DAWN - Opinion; October 21, 2008

Published October 21, 2008

Reckoning time for HEC

By Pervez Hoodbhoy

THE exit of Dr Atta-ur-Rahman as chairman of the Higher Education Commission (HEC) closes a unique period in Pakistan’s education system.

His endless stories of success were accompanied by a flood of half-truths. But on the other hand Dr Rahman led the first serious effort to rescue a failed university system.

Had a system of checks and balances been in place, some of his bold steps could have worked. In any case, it is time to make a balance sheet. What do the pluses and minuses of his term add up to?

The negatives are huge. Numerous HEC projects violated common sense and, not surprisingly, turned into costly disasters. An egregious example is the $4.3bn HEC mega-project to establish nine new engineering universities staffed by hundreds of European professors. None were built although large, but unknown, amounts were spent.

Other prestige projects sucked up resources too. Many scientists, including myself, warned against buying certain fancy scientific equipment. But the opposition was futile and the whims of influential individuals prevailed. Expensive equipment was bought for which, years down the line, use still cannot be found.

The desire to show revolutionary progress inflicted long-term damage on our university system. For example, advised by Dr Rahman, Gen Musharraf declared that the annual production of PhD degree holders would be boosted from 150 per year to 1,500 per year. To support this, HEC incentive schemes encouraged PhD thesis supervisors, often of doubtful academic merit, to take on dozens of students each. Quality plummeted.

The proof is before us. One straightforward measure of a student’s achievement level is his/her performance in an international examination known as the GRE subject test. In a notification issued in July 2008, the HEC declared the passing mark required of Pakistani PhD graduates, who could take the test even in their final year, to be 40 percentile.

This announcement is shocking. It officially acknowledges the inferiority of Pakistani degrees. A web search by the reader will show that entry-level students in graduate programmes at an average US university have GRE subject scores in the 70-75 percentile range. Many Chinese, Indian and Iranian entry-level students make it to the 90 percentile bracket in the same tests. On the other hand, Pakistani students, although allowed an additional four to five years’ preparation time, can get a PhD with just 40 percentile. Worse, some university teachers, who are paid by the HEC an extra Rs5,000 per month for every PhD student enrolled under their name, are energetically lobbying to get the pass mark reduced still further.

Strong endorsements by the World Bank and the science journal Nature were deftly used by Dr Rahman to justify his schemes. Neither conducted independent investigations, nor were familiar with the local university culture. They relied exclusively on what the HEC had to say about itself. Their partisan praise eroded their credibility.

On the other hand, some of Dr Rahman’s initiatives were fundamentally sound. And, to his credit, he did put his finger on some key problems in Pakistan’s higher education sector.

It was a positive achievement to have increased access to higher education in a country where enrolment is abysmal. The number of public universities nearly doubled between 2002 and 2008. Unfortunately, there was no way to provide an adequate number of properly qualified teachers and as such they were largely ineffective. One feels that similar resources spent on vocational or college education would have yielded greater dividends.

Sending students overseas for graduate work also goes to Dr Rahman’s credit. Although the cost was enormous, around 3,000 were sent. Surely some good can come of it. But the flawed selection mechanism, which amounted to a simple numeracy and literacy high-school-level test, permitted large numbers of academically unprepared students to slip through into advanced graduate programmes. Perhaps only a quarter of those sent should actually have been sent.

Low salaries for university teachers needed raising, and Dr Rahman did that. Today a public university professor, provided he successfully finagles himself into the higher-paying (tenure track) position, can make as much as Rs350,000 per month. Unfortunately, the jump lacked proportion. If money grew on trees and bushes it would be wonderful to give such raises. But it is not right to pay university teachers huge salaries in a country where primary school teachers make a miserable Rs10,000 a month, and college lecturers only Rs25,000.

There are important lessons to learn from Pakistan’s flawed experiment. Large financial inputs did not work, nor were good ideas without adequate implementation mechanisms sufficient. The record-setting increase in the budget for higher education — which shot up from Rs3.8bn in 2002 to Rs33.7bn in 2007 — did not remove basic weaknesses. Today, with the national economy almost bankrupt, more money is not an option. So what should be done to save higher education?

In the tiny space available here, only a glimpse can be given. Solutions are needed at three distinct levels — determining correct funding priorities, implementing approved plans responsibly and, most importantly, inducing changes in cultural values to promote and enable real learning.

Broadly speaking, higher education reform must now aim primarily at improving teaching quality. It was wrong to have concentrated so heavily on funding research, much of which is of dubious quality and utility. Good research is impossible without sound basics, and this will only be achieved if the next generation of researchers is exposed to knowledgeable teachers at the college and university level. Therefore, high priority should be assigned to better teacher-selection mechanisms, and to create large-scale, high-quality teacher-training academies in every province. Established with international help, these academies should bring in the best teachers as trainers from across Pakistan and from our neighbouring countries.

The present neglect of public colleges must end. Even as many public universities were furiously wasting money, our colleges remained in desperate shape with dilapidated buildings, broken furniture, and miserable laboratory and library facilities.

Many other changes are also needed. Major quality improvements could result from using properly standardised nationwide tests for students’ admission into higher education institutions, teaching teachers to use distance-learning materials effectively, and designing standardised teaching laboratories that may be efficiently duplicated across Pakistan.

Higher education in Pakistan has a chance only if it is seen as the apex of a supporting pyramidal structure, and if solution strategies are pursued with intelligence and honesty. The new HEC head has a difficult task ahead. One hopes that he will have the dynamism and eloquence of Dr Rahman, but not the flaws.

The writer teaches at Quaid-i-Azam University, Islamabad.

Precarious state of the economy

By Shahid Javed Burki

PAKISTAN’S new political masters are now convinced that urgent action is required to secure the funds needed to keep the country afloat.

The country’s own resources will not take it much beyond the early months of 2009. Perhaps by the spring of next year, foreign exchange reserves maintained by the State Bank of Pakistan will have run down to a level that will not be sufficient to cover the trade deficit and also service the country’s foreign obligations.

The rate of depletion may be reduced somewhat by a slowdown in the rate of economic growth and by the consequent decline in the quantum of imports. Some of the measures adopted by the new government may also reduce imports. The sharp correction in the exchange rate may also increase exports and contribute to narrowing the trade gap. If that were to happen the pressure on foreign exchange reserves will be eased somewhat.

The sharp decline in the price of oil will also help the balance of payments. On Oct 16 the price of a barrel of oil fell below $70 for the first time in a year. Given the amount of money Pakistan spends on importing oil, this too will reduce the import bill and help with the balance of payments situation.

However, some other elements in the country’s external account may move in the opposite direction and contribute to a further deterioration in the situation. I am thinking in particular about private capital flows to Pakistan from the United States and Britain. An important component of this is normally called ‘workers’ remittances’. This is a misnomer since a large proportion of these amounts are sent by the relatively affluent members of the Pakistani diaspora who, after years of work outside the country, have accumulated significant savings. These are available for investments.

Most diasporas behave in the same way. They normally start with charitable contributions to the people they have left behind in the homeland. Once their situation improves, they begin making investments for the long term. Some of this goes to the homeland. This is where the Pakistani diaspora is in the United States and Britain.

For the last several years, the Pakistani diaspora has used its savings for investment in the Karachi stock market, or to buy real estate or to set up small enterprises all over the country. This source of money may dry up if the economic situation in Pakistan continues to deteriorate. It will also dry up if the current economic difficulties in Britain and the United States negatively affect the Pakistani diaspora. In other words, Pakistan’s policymakers should be cautious about banking on this resource for paying the country’s bills. My guess is that if the US goes into a deep recession, which seems increasingly likely, remittances by US-based Pakistanis may decline by one half to only $1bn.

There is growing apprehension in the financial community about Pakistan’s economic future. I was contacted recently by a major investment fund based in the United States that took a large position in the Pakistani government bond due for repayment in early 2009. The question was whether Pakistan would honour its obligation when the term for the bond is over. I assured the fund that it was unlikely that Pakistan would reach the situation at which it may have to default. A way will be found to continue to meet external obligations.

From Pakistan’s perspective its economic crisis couldn’t have come at a more awkward time. Pakistan’s need for the infusion of foreign capital continues to increase while the world is in economic turmoil. Developed countries are totally absorbed in dealing with the meltdown in their own financial sectors. In spite of the enormous amount of commitment of public funds for the rescue of various parts of the financial system, the crisis is not letting up. The US capital markets are in free fall and the amount of money the government is providing for stabilising them is building up government debt. The budget is under enormous pressure and the fiscal deficit is increasing.

Given these developments would Washington have the resources to rescue Pakistan from its precarious situation? Or would any other developed nation with interest in preserving Pakistan’s economic integrity come to the country’s rescue when it too is dealing with a severe economic crisis of its own?

If the western nations are too preoccupied with their own problems and may not have either the time or the resources to focus on Pakistan’s worsening plight, could the country turn to some of the cash-rich states such as the Middle Eastern oil exporters or China? President Asif Ali Zardari paid a state visit to China in the middle of October. Receiving help from China must have been high on his agenda. He must have asked for cash — a deposit of a large amount of money into Pakistan’s account at the Federal Reserve Bank in New York.

This is the kind of help I received from Beijing in December 1996 when Pakistan’s economic situation was even more precarious than it is at present. Foreign exchange reserves had run down to only $342m. Default on repayments to the World Bank and the IMF would have been the only option left for the country had the Chinese not heeded our plea.

The Chinese help arrived within a day of my visit to Beijing. But in the conversation I had with Zhu Rongji, then prime minister of China, it was impressed upon me that the country had to learn to stand on its feet. This implied a serious effort to increase the domestic savings rate including savings by the government. Prime Minister Zhu knew of my work on China, a country I had looked after for the World Bank for seven years. He reminded me that since China saved 40 per cent of its gross domestic product, it was able to ride over many storms.

His assessment that a low savings rate was the Achilles heel of the Pakistani economy was totally correct. In the 12-year period since that help was received from the Chinese, Pakistan’s savings rate has declined and the government’s deficit has increased. The country went in the direction exactly opposite to the one advocated by China. Beijing had demonstrated by its own economic management that savings was the right course to adopt.

I am not confident that China will provide a great deal of help. The only way out is to go to a dozen potential donors with a well-developed programme for reform.

Bailout: more pain to come

By Heather Connon

SIR Fred Goodwin, departing chief executive of Royal Bank of Scotland (RBS), called it ‘more of a drive-by shooting’ than a negotiation; another banking executive likened it to lobbing a nuclear bomb at the industry.

The military analogies are appropriate enough. Five men have so far fallen victim to the GBP37bn rescue package drawn up by the government to rescue three of Britain’s biggest banks — Sir Fred, his chairman Sir Tom McKillop, and Johnny Cameron, the head of his investment banking arm, along with HBOS’s chairman Lord Stevenson and chief executive Andy Hornby. And the pain of the bail-out will have spread far further before the banks can claim to have returned to health.

There are the taxpayers, for example, who are already coughing up some GBP6,700 each to finance the GBP400bn rescue plan and are likely to face the lethal combination of higher taxes to fund the deal and rising unemployment as the banks are forced to retrench, restructure and repair the damage from two decades of profligate expansion.

Some of that unemployment will emanate from the banks themselves. Stephen Hester, the British Land chief executive parachuted in to take over from Goodwin, will not reveal the detail of his strategy until the new year.

But it is already clear that large swathes of the business will be deemed too risky and capital-intensive — including areas such as syndicated loans, structured credit and proprietary trading. That could mean significant job losses among the 25,000 employees of the global markets and investment banking business.

He is also likely to be looking for businesses to sell. The sale of the Direct Line and Churchill insurance businesses is already well under way, but some have suggested that he may even consider selling Citizens, its US banking business — though insiders point out that its largely retail franchise is a reliable source of capital.

Hester himself says that the business will have to become more focused on the UK — last year, 40 per cent of its revenues came from outside Britain, and that was before the acquisition of Dutch bank ABN Amro — although he insists that does not mean it will shed all its overseas assets.

The cuts will not be confined to RBS: staff at HBOS and Lloyds TSB — and even Barclays — are likely to be waiting nervously for the tap on the shoulder and the redundancy letter.

Lloyds’ chief Eric Daniels has dismissed earlier suggestions that as many as 40,000 of the combined 140,000 workforce are under threat as a result of the merger, but the stark profits warning that accompanied HBOS’s GBP12bn capital-raising from the government suggests that there could end up being even more casualties as Britain’s biggest mortgage lender is forced into a painful retrenchment.

As Ian Gordon, banking analyst at Exane BNP Paribas, says, the government’s rescue package has exposed ‘one myth’ — that of Lloyds TSB’s supposed superior ability to raise capital and funding. Lloyds TSB is now completely reliant on the good faith of the government if it wishes to pay a dividend to ordinary shareholders at any point in the next five years before it is able to call the preference shares itself.’

The dividend issue is a particularly contentious one: while banks and their investors are pressing the government to water down its condition that the banks repay the GBP9.5bn of preference shares being issued as part of the deal, the government is reluctant to allow any concessions which mean that shareholders take money out of the company while taxpayers are still providing support.

But without at least some prospect of a dividend, it will be hard to persuade existing investors to take up any of the new shares, increasing the cost to the taxpayer. That means some reinterpretation of the rules looks inevitable.

— The Guardian, London



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