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There are a lot of rumours going around about the caretakers and the likely candidates. Before deciding on this, we need to be clear on what role do we expect them to play. Do we plan to use them to organise clean and transparent elections? Or do we want them to fight corruption and take the corrupt to the task? Indeed, the names of some economists affiliated with or those who have been affiliated with the international financial institutions are being proposed. In 1993, the caretaker government comprising of technocrats working for the IMF and World Bank including Moeen Qureshi, Hafiz Pasha, etc was installed.

Those who had served in the caretaker set up in 1993 were accommodated in permanent setups post-1993 as financial advisers, commerce ministers, deputy chairman planning commission, etc. During the 2000s, more technocrats like Ishrat Hussain, Nadeemul Haq and Shahid Kardar joined the bandwagon. There is a vast network of ‘technocrats’ who have been serving Pakistan during the last three decades. Some of them are serving the present government, but the moment they sense the government is nearing completion of its term or might be removed, they become very vocal against government’s economic policies and disassociate themselves from the government. They are playing on both sides of the wicket, not only batting and bowling but taking care of the duties of the umpire as well. Therefore, an evaluation of their economic policies for the last three decades is in order.

Till the 1980s, before handing over of the economy to the ‘technocrats’, Pakistan was a prosperous country with high rates of growth, with overall prosperity apparent from the lifestyles of the population. We were not borrowing from the international financial institutions for budgetary support during this period. The policies unleashed in 1993 by the caretakers were continued by elected governments whose economic ministries were taken over by the same ‘technocrats’. Increase in public debt and its servicing and the neo-liberal policies unleashed from 1993 onwards badly affected the rate of growth of the economy during the 1990s.

The standard IMF policy prescription for countries faced with balance of payment crisis is to devalue the currency which through a reduction in export prices is expected to expand the demand for exports. By making imports more expensive, the demand for imports is expected to be reduced. This narrative does not take low elasticity of demand and supply of our exports and imports into cognisance. With low demand and supply elasticities, the expansion in exports and the reduction in imports do not happen. As a result, the trade deficit, instead of declining, actually widens. Moreover, devaluation by increasing the price of imports unleashes inflation, which the IMF tries to curtail through monetary tightening, resulting in a decline in investments, output and employment. Although the fallout on the economy and the people is horrendous, the lenders and those drawing their salaries and pensions in foreign currencies stand to gain from devaluation.

Countries bring their best people forward to govern, especially in times of crisis and war. Why are we proposing technocrats whose performance has been so pathetic, who are corrupt, and whose loyalties are suspect?

The resulting decline in the growth rate had a decelerating effect on personal incomes, business profits and government revenues. Moreover, manufacturing value-added as a share of GDP and manufacturing employment as a share of total employment declined during the 1990s. This phenomenon referred to as de-industrialisation manifested itself in the form of closure of 5000 industrial units, downsizing and restructuring of State Owned Enterprises (SOEs), the decline in investments, migration of industrial units that became non-viable due to the escalation in their cost of production, rendering millions unemployed. The per capita income which was more or less stagnant during the first few years of the 1990s declined in 1994, 1997, 1998 and 1999. As a result of a decline in the growth rate, employment rate and per capita income, overall poverty increased to 50 percent and in rural Sindh to 85 percent according to the Asian Development Bank estimates. The ‘Durkheimian-Modernisation’ perspective linking economic structure to crime variables was substantiated by the increase in larceny, robberies, murders and suicides. These ugly manifestations were reflected in a manifold increase in cases of car snatchings, robberies, murders and two to three suicides daily reported in the newspapers during the 1990s. The country was engulfed in a socio-economic-political turmoil.

The decline that set in the 1990s has continued unabated till today, with minor aberrations from time to time. The rate of growth of the economy has not been restored to its 1980s level, what to talk about the golden age scenario of the 1960s. Twin deficits continue to worry everyone, while the government’s extravagant lifestyles continue. These failed technocrats are now trying to impose failed prescriptions that instead of resolving our crises are pitting us deeper into the quagmire. Their total preoccupation is with devaluation, which seems to be the panacea for all our woes. That devaluation has been tried for more than 25 years with no positive results, except for benefitting creditors and those getting their salaries and pensions in foreign currencies. So what these technocrats are advocating is in their own best interest. With one stroke of the pen they make the country poor and themselves rich.

Technocrats with links to foreign countries, whose names are floating around for the caretaker setup, have not only messed up our economy, but they have also disclosed state secrets to the USA. According to Rauf Klasara, Hafiz Pasha and Moeen Afzal disclosed Pakistan’s state secrets to the US during a visit to that country in 1997. According to Justice Jawad Khawaja, Ishrat Hussain’s name was tainted in a corruption scandal related to the privatisation of Muslim Commercial Bank (MCB). But in spite of their anti-state activities and corruption, their names are forwarded to for caretaker prime minister and finance minister’s slots. This reflects two important things: one, corruption is not the issue, and the current drive against corruption is politically motivated. Two, disclosing Pakistan’s state secrets is not a serious issue. You are welcome in the corridors of power as long as you are loyal to the US. We are an incorrigible nation as we cannot learn from our own recent experience related to the betrayal by Hussain Haqqani, whom we had elevated to the position of ambassador to the US.

Judgments by superior courts have given a verdict against appointing Pakistanis holding dual nationality on high positions as this involves a conflict of interest. But some technocrats whose names are floating around for appointment as caretaker prime minister and finance minister are foreign nationals. Why are institutions working in isolation unaware of the verdict passed by the superior court regarding the appointment of dual nationality holders on important positions? Different institutions should work in tandem on important national issues honouring the judgements passed by the honourable court.

In his recent book The New Confessions of An Economic Hitman, John Perkins discusses the role played by technocrats whom he calls ‘economic hitmen’ in colonising third-world countries on behalf of banks, corporations and the US government. ‘Economic hitmen are highly paid professionals who cheat countries around the globe out of trillions of dollars. They funnel money from the World Bank, the US Agency for International Development (USAID), and other foreign ‘aid’ organisations into the coffers of huge corporations and the pockets of a few wealthy families who control the planet’s natural resources. Their tools include fraudulent financial reports, rigged elections, payoffs, extortion, sex and murder. They play a game as old as empire, but one that has taken on new and terrifying dimensions during this time of globalisation.’

General Qamar Bajwa recently stated that Pakistan is facing a ‘hybrid war’. This implies that the cabinet we are choosing is a war cabinet. Countries bring their best people forward to govern them especially in times of crisis and war. Why are we proposing technocrats whose performance has been so pathetic, who are corrupt and whose loyalties are suspect? Pakistan deserves better than that. We should strive to bring the cream of the cream to the top. If we want to emerge victorious from this war, we should not appoint selectees of powers that are inflicting this hybrid war on us. We must select honest, competent and patriotic Pakistanis who do not have links with foreign countries/agencies so that they give a benefitting response to the hybrid war challenges staring us in the face.

The writer can be reached at drwizarat@icloud.com

Published in Daily Times, May 13th 2018.
https://dailytimes.com.pk/239179/an-ideal-caretaker-government/

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https://m.urdupoint.com/daily/livenews/2018-04-13/news-1488547.html

https://www.google.com.pk/amp/s/nation.com.pk/14-Apr-2018/-us-dictating-pakistan-on-caretaker-set-up%3fversion=amp

http://m.dunya.com.pk/index.php/city/karachi/2018-04-14/1235345

Balance of Payment Crisis

December 18th, 2017 | Posted by crestat in Uncategorized - (0 Comments)

BALANCE OF PAYMENT CRISIS MANAGEMENT – AN ALTERNATIVE TO THE IMF STRATEGY

Professor Dr Shahida Wizarat,

Dean CESD, Director Research, Chief Editor PBR, HOD Economics, IOBM.*

  1. Introduction

Pakistan’s economic managers affiliated with WB – IMF are writing articles with deceptive captions like Doing Away with the IMF. But the write up advocates tried and failed IMF prescriptions of the 1990s. And these articles conclude with the same advise Pakistan has been given since 2008 that Pakistan should go to the IMF if no other options are available. And eventually all other options are closed systematically, and we are told that there is no other option except going to the IMF. These failed technocrats are trying to impose failed prescriptions, that instead of resolving our crises are pitting us deeper into the quagmire. Their total preoccupation is with devaluation, which seems to be the panacea for all our woes. That devaluation has been tried for more than 25 years with no positive results, except for the creditors and those getting their salaries and pensions in foreign currencies. So what these technocrats are advocating is in their own best interest !

In this paper I go on to discuss the Balance of Payment Crisis in Pakistan in section 2. In section 3 the IMF strategy to deal with the crisis and its ramifications on the economy are discussed. In section 4 I have proposed an alternative strategy, which I will show is far superior to the IMF strategy. I first proposed this strategy in a paper in 2000, just refined it further in this paper. I will show that the strategy proposed by me is superior to the IMF strategy in terms of its effects on growth, inflation, debt burden, distribution of income and poverty.

I would like to thank Mr Irfan Lal, Assistant Professor Economics department, CESD, IOBM for help with data collection.

2.    Balance of Payment Crisis

There has been a sharp rise in the deficit on the current account from $4.9 billion in 2016 to $ 12.4 billion in 2017 (Table 1) which works out to be -4.1% of the GDP. This is attributable to a sharp rise in the trade deficit which increased from $ 19.3 billion in 2016 to $ 26.6 billion in 2017.

Table 1: Balance of Payments                                                Billion US $s
Items FY16 FY17
i. Current Account (A+B+C+D) -4.9 -12.4
A. Trade Balance -19.3 -26.6
Exports 22.0 21.9
Imports 41.3 48.5
B. Service Net -3.4 -4.3
Of which CSF 0.9 0.6
C. Balance on primary income2 -5.3 -5.0
D. Balance on secondary income2 23.2 23.5
Of which remittances 19.9 19.4
ii. Capital Account 0.3 0.3
1.Balance from current and capital accounts (i+ii)3 -4.6 -12.1
2.Financial Accounts4 of which: -6.8 -10.0
Direct Investment -2.3 -2.6
Portfolio Investment 0.4 0.2
Net acquisition of Financial Assets 0.1 1.3
Net Insurance of Financial Liabilities 5.0 8.8
3. Errors and Omissions 0.5 0.2
Overall Balance (-1+2-3) -2.7 1.9
SBP Reserves (excl. CRR, SCRR) 18.2 16.2
Source: State Bank of Pakistan

The increase in the trade deficit was due to declines in major exports (Table 2). Food and textile items add up to almost 75 % of our total exports and most exports in these two categories like fruits, vegetables, meat, cotton yarn, cotton cloth experienced declines in 20171.The decline in cotton yarn and cloth may be attributed to decline in raw cotton in the previous year by one quarter of total output due to switching to GM seeds. The expectation was that these will be prone to bollworms, was not the case. Other exports experiencing major declines in 2017 include all categories of food items except fish and fish preparations and spices, carpets and rugs, crude petroleum, cement, sports goods, surgical instruments, leather and leather products. This coupled with increase in import of different categories of machinery for CPEC, petroleum, food items and consumer durables inflated the import bill. Notice also the decline in remittances, portfolio investments and Coalition Support Funds (CSF), which also contributed to widen the deficit in the current account. Of these only the decline in the inflow of remittances is worrying. Portfolio investment is more like a ‘fair weather bird’ and is of short term duration, and can not therefore be used for financing long term needs. CSF is at the discretion of the US and cannot be relied upon. These balance of payments imbalances resulted in depletion of foreign exchange reserves from US$18.2 bn to US$16.2 bn in 2017 compared with the previous year.2

Table 2: Structure of Exports ($ million)
Particulars July-March Values in Dollars % Change in Values
2015-16 2016-17 P
Total 15,597.5 15,118.6 -3.1
A. Food Group 3,037.8 2,685.9 -11.6
Rice 1,376.2 1,170.7 -14.9
Basmati 316.9 293.1 -7.5
Other Rice 1,059.3 877.6 -17.2
Sugar 132.3 66.5 -49.7

 

Fish & Fish Preparation 240 276.3 15.1
Fruits 356.3 325.6 -8.6
Vegetables 150.6 113.2 -24.9
Spices 56.2 60.3 7.4
Meat & Meat Preparation 212.4 163.2 -23.1
Other Food items 513.8 510 -0.7
B. Textile Manufactures 9,362.3 9,278.9 -0.9
Cotton Yarn 989 938.6 -5.1
Cotton Cloth 1,685.3 1,581.2 -6.2
Knitwear 1,746.9 1,745.7 -0.1
Bed wear 1,508.6 1,585.7 5.1
Towels 597 578 -3.2
Readymade Garments 1,608.7 1,704.1 5.9
Made-up articles 471.6 485.1 2.9
Other Textile Manufactures 755.2 660.5 -12.5
C. Petroleum Group 128.9 139.2 8
Petroleum Crude 88.9 56.3 -36.7
Petroleum Products 39 50.4 29.4
Petroleum Top Naphtha 1.1 32.5 2,955.9
D. Other Manufactures 2,386.7 2,274.1 -4.7
Carpets, Rugs & Mats 74 61.2 -17.3
Sports Goods 234.6 225.2 -4
Leather Tanned 267.8 252.4 -5.7
Leather Manufactures 396.4 371.7 -6.2
Surgical Goods. & Med. Inst 262.7 250.6 -4.6
Chemical & Pharma. Pro. 588.5 621.5 5.6
Engineering Goods 134.3 126 -6.2
Cement 248 191.5 -22.8

 

All Other Manufactures 180.4 174 -3.5
E. All Other items 681.7 740.5

Source : Pakistan Bureau of Statistics (PBS)

1.    Balance of Payment Crisis Management – IMF Policy Prescription

The standard IMF policy prescription for countries faced with balance of payment crisis is to devalue the currency which through reduction in export prices is expected to expand the demand for exports. By making imports more expensive the demand for imports is expected to be reduced. This narrative does not take low elasticity of demand and supply of our exports and imports into cognisance. With low demand and supply elasticities, the expansion in exports and the reduction in imports might not happen, as a result the trade deficit instead of declining, might actually widen.

But matters don’t end here.    Devaluation by increasing the price of imports

unleashes inflation, which the IMF tries to curtail through monetary tightening, resulting in decline in investments, output and employment. And this is the “bitter pill” that has to be swallowed by those turning to the IMF. Although the fallout on the economy and the people is horrendous, the lenders and those drawing their salaries and pensions in foreign currencies stand to gain from devaluation.

IMF’s external sector strategy has been used unsuccessfully in Pakistan since the 1990s. While devaluation has not reduced the trade deficit, increase in interest rates to combat inflation has been summarised in my earlier study: “Consequences of pursuing such policies are: One, it tries to bring about a ‘recessionary adjustment’ rather than an ‘expansionary adjustment’. Second, the strategy tries to impose ‘across the board’ demand restraint rather than ‘selective’ and targeted demand restraint. Third, the cost of adjustment is borne entirely by the middle and poor segments of the society. As a result of these policies the rate of growth of the economy has been adversely affected. The decline in the rate of growth of the Gross Domestic Product (GDP) to 1.3 percent in 1996-97 was the worst in the recent economic history of the country. This was on account of dismal growth performance of the agricultural sector at 0.06 percent and the manufacturing sector at 1.19 percent in that year.  The growth performance in 1998-99 was again quite pathetic. The decline in growth rates is having a decelerating effect on personal incomes, business profits and government revenues. Moreover, manufacturing value-added as a share of GDP and manufacturing employment as a share of total employment have both declined during the 1990s. This phenomenon referred to as de- industrialization is actually a post- industrial phenomenon. Its premature occurrence in Pakistan along with the closure of 5000 industrial units, downsizing and restructuring of State Owned Enterprises (SOEs), decline in investments, migration of industrial units that have become non-viable due to escalation in their cost of production are rendering millions unemployed. The official figure of two million unemployed is heavily understated, in view of the prevailing economic conditions in the country. The per capita income which was more or less stagnant during the first few years of the 1990s decade declined in 1994, 1997, 1998 and 1999. As a result of decline in the growth rate, employment rate and per capita income poverty increased from 17 percent to 35 percent. The “Durkheimian-Modernization” perspective linking economic structure to crime variables is being substantiated by the increase in larceny, robberies, murders and suicides. These ugly manifestations of an unjust society are reflected in the form of manifold increase in cases of car snatchings, robberies, murders and two to three suicides daily reported in the newspapers. The country seems to be engulfed in a socio-economic- political turmoil.” (Wizarat, 2000)

This paragraph from my earlier paper brings to the fore the havoc unleashed on Pakistan’s economy as a result of IMF conditional-ties. The focus of IMF strategy is on across the board reduction in imports and increase in exports instead of a targeted approach. Moreover, the IMF strategy passes on the cost of adjustment to the common people instead of those that have benefited from foreign borrowings.3 Moreover, the entire focus is on increasing foreign exchange earnings through increasing exports, other sources of foreign exchange inflows have been ignored.

But is there an alternative to the IMF strategy? Can we finance the deficit in the current account without turning to the IMF? In this paper I am making an attempt to provide an alternative to the IMF’s external sector strategy. Here I am drawing heavily on my earlier papers especially Wizarat (2000 and 2001). The proposed strategy is not just an alternative, but a superior alternative, as it tries to close the current account deficit without incurring the tremendous cost entailed in the IMF strategy.

2.  Balance of Payment Crisis Management – Alternative Strategy

I have tried to formulate an external sector strategy for Pakistan that does not entail the costs and drawbacks of the IMF strategy. My claim that this strategy is superior to the IMF strategy is on account of the following: First, with hindsight we know that devaluations for the last many years have not increased exports nor reduced the demand for imports. And reduction in import demand has been at a very high cost to the economy in the form of deindustrialization. We are also cognisant of the adverse ramifications of devaluation on inflation, investment, output and employment. In view of the above, I am proposing ‘selective’ demand restraint rather than ‘across the board’ demand restraint. Second, I have tried to pass on the cost of adjustment to the segments of the Pakistani population that have been beneficiaries of current policies. Third, the proposed strategy tries to break the trade-off between economic adjustment and economic growth by trying to bring about an ‘expansionary adjustment’ rather than a ‘recessionary adjustment’. Fourth, I am not trying to increase foreign exchange reserves by increasing exports only, but have focused on expanding exports, reducing imports, increasing remittances, foreign investment and financial assets to increase the flow of foreign exchange reserves. Following measures are being proposed in this study:

Short term measures:

  1. Selective Demand

Banning the import of luxury and consumer goods.

  1. Importing essential goods on barter.

Medium to Longterm measures:

  1. Exploring substitutes for essential imports
  1. Exploring alternative commodities and markets for
  1. Repatriation of looted Pakistani assets transferred
  1. Gold Reserve Management Strategy
  1. Implementation of Cartegna Protocol and Phytosanitary
  1. Securing better deals for the supply of goods and services from

Short term measures

Selective Demand Management

  1. Banning the import of luxury and consumer goods

Selective demand restraint rather than across the board demand restraint reduces the import demand for consumer and luxury goods, creating space for the import of essential capital goods, industrial raw material and machinery required for economic development. The strategy also passes on the cost of adjustment to elites and wealthy classes, instead of the middle and poor classes. The cost borne by the wealthy classes will be marginal as compared with the tremendous socio-economic-political cost entailed in the IMF strategy. The rich will not become poorer if they do not buy exotic fruits, vegetables, wearing apparel, shoes, perfumes, cars and other luxury goods temporarily.  What is more, they can continue to consume these items from their previous collections.   And as Griffith- Jones and Sunkel (1989) observe: “The restriction of non-essential consumer imports and production would be the contribution of the privileged sectors of debtor countries ——–” According to the provisional 2017 data $3.5 bn worth of consumer durables were imported into the country (Table 3). By banning their imports, fiscal space can be made available for importing essential capital goods, industrial raw material and machinery

required for CPEC and other developmental needs.

Table 3: Structure of Imports ($ million)
Particulars July-March % Change in Value
Values in Dollars
2015-16 2016-17 P
Total 32,444.7 38,503.8 18.7
A. Food Groups 3,938.6 4,528.7 15
Milk & Milk food 193.3 186 -3.7
Wheat Unmilled 0 0 0
Dry Fruits 105.1 130.1 23.8
Tea 403.9 411.4 1.8
Spices 105.7 102.1 -3.4
Edible Oil (Soybeans& Palm) 1,391.8 1,456.9 4.7
Sugar 5,041.0 3,949.0 -21.7
Pulses 444.4 721.8 62.4
Other food items 1,289.4 1,516.4 17.6
B. Machinery Group 4,321.9 6,465.0 49.6
Power generating Machines 1,341.1 2,367.0 76.5
Office Machines 231.6 371.6 60.4
Textile Machinery 332.1 401.1 20.8
Const. & Mining Machines 223.7 373.2 66.8
Aircrafts, Ships and Boats 474.1 331.2 -30.1
Agriculture Machinery 62.1 84.4 35.8
Other Machinery items 1,657.1 2,536.5 53.1
C. Petroleum Group 5,584.8 6,686.7 19.7
Petroleum Products 3,750.4 4,846.0 29.2
Petroleum Crude 1,834.4 1,840.7 0.3

 

D. Consumer Durables 2,727.5 3,470.0 27.2
Road Motor Vehicles 1,407.2 1,811.2 28.7
Electric Mach. & Appliances 1,320.2 1,658.9 25.6
E. Raw Materials 5,714.1 5,610.9 -1.8
Raw Cotton 588.2 485.1 -17.5
Synthetic Fiber 368.9 346.1 -6.2
Silk Yarn (Synth &Arti) 468 486.4 3.9
Fertilizer Manufactured 639.7 478.6 -25.2
Insecticides 116.4 110.9 -4.7
Plastic Material 1,314.1 1,406.8 7.1
Iron & steel Scrap 776.9 765.9 -1.4
Iron & steel 1,441.9 1,531.0 6.2
F. Telecom 1,046.8 1,028.8 -1.7
G. All other items 2,799.5 3,139.2 12.1

P : Provisional

Source : Pakistan Bureau of Statistics (PBS)

  1. Importing essential consumer goods on barter

Import of essential goods like petroleum through barter trade can also release the pressure on foreign exchange reserves. Moreover, it can bring about an ‘expansionary adjustment’, rather than a recessionary adjustment entailed in the IMF strategy. An example of an expansionary adjustment would be along the lines of an offer made several years ago by the Islamic Republic of Iran for the supply of oil to Pakistan in return for cement and sugar plants manufactured at the Heavy Mechanical Complex in Pakistan. Such a proposal will not only help to save foreign exchange to the tune of $ 6.7 bn (Table

3) but also revive economic activity in the country. Banning consumer durables and importing petroleum and petroleum products on barter we can save a staggering $ 10.2 bn from the import bill. The Malaysian Government is understood to have made a proposal for the export of palm oil to Pakistan on barter. This will release another $1.5 bn.

The major focus of external sector policy should be on creating an exportable surplus that can be bartered for the import of essential goods. Whether this surplus is in the form of orders for the production of cement and sugar plants, increase in export of technical, scientific and management education etc., it will have an expansionary effect on the economy.

Medium to long term measures

  1. Exploring substitutes for essential imports

Moreover, demand for petroleum products can be reduced by switching to alternatives sources like wind, solar, nuclear and hyder power. Similarly, demand for edible oil can be reduced through education and inculcating awareness regarding the harmful effects of excessive consumption of fats as is customary in our diets, import substituting edible oils and importing edible oil on barter.

  1. Exploring Alternative Export Commodities and

We have to explore export markets for fish, textile yarn, wearing apparel and accessories, sports goods, leather and leather manufacturers and surgical instruments. Alternative markets for these could be Central Asia, the Russian Federation, Middle East, China and Japan. Moreover, Pakistan being an agricultural country has a lot of potential to export food items, fruits and vegetables to the European Union, the Russian Federation and other SCO countries. But the consumers in these countries are health and nutrition conscious and the governments are equally alive to the situation and enacting laws to ensure quality assurance of food products imported in these countries. Pakistan on the contrary, under external pressure has been promoting GM seeds, has not passed Labelling Law to allow discrimination between organic, hybrid and Bt crops. In this scenario even if Pakistan is able to produce a large exportable surplus, our exports will be shunned by the health conscious consumer.4

  1. Repatriation of Looted Pakistani Assets Transferred Abroad

I first presented the idea of relating debt servicing to looted Pakistani assets transferred abroad in 2000.5  I had proposed that we announce a debt management strategy that allocates a certain percentage of this looted money for debt servicing, ensuring the entire amount is serviced in a short period of time. The pros of the scheme are that it meets the quid quo pro criteria i.e. it puts the burden of debt servicing on people who have benefited from this debt. Moreover, it is the only way to solicit the co-operation of countries where this money is invested i.e. tying our interests with those of the creditor countries. Expanding on my earlier suggestion made in 2000 I am now proposing that we use the proceeds of not only looted corruption money transferred abroad, but all corruption money realised from within the country and abroad. And use the proceeds not only for debt servicing, but for closing the current account deficit and building foreign exchange reserves. A task force comprising of NAB and FIA officials, economists, etc can be constituted to work out the modalities.

  1. Gold Reserve Management Strategy

During the era of the gold standard central banks maintained a major portion of their reserves in gold and a minor portion in currencies. But after the abandonment of the gold standard, central banks hold major portion of their reserves in currencies, but allocate a certain portion to be maintained in gold. Central banks now resort to trading in gold in a crisis management situation only. India is successfully using gold reserve management to maintain its liquid foreign exchange reserves by buying gold quietly from private suppliers and selling it at an appropriate time to enhance its foreign exchange reserves.6 The gold reserve management strategy can be used to strengthen the liquid foreign exchange reserves when required through a buy back agreement in dollars.

  1. Implementation of Cartegna Protocol and Phytosanitary

If Pakistan wants to avert free fall in the export of food, cotton and cotton manufactures, it will have to ensure quality assurance of its products. It will have to adopt Cartagena Protocols on risk assessment and biodiversity and pass the Labelling Law so that we can categorise our exports into organic, hybrid and Bt. We have to decide whether we want to keep obliging seed companies by increasing the demand for their GM seeds, which they can’t sell in western countries (due to health conscious customers) at the cost of losing our export markets and ending up with a serious crisis in our current account and balance of payments.

  1. Foreign currency inflows that are at the discretion of other countries like CSF cannot be relied upon as a foreign currency inflow for balance of payment Such foreign currency inflows need to be replaced by inflows that are based on market determined rates. For example, countries using Pakistan’s highways, road, air, etc should be charged market based rates, with prior knowledge and information about the  total amount it will contribute to our balance of payment account. All such agreements signed between Pakistan and other countries for the use of our infrastructure and services, development of infrastructure, mining of natural resources, etc, need to be ratified by different different pillars of the government and the  state  to  preempt  rent  seeking  and  personal  interests  subordinating  national interest.

5. Policy Recommendations and Conclusion

In this article I have formulated an external sector strategy that is a better alternative to the IMF strategy on account of the following: One, the current account deficit is adjusted without bringing about a recession. On the contrary, adjustment and economic expansion are brought about simultaneously.  So we can save the patient from the proverbial “bitter pill” associated with IMF borrowings. Second, the cost of adjustment which is quite marginal is passed on to the wealthy classes. The wealthy classes bear a nominal cost in the short run only. Heavens will not fall if the rich and affluent classes don’t purchase latest cars, consumer durables, clothing, designer bags and shoes while the country storms its crises.

The short term measure proposed in this study is Selective Demand Management, which includes banning the import of luxury and consumer goods. Moreover, essential imports can be obtained on barter. These will save a staggering $ 11.7 bn from the import bill, resulting in a massive reduction in the current account deficit. The medium to longterm measures include exploring substitutes for essential imports, exploring alternative commodities and markets for exports, repatriation of looted Pakistani assets, Gold Reserve Management Strategy, implementation of Cartegna Protocol on risk assessment and biodiversity and phytosanitary standards and charging market based rates for the use of our infrastructure and services. I have also recommended that agreements signed between the Government of Pakistan and foreign governments should be ratified by other state institutions to prevent rent seeking and corruption.

The balance of payment strategy formulated in this paper is a superior strategy to the one formulated for Pakistan by the IMF since it does not entail the tremendous cost discussed earlier in the paper. Inspite of that, if an inferior strategy continues to be used in Pakistan, then there might be political or hidden agendas. We continue to blindly follow the IMF not because alternatives are not available, but because of a lack of political will to get the country out of the quagmire in which it finds itself !

References

Griffith-Jones, Stephany, and Sunkel, Osvlado (1989), Debt and Development Crisis in Latin America:The End of an Illusion, Oxford : Oxford University Press Pakistan Bureau of Statistics, internet.

State Bank of Pakistan, Balance of Payment Manual 6. Wizarat, Shahida, (2001), Bypassing the IMF, Dawn, 12 April Wizarat, Shahida, (2008), Why IMF is not an option’, Daily Dawn, 26 August. World Bank, (2017), Pakistan Development Update, November.

END NOTES

  1. Food and textile exports which constitute 75 percent of our exports are being affected by developments in the seed industry. Export of cotton and related items experienced a major decline due to decline in Bt crop in the previous year. But even for crops that are not declining, the problem is that both Pakistan’s existing export markets like the European Union and potential export markets like the Russian Federation have high phytosanitary standards and have banned GM Pakistan, on the other hand, under pressure from US AID and western seed companies is promoting GM seeds in the food and cotton sectors. Extensive use of GM seeds and the absence of Labelling Law means that Pakistan will experience major declines in the export of food and cotton exports in future as well, which will be disastrous for our current account and the balance of payments.
  2. The foreign exchange reserves have of late risen to $20 as a result of the sale of Euro bonds by the
  3. See Wizarat (2000, 2001a and b, 2008 a and b)
  1. Pakistan’s fish exports to the European Union worth € 50 min a year were suspended during 2007-13 as European food officials found the quality deficient and Similarly, GM traces were recently found in a sample of mango pulp sent to Russia, which was actually in the powder used as a preservative.
  2. Wizarat (2000)
  • Gold reserve management  strategy  can  also  be  used  to  increase  investment, employment, increase GDP growth and promote

 

 

A Reassessments of Pak-US Relations

September 19th, 2017 | Posted by crestat in Uncategorized - (0 Comments)

Prof Dr Shahida Wizarat, Dean CESD, HOD Eco, Director Research, Chief Editor PBR, IOBM

Current US strategy is to attack a country and at the same time accuse the victim of the attack, forcing it into the defensive rather than the offensive mode. This is followed by blackmail and submission is guaranteed. In Afghanistan NATO was pursuing Al Qaida, in Iraq it was Weapons of Mass Destruction (WMDs) which were never found. Occupation forces go and occupy lands that do not belong to them. And when the local people resist they are branded as terrorists and killed in ruthless bombings, staged encounters, butchered and systematically annihilated. And their natural resources are then robbed by these “civilised” invaders as is happening in Iraq, Libya, Afghanistan. The same strategy is being applied in different areas and countries to put the victim into the defensive mode and then blackmail to enforce submission.

Three different US Presidents have applied this well rehearsed strategy to Pakistan. Pakistan has been accused of aiding and abetting the “enemy”, put in the defensive mode and then black mailed into submission. This started with George W. Bush, continued under Obama and repeated by Donald Trump. In 2001 we were accused of harbouring Taleban, putting us in the defensive mode and then black mailed into submission and taking actions which are against our national interest. George Bush narrative in 2001 is the same as Donald Trump’s narrative in 2017, this time the emphasis is on the Haqqani network. But the major contours of the strategy are using deception to put us in the defensive mode and then blackmailing us into submission and thrusting policies which will increase conflict beyond our capacity to manage and control it.

This is the strategy the US is following to subdue nations, one after the other. Every nation on the hit list faces deception followed by blackmail. But why has the Government of Pakistan has gone into the defensive mode. This is all the more surprising as the GOP has evidence of the involvement of US, UK and some other western countries in terrorist activities in Pakistan. Several CIA and FBI operatives arrested in Pakistan had links with militants engaged in terrorist acts in Pakistan. Raymond Davis, a CIA operative was arrested in Pakistan in January 2011 for killing two Pakistanis. His laptop indicated that he had links with 119 militants. An FBI operative was arrested at the Karachi airport in May 2014 from Quaid-e-Azam International airport. A British national James Alexander Mclintock was first arrested in Pakistan in 2001 and handed over to the British authorities. He returned to Pakistan again in 2004. One fails to understand how some one charged with terrorism could get out of Britain and return to Pakistan to start his activities without the knowledge of British authorities. His revisit to Pakistan points the finger at the connivance of British courts and intelligence agencies in promoting terrorism in Pakistan. The fact that all this evidence is not used to accuse countries aiding and abetting terrorism in Pakistan points the finger at connivance between the US, UK and some elements in the GOP with countries that are victimising us and accusing us at the same time.

Why are Pakistan’s highways, roads and airports being used by powers that do not share strategic objectives with Pakistan? Moreover, these resources are being used for peanuts. It would be too much to expect us to act like Turkey whose parliament refused to allow the use of Turkish soil for attack on Iraq in 2003. Turkey is a sovereign country and has earned the respect of the whole world as a result of such acts of uprightness. In case of Pakistan the same strategy of putting us in the defensive mode and black mailing us simultaneously also forces us into making our infrastructure available for peanuts to countries that are on the other side of the divide.

What is the cost to Pakistan of strategic alliance with the USA?
Even when countries share common strategic objectives they charge for the use of their air and ground passages, airports and other facilities. GOP has not been charging market rates for the use of its infrastructure. NATO has been using our facilities for peanuts, while we are short of finances. Why is the GOP unable to secure a financially rewarding outcome for the use of its services? There are two important reasons for this. One, rent seeking behaviour by those negotiating on behalf of Pakistan creates “private rents” at the expense of socially beneficial outcomes.1 Two, the defensive mode syndrome based on deception and blackmail gets maximum benefits for very little return. Both defensive mode syndrome and rent seeking prevent Pakistan from earning revenues through available means. We are then told that we have no option but to go to the IMF. So going to the IMF is not our necessity, but a fallout of excessive generosity to a super power with which the relationship is based on mutual misgivings and distrust. A super power which has fantastic budgets to embarks on wars 2 saves money by getting our infrastructure for peanuts. We pay the political price for this through destabilisation due to the presence of US in Afghanistan. Pakistan is, therefore, facilitating its own destabilisation by making its infrastructure available to its adversaries. The economic cost emanating as a result of not earning revenues through the means available to us and turning instead to the IMF are on account of reduction in the rate of growth, employment and increase in poverty that are an aftermath of borrowing from the IMF.3 Economic costs are further exacerbated due to the political fallout of installation of US selectees on important positions in the GOP and include political instability,4 reduction in limits of the country’s territorial waters, distorted development, security risk due to passing on of sensitive information and state secrets to other countries and increase in corruption since these selectees are above the law.5 And efforts by other corrupt officials to join hands with them to get on the bandwagon of corruption.

End Notes

  1. The same happens when GOP negotiates commercial deals with foreign companies and countries as has been observed in many such agreements with Rekho Dick being the most notorious.
  2. According to Stiglitz the real cost of the wars in Iraq was to the tune of $ 3 trillion.
  3. Adverse impact of WB-IMF policies on Pakistan’s economy have been discussed in detail in Chapters 4, 16,18, 20, 24 in Wizarat (2011) and in several other countries in Griffith-Jones (1993), Clough and Manor (1993), Singer (1995), Singh (1994), Toye (1993), Mosley, Harrigan and Toye ((1991), Klein (2008), etc, etc.
  4. Chapter 5 in Wizarat (2011).
  5. Wizarat (2016).

References

    Colclough and Manor, (1993), States or Markets? Clarendon Press, Oxford.
    Griffith-Jones, Stephany, (1993), International Financial Markets: A Case of Market Failure, Ed Colclough and Manor, States or Markets? Clarendon Press, Oxford.
    Klein, Naomi, (2008), The Shock Doctrine, Canada.
    Mosley, Paul; Jane Harrigan and John Toye (1991), Aid or Power, London.
    Singer, Hans, (1995), PJAE, Vol. XI, nos 1 & 2.
    Singh, Ajit, Amitava Krishna Dutt and Kwan S. Kim (1994), The State, Markets and Development Beyond the neo-Classical Dichotomy, Elgar.
    Stiglitz, Joseph, E. and Linda J. Bilmes, (2008), The Three Trillion Dollar War.
    Toys, John, (1993), Dilemmas of Development, Oxford.
    Wizarat, Shahida (2011), Fighting Imperialism Liberating Pakistan, CRS, Karachi.
    Wizarat, Shahida (2016), How Pakistan’s Socio-political Fabric Breeds Corruption.
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CPEC

April 19th, 2017 | Posted by crestat in Uncategorized - (0 Comments)

cpec

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Asia Economic Impact

April 19th, 2017 | Posted by crestat in Uncategorized - (0 Comments)

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