Agreements with China

THE outlines of the joint declaration signed by President Pervez Musharraf and President Hu Jintao, as published in yesterday’s newspapers, show the resolve by Pakistan and China to further strengthen and deepen what has often been called their “all-weather relationship”. The joint declaration gives a roadmap, which the two countries have pledged to follow in all spheres of their relationship. As a Chinese government spokesman put it, the declaration was “a manifestation of a strong commitment” on the part of the two countries to adopt “a common stand” on regional and international issues. More important, he said, it defined “objectives of their relations.” Finance Minister Shaukat Aziz called the declaration “a landmark agreement” and said it aimed at adopting a joint strategy on all matters of mutual interest.

In addition to the joint declaration, the two countries have signed seven other agreements on a variety of subjects that range from cooperation in “defence industrial” production and preferential trade to cultural exchanges and extradition of criminals. Of special importance are three economic agreements that go to show China’s greater involvement in Pakistan’s economic development. Two of the agreements concern the expansion of the on-going Saindak copper project and the less-known zinc deposits at Doddar, in addition to the accord on Chinese assistance in modernizing the Pakistan Railways’ signalling system. The signing of the preferential trade agreement means that the two sides will reduce tariffs on some specific items. This should help boost the volume of their bilateral trade, which is far below its potential.

Particularly important is the agreement on defence industrial cooperation. So far, the military relationship has remained confined to periodic consultations besides the purchase by Pakistan of Chinese-made MIGs and tanks. Lately, however, Islamabad and Beijing have embarked on defence production projects. The most important of these is the JF-17 fighter aircraft. Jointly produced by Pakistan and China, it had a successful test flight in September which testified to the sophistication of their technical expertise in the military aviation industry. The signing of this agreement will make it possible for both sides to explore new avenues for joint production of other military items. For Pakistan, Chinese assistance in the indigenous production of military hardware is of vital importance. Given its security situation, Pakistan cannot solely rely on traditional sources from which it has at times found it difficult to obtain military hardware if the sales did not suit the other side for political reasons. The production of submarines in Karachi with France’s help is also an indication of Pakistan’s policy to acquire self-reliance in defence production.

Politically, too, President Musharraf’s visit has proved quite significant. The two governments have resolved to fight what President Hu called “three forces” — those of extremism, ethnic separatism and terrorism. Even though he was not specific, President Hu was obviously referring to the activities of separatist groups in China’s Xinjiang province. Pakistan’s role in denying sanctuary to the separatists has been crucial in China’s successful handling of the situation. As the state-owned CCTV acknowledged, Pakistan “stood resolutely against terrorism” and did not allow “anti-China forces... to use Pakistan as a base.” As China’s friend and as a country which borders on China’s Xinjiang province, it is in Islamabad’s interest to ensure conditions of peace and tranquillity in its neighbourhood. The “three forces” to which President Hu referred have done enormous harm not only to Pakistan but to the entire region. It is good that both Pakistan and China have reached a common understanding on this issue and have pledged to work in close cooperation.

A candid commentary

THE State Bank of Pakistan’s annual report for 2002-03 is a candid commentary on the performance of the economy in the year gone by. Most of the data used in the report to elucidate the remarkable recovery posted by the economy in the last year is the same as the one put out by the Economic Survey for 2002-03 and the subsequent budget documents, with some appropriate updating here and there. However, the report has used this data to put most of the developments on the economic front in the 12 months in question in their correct perspective. By admitting that the incidence of poverty has, in the meanwhile, risen from almost 20 per cent to 33 per cent, the report has sounded a dire warning to the policy makers. One would readily agree with the report’s contention that this rise in poverty cannot be attributed solely to the policies that have been pursued over the last few years.

In fact, the situation had started deteriorating during the martial law government of Gen Ziaul Haq when the regime started borrowing for the budgets from banks at 0.5 per cent to one per cent out of the resources the banks were mobilizing at a much higher rate. While the high growth rates of that decade reflected the Afghan war-related inflows of billions, the fundamentals of the economy were being wrecked in that the galloping population and the increase in illiteracy were simply ignored. The rate of population increase during the 1980s had remained fixed at 3.5 per cent and the rate of literacy did not go beyond 30 per cent throughout the decade of martial law when there was no shortage of unencumbered resources. It was during this period that every rich lobby was being allowed exemption from all kinds of taxes just to keep it politically happy. The elected governments that followed were working under restraints of various kinds. They perhaps cannot be accused of having directly contributed to an exacerbation of poverty. But it is well worth asking if they consciously renounced the elitist model of management which relies upon a trickle-down effect for bringing benefits to the poorer strata of society. Indeed, the political class stands badly in need of conducting such an enquiry in a spirit of objectivity and impartiality. This can stand it in good stead when full democracy is restored.

The present bonanza has meant debt rescheduling and inflows of concessional assistance, increased home remittances as well as grants. Yet the donors’ conditionalities have made it impossible for this government to attack the problem of poverty. The donors continue to insist that the government withdraw from most of its obligations, even in the educational and health sectors and encourage the private sector to take up the slack, especially in creating jobs. This the Pakistani private investor is not willing to do because he is not an entrepreneur in the true sense of the term. He does not know how to take risks. The only way out, therefore, is what the State Bank report says we must do — use the increased fiscal space made available as a result of restructuring of external debt for increasing the pro-poor budgetary expenditure. In other words, let these resources be used to increase budget allocations for population control and human resource development and for expanding the physical infrastructure and boosting agricultural production.