Charter of economy
Issa Khan Durrani

AVERAGE GDP growth stood at a growing 6%, foreign reserves placed comfortably at $16.2billion, FDI flows at $8.21 billion remained record breaking and KSE reaching the unassailable 15000 points ‘myth’, yet all gone down the drain…… for details please refer to Elections 2008 results. Year 2008 elections have passed, results are declared and a new government is on its way to take charge. This brings an opportunity for the political parties to live up to their manifestos and finally give people their long-awaited rights i.e. food, clothing, education, freedom and above all life-safety. However, this opportunity of undoing past towards creation of a better and brighter future is beset with certain economic challenges that the new government has to borne. Defying the past lines of governance and management should be the key, while keeping the undying commitment the driving force.
The much trumpeted average economic growth of 6%-plus in the last five years, has been clichéd by every spokesperson, both official and pseudo-official. Sustainability of the momentum of this growth at socially necessary rate however, is the matter of concern and, apparently, crisis. It is believed that for past few years, Pakistan’s economy has witnessed a one-legged growth where consumption has been the driving engine. The pattern of purchase in recent times has been such, that imports of consumer products, both regular and luxury, has been deliberately promoted. Even the investment that came into Pakistan, whose figures remained the headline for the government, constitutes mainly the investment in consumer products or services. Opening of foreign fast food chains or even the influx coming into telecom sector is perhaps not that braggable. Adding insult to injury, the banking sector started promoting lease financing of consumer goods which while created fortunes for the banks at one hand, caused inflation on the other, rendering economy dependant on consumption. While the government officials kept smiling about the record FDI flows coming into Pakistan, the real investment sector remained capital-starved. Virtually unlimited supply of remittances, that came during the post 9/11 period, coupled with military and all other forms of aid, in effect, went in drain, as it was directed mainly towards the unproductive real estate sector or the speculation-driven stock market that remains vulnerable to sentiments of the giant brokers. Only if the government had smartly mobilized this manusalva of foreign inflows towards real investment, our economy would have been stable and the sustainability of growth that has become a buzz phrase these days, could have been possible. Currently, the chances of keeping up the growth are, somewhat, bleak therefore the upcoming government has to consider how to take the economy from the path of consumption-led to investment-fueled growth.
Gettin-outa-hand inflation, by far, remains the most disturbing fall-out among all the economic odds that the new government is now destined to inherit. Impact assessment studies show that inflation pushes a common man into the viscous circle of poverty that in-turn breeds social tension and cultural erosion. Inflation has been a screaming (read screaming) evidence of the flawed economic policies as pursued by the leaving government. It is again projected to be above an upsetting 7.5% against the target of 6% this fiscal year. Thus, the impact of inflation has been and will further be felt by both the common man and the business community. The basic philosophy underlying inflation is the supply-demand gap, where both the supply and demand-side factors have showed-up contributing towards the escalation of prices in case of Pakistan. Outrageous consumer financing, remittances and military and other forms of funds together, have played role in triggering demand. Low agro-industrial productivity, hoarding and profiteering on the other hand, have worked in curtailing the supply. The inflationary pressures have been back-breaking for a common man who now finds his household budget to be more than 5- times that of the one which was a few years back. Hyper food inflation that stood around 14% last year (and is also expected to stay at the same level in the year to come), draws special attention and needs to be contained immediately. With the surging cost of input factors of production, the supply gets further limited and cyclically results in further inflation.
Inflation can be comfortably attributed to be the cause of widening trust-deficit between the rulers and the ruled, as depicted from the results of elections as well. At the same time, it will also prove to be a major yardstick for the competency and commitment of the policy makers of the new government. The upsurge in the current account deficit to an all time high level of projected $8 billion poses another challenge for the upcoming government. The statistical record for the past six months of the current fiscal year shows that the trade imbalance has expanded 27% from the last fiscal year. This mounting trade deficit is attributable to both deteriorating exports performance and the swelling import bill. Exports have been deteriorating due to emergence of fierce competition in the global market, courtesy WTO and its arrangements. Chinese products particularly, have dominated the global market where not only the developing but many developed countries are being offended by their performance. High input cost and inefficient methods of production constitute the elevated production cost which results in highly priced products that are subject to lower performance in the international market. Finally, the lack of diversification and value addition in Pakistani products form a significant reason of the failure of our exports.
On the import side, the increase in import of machinery including agricultural, electric and telecom apparatus, raw cotton, that rose to 150% this year and consumer durables including TV, refrigerators, cars etc, have made the import bill jaw-droopingly gigantic. The import of oil, that makes a significant portion of our imports, created further problem making the exceptional import growth overshadow the somewhat humble growth in exports. Talking about the freight payment, for the last three years, imports are being financed through current account inflows. However, since the growth in non-debt-creating foreign exchange inflows has not kept the pace with the growth in imports, it has therefore, given further impetus to the widening current account deficit. In addition to this, the external debt burden indicators have also started deteriorating. According to the SBP Annual Report, external debt as percent of Foreign Exchange earnings has moved from 120% in 2006 to 124.8 % in 2007. Similarly, the indicator of debt caring capacity reserve to total external debt has weakened from 28.9% in 2006 to 33.2% in 2007. This essentially means that any debt-creating financing for imports will be potentially disastrous for the macro-economic stability in our country. The horrifying CAD is again nothing but the result of bogus policies pursued in yester years, however, with the transition of government (and power, thereof), the leaving regime will pass the buck to the new elected government.
Just where the current account deficit is swelling, the fiscal deficit has also inflated to an alarming level causing a major macro-economic imbalance. This has forced the government to rely more and more on internal and external borrowings while the capacity of our economy to absorb any more debt has already been tarnished as mentioned already. The all-time-high fiscal deficit, as it stands today, has reached this record height because of various ills in the policies pursued. The inherently contradicting mix of tight monetary and loose fiscal policy is attributed the most towards widening of the fiscal gap. Monetary policy has been kept tight in order to control inflation while the fiscal policy adopted was kept expansionary to attain attractive growth figures. As a result of this apparently, unreasonable blend of policies, though the economy kept its pace of growth at one end, at the other end, fiscal deficit arose tremendously. In addition to the unwise pursue of such policies, the tax collection also remained a significant cause of the disturbing fiscal gap. Although the tax receipt grew many-folds in absolute terms where it touched a remarkable Rs.846 billion figure, tax to GDP ratio however, lagged way behind the required level. Not only that, but the composition of tax collection these days remain largely skewed towards the indirect taxes which also remains a matter of grave concern. While indirect taxes (through inflation) cause serious set-back to the masses, many real estate giants or stock market players remain legally-immune to it, since large chunk of their earning has not been or still is not subject to taxes. Thus, when a common man empties his pockets to pay his share of tax, the big fishes keep minting money. Some of the major problems in tax system prevailing in Pakistan are over-reliance on a particular base (trade, for instance) and weak tax administration because of corruption and inefficient collection mechanisms. Many reforms have taken place in the recent past which are more proposed then practiced. Tax to GDP ratio however, remains a serious problem that will linger on to the next government.
Energy crisis happens to be another challenge that will be faced by the upcoming regime. Global upsurge in oil prices, increase in CNG prices along with shortage of electricity, all contributes to the scarcity of power and energy. This does not only impact the daily life directly in form of load shedding or escalating car fuel prices etc but also hampers the industrial production, indirectly causing inflation. While the sky rocketing oil and gas prices are uncontrollable global phenomena, their consumption can be carried out efficiently ensuring minimum loss through waste to do the least. Similarly new and improved, cost effective ways of power generation should be devised and bio gas and solar energy for example should be utilized to tackle the problem. It will be the new government’s responsibility to realize the gravity of this crisis and come up with short term and long run solutions to it. Finally, there are some other challenges that are difficult to anticipate or articulate since their emergence is solely dependant on the policies that new establishment will adopt. Where Pakistan’s foreign policy has never in its history been anti American, a not so pro American foreign policy would be enough for America to draw out its military aid and all other complementary funds from global donor agencies that last government enjoyed to its fullest. This will result in further congestion of the fiscal space that is already disappearing because of the previously discussed reasons. Similarly, it is opinioned that many businessmen view political governments to be unstable in Pakistan and therefore will be hesitant to invest in this risky market. This can certainly give a huge blow to our FDI flows pattern and hence will effect our fiscal capabilities.
The new government, will thus surely, be at the receiving end to cope with all these challenges where the cost of such indifference could well translate into an economic catastrophe. It is right time for political parties to distill lessons from history and take the slogan of growth, development and welfare beyond rhetoric. Increased social sector spending, improving macroeconomic indicators, and infrastructure development should be the strategic tools while aiming at giving relief to masses in short-term and economic sustainability and development in long run. Wide spread poverty and endemic unemployment, monstrous inflation and water, energy crisis, mammoth trade imbalance and swelling fiscal deficit, shrinking foreign reserves and evaporating debt capacity, a picture at Pakistan’s current economic state. Election 2008, will it change? We our keeping our fingers crossed.



The war is on: Caricatures conspiracy
Sadaf Yunus

THE Netherlands, traditionally on of the most liberal countries in Europe, in now at the centre of a malicious campaign to defame Islam and the teachings of the Holy Quran. The Netherlands and other western countries claim to uphold values of tolerance, equality and justice. Yet when it comes to Muslims these values suddenly disappear. Torture, kidnapping and detention without trial are now acceptable if applied to Muslims. Muslims defending their lands from occupation are labeled ‘unlawful combatant’ where the Geneva Convention and other international norms are suspended.
Denmark’s leading newspapers have reprinted the caricatures of the Holy Prophet Muhammad (peace be upon him), that had triggered rioting in the Muslim countries two years ago. The newspapers have claimed that they had republished the images to show their firm commitment to the freedom of speech after an arrest of three people accused of plotting to kill the man who drew the caricatures. When the images were originally printed by the Danish Jyllands-Posten newspaper as part of a series of 12 depictions in 2005, it had sparked global protests and violent demonstrations in Muslim countries. In early 2006, some Danish and Swedish papers had reprinted the caricatures again. Massive protests swept across the Muslim world in early 2006 after the publication of the caricatures. Danes watched in disbelief as angry mobs burned the Danish flag and attacked the country’s embassies in Muslim countries. Danish products were boycotted in several Muslim countries. Now, on 13th February 2008, republication was again carried out in about 17 foreign dailies.
Kurt Westergaard, the 73 year old illustrator and his wife and some other cartoonists have been under police protection and have gone into hiding for quite some time. Islamic law opposes any depiction of the Holy Prophet (peace be upon him) for fear it could lead to idolatry. This current episode of caricature printing has again brought out the worst of the Ummah on display, with any signs of the more disciplined, balanced refutations hidden some where deep within. No one can argue with the inappropriate nature of the cartoons, with the content only serving to add further fuel to the outrage. Still, publication of such or even more egregious material is no basis for what has transpired lately. Burning embassies, threatening to kidnap people based on their color or nationality and unleashing destruction on anything that comes across is, to put it conventionally, unforgivable. However, looming are fundamental, burning and unavoidable questions over not just the Muslim lands, but surely around the world. Islam is no laughing matter. The publication of the caricatures is an insult to the Muslim intellectual capacity. We, Muslims, are not against the freedom of speech but are infact, opposed to the continued discrimination of the Muslim minority.
Of late, it has also been reported that Denmark’s national library is to risk re-opening an international political storm by housing the depictions of the Holy Prophet (peace be upon him). The royal library in Copenhagen which was founded in the 17th century by King Frederick III and home to many historic treasures, has declared the drawings to be of historic value and is trying to acquire them for ‘preservation purposes’. The library, widely acknowledged as the most significant in Scandinavia, has agreed to take possession of the caricatures on behalf of the museum of Danish Cartoon Art. The library association claims that ‘they were interested to keep the images safe for future generations since they have created history in Denmark’. The history of western animosity to Islam is centuries old. It seems in some western intellectual circles that hatred is the only qualification required to become an authority on Islam. One should keep in mind the fact that Islam is a religion of peace. Islam has from birth stressed the use of reason and logic. The very word Islam in Arabic means peace, purity, submission and obedience. An ideal picture of peaceful coexistence and cooperation cannot be realized if the West lives in constant fear that its hegemony will be lost, and therefore does its best to prevent others from developing. To avoid wars, however, the world community must try to eradicate as many of the causes as they possibly can. We must thus stand for justice and against all kinds of unfair treatment and aggression.
The current battle between the West and Islam is essentially the timeless and permanent battle of Good vs. Evil. But as 21st century dawns, this war has become more grave. The West may be roundly superior, but there is still plenty of contradictory, unsteadfast, hypocritical, corrupt and even scummy in their own philosophy and culture. And the whole world knows it. The West foolishly fancies that the rest of the planet is largely unaware of their failures and deep-seated fundamental inconsistencies. They think that the rest of the world basically has no idea about their limitations. So what is the problem with the West? Do they discriminate against Islam because of their own inadequacies? Their lack of social fabric. Their deteriorating moral values. No belief in the institution of marriage, single parent families of adopting children. Dumping of their elders in old homes. Gay rights in the name of culture. Rehabilitation centers overflowing with drug addicts of their society. Stress, anxiety and depression proliferate in every aspect of their existence. Their own agitation and materialism leads them towards such a behavior which is unacceptable to any religion be it Christianity, Judaism etc. So they focus on Islam as their object of frustration and exploitation and in doing so tarnish their own image the world over.






Plebiscite: The only way out
Amjed Jaaved

KASHMIR issue has remained unresolved since creation of two independent states, India and Pakistan, in 1947. This issue led to wars between the two countries in 1948, 1965, 1971 and 1999, besides a quasi-war or military stand-off (operation parakaram) in year 2001-02. Kashmir is considered a dangerous flashpoint as both India and Pakistan are nuclear powers. In his memoirs In the line of fire (pp.302-303), President Musharraf had proposed a personal solution of the Kashmir issue. This solution, in essence, envisioned self-rule in demilitarised regions of Kashmir under a joint-management mechanism.
Indian government mis-construed Pak President’s tentative solution as a deviation from Pakistan’s legal stand that is resolution of the dispute in accordance with the UN resolutions. Pakistan’s Foreign Office has recently clarified that ` President Musharraf’s proposals on Kashmir issue or any other suggestions for out-of-box solutions did not amount to a shift in its stand that the dispute be resolved in line with the UN resolutions’. There are fifteen United Nations resolutions guaranteeing right of self-determination to the Kashmiris. Despite its best efforts, India was not able to get the ‘India-Pakistan Question’ deleted from the UN agenda. As such, the UN observers remain posted along the two sides of the Line of Control.
The inhabitants of the state of Kashmir would themselves decide to accede to India or Pakistan (UNCIP Resolution1949). India’s attitude negates the cardinal principles in inter-state relations, that is, pacta sunt servanda `treaties are to be observed’ and are binding upon signatories. Sir Owen Dixon’s plebiscite’s proposal is the best solution, preceded by demilitarisation and self-governance. It is a misperception that ‘the United States no longer supports a plebiscite in Kashmir’. This misperception was created by Congressional testimony, given by John Kelly, former Secretary for Near Eastern and South Asian Affairs, in Washington D.C. on March 6, 1990. In his testimony, Mr Kelly, in reply to senator Solarz’s question, inadvertently admitted that the United States was no longer in favour of a plebiscite to be held in Kashmir. But, the US state Department corrected Mr Kelly’s faux pas in 1993 _ John R. Mallot, the US State Department’s point man for South Asia told the House Foreign Affairs Sub-Commmittee on Asia and the Pacific on April, 28 1993 that John Kelly ‘misspoke’ in 1990 when he said that the United States no longer believed a plebiscite was necessary in South Asia. Mallot clarified that Kelly made his comment after ‘continued grilling’ by the panel’s chairman, Stephen J. Solarz of New York. A reference to Solarz-Kelly conversation and corrective policy action taken by the US State Department finds mention in Mushtaqur Rehman’s book Divided Kashmir (pp.162-163), published by Lynne Reinner Publishers, London in 1996. Nevertheless, the correction remained un-noticed by most people misguided by Kelly’s speech. The biased nature of Solarz’s questions is obvious from the following extract of Solarz-Kelly conversation.