Same rate

The central bank is rather clear in its stance on the discount rate: they won’t lower it till there is a significant reduction in the rate of inflation. As Governor SBP Shahid Hafiz Kardar explained in the pre-budget seminar organised by this paper yesterday, the central bank sees a connection between the two variables and is adamant on maintaining the ratio. He gave examples of other countries to drive home the point. Malaysia’s inflation rate of 3 percent to its discount policy rate of the same percentage. South Korea: 4.7 to an interest rate of 3.7. India: 8.6 to 7.25. The list went on. Even without the examples, the theory adds up. Hiking interest rates to suck excess liquidity off the money market has been a tried and tested methodology of fighting inflation. Big business thinks otherwise. First, it thinks using high interest, as a tool, as a counter to inflation has been used far more than it is worth; there isn’t, they say, that much of an excess in the money supply. The problem is of the cost-push variety. The captains of industry and commerce claim that the high discount rate makes credit provision exorbitantly difficult and is bad for the business environment. Analysts say it could have been worse. The central bank could have even hiked the rate, but didn’t. Its decision not to hike the rates was premised on a perceived success by the government in reining in inflation. There is something to be said for the finance ministry’s efforts to curb price hikes, most notably, making solid efforts to limit borrowing from the central bank which means basically printing new notes. The SBP monetary policy statement, which came out the other day, warned the government that it will not be able to replicate the rather impressive export statistics of the current fiscal in the next. That will eventually play out in the money markets again. All eyes are on the next budget. If the government incentivises exports and controls spending (alternatively, raises revenues), the central bank might have more leeway in the future to cut the business community some slack on the interest front.

Hard to port

Much is made of Pakistan’s abundance of natural resource. But the transition of these resources into geo-strategically important ones has been a painfully slow process. Pakistan can use its coastal line of more than 1000 kms for an enhanced source of trade and tourism. Similar objectives were kept in mind when Gawadar Port was conceived and built with the help of Pakistan’s time-tested friend China. But the port has been in the news since then for all the wrong reasons. The defence minister’s statement that China has agreed to take over the operations of Gawadar Port as soon as the contract with the Singaporean firm ends, leaves many questions unanswered for. Arguments can be furthered as to the practicality of this arrangement considering the fact that the agreement with the Singaporean firm runs through the year 2047. How is it going to work out till then? On the other hand, it is going to be another stepping stone for both countries in achieving mutually beneficial goals. The port, itself built with the help of China, could see heightened levels of infrastructure development like road network, storage facilities, oil pipelines, and such. However, what remains to be seen is the way the port is going to be used in future. Currently operating under the PSAI-AKD consortium, this port berths very large vessels, making it a competitor to some of the busiest ports in the region, including the Jurong Port in Singapore, also under the PSAI. Such mega projects are not only essential for a country’s progress, they are also necessary for their strategic importance. Along with the industrial prowess, the port can provide a vital node in our transit-route strategy for the land locked Central Asian states. If need be, a naval base can be built around the port as is suggested by some quarters. Most importantly, it can turn into another symbol of Sino-Pak friendship.

Joint statement

The joint statement is yet another affirmation of the fraternal relations between China and Pakistan which have withstood the test of times. To many Pakistanis who were haunted by a sense of isolation in the wake of the May 2 episode, the message from Beijing has provided solace and confidence. China has agreed to help Pakistan acquire 50 JF-17 fighter jets to replace its aging fleet of warplanes thus bolstering its defense. Pakistan’s economy would benefit from Chinese targeted cooperation in infrastructure development, energy and agriculture which is proposed to be extended on priority basis.

Meanwhile, the establishment needs to deeply consider the implications of some of the principles enunciated in the joint statement. While China applauded the role of Pakistan in the war on terror, Beijing also underlined its overwhelming concern for regional peace and security stressing that terrorism, separatism, and extremism posed serious threats to the desired goal. To allay widespread apprehension, Pakistan had to unilaterally reiterate that it would never allow its territory to be used to attack any country. Despite Beijing’s strong differences with India, particularly on the delimitation of the international borders, Chinese leadership has invariably avoided resolving the issue through war. Even in 1962, its forces retaliated only after India forcibly occupied the Chinese land. The lesson for Pakistan is to concentrate on economic and social development while keeping its disputes with India on the backburner.

There is a need on the part of the establishment to treat the terrorists as an existential threat. Over the next many years Pakistan will have to focus on eliminating the terrorist groups of all hues and colours. The government cannot afford to look the other way as terrorist organisations continue to operate under different names. Military operations against terrorist havens will have to be undertaken. Simultaneously, there is also a need for eliminating the extremist thinking through curriculum reform and a well thought out media campaign.

The drone issue

Many a quarter in Pakistan must be damning Mr Assange for exposing the fork in their tongue, our military establishment not least amongst them. Even though General Kayani and the ISPR have decided to deny what seemed like incontrovertible evidence of tacit support of drone use within the country, the recently released cables have authenticated the long-held suspicion that these attacks are not as much a ‘violation of sovereignty’ as we would like to believe. This doublespeak policy with respect to drones adds another complicating dimension to an issue already mired in piles of populist speechifying as various factions of society have co-opted the issue to grind an axe of their choice.

It cannot be denied that there are arguments to be made for and against these drone attacks. Yesterday’s attack that killed six militants in NWA is a reminder of the fact that the attacks are efficacious. The collateral damage argument to counter the efficacy argument neglects that aerial actions of this kind will always have collateral damage (as the numbers in the army’s own operation in Swat and SWA would prove). If anything, the precision could be a way of minimising this damage. But the fact remains that these attacks come with no accountability attached and the US is not answerable to anyone for the extent of collateral damage involved. And it is in terms of this lack of accountability and not the breach of our sovereignty – in which the argument against these drones can be couched. Because despite what palavers of national honour would have us believe, we have ceded much of our sovereignty by volition: whether to the militants running rampant or to the neo-colonial relationship we have with the US. As Ms Clinton’s statement of yesterday will prove, they are in no mood to respect our sovereignty if we aren’t prepared to do the job they pay us for.

Ostensibly, both countries want an end to terrorism and these drone attacks have de facto sanction from our establishment. Why not then own up to it in public rather than pandering to populism? It may be a hard sell but it’s the pragmatic thing to do. But this pragmatism is not to be expected as this policy of openness would require nothing short of revisiting our security paradigm and bringing the civilian and military establishments on the same page. The way is there, it seems the will is not.

A price on it

The missing persons saga would make any policy maker’s list of problems you can’t throw money at. But that is what the government is considering doing. The plan is to give a monthly allowance of Rs 60,000 to the families of the missing persons who have been missing for the past seven years as compensation. Though there isn’t much money to go around, the government explained, we’ll get the Baitul Maal to put a little something together.

The government could claim that criticism of the plan is unfounded. The payment in no way indicates that the government intends to shut the cases down. Some of the missing persons were the sole bread earners of their families and their loved ones could use the money. But that is the theory. In effect, the way of the world tells us something quite different. Not only will these cases be closed, if only not formally, there are going to be more disappearances in the future.

The scope of the problem is so depressingly wide that even going after individual cases is going to amount to treating the symptoms, not the cause. Much is made of the need to rethink our security paradigm. While that is true, there is also a need to change operational protocols as well, the ones that are value-free, regardless of the paradigm involved. Intelligence agencies are supposed to collect intelligence, not pick people up. If there indeed is incriminating evidence of certain behaviour, it is the job of the law enforcement agencies to do the needful. The latter operate, usually, under at least the semblance of due process. The law of the land spells out certain liberties for its citizens. Anyone picked up by the law has to be produced in front of the judiciary within a stipulated period of time.

The state has a responsibility to protect its citizens; in that regard, compensation for their families is not too outrageous a proposition. But if this is intended to mean anything by way of closure, it is an outrageously incorrect approach to the problem.

Gilani goes to Beijing

At a time when Pakistan faces threats to its security and economy and is under increasing pressure from the US, the expression of solidarity from China, the country’s time tested friend and neighbour, is highly reassuring. Premier Wen Jiabao’s call to the world to respect Pakistan’s independence, sovereignty and territorial integrity would provide confidence to many who are worried over threats to the country’s security. Prime Minister Gilani’s visit which coincides with the 60th anniversary of the resumption of Sino-Pak diplomatic ties has led to the signing of three economic agreements. The agreement between the China Banking Regulatory Commission (CBRC) and the State Bank of Pakistan is important as it allows the two sides to strengthen coordination, exchange information and make joint efforts to tackle crises together. China also reportedly agreed to provide 50 JF-17s to Pakistan on an emergency basis presumably to replace the aging jet fighters in Pakistan’s use.

While the Chinese backing would provide confidence to the government, it would in no way reduce the level of the challenges to national security and economy which have be overcome with more determination. The terrorist attack outside Peshawar, the second deadly attack after the killing of OBL, indicates that there is no respite to the TTP’s vengeful activities. To ensure national security, terrorists of all hues and colours have to be eradicated once for all. What is more, any possible loopholes in intelligence network have to be discovered and removed. The first thing that Gilani needs to do after returning home is to appoint the independent inquiry commission as decided by the Parliament in consultation with the leader of the opposition.

On Thursday, Gilani addressed the China-Pakistan Entrepreneurs Forum where he expressed the hope of raising the volume of Pak-China trade to $15bn compared to last year’s $9b. In an age where economic relations play an important role in interstate relations, the trade between China and Pakistan is insignificant. There is a need not only to raise the level of trade but also to ensure that Pakistan is able to export at least as much as it imports. Among the things that stand in the way are the vestiges of the of old regulatory system that need to be removed.

Failures…

As recent events would bear witness, asking questions – especially those about culpability – in this country is an exercise in futility. But questions are all we have for now because no answers are forthcoming. As the reaper’s shadow once again cloaks Quetta, back-to-back incidents of carnage have pushed not only the city but the issues surrounding the bloodshed into disarray.

On Tuesday, five Chechens were killed near an FC security checkpost of which there are a dime a dozen in the area. While the official narrative maintains that those killed were terrorists, one is compelled to approach that with a plenteous dose of cynicism. Because it doesn’t defy logic at all that “terrorists” carry their passports, are unarmed and display a readiness to surrender, right? But our security officials would have us believe that and take their word for it as no explosives have been offered as proof to corroborate the official account which claims that explosives were found. Furthermore, witnesses present at the scene maintain that the deceased were willing to surrender. It is true that a security situation as tumultuous as ours warrants vigilance of the highest order but it is perturbing that our security personnel are prone to trigger-happy behaviour and there is no accountability mechanism in place to determine what constitutes use or abuse of power. In the wake of this incident, litanies of ‘transparent inquiries’ abound but if the past is anything to go by, they may amount to naught.

Whereas killing these alleged terrorists at the merest trace of suspicion was a sin of commission, the security forces can be charged with one of omission as well. In this same combat-ravaged city, there was a failure to protect the lives of seven Shia people. Lakshar-e-Jhangvi has claimed responsibility of this reprehensible incident. The fact that these proselytes of hatred act with such cavalier immunity sheds light on much that afflicts our society but it is also a brutal indictment of the security machinery. Why were these home-grown terrorists not stopped like those alleged alien terrorists were? It is high time that our desensitised sensibilities not simply accept these lapses of security as a fact-of-life and hold those liable for these failures answerable. We can ill-afford this fecklessness anymore.

In search of allies

Nawaz Sharif who had only paid two casual visits to Sindh, the second most populated province of the country, during the last three years has finally realised that the neglect could cost him dearly during the elections. All the more so because the PPP has succeeded in forging an alliance with most of the parliamentary parties in the province. While the situation creates problems for Mian Nawaz Sharif, it also provides him with an opportunity to bring the Sindhi parties generally dubbed by the media as nationalists into the mainstream. While in Hyderabad, Mian Nawaz Sharif held talks with Rasul Bux Paleejo and Qadir Magsi, leaders respectively of Sindhi Awami Tehrik and Sindh Taraqi Pasand Party. He also addressed the media after the meetings. The parties which claim to represent the downtrodden in the province have criticised Punjab for step-brotherly treatment of smaller provinces and have opposed the Kalabagh Dam and the Greater Thal Canal. The visit has provided the PML(N) leader an opportunity to listen to their narrative of grievances.

Pakistan is in dire need of national unity. This would remain a dream till the grievances of the smaller provinces are satisfactorily resolved. It is widely understood in Sindh that unless Punjab with its numerical superiority is able to realise the importance of some of the crucial issues the people in the provinces face, particularly of the shortage of water, the sense of deprivation would continue to deepen. That the Sindhi media reported the visit in depth underlines the importance attached to it.

Mian Nawaz Sharif who draws political support in the main from Punjab is viewed with a peculiar ambivalence in Sindh. His political opponents paint him in parochial colours while some among the Sindhi nationalists view him as a man who could play a positive role in creating a national consensus that takes into account the grievances of the smaller federal units. The visit might not get Mian Nawaz Sharif many votes but would hopefully help him in developing a better policy on issues faced by the provinces.

Plan B

Federal finance has become a slow dance between the ministry, which needs the money to meet expenses, the IMF, which is to lend us the money and the parliament, whose acquiescence is constitutionally required to pass the finance bill. Though this is a scenario that is played out all over the world in countries that seek loan programmes, our situation is slightly pricklier because of the rather weak government at the centre. Garnering a simple majority in parliament is not as simple a matter for the ruling PPP. The ANP is its only dependable ally and is on the same page as far as economic policy is concerned. Between the two of them, however, they don’t have enough to even survive a vote of confidence. For getting more votes, the treasury benches need the support of the MQM and perhaps the PML(Q). Now though the latter two might have joined the fray – treasury benches now have enough to even amend the constitution if the wanted to – they have no love lost for what the financial mandarins have in mind. Particularly newer taxation measures.

That, unfortunately, is the deal breaker for the IMF. As a compromise, the finance minister and his team offered, in case there is no movement on the RGST front, to do away with certain tax exemptions instead. Let’s agree on the size of the deficit, not how we go on achieving that. At the moment, there are differing reports about whether this spiel has any takers over at the Fund.

As things stand, the default position is to take the RGST proposal to the parliament. In case, the big business lobbyists carry the day and it is rejected, Plan B kicks in. That would entail not just an end to certain exemptions but also going cold turkey on a number of subsidies. The populist detractors of the newer taxation measures need to realise that the deficit has to be bridged to a certain extent one way or the other. An end to targeted subsidies is all well and good but soon, there won’t be enough money even for essential ones. The wiggle room is disappearing fast. Converting our indirect sales taxes to value-added taxes, however, does not hurt the poor or middle-class one bit.

Sound and fury

The Punjab’s finances are the worst managed in all the federating units. A provincial government running on fiscal overdraft presents a stark comparison to one that once used to deposit in the banking sector the revenue it collected on behalf of the federal government and drew interest before it was due to the centre. The present government’s penchant for grand populist projects has bled the exchequer dry enough to make meeting even the provincial wage bill a tall order. The chief minister, however, has seen it fit to announce that the Punjab government is not to accept any foreign aid for its development programs, all without specifying how his government plans to cover the difference. Since the chief minister also didn’t give a time-frame for the implementation of this policy and also peppered it with the fact that the proposal will still be put up to his party’s leadership (it’s supposed to be the other way around) we can be near certain the announcement isn’t going to be followed up seriously. With the projected foreign-aid component of the development program this year to be up to twenty percent, the numbers just don’t add up. But the League government is no stranger to the grand art of the bad decision. A cycloptic obsession with the sasti roti scheme, an opulent plan for the ill-thought out Danish School System and a fascination with the urban (read Lahori) built environment, specifically roads, all without casting a serious glance at the provincial receipts has been the key ingredient of the fiscal woes of the government. Foreign development aid is notoriously inefficient. And if it is given as part of a loan program instead of a grant, it should definitely be thought through. But a dependence on foreign assistance is weaned away after the state builds up its own apparatus to collect revenue. Does the League, or any other government, have anything to show for itself on that front? Of all the political parties, it is the Muslim Leagues and the MQM that seem to be intrinsically anti-taxation. Chest thumping isn’t going to get us anywhere; less testosterone, more work.

Kerry in town

The mess up in Abbottabad created by our intelligence failure has weakened Pakistan’s position in talks with the US Senator Kerry practically repeated, albeit in more refined language, President Bush’s well known proposition “Are you with us or against us?” He received the same reply, albeit in more convoluted verbiage. The visit has saved Pak-US alliance, for the time being at least. Its continuation though would depend upon the unspecified steps that Pakistan is required to take in days to come. The visit by Hillary Clinton to continue the strategic dialogue would be preceded by the arrival of a number of US functionaries in Islamabad who would monitor the progress over the steps Pakistan’s civil and military leadership has agreed to take. The Secretary of State would decide on the basis of their report whether to make the visit or not. What Senator Kerry told a select gathering of journalists explains the point. Pakistan, he said, has agreed to do a number of things immediately to demonstrate its further seriousness of purpose including accepting visits by these officials. The Damocles sword thus continues to hang over Pakistan’s head. It is widely understood that Pakistan is being required to initiate a military operation in North Waziristan. The day Sen. Kerry was holding talks with Pakistan’s civil and military leadership, two drone attacks were conducted in the Agency. This was a grim reminder that if Pakistan does not take out those the US considers high value targets, Washington would do the job unilaterally. Coming as they do in the wake of the parliamentary resolution which, inter alia, calls on the government to take measures to stop the drone attacks, the incident should be an embarrassment for the government. The hope that there would be a respite, if not cessation, to terrorist activities after Osama was no more alive turned out to be futile on Tuesday when terrorists shot dead a Saudi diplomat in Karachi. This should serve as another reminder that Pakistan has no option but to reconsider its security doctrine and devote all its civil and military resources to uproot all terrorist groups operating from inside the country once and for all.

A tightrope walk

If moving beyond the OBL episode proposed by Zardarai means telling the US to forget the past and begin with a tabula rasa, as it did in the wake of 9/11 and the AQ Khan episode, the suggestion would have few takers in Washington this time. An array of important US legislators have taken a hawkish line after the discovery that Osama had been living comfortably in Pakistan while American soldiers died in Afghanistan in pursuit of the Al-Qaeda and its leader. There are voices in the Congress demanding to bring back troops at the earliest and opt for a much cheaper strategy of relying on the type of attacks that killed the terrorist chief. They also demand an end to the aid to Pakistan if Islamabad does not reveal the names of those responsible for failing to detect OBL.

There is a perception in the US that Islamabad needs Washington more than the latter needs Islamabad. At a juncture when terrorists constitute an existential threat and the economy is shattered due to their attacks, Pakistan can ill afford to continue to make decisions on the basis of sentiments and miscalculations. Sen Kerry has delivered a somber message: If it is not possible to march forward together, there are a set of downside consequences that can be profound. While the US homeland can be kept secure, as it has been since 9/11, though at a significant price in terms of personal freedoms and monetary expenditure, Islamabad would find it hard to eliminate the terrorists single-handedly. To eradicate the threat there is a need for joint efforts. The US would also do well to avoid an over-reaction which could, among other consequences, endanger Pakistan’s democracy.

While many in Pakistan demand an end to reliance on the US aid, what has to be understood is that self-reliance comes with a price tag. Is the government and military leadership willing to forgo their skewed priorities and introduce an all out austerity? Does the government have the will to bring landlords, real estate tycoons and players in the share market under the tax net? Is the army willing to reduce its budget which can be done only by changing its India specific security paradigm? All these issues have to be taken into consideration while talking to the US.

Motley crew

Unforgiving are the throes of desperation in democracy, especially one as imperfect as ours. The motley crew that the ruling People’s Party has surrounded itself with to strengthen its parliamentary profile won’t strike anyone as poster boys for democracy. PML(Q) leader Amir Muqaam’s recent resignation from the federal cabinet, to which he was only recently inducted, will be the first of many. True, though this particular case might have had the pressures of constituency realpolitik at play, the future weaning away of these members would be through the powers that be, not any local rivalries.

Other than the ANP, which also happens to be the only steadfast ally of the PPP, the democratic credentials of the other coalition partners leave much to be desired. The MQM, which is currently conducting what it insists on calling a referendum, doesn’t pull any punches when it espouses its philosophy; its leader has expressed his desire for a martial law style government a number of times. The PML(Q) may be more suave in how they choose their words, but their predilections are also not lost out on anyone. No points for guessing where both of these parties will be when the going gets tough.

It didn’t have to be this way. There are more natural allies around. Just the way the PPP buried the hatchet with the NAP, there is a need to step out of the frame and reach out to the PML(N) as well. The League might be on the other side of the political spectrum, granted, but its recent track record for calling it like it sees it as far as the military is concerned has been better than the government’s. To be fair, it is not as if the PPP didn’t try. In the art of the possible, perhaps the League also needs to be open to some compromises; an acceptance of the fact that they won’t always get their way. An unshakable belief in representative democracy is as good a bare minimum common agenda as could be. It is about time.

Man of the moment

Winston Churchill once quipped that a fanatic is someone who won’t change his mind and won’t change the subject. Nawaz Sharif has shown time and again he won’t change his mind on the subject of the military’s place in the polity. And despite the perceived capitulation of the PPP, traditional antagonists of the military, he has refused to change the subject – or tone it down – ever since the world’s most wanted man was discovered a grenade’s throw away from Pakistan’s premier military academy. Whereas one brand of fanaticism threatens to disrupt our very social fabric, another looms large, it seems, to save it. Once a progeny of the military himself, the PML(N) leader shows all the zeal of the convert. And we’re better off for it. The two-time prime minister’s suggestions read like a political science textbook. The military and its spooks should be subservient to the political government; their budgets should be clearly presented to the legislators before the latter approve them etc. How to go about it, however, needs some clarification. This is a time, more than ever, for the political class to stick together and demand some changes. The PPP, it would appear, is more interested in biding its time till the next elections. But the insecurities that drive this prioritisation – insecurities about being left in the lurch without a paddle – were definitely contributed to by the League, especially during the fag end of the Lawyers’ Movement. Mr Sharif might have realised the sanctity of the spirit of the constitution better than anyone else, but he has severe limitations as far as the whole reaching out thing is concerned. In this regard, perhaps he can take a leaf from the book of his counterpart in the PPP. If he really wants to reform the state apparatus, he has to show the PPP’s leadership that they can trust him, come what may.

As grave a problem

The finance ministry’s slow dance with the IMF has nothing to do with the Osama episode. Our troubled relationship with the Fund, rather, stems from structural problems in economic policy. On a level, though, the terrorism fiasco and economic conundrum are related: the way the state cannot maintain its monopoly over violence, as the presence of terrorist networks within the country proves time and again, the state has also been extremely unsuccessful in being able to effectively tax its people. These problems are similar in how fundamental they are. These shortcomings are not becoming of stable nation-states. On both these fronts, all that the world asks us to do is to follow our own explicitly stated national policy. Much before the government entered into the current loan program with the IMF, the civil financial establishment had declared its interest in restructuring our system of taxation. In particular, there had been talk since long of slicing up our indirect taxes and shifting their burden away from the retail side. This taxing of different stages of value addition would be an elegant way of documenting incomes properly for purposes of direct taxation. The same applies for subsidies. The mass media and the opposition might focus on the IMF’s insistence on phasing these out but the financial bureaucracy had been pleading the case of targeted subsidies since quite some time now, to which the government finally agreed to much before our IMF loan program. That taxation is not an executive decision but a legislative one complicates matters for a shaky government. The finance minister and his team, who are in Dubai to meet up with IMF representatives about the next tranche of our loan, have told them they will not, as a government, guarantee any development on the RGST front. The bill can be rejected by parliament in which case, there is a Plan B. The Fund would be well within its rights to be skeptical. It is hoped that, despite the machinations of Big Business, the bill is passed by parliament in this budget. Much like our war against terror, we’ll be doing this for our own good.