Opening up the economy

In my article published in this space on October 26, I went over some arguments presented by economists of different persuasions about the importance of economic openness and expanding international trade for accelerating growth and reducing poverty.

Although there are serious differences among economists as to the amount of importance that should be given to international commerce for promoting growth, I came down on the side of those who argue that an export promotion strategy has a better chance of succeeding than the one that puts emphasis on import substitution.

This is particularly the case for a country such as Pakistan that has developed a reasonable industrial base behind a high wall of tariff and non-tariff barriers.

Pakistan's industry and other modern sectors of the economy are today more protected against foreign competition than is the case with other countries of its size and at its stage of development.

Continuing with this approach would prove to be costly since industries in the country will not be able to compete with those in other parts of the world. This would be unfortunate since international commerce has become the driving force behind global development and prosperity.

Pakistan cannot afford to be left out of this game. It should now make a serious effort to bring efficiency to the hitherto protected industrial base. This it should do by allowing much greater international competition.

How should a relatively closed economy move towards openness, how open should it become and over what period of time should this openness be achieved? Once again, in finding answers to these three questions, we run into good deal of debate among serious economists.

In the 1990s, Washington based economists operating out of the multilateral development institutions and development think tanks developed a strategy for the developing world that came to be known as 'The Washington Consensus'.

This strategy put a great deal of emphasis on openness to the world outside. Developing countries were advised to open their economies in three different ways. They were advised to remove capital controls and allow foreign capital to flow in and out without too many constraints.

They were told to permit trade to be unencumbered as much as possible. Some advisers went as far as to suggest that the developing world should not look for reciprocity.

A "tit for tat" approach in trade did not make good policy. And they were counselled to allow foreign companies to compete in the programmes of privatization of the assets held by the government.

It did not matter whether the entities being privatized were industries, commercial banks, airlines, power plants or public utilities. Inviting foreigners to come into these sectors would be enormously beneficial as they were likely to bring in not only new technology and management practices. They were also likely to make additional investments. But how quickly should this drive towards openness be undertaken?

There were two answers to this question. There were those who believed in the "big bang" theory of economic reform. It was argued that closed economies should be opened quickly; doing so slowly would create a number of additional distortions.

Gradual opening also developed vested interests that, over time, were likely to become serious opponents of further opening. The big bang approach was tested in a number of East European countries that were in the process of shedding Soviet-style economic systems in favour of market capitalism.

Poland was the most important testing ground for this approach and its relatively better economic performance gave heart to the exponents of this radical strategy aimed at economic reform and transition.

Among the socialist countries, China took an entirely different approach. It was extremely deliberate in deciding on the process of reform - how it should be introduced, to which sectors it should be applied, how fast should the changes be made? China's approach was even more successful than that adopted by Poland.

The country's economy grew at an unprecedented rate, which was maintained over a long period of time. The debate would have been hard to settle with two successful outcomes from two very different approaches to opening to the world outside had a setback not occurred in the reforming world.

The turbulence caused by the pursuit of the Washington Consensus policies in both East Asia and Latin America gave pause to those who had favoured speed over caution. Even the International Monetary Fund, the most ardent advocate of fast opening, began to advise caution after the heavy damage done by the Asian Financial crisis in 1997-99. But the Fund's change of heart applied to financial opening, not to trade openness. In trade, it continued to argue for rapid removal of constraints - of high walls of tariff and non-tariff barriers.

How open a trading system should be is a question that leads to another debate and different set of recommendations. Economists such as Joseph Stiglitz, the Nobel Laureate, have argued that it is not prudent to push the developing world towards openness while the parts of the economies of rich countries that are of interest to the poor countries remain relatively closed.

These economists don't buy the approach that tit-for-tat approach in international trade is counterproductive. According to Stiglitz, writing in his best-selling book, Globalization and its Discontents, while rich countries "had preached - and forced - the opening of the markets in the developing countries to their industrial products, they had continued to keep their markets closed to the products of the developing countries, such as textiles and agriculture.

While they preached that the developing countries should not subsidize their industries, they continued to provide billions in subsidies to their own farmers, making it impossible for the developing countries to compete.

While they preached the virtues of competitive markets, the United States was quick to push for global cartels in steel and aluminium when its domestic industries seemed threatened by imports."

Trading systems in the developing countries should certainly not be more open than those in rich countries. In fact, there are good reasons why they should be less open.

The Washington Consensus advocates advised the developing world to be unilateralists in their approach to openness. They did not have to wait for other countries to be equally accommodating.

Such a purist approach may be justified by theory but the world is seldom ordered to conform to the basic principles of economics. Because of the distortions that exist in the international trading system, it makes a great deal of sense for the developing countries to reform their systems within the context of international negotiations such as those currently under way in the context of the Doha round.

The last time such a round was conducted - the Uruguay Round - the developing world stayed on the sidelines. The Uruguay discussions centred mostly on the interests of the developed world.

It was only in the latter part of the discussions that poor countries were able to exert some pressure, which resulted in the agreement to do away with the Multi-fibre Agreement (the MFA) and to the promise by the developed world that the liberalization of trade in agriculture will be the main subject for any further negotiations.

The developing countries, having learnt a lesson from their experience in the Uruguay round, have played a much more important role in the Doha negotiations. In fact, it was because of their unwillingness to agree to the trifling concessions offered by the European Union, Japan and the United States on trade in agricultural products that the developing countries pushed the ministerial talks at Cancun, Mexico, in 2003 to fail.

A group of poor countries in West Africa was the most disturbed by what was on offer at Cancun, particularly in cotton trade, a vital crop for them but which was heavily subsidized by the United States.

International trading arrangements that result from long drawn-out negotiations are not the only way for the developing world to move towards openness. This can be done in several other ways, particularly in the context of regional trading arrangements, or RTAs.

While the European Union is by far the most successful RTA, regional arrangements have also become popular in many parts of the developing world, particularly in Latin America and East Asia.

Most successful RTAs are among countries at about the same stage of development. That is certainly the case for the European Union. The North America Free Trade Area is the only example of a successful regional arrangement involving developed and developing countries.

The Nafta has brought together Canada, Mexico and the United States. In spite of the serious misgivings in the United States about the wisdom of a trading arrangement with a populous developing country, there is a broad consensus among experts that the NAFTA has benefited all partners involved in it.

Are there lessons for South Asia from the experiences of regionalism in other parts of the world? Broadly speaking, Europe, East Asia and Latin America followed a different approach in moving towards regional integration.

The European drive was motivated in part by a political judgment: that by gradually integrating the continent's economies it should be possible to resolve the political and territorial differences that had resulted in two highly destructive wars. In finding a common economic ground among the nations of Europe, the founding fathers started modestly.

They began with the integration of steel and coal industries and markets. Since the ownership of these industries was in mostly private hands, integration meant drawing up of common regulatory frameworks for trade in these commodities as well the prices that could be charged.

From that modest start, and after some serious obstacles were overcome, the European free trade area evolved into a modern 25-nation trading and economic union that is today the world's largest economy. That is if the EU can be treated as economy rather than a composite of 25 individual economies that work together on some issues.

The East Asian motives for moving towards integration were both political and economic. Several decades ago, the smaller countries of this region realized that they needed to aggregate their interests in order to counter the influence of mega powers in the area - China, Japan and the United States.

Again, as was the case with the European Union, the Association of South East Nations began modestly. It has gained in stature as the economies of the region developed and some of them became major trading nations, particularly in products with high technological content. That notwithstanding, the ASEAN will take time before it moves towards an EU type of economic and trade integration.

Finally, Mercosur, the trading bloc involving four countries of the southern part of Latin America - Argentina, Brazil, Paraguay, and Uruguay with an associated status for two more countries, Chile and Bolivia - was formed mostly for economic reasons. The idea was to create a large Latin American market for the countries of the area.

At best, Mercosur's record is mixed. During periods of extreme economic distress - and Latin America has seen several of these - the member countries have been inclined to go on their own rather than be mindful of the impact such actions will have on their collective enterprise. What are the lessons of all these experiments for the countries of South Asia? We will come back to this question next week.

The human dilemma

The year 2005 is just about two weeks old and already it has become evident that it will just carry on from the previous year and nothing in sight that might raise our hopes and bring some cheer into our lives.

The tsunami tragedy will continue to claim lives as more and more who are currently listed as missing is found. Elections were held on Sunday in Palestine to find a successor for Yasser Arafat, who having fought the good fight left this earthly abode, much mourned by his followers but to the immense relief of those who considered him a stumbling block to their own designs, most notably the Israelis. But peace is no nearer in Palestine.

Elections too are scheduled to be held in Iraq. These elections are to be held on a "come what may basis" for they are intended to herald the dawn of democracy not only in Iraq but in the Middle East as well.

It seems a far more laudable objective than disarming Iraq of its weapons of mass destruction, which posed an imminent threat not only to its neighbours, but to the world in general.

Finally, the moral high ground has been regained. Thousands of Iraqi men, women and children will, after all, not have died in vain. Whether wishing too or not, their lives were taken away for a noble cause so that the voice of the turtle could be heard in their land. But it is the tsunami tragedy one must turn for that about all there is that takes bad news and turns it into good news. Or, at least, shows the generosity of the human spirit.

I do not refer to the pledges of financial assistance made by governments but to those millions of people who have emptied their pockets, at great personal sacrifice and made their own contribution.

Unfortunately, we haven't seen too much of this in our own parts of the world though there have been those who have come forward to help but not in the large numbers one would have expected. Still, it is the thought that counts.

My own mind goes back to 1970 when East Pakistan was hit by a cyclone. I had read of a football match between England and West Germany that was to be played in aid of the cyclone victims.

I had thundered off a column berating our own sportsmen. I was at a dinner at the home of Bashir Khan and it was Yunus Said who pointed out to me or better still ticked me off by asking me what I was doing in my personal capacity.

There and then it was decided that a cricket match would be organized between a World XI and Pakistan. Others present at the dinner apart from Bashir Khan and Yunus Said were M. U. Haq, Farooq Mazhar, Farooq Hadi, Iftikhar Ahmed and Khalid Butt and we formed ourselves into a committee and under the banner of the Pakistan Cricket Writers Club - I was the president and probably its sole member - we decided to organize the match.

This is not the place to describe how we succeeded in doing so and the difficulties we faced but in a matter of weeks a World XI led by Gary Sobers, which included Clive Lloyd, Rohan Kanhai and two Indians, Abid Ali and Farooq Engineer was in Karachi and playing a charity match.

A lot of other people helped. Put this match into a computer and this answer would surely be that we must be mad. The moral of the story is that if you care enough then nothing is impossible.

We raised a large sum of money by cricket's standards, sent the cheque to President Yahya Khan, had our accounts audited and we went our own ways. I don't know whether the money we raised made any sort of meaningful difference.

Money raised for the tsunami tragedy seems to be more than enough for the time being but we cannot say the same for the money that is required to fight Aids in Africa. George Monbiot asks some disturbing questions in an article he wrote in The Guardian.

He asks: "But one obvious question recurs. Why must the relief of suffering, in this unprecedentedly prosperous world, rely on the whims of citizens and the appeals of pop stars comedians? Why, when extreme poverty could be made history with a minor redeployment of public finance, must the poor world still wait for homeless people in the rich world to empty their pockets?

"The obvious answer is that governments have other priorities and the one that leaps to mind is war. If the money they have promised to the victims of the tsunami still falls far short of the amount required, it is partly because the contingency fund upon which they draw in times of crises has been spent on blowing people to bits in Iraq.

The US government has so far pledged $350m to the victims of the tsunami, and the UK government 50 million pound that is $96m. The US has spent $148 billion on the Iraq war and the UK $11.5 billion.

"The war has been running for 656 days. This means that the money pledged for the tsunami disaster by the United States is the equivalent of one and a half day's spending in Iraq.

The money the UK has given equates to five and a half days of its involvement in the war. It looks still worse when you compare the cost of the war to the total foreign aid budget.

"The UK has spent almost twice as much on creating sufferings in Iraq as it spends annually on relieving it elsewhere. The United States gives just over $16bn in foreign aid: less than one ninth of the money it has burnt so far in Iraq.

The figures for war and aid worth comparing because, when all the other excuses for the invasion of Iraq were stripped away, both government explained that it was being waged for the good of the Iraqis."

That is the crux of the matter. The human spirit can be indomitable when it is left to itself. But it can easily be suppressed when war-drums are heard and some other spirit takes over that kills rather than saves lives.

Return of peace to Sudan

While international attention is riveted on the Tsunami disaster, a hopeful and significant development is taking place in Sub-Saharan Africa that may prove a watershed in the contemporary history of the continent.

Sudan, the largest and poorest country in Africa, is on the threshold of a new beginning. The unfortunate country that has been ravaged for decades both by famine and civil war is finally heading towards a promising future, thanks to an agreement reached recently to end the civil war that has rendered this potentially rich country a basket case.

The civil war has raged for 21 years in the south of Sudan, principally between the Christian and animists in the south against the Khartoum government of Arab Muslims accused of economic neglect of the region and the draconian Shariah laws enforced by the regime of Jafar Numeri in 1982.

The war erupted in 1983 and has since been fought with incredible brutality claiming two million lives and displacing another four million. While religion was the primary catalyst, the discovery of oil in 1999 changed the complexion of the conflict and led to direct involvement of outside powers.

Earlier the neighbouring countries, Ethiopia and Uganda were provided $20 million military equipment by the US to topple the government of Sudan. The rebels in the south led by Col. John Garang and his SPLA (Sudan People's Liberation Army) were also regular recipients of substantial military and political support which sustained the civil war for 22 years.

Sudan is reported to have three billion barrels reserves and produces 350,000 barrels per day, earning $1 billion in oil revenues. By next year, it is expected to double, thanks to rising prices of oil.

The oil factor has changed the dimensions of the conflict, inviting rivalry between China and the US, China being the largest investor in the oil industry. The US imposed sanctions on Sudan, declaring it a 'state sponsor of terrorism,' and also opposed supply of weaponry by Russia and China.

While the civil war raged on, there were peacemaking efforts by the Organization of African States from time to time. These efforts have failed both because of inability of the mediators to play a decisive role and the outside interference for political and economic domination.

Rebel leader Garang and Sudan's vice president Taha finally met in 2002 in Nairobi and signed six protocols covering issues relating to political power and wealth sharing. These documents became the basis of a comprehensive cease-fire and eventually peaceful settlement covering security arrangements and positioning of various forces.

The failure of the African Union to enforce the Nairobi accords led to the UNSC intervention. To convey the sense of urgency, the Security Council decided to hold the session in Nairobi - the fourth to be held outside New York since 1952.

The SC proposed Resolution 1574 urging the two parties to conclude two years of talks with a comprehensive peace accord by December 31, '04. Massive economic aid, including possible debt relief, was promised to ensure "lasting peace and stability and to build a prosperous and united Sudan."

The Resolution required Sudan to abide by the preliminary accords negotiated in Kenya, including the formation of a coalition government, an integrated military and a sharing of oil revenues to be included in the final peace deal.

The final peace deal concluded on December 31 was formally signed on Sunday. This development has offered tantalizing prospects of peace and development in this unfortunate land which has known only violence and hunger for the last 50 years. It has been a painful compromise by both sides.

Khartoum has made significant concessions on sharing the oil revenues equally and 30 per cent of administrative posts in the transitional set-up and vice-presidency for six months. On its part, the SPLA has renounced its demand for independence and also agreed to limited autonomy, the future of which will be decided by a plebiscite in 2011.

Khartoum has agreed to withdraw its troops numbering 90,000 from the territory within two and a half years. The Shariah laws will not apply to non-Muslims in the south and the constitution will be suitably amended.

There are optimistic assessments of the salubrious impact on Sudan's economy, particularly in the oil sector which has suffered due to war and US sanctions. President Bashir of Sudan has demonstrated great statesmanship by making appropriate concessions to ward off the menacing pressure from the US.

However, the Darfur issue is still unresolved and can ignite to nullify the current peace accord. Perhaps the agreement with SPLA could be replicated to defuse the situation in Darfur.

The Darfur crisis surfaced in February 2003, with a rebellion by the animists against the Arab tribes, known as Janjaweed and supported by Khartoum. The UN has threatened oil sanctions unless the situation is controlled.

It is alleged that 1.5 million people have been driven from their homes and more than 50,000 killed by violence, hunger and disease. The US has accused Sudan of 'genocide' in Darfur and warned it of the consequences.

Sudan has to steer its course with great dexterity and diplomacy and not let vested powers deny it peace and development any longer on the pretext of Darfur situation. Oil and religion are a lethal mix and Sudan has to ensure that neither provides a pretext to outside powers to render the peace agreement with SPLA, a pyrrhic victory.

The writer is a former ambassador of Pakistan.

Forgetting Abu Ghraib?

During the past eight months there have been many news cycles, many front-page stories, many events. There have been elections. There have been hurricanes and tidal waves.

Nevertheless, in the grand scheme of things, eight months is not a very long time. In most of the world, something that happened eight months ago is considered "recent."

In Washington, however, it seems that eight months ago is considered "ancient." How else to explain the nomination of Alberto Gonzales to the post of attorney general of the United States?

Or, more to the point: How else to explain the widespread assumption that Gonzales - who commissioned the "torture memo" of August 2002, following a meeting in his office - will be decisively confirmed?

After all, eight months ago, much of the country - and much of the Republican Party - was gripped by horror and embarrassment after the publication of photographs from Abu Ghraib prison in Iraq.

Those photographs haven't gone away: As I write this, I need only click on my computer's Internet Explorer icon and there is Lynndie England, grinning and giving a thumbs-up behind a pile of naked men.

If the pictures haven't gone away, the value system that led to Abu Ghraib hasn't gone away either. Last month - really recently - lawsuits filed by American human rights groups forced the government to release thousands of pages of documents showing that the abuse of prisoners at Guantanamo Naval Base long preceded the Abu Ghraib photographs, and that abuse has continued since then too.

US soldiers in Iraq and Afghanistan have, according to the administration's own records and my colleagues' reporting, used beatings, suffocation, sleep deprivation, electric shocks and dogs during interrogations. They probably still do.

Although many people bear some responsibility for these abuses, Alberto Gonzales, along with Defence Secretary Donald Rumsfeld, is among those who bear the most responsibility.

It was Gonzales who led the administration's internal discussion of what qualified as torture. It was Gonzales who advised the president that the Geneva Conventions did not apply to people captured in Afghanistan.

It was Gonzales who helped craft some of the administration's worst domestic decisions, including the indefinite detention, without access to lawyers, of U.S. citizens Jose Padilla and Yaser Esam Hamdi.

By nominating Gonzales to his Cabinet, the president has demonstrated not only that he is undisturbed by these aberrations, but that he still doesn't understand the nature of the international conflict which he says he is fighting. The Cold War ended because Eastern Europeans were clamouring to join the West. -Dawn/Washington Post Service.

New approaches on Kashmir

General Musharraf's impatience, India's intransigence and the sub continental bureaucratic mindset characterize the current state of Indo-Pak dialogue on Kashmir.

The endemic problem of Jammu and Kashmir (J&K) is complex and has several dimensions-human rights, violence perpetrated by the state, the brutality and killings by the militants, lack of economic opportunities, slow development, pervasive corruption, social dislocation, poor governance and the crucial issue of territory.

Among these problems the territorial aspect is by far the most crucial and also the most difficult to resolve. Its resolution requires a process in which all the three parties to the dispute - India, Pakistan and the Kashmiri leaders - should remain engaged both bilaterally and trilaterally in a structured and informal form for a long period of time, so that they could seek an equitable and viable solution that is acceptable to all.

The political dialogue has to be conducted in a tension-ridden environment, otherwise as past experience shows it simply turns rhetorical and counterproductive.

Because of the legacy of the past, J&K today is a bitterly divided society along national identities and state allegiance that needs peace to reduce polarization, overcome passions and transform mutually antagonistic political goals along more productive avenues.

India has to shed its rigidity and its fixation with territorial control which is unacceptable no only to Pakistan but also to a large cross-section of the people of Kashmir. Pakistan, the other hand, cannot wrest Kashmir from India militarily and has to accept a negotiated settlement that would require patience and astute diplomatic skills.

For New Delhi and Islamabad it will also be useful to identify elements of what should constitute a substantive dialogue on Kashmir as both accuse each other of lack of sincerity in approaching the problem.

The two countries should take their main opposition parties along during the period of negotiations and when talking to the Kashmiris they should involve a broad cross-section of the political leadership and not confine it to their favourites.

By making the process more inclusive the prospects for the success of the talks would be enhanced and a settlement, if reached could be more durable. Apart from the territorial issue, other elements of the Kashmir dispute are relatively easy to manage and progress can be fast, provided there is mutual understanding and sufficient political will.

This would require both countries to take concrete measures to ensure progress on issues affecting the lives of the people and periodically review it within the framework of the composite dialogue.

For reducing violence there has to be a cease-fire between the militants and the Indian security forces on similar lines as now prevails between the Indian and Pakistani forces on the LoC.

Internal cease fire accompanied by the release of all political prisoners could bring about a qualitative change in the law and order situation in the Indian part of Kashmir and will put an end to the anger of the people in Kashmir.

India should substantially reduce its security forces within the state and improve its human rights record. Removal of bunkers in Srinagar and other places in Kashmir will be a positive step in that direction. The announced withdrawal of three thousand personnel in a total force of seven hundred thousand from Kashmir is minuscule and more of a cosmetic gesture.

For greater transparency and building of confidence among the people of Kashmir, India should allow international human rights organizations to monitor the situation according to the principles of natural justice and public accountability.

The Indian government's argument of non-interference in Kashmir has to be subordinated to humanitarian priorities. Sooner than later New Delhi should include the militants in the peace talks, provided they are willing to give up their arms and join the peace process.

The role of covert intelligence agencies has to end and the normal political dynamic permitted in the whole of J&K. Allowing full freedom of political expression on both sides of Kashmir is a prerequisite for building consensus among the people and determining their future.

Pakistan should continue using its influence in curbing the infiltration of Jihadi elements and remove doubts regarding the presence of training camps by being more open and transparent on our side of Kashmir.

The conflict in Siachen has served no useful purpose. There have been more fatalities in Siachen because of harsh weather, accidents and high-altitude related health hazards than through direct combat.

It is, however, encouraging to find that for over a year now the cease fire is holding in Siachen as well. A resolution of this dispute nonetheless would serve the interests of both India and Pakistan in many ways and facilitate progress and cooperation in other areas.

Opening up of the borders and cross-border trade and commerce can give a fillip to economic growth and dynamism in J&K. Bureaucratic hurdles delaying the commencement of the bus service between Srinagar and Muzaffarabad should be removed soon and the Jammu and Sialkot route, which is very promising from the point of view of trade and commerce could open new vistas of cooperation.

Similarly, other traditional land routes should be restored and several crossing points established so that divided families could meet and Kashmiris could get an opportunity to interact at the cultural level.

In addition, border markets at agreed crossing points could be established. To begin with, Neelam Valley and Uri- Chakhoti could be suitable places for setting up the proposed markets. For promotion of trade and commerce, chambers of commerce from both sides of Kashmir could meet on a regular basis.

Revival of trade in goods and services across the LoC, opening up of multiple land routes within both parts of J&K as well as the creation of infrastructural facilities will give a good boost to the local economy and provide avenues of employment to thousands of young people.

Boosting trade activity and developing links in education, communications, information technologies and environment between the two sides of J&K could be important CBMs. Areas close to the LoC will have to be de-mined for which a comprehensive joint strategy has to be worked out.

Funds allocated for development in Kashmir by India are either frittered away through corruption or recycled back to India to finance hydroelectric projects, which are meant to provide power to other states.

Kashmiri refugees who have crossed over to Pakistan and are living in camps or those who migrated to other parts of India like the Pundits must be allowed to return and their safety and security should be ensured by the state. Through greater accountability and better governance the economic conditions on both sides of Kashmir can considerably be improved.

It may be advisable to let the Kashmiris identify and define the regions, whether five or seven, through mutual negotiations instead of India and Pakistan imposing their ideas on them.

In this way a clear identity of the Kashmiris, with shared aspirations, could emerge to facilitate the resolution of the conflict. This will also provide them with the opportunity of fully developing their political vision in more concrete terms thereby fulfilling the political aspirations and security concerns of the vast majority of the people of Kashmir.

Devolution of power in the Indian part of J&K will greatly contribute towards a sense of participation. Gradually, both parts of Kashmir, as part of internal CBMs, could be granted self-governance with control on all subjects excluding defence and foreign affairs. The "Kashmir Study Group" too has been a strong advocate of giving Kashmiris maximum autonomy.

Meanwhile, the two sides of Kashmir should be encouraged to develop cross-border institutional linkages in the form of joint meetings of legislatures, common media programmes, good communication links and joint environmental projects. Progress on all these counts will have a very favourable impact on the resolution of the Kashmir dispute including the territorial issue.

The writer is a retired lt-general of the Pakistan Army.