IMF’s prescription

THE IMF has expressed concern over the large current account deficit and advised Pakistan to devalue the rupee by 10 per cent. The Fund’s recommendations were made during discussions with officials in Islamabad which the IMF consultation team held on the major challenges facing the economy. While there can be no two opinions about the reasons for its concerns, the problem arises with patent and over-used prescriptions like devaluation. Going by historical record, devaluation has provided a temporary solution and has not been an unmixed blessing. For Pakistan, the sharp depreciation of the rupee’s exchange rate has turned out to be a substitute for industrial efficiency and helped governments to raise tax revenues from imports (made costlier in rupee terms) and stall the much-needed tax reforms. A stable rupee is required for boosting exports, for attracting investment and for sustaining growth.

Contrary to what the IMF is recommending, it is time to move steadily away from the nominal exchange rate to the real value of the rupee as determined by the purchasing power parity (PPP). One indication of how the rupee is grossly undervalued is evident from the size of the economy when it is computed in two different ways. Measured by the nominal exchange rate, Pakistan’s GDP is of the order of $128 billion, while counted on the basis of the rupee’s purchasing power parity it swells to $455 billion. Now, worldwide the PPP is being more frequently used as a measure of value. While no two countries are comparable, China can be cited as having achieved high growth rates over decades with a stable exchange rate, unlike countries that have followed the IMF prescriptions. There is much wisdom in the State Bank’s view that “a sharp rupee depreciation could lead to self-fulfilling expectations that could destabilise the economy.”

The advice of the IMF for a 10 per cent devaluation is also ill-timed. There is some evidence on the basis of October trade figures that imports are falling more steeply (8.8 per cent) than the decline in exports (3.2 per cent) compared to the corresponding figures for October last year, bringing the trade deficit down by 15 per cent. The imports have declined because of lower oil prices and a steep fall in the share of machinery in total imports and the weakening of the one-off import surge caused by the liberalisation of the telecommunication sector. For the long term, the World Bank’s observation that “the debt payment is vulnerable to downturns” may be valid. But any sharp fall in the rupee value would raise the debt-servicing liability and adversely affect the widening fiscal deficit. Besides, the debt-to-GDP ratio is currently below the mandated 60 per cent and foreign exchange reserves of over $12 billion are nearly 10 per cent of the GDP — a ratio which has helped as many as 32 countries manage their external sector comfortably. The core inflation to which interest and exchange rates are linked is coming down.

Having said all this, it must also be recognised that the concerns of the World Bank and the IMF about trade, current account and fiscal deficits are valid and widely recognised — more so, as they are becoming increasingly pronounced. In the medium to long term, the imbalances pose risks to growth and development. The solution lies in developing a growth model that can help overcome the business cycle of boom and bust — a phenomenon readily discernible in Pakistan’s neighbourhood. There may be no more 9/11s to bail out Pakistan’s economy.

Musharraf beyond 2007

IT is a very disturbing statement. Speaking to Dawn, Chaudhry Shujaat Hussain said on Friday that the PML would support Gen Pervez Musharraf as president and army chief even after 2007 when his term as head of state expires. Add to this earlier statements, among others, by Punjab Chief Minister Pervaiz Elahi, that the existing assemblies will elect Gen Musharraf as president, and you have a scary picture of the kind of system this country may end up having. If the existing assemblies are to re-elect Gen Musharraf as head of state, then the electoral exercise next year loses all value. What difference will it make who becomes prime minister after the 2007 general election? As things stand, executive power is heavily titled in favour of the president. If the aim of the constitutional amendments effected through the Legal Framework Order was to create a balance between the powers of the prime minister and the president, then the amendments have proved to be counterproductive. Instead, we now have a situation in which the president enjoys all the powers by heading the nation’s highest policymaking organ, the National Security Council. Article 58-2b also authorises the president to sack the prime minister even if he enjoys the National Assembly’s confidence. Under this Article — first introduced in the Constitution by Ziaul Haq, scuppered by the Nawaz Sharif government and revived by this regime — the president can also dissolve the assembly itself. Even though this clause lays down certain conditions for the president to act, examples show that three presidents — Ziaul Haq, Ghulam Ishaq Khan and Farooq Leghari — used this power arbitrarily for political reasons.

The PML chief did not specify the mode of Gen Musharraf’s re-election as president. But whatever the mode — whether the present assemblies elect him or the task is left to the ones that will come into being next year — the very idea of a man being both president and army chief is repulsive in a democratic polity. If the powers that be have already schemed such an absurdity and the next assemblies will fulfil the task assigned to them, then election 2007 will be an exercise in futility designed merely to provide a democratic façade to a military-led set-up.

Talking about Aids

IT is encouraging to know that an association bringing together people afflicted with Aids and HIV has been formed in Islamabad with plans to establish provincial chapters. The move should help raise awareness about a dreaded disease which, though not yet rampant in Pakistan, is rarely discussed openly because of the stigma attached to the sexually deviant behaviour that is the cause of HIV infection. The difference between official and independent statistics on the number of HIV/Aids cases in the country indicates the extent of under-reporting and the reluctance to talk about the disease openly. Official figures put the number of HIV/Aids cases at about 3,000, while, according to independent statistics, this number could be 85,000 or even more. However, as indicated by a report in this newspaper, the number of organisations working for Aids awareness and prevention are only a handful in the country.

The positive point in the picture is that Pakistan has still not reached the stage where attempts to prevent the spread of the disease have become an impossible task. But what is worrisome is that a general sense of complacency among health circles is preventing full implementation of the guidelines for Aids control. Steps to control the deadly infection have been identified many times. These include regular blood screening of professional sex workers and returning migrants and urging the same for long-distance truckers who fall into the high-risk group as do prison populations and intravenous drug addicts resorting to the use of shared needles. Proper screening of blood at blood banks is also necessary so that infected blood donors are kept away. But these measures alone are not enough. They will be only partially effective — unless accompanied by a vigorous and sustained campaign to educate the people about the dangers of Aids and the need to disregard the cultural taboos that discourage its discussion.

EU confused over Turkey

WITH only days to go before they decide on the future of Turkey’s troubled bid to join the European Union, the bloc’s top policymakers appear increasingly dazed and confused over what to do next. The recommendation to governments from the European Commission — the EU’s executive — is clear enough. Since Ankara is refusing to comply with EU demands and open its ports to Cypriot traffic, there must be a partial freeze in Turkey’s negotiations to join the 25-nation bloc.

Olli Rehn, the man responsible for EU enlargement negotiations, has said discussions should be suspended in eight out of 35 areas under negotiation with Ankara. But he insists that talks with Turkey must continue in other chapters.

Since Rehn’s recommendation recently, however, EU leaders and would-be leaders as well as businessmen, diplomats and academics have been voicing divergent views on whether the punishment being meted out to Ankara is too harsh or whether the sanctions should be ramped up.

The almost impossible task of trying to paper over the cracks and forge a united EU front falls to the current Finnish presidency of the Union. A first attempt to overcome the discord will be made by Finland’s Foreign Minister Erkki Tuomioja on December 11 at a meeting of EU foreign ministers in Brussels.

Given the acrimonious in-fighting over the issue among governments, however, it looks increasingly likely that it will be EU leaders, meeting for their end-year summit on December 14-15, who will have to take the final decision on future EU-Turkey relations.

Coming up with a compromise which can satisfy all 25 EU governments is not going to be easy, however, even for the even-tempered Finnish Prime Minister Matti Vanhanen who will chair the EU summit.

Hardliners Germany and France, two of the EU’s most influential countries, have made clear in recent days that they want tougher conditions imposed on Turkey. But, Ankara also has powerful allies in Europe.

Opposing the tough German and French line is a growing number of countries led by Britain but also including Spain and Italy as well as EU newcomers like Finland, Sweden, Estonia and Poland. The US has also weighed into the debate in favour of Ankara.

The current dispute centres on Turkey’s refusal to open its ports and harbours to Greek Cypriot traffic. The EU says Ankara has a legal obligation to treat all EU countries equally. Ankara insists, however, that the EU must first lift its trade embargo on Turkish northern Cyprus, whose government is not recognised by the EU.

Finland, which holds the current EU presidency, struggled for several months to strike a compromise deal allowing free trade through Famagusta in Turkish Cyprus in exchange for a move by Turkey to allow access to Greek Cypriot traffic.

But a deal acceptable to both Nicosia and Ankara has proved to be elusive. More is at stake than Turkey-Cyprus relations, however. Behind the bickering are two radically opposed views of Europe — and the world.

Despite their global ambitions, Berlin and Paris continue to harbour a narrow, provincial view of Europe and fear that the entry into Europe of a Muslim nation will dilute the bloc’s current Christian identity and worsen its current sense of drift.

Those favouring Turkey’s accession argue that cold-shouldering Turkey will not only slow down the reform process in Turkey but also send a negative message about Europe’s tolerance and openness to the Islamic world.

Although German Chancellor Angela Merkel appears to have toned down her demands slightly, there is little doubt that she remains opposed to Turkish membership and would by far prefer that Ankara is granted only a “privileged relationship” with the EU. Turkey has said this is not acceptable.

Merkel is in a difficult position, however, since the social democrats in her fragile coalition government support Turkey’s EU entry. However, the German public is overwhelmingly against Ankara’s membership bid, fearing this will lead to an increase in Turkish immigrants — the country already has three million Turks — and further exacerbate relations between mainstream Europeans and Muslim minorities.

Softening her stance a little, Merkel recently gave her backing to the European Commission proposal to partially suspend EU membership talks with Turkey and backed down from setting Ankara an ultimatum.

Speaking after discussions with French President Jaques Chirac and Poland’s Lech Kaczynski on December 5, the German chancellor called Brussels’ proposal a “good basis” for discussions. She also appeared to back away from an earlier call to set a firm deadline for Ankara to toe the EU line on Cyprus.

Instead, Merkel suggested that the European Commission should draw up a progress report on the state of EU negotiations with Ankara “some time between the elections in Turkey in autumn 2007 and the European elections in spring 2009.”

“We don’t want to set any kind of ultimatums, but we want ... the commission to say to us what has been achieved and how we could proceed,” she added.

Previously, Merkel had indicated she wanted to insert a review clause into an EU leader’s statement on Turkey and set mid-2008 as a deadline for Ankara to open its ports and airports to trade from Cyprus — something that would likely have caused a major dispute at the summit.

The new timeframe gives Turkey a chance to get through its presidential elections early next year and parliamentary elections in autumn.

Merkel’s watered-down stance came after EU enlargement commissioner Rehn reminded Berlin and Paris of the strategic importance of Turkey. “I would ask Chancellor Merkel and President Chirac to look for a balanced solution which on the one hand shows the consequences of non-compliance by a candidate state but at the same time keeps the accession process with Turkey alive, because of its strategic importance for both Europe and Turkey,” said Rehn.

Turkish prime minister Recep Tayyip Erdogan also warned the German chancellor that Europe should not make a “historic mistake” at the approaching summit. “Turkey is as important for the European Union as the European Union is for Turkey,” Mr Erdogan said.

The Turkish prime minister has said repeatedly that Ankara would only move on the ports issue once an international embargo is lifted on northern Turkish Cyprus which voted in favour of a UN-sponsored reunification plan for the island in 2004.

Also campaigning for Turkey are Sweden, Estonia and Poland. “Our relations to Turkey should be neither frozen nor should any doors for further (EU) expansion be closed,” said Swedish Foreign Minister Carl Bildt and Estonian Foreign Minister Urmas Paet in comments published in the German daily Die Welt recently.

Both ministers said continuing membership talks with Ankara was vital to ensure that Turkey continued its democratic reforms. Bildt and Paet also underlined that the division of Cyprus could only be resolved by working with the Turkish government.

“A reunification of Cyprus will only be achieved if Turkey is brought closer to the EU — otherwise there is the apparent risk of a permanent division,” said the ministers.

Speaking in Brussels earlier on, US Undersecretary of State for Political Affairs Nicholas Burns cautioned that any EU move to close the door on Turkish membership would be a major “strategic miscalculation.”

The US envoy said the EU’s decision last year to open accession talks with Turkey — “a major secular Muslim democracy” - was one of the most important decisions made by Europe at the beginning of the 21st century. “Turkey is the bridge” between the West and Islam, he underlined.

Ankara and the EU opened membership negotiations last year but have only clinched agreement so far on the relatively uncontroversial chapter on science and research. Countries seeking EU entry have to bring their legislation in line with the bloc’s rules in 35 areas. Given EU criticism of Turkey’s political reform efforts, negotiations on Turkish membership are expected to last at least 15 years.

The final word on the unending saga has come from this year’s Nobel Literature Prize award winner, Turkish novelist Orhan Pamuk, who said recently in Sweden that he was saddened by the current situation involving the EU and Turkey.

“The membership process is one which is saddening me these days. Unfortunately, the excitement is gone in both Europe and Turkey,” said Pamuk. “If Turkey were to join the EU, this would be a good thing for the EU. It would also be good for Turkish democracy, the economy, and the people of Turkey. It would be good for the entire world,” he concluded.