| Questioning The Official Truth |
| Dr.Akmal Hussain |
| Newspaper: Daily Times Dated: Wednesday, June 16, 2004 |
The point in my news analysis of June 14, was to question the validity of the Finance Ministry's claim that poverty had declined by 4.2 percentage points in the period 2000 to 2004. The official claim was scrutinized at two levels: (i) I had questioned the lack of consistency between the government's figures on the composition of GDP growth (which suggested increasing poverty) on the one hand and the claim of sharp reduction in poverty on the other. (ii) I had also questioned the credibility of the claim in terms of a flawed estimation procedure for poverty reduction.
In his response (DT June 15) Dr. Ashfaque H. Khan, an official of the Finance Ministry failed to respond to (i) above, and pitched his defence in terms of (ii) only. In this rejoinder I shall propose that his claims of a credible estimate with respect to the comparability of the large sample of the year 2000 with the small sample of the year 2004, are incorrect. However, regardless of this debate on the veracity of numbers, an important proposition needs to be made with respect to the right of citizens to question the official truth on the basis of logic. Dr. Khan begins with an aggressive tone when he asserts in effect that no one has the right to question official fudging. I should like to remind him that the right of a citizen to question the official truth on the basis of reason, was not granted by the Ministry of Finance but is a fundamental right that was won by Socrates in the year 326 BC when he drank the portion of hemlock, rather than desist from questioning the official truth. I shall therefore persist in exercising this right as a citizen of Pakistan and the world, regardless of the threats and bluster of officialdom.
In the context of the government's poverty reduction estimate of 4.2 percentage points, the issue is really one of illegitimate approximation, with respect to the principles of economic science. It is clear that this figure emerges largely from the differences in sample design between the PIHS sample of 2000-01 and the much smaller sample of the year 2004. Consider. (1) It is incorrect to say as Dr. Khan claims, that the 19th April to 6th May data in the small sample survey of this period in 2004 is being compared to the same period for the year 2000. The reason is that the official poverty line of Rs.748.6 per adult equivalent per month (subsequently inflated to Rs.848.798) for the base year 2000-01 was estimated on the basis of annual data and therefore had averaged out the seasonality factor in the expenditures of the poor. The data for 2004 however is based on the harvesting period only when the poor can spend more from harvesting wage income. Consequently poverty levels in the year 2004 would be understated compared to those in the year 2000, thereby yielding poverty reduction over the period as a statistical bias rather than a description of reality. (2) It is also incorrect to say that the “methodology” with respect to provincial representation is the same in the large and small samples respectively. The reason is that in the case of the small sample survey, which Dr. Khan admits covers only 5046 households (one third of the large sample), the stratification at the provincial level would be so small as to have no statistical significance. By contrast the large sample survey would be meaningful in terms of provincial coverage. This is the point. The small sample survey is likely to leave out a much larger proportion of poor people than the large sample survey.
The problems of comparability between the large and small sample survey results therefore are inherent in the differing degrees to which the two samples are representative of the underlying population. Therefore a poverty reduction estimate (4.2 percentage points) based on such a flawed comparison is misleading. In the Oxford English Dictionary the meaning of the word fudge (as a verb) is as follows:
“To deal with something in an inadequate way, specially so as to conceal the truth, or mislead.” The New Oxford Dictionary of English, Oxford 1998, Page 740. What Dr. Khan has done in proffering the official truth on poverty reduction qualifies precisely for the word fudge (verb).
Regardless of the fact that Dr. Khan's claims on poverty reduction do not stand up to scrutiny, if he wishes his claims to transparency to be believed then he should do the following: (i) Let the Federal Bureau of Statistics place the raw data for both samples prior to its cleaning by another agency, on the FBS website. (ii) Specify the basket of goods on the basis of which the price index was used for the year 2000-01 and also the official estimation procedure for the inflation factor. (iii) Specify the official estimation procedure for the poverty line figure. (iv) Specify the number of households covered for each province in the 2004 sample, and the number of households covered in each province for the April-May period in the 2000-01 sample. If such information were made available on the website, independent economists and competent civil society institutions could do the estimations themselves and be able to judge whether the Finance Ministry's figures are right or wrong. In any case what is even more important for resolving this important policy question is for the PIHS to be allowed to conduct the July 2004 survey independently, with integrity and without fear or favour.
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Tuesday, 24 February 2015
Questioning The Official Truth
Questioning The Poverty Figure
| Questioning The Poverty Figure |
| Dr.Akmal Hussain |
| Newspaper: Daily Times Dated: Monday, June 14, 2004 |
The government can take due credit for its growth performance this year. The GDP growth for the first time in more than a decade has reached 6.4 percent, and unlike last year it is supported by an increase in the investment rate from 16.7 percent last year to 18.1 percent this year. The fiscal deficit was reduced to 3.3 percent and State Bank reserves continued to rise. These figures are consistent and credible. What is not plausible however is the Finance Minister's claim that the percentage of population below the poverty line has declined by 4.2 percentage points compared to the level in the year 2000. There is a fudge in this figure and the reasons are as follows:
(1) The composition of growth is contrary to the official claim of poverty reduction: The agriculture sector where the majority of the poor subsist has shown a sharp decline in growth from 4.1 percent last year to 2.6 percent this year. It is the large-scale manufacturing sector with a growth rate of 17.1 percent, which has determined the overall GDP growth performance. Even in this sector, growth is predicated on a relatively small group of industries, namely consumer durables, automobiles, textiles and cement. These are industries with low employment elasticities and where highly skilled and relatively well-paid workers are employed. Therefore these are hardly the industries whose growth could be expected to reduce poverty so quickly. Much less can they be regarded to be producing goods for the poor.
(2) Income inequality between the richest 25 percent and the poorest 25 percent of the population has been increasing over the last decade. Even though data for the last two years is not available, yet the composition of growth suggests that income inequality has remained acute. The fact that inflation in the prices of the poor person's basket (food items), has increased at a higher rate than the average inflation rate, provides further indication that the distribution of real income between the rich and the poor may have become more unequal. When income inequality is high and increasing, a small increase in GDP growth cannot be expected to lead to such a sharp reduction in poverty as claimed by the Finance Minister.
(3) The claim of poverty reduction is being made on the basis of a small sample survey of only about 5000 households, selected without regard to provincial coverage and conducted for only one quarter, April to June this year, when earnings from wheat harvesting enable a larger consumption expenditure by the poor. The results of this small sample survey are being compared to sample results in the base year drawn from the standard and periodic Pakistan Integrated Household Survey (PIHS). This has a much larger sample (14,000 households) with representation from each province, and averages out the seasonal variations in household expenditure by covering four quarters (one year). Given the quite different design of the sample surveys in the year 2000 and the year 2004 respectively, the results are technically incomparable. It would be like comparing apples with oranges. The specific differences in design of the two surveys indicated above, are such that a reduction in poverty would tend to arise from the differences in sample design rather than a change in the real magnitude of poverty.
A professionally sound assessment of changes in the levels of poverty over the last four years would have to wait till the next round of the PIHS is conducted. Given the level of income inequality and the composition of growth, the recent increase in the GDP growth rate can at best provide grounds for the hope that poverty may have stopped growing. There is certainly neither adequate evidence nor any analytical reason to suggest such a sharp reduction in poverty (4 percentage points), as the Finance Minister in cavalier fashion proclaimed before an incredulous populace. He can take well-deserved credit for his achievements in terms of overall investment, growth and financial stability. Not for having substantially reduced poverty. To do so would be to assume out the very problem that is to be confronted, now that we have the fiscal space.
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Is GDP Growth Sustainable?
| Is GDP Growth Sustainable? |
| Dr.Akmal Hussain |
| Newspaper: Daily Times Dated: Monday, 1st May 2006 |
“Between the idea and reality falls the shadow.”
T.S. Eliot
There is a growing gulf between the government's idea of its economic performance and the economic reality as experienced by the people. The government revels in its high growth achievement, while the majority of the people are experiencing the grim reality of their real incomes squeezed by inflation, amidst a continued deprivation of basic services. The government points to the over 19 percent growth in the large scale manufacturing sector as luxury automobiles that fuel this growth, become a metaphor of popular resentment: The rapidly increasing disparities between the rich and the poor.
It is important for policy makers to realize that the poor experience their poverty not as a percentage of the population but in absolute terms, as the lived human experience of individuals within their community. Therefore what must be pursued is rapid poverty reduction that can bring about a palpable change in the living conditions of communities. Given the fact that every third household in Pakistan is hungry and the majority deprived of basic services, the poor cannot wait for a mere trickle down effect of growth (even if it could be sustained).
Two questions arise at the present moment in Pakistan's economic history: (i) Is the high GDP growth of the past three years sustainable? (ii) Can GDP growth overcome poverty rapidly without a major policy shift towards improving the distribution of income? In this article, I shall examine the first question and in the subsequent article, the second.
Let us begin by identifying the strategic parameters that determine the sustainability of GDP growth. We can then simply check the actual figure for each in Pakistan's case to see whether the government's target GDP growth of 7.5 percent can be maintained. There are four strategic determinants of growth sustainability:
(1) The investment required to produce an additional unit of output in the economy as a whole. (Economists call it the Incremental Capital Output Ratio or ICOR for short). The ICOR is an indicator of the productivity of capital and underlying it are a variety of qualitative and institutional factors such as the quality of infrastructure, the size and quality of the trained labour force, the quality of university education and research institutions and their linkage with industry, the professional skill of civil servants in key departments and the quality and accountability of democratic governance.
Now in Pakistan's case the latest independent measure of the ICOR value is 4, which is about the average for developing countries. This means that in order to generate (on a sustainable basis) a GDP growth of 7.5 percent the investment rate (investment as a percentage of GDP) must be at least 30 percent. Given the fact that Pakistan's investment rate (more precisely, gross fixed capital formation as a percentage of GDP) is only about 20 percent (according to the Pakistan's Economic Survey 2004-05), it is clear that without a huge increase in the investment rate, it is impossible to sustain the government's target GDP growth of 7.5 percent.
(2) The second strategic determinant of growth sustainability is the domestic savings rate (savings as a percentage of GDP). If the domestic savings are less than the amount invested in the economy, then clearly the gap is filled either through loans (whether domestic or foreign) or foreign private capital inflows. The problem with loans is that over time they increase the debt-servicing burden of a country to a point where the consequent pressures on the budget and balance of payments force a slow down in GDP growth as happened during the 1990s. In Pakistan domestic savings have historically been inadequate to finance investment thereby resulting in perennial loan dependence. In recent years there has been a further reduction in the domestic savings rate. Consequently, as pointed out by the latest State Bank Report the gap between savings and investment is growing, resulting in sharply increased fiscal and balance of payments pressures. That this is happening even at the existing level of investment, which we have seen is inadequate to sustain a GDP growth of 7.5 percent, casts doubt on the government's claim that it can maintain its growth performance in the future. Dr. Shahid Javed Burki in a recent series of articles in the Daily Dawn has presented an incisive analysis to suggest that Pakistan's recent high growth performance is based essentially on a consumer boom induced by cheap credit, improved capacity utilization and a good harvest. When adjusted for these short terms factors, he argues, the GDP growth rate is still on the trend rate of the 1990s at 3 percent.
(3) It is necessary to achieve a growth rate of exports sufficiently high to provide the foreign exchange earnings necessary to finance the growing import expenditures associated with a high GDP growth trajectory. Maintaining a high foreign exchange earning capability requires an export structure that is oriented towards goods that have growing export demand and are high value added. Pakistan's export structure meets neither of these two conditions. After five decades, Pakistan's predominant industry (textiles), is (apart from a few exceptions) still predominantly exporting at the low value added, low price end of the textile spectrum and in a world market where the share of low value added textile industry in the global aggregate demand is declining. Consequently, Pakistan continues to suffer from declining terms of trade, which means that it has to export a larger and larger volume of goods to earn the same amount of foreign exchange. Thus without a change in Pakistan's export structure the growth of foreign exchange earnings cannot be expected to keep pace with the import expenditures necessary for high GDP growth. The increase in the trade deficit over which the State Bank has expressed such concern is therefore not a short-term phenomenon. Balance of payments pressures constitute an endemic constraint to sustaining high GDP growth as Pakistan's economic history over five decades has shown. (For a detailed analysis of this issue see my paper titled: Institutions, Economic Structure and Poverty in Pakistan, South Asia Economic Journal, Vol. 5, Number 1, January-June 2004).
(4) Infrastructure and the institutional framework for efficient markets. GDP growth and the underlying investment rate cannot be sustained unless there is adequate and high quality infrastructure. This includes adequate water reservoirs and efficient irrigation delivery system, transport and communications infrastructure, a highly trained labour force, high quality universities and research institutions. The question is, does Pakistan have the investment capability to undertake such infrastructure projects so vital to sustain growth. Equally important, has the government even begun to establish the institutional framework for translating finance into concrete outcomes in the field of infrastructure?
The work of Nobel Prize winning economist Douglas North and recent research by economists such as Acemoglu, Kuran and Grief have shown, that in order for markets to function for sustained growth an underlying institutional structure is necessary. These institutions include the establishment of private property rights, contract enforcement, stable constitutional structures and a governance system that is both accountable and responsive to change. As both North and Grief have argued, equally important for sustained economic growth are norms and cultural values that underlie these institutions. The question in the context of Pakistan's growth sustainability is, has the government even begun to bring about the fundamental structural changes in the polity and in governance that would lead to the establishment of these institutions?
In this article, I have argued that the gulf between the government's claims of economic success and the experience of economic reality of the citizens is not simply a matter of correcting public perceptions through the throttling of dissenting voices and strident official hype. It is a matter of incorporating the concerns of the people for a profound change in the government's policy focus towards improving the distribution of income and achieving rapid poverty reduction. The latest evidence on the economy suggests that a high GDP growth cannot be sustained on the basis of existing policies. The sustainability of growth with equity requires deep structural changes in both the economy and the polity, which the government has not even begun to address.
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Governance, Growth and Inequality
| Governance, Growth and Inequality |
| Dr.Akmal Hussain |
| Newspaper: Daily Times Dated: Monday, May 08, 2006 |
In the preceding article we discussed the issue of the sustainability of Pakistan's GDP growth. We will now examine the question of inequality to assess the rapidity with which the benefits of GDP growth can reach the poor.
Inequality adversely affects both the sustainability of growth as well as its capacity for poverty reduction. Consider. Elite power structures in Pakistan exclude the majority of the population from high quality education and access over capital, land and labour markets. This severely restricts the base for actualizing the human potential, through which entrepreneurship, investment, innovation and productivity growth can occur to sustain growth. At the same time the poverty reduction capacity of growth is constrained by the institutional environment of the State and the economy: The poor face a structure of state power, markets and public institutions, which discriminate against their access over resources, public services and government decision-making.
The tendency for increasing inequality and systemic poverty can be articulated in terms of five structural factors:
(1) The Patron-client Governance Model. Power in Pakistan has historically been constituted by accessing public resources for arbitrary transfer to dependants. During the Raj this was done to win loyalties for the State on the basis of the unprecedented resource gratification made possible by the establishment of the irrigation system. Professor Imran Ali has examined this phenomenon in his seminal work (Punjab under Imperialism). However, after independence, economic gratification using State resources was undertaken to build political constituencies for individual politicians and State personnel. The awarding of licenses, government contracts, subsidies, and loans have been some of the typical forms of granting rent to favoured individuals and groups. Dr. Nadeem ul Haque in a penetrating analysis of Pakistan's growth model has counter posed these “licensee businessmen” with those in the informal sector facing both uncertainty and high costs resulting from the government's exclusionary policy and concludes: “It is no wonder that indigenous enterprise does not grow and wealth remains concentrated in the hands of those the government favours” (See, Nadeem ul Haque, Rethinking Pakistan's Growth Strategy).
(2) Asymmetric Markets for Inputs and Outputs. In the UNDP, Pakistan National Human Development Report 2003, I have argued that local elite power structures in rural areas distort markets in favour of the rich and against the poor. The poor peasants face input and output markets where they have to pay a higher price for their inputs and get a lower price for their outputs compared to large farmers. The study showed that the poor peasants are losing as much as one third of their income due to asymmetric markets.
(3) Unequal access to markets for land, labour and capital. The highly unequal distribution of land ownership in Pakistan together with wide spread tenancy, is a major structural factor in rural income inequality. This is further reinforced by distortions in the land market arising from inadequate documentation of land rights and lack of access over credit for purchase of land. Consequently, the tenant has neither the ability nor the incentive to increase productivity, thereby further accentuating income inequality.
The NHDR survey data shows that due to lack of access over the formal credit market, 51 percent of the tenants get locked into debt dependence on the landlord, and out of these, 57 percent are obliged to work as labourers on the landlord's farm without wages, while 14 percent work for a wage below the market rate. Thus the structure of power and dependence creates distortions in the labour and capital markets, which systematically deprive the poor of their actual and potential income. The consequent inefficiency in the allocation of labour and capital resources, constrains agricultural growth, increases inequality and engenders persistent poverty.
(4) Health and Poverty. The NHDR showed that due to inadequate diet and lack of access over safe drinking water and sanitation facilities, 65 percent of the poor in the sample survey were suffering from ill health. The prevalence of disease amongst those who are slightly above the poverty line is a major factor in pushing them into poverty. Those who are already poor get pushed into deeper poverty as a result of loss of income due to absence from work, and high medical costs resulting from illness. Thus the unequal access over public health facilities and the relatively high prevalence of disease amongst the poor becomes a structural factor that further accentuates both poverty and inequality.
(5) Lack of access over security and judicial services. The poor live in localities both rural and urban, which are inadequately policed and in case of theft or violence against their person the cost of seeking redress through the judicial system is in most cases unaffordable and where undertaken, the expenses in terms of time and money, lock the poor into permanent debt. This is another factor reinforcing inequality.
We have identified some of the structural factors that create systemic inequality and indicated how they constrain both the level of GDP growth as well as its capacity for poverty reduction. A credible strategy for sustainable growth and rapid poverty reduction would have to address these inequalities in the structures of power. Such a strategy would be predicated on changes in the following spheres of governance: (i) A democratic political system where the elected representatives of the people are pre-eminent in the power structure and where the people can participate in decision making at every tier of governance. (ii) A professionalized civil service with adequate performance based incentives to provide key public services such as safe drinking water, sanitation, health, quality education and environmental protection. (iii) A high quality police force answerable to the people at the municipal and local government levels for ensuring protection of life and property of the citizens. (iv) A judiciary that has the independence, the resources and the competence to provide justice to the citizens and checks to the misuse of executive power. (v) Establishing property rights in both rural areas and urban centers together with contract enforcement. (vi) A network of public schools in every district, tehsil and local council that can provide high quality education to the middle class and the poor. (vii) Industry specific vocational training institutes in every district to develop the largest possible pool of skilled labour force. (viii) Establishment of world-class universities and research institutes that can provide the research basis of public policy, technical change in private sector industry and the development of a knowledge based democratic culture.
The political and institutional pre-requisites for a strategy of sustainable growth with equity we have indicated, are aimed at a comprehensive transformation of the existing model of governance that engenders inequality by systematically excluding a large proportion of the population from engaging in or benefiting from the economic growth process. Economic growth can only be sustained if it unleashes the human potential of all the people. Therefore sustainable growth is only possible on the basis of equity.
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Bugti Killing and The Echoes Of History
| Bugti Killing and The Echoes Of History |
| Dr.Akmal Hussain |
| Newspaper: Daily Times Dated: Wednesday, August 30 2006 |
“Tonight I can write the saddest lines”.
Pablo Neruda
The killing of Nawab Akbar Bugti, President of the Jamhoori Watan Party in a military operation has cast a pall of gloom on all those who love Pakistan. Echoes of history amplify the tragic significance of this moment. As in the case of the East Pakistan crisis in December 1971, an essentially political problem has been dealt with military means. Once again the attempt to establish the writ of the state may have unleashed forces that could in time further weaken it. This is because the sentiment of the Baloch for greater provincial autonomy has been intensified through the creation of a martyr. In this article we will discuss the nature of nationalism and the imperative of urgently granting genuine autonomy to all the provinces of Pakistan in order to strengthen the state.
Sentiment is the defining feature of nationalism. Max Weber in his seminal work, defines the term nation: “The concept undoubtedly means ….that one may exact from certain groups of men a specific sentiment of solidarity in the face of other groups”. Similarly W. Connor suggests that “….nations are self-differentiated ethnic groups at whose core is an intensely subjective psychological identification which exists beyond reason”. It is this sentiment at the core of Baloch nationalism that may have been re-ignited amongst the Baloch by the killing of Nawab Akbar Bugti and the delay in handing over his body to the family for burial. The statement by Sardar Mengal in the context of the killing is significant: “Nawab Bugti was a fighter for the rights of the Balochs and his death has drawn the line between Balochistan and Pakistan”. (Daily Times, August 27). The response to the delay in handing over Mr. Bugti's body is further reinforcing the perception that the values and norms, which the Baloch share with all Pakistanis, are being violated. Senator Shahid Hassan Bugti is reported to have said, “two days have passed since the tragic incident took place and the government should hand over the body to heirs in accordance with Islamic teachings, tribal traditions and human values”. (The daily Dawn, August 28).
The principal challenge for state stability in Pakistan has been to develop amongst its multiple provincial, cultural, and religious identities an overarching identity as citizens of Pakistan. Quaid-e-Azam Muhammad Ali Jinnah articulated this challenge precisely when he said:
“You may belong to any religion or caste or creed ___ that has nothing to do with the business of the state….. We are starting with this fundamental principle that we are all citizens and equal citizens of one state…. Now, I think we should keep that in front of us as our ideal and you will find that in the course of time Hindus would cease to be Hindus and Muslims would cease to be Muslims, not in the religious sense, because that is the personal faith of each individual but in the political sense as citizens of the state.”
The integrity of the state signified in the concept of citizenship in such a pluralistic society requires a structure of governance that nurtures each specific “creed” and cultural identity within a polity that is decentralized at the provincial level. It is precisely the confidence of having a voice in governance and in the distribution of economic resources that would give cohesion to the provinces and to each individual a stake in Pakistani citizenship.Let us now consider the concept of the “writ of the state” the establishment of which has been explicitly used as a justification for the recent military action in Bhambore. The writ of the state is based not on armed force but on justice. Underlying the “writ” is an unwritten social contract between the citizens and the state, in terms of which the state is granted monopoly over the use of armed force in return for guaranteeing certain basic rights to citizens. Therefore if the state is seen to deprive the citizens of a particular province of their rights or is seen to exercise force without justice, then the underlying social contract that is vital to sustaining the writ of the state is violated. In such a circumstance the state is pitted against its own citizens as a militant provincial nationalism emerges and the state loses its monopoly over military force. The response to this confrontation must be to establish the writ of the state by re-establishing the underlying social contract. Military action cannot be a sustainable basis for determining the relationship between a state and its citizens. General Sahibzada Yaqub Khan who was GOC commanding East Pakistan in the early stages of the crisis, wrote in his letter to General Yahya Khan that a war with the people of East Pakistan (now Bangladesh) cannot be won. (Tragically his wisdom was rejected and he was promptly transferred back to Rawalpindi). The inflammatory political consequences of the recent military action in Balochistan are apparent in the riots in Quetta, Nushki and Karachi. Worse still the seething sense of deprivation in Sindh could take the form of alienation from a polity in which the writ of the state is seen to be established not through a political consensus but through the barrel of a gun. It is therefore an urgent need of the hour to re-establish political negotiations with Baloch representatives and promptly grant the necessary autonomy to Balochistan and indeed to all the provinces of Pakistan. If this requires a constitutional amendment, the question is how can this be done? Now as never before a government of national unity before the next elections is required. Such a government could bring about a political consensus regarding the changes in the structure of governance and provincial autonomy that need to be achieved after the next elections. The military action in Bhambore and the consequent widespread rioting in Balochistan signify a challenge to the writ of the state that is drawn from a break down of the underlying social contract. As Douglas North has argued when institutions fail to maintain the consensus of the actors within them and come into conflict with their norms, then it is an institutional gridlock that requires institutional change. In Pakistan today, there is a crisis of the institutional authority of the state. Overcoming this crisis through institutional change will make Pakistan stronger. A viable democratic structure in Pakistan would need to meet at least three conditions: (a) Subordination of the military to the elected civilian government. (b) Devolution of power to the provincial level and granting the level of provincial autonomy that fulfills the aspirations of the smaller provinces. (c) Setting into motion a people centered economic and political process, which ensures to all citizens justice, human rights, basic services, and equitable participation in the process of economic growth. These are necessary conditions for a vibrant federation whose unity is nurtured by its diversity. Only a democratic polity and equitable economy can achieve an enlightened, tolerant and dynamic Pakistan. |
Budget: The Burdens of Success
Budget: The Burdens of Success
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| Dr.Ak mal Hussain |
| Newspaper: Daily Times Dated: Tuesday, June 7 2005 |
The high GDP growth rate over the last two years combined with fiscal stability is suggestive of a strong economic turn around for which the government of President Musharraf can take due credit. However the policy challenge is to simultaneously sustain the high economic growth rate and at the same time restructure it for rapid poverty reduction. In this context four structural features of Pakistan's economy need to be addressed urgently: (1) The continued low investment and savings rates as a percentage of GDP. The gross fixed investment/GDP ratio which is an indicator of capital formation continues to stagnate at 15.3 percent this year, being slightly lower than in the year 1999-2000 when it was 16 percent and substantially lower than the average for the period 1978-88 when it was 16.8 percent. This suggests that the observed growth in the manufacturing sector is essentially due to improved capacity utilization rather than establishment of new production units. Similarly the sharp increase in the growth of agriculture is due to timely rain fall rather than the necessary investment and institutional change for sustaining agriculture growth. (2) The second policy challenge is to restructure GDP growth for rapid poverty reduction. This requires an increase in the weight not of consumer durables (as has happened in the last two years) but in the weight of the incomes of the small farm sector (especially milk) and small scale industries. (3) The narrow export base and its continued concentration on low value added products which results in balance of payments pressures building up to threaten the sustainability of growth. This has indeed happened this year as the current account of the balance of payments has shifted from surplus to deficit, requiring increased foreign financing. In the short term respite can be obtained by an annual increase of at least three billion US dollars of foreign private investment (Can this happen given the law and order situation as it stands?). In the medium term the solution lies in export diversification, for which establishment of an institutional structure is needed rather than mere tax incentives. (4) The doubling of the inflation rate this year is indicative of the inadequate production base to respond to increased demand generated through the government's fiscal and monetary policy. This again requires building institutions for training the labour force and creating the environment for establishment of new production units. In their absence higher growth with inflation will result in increased inequality and poverty.
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A New Beginning In The Peace Process
| A New Beginning In The Peace Process |
| Dr.Akmal Hussain |
| Newspaper: Daily Times Dated: Tuesday, September 28, 2004 |
quality of medical care at Tehsil level hospitals. (4) Establish at least one model hospital of international standards in each district. (5) Launch a national campaign for: (i) Provision of hygienic drinking water, (ii) Control of hazardous pesticides used on food grains and vegetables, (iii) Strict implementation of food adulteration laws and control of unhygienic food supplied by vendors, cafes and restaurants.
“It was a historic day and we have made a new beginning”, declared Prime Minister Manmohan Singh as he emerged from his meeting with President Musharraf in New York on 24th September. Earlier during the discussion at his house in New Delhi on 30th August, he had said, “I am prepared to make a new beginning”. (See my DT article 23rd Sept). Now he has done so, together with President Musharraf. The question is, what is the nature of this “new beginning” and where we go from here?
With the coming into power of the Congress led government in May, observers had expressed fears that the peace process had lost momentum. When leaders in both Pakistan and India started making statements about placing preconditions on the continuation of the dialogue (concrete progress on Kashmir within a time frame and end to cross border terrorism respectively), it appeared that the peace process might even have stalled.
Three elements in the text of the joint statement and the contextual events surrounding it, signify that the peace process is back on track:
1. The document not only explicitly acknowledges the disputed status of Kashmir, but emphasizes the need for “a peaceful negotiated settlement” of this dispute. This is a break from the recent past when India insisted that Kashmir was an “internal problem”, and thereby refused to even acknowledge it as a “dispute”, let alone seek its peaceful resolution.
2. The statement significantly excludes any mention of “cross border terrorism”. It is important to understand this exclusion does not constitute a shift in India's earlier stated position that this issue must be addressed by Pakistan. Such a shift has been erroneously claimed in the BJP's official statement, following the New York meeting. On the contrary, it signifies India's willingness to resolve the issue of cross border terrorism within the process of the composite dialogue rather than preventing its resolution by placing it as a precondition for the continuation of the dialogue.
3. For the composite dialogue to continue it was necessary that India and Pakistan both recognize the distinction between preconditions on the continuation of the dialogue and difficulties in the peace process. Prime Minister Manmohan Singh made quite clear that the peace process would proceed unhindered, by any precondition, when he stated after the historic New York meeting, “…I feel confident that despite the difficulties on the way, I and President Musharraf will together work and succeed in writing a new chapter in the history of our two countries”.
The distinction between preconditions and difficulties has been firmly established also in the sub-text of the joint statement. Progress on the resolution of the Kashmir dispute is not mentioned as a precondition for progress to occur in other elements of the composite dialogue (e.g. economic cooperation). Indeed the joint statement expresses the desirability of taking up the key gas pipeline project from Iran, through Pakistan to India, for the “welfare and prosperity of the people of both countries”. The unconditional nature of the composite dialogue is further reinforced when the joint statement notes that both countries “….agreed that confidence building measures of all categories, under discussion between the two governments, should be implemented ….”.
The significance of the Manmohan-Musharraf meeting in New York should not be under estimated. The peace process has survived the departure of the Vajpayee government. Indeed the ‘objective forces' that impel both India and Pakistan towards peace are being catalyzed by the equally real ‘subjective factors' that are constituted in the new chemistry of the two leaders, and the perennial consciousness of their respective peoples. (See my DT article 23rd Sept). The joint statement of 24th September bears testimony to this possibility. However actualizing this possibility will require a series of strategic initiatives that have synergistic interconnections. In implementing the “confidence building measures of all categories”, a prioritizing of specific CBMs in terms of strategic importance, may be necessary to create the critical minimum momentum for a generalized break through on all the peace fronts.
Some of the strategic CBMs that need to be undertaken without further delay are the following: (i) Simultaneously bring to bear all measures necessary to rapidly increase tourism to a level where it could bring palpable income and employment gains to people on both sides of the border. Such measures include providing non-reporting, multiple entry one-year visas, to all categories of professionals, businessmen and members of bona fide civil society institutions. At the same time allow ten days tourist visas to multiple cities in each country not just for groups but also for individuals with appropriate references. (ii) Move rapidly on the Iran-Pakistan-India gas pipeline project. This could bring an estimated USD 700 million annual transit fee income to Pakistan, thereby raising GNP by 1 percentage point. For India it would mean much larger gains in terms of cheaper energy that could play a key role in sustaining India's economic growth. (iii) Allow import into Pakistan of diesel fuel produced in Panipat. During a seminar in New Delhi on 31st August, Mr. Manishanker Iyer, the Indian Minister for Oil and Gas showed a willingness to initiate such a project. This would not only mean large economic gains from cheaper diesel oil for Pakistan but also create together with the gas pipeline project a mutual economic interdependence between Pakistan and India that could enable rapid resolution of political disputes. (iv) Joint infrastructure projects between the private sectors of India and Pakistan in the transport and water sectors. For example a motor way between Islamabad and Bombay via New Delhi; joint venture projects in watershed management to increase the life of dams, construction of new dams and lining of canals in India and Pakistan. (v) Allow formal trade to take place between India and Pakistan at least in those items in which unofficial trade (via third country) is already taking place. It is estimated that USD 2 billion annually of such unofficial trade is already occurring, compared to only USD 700 million annually of official trade. Converting the unofficial trade into official trade would mean larger revenues for the governments of the two countries and lower transportation costs without adversely affecting the interests of the industry in either country.
To maintain the integrity of the composite dialogue these strategic CBMs in the economic sphere need to be conducted in parallel with a sustained and intensive examination of all the possible options acceptable to the parties concerned for resolving the Kashmir dispute according to the wishes of the Kashmiri people, as agreed in the joint statement.
While the logic of peace is apparent, obsolete mindsets continue to constrain it. The recent sacrilegious attack attempted by a small group of hooligans on the holy temple of Guru Nanak is an example. All efforts must be made by the government of Pakistan to bring the criminals to justice and prevent such incidents in future. In fact the governments in both Pakistan and India must work together to ensure the freedom of worship to people of all faiths, and the protection of their holy sites. At the same time mechanisms must be put into place whereby the peace process becomes uninterruptible by any attempt to disrupt it.
We are at a moment when a break from the past can be made. Some times the site of discontinuity becomes more significant than the continuity of history, because such a site signifies the moment when leaders and nations may rise to the occasion to make history. (See my Sept 23, DT article). The Manmohan-Musharraf meeting in New York does indeed promise a “new beginning”. Manmohan's breadth of vision and Musharraf's boldness may together form (what Helen Keller in another context called), “A new doorway for the human spirit”.
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