Tightened monetary policy

WHILE reiterating its dual responsibility to ensure price stability and promote economic growth, the State Bank of Pakistan has further tightened its monetary stance, initiated in early 2005, to contain inflationary pressures. It says it will continue to be vigilant, monitoring the risks to the economy, and reaffirms that it would not hesitate to modify its policies to protect long-term growth prospects. Already, it has demonstrated its flexible approach by providing incentives to priority sectors like textiles and exports. In its latest monetary policy statement (MPS) issued on Saturday, it has raised its discount rate (at which the banks borrow for three days from the central bank) by 0.5 per cent to 9.5 per cent. A week earlier, the requirements of bank cash reserves and statutory liquid had been increased. By reducing liquidity with banks and raising interest rates, the State Bank wants to ensure better return on bank deposits with a simultaneous improvement in the quality of credit. Its squeeze on credit is aimed at containing inflation at 6.5 per cent, a task not made any easier by the targeted economic growth at seven per cent and inflation currently close to eight per cent.

To quote the State Bank, “the monetary environment is becoming increasingly challenging.” The aggregate domestic demand that has spurred economic growth and resulted in high inflation is expected to be fuelled by expansionary fiscal policy. The mismatch between the surging demand of goods and services and the country’s productive capacity will further widen the current account deficit this year. The tightened monetary policy is designed to contain aggregate domestic demand that has also pushed imports to unprecedented levels. Without large non-debt inflows, the State Bank feels that the situation would lead to a “vicious cycle of debt creation, exchange rate depreciation and inflation.” At this point of time, the SBP governor has ruled out any depreciation of the exchange rate barring the moderate weakening of the rupee against the dollar in recent months. Any significant depreciation of the exchange rate may boost exports in the short-term but would prove counter-productive in the long run by raising the cost of investment and of doing business.

Concerned over fiscal risks to the monetary situation heightened by heavy bank borrowings to finance budget deficit, the State Bank wants the government to focus on a right blend of non-inflationary debts. The SBP has advised the government to cut on bank borrowings and access non-bank-based sources like Pakistan Investment Bonds and long-term national savings certificates. The government needs to consider these recommendations to maintain the growth momentum, but in case of its failure to so, the central bank should exercise its authority to check this undesirable trend. After all, the monetary policy is the exclusive prerogative of the central bank. And as the State Bank has indicated, “the balance in risks has tilted towards managing domestic and external imbalances effectively and curbing inflationary pressures”. But it also needs to be recognised that monetary policy has its own limits in achieving both price stability and economic growth. Much more depends on sound development strategies to boost investment and production and overcome emerging imbalances. Only then can the fiscal and monetary policies be harnessed to spur economic development. Without enhancing the savings rates and boosting production to reduce imports, risks to the economy would continue to persist.

Second Qana massacre

GRAPPLING with the aftermath of yet another Israeli crime against his people, the Lebanese prime minister, Mr Fouad Siniora, snubbed US Secretary of State Condoleezza Rice on Sunday by telling her not to come to Beirut, because his government would “not negotiate until the Israeli war stops shedding the blood of innocent people.” His reaction came after Israel carried out its second massacre in 10 years at Qana. In 1996, Israel had bombarded the refugee camp at Qana, killing 106 people. On Sunday, alleging that Hezbollah had fired rockets from Qana, the Israeli air force destroyed a Qana building, knowing full well that there were mostly women and children in it. The result was the death of at least 56 innocent people, including 37 children. Yet neither President George Bush nor his secretary of state chose to condemn this criminal act. All Mr Bush said was that it was one of those “tragic occasions” when innocent people were killed, while Ms Rice tried to dilute the tragedy by saying it was “awful”, and the White House asked Israel to take “utmost care” to avoid civilian casualties. Even the Security Council failed to condemn the massacre and merely called for an end to violence.

Now Ms Rice is going from capital to capital, giving the impression as if she is very busy working for peace; she is in no hurry at all for a ceasefire, and must have nodded to Israeli Prime Minister Ehud Olmert when he called the Qana massacre a “difficult incident”. This is a remorseless way of describing a massacre. He made it plain that he would broaden the war “without hesitation” if necessary. Far more correct and courageous is Mr Siniora’s stand, for he praised Hezbollah leader Sheikh Hassan Nasrallah for his sacrifices and said that the resistance group would be justified in retaliating as long as aggression against his country continued. In a TV broadcast, the guerilla group said that the massacre at Qana would not go unavenged. One can expect now more innocent blood to flow, because in deference to Israeli wishes the US does not want an end to the war.

Rain havoc in Karachi

COMPLETE collapse was inevitable in a city where the infrastructure barely copes even at the best of times. The heavy downpour on Sunday and Monday, predicted two days in advance by the Met office, brought Karachi to a standstill despite official assertions that the city was fully prepared for the monsoon season. The city government claimed in recent weeks that drains and sewers had been cleaned and blockages removed. By Monday morning, however, large sections of major roads lay submerged, with one thoroughfare becoming so unsafe for motorists that it had to be cordoned off by the traffic police. Broken-down vehicles littered the streets while pedestrians waded through noxious pools of filth and water. Full to the brim with rainwater, the KPT underpass in Clifton resembled a mini-canal with several feet-high water trapped there, belying tall claims about the mega project’s sophisticated drainage system. Meanwhile, the performance of the KESC was even more dismal than expected, with most parts of Karachi deprived of power for hours on end from Sunday afternoon onwards. So far, two days of rain have reportedly caused at least six deaths.

Karachi’s experience is by no means unique. In recent days, other cities and towns have seen how the blessing of rain can turn into a nightmare in the absence of an adequate drainage and sewerage system. Nor is this a one-off phenomenon — it happens year after year but it seems that no lessons are learned. Even if they are recognised, deficiencies in the infrastructure usually remain uncorrected in this endless cycle of civic mismanagement. Besides damage control, attention ought also to be given to preventive measures. Some of the massive projects initiated by the Karachi city government are of vital importance but they must not be the sole focus. There can be no excuse for failing to upgrade and maintain the existing infrastructure.

Lebanon’s hour of agony

Sunday July 23

TO Sidon. Ed Cody has found a cool, 120-mile-an-hour driver called Hassan — he has a black Mercedes which I nickname “Death Car” (because that will be the fate of anyone who gets in our way) and we zip down the coast road and turn east into the hills at Naameh, where the Israelis have just blown the bridge.

Thirty years ago, Cody was an Associated Press correspondent in Beirut and taught me how to cover wars. Cody is from Oregon, a slim, brilliant, highly subversive journalist who is now Beijing correspondent for the Washington Post. A great guy to travel with, eyes sharp for F-16s, brave without being a poseur, fluent in Arabic, he understands the dirty war we are watching and thrives on cynicism.

“Look,” he says, pointing to a blown-up highway interchange. “It’s a terrorist bridge! And if you take the road to Zahle, you’ll find a burned out terrorist flour and grain lorry!” If the world became a better place, I fear Cody would contemplate suicide.

Sidon is full of Shia refugees, and I hunt down Ghena Hariri, daughter of Sidon’s MP and niece of murdered ex-prime minister Rafiq Hariri. She is a Georgetown graduate and reckons three more Hezbollah buildings will be bombed in her city. The Israelis have just bombed a Hezbollah mosque. Cody and I mosey over to take a look at the crushed cupola, and the local Lebanese “Squad 112” — a kind of paramilitary police — arrive to shoo us away.

We race back to Beirut, joining the coastal highway south of the city. It is a bleak, desolate, empty road and we watch the sky, detouring round the airport, the air filled with smoke from burning oil tanks and the vibration of another massive Israeli bomb on the southern suburbs just as we pass.

Monday July 24

To southern Lebanon on a humanitarian convoy. No problems as far as Zahle in the Beka’a — though we pass Cody’s “terrorist” flour truck, a missile hole through the cab door — and then turn south towards Lake Qaraaoun. A bright, wonderful day of sun and fluffy clouds, and then the scream of high-flying jets. We watch the skies again. I’m becoming an expert on light and cumulus clouds.

In the middle of a field of tomatoes, I see a London bus. I turn to the driver. “Isn’t that a London bus?” I ask, like the man who sees the sheep in a tree in ‘Monty Python’. “Yes, that’s a London bus.” It is. It’s a great bright red Routemaster double decker. In the Beka’a Valley. In Lebanon. During the war.

Seventeen miles south and the road is blown up, craters in the middle and narrow tracks on the edge for our vehicles to pass. One Israeli bomb has blown away most of the road above a 60ft chasm and it reminds me of that scene in ‘North West Frontier’ where Kenneth More has to manoeuvre a steam locomotive over a blown-up railway bridge, on which the tracks are still connected but there’s nothing underneath. More turns to Lauren Bacall and says: “Of course, it’s one of my hobbies, driving trains over broken railway bridges.”

We inch forward along the narrow section of road and the stones spit out beneath our wheels. The vehicle starts to lean to the right and I lean to the left. So does the driver. Then we are across and turn our heads to see how the second driver copes. North of Khiam, I can see fires burning in the forests of northern Israel and smoke drifting from Metullah, and hear the thump of shells into Lebanon. Great weather. Pity about the war.

Tuesday July 25

I prowl around Marjayoun, the Christian town wedged between two slices of Hezbollah territory. This was the headquarters of Israel’s brutal South Lebanese Army proxy militia, and there are still a lot of ex-SLA men here, all with Lebanese mobile phones, but a few of them, I suspect, with Israeli ones. No shells fall on Marjayoun — not yet — so the locals gather at Rashed’s Restaurant and watch the war. You can sit on the ridge and hear tank fire, Katyusha fire, bombs from jets and bombs from helicopters. Far across the valley, beside the old fort at Khiam, there is a UN post where four unarmed UN observers are watching the battle at first hand, reporting each shell burst.

Wednesday July 26

Indian UN soldiers bring what is left of the four observers to the rundown hospital in Marjayoun. All day they had been reporting Israeli shellfire creeping closer to their clearly marked position. An officer in the UN’s headquarters at Naqoura phoned the Israelis 10 times to warn them of their fall of shot, and 10 times he had been promised that no more shells would fall close to the Khiam post.

But the four soldiers did not run away — as the Israelis presumably hoped they would — and so yesterday (July 25) evening an Israeli aircraft flew down and fired a missile directly into their UN position, tearing the four brave men to pieces and flattening their building. I notice that they are brought to the hospital in unwieldy black plastic bags, apparently decapitated. One of the Indian soldiers is wearing a turban, painted the same pale blue as the UN flag.

The schools of the region are now crammed with refugees, white flags on the roofs. I go to a classroom where 15 Shia families are squatting on the floor. The lavatories are blocked, the place stinks of urine. “What are you doing to us?” a dark-haired man with a heavily lined face asks me quietly. How should I reply? I just remain silent and say “Haram” in Arabic. It means shame or pity, depending on the context, which I am happy to leave vague.

Thursday July 27

I sit with a French friend on a small hill, looking across southern Lebanon at dusk, watching aircraft swooping like eagles on to patches of scrub and blasting rocks and trees into the air. To our left, Israeli artillery is ranged on to a house this side of Khiam. The first shell bursts in a bubble of flame and there is a double report, then a barrage of fire consumes the house and we can see bits of it high in the air, then more bubbles and eventually a grey cloud of smoke covers the wreckage.

All over southern Lebanon, the dead are sandwiched between the floors of bombed houses.

To Nabatea at lunchtime, a few shops bravely open amid the rubble of houses on the main road, a market blasted across the fields and then, just by Arab Selim, a plane puts a bomb on the bridge in front of our vehicle and we beat a hasty retreat from this unpleasant ambuscade and return to the sanctuaire of our little house on the hill.

Friday July 28

At 3am, a huge bombardment starts across the valley over Beaufort Castle, the massive Crusader keep to the west. It looms over us as 46 shells ripple across the next-door village of Arnoun. My mobile phone rings. An American journalist is walking south of Tibnin towards the Hezbollah-Israeli battle at Bint Jbail — a wise precaution because all cars are now prey to Israel’s eagles — and has found two wounded Druze men lying by the road. One of them cannot stand. Can I help? I am 15 miles away. “Can I tell them they will be rescued?” Don’t lie to them, I say. Tell them you will try to get help. I promise to call the Red Cross.

I phone Hisham Hassan at the ICRC in Beirut and tell him the precise location. Both men are lying by a smashed roadside stall with an orange flag in the ground, a kilometre past a road sign which says “Welcome to Beit Yahoun” and next to a huge bomb crater. Hisham promises to call the Tibnin Red Cross ambulance centre. Ten minutes later, I get a text message: “Red Cross on the way.” Angels from heaven.

I start my way back to Beirut on another convoy, grinding back over the same dangerous roads and past the same bomb craters. There are new ones, and a man shouts that we must detour down a dirt track. “Big rocket on road,” he says, and that’s good enough for me. We trail past an old, tree-shrouded cemetery. Three hours later, we stop for sandwiches in a Christian town, among people who traditionally despise Hezbollah. I find that they are all watching Hezbollah’s station, and when I talk to them, an old man says he believes Hezbollah tells the truth.

Saturday July 29

Home. I shower and sleep in my own bed and hear the wash of the Mediterranean on the rocks below my window. I receive a call from a Turkish journalist to talk about the 1915 Armenian genocide and do an interview with a New Zealand television crew who are about to set off for southern Lebanon with “TV” written in giant silver letters on the roof of the car. I don’t think it will help them.

A call from DHL. Proofs of the paperback edition of my book have arrived from London. Someone drove them and DHL’s other parcels from Amman to Damascus and then — beneath the jets — across the Beka’a to Beirut. I get a bill for $30 for the extra risks involved in the freight transit. Then go through my notes of the week for this diary. I find that my handwriting briefly collapsed after the air attack on Thursday. I was so frightened that I could hardly write.

I sit on the balcony and read Siegfried Sassoon. Cody also reads to calm himself in war. But Cody reads Verlaine. — (c) The Independent