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  #181  
Old Tuesday, January 04, 2011
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Default For closer ties

For closer ties


By Shahid Javed Burki
Tuesday, 04 January, 2011


CHINESE Prime Minister Wen Jiabao came and went, leaving behind a large economic development programme his country will finance in Pakistan. He promised very little free money. Some cash assistance will be given to help the people hurt by last year`s flood.

Most of the promised finance, however, will flow into the projects that will pull Pakistan more firmly into China`s economic orbit.

I thought it would be interesting for readers of this column to have some background on how the Chinese have looked at Pakistan for many years and how the current programme of assistance fits into their long-term thinking.

I will relate some of the conversations I had with senior Chinese leaders when I looked after the World Bank`s programme in their country. That was for seven years between 1987 and 1994. I developed a good working relation with some of them because of the position I had taken on the West`s approach to China.

The West, in particular the Americans, wanted the World Bank to sever its relations with Beijing because of the Tiananmen Square episode. I refused to comply since I thought — and the bank`s senior management agreed with me albeit somewhat reluctantly — that the bank, as a development institution, should not be forced into taking political positions. The Chinese were very appreciative of this stance. Among them was Zhu Rongji who was then the mayor of Shanghai. He went on to become the country`s prime minister.

Once he took me to his office and showed me a huge map of China that hung on the wall. “I am showing you this map to underscore one thing,” he said. “China is landlocked on three sides. We are the only large country … compare us with other large land-mass countries such as the United States, Canada, India, Russia, South Africa and you will see that we have access to the sea only on one side, the east. We want to open our western landlocked provinces to the Arabian Sea … and the Persian Gulf. Pakistan could help us to do that.”

This conversation took place in the early 1990s when Zhu was vice premier in charge of the Chinese economy.

In another conversation, this time with the governor of Xinjiang province that borders Pakistan, I was told of China`s interest in building tourism ties between the two countries.

The governor said that he wanted to see Pakistani and Chinese airlines flying from Islamabad and Gilgit on the Pakistani side to Kashgar and Urumqi on the Chinese side. “Many tourists from both sides would like to see the Karakoram Highway and the spectacular terrain through which it passes. But doing it as a round trip can be onerous. The tourists should be able to cover one part of the journey by air.”

The governor also encouraged me to take the road trip from Pakistan to Kashgar — the Chinese call the ancient city Kashi — which I did when I led a team from the World Bank. We went in a Toyota cruiser from Islamabad to Kashgar. There were about a dozen of us in that group hailing from almost as many nationalities. We were impressed by the tourism potential of the area.

I related these exchanges and experiences to late president Ghulam Ishaq Khan who promised to have his government establish a dialogue with Beijing on these and other matters. More recently, I have had several conversations with President Asif Ali Zardari who, of all recent leaders, has given more attention to Pakistan`s economic relations with China.

In my meeting with Zardari in 2008 soon after he had taken over as president, I impressed upon him the need to develop and articulate a long-term strategy for defining relations with China. He said that he was planning to visit China every month to forge a personal relationship with the senior leaders of that country. When I said that monthly visits by the head of a large country would be hard for the Chinese to manage, he said he could travel every three months. I happened to be in China when the president came. His visit was extensively and warmly covered by the Chinese media.

Last year, I reminded the president of a suggestion I had made earlier. I had suggested that Pakistan should set up an institute of China studies, possibly in Islamabad, which should provide not only training in the Chinese language and culture but also in Chinese history, the country`s economy and its legal system, its future as reflected in its various five-year development plans, the country`s foreign policy and how it was managing its rise to become the second-most militarily powerful country in the world, China`s business practices and opportunities available for doing business in the country.

A well-developed curriculum and research programme would not only attract Pakistani students but also students from many neighbouring countries. It could easily become a premier institute for Chinese studies outside China. I also suggested that the institute be named after Zulfikar Ali Bhutto, who laid the foundation of what was to become the `all-weather friendship`. Honouring Bhutto that way would be highly appropriate.

China has already provided Pakistan with large amounts of economic and military assistance. Some high-profile projects were constructed with Chinese help. These include nuclear power plants at Chashma, the port at Gwadar, the Karokaram Highway.

More will follow as a result of the recent visit by the Chinese prime minister. But for Pakistan to cast its relations with its giant neighbour within a long-term framework, much more strategic work needs to be done. An institute such as the one I proposed would be of great help in that context.

The writer is chairman of the Lahore-based Institute of Public Policy, a former finance minister of Pakistan and former vice president of the World Bank.
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  #182  
Old Wednesday, January 12, 2011
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Flawed microfinancing a trap for the poor


By Shahid Javed Burki
Monday, 10 January, 2011


THE poor and the middle classes have always paid more to borrow for their needs than do the rich or those who belong to the upper middle class. This is one reason why the people lower down in the income distribution scale find it difficult to move up the economic ladder.
Often – more frequently than should happen – the poor needing money and borrowing expensively dig themselves in a deep hole.

The hole keeps on getting deeper as they attempt to climb out of it. The existence of this dilemma has been recognised for centuries and is one reason why the world’s major religions frowned upon the practice of usury. Some of them – Islam among them – banned outright charging interest to lend money.

How the poor get into deep trouble when they turn to the “markets” to borrow was investigated decades ago in harrowing detail by Malcolm Darling (1880-1969), a British official, who, working with the peasantry in the Punjab, became sensitive to the problem in his seminal work, The Punjab Peasant in Prosperity and Debt. The book was published in 1928 and had a profound impact on the making of public policy in British India.

Darling’s book led to the passage of the Agriculture Marketing Acts in a number of provinces including Punjab and Sindh. The main purpose behind these acts was to provide some protection to the Muslim peasantry against the predatory lending practices by the traders and money-lenders. Since the peasantry in these two provinces was mostly Muslim and money lending was done mostly by Hindus and Sikhs, the British feared that the increasing indebtedness of the poor could lead to communal troubles and disturb public piece in their domain.

Darling traced the impact of borrowings by the poor peasantry at almost usurious rates using their share in output as collateral. Much of the borrowing was for non-productive purposes such as weddings and other social obligations.The high rates at which loans were obtained meant that capital outstanding built up rapidly. Most borrowers found it hard to get out of debt once they had become part of the cycle of borrowings and repayments.

The question of how to meet the financial needs of the poor without putting them under an increasing burden of debt was answered creatively by a Bangladeshi professor of economics soon after his country gained independence. Muahmmad Yunus founded the Grameen Bank which lent small amounts of money to the poor, in particular poor women, to start small businesses.

The innovation factored into its lending practices by the bank was to use the community as the collateral. The poor borrowers fearing being ostracised by the community in which they lived tried hard to remain current with their payments.

Grameen went on to become a large bank and its founder was given the Nobel Peace Prize in 2006. Its success spawned a number of similar efforts in other countries in South Asia. According to one assessment “in Bangladesh alone more than 1,000 micro-enders, including government institutions, banks and charities, have about $2.2 billion in outstanding loans to some 30 million borrowers”.

First non-government organisations and later government institutions got into the microfinance business in other South Asian countries including India and Pakistan. In India more than in Bangladesh, the formal, for-profit sector joined the non-profit organisations in providing small but expensive loans to the poor.

By the middle of 2010 India’s microloans totaled $46.5 billion of which 30 to 40 per cent were in just one state, Andhra Pradesh. It was revealed that some big players had entered the field. It was reported that “India’s biggest microfinancier whose shareholders include US-based funds such as Sequoia Capital, raised $350 million in an initial public offering that cast a spotlight on the fortunes being made in the industry” The large companies were borrowing from banks at rates of 11-15 per cent but were charging 28-30 per cent which they said was needed to cover the cost of making tiny loans averaging $250 each to 30 million widely dispersed poor borrowers.

But the large lenders were not using the community pressure that was an important part of the Grameen model. They resorted to strong arm tactics that were common with traditional moneylenders. In early October newspapers in India carried the news that as many as 30 rural borrowers had committed suicide in the state in the last few months following their inability to pay back loans contracted from microfinance institutions.

On October 8, “reflecting a growing Indian backlash against an industry once touted as the financial salvation of the poor, the Andhra Pradesh cabinet approved a special ordinance that it said would stop the ‘harassment’ of small borrowers by microfinanciers”.

There was thus an explosion of business in what was once considered a niche activity. The business came under scrutiny in India and Bangladesh. According to one report, “aggressive lending has turned microfinance – once touted as a magic bullet against poverty – into a trap for the poor, who struggle to repay loans with interest rates ranging from 20-50 per cent, prompting authorities [in Bangladesh] to cap the rate at 27 per cent in November”.

The microfinance industry came under international spotlight following the release of a documentary produced by Norwegian TV that questioned the benefits of microfinance and alleged Muahmmad Yunus of misappropriating donors’ money. This was with reference to the decision taken by the Grameen Bank’s founder to transfer a grant the institution had received from the Norwegian government to a new entity created under the name of Grameen Kalyan.

While the Grameen Bank was treated as a commercial entity liable to pay taxes, the new organisation, having been registered as an NGO, was exempt from any tax obligation. Sheikh Hasina Wajed, the Bangladeshi prime minister called this action a “trick” and accused Grameen of “sucking blood from the poor.” Pakistan entered the field of mi crofinance later than Bangladesh and India. The first significant effort was made by a non-government organisation. Kashf Foundation started operations in 1996 but met with limited success. The poor just didn’t want to borrow. But the founders persisted and now the organisation has 152 branches around the country and has dispersed more than $200 million to more than 300,000 families.

According to Nicholas Kristof, a New York Times columnist, “done right, microfinance can make a significant difference. Kashf borrowers are more likely than many others to enjoy improved economic conditions – and that’s what I’ve seen over the years as I’ve visited Kashf borrowers”.

Kashf’s success led the government to come into the field. It established a microfinance institution called the Khushali Bank in 2000 which began its operations in 2003 after receiving the support of the Asian Development Bank. According to the Bank’s 2009 annual report, the Khushali Bank had built relationships with 2.5 million small borrowers. It reported that it had almost 330,000 active borrowers with total revenue of Rs1.339 billion or $16 million.The bank was also encouraging small earners to save; in 2009 it had 75,000 savers with total deposits of Rs190 million, or $2.2 million.

Pakistan appears to have escaped the problems both Bangladesh has encountered in recent years because of the relatively small size of the microfinance sector and the presence of large banks on board of the state-run Khushali Bank.

The role the private sector is playing in the field is small compared to Bangladesh and India. That notwithstanding the country could still face the same crises that have visited other parts of South Asia unless the regulators keep a watchful eye on the industry.
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  #183  
Old Wednesday, January 12, 2011
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History may not repeat itself


The military appears to have concluded that changing the commander of the ship at this time would not help it to navigate towards the safety offered by the shore.


By Shahid Javed Burki
Tuesday, 11 January, 2011


FOR Pakistan history may not repeat itself this time around. The military may not intervene in politics as it did in the past whenever it felt that the country was moving on the wrong track.
What the country is currently witnessing in terms of social and political instability and economic distress has no precedence in history. Yet in the past, lesser turbulence was reason enough for the military to step in to ‘save the country’. This happened four times in the country’s turbulent past.

In 1958 Gen Ayub Khan, commanderin-chief of the army, was convinced that the frequent changes in the government, with a new prime minister being sworn in every few months, justified the staging of a coup d’etat. He threw the civilians out and established a military government that ruled for almost 11 years.

In 1969 Gen Yahya Khan thought that a popular campaign against the govern ment of Ayub Khan, prompted by an increase in the price of sugar, was a good enough reason to stage another coup d’etat and assume the presidency for himself. He ruled for almost three years and saw the breakup of Pakistan with the province of East Pakistan gaining independence as Bangladesh af ter a bitterly fought civil war.

In 1977, unhappiness with the alleged rigging of the elections held that year by the civilian government headed by Prime Minister Zulfikar Ali Bhutto brought a large number of people out in the streets and the military was back in power, this time under Gen Ziaul Haq. The general also governed as president for 11 years. He was replaced by a series of civilian governments — seven of them, counting the interim governments that were in office to prepare the country for repeated general elections — after his death in an unexplained plane crash.

The civilians attempted to sideline the military but did not fully succeed. It was one of these attempts — by Prime Minister Nawaz Sharif when he tried to replace the army chief of staff, Gen Pervez Musharraf — that led to another spell of military rule. President Musharraf governed for almost nine years.

In Jan 2011, Pakistan faces an exis tential threat even greater than the one it had to deal with after it lost its eastern ‘wing’ in Dec 1971. The government and society has been challenged by several extremist groups whose declared objective is to establish an Islamic order in the country that embraces all aspects of life — the economy, the legal and political systems, relations with the outside world.

The economy is in deep trouble, not expected to grow at a rate that will be much more than the rate of increase in population. This will mean adding perhaps as many as 10 million people to the already large pool of poverty. Most of the new poor will be in the urban areas to which belonged the assassin of Punjab Governor Salman Taseer. They will be willing recruits to extremist causes if the economy cannot find productive jobs for them.

The political structure is still in the process of being erected. Two days before Taseer was gunned down in Islamabad, the government headed by Prime Minister Yousuf Raza Gilani lost its working majority in the National Assembly when the Muttahida Qaumi Movement decided to part ways with it. A crisis was narrowly averted when the MQM was brought back on board.

Economics once again was the immediate cause of the government’s predicament. It is obliged to reform the tax revenue system if it wishes to receive funds from the IMF. The Washington-based institution wants Islamabad to introduce what is effectively a value-added tax in order to increase the pitifully low tax-toGDP ratio.

This is not supported by the MQM. The party considers a value-added tax to be a burden on the urban poor and the urban middle classes. Instead, it wants a tax structure that does not have the loopholes through which the rich can walk out with impunity. It wants the government to cut down on its own expenditure, much of which it regards as wasteful.

To this interplay between rising ex tremism, a poorly performing economy and a political system still working to find its feet must be added the problem in the country’s western border, where the Taliban have found sanctuary and from where they are operating against coalition forces in Afghanistan. Washington would like to see Islamabad show greater resolve to eliminate the sanctuaries in its tribal areas from which these groups operate.

The use of unmanned drones by the United States to kill the Taliban leaders has also resulted in the deaths of many civilians living in the area. This has caused enormous resentment against the Americans in the country and is adding to the popular support for Islamic militancy.

If one were to trace the cause and effect of Pakistan’s current predicament, which development would be placed first? Should we consider the failure of the economy the cause for the rise of extremism? Is it extremism that is hurting the economy? Is the aggressive posture adopted by the Obama administration in the Afghan war giving the extremists the platform from which to operate?

Historians will debate these questions for a long time. What is clear, though, is that Pakistan, at this time, is moving through a perfect storm. The military appears to have concluded that changing the commander of the ship would not help it to navigate towards the safety offered by the shore. What is needed is a concerted effort that involves all major groups in society. For them to work together would require a system where their differences can be resolved.

This cannot be done by the military but has to be the responsibility of a parliament that has the elected representatives of the people, a press that watches over the working of the government, and civil society institutions that represent well-defined public interests. All these are present in the country and are gaining confidence and experience. Time is on their side.

The writer is chairman of the Lahore-based Institute of Public Policy, a former finance minister of Pakistan and former vice president of the World Bank.
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Old Monday, January 17, 2011
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Another storm heading Pakistan’s way


By Shahid Javed Burki
Monday, 17 January, 2011



ANOTHER storm may be heading Pakistan’s way and hit the economic shores in the next few months. If that happens, the economy, already reeling from so many different shocks, will be further set off its course.

The reference here is to the imminent increases in the prices of commodities on which Pakistan is heavily dependent. We saw that happen once before three years ago when the rise in the price of oil, food and several raw materials on which the industry depends depleted foreign exchange reserves. It was the loss in reserves that then drove the country once again into the arms of the International Monetary Fund.

The Stand-By Arrangement with the IMF that promised to provide the country with more than $11 billion initially stabilised the economy. Of this amount the IMF has disbursed more than $7 billion. This helped to improve the external situation and contributed to increasing the level of reserves to a comfortable level.

However, Pakistan has failed to implement all the conditions it was required under the IMF. The Fund responded by putting on hold further disbursements pending decisions by Islamabad to increase its pitifully low tax-to-GDP ratio. An extension of nine months has been granted for Islamabad to come up with a plan to mobilise additional domestic resources for development. This means that if the likely increase in commodity prices does materialise, the IMF option may not be readily available.

How certain is another increase in commodity prices? The accepted wisdom is that the sharp decline in 2010 was merely an adjustment in what economists call the “commodities super-cycle”. According to a recently released IMF report, “commodity prices are projected to remain high by historical standards over the medium term with risks tilted to the upside. The upward shift in commodity demand that started some 10 years ago is expected to be sustained as global growth continues to be driven by emerging and developing economies.” The term “commodity super-cycle” is used by economists to explain the ups and downs in the prices of all commodities that follow another cycle – the trade cycle. Commodity prices generally follow economic activity with a bit of a lag. Economic activity itself is subject to cyclical behaviour with every sustained increase in output followed by a decline. Sometimes these declines can be very severe as was the case with the Great Recession of 2008-09. This happens when factors other than those normally associated with cycles intervene. This was the case for the recent downturn when the downward adjustment was exacerbated by the collapse of the US housing market.

What makes the current commodity price increases different from those that preceded it is the deep restructuring of the global economy that has followed the recent recession. The world’s two most populous nations – China and India – have emerged as the drivers of global growth. Since they are relatively underdeveloped, the use of commodities is considerably higher per unit of increase in output compared to the more mature economies in the West and in Japan. For the latter, increases in output result mostly from the knowledge-based service sector where the use of physical commodities is not very significant.

As Alan Greenspan once said with considerable accuracy, the products produced by mature industrial economies are becoming progressively less heavy. That change won’t happen in China and India for some time to come. In their case, national output will remain “heavy”. China’s extraordinary economic rise in recent years has profoundly affected all parts of commodity trade – energy items, metals and agricultural output.

Recent pressure on the price of coal in the global market place illustrates some important points about the movement of prices in the commodity markets. China uses more coal per unit gross domestic output than any other major economy. Coal is by far the most important fuel for the production of electricity; it is also extensively used by households and by industry. Up until recently, China relied entirely on domestic consumption but now demand has outpaced production.

The country’s shift from being a net exporter of thermal coal – coal used to fire power stations – to become the world’s second largest importer, after Japan, is one of the structural changes that will greatly influence the commodity market. This change has occurred in only three years, one of the more rapid transformations in economic history. China is set to become the largest importer of coal in 2011, overtaking Japan when it will account for 15 per cent of the market.

The case of coal also helps to illustrate another important point about the movement of commodity prices: natural disasters and government policies can profoundly influence market trends. Unprecedented floods, the worst in a hundred years, in Queensland in north-east Australia resulted in a serious loss of production in one of the world’s most important coal-producing areas. The losses were conservatively estimated at $2.1 billion Floods also affected the Port of Gladstone, a key embarkation point for coal exports. These disruptions pushed the cost of thermal coal by nine per cent within a few weeks setting a record at $133 a ton in early January.

Public policy choices are also affecting coal production. After a series of mine accidents and Chile’s performance in rescuing almost three dozen miners trapped a mile down as result of the collapse of the supporting structure, Beijing began clamping down on illegal and unsafe mining in the country. It did not wish to be compared unfavourably with other emerging nations. This has resulted in some loss of domestic production adding to the pressure on prices in the global markets.

The other point about recent developments in the energy markets is that commodity prices of the products in the same segment of the market need not move in tandem. While the prices of various forms of coal have reached record levels, those for some other energy-producing items have done less well. The price of oil has risen, reaching almost $100 a barrel in early January. But the there is a consensus among experts that it will remain in the range of $70-$90 which is band favoured by Saudi Arabia, the world’s largest exporter.

While the International Energy Agency, the western countries’ oil watchdog, estimated that the consumption of oil in 2010 increased by 2.3 million barrels a day – one of the highest rates of the past quarter century – it projects the increase in demand in 2011 at only 1.2 mbd, or half the growth of last year. This will affect the price in international market.

It is the sharp drop in the price of natural gas, another important source of energy, that has surprised most experts. The IEA believes that a global glut in the production of natural gas will keep the prices low both in absolute terms but especially in terms of the prices of other important sources of energy – coal and oil.

Metals are another part of the commodity markets where China has had a profound influence including creating a significant divergence in price movements of various products. While the country’s rapid economic and industrial development has made it the largest consumer of almost every metal, the pressure on prices has been considerable in the case for those that face serious supply constraints. Copper is one such metal. China’s consumption of the metal has more than quadrupled since 1995 and its share in total demand has risen also fourfold, from 10 to 40 per cent. This meant a large increase in the metal’s price while no such pressure was felt by aluminum that can see quick increases in production.

These movements in the prices of commodities have a special significance for policymaking. There are both short-term and medium to longterm aspects that need to be kept under focus by the policymakers in Islamabad. There cannot be any doubt that the likely price rises in some parts of the commodity market will put pressure on balance of payments.

To save itself from another neardisaster that occurred in 2007-08, Pakistan must continue to work with the IMF to tide over the drain on reserves that is inevitable, given the composition of the country’s imports and exports. It relies on exports that don’t have dynamic markets. However, it will take time before Pakistan can bring new products to the markets. Until then, it will continue to rely on the Fund to ease the pressure on balance of payments.
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Old Tuesday, January 18, 2011
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Tampering with history


Some of the past rulers deliberately distorted history to suit their own purposes. General Zia did the most damage in this respect by ordering the rewriting of textbooks.


By Shahid Javed Burki
Tuesday, 18 January, 2011


ECONOMISTS have a term for what I will discuss today. They call it ‘path dependence’; how what has happened in the past can influence the present and define the future. The influence of the past can be benign, positive or negative depending on what happened in the past.

In Pakistan’s case the impact is mostly negative. The country has had a troubled history and this has had an influence on the way it has developed over the past six decades. These are difficult times and it is appropriate to weigh some of the burdens history has placed on the Pakistani people and the Pakistani state.

What we need to explore with reference to history are the several aspects of the development of Pakistan. In order to break this dependence on the past we must first do two things: list the main problems the country faces at this time and then see how they have been impacted and infected by the past.

There are half a dozen issues on which we need to reflect in a historical context in order to shape the future.

One of the more important subjects is the role of religion in politics and how its various interpretations have influenced society. We need also to examine why there is an absence of civility in public discourse and in that context why we are so unwilling to treat with compassion and understanding the minorities in our midst.

We have become progressively less tolerant towards the people we consider different from us in some respect. The shabby treatment of minorities is an amazing development in a country that was founded on the basis of protecting the rights and privileges of a community — the Muslims of British India — which was afraid it would be poorly treated at the hands of the Hindu majority. But by minorities I mean more than those that follow a different religion from the majority. I also mean those groups that speak a language or follow practices or have different ethnicity from the majority.

We should also debate the role of politics in building a durable structure of the Pakistani state. In that context what is very important is to devise ways for ensuring the accountability of elected officials who occupy positions of power. We should analyse the impact on politics, economics and society of increasing income and wealth inequalities.

As I will suggest in a later article the chain of causality that led towards the cold-blooded murder of Governor Salman Taseer includes not only a clash of two points of view concerning the role of religion. It was also abetted by a clash between two classes — the very rich and the not-so-poor.

Let me turn to the way history has been perverted to advance a certain point of view regarding the first of these many issues: the role of religion. In an earlier article titled ‘History must not lie’ published in this space on Nov 9, 2010 I suggested that Pakistan was not created to advance Islam in South Asia; it was founded to protect the economic and social rights of a distinct communi ty that felt threatened by the transfer of political power to the majority.

But that is not what we teach our children in public schools. Some of the country’s rulers have deliberately distorted history to suit their own purposes. General Ziaul Haq did the most damage in this respect by ordering the retelling of history in the textbooks taught in public schools. The government has a monopoly over the writing and production of textbooks. There is no outside peer review of what gets written. Whatever the government of the day believes in — and whatever the establishment of the day wants the people to believe — gets written.

Zia ordered the rewriting of history to assign a greater role to religion than was justified by facts. But as is vividly portrayed in Mohammad Hanif’s The Case of Exploding Mangoes — a fascinating fictional account of the Zia years — the military leader did not confine his attention to the writing of textbooks that told a historical lie. He used the unconstrained power he wielded to affect many other changes, including replacing the wording in the insignia worn on the uniforms of army personnel. The words ‘unity, faith and discipline’ were dropped in favour of a commitment to the waging of jihad.

It was President Zia’s assumption that by adopting these measures he would be able to change the mindset of the people who served in the armed forces. Did he succeed? How much have religious beliefs permeated the military? To what extent are the personnel in uniform likely to follow their religious views in carrying out their duties? These are important questions that can only be answered by carefully surveying the opinions of those who serve in the military and associated services. But that some parts of the security establishment have been penetrated was in chilling display in the assassination of Gov Taseer.

There are many reasons why the Pakistani people were prepared to accept this retelling of history. The most obvious one is the quality of education in the public school system, in which rote learning is the basis of imparting what can only be loosely described as knowledge. This unquestioning approach to life is also the reason for the lack of tolerance in public discourse.

It is extraordinary that the assassination of a liberal politician for expressing views that caused discomfort in some quarters was applauded not only by some religious scholars. It drew support from a section of the legal community. It was the same community that had bravely fought the establishment on the question of the independence of the judiciary. It is the same community that is agitating in the courts to hold the government and its agencies accountable for the plight of ‘missing persons’.

Now some of its members have no trouble in countenancing murder to silence an influential political voice. The legal community is expected to protect citizens against the use of arbitrary means to suppress dissent. Nothing can be more arbitrary than murder. By distorting our history we have distorted our worldview. ¦ The writer is chairman of the Lahore-based Institute of Public Policy, a former finance minister of Pakistan and former vice president of the World Bank.
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Default An imminent food price increase

An imminent food price increase

By Shahid Javed Burki
Monday, 24 January, 2011


IN this space last week I wrote about the likelihood of Pakistan’s already battered economy receiving another shock sometime soon. In 2011 the economy is likely to be hurt by an imminent and significant rise in the prices of commodities.


Last week, I wrote about the recent trends in the movement of two groups of commodities: energy producing items and metals. Today I will turn to the likely impact of a number of global developments on the prices of agricultural commodities several of which are important in Pakistan’s import basket.

There is a mounting anxiety in international circles that we are about to witness an extraordinary increase in the prices of several agricultural commodities that enter the food chain.

While the economy was hammered by a number of domestic developments in the last couple of years – some of them brought on by nature such as the flood last summer of biblical proportions and some by poor public policies – further shocks are likely to be delivered by a series of developments in the international market place over which policymakers have no control.

In these difficult times Pakistan cannot afford to alienate its foreign friends. The policymakers’ poor performance in the area of domestic resource mobilisation means that its relations with the International Monetary Fund and much of the Western world will remain strained. Pakistan’s leaders will have to demonstrate that they can gather the political will needed to introduce long postponed structural reforms in particular of the tax system. They will need to do this before the donors are prepared to loosen their purse strings and come to the country’s help one more time. Help will be needed if the prices of the imported commodities increase and begin to eat into the accumulated reserves.

Much of IMF $11.3 billion standby credit has arrived and is responsible for taking the foreign exchange reserves to a comfortable level. But the Fund has stopped
further disbursements since Pakistan has not been able to meet one of the more important conditions: improving the tax system to generate more resources from within the economy. With the Fund stepping aside, Pakistan has very limited options available to meet the pressure on external accounts that will result from a rise in commodity prices.

As is usually the case with commodities, price rises are the result of a number of factors: natural disasters and changes in weather conditions, changes in the structure of demand in large countries, actions by the governments across the globe, and speculation in the forward markets. All these are in play at this time.

Russia, a major producer of wheat had one of the hottest and rainiest summers in 2010. That affected wheat output. Australia has faced serious floods in their summer (our winter) as did Pakistan. Both countries are important producers of several commodities. Argentina had a long dry spell that has affected its grain output.

Financial speculators are adding fuel to the fire that is burning in the commodities markets. Money flows have been large in recent months. Barclays Capital estimates $60 billion was injected into commodities in 2010 contributing to the increase in these prices.

Figures from the Commodity Futures Trading Commission, the US regulator, reveals very bullish bets among many mangers such as hedge funds. Concerns about speculation in the markets has prompted the United States Congress to begin to worry about the impact on the level of prices that may follow heavy trading by speculators not connected with the fundamentals of the market – supply and demand changes. Some US Senators have warned of a “speculative bubble that threatens to drive up gas and food prices even further.” They have threatened to take legislative action if the speculators continue to affect market stability.

Prices of agricultural commodities jumped recently after the United States government surprised the forward markets with the announcement that its stocks of key crops were running very low. The US Department of Agriculture said in a statement that the ratio of stocks-to-demand will fall this year to their lowest level since the mid-1970s. That was the last time the world went through a food scarcity scare. The international community at that time reacted quickly. A World Food Conference was convened in Rome which led to the creation of the International Fund for Agricultural Development, IFAD. This new UN agency was tasked with the responsibility for increasing investment in agriculture in the developing world.

For the moment no international action is contemplated as was the case in 1974. The result is that most governments are taking steps on their own. Some of these are likely to aggravate the situation as happened with the decision by Moscow to ban most agricultural exports. Moscow has said that the restrictions it placed on the export of many food products will remain in place until the end of 2011. South Korea and the Philippines have suspended some of their import duties on food items such as fish and powdered milk.

In December, Sri Lanka released rice stocks and re-imposed a price ceiling that had been removed in October 2010. The Indian government is very nervous about the price of onions that soared 80 per cent in just one week. It has allowed the import of onions from wherever it is available.

According to the Financial Times, “still in its infancy, 2011 is conjuring up memories of the start of 2008. Soaring crop prices have stoked fears of a food crisis and oil markets are bubbling…Prices of corn, soyabeans and wheat in January returned to heights that only two years ago sparked riots in more than 30 countries from Haiti to Bangladesh”.

For obvious reasons the poor are hurt more by a rise in the price of food. For them food constitutes a larger proportion of the budget than for other income groups. According to the World Bank, 65 million were thrown into poverty in 2008 and 2009 as a result of food price increases.

For the moment the prices of the crops that are important items of import by Pakistan have risen while those the country exports have stayed steady. The price of rice, by far the most important agricultural export, is likely to remain steady compared to some other food crops that are imported.

The group that matters the most for Pakistan are the oil bearing crops. The news about the stock situation in the United States resulted in a sharp increase in the price of corn and soya bean. They increased to their highest levels in 30 months. Both crops are important in this group of commodities.

There is a long history of food price increases causing political problems for governments in power which is one reason why policymakers react quickly – sometimes irrationally – to food inflation. Ayub Khan was brought down in the spring of 1969 by public agitation following the rise in the price of sugar, an
important item of consumption for the poor.

Rising food prices may have been an ingredient in the political movement that drove Tunisia’s president, Zine el-Abidine Ben Ali, from office and out of the country. One of the measures Ben Ali used a few days before throwing in his hat was to cut prices for sugar, cooking oil and other commodities. There are lessons in these experiences for Pakistan.

In a weakened and weakening political system a commodity price shock may be hard to absorb since it affects the poor and the lower middle classes more than the classes represented in the political establishment. The government needs to prepare itself and do it soon to deal with this expected shock to the troubled economy.
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Tunisia’s ripple effects


In spite of all the palpable anger felt by the citizenry in Pakistan, it is unlikely that a Tunisian-type upheaval could take place here. There are more differences than parallels between the two nations.


By Shahid Javed Burki
Tuesday, 25 January, 2011



WILL the ripples from Tunisia reach the shores of Pakistan? The not-so-quiet revolution in that country toppled the 23 year-old regime of President Zine El Abidine Ben Ali and has caused other long-ruling elites of the Arab world to quake in their well-worn seats.

Roula Khalaf of the Financial Times nicely summed up the situation in Tunisia before the fall of the Ben Ali government. “We’ve become accus tomed to an Arab order where the young people, the vast majority of the population, are unhappy with their rul ers but too apathetic to rise up for change. They grumble about the dearth of jobs, the difficulty of marrying and starting a family but they sit back and wait for better days. They rarely bother to vote since they know that the elec tions are always rigged.” But this time around they did not wait. They came out on the street and challenged the established order. Ultimately the street won.

There is broad consensus among commentators who write for the western press that other parts of the Arab world cannot remain untouched by the events in Tunisia. There are many Arab countries where ossified, autocratic and immensely corrupt governments have long been in place. Protected by the security establishment that also benefits from regime longevity, the governments were able to ignore the wishes of the masses.

That may not be that easy anymore. The Tunisian youth — by daring the government and the security establishment — succeeded in bringing about change that few thought was possible. The young have shown that they can force those who rule to take note of their problems. Since, thanks to the internet, the flow of information cannot be constrained (Arab youth, particularly in Egypt and Saudi Arabia are among the most enthusiastic internet users) events in North Africa will be noticed and parallels will be drawn.

In spite of all the palpable anger and frustration felt by the citizenry in Pakistan because of their economic plight, it is unlikely that a Tunisian-type of upheaval could take place in the country. There are more differences than parallels between the two nations.

The Tunisians had suffered politically but not that much economically. The regime was supported by a small coterie that had security forces not linked with the military to protect the regime and the established order. If the Tunisian revolution does have an effect it will be because of the way it has influenced thinking in Washington about political and social reform in the Muslim world.

Pakistan has to be especially responsive to what Washington would like to see in Arab and Muslim countries in terms of political and social development. What the Obama administration tells Pakistani leaders will be of greater consequence than what happens on the streets of Tunis. A troubled relationship with the IMF means that Islamabad would like to see the United States loosen its purse strings and allow a larger flow of resources already committed under the Kerry-Lugar Act of 2009.

There is much more money locked in that initiative than is due from the IMF. Pakistan would wish some of that money to become available in the form of budgetary support. The Americans are more interested in providing it to finance projects. Washington is in a position to lay down conditions for its support. They are more likely to be of political rather than economic nature.

Even the senior leadership of the United States — a country that has played its part in preserving autocratic regimes in the Arab world since they were easier to work with — has taken note of the change in sentiment in that part of the world. US Secretary of State Hilary Clinton barnstormed through five Gulf capitals in four days in early January, holding town hall style meetings, conferences and media interviews in which she pressed the establishment to take note of what was happening around them and accommodate change.

In a meeting in Doha, the Qatari capital, she bluntly criticised the region’s leaders for tolerating “corrupt institutions and stagnant political order.” According to one newspaper report, “her message was enthusiastically received by thousands of Arabs — from Yemen’s crowded, rubble-strewn capital of Sana to the dazzlingly modern metropolises of Dubai and Doha.” Yet the week also brought fresh reminders of how democratisation of Middle Eastern societies has worked against US interests in the region. “Those who cling to the status quo may be able to hold back the impact of their countries’ problems for a little while but not for ever,” Secretary Clinton told her audience.

Her speech was given before the Tunisian president went into exile. “If leaders don’t offer a positive vision and young people meaningful ways to contribute, others will fill the vacuum,” she continued. Her reference was obviously to the rise of extremist Islamic parties in some of the Arab countries that were persuaded to hold free elections.

The week brought the fall of the government of Prime Minister Saad Hariri in Lebanon when Hezbollah, the Islamic party supported by Iran and Syria, pulled out of the coalition. In the Gaza strip Hamas, another Islamic group, increased its operations against Israel. Both Hezbollah and Hamas had gained power as a result of the elections promoted by the George W. Bush administration as a way of delivering greater democratic freedoms.

In her swing through the Arab world Ms Clinton pushed in particular the promotion of civil society. She advocated the use of these organisations to counter corruption which she labelled a “cancer.” If this is the direction of the American thrust in Pakistan, it may lead towards better governance and a real democratic order.

The writer is chairman of the Lahorebased Institute of Public Policy, a former finance minister of Pakistan and former vice president of the World Bank.
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Taking donors on board



By Shahid Javed Burki
Monday, 31 January, 2011


OFTEN people ask the question that do the economic policymakers know what they need to do to prevent the economic system from further deterioration?

The answer is that an able and experienced group handling the economy knows, what needs to be done but, none of the men in charge has a strong political base. It is politics that has to be managed to put in place the desired set of policies.

What is required immediately is to restore the confidence of the international community in the process and content of policymaking in Islamabad.There was expectation that the civilians, once in power, will be able to focus on economic policymaking aimed at two goals. One, the economy would become less dependent on external capital flows, relying more on internally generated resources. After all Zulfikar Ali Bhutto, the founder of the party that now holds the reins of power, emphasised independence from foreign influence as an important economic goal.

In his widely read book, The Myth of Independence, he questioned the viability of the Ayubian model of economic development. Strong economic and financial links with the West were an important part of that approach. The Bhutto book was a rejoinder to the one published by President Ayub Khan under the title of Friends, Not Masters.

Ayub had argued that the relationship with the West, in particular with the United States, was based on friendship, not on dependence. The second important goal of economic policymaking would be to provide greater benefits to the poorer segments of the population than was the case during the periods of repeated army rule.

Neither of these two outcomes has been realised. In fact, economic policymaking in the post-military period is in rough waters.This should have been expected since the new political system that was replacing the old military order would have taken a long time to shape. The process is still underway and those involved with policymaking continue to be distracted by the demands placed on them by the developing political system. What was not expected was the quality of governance-- a cause for concern.

A number of assessments point to the deterioration in this respect; the latest report published by Transparency International provides estimates of the level of corruption in the system as perceived by those who operate in it. Pakistan’s position has slipped with reference to other countries.This is an area of considerable concern for international donors. .

It is important to repair the damage since the country will continue to depend on external flows for as long as it is not able to rely on internal resources for financing development.

The current domestic discourse on economics suggests that most of the commentators dislike this continuing dependence on external flows. Their distaste may be understand but the country has to turn to its friends and increasingly to its citizens living and working abroad, to have the economy grow at the rate which would help to maintain social stability and public policy.

Islamabad, therefore, has to play particular attention to improving the quality of governance and demonstrate to the donors – and also to the citizenry – that steps are being taken to improve the system of governance.

Reforming the system of accountability and making example of the people who have exploited their positions for personal gain are some of the measures that need to be adopted quickly.

The other short-term measures relate to the system and structure of taxes.. Pakistan today has the lowest tax-to-GDP ratio among major emerging nations. Improving it is one of the conditions of continuing support by the IMF.The first set of initiatives the governments was required to take related to the reform of the general sales tax. That turned out to politically unacceptable for two reasons, one of which was correct.

The MQM saw it correctly as a regressive tax which was being levied to spare the rich and the well-to-do from making their contribution to the government’s tax revenues. It was right for the MQM, a party that represents the urban poor and the lower middle class, to stress the need for equality in the structure of taxes.The first emphasis should be on getting the betteroff to shoulder their responsibility for paying for de velopment and for financing the legitimate government functions.

In that context, it would be good if Islamabad focuses on the taxes that tap the wealth and income of the rich rather than burden the less well-to-do. It was extraordinary that President Musharaff’s finance minister removed the wealth tax from the list of taxes, further shifting the weight in tax generation away from the rich.There are other taxes that should be levied or levied at higher rates.

The most obvious ones are the tax on urban property and the tax on agriculture.The incidence of former is low and the latter cannot be collected by the federal government for constitutional reasons.

There is no reason why the constitution cannot be amended in order to treat the income from agriculture as any other income.

In so far as the tax on houses is concerned that should be collected by the local authorities. Properly levied and collected, it could become a major source of revenue and help the sub-national governments to carry out the functions that are coming their way as a result of the 18th amendment.

Those who opposed the government’s effort to levy what was called the reformed general sales tax also wanted a careful review of public sector expenditure to eliminate waste.

Where the opposition was not correct was to insist that the reformed sales tax should be collected by the provinces. The tax was envisaged has to be collected at the point of consumption and that is only feasible if the authority for doing it is with the federal government.

What is required, therefore, is a fundamental restructuring of the tax system so that the burden falls more on the well-to-do.What is also needed is a review of all government expenditures so that waste and corruption are eliminated.

These steps can only be taken by an administration focused on economic issues rather than consumed with political concerns. Regime survival is always an important concern in all political systems. In an evolving political system, Pakistan has taken a heavy toll on the attention of the policymakers. That is perhaps proper but it has to be recognised that economic degradation could also affect the government’s longevity.
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Default Global realignment

Global realignment

By Shahid Javed Burki
Tuesday, 01 February, 2011


THE recently concluded visit by Hu Jintao to the United States is significant for South Asia. The main purpose of the visit by the Chinese president was to reset relations between the two global powers with the aim of producing a more stable global order.

The American tone at the formal meetings in Washington was very different from the one used by President Barack Obama during his visit to Beijing in November 2009. Then he welcomed China to a shared position with the United States in the emerging world order, a kind of `G2`. Now the American president talked about “cooperation and competition” between the dominant powers.

The Hu visit came after Obama`s trip to India in which he promised a larger role in world affairs to the other rising Asian power. Washington seemed to be moving away from a G2 world to a multi-polar world.

President Obama`s state visit to China in Nov 2009 was meant to introduce a new economic and political order in which most of the direction would be provided by Washington and Beijing working together within a new framework that was dubbed the G2. China seemed less willing to play the role that was being assigned to it by the new leadership in the United States. Neither side made much progress after the Obama visit. There were few breakthroughs in the relationship.

The Americans wanted the Chinese to adopt a tougher stance towards North Korea whose revealed work on uranium enrichment had caused an enormous amount of worry in the US. In economic matters there was the perennial American concern about an undervalued Chinese currency that gave the country tremendous advantage in international trade.

The Chinese were less welcoming of American investment and less open to allowing US companies to bid for government contracts than Washington had hoped. The Americans also continued to worry about the lax Chinese attitude towards the protection of intellectual property. Washington was also concerned about the aggressive posture adopted by the Chinese military. There were also the usual concerns about human rights in China.

On the Chinese side the list of worries was equally long. It included Washington`s failure to bring under control its large fiscal deficit which, Beijing believed, was the main cause of the trade imbalance between the two countries. The sale of American arms to Taiwan and Washington`s continued support of the Dalai Lama were even bigger thorns in the relationship.

The year 2010 ended with both sides showing wariness. As a Chinese journalist put it at the joint press conference addressed by Presidents Hu and Obama, there was “strategic mistrust” between the two countries. There was apprehension in Beijing that the US was seeking to encircle China and suppress its rise.

There was some fear in Beijing that in dealing with China Washington was using the tactics it had employed against the Soviet Union during the peak of the Cold War. Then, the US had established a series of formal alliances involving the countries around the periphery of the USSR. This time around Washington seemed to be concentrating its attention on India.

President George W. Bush had initially adopted that approach. President Obama was reluctant to follow the course set by his predecessor but seemed to have changed his mind midway through his first term. He went to India exactly a year after his visit to China and indicated that America`s relations with India would shape the 21st century. In Mumbai and New Delhi the American president repeatedly declared that India was no longer rising, it had already risen.

These messages were not lost on Beijing, which launched its own effort to cultivate its large Asian neighbours. In Dec 2010, a month after President Obama`s visit to India, Chinese Prime Minister Wen Jiabao went to India and Pakistan to remind the two of what China`s increasing economic might could do for them.

The prime minister announced large investment programmes in several sectors of the two South Asian economies. The message was clear: unlike the US that faced many economic and financial difficulties, China had the resources to develop South Asia.

From South Asia`s perspective the most important outcome of the summit was the signal that went out to India that President Obama was prepared to correct the course he had set earlier. Upon taking office, the first impulse on the part of the new administration was to allow greater economic and political space to Beijing. This message was read by the Chinese as recognition by Washington that it was a declining power. It was also seen as a weakness on Washington`s part in its dealings with Beijing. President Obama`s statements during his first official visit to Asia in 2009 may have contributed to greater assertiveness on China`s part in international affairs. The Obama administration was persuaded that it had moved in the wrong direction and a course correction was needed.

In Nov 2010, especially during his stay in India, the American president changed the signal his administration was giving by recognising the global importance of rising India. He and his advisers seem to have concluded that in the new international economic and political order, greater space had to be allowed to other rising countries such as India than was the case in the G2 configuration earlier espoused.

It was clear that China read the new message. During his stay in the US Hu Jintao displayed much greater humility in his pronouncements than he had done during President Obama`s 2009 visit to Beijing. He also recognised that China had a way to go before it reaches the pinnacle of global power.

The writer is chairman of the Lahore-based Institute of Public Policy, a former finance minister of Pakistan and former vice president of the World Bank.
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Rising Asia in a reconfigured world



By Shahid Javed Burki
Monday, 07 Feb, 2011


ONE thing has become clear as the global economy continues to recover from the Great Recession of 2008-9. The Asian states were much better equipped to deal with the downturn than the governments in the more developed economies of the West.

This is shown by the latest numbers on the rates of growth in gross national products in various parts of the globe in 2010. According to the data released recently by the Asian Development Bank, the numbers also show how far Pakistan has been left behind but also suggest how the country could play the catchup game.

East Asia led the pack of the recovering countries with an average growth rate of 9.3 per cent in 2010 after an increase of seven per cent in 2009. This means an increase of almost 33 per cent in the rate of growth, indicating a sharp recovery from the recession.

China was largely responsible for the buoyancy of East Asia. It’s GDP increased by 10.2 per cent. South Asia followed with an increase of 8.7 per cent in 2010 after a more sedate seven per cent increase in the previous year.

South Asia’s impressive performance was due to the speed of recovery of India, Asia’s other large economy. The Indian GDP increased by 9.2 per cent in 2010. The South Asian performance would have been even more impressive had the economic situation in Pakistan, the region’s second largest economy, not been that troubled.

Latin America and the Caribbean managed a respectable 5.7 per cent GDP growth rate following a contraction of 2.2 per cent in the previous year. It too was helped by the region’s largest economy – Brazil. Even sub-Saharan Africa managed to grow by 4.7 per cent compared to 1.7 per cent in 2009. Here Ghana stood out as the best performing economy.

Compared to these impressive rates of increase in the GDPs of the developing world, the economies of rich countries remain weak. After contracting by 3.4 per cent in 2009, they grew by 2.8 per cent in 2010. As was the case with the developing world, the industrial world’s recovery was also led by its largest economy – the United States. Within different regions of the developed world, size also played a role.

While the smaller economies of the European Union suffered – at least two of them, Greece and Ireland are close to bankruptcy – Germany, the area’s largest economy, seemed to have shrugged off the recession and was performing reasonably well.

What do these different regional growth rates tell us? A number of important conclusions emerge from this quick overview. The first is that size matters. The larger economies have shown to be much more resilient compared to the smaller ones. This is the opposite of what was occurring when the global economy was going through a boom. Then the smaller economies showed greater buoyancy compared to the larger ones.

It is interesting to note why that happened. It was shown that when international trade is expanding rapidly as was the case in the booming 1990s, it was easier for the smaller nations to sell their products and services in an expanding global economy and in an economy in which personal incomes were increasing rapidly.

Ireland thus was able to export its IT services to the industrial and commercial sectors of the industrial world. Similarly, Greece became an even more attractive destination of European tourism. Second, it helped that the smaller economies embedded in larger economic systems.

The incorporation of the smaller European countries in the European Union system meant that they had the markets they could easily exploit. They could also draw upon more easily on the financial resources available in the capital markets of the large countries. The French and German banks bought large denomination bonds from the smaller countries. When the receipts of these bonds were used for low yield investments as was the case with the building of the infrastructure and related facilities for hosting the Athens Olympics, the result was disastrous.

My concern today, however, is to underscore the important point that in the world emerging after the Great Recession of 2008-09, Asia will occupy a very different place from the one it had before the slowdown began.

And within Asia, China will become increasingly dominant. This is for three reasons. By far the most important of these is the rise of China which, as already indicated, was able to achieve a double digit rate of growth after a brief pause produced by the Great Recession. The pace of Chinese recovery meant that the country’s economy was able to overtake that of Japan and become the second largest in the world. This happened sooner than was generally expected. With this new position, China has joined the United States as the world’s two largest economies which will have to work together to shape the global economic system.

The second important reason for the different impact of the rise of China is that it will be able to convincingly offer a development paradigm from the one that made the United States such a dominant influence in the global econo my in the last few decades of the 20th century.

The two countries, the United States and China, arrived in different ways in reaching their present positions.

The Americans gave much more freedom to the private sector, pulling the state so far back that it had no idea how the financial sector was working to produce prosperity. That prosperity proved to be short lived since the riches that were created – in particular in terms of home ownership when assets were acquired by the people who could not afford them – could not be sustained.

America is still dealing with the problem of home foreclosures that have significantly reduced the wealth, and hence the purchasing power, of hundreds of thousands households.

China to a considerable extent and the adjacent East Asian countries to a lesser extent continue to rely on the state to oversee the working of the economy. Whenever the Asian economy seemed to be losing its balance, the state stepped in to restore equilibrium. In other words, in the new paradigm the state will have a much greater role in setting the direction the economy should be moving. The third reason why the new global order that is being constructed around Asia will be different is the emphasis the state and the society are paying in developing human skills. Enormous amounts of resources are being committed to improve the standard of education attained by the student body. Asia is investing impressively in the development of its large human resource.

In this context China has taken the lead. It is preparing for the 21st century more fully and more determinedly than any other large Asian country. Its investment in human resource development even more than the size of its economy will pose a challenge to the rest of the world. This was recognized by President Barack Obama in his State of the Union Speech delivered on January 24.

China’s rise in Asia and in the world and its focus on developing a highly skilled workforce to improve the technological base of the economy; the break-neck speed with which it is expanding and modernizing its physical infrastructure; its aggressive outreach to the countries in its neighborhood; its building of a modern system of communication to link itself with the adjacent countries pose a challenge but also provide opportunity for nations such as Pakistan that are struggling to find their place in this fast changing world.

The Planning Commission in Pakistan is currently embarked on producing a mid-term growth strategy. It is rightly focused on what it calls the “soft approach” meaning the development of the country’s large human resource. However, in taking this route it needs to determine how it can take advantage of the rising colossus right on its borders which is also building its human capacity to produce a more vibrant economy that is relevant for the 21st century.

What the last few decades have shown us is that it is well for relatively small economies to embed themselves with those that are large. The Planning Commission, therefore, must also include a regional strategy in its development framework.
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