Towards economic revival
The writer is a former Senator
and a
former federal and provincial minister
smahmood@lhr.comsats.net.pk
The news from Washington is anything but straight. A new series of sanctions
were slapped on us just a few days ago. Now, Richard Armitage, the second
ranking official in the State Department, is promising to ease some that were
imposed after the nuclear tests in May 1998. This sounds pretty much like a good
cop, bad cop routine. One part of the American Establishment hits us. Another
part starts to make soothing noises. It is never love or hate. A delicate
balance between open hostility and friendship is carefully maintained.
This is where our nuclear status may have given us some clout. No one wants to push us into an adversarial relationship. While in essence we have been under severe pressure since 1990, the rhetoric and the atmospherics have remained cordial between the United States and us. Occasional visits continue to take place at the highest level. The contacts between the two militaries have been diligently kept up. The international finance institutions, at American bidding, keep us just short of bankruptcy. This is not a happenstance but calibrated effort at keeping us in line, of ensuring that we do not become, in their terminology, a 'rogue' state.
All this is very well and may get us by for a while. It is not a long-term solution to our real problems. In any case, the difficulty with a delicate balance is that it can easily shift. There are enough lobbies in the US deeply suspicious of Pakistan's nuclear programme and resentful of its posture on international issues. If they begin to get their way, our troubles could multiply. The most devastating impact would not be on our defence but on the economy. Our friends may help us out when it comes to procuring the appropriate weapons. It would be difficult for them to bail us out from our debt crisis.
It is in this context that a story in an English daily, concerning conditions for an IMF bailout, makes interesting reading. Quoting unnamed sources, it mentions six policy changes that are required to be made by us for continued assistance from the IMF. These are, change in attitude towards the Taliban, help in getting Osama Bin Laden, acceptance of UN monitors on Afghanistan, reigning in of Jihadi organisations, freezing of nuclear and missile programme and improvement of relations with India.
Some of us may find a number of these conditions positively in our national interest. But that is not the point. The point to remember is that another nation is telling us to do certain things or else we would be subjected to serious difficulties. It is the notion of being told what to do that many of us find galling. It is the concept of blackmail that hurts.
True to form, a senior US embassy official in Islamabad has denied any 'knowledge' of such conditions. What has not been said is whether such conditions exist or not. It would be foolish to think that the Americans, or other nations for that matter, do not have an agenda in their bilateral relations with us. They do, just as we have an agenda in our relations with other countries. The only difference is that we may not have the power or the levers to convince others to accept our point of view, whereas the more powerful nations have the levers to coerce or cajole others in accepting their agenda. This may be stating the obvious but it needs repeating because some people delude themselves into believing the textbook concept of sovereignty.
Sovereignty, if there is such an animal in today's world, relates directly to strength and strength is only marginally related to military power. Real strength comes through economic power. If we are vulnerable today it is not because we are militarily weak. After all, as some of the hotheads do not tire of repeating, we are a nuclear power. Our weakness lies in our fragile economy, in our mountain of debt, in our poverty, in our exploding population and much much more.
If we have to begin to regain strength, we do not need to build more bombs, or buy more tanks or submarines or aircraft. We need to build our economy, we need to get out of the debt trap, we need to reduce poverty and contain the exponential growth of our population. If we were able to do this, the concept of sovereignty would begin to have any meaning for us. If we were economically strong we would really taste the nectar of freedom.
Rebuilding the economy is not easy but we can begin by changing our attitudes. We need to put economic revival and not defence preparedness at the top of our national agenda. To use a bit of jargon we need to transit from a national security state to an economic security state. If we get our national priorities right we can take the first essential step in achieving sovereignty as a nation. What follows next is also fraught with difficulties but at least we would be moving in the right direction. If the journey of a thousand miles begins with a single step, we would have taken that step.
To be fair, the Musharraf government has identified economic revival as the single most important item on its agenda. This rhetoric needs to be followed with concrete action. So far it appears that there is a great deal of sound and fury but very little creativity in dealing with our economic problems. The basics have been put right but the approach is conservative. For once we need to emulate the leaps of the hare rather
that continue with the slow crawl of the tortoise.
Nothing illustrates this better than the government's approach towards industrial revival. Slow, cautious and conservative steps have resulted in some growth in the manufacturing sector but much more needs to be done. Particularly now that the Western economies are in trouble. Our textile exports to the United States and Europe
would probably suffer a decline because of the recession that is beginning to hit the Western world and Japan. A ripple effect may also be felt on other industries in Pakistan. This challenge requires innovation and proactive measures to face the hazards that lie ahead.
There has been very little investment in industry in the last few years. We have a certain stock of industrial machinery that it is neither being modernised nor being added to. There is little choice but to take care of what we have. Industry has been through a bad time due to a number of factors. Apart from outright fraud, there are a large number of genuine industries that became sick because of circumstances beyond their control. We need to do everything that we possibly can to put them on their feet again. If industry is buoyant the economy will begin to pick up. This is where creativity and innovation is so materially required.
Just as a weak body is attacked by a number of diseases, a sick industry starts to get into trouble with anybody and everybody. Taxes are not paid, debts are not serviced, and all manner of liabilities start to add up. The solution is not to hound everyone into oblivion. The answer lies in easing some of these problems so that genuine industry begins to recover.
Take the tax issue as an example. In a country where very few people pay taxes the penalties for those in the documented
sector, who have gone in arrears, are horrendous. An original tax liability of One
lac can easily become twenty, a two thousand percent increase. Is it not possible to give a blanket amnesty from penalties if a sick industry is willing to pay the original tax due?
We keep talking of a bad debt of Rs200 billion or more. If these figures are closely scrutinised it would be found that the original amount would not be more than 50 billion or so and the rest is compounded interest. No one is saying that banks should not charge interest. All I am saying is that since most of these institutions are government owned, some debt relief should be given so that sick industry can at least begin to raise its head above the water.
Attention also needs to be given to the regulatory framework. More than twenty departments and organisations deal with industry in one form or the other. Every time a representative of one of these agencies visits the factory, they want money. Otherwise, there is a threat to close it down for real or imagined violations. Why cannot this be changed? Why should the industry continue to be seen as an adversary rather than an engine of growth?
I have only mentioned a few things that our economic managers can do to give a boost to one sector of the economy. There is a lot else that can be done. I asked a group of important business leaders whether they considered this government as a friend or an enemy. They all said that enemy may be too strong a word but they do not see this government as business friendly. If this is the perception among our economic elite, than obviously our finance team has a long way to go.
National economic revival is the only chance we have to strengthen our security and become truly sovereign. This challenge requires a new way of thinking, going out of the box, so to speak. The government can begin by focusing on steps that would make it easy for industry to contribute towards national economic revival. To use a rather funny American expression, time has come to walk the walk and not just talk the talk.