THE State Bank of Pakistan’s move to inject Rs270bn into the banking sector by Nov 15 will come as welcome relief to banks struggling with a liquidity crisis. State Bank Governor Shamshad Akhtar has been criticised in the past by bank executives for imposing an excessively tight banking regime, but it appears that the regulators have now understood the gravity of the crisis that has seized the sector. Unfortunately, while Ms Akhtar and her team appear willing to use the tools at their disposal to avoid a banking meltdown, the problem does not originate in her sphere of monetary control. There are two basic problems. One, Pakistan’s external position continues to weaken (the current account deficit widened by 42 per cent to $3.95bn in the first quarter) which continues to place downward pressure on the rupee. Two, domestic inflation is hovering around 25 per cent.
Given this scenario, rupee deposit holders are faced with a choice: do they keep their cash in banks, where it will earn a rate of interest much below the rate of inflation, and watch its purchasing power decline or do they convert their rupees into climbing foreign currencies and protect their purchasing power? Unsurprisingly, Pakistanis are opting for the latter, with daily reports of capital flight and dollarisation of rupees putting further pressure on the rupee, which creates even more of an incentive to opt out of the local banking sector.
What Pakistan needs most urgently to restore a modicum of stability in the local economy is cash — $3-4bn by most accounts. However, the IFIs, the US, China and the Gulf countries have all been hesitant to open their chequebooks, perhaps worried that it will amount to throwing good money after bad. A commitment to economic reform is the precondition for more money; Pakistan has been asked to reduce its fiscal and trade deficits, reduce its current and development expenditure, reduce its subsidies, and increase its tax-to-GDP ratio. These are all good, sensible measures that Pakistan needs to achieve stable medium-term growth. However, they are not enough. Pakistan must think long and hard about economic reforms that will incur the displeasure of western governments and the IFIs. Consider the case for capital controls. Dismantling barriers to the entry and exit of capital made Pakistan an attractive investment destination in the 21st century. While the world was awash in liquidity and investors were looking far and wide for opportunities to earn money on their capital, Pakistan basked in the glow of foreign money. However, the same mechanism that made it easy to quickly attract money has become a millstone around our necks now that the economic tide has reversed. So while reform is certainly needed, the government must avoid the temptation to simply follow foreign dictates once again.
IT is with some regret that one notes the apparent lack of interest on the part of the legislators in the ongoing, in-camera, joint session of parliament. On Friday, for instance, it was reported that at one point only as few as 60 of the total 440 MPs were present in the house. The high rate of absenteeism is rather odd at a time when the government is conducting the in-camera sessions with a view to evolving a national consensus on vital issues facing the country. These include the possible intensification of US-led military incursions from Afghanistan into parts of Fata, bombing of extremists’ hideouts by foreign forces, which have not always been on target and have resulted in the killing of innocent citizens, the need to evolve a coherent policy on the global war on terror, which Pakistan now owns
as its own battle within its territory, and the economic meltdown, to name but a few challenges. One cannot afford to be non-serious about these issues.
Leakage of information to the media from the in-camera session suggests that two of the coalition partners, the Islamist JUI and the secular ANP, have a divergence of opinion over the military action being carried out against extremists in Swat and Fata, for instance. The JUI wants the action called off and dialogue given another chance; the ANP insists the extremists lay down arms before any dialogue can begin or else the militants, now on the run, would use the ceasefire only to regroup later with bigger force. A common ground can indeed be found between the two sides provided the legislators, instead of taking their opposing views to the media (which is not allowed to cover the confidential proceedings), take the issue at hand more responsibly.
The conduct of the PML-N, now begrudgingly sitting on the opposition benches after falling out with the ruling coalition over broken promises, and which in the first place had demanded the holding of the in-camera sessions, also leaves much to be desired. Picking bones with ministers over matters such as two women’s testimony being equal to one man’s is not only in poor taste but has little to do with the issues currently under debate. The sitting parliament is far more representative than many of its predecessors. It must live up to the people’s expectations in the quality of debates over national issues, and their resolution, that voters expect from it.
Saving the planet
ALL life on the planet is interdependent and interconnected. Our collective survival depends on whether humans choose to live in sync with nature or to hurt it. Today the planet’s well-being is in clear and present danger, for ours has been a devastating impact on the earth and on all life that inhabits it. Not only have we ravaged entire ecosystems, we have also caused countless species to become extinct. At least 76 known mammals have disappeared since 1500. But this number pales in comparison to the findings of the International Union for Conservation of Nature (IUCN) Red List 2008, which reveals that half the world’s mammal species are declining in number, while a quarter of all mammals are now threatened with extinction. Of these, 188 mammals are in the most serious, or ‘critically endangered’, category. This is largely the result of habitat destruction and indiscriminate hunting. The impact of our activities is the same on other fauna and also flora. The diversity of biological life on this planet is rapidly diminishing.
Why the disappearance of even a single species is important is explained in the report: “Extinction doesn’t just affect the species that disappears — it alters entire communities, changing both how the community as a whole and the individual species within it will respond to environmental degradation.” The good news is that conservation works. The Red List 2008 reports that five per cent of threatened species are now recovering as a result of protection efforts. This shows that it is not too late for the 99 threatened species currently struggling to survive in Pakistan (23 mammals, 27 birds, 10 reptiles, 22 fish, 15 other invertebrates and two plant species). But life on this planet is a web, and its strands are tightly connected. Conservation efforts will be pointless if we continue to poison the land, air and water. Microorganisms do not have the charismatic appeal of a tiger or a panda. But they are the delicate fibres from which the web of life is built. If they disappear, so will all other living things on this planet. It is time to wake up and make the connection.
Government for the people
DEMOCRACY is supposed to be a government of the people, for the people, and by the people. The induction of a democratic government was long awaited by the people so that their economic woes could be addressed.
Sadly, the people were left dumbfounded when they saw their real incomes declining even more than they did under the previous government. And these woes are independent of the recent global economic turmoil and need not be confused with it.
The previous government had pushed hard towards liberalisation, privatisation, deregulation and supply-side policies, all of which contributed to high unemployment and a burdensome price spiral that eroded real incomes. To get a break from this trend, the electorate voted people-friendly parties into office, especially the one that chanted roti, kapra aur makaan.
Unfortunately, even roti is now getting beyond the reach of the underprivileged. Rising food inflation reinforces the overall upward price spiral. The elected government is looking the other way from this disturbing trend that is likely to intensify instead of abate under an administration that is supposedly representative.
The emphasis is clearly on promoting the profitability of the agricultural producer at the expense of consumers. The price of wheat has gone up more than once since the induction of the current government. The first such raise was announced in the PM’s maiden speech from the floor of the assembly, before his administration’s economic policy outlook had even been articulated.
While traditionally independent economists are now operating right of centre, one does need a worksheet demonstrating the rationale for this exorbitant increase. A wheat crisis triggered by an ill-informed export decision made by the previous government, compounded by hoarders and smugglers, has now assumed crisis proportions. There is no crisis management either.
Also, wheat output trends need to be looked at to justify such a high increase. The retail price of rice has also increased considerably even though rice output went up. This defiance of the laws of demand and supply needs to be arrested or explained to the electorate. Our vote is now not needed for another four years. Will we not be heard until then? Will we have to pay Rs10-plus for a tandoori naan and will prices of other food and produced items continue to get out of control until the next elections when it will be too late to reverse the trend?
It is hard to accept that an increase in the price of wheat will lead to such a bumper crop that prices will fall significantly. If the price of rice has not fallen despite an increase in rice output, why would wheat’s? Trust in market forces ought to erode in the wake of the US home loan crisis. An unbridled market mechanism there gave way to greed and huge losses that are becoming unmanageable. We are not immune from greed either. Smuggling and hoarding must be checked. If the government makes its presence felt in this realm, there might be a favourable movement in some price levels.
Oil prices have been sliding of late and are now under $80 a barrel. But the prices of petroleum products have not fallen from the level set when international oil prices were approaching $150 a barrel. The price of petrol recently saw a slight downward revision but diesel, which fuels transportation costs and inter alia the cost of doing business, was jacked up. The ‘logic’ behind decisions pertaining to the pricing of petroleum products remains unclear, unless the intention is to help elitist households. Is there a particular elitist ring to the economic decisions being taken now?
Permission to raise electricity tariffs in Karachi by a whopping 70 per cent has been granted to a utility whose inefficiency and incompetence is not even investigated. Inflated electricity bills are burdensome as it is. To add another 70 per cent to electricity charges will not only hit industry and business hard, households too will suffer. Looking out for households is not a populist concern. They represent the micro economy that must synchronise with the macro economy.
It is the micro economy that throws up demand for the real macro economy. Erosion of micro-level purchasing power will reduce demand and thereby growth of the real economy. The previous government spurred growth mainly through credit-financed consumption of durables, a policy that did not prove to be tenable as was predicted back then. Is this government banking primarily on wheat and other agricultural outputs at the expense of industry, business and real household incomes?The key economic issues need to be brought to the surface and thrashed out in the interest of the people and democracy itself. Growing discontent paves the way for the return of non-democratic forces, a change that is welcomed by the disenchanted until people are disappointed again. Elections are then sought.
A government is stable only if it works for the people at large and not for just a handful who may provide a power base in the interim but not over the long haul. A comprehensive set of economic policies is required to provide teeth to the economy that will grow substantively only if growth is broad-based sector-wise and is visibly shared by the people at large.
How US can pay debts
At the end of World War II, the British Empire still ruled nearly a quarter of the globe. But the war bankrupted Britain. Its once mighty empire quickly collapsed and the United States inherited much of the British Imperium.
Six decades later, the United States is close to bankruptcy thanks to a national orgy of borrowing, the replacement of manufacturing by financial manipulation, ruinous foreign wars, and a government whose stunning incompetence and arrant stupidity was exceeded only by its reckless imperial arrogance.
The financial panic now gripping the planet, and the ignominious collapse of Wall Street, showed the American colossus had feet of clay. Washington’s furious printing of untold billions of new dollars to prop up its sinking economy, finance this year’s $1 trillion deficit, and pay debts may unleash a storm of dangerous inflation.
The world balance of power is already shifting. For example, Pakistan’s new president, Asif Zardari, went cap in hand this week to China, seeking $4-6 billion in emergency loans. Pakistan is on the verge of bankruptcy.
But Pakistan’s patron, the United States can’t spare any cash for it. So Pakistan is turning to China, which has the world’s largest foreign exchange reserves.
Bankrupt people, companies, and nations have to sell assets to meet their debt obligations. China and Japan alone hold over $1.5 trillion of US government securities (IOUs).
Their nervous central bankers now want real assets rather than more paper. So there is talk of America’s Asian creditors converting their IOUs into shares in US corporations and property.
Sovereign wealth funds from the Arab oil states and Singapore may soon demand chunks of premier US corporations and property.
In the 19th century, European imperial powers used to force loans on China and local rulers in the Mid East and Latin America. When the locals could not pay off their debts, parts of their territory was seized. Russia was forced to sell Alaska to the US for next to nothing when it could not repay its debts.
China’s coast was carved up by the British, French, Germans, Russians, Americans and Japanese. These imperial foreclosures created the trading ‘concessions’ of Hong Kong, Shanghai, Tsingtao, Tianjin, and Port Arthur.
Now, it’s payback time for China. How ironic that the Chinese Communists have ended up with a so-far sound financial system while the Wall Street bandit capitalists have gone bust.To help pay is monster debts, I suggest Washington consider selling Louisiana back to France. Canada, ought to pick up Florida for a song. Canadians have a manifest destiny for sunshine.
Mexico will want to buy Texas, Arizona and New Mexico. Russia, of course, will buy back Alaska and Washington State. China will purchase California; San Francisco will become ‘New Beijing’. Japan will buy up Washington, Oregon, Montana, and Hawaii. Holland will repossess New York State, and Germany will buy Pennsylvania and Minnesota.
Pakistan’s move into China’s financial embrace is a harbinger of things to come. Unless the US quickly repairs its economy, its world power could slip away as quickly as post-war Britain’s, leaving China, Japan, Russia, the EU and India as the world’s new superpowers.
This may not be so awful. All power, as Lord Acton famously said, corrupts; and absolute power corrupts absolutely.
A world with more balanced, diffused power may be preferable. But what if cash-rich China steps into America’s imperial boots much sooner than anyone expected? n
— Copyright Eric Margolis
OTHER VOICES - Indian Press
Only words, not action
The Times of India
THE meeting of the National Integration Council (NIC) in Delhi ended on Monday with ... little by way of concrete action. ...One of the issues ... was the continuing violence against Christians in Orissa and Karnataka. There is enough evidence to show that activists of the Bajrang Dal ... were behind the attacks.... So it wasn’t surprising that there were demands for a ban on the Dal.
...A ban often results in an organisation going underground and mutating into scattered and more radical outfits. This is what has happened with SIMI.... In the case of the violence against Christians, there is evidence to suggest that both the Karnataka and Orissa governments have been tardy in cracking down on the perpetrators.
If these states continue to be unable to enforce law and order, the Centre must consider invoking Article 355 which allows the Union government to protect states against internal disturbances. But it’s not just the Centre that must ramp up the pressure. The BJP, too, must try and rein in or at least dissociate itself from radical outfits.... The other issue ... was the spate of recent bomb blasts and the government’s response. Both opposition parties as well as UPA allies were more concerned with taking potshots at each other than discussing plans to combat terrorists.... — (Oct 15)
Sachin breaks world record
The Economic Times
WHAT should have been a moment of quiet appreciation was turned into a tamasha when the Board of Control for Cricket in India (BCCI) organised a fireworks display all around the Mohali cricket stadium ground the minute Sachin Tendulkar crossed Brian Lara’s record of 11,953 runs.... The tradition of the game is that play is only stopped due to bad light or rain. That the BCCI is not aware of this tradition could be because its administrators are politicians, bureaucrats and businessmen who have not played the game at the highest level....
At Mohali, when play was held up while the fireworks were on, the TV commentators did point out that the noisy interruption was going on for far too long....
There is also the point that, in the present scenario where security has been tightened following bomb blasts, spectators are forbidden to bring in plastic bottles let alone fireworks to ... venues where international cricket is played....
That the BCCI should itself break these rules speaks volumes [for] the manner in which the game is being run in the country whose cricket fans have made it the richest board in the world to an extent where it could be said that it knows the price of everything but the value of nothing! — (Oct 18)