Private sector in the lead

THIS series of articles is concerned with identifying the “positives” in the Pakistani economy. I defined the positives to mean those features in the economic landscape on which the country could build a durable economic structure if the right set of public policies is pursued. In this context, I kept the discussion of the resurgent private sector to the last. This was for a reason. The other positives are well known and many of them have been analysed, some of them in considerable detail.

However, the increasing importance of the role of the private sector has not received the attention it deserves. This needs to be done. We need to discuss how the private sector has re-emerged as the leader in the Pakistani economy, the role it can play, and the constraints that need to be put in place so that it does not damage social development and the physical environment.

This is not the first time the private sector has been assigned a position of importance in the Pakistani economy. It helped with the very rapid industrialisation of the country following the unexpected cessation of trade with India in 1949. In fact, if a number of entrepreneurs had not stepped forward and provided the Pakistani consumers with the consumer goods they desperately needed, Pakistan may well have been forced back into the waiting arms of India whose leaders had opposed the creation of a separate Muslim state in South Asia. The private sector was once again at the forefront of the development effort during the Ayub Khan period when there was consensus among economists that Pakistan was on the verge of a Rostovian take-off.

The private sector was, however, eclipsed by the aggressive socialist policies followed by President/Prime Minister Zulfikar Ali Bhutto. During that period, the state was put on the commanding heights of the economy. According to this line of thinking, the private sector could not be trusted to provide social good; Adam Smith’s “hidden hand” remained just that — hidden. It did not appear to guide national resources towards the provision of basic needs to those who were disadvantaged.

This approach continued to guide public policy even after Bhutto’s removal from office by the military. For many years, the economy was under the control of Ghulam Ishaq Khan who was deeply suspicious of the private sector and the goals that private entrepreneurs wished to pursue. He believed that industrialisation and economic modernisation could only be achieved if the state got directly involved in managing the economy. Without the state’s engagement, an economic system led by the private sector could cause considerable social stress. This way of thinking began to change after almost two decades, especially with the arrival of Mian Nawaz Sharif in the corridors of power in Islamabad.

How did Islamabad’s policymakers deliver the economy back to the private sector? As discussed in this space last week, the process was begun in 1991 by the first administration of Prime Minister Nawaz Sharif. The 1990s is often referred to as the lost decade. This is one of the themes that runs through President Pervez Musharraf’s recently published memoir, In the Line of Fire. I have also contributed to this line of thinking in the columns I have written for this newspaper. But deeper reflection leads me to revise my views and arrive at a somewhat different conclusion.

Some of the reforms that rescued Pakistan from economic sluggishness in the early 2000s have their roots in the early 1990s. This is certainly the case for bringing the private sector back as the leading force in the economy. The first Nawaz administration used privatisation to revitalise the private sector and to reduce the presence of the state in the economy. It also brought professional management into the banking sector while large commercial banks were being prepared for privatisation. Unfortunately, by dismissing the Sharif administration in 1993, President Ghulam Ishaq Khan interrupted the process. As was to happen again and again in the 1990s, there was no continuity in policymaking since none of the elected governments were allowed to complete their tenure.

What would have happened had Nawaz Sharif been allowed to complete his term, had he and his team been allowed to stay in office until 1995 when he would have been required to go back to the electorate and compete with the opposition to obtain another term?

This is obviously one of the “what if...?” questions I often raise in my writings on Pakistan. I do that not to be wistful about the good things that might have happened if the process of positive change had not been interrupted, sometimes by the acts of men and sometimes by events that were not under the control of people. The dismissal of Prime Minister Nawaz Sharif by President Ghulam Ishaq Khan belonged to the former category of events, a change in the direction of Pakistan’s history that resulted from human action.

Once again a powerful political leader had acted to disrupt the march of events in the belief that his action was good for the country and the people. This was the second time Ghulam Ishaq Khan had so acted, using the extraordinary amount of power that he had inherited from the changes made in the Constitution by Gen Ziaul Haq. This action was to have profound consequences for the evolution of Pakistan’s political system and the development of its economy. It was also a messy dismissal; for the first time in Pakistan’s history the Supreme Court refused to validate the action of the head of the state and ordered the return of the prime minister to office. But the president was not willing to work with Sharif; he tried to undermine his authority in many different ways. This further eroded the confidence of the people and, even more important, the confidence of politicians in the political process.

To begin with, it was clear to Nawaz Sharif that if he ever returned to political power he had to cleanse the 1973 Constitution of the blemishes brought into it by his own mentor, Ziaul Haq.

The most egregious of this was the power it gave the president to dismiss an elected prime minister on charges of corruption and mismanagement. This extraordinary power was used four times, once by Ziaul Haq himself, twice by Ghulam Ishaq Khan, and once by Farooq Leghari. Nawaz Sharif did have another opportunity when he became prime minister in February 1997 and went to work to consolidate his powers.

Unlike the case in his previous tenure, his priority this time was on making changes in the political structure. He left economic matters on the sidelines. He undertook to rewrite the Constitution. Not only that, he concentrated a great deal of power in his hands and in the process brought down upon himself the wrath of the military.

Had Nawaz Sharif remained in place from 1993 to 1995, there is little doubt that he and his associates would have followed on the reforms they had introduced after assuming office. The process of privatisation would have gained momentum, the private sector would have reacted by increasing investment in the real sector of the economy, the Pakistani diasporas would have started to put their savings in the economy of the homeland, relations with India may also have improved along with more trade with that rapidly growing economy, the regulatory system may also have been provided more teeth to check the energies of the newly empowered private sector.

Would Nawaz Sharif also have checked himself and constrained the tendency to use public funds for large projects whose benefits to the economy were not carefully worked out? Would he have done something to stop corruption from deeply penetrating the upper echelons of his administration and his party? Would he have taken steps to bring Pakistan’s external accounts into balance? Once secure in his place he may have moved in the right direction. However, not doing these things was among the reason for his loss of power.

The perceived economic failures of the Sharif government motivated the interim government. It was in office for three months following the prime minister’s dismissal and it introduced a programme of structural reforms to deal with some of the problems it thought the country faced. As adviser to the caretaker prime minister, Moeen Qureshi, I had a large role in crafting the programme.

We put emphasis on institution-building to constrain the behaviour of those who held power, both politicians and bureaucrats. We published a list of taxpayers and the amounts they had paid into the government’s coffers. We also published a list of the people who had defaulted on loans they had obtained from the banking system. These lists were made public to induce a sense of responsibility on the part of those who had used economic power or access to those in positions of power for personal advantage.

Giving more powers to the State Bank of Pakistan was an important part of our effort. We also identified the sources of growth for the Pakistani economy and promulgated a number of reforms that would have helped to attract the private sector to these areas. We opened the government to greater access by citizens so that they could understand the actions the government was taking. And, we put on hold the expensive projects that the Sharif government had launched without estimating their economic and social rewards.

These reforms were not meant to turn the country into a different direction from the one pursued by the previous government. They, in fact, built upon some of the actions the political administration had taken in the short time it had spent in office. Their main aim was to take out the wrinkles that had appeared in the process of economic management largely on account of the sometimes impetuous behaviour of the dismissed prime minister. The structural reforms introduced by us continued the pattern established by the Sharif government. It was our expectation that by undertaking these reforms we would be able to establish an environment in which the government that took office after the interim period would function.

The expectation that the process of reforms initiated by the Nawaz Sharif administration and continued by the interim government in the 1991-93 period would not be interrupted once elections were held and a new government took office came to nothing. An analysis of the period that followed from the perspective of the development of the private sector will be the subject for next week.

As Hezbollah quits Lebanese cabinet

THE Shiites, the largest community in Lebanon, are no longer represented in the Lebanese government. It could be just part of Lebanon’s bloody-minded politics — or it could be a most dangerous moment in the history of this tragic country.

At the weekend, the Hezbollah and the Amal movement walked out of the Lebanese body-politic, splitting apart the gentle, utterly false, brilliantly conceived (by the French, of course) confessional system that binds this tortured nation together. There will be street demonstrations by Hezbollah — so Hezbollah says and does not say — to demand a government of “national unity” which means that Sayed Hassan Nasrallah, winner of the so-called “divine victory” against Israel this summer, insists on another pro-Syrian administration in Lebanon.

For a world which has decided to support Lebanon’s “democracy”, this is grave news. The resignation of six cabinet ministers (two from Hezbollah, three from Amal and a supporter of President Lahoud) cannot bring down the government (which needs eight ministers to resign in order to destroy it) but in a confessional society it means that the largest religious community is no longer officially represented in government decision-making. The Hezbollah are Syria’s card here, the lung through which Iran breathes, and they are warning of street demonstrations which could tear the country apart.

The stakes? The international tribunal which is supposed to try those responsible for the murder of ex-prime minister Rafiq Hariri on February 14 last year, and the possibility that the national ‘unity’ which Hezbollah demands would create a cabinet which could become, once more, Syria’s creature in Lebanon.

It’s not that simple, of course — nothing in Lebanon is — but it’s enough to frighten the democratically-elected cabinet of Fouad Siniora, Hariri’s friend and confidant, and — even more — the Americans who supported ‘democracy’ in Lebanon and then cared nothing for it during this summer’s ferocious Israeli bombardment of the country.

What prompted this extraordinary crisis at a time when thousands of foreign troops are still pouring into Lebanon to secure a peace which looks ever more self-destructive by the day? Clearly, the tribunal is one element. On Friday, the UN presented Mr Siniora with the terms of the court which would try suspects in the Hariri murder, men who will likely turn out to be intelligence agents - both Lebanese and Syrian - of President Bashar Assad’s regime in Damascus. Lebanese President Emile Lahoud, the most faithful friend of Mr Assad, said he needed further time to study the UN recommendations.

Samir Geagea, the Christian militia leader who is now a member of parliament but who was kept in an underground dungeon by Syria’s friends for 11 years, launched a bitter attack on the Hezbollah on Saturday for trying to subvert “democracy” in Lebanon, claiming that “there are some who are trying to subvert the international tribunal.” And the Hezbollah guerrilla movement, along with the rival Amal party’s ministers, walked out. Mr Siniora — an economist friend of Hariri and no warlord — said he will not accept the resignations. He is waiting for Nasrallah’s lads to return to the cabinet, well aware that their continued absence — however legal the cabinet remains — will tear the country apart.

The Christians probably account for less than 30 per cent of the Lebanese population and the Sunnis - who largely support them through the leadership of Hariri’s son, Saad — create a majority which the Shiites cannot outnumber. But Syria and Iran — the armourers of the Hezbollah — are waiting to see what the United States will offer them before cooling the Lebanese oven.

If, for example, they receive assurances that the Syrian regime will not be blamed for Hariri’s murder, then the Shiites can be encouraged to return to the government. And these assurances will — although the Americans do not say so — have to include a guarantee that President Assad will not be held personally accountable for the assassination. Syria’s help in ending the insurgency in Iraq will be part of the price.

So will Lebanon again be sacrificed for America’s national interests? The latest UN report on the murder — which was much softer on the Syrian regime than the previous one — may hold the answer.

Marwan Hamadi, the minister of communications, who was himself the victim of an assassination attempt — let no one say Syria was responsible — said that talks could be held to bring the Shiites back into the government.

The Beirut conference between Saad Hariri’s March 14 movement — the date marks the huge pro-democracy rally last year that followed his father’s murder — broke down on Saturday. Mr Hariri’s bloc holds a majority in parliament but formal Christian rebel-general Michel Aoun — whose supporters are already wearying of his electoral alliance with the Hezbollah — says that the cabinet is not representative. He wants three of his loyalists in the government.

Either way, the Christians and the Sunni Muslims of Lebanon are now being torn from their Shiite co-religionists. Rival street protests between Christians and Sunnis on the one hand, and Shiites on the other, can scarcely be pursued when most of the Lebanese army — a reformed force of some integrity — are mostly Shiite. Bad news indeed. — (c) The Independent

Ecological crisis in the offing

RECENTLY, our official information media has been engaged in projecting the positive achievements of President Musharraf’s seven years in power. Compared to the stagnation of the 1990s, there has doubtless been an improvement in the macro-indicators with a perceptible increase in the rate of growth and foreign exchange reserves, a near-doubling of exports accompanied by a welcome increase in foreign direct investment. Forecasts of our becoming another Asian tiger and a regional hub of trade and commerce are not misplaced.

However, warnings are being increasingly sounded about the manner in which the resources of our planet are being depleted, especially water and energy resources. In other respects also, there are perils inherent in the exponential increase in the population without the planning that must go into maintaining a balance between the resources and their use.

The attention not only of environmentalists but also of the entire UN system is being focused on the dangers mankind faces on account of the neglect of the earth as the home of man. Though a comprehensive Kyoto Protocol was signed in 2000 on the environment, with the support of the Clinton administration, the successor administration headed by President George Bush reneged on its commitments mainly out of concern for US commercial interests. Bush’s unilateralist foreign policy, and reliance on power have retarded efforts for better management of the global challenges. Already, some of the consequences of the errors of omission and commission are there for us to see.

The current year was proclaimed as the year of desertification, a threat confronting the livelihood of millions spread over Africa and Asia. The phenomenon of desertification is one facet of global warming, which is the result of the accumulated carbon dioxide emissions over a century of industrialisation, including the rising number of automobiles. The onus for this must lie with the affluent countries. Though the approaching exhaustion of fossil fuels may compel some reforms, the adverse consequences of global warming resulting from earlier neglect are already upon us. And Pakistan is already among the countries and regions most seriously affected.

The global warming process has a catastrophic effect on the capacity of the earth to sustain its growing population. Rising temperatures have an adverse effect on the semi-arid regions that adjoin major deserts, such as those in Africa, South Asia and China. The cold zones of the earth, where glaciers and ice cover have provided precious reservoirs of fresh water, are also adversely affected, and again the water resources contained in our northern regions are under threat. Thus, timely notice of both these threats is urgently necessary, accompanied by well-coordinated action at the national and international levels.

The Thar desert is encroaching constantly on the agricultural lands of southeastern Punjab and eastern Sindh. The glaciers in our mountains in the north have been affected by global warming and their storage capacity is going down as the level of the sea rises along our coast flooding the mangrove forests of the Indus delta.

The financial and economic managers of the country, especially those at the policymaking level need to be more urgently aware of the dangers arising from the neglect of the environment virtually since independence.

Certain problems of the environment had been identified much earlier, notably the phenomenon of soil erosion caused by the reckless cutting down of forests. As the rate of population growth increased, trees were cut in community land brought under cultivation. In the Punjab, the building of canals for irrigation also brought substantial areas under cultivation, though some irrigated forests were also created to provide wood for construction, etc.

By the time Pakistan came into being, only five per cent of the territory of West Pakistan (present-day Pakistan) was under forests, whereas the desirable percentage for ecological balance is supposed to be 25 per cent. Despite the launching of tree plantation campaigns every year, and sometimes twice a year, we have not achieved success for lack of follow-up and commitment. One exception has been the planting of several million trees in Islamabad. Even here, the latest phase of civic development has played havoc with the tree cover of the capital.

The presence of more than three million Afghan refugees, many of whom arrived with their domestic animals, denuded the adjoining areas of vegetation and also contributed to soil erosion. Therefore, the problems of deforestation and soil erosion have been exacerbated.

With its relatively high rate of population increase, which translates into greater pressure on its living space and natural resources, Pakistan must be seen and managed as a disadvantaged country. We are already experiencing water shortages, both for agriculture and urban use. Global warming will become a factor in desertification, and the depletion of the snow and glacier reservoirs of water. Unfortunately, the benefits of a salubrious environment remain limited to the housing colonies of the privileged. Even when funds are provided for improving roads, sewage facilities etc, they often end up in the pockets of corrupt individuals.

This constitutes the most serious, as well as the most visible, aspect of the damage to the environment, that is a result of population increase. This can be best described as the degradation of the environment owing to combined effects of various aspects of poverty. The major part of the population tends to be concentrated in poorly planned villages and slums. The arrangements for sewage and waste disposal are non-existent, so that not only is the quality of life affected by stinking water, but also the threats to health multiply. Indeed, the level of healthcare and physical well-being has declined, as diseases, like tuberculosis are resurfacing and new threats like hepatitis, and even dengue fever are making their appearance. Major cities like Karachi, Lahore and Faisalabad present a pathetic picture even after light rains.

With nearly 30 per cent of the population living below the poverty line and another 50 per cent living at the subsistence level, our ranking in the human welfare level has been going down.

Though we have created a ministry of environment, its role and effectiveness remain limited. If we wish to see desirable results we have to adopt a holistic approach, assessing the environmental impact of major development projects, and linking even their location to optimum land use. Too much arable land is being lost to other uses. Not only the federal government but also the provincial and district authorities should be involved in achieving the goal of afforestation and the provision of land for social and cultural use as well as for wildlife reserves. A master plan would be needed, to protect the environment, and vital natural resources. An early campaign should be launched to revive wastelands.

Since the overall objective is the management of the planet as a whole, the UN must entrust a major role to its regional commissions and specialised agencies. The importance of regional cooperation cannot be over-emphasised. In this year of desertification, the relevance of cooperation with China, that is losing 10 million square kilometres annually to desertification, is obvious. We can celebrate our successes, but need to be mindful of the formidable challenges confronting us.

The writer is a former ambassador.

What next in Darfur?

RECENTLY President Bush put a brave face on the killing in Darfur, declaring that the US was working on a plan to save the victims. The truth is that his administration has offered versions of this claim since 2004, when it first described Darfur’s crisis as genocide. Sudan’s murderous government, which has provided air cover to the Janjaweed death squads and has magnified civilian suffering by keeping UN peacekeepers away, has proved impervious to US pressure. Andrew Natsios, the president’s special envoy to Sudan, visited the country recently.

He was told that Sudan refused to accept the UN Security Council resolution calling for a peacekeeping force in Darfur. But Natsios was encouraged not to lose patience. On the contrary, he was warmly entreated to have hope: Sudan might be open to certain other peacekeeping configurations.

The Bush administration should certainly assemble commitments of peacekeeping troops and call Sudan’s bluff. But it should also attempt to revive the failed Darfur peace plan negotiated this year, for without peace even a large peacekeeping mission may be doomed. Reviving the peace process means pressuring both the government and the rebels: The last agreement failed because many rebels refused to sign on and instead resumed fighting, while the government took that as an excuse to bar UN peacekeepers and launch a military offensive. To pressure the rebels, the US needs to work through their backers in Eritrea and Chad. To push the government back to the talks, the US needs to work with Sudan’s diplomatic enablers in Beijing, Moscow and the Arab capitals.

— The Washington Post