KARACHI, July 10: Centralized planning is staging a comeback after a prolonged suspension but with a difference - without centralized controls witnessed in socialist economies.
The long-term development planning was held in abeyance as policy-makers grappled with unsustainable fiscal and balance of payments deficits, depreciating exchange and high interest rates. The agreed IMF-funded one-three years programmes focused on fiscal stability put the ninth five-year plan on the back burner.
Now, the National Economic Council has directed the Planning Commission to prepare a five-year plan (2005-2010) that coincides with official decision to make an exit from the IMF-funded programmes after the current Poverty Reduction and Growth Facility (PRGF) expires in November 2004. The five-year plan is expected to become operative from the next fiscal year.
Earlier, market reformers viewed the central planning as inefficient and thought that the resource allocation could most economically be made by the market. They held the Soviet model responsible for the collapse of the Soviet Union that combined the central planning with a command economy.
The volatility in markets invites intervention of the regulatory bodies. The market indiscipline is managed by right dozes of regulation. Similarly, the business cycles of boom and bust may be minimized by government intervention, particularly through the centralized planning but voluntary compliance by the private sector. The Public Sector Development Programme (PSDP) may remain mandatory.
It is recognized that massive government spending revives sagging economies quickly. Official intervention was a major factor in economic successes of the Clinton administration.
The intervention differs from economy to economy, depending upon the nature of the problem. It can be of a voluntary nature to persuade the private sector indirectly or direct intervention, which can be of short- or long-term duration. China and Malaysia have achieved high economic growth rates, with fixed exchange rates pegged to the dollar.
In the past, an updated industrial investment schedule giving broad indication of feasible new capacities that could be set up by investors, was announced periodically. This was discontinued. The entrepreneurs and development financial institutions (DFIs) were left to decide what was economically feasible. The outcome was creation of excess capacities in traditional industries like sugar, cement, textile and automobiles. Unable to compete, many industrial units and DFIs went sick and had to be closed down. It is after more than a decade that utilization in these industries has now touched 90-95 per cent.
The DFI concept is dead. Commercial banks do not lend for more than five years and are not geared for project financing. The capital market is not yet fully developed. It is the investment schedule that can serve as a guideline for investors, bankers and the capital market.
Leading entrepreneurs want the government to provide them guidance on what kind of capital spending they can make. One of them told Dawn that the authorities should look at the balance-sheets of big business houses, with surplus funds, and recommend feasible projects. Good macro-economic policies and enabling environment have been provided. It is time for economic managers to get to nitty-gritty. The focus should be on micro-economic problems, specific projects and the efficiency of the administrative/implementation machinery.
After an exit from the IMF facility, the economic managers would have much greater responsibility to evolve an appropriate development strategy and a model of economic growth that is home grown. It needs a vision and change in mindset. It has to be recognized that it is the ownership of programmes and policies that energies people to achieve national goals.
The success is most outstanding where development programme is driven by a nation's people. Planning Commission deputy chairman Dr Akram Sheikh says that economic growth will be engined by people and technology under the five-year plan which is now being formulated. That would make significant difference.