Rising consumer prices
IN the monetary policy statement (January-June 2007) issued on Thursday, the State Bank has warned that a high food inflation has the potential to frustrate the Central Bank’s efforts to maintain price stability. The SBP governor, Dr Shamshad Akhtar, reckons that inflation rate as measured by the Consumer Price Index would climb down from last month’s 8.9 per cent to 7.5 per cent by the end of June 2007. But for falling international oil prices whose full benefits have yet to be passed on to the domestic consumers, the risks of inflationary rise looms large, posing a threat to the economy and the well being of the majority of the people, particularly the poor. While reaffirming that the present tight monetary policy, which has contained core (non-food and non-energy) inflation to 5.5 per cent, will continue, the State Bank has advised the government to take timely administrative measures to control the double digit food inflation. The government needs to address the supply side issues which are related to governance for which there is a lot of room for improvement. For this a numbers of steps are required. Perhaps, the government needs to build strategic reserves of staple food till such time that the domestic production is increased on a sustained basis to meet the rising demand. It has to be simultaneously followed up with a smooth supply network. Despite the strong presence of monopolies, oligopolies and collusive tendencies in some leading industrial sectors, the anti-competitive law has been virtually held in abeyance and needs to be effectively enforced. So far, the regulatory authorities which arbitrate between consumers and the business are denied autonomy to take independent decisions.
The State Bank is bullish about economic growth and says that the target of seven per cent set for this year is achievable. It is not much of a good news for the majority of the consumers since in the present phase of economic development the trickle down effect has weakened. The demand for consumer-oriented bank credit has dampened and lately, there has been a pronounced slowdown in increases in wages of even skilled workers. Finally, the current inflation rate exceeds the economic growth. A high growth rate amidst worsening poverty makes little sense. Besides, many independent economists and researchers do not share the State Bank’s optimism about growth. They see cooling down of the economy that includes deceleration of growth in real sectors. Significantly, the corporate earnings have slowed down in most leading industrial sectors, turning negative in some cases. The demand is decelerating in sectors like banks and capacity/supply constraints are limiting growth in gas and oil marketing companies.
The State Bank report also admits that there has been a decrease in demand for working capital because most industries are working at full capacity. Perhaps, the emerging vulnerabilities to corporate earnings and return on equities have persuaded the State Bank to keep its interest rate unchanged at 9.5 per cent. The Bank is trying to control risks of emerging day-to-day excess in liquidity by doubling the daily minimum cash reserve requirement to two per cent in case of time liabilities and by a 50 per cent raise in demand liabilities to six per cent. This will somewhat induce the banks to raise medium-to-long-term deposits to match longer-term lending. For this the demand in the economy remains intact. But it would not have much of an impact on the financial market. While acknowledging that the high spread between the deposit and lending rates was a market failure, the Central Bank has advised depositors to seek options for higher deposit rates. Its moral persuasion to increase deposit rates will not work. The market failure calls for strong short-term official interventions, more so in this case, because the current dismal saving rates are not enough to finance investment levels needed for the targeted six-to-eight per cent annual economic growth rate.
Even moderate foreign borrowings can create a debt crisis in case of a sharp depreciation in the exchange rate, now under pressure from rising price levels and widening current account deficits. In the absence of a well-developed corporate bond and mutual fund markets, which could compete with banks for sources of funding, the banks cannot be prevented from exploiting the market for their advantage. So far, corporate bonds contribute only one per cent of the GDP and net assets of mutual fund industry is a mere five per cent of the bank deposits. The development of the corporate bond market can be supported by the regular issue of Pakistan Investment Bonds at market rates and by making flotation of Term Finance Certificates cost effective and hassle-free on a priority basis. A high lending rate environment may induce the corporates to go for bonds in preference to bank borrowing.
Faced with a burgeoning current account deficit and fiscal expansion, price stability has become a critical issue in maintaining the exchange rate. The State Bank is committed to remain vigilant to take corrective measures if warranted. But it wants the government to reduce its bank borrowings, which has jumped from Rs20 billion to Rs60 billion in the last 18 months. The ceiling for this year is Rs120 billion. Not only the source but the volatility in government borrowings impact on the monetary policy designed to contain inflation — even if the budgetary needs remain within the targeted limit. The government needs to further diversify its borrowings to non-inflationary sources. The over-arching issue for the people is price stability to check their deteriorating living standards because of the continuous decline in the purchasing power of the rupee. The problem needs to be resolved on a priority basis.
Statistics on suicide
OFFICIAL claims on the reduction in poverty in the last few years are not likely to provide any solace to the families of the 52 people in Rawalpindi who committed suicide last year. Nearly all those who chose to end their lives did so because they were unable to make ends meet. Take the case of a 50-year-old man who hanged himself in June because he could not pay his house rent. Or the 27-year-old man who shot himself because he could not find a job. Nine parents killed themselves because they could not meet dowry demands for their daughters’ weddings. These are tragic stories that are not restricted to Rawalpindi. Figures collected from other cities and places could be equally appalling. It only shows how feeling of helplessness among the country’s poor is so high that it leads many of them to commit suicide, leaving their grieving families to fend for themselves at a time when prospects facing them are weak. Yet the country’s financial managers claim success in alleviating poverty. To an extent there is some truth in that, as borne out by a World Bank report in October last year which said that the country’s poverty rate declined by five percentage points in the first half of the current decade. But very few have felt the impact of that. The growing rate of inflation, especially in food prices, has not helped the majority of the people. Neither has the government’s inability to create more jobs. It has to do far more — and fast if it wants to make visible strides in poverty alleviation.
In December last year, the prime minister said he hoped to empower one million households through microcredit programmes. Microcredit schemes are likely to improve millions of lives as has been proved in neighbouring countries. The Grameen bank is an excellent example of how microcredit schemes have enabled people lift themselves out of poverty. People — especially women who are known to be better borrowers — need to be made aware of such programmes. It is schemes like this, along with sound economic policies, that will break the vicious cycle of poverty.
Saddam’s execution: lessons for Muslim rulers
INFINITE American ‘wisdom’ has transformed a villainous despot into a hero. Certainly Saddam Hussein faced the ultimate test of courage and strength with supreme dignity and grace and he will be remembered for that, but his greatest contribution to history is the important lessons he leaves behind for Muslim rulers.
Firstly, Saddam’s fall and execution emphatically emphasises what we already know; that the Americans are unreliable, indeed dangerous, allies.
They have a habit of ultimately turning on their friends. Their friendship is based on a one-way flow of interests as they use their allies to achieve their objectives. In the process, all transgressions of their allies are overlooked and condoned. But once the allies have outlived their utility, their transgressions suddenly become sins against humanity worthy of punishment, inviting the wrath of the ‘righteous’. Such was the isolation of the Shah of Iran in exile that he could not find a piece of earth to die on in peace.
And now there is the Saddam example. Once their blue-eyed boy who could do no wrong, he ultimately found himself hanging at the end of a rope to the humiliating jeers of morbid onlookers. In the aftermath of the takeover of the US embassy in Tehran and the capture of American hostages in November 1979, the United States was keen to isolate and punish Iran and Saddam Hussein was a willing instrument of American objectives.
Therefore, America fully backed the Iraqi invasion of Iran in which chemical as well as biological weapons, including mustard gas, taban nerve agent, sarin and anthrax, were used, resulting in over a million casualties in Iran, not to mention damage to the tune of over $350 billion. On March 24, 1984, the day the United Nations released a report confirming the use of weapons of mass destruction by Iraq on Iranian soil, Donald Rumsfeld met Saddam Hussein in Baghdad to discuss the Aqaba pipeline project.
The brutal massacre of Kurds and other political opponents in Iraq, which took place while Saddam was still operating under American tutelage, also did not matter to his American masters at the time. But when the winds started blowing in a different direction and Saddam became too big for his boots, all these skeletons were dragged out of the closet by his erstwhile protectors as justification for his elimination.
Pak-American relationship too is replete with repeated American let-downs. In the Pak-Indian wars of 1965 and 1971, despite all the treaties, pacts, commitments and assurances that guaranteed American assistance to Pakistan in the event of Indian aggression, America was loath to act in time to pull the reins on India lest its developing relations with India be jeopardised. Even the highly pro-American Ayub Khan was forced to concede in his book ‘Friends not Masters’ that “The United States’ attitude, in fact, was that India should have all sympathy and support and that Pakistan would be well advised not to raise any difficulties.”
The Soviet ambassador to Pakistan commented to the Pakistani foreign minister as early as July 1960 on the unreliability of American friendship, saying “We support India and Afghanistan against you because they are our friends, even when they are in the wrong. But your friends do not support you, even when they know that you are in the right.” These words, spoken in 1960, have come to define Pak-American relations.
Secondly, the silence of the global Muslim community over Saddam Hussein’s execution was deafening. The heads of most Muslim states either remained mute, or coated their protests with diplomatic camouflage, preferring to condemn not Saddam’s execution, but the fact that it was carried out on Eid day. Most heaved a sigh of relief to be rid of him. He was neither a model neighbour nor an asset to the Muslim community of states. Public reaction to his execution in Muslim countries outside Iraq was not so much pro-Saddam as it was anti-American.
The Israeli invasion of Lebanon ignited fierce passions in Muslim countries and produced not just heartfelt sympathy and support for the enigmatic Hassan Nasrallah and Hezbollah, but emotional demonstrations and protests everywhere. In the aftermath of the historic triumph over Zionist forces, Hassan Nasrallah has become larger than life in the eyes of every Muslim, because he enjoys the love and support of his people and took on a greater military power in the name of truth, honour and justice. He proved that with popular support one can defeat even superpowers. One only wonders how events might have unfolded in Iraq had Saddam Hussein enjoyed widespread support in the global Muslim community.
The absence of a nexus between Saddam Hussein and the people of Iraq produced the third lesson arising from Saddam’s execution — a lack of public reaction to his execution in Iraq, apart from small pockets of disturbances in his hometown. Saddam was never a man of the people, nor a populist leader with great public support.
He ruled by the Machiavellian principle of force and strength, inflicting terror on the people, ruthlessly crushing all dissent and allowing no political freedom of expression and opposition. The power he derived flowed from the barrel of the gun rather than from the support of the people. He preferred to hitch his star with the good graces of his American overlords and subjugated his nation to unspeakable horrors like genocide and suppression, resulting in a massive loss of life and unimaginable misery. He denied the people of Iraq the development and enlightenment that the country’s oil wealth could easily ensure.
Thus, when the Americans pulled the rug from under him, he had nowhere else to turn to and was left with no option but to stick it out with a hollow, short-lived display of false bravado. When American tanks rolled into Baghdad, Iraqis celebrated the fall of the hated tyrant and when the trap doors of the gallows swung open on Eid day, precious few shed a tear for him.
There is a lesson to be learnt from all this for the rulers of Muslim states around the world: grovelling and pandering to America is no panacea for political problems. Nothing matters more than honour, truth and the support of the masses in politics. Without the weight of truth, principles and popular support on your side, you may ultimately die on the gallows, taunted and insulted till your last living moment by the very people who would be fighting for your life had you not burnt your bridges with them. But with their support, you live for ever.
Men of honour and principles enter the political arena to serve their nations and in doing so carve out their place in history. But unfortunately, most rulers of Muslim states feel they cannot survive in power without prostrating themselves before America to earn its protection from their own people whom they alienate by their submission to the Americans. This has become their creed.
On the other hand, we have the example of President Mahmoud Ahmadinejad of Iran, who won a massive electoral victory on an anti-American platform and has defied America on the strength of unwavering public support. His resolve to serve his own national interests, rather than playing the American stooge, has earned him not only respect and admiration of the common man in Iran and around the Muslim world, but has given him the strength that only honour and truth can produce. So much so that even the Americans are forced to swallow their pride and solicit his help and cooperation in restoring peace in the Middle East.
This is a far cry from how the Americans treat their supposed ally in Pakistan. President Bush humiliated President Musharraf by refusing to sign a nuclear accord with Pakistan similar to the one he signed with India and further insulted him by talking of the need for “fair elections” in Pakistan during his visit to Islamabad.
There is something undeniably noble about looking an adversary in the eye with honour and dignity that invariably gives pause to any goliath and makes him blink. Doormats have only themselves to blame for any humiliating fate that befalls them. Shakespeare said it so eloquently: “The fault, dear Brutus, lies not in the stars but in ourselves that we are underlings.”
There is no substitute for the sovereign power of the people and their support. Therein lies honour and real power. The rest amounts to no more than the wages of servitude.
Bad investment
WHAT’S MORE important, Coast Guard patrols or collecting fingerprints at border crossings? Running checked bags through X-ray machines at airports or installing blast barriers at nuclear plants?
Given a limited amount of money and an endless list of programs and procedures that could make Americans safer, it’s essential to buy the most homeland security possible with the cash available. And as the little list above demonstrates, that can be a tough job.
That’s all the more reason not to waste money on the kind of political shenanigan written into a sprawling Democratic bill — up for a vote in the House this week — that would require the Department of Homeland Security to ensure that every maritime cargo container bound for the United States is scanned before it departs for American shores.
Container scanning technology is improving, but it is not able to perform useful, speedy inspections of cargo on the scale House Democrats envision. Congress has already authorized pilot programs to study the feasibility of scanning all maritime cargo.
—Los Angeles Times