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History cannot be undone; however, the complacency that crept in can somehow be brought to the surface. Given the external debt and perennial shortfall in current account each year, Pakistan will not be able to maintain and protect the value of its currency against the dollar.

Pakistan: a state and its citizens in state of denial – I

It is not a matter of sovereign default; it is a matter of a sustainable state. This is a numerical truth that cannot be camouflaged with political and security rhetorics.

The objective of this article is to begin a social movement in this regard that should lead to giving birth to greater appreciation of the ground realities undertaking corrective measures. If this is not done then other alternatives will appear as vacuum cannot persist under the natural laws. States disintegrate due to economic crises. The USSR and Yugoslavia are very recent examples.

The gravity of the situation is also required to be understood in politico-social terms. In 1991, the worth of Pakistan Rupee was 31 to 1$ whereas Indian Rupee parity was 32 to 1 $. Today, it is Rs 229 against Rs 85. It is necessary to examine what happened in Pakistan between 1991 and 2022, which brought us to this pass. In this writer’s view, the first difference was Dr Manmohan Singh (born in Chakwal).

In a 2005 interview with the British journalist Mark Tully, Singh said:

I first became conscious of the creative role of politics in shaping human affairs, and I owe that mostly to my teachers Joan Robinson and Nicholas Kaldor. Joan Robinson was a brilliant teacher, but she also sought to awaken the inner conscience of her students in a manner that very few others were able to achieve. She questioned me a great deal and made me think the unthinkable.

She propounded the left wing interpretation of Keynes, maintaining that the state has to play more of a role if you really want to combine development with social equity. Kaldor influenced me even more; I found him pragmatic, scintillating, stimulating. Joan Robinson was a great admirer of what was going on in China, but Kaldor used the Keynesian analysis to demonstrate that capitalism could be made to work.

These remarks are enough to demonstrate the depth of knowledge about human interaction with politics and conflicting ideas of capitalism with leftist leanings of the Nehruvian era. Then the second mark is Delhi School of Economics where Dr Singh used to teach. The level of the institution and its contribution are reflected as under:

Among the faculty at the department of economics have been the likes of V.K.R.V. Rao, B.N. Ganguly and K.N. Raj (all three of whom went on to serve as vice-chancellors at the University of Delhi), Amartya Sen (Nobel Laureate), Manmohan Singh (the former Indian Prime Minister and also the key architect of the economic reforms since 1991), Sukhomoy Chakravarty (who was chief economic advisor), Jagdish Bhagwati, Kaushik Basu, Arjun Kumar Sengupta, Partha Sen, Raj Krishna, Syed Mohammad Ali, the economic historian Tapan Raychaudhuri and others;

The department has been associated with three important journals over the years. It publishes the Indian Economic Review, several faculty members edit the Indian Economic and Social History Review, and for many years it housed the Journal of Quantitative Economics.

The last part is even more important. Dr Singh only has one house which he built after his retirement on a 300 sq yard plot of land in Chandigarh.

What is required to be seen is that when Dr Singh was installed as the Prime Minister of India in 1991, India was facing the worst economic crisis and one of those crises related to the power sector. There were hundreds of seasoned politicians available with the ruling Indian National Congress, but Indians gave the reins of economic sovereignty to a simple person who was ready to live in Delhi or Chandigarh not in New York or Washington. The other person was a bureaucrat Montek Singh Ahluwalia (born in Rawalpindi), son of our soil, the Deputy Chairman Planning Commission.

After spending years in the profession and in government relations, this writer is almost sure that Pakistan’s problem is the lack of competence of the government in the matter of economic policy, not the corruption at the government level.

There is so much vacuum that even people like us, only being an accountant, become somewhere relevant. This vacuum cannot persist.

We are faced with constant intellectual corruption in the sense we believe that this part of the subcontinent had enough capability to run a state. We do not seem to have it. We are very bad as rulers, to say the least.

When physical strength was the criterion of being a ruler then we were ruled by Afghans. When intellect is required then we may necessarily require some additional input. There is no harm in learning and if the option is available just across the Wagah border we are not ready to open trade with India, except for buying active ingredients for pharmaceuticals, however there can always be institutional cooperation between our universities as India’s institutions such as Delhi School of Economics.

The other difference was the flight of capital from Pakistan in the shape of over-invoicing of plant and machinery, when such imports were made out of fund provided by Development Financial Institutions (DFI) funding from 1950 to 1990 and then ‘free for all’ after Protection of Economic Reform Act, 1992 (PERA).

Pakistan had PICIC, IDBP, Bankers’ Equity Limited and National Development Finance Corporation. It is true that all these institutions provided foreign currency loans for the import of plant and machinery for industrialization in Pakistan. In that process, however, we made the following two fundamental errors:

  1. There was no concrete plan to the effect that on a national level the industries so established would have contributed foreign exchange for the repayment of the debt. Almost all the industries were catering to own consumption or their contributions to exports were insufficient;

  2. A ‘sum’ was retained outside Pakistan, formally or informally, in the name of commission on purchase of such plants. Obtaining a loan from a DFI required greasing the palms of those in power, whether civil or military. The amount so siphoned off ultimately became the liability of the Government of Pakistan and was deposited in the accounts of the industrialists and the rulers in adequate percentages.

(Concluded)

Copyright Business Recorder, 2023

Comments

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Usman Jan 05, 2023 09:57am
My suggestion to the writer and other finance professionals is that stop finding solutions to the problems of Pakistan by making comparisions with India or any other country. Find solutions which best suites the enviornment and limitations of this country. One Suggestion to the writer is to support the Privatization of State Owned Enterprises and deregulation all sectors of economy.
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PML-N PTI the same Jan 05, 2023 11:35am
Pre partition hangover and admiration is not the solution. Look at Iran, most sanctioned country yet advanced in various fields. Look at Bangladesh, basket case to a learning example. Admission of failures and learning from it is absent in Pakistan's psyche. We are more like Africans where immediate joy triumphs over sacrifice for future.
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M. Hassan Jan 05, 2023 01:48pm
Making comparisons with other countries / nations is very important. This is called benchmarking. This is part of human nature, and it creates competition. Competition is the essence of progress. This is what we learn in micro and macroeconomics courses. The writer has rightly chosen India for benchmarking. Pakistan was created from combined India in 1947. People of both countries belong to the same land and live in a common environment. So, our problems and solutions to these problems would not be very different. Unfortunately, people of Pakistan don’t consider themselves belonging to this land. They identify themselves with Arabs and perhaps Afghans. This is the identity crisis. If Pakistanis could solve the confusion about their identity. They would be able to solve their political issues with India and, resultantly, their economic issues. Indians are intellectually more advanced than Pakistanis like they were before 1947 when Pakistan’s founders realized that the Muslims would not be able to compete with them in jobs, business etc. Writer has rightfully advised that Pakistanis should learn from the Indian Economists because they have made progress in the field. And this is very obvious.
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M. Hassan Jan 05, 2023 01:49pm
I strongly agree with the writer that issues with Pakistan are lack of competence. The reason is Pakistan's Islamized educational system which suppresses creativity and innovation. I admire the writer for being humble, but I disagree with him on the following sentence because accountants are savants, sages and great thinkers performing very valuable services to the nation. “There is so much vacuum that even people like us, only being an accountant, become somewhere relevant.”
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Muhammad Kashif Jan 05, 2023 04:20pm
@Usman, The comparison with others can tell us rightly the level of progress in a field. So the comparison is NECESSARY with others. Without comparison, how can you measure your progress?
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Muhammad Kashif Jan 05, 2023 04:39pm
Q: Why the State of Pakistan and its residents are in a state of denial? Ans: Collectively both the state and its residents are living in fool’s paradise. Similarly they have been building castles in the air since their birth. Sorry to say, the people who live in fool’s paradise CAN’T develop their economy. Because they are satisfied with their STATUS QUO.
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Mushtaq Jan Jan 06, 2023 03:48am
India and Pakistan had different priorities for getting independence. Indians wanted to get freedom from the English while our objective was to get independence from Hindus. Indians had believed in the freedom of their poor and middle-class while we had prioritized protection of the rich and big landlords. That was also the reason why big landlords while being in Congress supported ML. Soon after independence, the Congress embarked on land reforms decimating the landlord culture and establishing industrial and Information Technology institutions. In Pakistan we strengthened the landlord and wadera culture, implanting them assemblies and putting them at the helm of running the country. In that respect, Pakistan has done well. The country is serving well to the needs of this privileged class. The army and bureaucracy joined ranks. This class is flourishing well while the country is diving down the hill. And that will continue as long as there is no change in policy, no matter how genius or competent economists we put to task.
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Usman Jan 06, 2023 09:44am
@Muhammad Kashif, 7 years ago camel gave birth to the offspring now that offspring is an adult weighing 900lbs and 10 feet tall and the same day and year a goat gave birth to the offspring and that offspring is now an adult weighing 200lbs only and hardly 4 feet tall going by the logic of comparing India as benchmark one can do this comparision.
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Luqman Naseem Jan 06, 2023 10:38am
Here are my suggestions on HOW TO FIX PAKISTAN ECONOMY Immediate Actions 1. Political Stability 2. Security, Law & Order 3. Charter of Economy must be signed 4. Dollar, petrol, diesel, gas etc. should be deregulated and their prices should be determined by market forces. 5. Energy sector reforms and deregulate energy prices etc. to make market attractive and competitive for investors 6. Targeted subsidies only: End untargeted subsidies on fuel, electricity and export sector 7. Policy and improvements to cater circular debts in power and gas sectors 8. Austerity measures to be implemented starting from govt level Long Term Fixes 1. Land reforms 2. Taxation net to be increased 3. Realistically Curtail imports and produce alternative locally 4. Diversify in exports from cotton based exports to other avenues 5. Investment and policies for IT industry 6. Privatization policy of inefficient deptts like Steel Mill etc. to fix financial leakages Twitter: @LuqmanNaseem
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Haroon George Jan 06, 2023 04:03pm
Sir, Dr Singh became Indian Prime minister in 2004 not in 1991.
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Haroon George Jan 06, 2023 04:03pm
Sir, Dr Singh became Indian Prime minister in 2004 not in 1991.
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Muhammad Ali Jan 07, 2023 10:18am
Fish starts rotting from the head and same thing happened for state of Pakistan. It is time to pay off price of crimes committed during 1991~2022. There is no safe exit there.
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Mikal Cyan Jan 07, 2023 01:58pm
@Haroon George, While correct, he did become 22nd Minister of Finance in 1991
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