Keeping check on inflation

AS Shaukat Aziz completes his first year as prime minister he finds persistent inflation and large scale unemployment among his major problems. He has acknowledged that and reaffirmed his resolve to grapple with them so as to bring the benefits of the high economic growth to the masses. He also finds the inadequate and crumbling infrastructure as a stumbling block to rapid industrial growth and agricultural expansion.

Donors like the World Bank and the Asian Development Bank want the government to solve these problems resolutely as they affect many millions of people. And they suggest top priority to poverty reduction as one-third of the people still live below the poverty line of a dollar a day.

President Musharraf keeps on stressing not only the importance of high economic growth but also carrying its benefits to the masses in a positive and visible manner. He also keeps on reaffirming his resolve to provide electricity and safe drinking water to everyone by 2007. That commitment is stressed by the prime minister as well, though delivering those services satisfactorily by 2007 is a challenging task.

What matters is not only the available supply of both the items but also administratively ensuring that the services reach the poor masses. The World Bank in a recent report said that services meant for the poor seldom reached them because of the inefficiency of the delivery system and corruption. Remedying such corruption within two years is not easy. Success in this endeavour will be no less than a miracle. Will those at the grass roots level cooperate with the president and the premier? It remains to be seen.

Now the government has promulgated an ordinance setting up an Alternate Energy Development Board to produce more power from sources other than Wapda and KESC and their private sector producers. How much success the new board achieves in producing solar power, wind power, etc., remains to be seen. There has been too much talk of such energy. Let us see some real output, although initially that may be costly as is the case in Germany.

It would have been better if the move had come through a bill in parliament and the issue of energy is discussed thoroughly for at least two days as it is a very serious issue. Anyway the ordinance has to come before parliament soon as otherwise it has only a brief life. It is time the legislature discusses major economic issues of the country formally instead of the opposition wanting to take pot shots at the government and walking out.

Meanwhile, there are reports of a five per cent rise in electricity rates or more than 20 paisa per unit in view of the high cost of furnace oil. There are also reports that Nepra may come up with a one year rate for Wapda distribution companies.

The IMF has warned Asia whose oil consumption is giving rise to oil-linked inflation and low economic growth. Abbas Mirakhor, director of the IMF, on a visit to Pakistan said that when a country with a stable economic growth opted for high growth eight to nine per cent inflation was common.

Last year the government had projected a five per cent inflation but what we got was nine per cent and the economic rate projected was 6.4 per cent and it turned out to be 8.4 per cent — a record in recent years.

The Economist, London, says that the three recent recessions in the world were caused by high oil prices; but this time the pattern may not be exactly the same. As the world is somewhat better prepared for that.

The economic growth target set for the current year is seven per cent and the projected inflation rate is eight per cent. But the fear is that the inflation may exceed the target because of the soaring world oil price, which has touched 70 dollars, and also the rise in the prices of other importable items produced by using the costly oil and power. So Pakistan’s external trade deficit is likely to rise to eight billion dollars instead of the projected 4 billion dollars. And the import bill may touch 28 billion dollars, the projected target being 21 billion dollars. Not only import prices are rising but new items are being added to the import list, particularly from India.

The government has usually two tools to restrain inflation — the monetary mechanism and the fiscal tool. The State Bank of Pakistan was initially reluctant to apply the monetary tool lest that reduced economic growth after many low growth years. The SBP policy is that of a free market economy and high growth rate which usually the military-led regimes right from Ayub Khan’s days attempt.

Ultimately it began increasing the interest rates which delighted the banks. It began using the Pakistan Investment Bonds and treasury bills for that, but very cautiously. But it has no effect on inflation, and the governor of the Bank Dr Ishrat Husain then said the corrective should come from the supply side — by increasing the supplies to match the rising money supply. Which began with the import of wheat and then of sugar. While wheat prices did stabilize, the sugar price went on rising as the millowners directly or through proxies imported sugar and pushed up prices.

Then, vegetable prices as well as those of meat shot up and kept on rising. Pakistan then decided to import kitchen items in short supply or in greater demand from India. The items included onions, tomatoes, garlic and meat, frozen and live animals. Breaking with tradition such items were allowed to come by road. And quarantine restrictions for the animals were relaxed. To make these items cheaper, duty was done away with as also, later, the withholding tax of six per cent.

Yet, the prices of such items did not come down, while the restaurant owners bought the frozen meat to make large profits. Prices did not come down for many days as the importers were also the wholesale vegetable merchants. They were determined to keep the prices up.

They argued that after live animals came in plenty and for long, the meat prices would come down. But the real objective was to discourage such items coming from India on a regular basis so that they can make larger profits on their own products. They succeeded in their objective. Anyway, Karachi did not have the benefit of the vegetables and meat imported from India.

In spite of the waste of precious foreign exchange, the same old monopolistic merchants made gains and people did not share these gains.

Now Ramzan will begin in the first week of October. It is the month of abstinence for the faithful, but for the profiteers it is the season for excessive indulgence, reaching its climax on Eid day when tomatoes usually sell for Rs. 100 a kilo or more and garlic and ginger at far higher prices, along with lemon.

The Sindh government officials concerned with Ramzan prices are holding informal meetings. They have prepared a Price and Profiteering Control Ordinance, Sindh 2005, to check undue price rise. And the market leaders are laughing at it. In the past such price check measures had failed miserably after some cases had been filed and a few of them arrested. So the new ordinance may not produce better results as the market men know they are controlling the market and the supplies.

The official policy is to let the free market prevail and not enforce price controls. The ultimate tool of flooding the market with imports of items in short supply has been used after they had been exempted from duty and withholding tax and the those official efforts have not been a success.

The government does not want to become a distributor by itself or pick and choose among the sellers to distribute such items in short supply. What we have here is not a private sector but a profiteering sector who will have its own way at any cost. And that has exposed the inefficacy of the government.

If the government is ineffective with the ill-organised vegetable traders, how well is it doing with the chiefs of the organized sectors like sugar mills and the cement manufacturers. The sugar mill chiefs have disappointed the government and the consumers time and again. Importing sugar only helps them make more money through the import of raw sugar or the refined product. The cement manufacturers are even stronger as they stand firm whenever necessary.

The industries secretary says the government had three meetings with the cement makers to bring down the high prices; but they refused to budge. The government wants to bring cement prices down not only to lower the cost of house-building but also to prevent the cost of government projects under construction from shooting up. Large projects like big dams will cost far more as cement prices are too high and keep moving up.

But the cement makers have a different story to tell. They say the price of furnace oil have gone up, power rates have risen and gas rates have gone up from Rs 138 to Rs. 240 for a million BTU. Coal prices, imported and local, have gone up, and yet price of cement had come down from Rs. 330 for a 50 kg bag before the budget to Rs. 250 to 270 bag. And yet they are ready to sell at the same price through the utility stores or fair price shops if the government would open them.

The provincial governments too had raised the prices of lime stone, clay and gypsum by 400 per cent. The demand in the country now is 8,500,999 tonnes and yet they were producing 9,50,000 tonnes. The surplus is with the hoarders and price manipulators.

The consumer is lost between the insistence of the government and the obduracy of the cementmaker and have to pay too heavily for their cement.

If in such a situation the import bill rises by 28 billion dollars the businessmen are the gainers for it and the country and the consumers are the losers. And yet business will expand. The Chinese ambassador to Pakistan says trade between China and Pakistan will rise to double its volume soon following the liberalisation of trade on both sides.

And Afghan officials say that trade between their country and Pakistan can rise from a billion dollars now to two billion. That would mean more cement or other goods reaching Afghanistan from Pakistan, including live animals which are in short supply here and we have to import them from India.

How to stop civil war

BETWEEN the idea and the reality falls the shadow of occupation. Whatever the parliamentarians in Iraq do to try to prevent total meltdown, their efforts are compromised by the fact that their power grows from the barrel of someone else’s gun.

When George Bush picked up the phone last week to urge the negotiators to sign the constitution, he reminded Iraqis that their representatives — though elected — remain the administrators of his protectorate. While US and British troops stay in Iraq, no government there can make an undisputed claim to legitimacy. Nothing can be resolved in that country until our armies leave.

This is by no means the only problem confronting the people who drafted Iraq’s constitution. The refusal by the Shias and the Kurds to make serious compromises on federalism, which threatens to deprive the central, Sunni-dominated areas of oil revenues, leaves the Sunnis with little choice but to reject the agreement in October’s referendum. The result could be civil war. Can anything be done? It might be too late. But it seems to me that the transitional assembly has one last throw of the dice. This is to abandon the constitution it has signed, and Bush’s self-serving timetable, and start again with a different democratic design.

The problem with the way the constitution was produced is the problem afflicting almost all the world’s democratic processes. The deliberations were back to front. First the members of the constitutional committee, shut inside the green zone, argue over every dot and comma; then they present the whole thing (25 pages in English translation) to the people for a yes or no answer. The question and the answer are meaningless.

All politically conscious people, having particular interests and knowing that perfection in politics is impossible, will, on reading a complex document like this, see that it is good in some places and bad in others. They might recognise some articles as being bad for them but good for society as a whole; they might recognise others as being good or bad for almost everyone. What then does yes or no mean?

Let me be more precise. How, for example, could anyone agree with both these statements, from articles 2 and 19 respectively? “Islam is the official religion of the state and is a basic source of legislation: no law can be passed that contradicts the undisputed rules of Islam.” (In other words, the supreme authority in law is God.) “The judiciary is independent, with no power above it other than the law.”

Or both these, from articles 14 and 148? “Iraqis are equal before the law without discrimination because of sex, ethnicity, nationality, origin, colour, religion, sect, belief, opinion or social or economic status”; “Members of the presidential council must ... have left the dissolved party [the Ba’ath] at least 10 years before its fall if they were members in it.”

Faced with such contradictions, no thoughtful elector can wholly endorse or reject this document. Of course, this impossible choice is what we would have confronted (but at 10 times the length and a hundred times the complexity) had we been asked to vote on the European constitution. The yes or no question put to us would have been just as stupid, and just as stupefying.

It treats us like idiots and — because we cannot refine our responses — reduces us to idiots. But while it would have merely enhanced our sense of alienation from the European project, for the Iraqis the meaninglessness of the question could be a matter of life and death. If there is not a widespread sense of public ownership of the country’s political processes, and a widespread sense that political differences can be meaningfully resolved by democratic means, this empowers those who seek to resolve them otherwise.

Last week George Bush compared the drafting process in Baghdad to the construction of the American constitution. If they believe that the comparison commends itself to the people of Iraq, they are plainly even more out of touch than I thought. But it should also be obvious that we now live in more sceptical times. When the US constitution was drafted, representative democracy was a radical and thrilling idea. Now it is an object of suspicion and even contempt, as people all over the world recognise that it allows us to change the management but not the firm. And one of the factors that have done most to engender public scepticism is the meaninglessness of the only questions we are ever asked. I read Labour party’s manifesto before the last election and found good and bad in it. But whether I voted for or against, I had no means to explain what I liked and what I didn’t.

Does it require much imagination to see the link between our choice of meaningless absolutes and the Manichean worldview our leaders have evolved? We must decide at elections whether they are right or wrong — about everything. Should we then be surprised when they start talking about good and evil, friend and foe, being with them or against them?

Almost two years ago Troy Davis, a democracy-engineering consultant, pointed out that if a constitutional process in Iraq was to engender trust and national commitment, it had to “promote a culture of democratic debate”. Like Professor Vivian Hart, of the University of Sussex, he argued that it should draw on the experiences of Nicaragua in 1986, where 100,000 people took part in townhall meetings reviewing the draft constitution, and of South Africa, where the public made two million submissions to the drafting process.

In both cases, the sense of public ownership this fostered accelerated the process of reconciliation. Not only is your own voice heard in these public discussions, you also hear others. Hearing them, you are confronted with the need for a compromise.

But when negotiations are confined to the green zone’s black box, the Iraqis have no sense that the process belongs to them. Because they are not asked to participate, they are not asked to understand where other people’s interests lie and how they might be accommodated.

And when the whole thing goes belly up, it will be someone else’s responsibility. If Iraq falls apart over the next couple of years, it would not be unfair, among other factors, to blame the fact that Davis and Hart were ignored. For the people who designed Iraq’s democratic processes, history stopped in 1787.

Deliberative democracy is not a panacea. You can have fake participatory processes just as you can have fake representative ones. But it is hard to see why representation cannot be tempered by participation. Why should we be forbidden to choose policies, rather than just parties or entire texts? Can we not be trusted? If not, then what is the point of elections? The age of purely representative democracy is surely over. It is time the people had their say. —Dawn/Guardian Service

Carbon trading no solution

SO the cat’s out of the bag: one reason why China and India were invited to the G8 summit in Scotland recently was not the recognition that they (especially India) had become major economic players on the world market but that President Bush was roping them into a “regional pact” on climate change.

Bush, whom environmentalists are fond of dubbing “the world’s dirtiest man” for his obdurate stand against the Kyoto Protocol, which imposes modest restrictions on emissions of greenhouse gases which warm the earth’s atmosphere, has made no secret of his mission to include the world’s two most populous countries in such a treaty outside the UN multilateral system.

Australia’s environment minister, Ian Campbell, has broken the news, followed by Robert Zoellick, US deputy secretary of state. While Bush has been pilloried throughout the world for opposing the Kyoto Protocol, Australia has toed his line. It has vast reserves of coal and any restrictions on emissions of carbon dioxide, the biggest global polluter, would affect its economy badly. Both the US and Australia believe that the protocol, which came into effect this February, and requires industrialized countries to reduce their greenhouse gas emissions by 5.2 per cent below their 1990 levels between 2008 and 2012, does not address the problem.

However, they are ignoring the environmental and political realities of the world. While it would be wrong to blame the recent floods in western India on climate change directly, there is hardly any doubt that such occurrences are growing more common throughout the world: weather patterns are being disrupted by the unprecedented build-up of industrial gases in the atmosphere.

The US is making heavy weather of the fact that the six countries combined “represent more than half of the world’s economy, population and energy use, and also produce half of the world’s greenhouse gas emissions”. It will be called the Asia-Pacific Partnership for Clean Development and Climate and apart from the two Asian giants, the US and Australia, Japan and South Korea will come on board. South Korea is another major coal producer and exporter and thus, like Australia, has a major stake in the way the world moves ahead on reducing fossil fuel consumption, or at least restricting its emissions. According to Campbell, the objective is to “expand the energy the world consumes and reduce the emissions”.

This sounds suspiciously like a (global) Faustian bargain: if the rest of the industrialized world believes that it can continue to consume energy at current rates — the US alone accounts for a quarter of greenhouse gases — even if emissions per head are reduced globally, the load on the atmosphere will put intolerable limits on climate as populations increase, with consequences that are already alarmingly apparent. How much more evidence does President Bush and others of his ilk need to remind them of the havoc that the cost — in economic, social and environmental terms — of changes in weather patterns is playing?

The new pact will require the “development of new technologies and deployment of them within developing countries”. The US has listed these as energy efficiency, treatment of methane, rural energy, clean coal, civilian nuclear power, advanced transportation, liquefied natural gas, geothermal building and home construction/ operation, bio-energy, agriculture/forestry, and hydropower/ wind power/solar power. Here lies the rub. Instead of falling in line with the Kyoto Protocol and reducing emissions, this partnership wants to take a “business-as-usual” approach and solve the global warming crisis through technology, rather than a global law.

Bush’s proximity to the US oil lobby, as well as to the Saudi Arabian oligarchs, is well known. He had earlier stated that “US lifestyles are not negotiable”, implying not only that Americans are accustomed to profligate consumption of energy, particularly with their gas-guzzling automobiles, but that he was not prepared to cut jobs by investing to make industry more energy-efficient.

Instead, he has announced his own plan to reduce the “intensity” of greenhouse gases (the proportion of energy in a unit of output) — not overall emissions — by 18 per cent over the next decade. However, since the US economy will grow by 30 per cent over this period, it is evident that it will contaminate the atmosphere more, rather than less, in future. The demand for electricity has risen by 45 per cent over the last two decades in the US.

All the world’s technology cannot cleanse the pollutants if energy consumption continues to rise inexorably: the only solution is to impose global sanctions and ask every “earthizen” to consume up to a certain limit, after which he or she pays a very steep price. Indeed, the neo-liberal economies of the world never tire of reminding recalcitrant nations like India that they ought to adopt market principles as a sine qua non of growth.

If this was so, every true free marketeer would call for the enforcement of the “polluter pays” principle. A carbon tax of $50 per tonne imposed on industrialized countries first, and then on developing countries after a suitable lag would, according to the Worldwatch Institute in Washington, not only rid the globe of greenhouse gases but provide sufficient resources to rid it of poverty. The prospect of having China and India as virtually unlimited markets to sell environmental goods and services, albeit at very attractive terms initially, is too tempting for the US and its partners. Zoellick has openly admitted that the new pact focused on “practical efforts to create new investment opportunities and remove barriers to help each country meet nationally designed strategies and address the long-term challenge of climate change”.

In all likelihood, there may even be a system of credits, such has already been ushered in with the Clean Development Mechanism under the Kyoto Protocol and propagated by the World Bank and others. Under these “carbon credits” and “emissions trading” arrangements, the US, for instance, can pay India and China to install electrostatic precipitators and other devices in their thermal power stations but get the credit for the reduction in global emissions that this would yield.

China has already fallen for such sops; Indian officials and business interests are anxious to follow suit. However, the earth’s environment does not observe such free market principles. The load on the atmosphere is already too heavy to bear and nothing less than a reduction in this burden will suffice. If India and China, with the active connivance of the US and a few other industrial nations, believe that they can take advantage of the global crisis by getting other countries to pay for their clean-up, they are making a grave mistake.

The Clean Development Mechanism is actually a short-sighted policy, because it now costs an average of only around $3 per tonne of carbon saved — for instance by planting trees in the South to absorb excess carbon dioxide emissions. However, as developing countries’ energy consumption rises, they will eventually be forced to cut emissions too and the cost of doing so will rise several times in future.

Where will these countries obtain the funds to do this without cutting down on the use of energy? The great danger is that these countries will sell out cheap in the near future, but pay a high price later on. Under the Montreal Protocol, a fund was created to pay developing countries to switch to CFC-free technologies but it was voluntary and falls far short of their needs. A decade ago, India alone was estimated to require something of the order of $3 billion for such a switch-over.

The writer is a former resident editor of the Times of India in Mumbai.

Health and herring

THE Dutch have a proverb along the lines that “if the herring is around, the doctor is far away”. The claimed health-giving properties of this oily fish would have come as no surprise to Hendrikje van Andel-Schipper who has just died in her sleep aged 115, the oldest recorded person in the world. Mrs Van Andel-Schipper, a former needlework teacher who was born on June 29 1890, believed that a daily helping of herring had helped her lead a long and healthy life.

Herring is a versatile fish and is particularly popular in Holland. It can be eaten raw, pickled, cooked or smoked, whether split as a kipper or eaten whole as a bloater. The smell of a smoked herring is so strong that the fish is sometimes used to create a false scent to induce hunting dogs to lose a trail — hence the red herring.

They are also eaten young in the form of whitebait. Herring have been fished commercially for over 2,000 years and in Britain have provided hundreds of thousands of jobs from Penzance to Stornoway. — Los Angeles Times