cent and the 25 per cent target is not far off.

The textile industry is to be exempt from import duty on its machinery and components. This can be a very welcome development as it will increase investment in textiles and reduce the cost of production and exports. We need a far larger output to increase the exports and the producers should be given all possible incentives.

1967 war: an unfinished chapter

By Ismail Haniyeh

WHEN the Israeli leaders launched their expansionist war in June 1967 they never envisaged that 40 years later they would still be haunted by the consequences. At the time, they were driven by one strategic objective: to end the conflict by seizing all that remained of Palestine and complete the process of ethnic cleansing that started in 1948.

They did not realise the resolution of this conflict would take much more than military superiority. The occupation of the West Bank, the Gaza Strip, the Golan Heights and the Sinai peninsula was portrayed as the victory of David over Goliath. For the next two decades the Palestinian experience was drowned out by the clamour of Israeli hubris. The world paid little attention to the expropriation of Palestinian land, the apartheid regime established by the occupation and the systematic destruction of Palestinian livelihoods.

It was only in 1987 that the world awoke to the reality of a popular Palestinian uprising –– intifada. A new generation had come of age, thirsty for freedom and peace with dignity in its own land. The two decades since have confirmed that my people will not repeat the mistakes of 1948. They will remain rooted in their land, whatever the price, and pursue their legitimate right to resist the occupation.

That right is supported by, for example, UN Resolutions 2955 and 3034, which affirm the "inalienable" right of all peoples to self-determination and the legitimacy of their struggle against foreign domination and subjugation "by all available means".

Israel's fateful error was to underestimate the resolve of the Palestinians. Tens of thousands have been killed or wounded by the Israeli army since 1967. During 2006, the number of Palestinians killed reached 650. Since the beginning of the Israeli occupation in 1967, more than 650,000 Palestinians have been detained by Israel –– about 40 per cent of the male population. Today three-quarters of the Palestinian people are displaced: there are five million Palestinian refugees throughout the world.

With the signing of the Oslo accords in 1993, we were told that things would get better. But life became more hellish as Israel accelerated settlement building and seizures of our land. Meanwhile, the world was fed the fallacy that Israel was defending its "threatened existence". In reality, it is Israel, through the prosecution of colonial war, that has threatened the Palestinians' right to live in their land. And when they were most needed, the world's most powerful states refused to ensure respect for the international law that "the acquisition of territory by force is inadmissible".

In contempt of the will of the international community, Israel continues to build its annexationist apartheid wall across the West Bank. Which western state would, in the 21st century, accept that its citizens be literally caged and locked into cantons? Undaunted by repression, my people have embraced democracy as a means of struggle and governance. Yet in response the world's most powerful democracies have imposed an economic blockade against my people, while Israel continues to kill, expropriate and destroy with impunity. The humanitarian catastrophe in the occupied West Bank and Gaza is clearly designed to subvert the elected government and create a client authority that concedes every wish of the occupier. There can be no exit from the impasse without sanctions being lifted and Israel's release of the hundreds of millions of dollars of our money it has seized.

In the 1967 war, Israel conquered the land of Palestine but it did not conquer the people. And in its attempt to debase and dehumanise my people, Israel has debased and degraded itself before the family of nations. The 1967 war has over 40 years engendered successive wars and destabilisation of the Middle East. The increasing mistrust between the Arab-Muslim peoples and the western world is rooted in the conflict in Palestine.

The first step to change this catastrophic climate is for the West to engage with the Palestinian National Unity government, which envisages the establishment of an independent state on all the Palestinian land occupied by Israel in 1967, the dismantling of all the settlements in the West Bank, the release of all 11,000 Palestinian prisoners in Israeli jails and the recognition of the right of all Palestinian refugees to return to their homes.

If Israel is serious about peace, it has to recognise these basic rights of our people. The 1967 war remains an unfinished chapter. Nothing will stop our struggle for freedom and to have all our children reunited in a fully sovereign state of Palestine, with Jerusalem as its capital. ––The Guardian, London

The writer is the Palestinian prime minister.

Israel's lost 40 years

By Meir Shalev

I WAS born during the 1948 war, which we Israelis refer to as the War of Independence. At the time, we were fighting against the Palestinians and the Arab nations, who refused to accept the U.N. Partition Plan that would have divided Palestine into two states for two peoples.

Nineteen years later, during the Six-Day War of 1967, which started on June 5, it was my turn to fight. I took part in the battles for the Golan Heights. Several weeks after the war ended, I was given a short furlough and went home, to Jerusalem. My father led us on a tour of the places that had been off-limits to us until that time.

Forty years have passed since the Six-Day War. My parents are no longer alive. I can no longer argue about politics with my father. The truth is, we put a stop to that while he was still alive. We discovered that it is was much more pleasant and interesting to argue about literature.

Forty years have passed, and Israel has indeed choked. The country is busy dealing with one matter: the occupation — the territories, the Palestinians, terror, holy sites, the establishment and evacuation of settlements. Forty years have passed, and Israel has neglected everything that the Israel of 1948 wished to occupy itself with: education, research, welfare, health.

"Forty years" is not just some round number. It is a period with traditional meaning, a number through which God tends to emphasise its will. The flood continued for 40 days and 40 nights; Moses remained on Mt. Sinai for 40 days and 40 nights; the Jewish people wandered the desert for 40 years; Jesus sequestered himself there for 40 days. It seems to me that God is sick of religious figures and generals and politicians who claim to speak in his voice. He is taking advantage of this mathematical moment and letting everyone know that now is the time to settle up.

Forty years after that great victory, he is showing us that it is not only the Palestinians who are paying the price of occupation and settlement; the Israelis are as well. Forty years, and Israel is forced to decide which is more important: the lives of its sons and daughters or the graves of its ancestors.

Forty years of an army whose main occupation has been manning roadblocks, detaining suspects, assassinating enemies and guarding settlements have brought us to the high level of arrogance and low level of capability that the Israeli Defence Forces displayed during last year's war in Lebanon.

Forty years of deceitful, villainous dealing in the occupied territories have caused corruption to seep into our own politics and society. Forty years, and we must come to terms with the fact that Israel cannot cultivate democracy at home and apartheid in the backyard.

Forty years, and for the first time one can hear voices doubting whether the Jewish state will be around for another 40.

—Los Angeles Times

The writer is a columnist for the Israeli daily Yediot Aharonot.

A grave strategic blunder

By Javed Hussain

THIS is a decisive moment in the country’s history. The country is in a crisis, the government in a state of panic. The army chief and president has played his trump card by getting the corps commanders to openly declare their support for him and to direct a stern warning to “vested interests and opportunists who are acting as obstructionist forces.”

This has made the crisis graver. But the ace of trumps is yet to be played. It is held by the people. When that is played, the crisis will reach a crescendo. It is to be hoped the need for playing it does not arise.

The army chief has held the top leadership position in the country for nearly eight years – long enough for him to have focused on the psycho-social sector in order to improve the quality of life of the people which today has reached its lowest point. Had he done this he would not only have created for himself a national constituency among the people, but would also have marginalized the politicians and found his niche in the country’s history. His failure to do so has alienated him from the people and, as the crisis intensifies, he has been forced to fall back on the corps commanders for support.

The Pakistan army has done excellent work in the service of the people on different occasions in peacetime, its four extra-constitutional interventions notwithstanding. Its peacetime accomplishments are many, but these pale into insignificance when seen against the backdrop of its wartime performance. It lost wars that should have been won, despite brilliance, bravery and sacrifice at the tactical level.

When those responsible were asked why this happened, they came up with a thousand reasons, each more absurd than the other. The fact is that the Pakistan army carries the stigma of defeat having lost its honour on the battlefield in December 1971, honour that can only be regained on the battlefield.

Yet, instead of working to make the army an institution of excellence, we see the army chief addressing political rallies and asking the people to vote for a political party, and the corps commanders warning the other side. It is acts like these that have given rise to feelings in the people that the army has been turned into a political party’s army, and that its generals have always been more adept at politics than at generalship. History repeats itself because men repeat mistakes. We can see that happening now.

Four army dictators have ruled the country for 32 years but have given nothing in return to the people except misery, humiliation, a truncated country and wasted years. Had they not intervened, the country would have gone through several elections and democracy could have taken root.

National interests, therefore, demand that before the crisis peaks, the army withdraws from the political scene, now and forever, and leaves the governance of the country to those whom the people choose; that the judiciary becomes independent and ensures the rule of law; that an independent election commission is formed to ensure transparent, free and fair elections; that across-the-board accountability is carried out.

But this is not likely to happen for two reasons: first, if the army chief sheds his uniform, he would instantly be perceived by his supporters as a ‘has-been’ and all eyes, including his own, would then be on the new army chief; second, if he submits himself for election by the new assemblies, he would lose, and this would raise concerns in him about his personal safety, what with the Taliban and the Al Qaeda on his tail. The Chief Justice, whose judicial activism was perceived as a threat to his plans to retain the uniform and get reelected by the present assemblies, had to go because of this. Hence, the reference, and the crisis that has enveloped the country.

The country could have been spared the crisis if only he had seen the big picture. An army chief has to be a strategist, and a strategist has vision. Had he objectively ‘war-gamed’ the plan he had made to get rid of the Chief Justice, he would have considered all possibilities that could impede his mission, grouped them in their order of probability and danger, and tested them against time, space and relative strengths, the three dimensions of operational strategy. It would then have become clear to him that national interest would best be served by abandoning his plan.

As it happened, his plan was predicated on a single hypothesis, that when confronted with the reference, and with the heads of intelligence agencies, the Chief Justice would give in. The most dangerous hypothesis, that the he would not submit, was clearly not considered. In the event, when it materialized, the army chief was taken by surprise and left groping in the dark.

With a single stroke he alienated the lawyer community, civil society and the media, and in so doing, dramatically altered the relative strength of the situation against himself; his political space is being constricted with each passing day, and time has overtaken him, so that anything that he does now, would only aggravate the situation for him and his government. He has been forced to ‘fight with reversed front’. Having been an instructor at the war college, he should have known better.

But, like others before him, he, too, surrounded himself with people who lack probity, whose thought was distinguished only by its stunning mediocrity, whose instinct for survival prevailed over all other sublime considerations and turned them into masters in the art of sycophancy. They felt no qualms about becoming turncoats and carrying tainted reputations. He needed them to serve as his support base and they needed him for staying in power.

But now that they sense that their master is falling, they will instantly abandon him for a new master. They are the PML-Q – for Quisling. It is these people who extolled his virtues and deluded him into actually believing that he has the repository of all wisdom. Having been led up the garden path, it should not surprise him that he now finds himself in a blind alley.

The strategic errors committed by him are extracting from him a penalty which nobody, least of all himself, could have imagined.

The writer is a retired brigadier.

G-8: a talking shop

AN "increasingly outmoded talking shop of the complacent rich" was how one newspaper this week characterised G-8 summits. The thousands of protesters gathering on the Baltic coast for the meeting would no doubt wave their placards in agreement. Yet the rich men's club has not been especially clubby in the past few days.

First the US and Australia, two of the most prominent Kyoto protocol non-joiners, announced their climate-change initiatives independently. Then Vladimir Putin made his threats to train Russian missiles on Europe. Not the language of summits but gunboat diplomacy, Moscow-style.

So the G-8 that begins this meeting is far from the cosy club of old. Instead it is a mutinous pack –– with the US willing to play the climate-change game only by its own rules and Russia standing alone in a corner muttering moodily to itself. Why, then, is Tony Blair so resolutely upbeat?

He can argue, at least, that all the argy-bargy proves the G-8's relevance. It may have been a coterie of the rich in the past, but that stereotype hasn't really held true since Russia became a full member in 1998. And this time round the multilateral grouping has some heavyweight items on its agenda.

Whether much headway will be made on these issues is a different matter. Indeed the Heiligendamm summit may fail even to shore up promises made at previous G-8 meetings. Take aid. Mr Blair's biggest achievement at a G-8 summit was at Gleneagles in 2005, when he successfully won a commitment from all the member countries to give a total of $50bn (£25bn) extra in aid, with about half of that going to Africa. The prime minister vows that there will be no backsliding, but that verb sounds an uncannily accurate description of the behaviour of most G-8 countries apart from Britain.On Oxfam estimates, the G-8 will miss its own collective target by $30bn.

The past few days have seen aid giveaways from the US and Germany, yet both merit the dejected teacher's standard comment: could do better. For instance, Germany's chancellor, Angela Merkel, will hand out a total of £2bn over four years. Handy, but still only half of what Germany promised at Gleneagles. If the G-8 countries even reiterate their 2005 commitment this time round it will, sadly, be the closest that development organisations get to a major victory.

German electors care deeply about the environment, which is one reason Ms Merkel has made global warming a focus of this summit. It also explains why hopes are higher for some kind of international agreement. Unfortunately, the odds are that it will be more watered down than a cup of service-station coffee.

This year's state of the union address was the first in which President Bush used the phrase "climate change". If there were a Climate Abusers Anonymous 12-step programme, admission that there is a problem would be only the first step, so Mr Bush has a long way to go. Last week he declared that the US wanted to talk about the problem of climate change with other countries.

––The Guardian, London

© DAWN Group of Newspapers, 2007