05-16-2012, 08:48 PM
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[url="http://www.thenews.com.pk/Todays-News-9-108519-No-defence-with-a-weak-economy"][center][size="7"][color="#006400"]No defence with a weak economy[/color][/size][/center][/url]
Dr Muhammad Yaqub
The country has witnessed a steadily declining economy, a weakening of the conventional defence capability and emergence of a directionless foreign policy during the last several years.
World history is full of evidence that no country has been able to maintain and sustain a deterrent defence and an independent foreign policy with a weak economy that becomes increasingly dependent on foreign handouts. Pakistan had a great economic potential but its economic mismanagement has gradually driven it towards economic bankruptcy. Following the deep slide of the economy, vulnerability of defence and loss of independence in foreign policy were inevitable.
In the context of an all-round decay, there is public clamour for economic recovery, a strong defence and an independent foreign policy. However, there should be simultaneous recognition that a heavily indebted government, with the economy falling apart, is incapable of perusing an independent foreign policy and maintaining a viable defence posture. Accordingly, protection of territorial integrity and pursuit of an independent foreign policy have to be preceded by the strength of the economy. Without economic reforms and economic recovery, any attempt to pursue an independent foreign policy is doomed to fail.
Historically, the economic deterioration has taken place due to systematic economic mismanagement by opportunistic and insincere leaderships that indulged in widespread corruption. The first generation of Pakistanis that struggled to create the country, and sustained it in its infancy are perhaps turning in their graves over the performance of the subsequent generations that brought it to the brink of collapse. Since corrupt practices cannot coexist with strong state institutions and amid rule of law, the institutions were systematically destroyed and laws openly violated by those in power in order to create scope for self-serving economic decisions.
With institutional decay, the lawmakers became lawbreakers, the army lost its high moral ground by indulging in spheres beyond its jurisdiction, the custodians of the legal system began to endorse unconstitutional adventures, In terms of foreign policy Pakistan began to carry an economic begging bowls in its hands and, with less accountability, society in general became more tolerant of corrupt practices.
The nation lost its identity and cohesiveness and degenerated into an unwieldy crowd of individual engaged in self-service, with the government becoming an exclusive club of exploiters. The people of Pakistan are now paying the price for what the ruling class did for such a long time.
If the country has to recover and sustain itself as an independent entity, it must move in a new direction in proper sequence, starting with the cleaning up of the national leadership for the initiation of good governance practices. Whether it will change its direction or fall further in a deeper ditch depends on many unpredictable factors, the most important of which is the way the people use their voting rights in the forthcoming general elections.
The new direction has to begin with the emergence of a new and dedicated political leadership that gives first priority to saving the economy through better management and good governance, and at a later stage builds an independent foreign policy and viable defence on the basis of a strong economic foundation. Any other sequence is neither workable nor sustainable.
The first requirement for the recovery of the country from its present malaise, therefore, is an awakening of the masses for Pakistan to be rid of the corrupt political leadership. Interlocking of political, economic and social power will need to be broken. The existing order must be buried deep in the ground through ballot boxes by the third generation of voters, especially younger perople, who are in majority by now. A government of the majority, for the majority and by the majority of patriotic masses through the ballet box is the only way out.
Assuming that general public awakening will bring a new political leadership to the forefront, it will have to make a realistic assessment of the ground realities to liberate Pakistan from the tyranny of the rich and powerful, the shackles of the divisions in the society and the corruption at all the levels. The rule of law and strong accountability at all levels would need to be established simultaneously with economic policy reforms, including building up of state institutions.
It will have to take drastic economic reform measures to stabilise the economy and restore a respectable rate of economic growth with relative price stability and improving balance of payment outlook before rebuilding a deterrent defence and independent foreign policy. A reverse sequence will not work.
The revival of the economy itself will require proper sequencing in economic planning and its execution. It cannot be started with false promises of immediate prosperity and unrealistic expectations of economic boom. It has to be based on a long-term vision of exploiting the growth potential of the country through mobilisation of domestic savings and investing them in productive priority areas. The policies of patronage and privileges would need to be replaced by those that help improve employment, entrepreneurial efficiency and labour productivity and exploit the agricultural, mineral and industrial potential of the country.
Improving public finances through austerity in expenditure and mobilisation of additional revenue should be the first national economic priority. Reorientation of public sector expenditure, austerity in lifestyle of government figures and the people and habit of living within means at the government and individual level would need to be promoted. Prestige public sector projects and conspicuous consumption would need to be abandoned. The loss-making public-sector enterprises should be privatised and economic institutions allowed functioning professionally, without political interference. The government should concentrate on the development of infrastructure, in particular the availability of electricity and gas for industries and of water for agriculture. To pay for such projects, the governments at all levels will have to mobilise real resources.
The tax/GDP ratio has to be doubled from the present low level by dismantling the underground economy, improvement in tax collection, documentation of the economy, extension of tax net to untaxed sectors and transactions and ensuring efficiency and elasticity of the tax structure and horizontal and vertical equity in tax incidence. Monetary policy would need to be freed from the shackles of the ministry of finance to allow adequate flow of bank credit to the private sector at reasonable interest rates and mobilisation of private sector savings by providing a positive real rate of return.
Rising level of productive investment in the private sector would need to be financed by a similar level of domestic savings. The incentive structure would need to be recast to discourage private consumption and promote private saving. Corporate laws and regulatory framework requires strengthening. Inflation would need to be controlled both by supply enhancement and demand management.
The balance of payments will have to be strengthened by reducing dependence on imports and accelerating exports and home remittances. Reliance on foreign borrowing would need to be severely curtailed while foreign direct investment is encouraged.
The growth rate will have to be pushed up to the range of 7-8 percent and effective measures taken to reduce the population growth. Agricultural productivity will have to be enhanced and labour-intensive industrialisation encouraged to reduce unemployment and poverty.
On the social side, the glaring economic disparities would need to be replaced by a more egalitarian welfare state and national priorities would need to be shifted towards education, health and skill development.
It is a tall order of institutional, social and economic reforms but so is the depth of economic problems. Those cannot be tackled in a short time and by mere cosmetic changes. During the period of rebuilding of the economy and restructuring of the society a low-key foreign policy and a less expensive defence posture would need to be adopted.
In short, national reforms cannot start by focusing on foreign policy and building up of defence capability while the economy is neglected. Those areas have to wait for recovery of the economy from its present state of collapse the way China did in the last sixty years.
The writer is a former governor of the State Bank of Pakistan.
Cheers![[Image: beer.gif]](http://www.skyscrapercity.com/images/smilies/beer.gif)
[url="http://www.thenews.com.pk/Todays-News-9-108519-No-defence-with-a-weak-economy"][center][size="7"][color="#006400"]No defence with a weak economy[/color][/size][/center][/url]
Dr Muhammad Yaqub
The country has witnessed a steadily declining economy, a weakening of the conventional defence capability and emergence of a directionless foreign policy during the last several years.
World history is full of evidence that no country has been able to maintain and sustain a deterrent defence and an independent foreign policy with a weak economy that becomes increasingly dependent on foreign handouts. Pakistan had a great economic potential but its economic mismanagement has gradually driven it towards economic bankruptcy. Following the deep slide of the economy, vulnerability of defence and loss of independence in foreign policy were inevitable.
In the context of an all-round decay, there is public clamour for economic recovery, a strong defence and an independent foreign policy. However, there should be simultaneous recognition that a heavily indebted government, with the economy falling apart, is incapable of perusing an independent foreign policy and maintaining a viable defence posture. Accordingly, protection of territorial integrity and pursuit of an independent foreign policy have to be preceded by the strength of the economy. Without economic reforms and economic recovery, any attempt to pursue an independent foreign policy is doomed to fail.
Historically, the economic deterioration has taken place due to systematic economic mismanagement by opportunistic and insincere leaderships that indulged in widespread corruption. The first generation of Pakistanis that struggled to create the country, and sustained it in its infancy are perhaps turning in their graves over the performance of the subsequent generations that brought it to the brink of collapse. Since corrupt practices cannot coexist with strong state institutions and amid rule of law, the institutions were systematically destroyed and laws openly violated by those in power in order to create scope for self-serving economic decisions.
With institutional decay, the lawmakers became lawbreakers, the army lost its high moral ground by indulging in spheres beyond its jurisdiction, the custodians of the legal system began to endorse unconstitutional adventures, In terms of foreign policy Pakistan began to carry an economic begging bowls in its hands and, with less accountability, society in general became more tolerant of corrupt practices.
The nation lost its identity and cohesiveness and degenerated into an unwieldy crowd of individual engaged in self-service, with the government becoming an exclusive club of exploiters. The people of Pakistan are now paying the price for what the ruling class did for such a long time.
If the country has to recover and sustain itself as an independent entity, it must move in a new direction in proper sequence, starting with the cleaning up of the national leadership for the initiation of good governance practices. Whether it will change its direction or fall further in a deeper ditch depends on many unpredictable factors, the most important of which is the way the people use their voting rights in the forthcoming general elections.
The new direction has to begin with the emergence of a new and dedicated political leadership that gives first priority to saving the economy through better management and good governance, and at a later stage builds an independent foreign policy and viable defence on the basis of a strong economic foundation. Any other sequence is neither workable nor sustainable.
The first requirement for the recovery of the country from its present malaise, therefore, is an awakening of the masses for Pakistan to be rid of the corrupt political leadership. Interlocking of political, economic and social power will need to be broken. The existing order must be buried deep in the ground through ballot boxes by the third generation of voters, especially younger perople, who are in majority by now. A government of the majority, for the majority and by the majority of patriotic masses through the ballet box is the only way out.
Assuming that general public awakening will bring a new political leadership to the forefront, it will have to make a realistic assessment of the ground realities to liberate Pakistan from the tyranny of the rich and powerful, the shackles of the divisions in the society and the corruption at all the levels. The rule of law and strong accountability at all levels would need to be established simultaneously with economic policy reforms, including building up of state institutions.
It will have to take drastic economic reform measures to stabilise the economy and restore a respectable rate of economic growth with relative price stability and improving balance of payment outlook before rebuilding a deterrent defence and independent foreign policy. A reverse sequence will not work.
The revival of the economy itself will require proper sequencing in economic planning and its execution. It cannot be started with false promises of immediate prosperity and unrealistic expectations of economic boom. It has to be based on a long-term vision of exploiting the growth potential of the country through mobilisation of domestic savings and investing them in productive priority areas. The policies of patronage and privileges would need to be replaced by those that help improve employment, entrepreneurial efficiency and labour productivity and exploit the agricultural, mineral and industrial potential of the country.
Improving public finances through austerity in expenditure and mobilisation of additional revenue should be the first national economic priority. Reorientation of public sector expenditure, austerity in lifestyle of government figures and the people and habit of living within means at the government and individual level would need to be promoted. Prestige public sector projects and conspicuous consumption would need to be abandoned. The loss-making public-sector enterprises should be privatised and economic institutions allowed functioning professionally, without political interference. The government should concentrate on the development of infrastructure, in particular the availability of electricity and gas for industries and of water for agriculture. To pay for such projects, the governments at all levels will have to mobilise real resources.
The tax/GDP ratio has to be doubled from the present low level by dismantling the underground economy, improvement in tax collection, documentation of the economy, extension of tax net to untaxed sectors and transactions and ensuring efficiency and elasticity of the tax structure and horizontal and vertical equity in tax incidence. Monetary policy would need to be freed from the shackles of the ministry of finance to allow adequate flow of bank credit to the private sector at reasonable interest rates and mobilisation of private sector savings by providing a positive real rate of return.
Rising level of productive investment in the private sector would need to be financed by a similar level of domestic savings. The incentive structure would need to be recast to discourage private consumption and promote private saving. Corporate laws and regulatory framework requires strengthening. Inflation would need to be controlled both by supply enhancement and demand management.
The balance of payments will have to be strengthened by reducing dependence on imports and accelerating exports and home remittances. Reliance on foreign borrowing would need to be severely curtailed while foreign direct investment is encouraged.
The growth rate will have to be pushed up to the range of 7-8 percent and effective measures taken to reduce the population growth. Agricultural productivity will have to be enhanced and labour-intensive industrialisation encouraged to reduce unemployment and poverty.
On the social side, the glaring economic disparities would need to be replaced by a more egalitarian welfare state and national priorities would need to be shifted towards education, health and skill development.
It is a tall order of institutional, social and economic reforms but so is the depth of economic problems. Those cannot be tackled in a short time and by mere cosmetic changes. During the period of rebuilding of the economy and restructuring of the society a low-key foreign policy and a less expensive defence posture would need to be adopted.
In short, national reforms cannot start by focusing on foreign policy and building up of defence capability while the economy is neglected. Those areas have to wait for recovery of the economy from its present state of collapse the way China did in the last sixty years.
The writer is a former governor of the State Bank of Pakistan.
Cheers