After the bailout

NOW that Pakistan is to receive $7.6bn from the IMF, the question is: what next? What has sometimes been lost sight of in the past few months is that Pakistan’s woes are of a very different nature from the western financial meltdown. The country has certainly been buffeted by the ill winds of the global financial crisis, but our crisis has deeper roots: Pakistan has slipped into a debilitating cycle of once-every-decade balance of payments crises. The good news is that solutions are readily available. The government’s nine-point economic stabilisation plan, the interim report of the panel of some of the country’s best economists and numerous opinion pieces on the pages of this and other newspapers have reached a remarkable consensus on what needs to be done: among a host of measures, the government must reduce expenditure, expand the tax base, protect the poor, focus on agriculture and the manufacturing sector and encourage savings. The advice is sensible and pragmatic.

Now to the problem: the best plans are only as effective as the political will to implement them. The experts’ recommendations before us today are not new. The reason they have largely been ignored in the past is that they will produce measured, diffused growth, whereas the political system demands quick, concentrated growth. Under President Musharraf the government had the most resources of any government in our history thanks to a combination of international political and economic factors. Some good has undoubtedly come of that: the country

has a reasonably well-developed banking system, a mobile telecommunications network to rival that in many western countries and tax revenues that are a substantial improvement on the record of the nineties (although the tax base and its burden are deeply inequitable). But the quest for glitzy growth came at a high cost: new job-creating sectors were few and the dependence on foreign inflows grew unsustainably. As Musharraf’s economic bubble began to deflate last year, large swathes of the population have been left inarguably worse off than before.

So we know the problems and we have solutions at hand. And being grabbed by the scruff of the neck by an IFI may have unintended positive consequences. If it is true that the IMF is pressing Pakistan to tax the agricultural sector, then this is to be welcomed: a tax on agricultural income that does not ensnare the poor will broaden the tax base and spread the tax burden in the economy. Given the fierce resistance such a measure is sure to face from the landed classes, the government will have to focus on pro-farmer measures — a positive development for a sector that has been neglected in recent years. Between the best advice of the economist and the worst instincts of the politician is where we are likely to end up. Let’s hope that it is closer to the former rather than the latter.

The smart middle way

EVEN though the Pakistan Foreign Office has denied it, the American media report on a deal between Pakistan and America on the drone attacks will not be dismissed out of hand. In fact, considering the events of the last several months, the Washington Post’s story appears to confirm an existing situation — the US carries out drone attacks in Fata without publicly acknowledging them while Pakistan protests against them without any fear of contradiction. Pakistan described this report as “baseless”, but the WP quoted a Pakistani official as saying that it was “the smart middle way for the moment”. In its Sunday’s issue, in which WP reported the purported deal, the paper also published an interview with President Asif Ali Zardari, who demanded that the US transfer drone technology to Pakistan. While there is no doubt Pakistan needs the latest technology and state of the art gadgets to fight terrorism, drones are a category apart. The US fires drones in Fata from foreign soil to save its pilots from the risk of being exposed to ground fire though Predators cause many civilian casualties on the ground. Does Pakistan need them to fight in Fata where our security forces use tanks, heavy artillery, helicopter gun ships and even jet fighters against the Taliban rebels?

The use of drones that carry out sneak attacks on targets after actionable intelligence is available points to a trust deficit between the US and Pakistan. It also indicates the absence of coordination between the intelligence agencies of the two countries. Hence more often than not the drone attacks have killed innocent people rather than terrorists or their leaders. It is strange that a change in regime in Pakistan and the advent of a democratic government notwithstanding, Washington suspects that there are elements in the Pakistan security forces that are in league with the Taliban and hamper the war on terror. Hence the US prefers to act independently without taking the Pakistan Army into confidence. Between December 2007 and August 2008, when Pervez Musharraf was in power, there were only six US missile attacks on Fata; since August there have been 19. It is time for the two sides to understand the sensitivity of the issue. Drone attacks inside Pakistan alienate the people from the US and undermine the government in Islamabad. Hence they must stop on the understanding that the two sides have a common goal: to crush terrorism that requires mutual trust and coordinated military action.

A positive start

WITH a 3-0 clean sweep under its belt, the new management of the Pakistan cricket team has made a positive start. The victory is likely to facilitate the process of acclimatisation for the individuals concerned and, in turn, give rise to hopes that the unit will gel together to deliver when it comes face to face with more serious opponents than a West Indian side that has been on the slide for much longer than is the case with our own team. Traditionally, both teams depend on individual brilliance from expected and unexpected quarters than on a collective or planned effort to make things happen. That it was Pakistan that rode its luck this time is, indeed, reason to rejoice, but one hopes that the significance of a joint, planned effort, which is the essence of cricket — or any team game for that matter — is not unknown to the new team management. With an emphatic start behind them and a key encounter ahead with a rejuvenated Indian side that is on a roll after its recent exploits against the world-beating Australians, the work for Intikhab Alam, the national coach, and his staff is clearly cut out. There is reason to suggest a more resolute preparation for the assignment than allowing euphoria to seep through. The team and its managers know too well that the level of performance at Abu Dhabi was good enough to keep the uncertain calypso onslaught at bay, but the game will have to be raised by at least a couple of notches to match the intense Indians.

Since two of Pakistan’s potential match winners — Shoaib Akhtar and Shahid Afridi — have not been firing on all cylinders, the problems are bound to be enormous. The former, in fact, has not played routine cricket for more than a year. The selection committee needs to work in tandem with the team management to work out alternatives in case there is not much improvement in the status of the two players by the time the Indian assignment becomes due.

A strategy in the making

THE government’s approach to the current economic crisis seems to involve several discrete steps. It is dealing separately with the short-term and medium-term need to find the money to keep the country solvent.

Pakistan has to pay the bills that are coming in rapidly from external creditors. It also has to pay for the imports that it cannot finance from export earnings.

Even the search for external resources to keep the country afloat is being done in steps. There seems to be an effort to find money from the country’s friends and if that does not succeed to negotiate with the IMF. While the Ministry of Finance is taking the lead in raising external finance, the Planning Commission is getting ready to think and act on some of the structural issues.

One major problem with the way the government of President Pervez Musharraf handled the economy was to concentrate its attention on the short term. It was not interested in strategising for the medium and the long term. With this approach the Planning Commission was banished to the sidelines, left with tasks such as project analysis which the main policymakers paid little attention to.

Economic decision-making was concentrated in the hands of the Ministry of Finance which was poorly equipped to handle strategic work. With the Planning Commission now summoned back into the decision-making process, the ground is being prepared to strategise for the long run. The commission, given this mandate, assembled an impressive group of economists to reflect on the current economic situation and to suggest how the country can be helped out of the difficult economic situation it faces.

The task force was headed by Hafiz Pasha, perhaps the most experienced and knowledgeable person in the country in this line of work. It has presented a set of well-thought-out proposals which the government should seriously consider.

However, the real question is whether separating the immediate term from the long run is the right approach for dealing with the crisis. My preference is for an integrated approach. How would that work?

To begin with it would be prudent to appoint one individual who would be responsible for working out the details of the government’s economic approach. He (or she) should not only be responsible for dealing with the issue of raising an adequate amount of external finance but should also have the mandate to present to the nation a strategy for ensuring that the country will not return to the present situation again.

In other words, the need of the hour is the appointment of an economic czar. He should be responsible for negotiating with the potential donors and for overseeing the analytical work that needs to be done in order to produce a long-term development strategy.

Pakistan has been to the brink of economic disaster before. Each time it was saved by some external source of finance. Crises produce opportunities for bringing about structural reforms and for ensuring that they don’t keep on occurring. Using this crisis as an opportunity for putting together a strategy that combines the need for short-term adjustments with the need for medium-term and long-term structural change will do more than develop Pakistan’s credibility among its external players and in the international market.

It will also make it possible to set the country on a long-term growth trajectory that would ensure a respectable rate of growth that can be sustained over time. The recurrence of crises has meant that Pakistan’s economy has been on a roller-coaster ride throughout its history. It would be a much richer economy and a more stable country had public policy somehow eliminated these periodic downturns.

The first step towards developing a long-term strategy would be to clearly identify why Pakistan finds itself in such a difficult economic situation today. The Pasha report contains a good analysis of the difficulties the country faces today. It also has some insights into the circumstances that were responsible for derailing the economy so soon after the government of the day had proclaimed that Pakistan had joined the group of Asian high-flyers. That did not happen. The question is why not? Why did the previous government err so badly in terms of presenting a credible picture of Pakistan’s economic future?

There were a number of problems with the economic model pursued by the Musharraf administration. At least four of these need to be highlighted in order to develop a better understanding of what went wrong so that the same mistakes are not repeated again.The first, of course, was the excessive reliance on external capital flows for investment. Over time the reliance shifted the economy’s dependence from official flows — the capital that comes from governments or from such development institutions as the World Bank — to private capital. This is not necessarily a bad move as long as there are enough savings generated from within the economy so that if the flow of private capital suddenly reverses course it will not lead to a sharp economic downturn. This is precisely what has happened and why the country is faced with such a grim situation today.

The second problem with the model was the utter disregard for building the export capacity while allowing imports to increase. No country has developed without developing the capacity to pay for increased imports with export earnings. While exports grew very slowly, imports galloped ahead, producing a sharp trade deficit which had to be financed by obtaining external finance. The circle was thus complete.

The third problem related to the neglect of domestic resource mobilisation through reforming the tax system. Tax rates were lowered in keeping with the advice received from some external development and financial institutions that worked closely with the Musharraf regime.

At the same time no serious effort was made to broaden the tax base. Out of a population of 165 million, there are about two million people who pay taxes. A significant proportion of these are salaried people. Consequently, the tax-to-GDP ratio declined during the Musharraf period to reach the lowest level in the country’s history.

The fourth problem was the weakening of the state while the private sector was allowed a much greater space to operate. This produced a serious imbalance. To these four problems I can add several more. But the point is that while putting in place a strategy for combining both short-term and long-term measures for economic reform, we need to start with a careful review of what went wrong. This is a job for the Planning Commission.

Colossus of Rhodes

IT may not straddle the port as its predecessor once did, but in terms of sheer luminosity and eye-catching height the new Colossus of Rhodes will not disappoint. Nor will it fall short of the symbolism that once imbued the ancient monument.

Twenty-three centuries after craftsmen carved the legendary statue that has inspired legions of painters, poets, playwrights and politicians, a new world wonder, built in the spirit of the original Colossus, is about to be born on the Aegean island. After decades of dashed hopes, the people of Rhodes will fulfil a long-held dream to revive one of the world’s seven ancient wonders — thanks to the promise of international funding and the East German artist Gert Hof.

“It will be a unique architectural creation,” said the island’s mayor, Hatzis Hatziefthimiou, presenting what is likely to become one of the 21st century’s largest artistic projects in Dubai last week.

“We want to make it a work of global appeal and significance.”

Like the original, erected in homage to the sun god Helios by the master sculptor Chares of Lindos, the new Colossus will adorn an outer pier in the harbour area of Rhodes, and be visible to passing ships.

And like its ancient namesake, the modern-day wonder will be dedicated to celebrating peace and built, at least in part, out of melted-down weapons from around the world.

But unlike the ancient Colossus, which stood 34 metres high before an earthquake toppled it in 226BC, the groundbreaking work of art is slated to be much taller and bigger. And unlike previous reconstruction efforts, officials say the Cologne-based design team is determined to avoid recreating a replica.

In the past, new Colossus aficionados have persistently run up against the objections of Greece’s powerful lobby of archaeologists.

A proposal to recreate the legendary statue in the run-up to the 2004 Athens Olympics whipped up such controversy that opponents claimed its glitzy, we’re-bigger-than-you overtones were not only offensive but defiled rather than boosted the country’s cultural heritage.

Instead, in the spirit of the 21st century the new Colossus has been conceived as a highly innovative light sculpture, a work of art that will allow visitors to physically inspect it by day as well as enjoy — through light shows — a variety of stories it will “tell” by night.

— The Guardian, London

OTHER VOICES - Sri Lankan Press

Responsibility rests on world leaders

Ibrat

THE UN’s Culture for Peace conference that was convened at the initiative of Saudi King Abdullah and attended by leaders from across the world … adopted a resolution presented by the Saudi monarch that religion cannot be used to justify terrorism or promote intolerance and bigotry.

This conference was held at a time when a general belief prevails that religion is the root cause of conflicts among countries and that there is a clash between civilisations. Today a war is going on in the Middle East, while the fire of conflict has encircled Central Asia, Pakistan and Afghanistan. Apparently, it appears that this is a war between the West and the Islamic world. A section of the media and intellectuals in the Islamic world as well as some conservatives and the media in the West have been engaged in strengthening the idea that it is a war between Islam and Christianity. This has become clearer after 9/11.

Although the war started by the US is linked to strategic interests it has been termed as a war against terror and now is being promoted as a war against Islamic terrorism. It cannot be ruled out that the war started by the US gave rise to such realities which are no more an idea. In some countries, militants are fighting this war as a sacred one. This idea is gaining ground which is a very dangerous sign.

An in-depth study reveals that some important countries introduced religious intolerance in international relations. But the world community does not dare to blame them for this offence. The US did not attack Iraq on religious grounds nor did the Al Qaeda exist there. When Iraq was turned into a graveyard and no weapons of mass destruction were found, the bogey of Al Qaeda was created to justify this attack. Later, within a short span, a war that started for altogether different purposes was turned into a religious war. For this act all those leaders were responsible who were sitting at this conference.

The US president told the conference that he was directed by God to restore peace and would not tolerate those who were spreading religious violence. He is the same man who while attacking Afghanistan and Iraq had said that with these attacks God would be happy. It is really strange that in the 21 century, the president of the US which was a secular state should be saying such things….

A few years ago, the US thought that it could easily conquer Afghanistan and Iraq and it found a directive from God to do so. Today when defeat in the war against terror is clear [the president] has been directed to restore peace.

Keeping in mind the subject and the times no doubt this conference was very important. But world leaders will have to do more. It is not a matter of war between Muslims and Christians and Jews. The mother of all ills … are the think-tanks and world leaders whose wrong policies led the world to this situation. Today, if world leaders really want to restore peace and introduce a culture of peace, they will have to implement this resolution in letter and spirit. — (Nov 16)

— Selected and translated by Sohail Sangi