Refinance for exports

Decline in exports during the current fiscal year so far is one of the major areas of concern. In order to establish that the banking system was not responsible for such a trend, the State Bank on 5th December issued a statement saying that the export refinance was being offered at a rate of 6.5 percent, or 4 to 4.5 percent below six months’ KIBOR, and the positive impact of this measure on the export sector during July-November, 2006 had been Rs 1.07 billion.
Overall, the State Bank released Rs 137.9 billion during the current year as against Rs 120 billion last year. Other incentives offered to the export sector include the debt swap option and the long-term finance scheme for export-oriented projects (LTF-EOP) and research and development support. Pursuant to the announcement of the debt-swap option under LTF-EOP. The SBP has provided finance of about Rs 13.86 billion through commercial banks to the value-added textile industry and the spinning sector.
In addition, the industry has availed of Rs 8.40 billion under the scheme for new projects. The State Bank statement also revealed that various offices of the SBP BSC had released Rs 8.8 billion and cleared about 79,000 cases since July, 2005 under the research and development support scheme. During July-October, 2006 alone, 20,170 cases involving Rs 2.7 billion were cleared. With all these incentives, the export sector, particularly the textile industry, was expected to rationalise its cost structure and increase exports but the expectations do not seem to have materialised.
By issuing this statement, the State Bank, in our view, has effectively refuted allegations that the central bank of the country was not lending a helping hand to enhance exports of the country, particularly textiles and other related products. It seems to have taken this unusual step of going public, against the backdrop of a negative growth in the exports of the textile sector and the growing criticism of the SBP for not easing its credit policy to accommodate the demands of the textile industry.
We feel that such a criticism of the State Bank was unwarranted. The present refinance rate for export sector is negative in real terms and highly subsidised. While asking for a further reduction in export refinance rate, the exporters deliberately fail to recognise that inflation in other countries is generally much lower than in Pakistan. Any further reduction in interest rate would only add to the distortions, lead to more segmentation of credit market and promote the misuse of credit. Such a measure will also be a backward step in the financial sector reform process.
In our view, there are other more potent reasons for the decline in exports which are needed to be looked into. The recent weakness in export growth is due mainly to increased competitive pressure from China, India and Bangladesh in textile and clothing items in the post-MFA regime. Increased competitive environment in the international market has obviously taken a toll of Pakistani exports.
Clearly, there is a need to provide greater support to exporters but provision of subsidies in any form including interest rate concessions carries significant economic costs in the long run. Therefore, as emphasised by the SBP in its annual report released on 2nd December, the policy thrust must be on reducing the cost of doing business, improving infrastructure including removing transportation bottlenecks, enhancing labour skills, strengthening managerial capacity, reducing unit labour costs and providing a reliable supply of energy at competitive price relative to regional countries.
Energy shortages could unfortunately become more acute in the near future, hurting the export sector further. Corrective policies and initiatives are needed to be taken from short-term as well as long-term perspectives to make the necessary improvements in all these areas. The energy sector, in particular, is crying for bold and imaginative measures at the earliest. Needless to say that the policy of free floating exchange rate also needs to be maintained to let the Pak rupee find its true value in the exchange market.
 

Election as way out

By condemning Mahmoud Abbas’ suggestion for early elections, Hamas has made the already arduous task of forming a national unity government that much more difficult. Early elections could break the stalemate. More likely though, they will not. Hamas is worried it will not repeat its stunning January electoral victory and it is probably right.
Things have not turned out as Hamas or the people who voted for it expected. Peace negotiations — including a state, the right of return, prisoners — have not moved one inch during this period. There has been a debilitating six-month siege on Gaza which has only just ended; the Palestinians became an isolated people accorded pariah status. Hamas’ refusal to meet the principles of the Quartet — recognition of Israel, renouncing violence, and accepting previous Palestinian-Israeli agreements — has in turn, strangled the Palestinian economy. Till today, violence continues to flare in the occupied territories, instigated by Palestinians who have not received their salaries in months.
When the Palestinians turn to Abbas, who has relatively good relations with the international community, they see he has helped funnel nearly $250 million in aid this year from Arab countries meant to counter the effects of the Western boycott. To blame Hamas or those who support it for the cutting off of Western aid is to do a serious disservice to the concept of human rights and democracy. Hamas is the elected voice of the Palestinians. They are in power — not by chance or by force, but by the free will of Palestinians who practiced their inalienable right to choose their own leaders. That the West did not agree with the selection process should not have been a problem — but it has become one.
The cold reality is that Western aid and recognition will not be forthcoming as long as Hamas does not recognize Israel. Born from that stalemate came the idea of a national unity government, a government that can at least in style, if not in substance, give implicit, tacit approval that there is a state called Israel. But the absence of guarantees that sanctions on the Palestinians will be lifted the moment the new government is formed and becomes functional, the insistence of some segments within Fatah that the next government be a government of technocrats or experts, which Hamas said would be ineffective and weak; and the yet-to-be resolved issue of the captured Israeli soldier have all delayed this government. Thus, Abbas’ suggestion for early elections is a quick way out of the dilemma and a move that could lead to progress on many fronts. It should not be construed, as Hamas has described it, as a coup or an affront to the Palestinians.
Prime Minister Ismail Haniyeh’s most recent statement made in Iran — that Hamas would never recognize Israel and would fight for control of Jerusalem — makes it increasingly unlikely a national unity government will be formed and thus all the more reason why early elections will be called. They may be the only way left for the Palestinians.

—Arab News