State of Pakistan's Economy and Kerry Lugar Bill.

““To be an enemy of America can be dangerous, but to be a friend is fatal” ” Henry Kissinger, Former United States Secretary of State/United States National Security Advisor

The Kerry Lugar Bill has started a new debate in Pakistan’s Power Corridor and the Media. The economic situation is of course in dismal shape. The current account Trade Deficit has forced the country to knock the doors of every possible donor or lender to meet our imbalances come what may and at what cost???

The main factor for the present economic mess is bad governance for the last 10 years [General Musharraf’s Rampant Martial Law Regime 1999 – 2008 Where has US aid to Pakistan gone? Mariana Baabar http://chagataikhan.blogspot.com/2009/10/where-has-us-aid-to-pakistan-gone.html whereby we have been dragged into the so-called War on Terror resulted in present worse Law and Order Situation in the country, the other reason is failed Political/Economic Policy which is heavily influenced by National Security State/Civil cum Military Bureaucratic Mindset and approach. Pakistan's Economy - IMF and World Bank http://chagataikhan.blogspot.com/2008/10/pakistans-economy-imf-and-world-bank.html

To address these issues the Ruling Elite [both in Mufti and in Khaki] has to open their eyes and diagnose the real causes of the problems and look for its solutions. If as a nation we fail to resolve it now we do not have the time left with us and coming generations who may read this in our Chequered History as to how we collapsed?

The lack of Security [O, Please don’t add one more Intelligence Agency] is the main deterrence against investment in Pakistan which could create opportunities for growth of Trade and Industry, Better Employment, Proper Shelter, Health Care, etc.etc. to create healthy society.

This is an open secret that present security conditions the worlds over specially Pakistan are not conducive to attract Foreign Investment/Investors to support our dying economy. To meet this challenge we have to look after potential investors and other options such as Non Resident Pakistanis [NRPs] Business Houses. They may be convinced with sovereign guarantees and extra ordinary benefits which can lure them to take chance and invest in their homeland.

The potential segments are Power Generation, Mining, Oil Exploration and Export Oriented Industries. Even more potential resources are Home Remittances by millions of NRPs residing/working abroad which is force to reckon with.

As per the statistics available the present level of Home Remittances are around US Dollars 7.00 to 8.00 Billion per year. This could only be possible if we are able to curb the evil of Hundi/Hawala Channels which is roughly generating US Dollar 10.00 Billion per year and which remain undocumented and results flight of capital. To arrest these issues we have to strengthen the official channels of Remittances such as Banks and Exchange Companies who should be given targets to achieve How to Boost Pakistan's Foreign Exchange Reserves. http://chagataikhan.blogspot.com/2009/06/how-to-boost-pakistans-foreign-exchange.html

Since the Exchange Companies are under the banner of Private Entrepreneur and they can deliver the task by expanding their network provided they are given some incentives. The next segment as far as one understands is Agriculture. Even after 62 years of independence we could not develop our Agricultural Sector on modern scientific lines and despite being Agricultural Country we are still short of basic commodities such as Wheat, Sugar, and Pulses. Etc.etc. The scenario has to be changed from Agricultural to Agro Based Industries if we want to survive.

Now the foremost factor is the Tax structure of our country. A country of more than 160 Million people has the Tax Payer level of around 2.5 Million. The Ruling Elite [both in the Mufti and in the Khaki], the Feudal Lords to be properly taken into Tax Bracket with honest, good governance and important is the Tax Collection System. If effective Tax Collecting System is exercised then country could generate US Dollars 6.00 to 7.00 Billion annually.

Against all these potentials avenues we could generate Foreign Exchange of around US Dollars 15.00 to 20.00 Billion annually and could avoid begging of US Dollars 1.5 Billion aid per year from the donors at their terms [Read the Text of Kerry Lugar Bill below]

The time is to think over coolly and calmly before accepting any charity.

"QUOTE"

111th CONGRESS - 1st Session - S. 1707

AN ACT


To authorize appropriations for fiscal years 2010 through 2014 to promote an enhanced strategic partnership with Pakistan and its people, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,


SECTION 1. SHORT TITLE; TABLE OF CONTENTS.


(a) Short Title.—This Act may be cited as the “Enhanced Partnership with Pakistan Act of 2009”.

(b) Table Of Contents.—The table of contents for this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Definitions.

Sec. 3. Findings.

Sec. 4. Statement of principles.

TITLE I—DEMOCRATIC, ECONOMIC, AND DEVELOPMENT ASSISTANCE FOR PAKISTAN

Sec. 101. Authorization of assistance.

Sec. 102. Authorization of appropriations.

Sec. 103. Auditing.

TITLE II—SECURITY ASSISTANCE FOR PAKISTAN

Sec. 201. Purposes of assistance.

Sec. 202. Authorization of assistance.

Sec. 203. Limitations on certain assistance.

Sec. 204. Pakistan Counterinsurgency Capability Fund.

Sec. 205. Requirements for civilian control of certain assistance.

TITLE III—STRATEGY, ACCOUNTABILITY, MONITORING, AND OTHER PROVISIONS

Sec. 301. Strategy Reports.

Sec. 302. Monitoring Reports.

SEC. 2. DEFINITIONS.

In this Act:

(1) APPROPRIATE CONGRESSIONAL COMMITTEES.—Except as otherwise provided in this Act, the term “appropriate congressional committees” means the Committees on Appropriations and Foreign Relations of the Senate and the Committees on Appropriations and Foreign Affairs of the House of Representatives.

(2) COUNTERINSURGENCY.—The term “counterinsurgency” means efforts to defeat organized movements that seek to overthrow the duly constituted Governments of Pakistan and Afghanistan through violent means.

(3) COUNTERTERRORISM.—The term “counterterrorism” means efforts to combat al Qaeda and other foreign terrorist organizations that are designated by the Secretary of State in accordance with section 219 of the Immigration and Nationality Act (8 U.S.C. 1189), or other individuals and entities engaged in terrorist activity or support for such activity.

(4) FATA.—The term “FATA” means the Federally Administered Tribal Areas of Pakistan.

(5) FRONTIER CRIMES REGULATION.—The term “Frontier Crimes Regulation” means the Frontier Crimes Regulation, codified under British law in 1901, and applicable to the FATA.

(6) IMPACT EVALUATION RESEARCH.—The term “impact evaluation research” means the application of research methods and statistical analysis to measure the extent to which change in a population-based outcome can be attributed to program intervention instead of other environmental factors.

(7) MAJOR DEFENSE EQUIPMENT.—The term “major defense equipment” has the meaning given the term in section 47(6) of the Arms Export Control Act (22 U.S.C. 2794(6)).

(8) NWFP.—The term “NWFP” means the North West Frontier Province of Pakistan, which has Peshawar as its provincial capital.

(9) OPERATIONS RESEARCH.—The term “operations research” means the application of social science research methods, statistical analysis, and other appropriate scientific methods to judge, compare, and improve policies and program outcomes, from the earliest stages of defining and designing programs through their development and implementation, with the objective of the rapid dissemination of conclusions and concrete impact on programming.

(10) SECURITY FORCES OF PAKISTAN.—The term “security forces of Pakistan” means the military and intelligence services of the Government of Pakistan, including the Armed Forces, Inter-Services Intelligence Directorate, Intelligence Bureau, police forces, levies, Frontier Corps, and Frontier Constabulary.

(11) SECURITY-RELATED ASSISTANCE.—The term “security-related assistance”—

(A) means—

(i) grant assistance to carry out section 23 of the Arms Export Control Act (22 U.S.C. 2763); and

(ii) assistance under chapter 2 of part II of the Foreign Assistance Act of 1961 (22 U.S.C. 2311 et. seq); but

(B) does not include—

(i) assistance authorized to be appropriated or otherwise made available under any provision of law that is funded from accounts within budget function 050 (National Defense); and

(ii) amounts appropriated or otherwise available to the Pakistan Counterinsurgency Capability Fund established under the Supplemental Appropriations Act, 2009 (Public Law 111–32).

SEC. 3. FINDINGS.

Congress finds the following:

(1) The people of the Islamic Republic of Pakistan and the United States share a long history of friendship and comity, and the interests of both nations are well-served by strengthening and deepening this friendship.

(2) Since 2001, the United States has contributed more than $15,000,000,000 to Pakistan, of which more than $10,000,000,000 has been security-related assistance and direct payments.

(3) With the free and fair election of February 18, 2008, Pakistan returned to civilian rule, reversing years of political tension and mounting popular concern over military rule and Pakistan’s own democratic reform and political development.

(4) Pakistan is a major non-NATO ally of the United States and has been a valuable partner in the battle against al Qaeda and the Taliban, but much more remains to be accomplished by both nations.

(5) The struggle against al Qaeda, the Taliban, and affiliated terrorist groups has led to the deaths of several thousand Pakistani civilians and members of the security forces of Pakistan over the past seven years.

(6) Despite killing or capturing hundreds of al Qaeda operatives and other terrorists—including major al Qaeda leaders, such as Khalid Sheikh Muhammad, Ramzi bin al-Shibh, and Abu Faraj al-Libi—the FATA, parts of the NWFP, Quetta in Balochistan, and Muridke in Punjab remain a sanctuary for al Qaeda, the Afghan Taliban, the Terikh-e Taliban and affiliated groups from which these groups organize terrorist actions against Pakistan and other countries.

(7) The security forces of Pakistan have struggled to contain a Taliban-backed insurgency, recently taking direct action against those who threaten Pakistan’s security and stability, including military operations in the FATA and the NWFP.

(8) On March 27, 2009, President Obama noted, “Multiple intelligence estimates have warned that al Qaeda is actively planning attacks on the United States homeland from its safe-haven in Pakistan.”.

(9) According to a Government Accountability Office report (GAO–08–622), “since 2003, the [A]dministration’s national security strategies and Congress have recognized that a comprehensive plan that includes all elements of national power—diplomatic, military, intelligence, development assistance, economic, and law enforcement support—was needed to address the terrorist threat emanating from the FATA” and that such a strategy was also mandated by section 7102(b)(3) of the Intelligence Reform and Terrorism Prevention Act of 2004 (Public Law 108–458; 22 U.S.C. 2656f note) and section 2042(b)(2) of the Implementing the Recommendations of the 9/11 Commission Act of 2007 (Public Law 110–53; 22 U.S.C. 2375 note).

(10) During 2008 and 2009, the people of Pakistan have been especially hard hit by rising food and commodity prices and severe energy shortages, with 2⁄3 of the population living on less than $2 a day and 1⁄5 of the population living below the poverty line according to the United Nations Development Program.

(11) Economic growth is a fundamental foundation for human security and national stability in Pakistan, a country with more than 175,000,000 people, an annual population growth rate of two percent, and a ranking of 136 out of 177 countries in the United Nations Human Development Index.

(12) The 2009 Pakistani military offensive in the NWFP and the FATA displaced millions of residents in one of the gravest humanitarian crises Pakistan has faced, and despite the heroic efforts of Pakistanis to respond to the needs of the displaced millions and facilitate the return of many, it has highlighted the need for Pakistan to develop an effective national counterinsurgency strategy.

SEC. 4. STATEMENT OF PRINCIPLES.

Congress declares that the relationship between the United States and Pakistan should be based on the following principles:

(1) Pakistan is a critical friend and ally to the United States, both in times of strife and in times of peace, and the two countries share many common goals, including combating terrorism and violent radicalism, solidifying democracy and rule of law in Pakistan, and promoting the social and economic development of Pakistan.

(2) United States assistance to Pakistan is intended to supplement, not supplant, Pakistan’s own efforts in building a stable, secure, and prosperous Pakistan.

(3) The United States requires a balanced, integrated, countrywide strategy for Pakistan that provides assistance throughout the country and does not disproportionately focus on security-related assistance or one particular area or province.

(4) The United States supports Pakistan’s struggle against extremist elements and recognizes the profound sacrifice made by Pakistan in the fight against terrorism, including the loss of more than 1,900 soldiers and police since 2001 in combat with al Qaeda, the Taliban, and other extremist and terrorist groups.

(5) The United States intends to work with the Government of Pakistan—

(A) to build mutual trust and confidence by actively and consistently pursuing a sustained, long-term, multifaceted relationship between the two countries, devoted to strengthening the mutual security, stability, and prosperity of both countries;

(B) to support the people of Pakistan and their democratic government in their efforts to consolidate democracy, including strengthening Pakistan’s parliament, helping Pakistan reestablish an independent and transparent judicial system, and working to extend the rule of law in all areas in Pakistan;

(C) to promote sustainable long-term development and infrastructure projects, including in healthcare, education, water management, and energy programs, in all areas of Pakistan, that are sustained and supported by each successive democratic government in Pakistan;

(D) to ensure that all the people of Pakistan, including those living in areas governed by the Frontier Crimes Regulation, have access to public, modernized education and vocational training to enable them to provide for themselves, for their families, and for a more prosperous future for their children;

(E) to support the strengthening of core curricula and the quality of schools across Pakistan, including madrassas, in order to improve the prospects for Pakistani children’s futures and eliminate incitements to violence and intolerance;

(F) to encourage and promote public-private partnerships in Pakistan in order to bolster ongoing development efforts and strengthen economic prospects, especially with respect to opportunities to build civic responsibility and professional skills of the people of Pakistan, including support for institutions of higher learning with international accreditation;

(G) to expand people-to-people engagement between the two countries, through increased educational, technical, and cultural exchanges and other methods;

(H) to encourage the development of local analytical capacity to measure program effectiveness and progress on an integrated basis, especially across the areas of United States assistance and payments to Pakistan, and increase accountability for how such assistance and payments are being spent;

(I) to assist Pakistan’s efforts to improve counterterrorism financing and anti-money laundering regulatory structure in order to achieve international standards and encourage Pakistan to apply for “Financial Action Task Force” observer status and adhere to the United Nations International Convention for the Suppression of the Financing of Terrorism;

(J) to strengthen Pakistan’s counterinsurgency and counterterrorism strategy to help prevent any territory of Pakistan from being used as a base or conduit for terrorist attacks in Pakistan or elsewhere;

(K) to strengthen Pakistan’s efforts to develop strong and effective law enforcement and national defense forces under civilian leadership;

(L) to achieve full cooperation in matters of counter-proliferation of nuclear materials and related networks;

(M) to strengthen Pakistan’s efforts to gain control of its under-governed areas and address the threat posed by any person or group that conducts violence, sabotage, or other terrorist activities in Pakistan or its neighboring countries; and

(N) to explore means to consult with and utilize the relevant expertise and skills of the Pakistani-American community.

TITLE I—DEMOCRATIC, ECONOMIC, AND DEVELOPMENT ASSISTANCE FOR PAKISTAN

SEC. 101. AUTHORIZATION OF ASSISTANCE.

(a) In General.—The President is authorized to provide assistance to Pakistan—

(1) to support the consolidation of democratic institutions;

(2) to support the expansion of rule of law, build the capacity of government institutions, and promote respect for internationally-recognized human rights;

(3) to promote economic freedoms and sustainable economic development;

(4) to support investment in people, including those displaced in on-going counterinsurgency operations; and

(5) to strengthen public diplomacy.

(b) Activities Supported.—Activities that may be supported by assistance under subsection (a) include the following:

(1) To support democratic institutions in Pakistan in order to strengthen civilian rule and long-term stability, including assistance such as—

(A) support for efforts to strengthen Pakistan’s institutions, including the capacity of the National Parliament of Pakistan, such as enhancing the capacity of committees to oversee government activities, including national security issues, enhancing the ability of members of parliament to respond to constituents, and supporting of parliamentary leadership;

(B) support for voter education and civil society training as well as appropriate support for political party capacity building and responsiveness to the needs of all the people of Pakistan; and

(C) support for strengthening the capacity of the civilian Government of Pakistan to carry out its responsibilities at the national, provincial, and local levels.

(2) To support Pakistan’s efforts to expand rule of law, build the capacity, transparency, and trust in government institutions, and promote internationally recognized human rights, including assistance such as—

(A) supporting the establishment of frameworks that promote government transparency and criminalize corruption in both the government and private sector;

(B) support for police professionalization, including training regarding use of force, human rights, and community policing;

(C) support for independent, efficient, and effective judicial and criminal justice systems, such as case management, training, and efforts to enhance the rule of law to all areas in Pakistan;

(D) support for the implementation of legal and political reforms in the FATA;

(E) support to counter the narcotics trade;

(F) support for internationally recognized human rights, including strengthening civil society and nongovernmental organizations working in the area of internationally recognized human rights, as well as organizations that focus on protection of women and girls, promotion of freedom of religion and religious tolerance, and protection of ethnic or religious minorities; and

(G) support for promotion of a responsible, capable, and independent media.


(3) To support economic freedom and economic development in Pakistan, including—

(A) programs that support sustainable economic growth, including in rural areas, and the sustainable management of natural resources through investments in water resource management systems;

(B) expansion of agricultural and rural development, such as farm-to-market roads, systems to prevent spoilage and waste, and other small-scale infrastructure improvements;

(C) investments in energy, including energy generation and cross-border infrastructure projects with Afghanistan;

(D) employment generation, including increasing investment in infrastructure projects, including construction of roads and the continued development of a national aviation industry and aviation infrastructure, as well as support for small and medium enterprises;

(E) worker rights, including the right to form labor unions and legally enforce provisions safeguarding the rights of workers and local community stakeholders;

(F) access to microfinance for small business establishment and income generation, particularly for women; and

(G) countering radicalization by providing economic, social, educational, and vocational opportunities and life-skills training to at-risk youth.

(4) To support investments in people, particularly women and children, including—

(A) promoting modern, public primary and secondary education and vocational and technical training, including programs to assist in the development of modern, nationwide school curriculums for public, private, and religious schools; support for the proper oversight of all educational institutions, including religious schools, as required by Pakistani law; initiatives to enhance access to education and vocational and technical training for women and girls and to increase women’s literacy, with a special emphasis on helping girls stay in school; and construction and maintenance of libraries and public schools;

(B) programs relating to higher education to ensure a breadth and consistency of Pakistani graduates, including through public-private partnerships;

(C) improving quality public health to eliminate diseases such as hepatitis and to reduce maternal and under-five mortality rates;

(D) building capacity for nongovernmental and civil society organizations, particularly organizations with demonstrated experience in delivering services to the people of Pakistan, particularly to women, children, and other vulnerable populations; and

(E) support for refugees and internally displaced persons and long-term development in regions of Pakistan where internal conflict has caused large-scale displacement.

(5) To strengthen public diplomacy to combat militant extremism and promote a better understanding of the United States, including—

(A) encouraging civil society, respected scholars, and other leaders to speak out against militancy and violence; and

(B) expanded exchange activities under the Fulbright Program, the International Visitor Leadership Program, the Youth Exchange and Study Program, and related programs administered by the Department of State designed to promote mutual understanding and interfaith dialogue and expand sister institution programs between United States and Pakistani schools and universities.

(c) Additional And Related Activities.—

(1) AVAILABILITY OF AMOUNTS FOR PAKISTANI POLICE PROFESSIONALIZATION, EQUIPPING, AND TRAINING.—Not less than $150,000,000 of the amounts appropriated for fiscal year 2010 pursuant to the authorization of appropriations under section 102 should be made available for assistance to Pakistan under this section for police professionalization, equipping, and training.

(2) AVAILABILITY OF AMOUNTS FOR ADMINISTRATIVE EXPENSES.—Up to $10,000,000 of the amounts appropriated for each fiscal year pursuant to the authorization of appropriations under section 102 may be made available for administrative expenses of civilian departments and agencies of the United States Government in connection with the provision of assistance under this section. Such amounts shall be in addition to amounts otherwise available for such purposes.

(3) UTILIZING PAKISTANI ORGANIZATIONS.—The President is encouraged, as appropriate, to utilize Pakistani firms and community and local nongovernmental organizations in Pakistan, including through host country contracts, and to work with local leaders to provide assistance under this section.

(4) USE OF DIRECT EXPENDITURES.—Amounts appropriated for each fiscal year pursuant to the authorization of appropriations under section 102 or otherwise made available to carry out this section shall be utilized to the maximum extent possible as direct expenditures for projects and programs, subject to existing reporting and notification requirements.

(5) CHIEF OF MISSION FUND.—Of the amounts appropriated for each fiscal year pursuant to the authorization of appropriations under section 102, up to $5,000,000 may be used by the Secretary of State to establish a fund for use by the Chief of Mission in Pakistan to provide assistance to Pakistan under this title or the Foreign Assistance Act of 1961 (22 U.S.C. 2151 et seq.) to address urgent needs or opportunities, consistent with the purposes of this section, or for purposes of humanitarian relief. The fund established pursuant to this paragraph may be referred to as the “Chief of Mission Fund”.

(6) SENSE OF CONGRESS.—It is the sense of Congress that—

(A) the United States should provide robust assistance to the people of Pakistan who have been displaced as a result of ongoing conflict and violence in Pakistan and support international efforts to coordinate assistance to refugees and internally displaced persons in Pakistan, including by providing support to international and nongovernmental organizations for this purpose;

(B) the Administrator of the United States Agency for International Development should support the development objectives of the Refugee Affected and Host Areas (RAHA) Initiative in Pakistan to address livelihoods, health, education, infrastructure development, and environmental restoration in identified parts of the country where Afghan refugees have lived; and

(C) the United States should have a coordinated, strategic communications strategy to engage the people of Pakistan and to help ensure the success of the measures authorized by this title.

(d) Notification.—For fiscal years 2010 through 2014, the President shall notify the appropriate congressional committees not later than 15 days before obligating any assistance under this section as budgetary support to the Government of Pakistan or any element of the Government of Pakistan and shall include in such notification a description of the purpose and conditions attached to any such budgetary support.

SEC. 102. AUTHORIZATION OF APPROPRIATIONS.

(a) In General.—There are authorized to be appropriated to the President, for the purposes of providing assistance to Pakistan under this title and to provide assistance to Pakistan under the Foreign Assistance Act of 1961 (22 U.S.C. 2151 et seq.), up to $1,500,000,000 for each of the fiscal years 2010 through 2014.

(b) Availability Of Funds.—

(1) IN GENERAL.—Of the amounts appropriated in each fiscal year pursuant to the authorization of appropriations in subsection (a)—

(A) none of the amounts appropriated for assistance to Pakistan may be made available after the date that is 60 days after the date of the enactment of this Act unless the Pakistan Assistance Strategy Report has been submitted to the appropriate congressional committees pursuant to section 301(a); and

(B) not more than $750,000,000 may be made available for assistance to Pakistan unless the President’s Special Representative to Afghanistan and Pakistan submits to the appropriate congressional committees during such fiscal year—

(i) a certification that assistance provided to Pakistan under this title or the Foreign Assistance Act of 1961 to date has made or is making reasonable progress toward achieving the principal objectives of United States assistance to Pakistan contained in the Pakistan Assistance Strategy Report; and

(ii) a memorandum explaining the reasons justifying the certification described in clause (i).

(2) MAKER OF CERTIFICATION.—In the event of a vacancy in, or the termination of, the position of the President’s Special Representative to Afghanistan and Pakistan, the certification and memorandum described under paragraph (1)(B) may be made by the Secretary of State.

(c) Waiver.—The Secretary of State may waive the limitations in subsection (b) if the Secretary determines, and certifies to the appropriate congressional committees, that it is in the national security interests of the United States to do so.

(d) Sense Of Congress On Foreign Assistance Funds.—It is the sense of Congress that, subject to an improving political and economic climate in Pakistan, there should be authorized to be appropriated up to $1,500,000,000 for each of the fiscal years 2015 through 2019 for the purpose of providing assistance to Pakistan under the Foreign Assistance Act of 1961.

SEC. 103. AUDITING.

(a) Assistance Authorized.—The Inspector General of the Department of State, the Inspector General of the United States Agency for International Development, and the inspectors general of other Federal departments and agencies (other than the Inspector General of the Department of Defense) carrying out programs, projects, and activities using amounts appropriated to carry out this title shall audit, investigate, and oversee the obligation and expenditure of such amounts.

(b) Authorization For In-Country Presence.—The Inspector General of the Department of State and the Inspector General of the United States Agency for International Development, after consultation with the Secretary of State and the Administrator of the United States Agency for International Development, are authorized to establish field offices in Pakistan with sufficient staff from each of the Offices of the Inspector General, respectively, to carry out subsection (a).

(c) Authorization Of Appropriations.—

(1) IN GENERAL.—Of the amounts authorized to be appropriated under section 102 for each of the fiscal years 2010 through 2014, up to $30,000,000 for each fiscal year is authorized to be made available to carry out this section.

(2) RELATION TO OTHER AVAILABLE FUNDS.—Amounts made available under paragraph (1) are in addition to amounts otherwise available for such purposes.


TITLE II—SECURITY ASSISTANCE FOR PAKISTAN


SEC. 201. PURPOSES OF ASSISTANCE.

The purposes of assistance under this title are—

(1) to support Pakistan’s paramount national security need to fight and win the ongoing counterinsurgency within its borders in accordance with its national security interests;

(2) to work with the Government of Pakistan to improve Pakistan’s border security and control and help prevent any Pakistani territory from being used as a base or conduit for terrorist attacks in Pakistan, or elsewhere;

(3) to work in close cooperation with the Government of Pakistan to coordinate action against extremist and terrorist targets; and

(4) to help strengthen the institutions of democratic governance and promote control of military institutions by a democratically elected civilian government.

SEC. 202. AUTHORIZATION OF ASSISTANCE.

(a) International Military Education And Training.—

(1) IN GENERAL.—There are authorized to be appropriated such sums as may be necessary for each of the fiscal years 2010 through 2014 for assistance under chapter 5 of part II of the Foreign Assistance Act of 1961 (22 U.S.C. 2347 et seq.; relating to international military education and training) for Pakistan, including expanded international military education and training (commonly known as “E–IMET”).

(2) USE OF FUNDS.—It is the sense of Congress that a substantial amount of funds made available to carry out this subsection for a fiscal year should be used to pay for courses of study and training in counterinsurgency and civil-military relations.

(b) Foreign Military Financing Program.—

(1) IN GENERAL.—There are authorized to be appropriated such sums as may be necessary for each of the fiscal years 2010 through 2014 for grant assistance under section 23 of the Arms Export Control Act (22 U.S.C. 2763; relating to the Foreign Military Financing program) for the purchase of defense articles, defense services, and military education and training for Pakistan.

(2) USE OF FUNDS.—

(A) IN GENERAL.—A significant portion of the amount made available to carry out this subsection for a fiscal year shall be for the purchase of defense articles, defense services, and military education and training for activities relating to counterinsurgency and counterterrorism operations in Pakistan.

(B) SENSE OF CONGRESS.—It is the sense of Congress that a significant majority of funds made available to carry out this subsection for a fiscal year should be used for the purpose described in subparagraph (A).

(3) ADDITIONAL AUTHORITY.—Except as provided in sections 3 and 102 of the Arms Export Control Act, the second section 620J of the Foreign Assistance Act of 1961 (as added by Public Law 110–161), and any provision of an Act making appropriations for the Department of State, foreign operations, and related programs that restricts assistance to the government of any country whose duly elected head of government is deposed by military coup or decree, and except as otherwise provided in this title, amounts authorized to be made available to carry out paragraph (2) for fiscal years 2010 and 2011 are authorized to be made available notwithstanding any other provision of law.

(4) DEFINITIONS.—In this section, the terms “defense articles”, “defense services”, and “military education and training” have the meaning given such terms in section 644 of the Foreign Assistance Act of 1961 (22 U.S.C. 2403).

(c) Sense Of Congress.—It is the sense of Congress that the United States should facilitate Pakistan’s establishment of a program to provide reconstruction assistance, including through Pakistan’s military as appropriate, in areas damaged by combat operations.

(d) Exchange Program Between Military And Civilian Personnel Of Pakistan And Certain Other Countries.—

(1) IN GENERAL.—The Secretary of State is authorized to establish an exchange program between—

(A) military and civilian personnel of Pakistan; and

(B)(i) military and civilian personnel of countries determined by the Secretary of State to be in the process of consolidating and strengthening a democratic form of government; or

(ii) military and civilian personnel of North Atlantic Treaty Organization member countries,

in order to foster greater mutual respect for and understanding of the principle of civilian rule of the military.

(2) ELEMENTS OF PROGRAM.—The program authorized under paragraph (1) may include conferences, seminars, exchanges, and other events, distribution of publications and reimbursements of expenses of foreign military personnel participating in the program, including transportation, translation and administrative expenses.

(3) ROLE OF NONGOVERNMENTAL ORGANIZATIONS.—Amounts authorized to be appropriated to carry out this section for a fiscal year are authorized to be made available for nongovernmental organizations to facilitate the implementation of the program authorized under paragraph (1).

(4) AUTHORIZATION OF APPROPRIATIONS.—There are authorized to be appropriated such sums as may be necessary for each of the fiscal years 2010 through 2014 to carry out the program established by this subsection.

SEC. 203. LIMITATIONS ON CERTAIN ASSISTANCE.

(a) Limitation On Security-Related Assistance.—For fiscal years 2011 through 2014, no security-related assistance may be provided to Pakistan in a fiscal year until the Secretary of State, under the direction of the President, makes the certification required under subsection (c) for such fiscal year.

(b) Limitation On Arms Transfers.—For fiscal years 2012 through 2014, no letter of offer to sell major defense equipment to Pakistan may be issued pursuant to the Arms Export Control Act (22 U.S.C. 2751 et seq.) and no license to export major defense equipment to Pakistan may be issued pursuant to such Act in a fiscal year until the Secretary of State, under the direction of the President, makes the certification required under subsection (c) for such fiscal year.

(c) Certification.—The certification required by this subsection is a certification by the Secretary of State, under the direction of the President, to the appropriate congressional committees that—

(1) the Government of Pakistan is continuing to cooperate with the United States in efforts to dismantle supplier networks relating to the acquisition of nuclear weapons-related materials, such as providing relevant information from or direct access to Pakistani nationals associated with such networks;

(2) the Government of Pakistan during the preceding fiscal year has demonstrated a sustained commitment to and is making significant efforts towards combating terrorist groups, consistent with the purposes of assistance described in section 201, including taking into account the extent to which the Government of Pakistan has made progress on matters such as—

(A) ceasing support, including by any elements within the Pakistan military or its intelligence agency, to extremist and terrorist groups, particularly to any group that has conducted attacks against United States or coalition forces in Afghanistan, or against the territory or people of neighboring countries;

(B) preventing al Qaeda, the Taliban and associated terrorist groups, such as Lashkar-e-Taiba and Jaish-e-Mohammed, from operating in the territory of Pakistan, including carrying out cross-border attacks into neighboring countries, closing terrorist camps in the FATA, dismantling terrorist bases of operations in other parts of the country, including Quetta and Muridke, and taking action when provided with intelligence about high-level terrorist targets; and

(C) strengthening counterterrorism and anti-money laundering laws; and

(3) the security forces of Pakistan are not materially and substantially subverting the political or judicial processes of Pakistan.

(d) Certain Payments.—

(1) IN GENERAL.—Subject to paragraph (2), none of the funds appropriated for security-related assistance for fiscal years 2010 through 2014, or any amounts appropriated to the Pakistan Counterinsurgency Capability Fund established under the Supplemental Appropriations Act, 2009 (Public Law 111–32), may be obligated or expended to make payments relating to—

(A) the Letter of Offer and Acceptance PK–D–YAD signed between the Governments of the United States of America and Pakistan on September 30, 2006;

(B) the Letter of Offer and Acceptance PK–D–NAP signed between the Governments of the United States of America and Pakistan on September 30, 2006; and

(C) the Letter of Offer and Acceptance PK–D–SAF signed between the Governments of the United States of America and Pakistan on September 30, 2006.

(2) EXCEPTION.—Funds appropriated for security-related assistance for fiscal years 2010 through 2014 may be used for construction and related activities carried out pursuant to the Letters of Offer and Acceptance described in paragraph (1).

(e) Waiver.—

(1) IN GENERAL.—The Secretary of State, under the direction of the President, may waive the limitations contained in subsections (a), (b), and (d) for a fiscal year if the Secretary of State determines that is important to the national security interests of the United States to do so.

(2) PRIOR NOTICE OF WAIVER.—The Secretary of State, under the direction of the President, may not exercise the authority of paragraph (1) until 7 days after the Secretary of State provides to the appropriate congressional committees a written notice of the intent to issue to waiver and the reasons therefor. The notice may be submitted in classified or unclassified form, as necessary.

(f) Appropriate Congressional Committees Defined.—In this section, the term “appropriate congressional committees” means—

(1) the Committee on Foreign Affairs, the Committee on Armed Services, the Committee on Oversight and Government Reform, and the Permanent Select Committee on Intelligence of the House of Representatives; and

(2) the Committee on Foreign Relations, the Committee on Armed Services, and the Select Committee on Intelligence of the Senate.

SEC. 204. PAKISTAN COUNTERINSURGENCY CAPABILITY FUND.

(a) For Fiscal Year 2010.—

(1) IN GENERAL.—For fiscal year 2010, the Department of State’s Pakistan Counterinsurgency Capability Fund established under the Supplemental Appropriations Act, 2009 (Public Law 111–32), hereinafter in this section referred to as the “Fund”, shall consist of the following:

(A) Amounts appropriated to carry out this subsection (which may not include any amounts appropriated to carry out title I of this Act).

(B) Amounts otherwise available to the Secretary of State to carry out this subsection.

(2) PURPOSES OF FUND.—Amounts in the Fund made available to carry out this subsection for any fiscal year are authorized to be used by the Secretary of State, with the concurrence of the Secretary of Defense, to build and maintain the counterinsurgency capability of Pakistan under the same terms and conditions (except as otherwise provided in this subsection) that are applicable to amounts made available under the Fund for fiscal year 2009.

(3) TRANSFER AUTHORITY.—

(A) IN GENERAL.—The Secretary of State is authorized to transfer amounts in the Fund made available to carry out this subsection for any fiscal year to the Department of Defense’s Pakistan Counterinsurgency Fund established under the Supplemental Appropriations Act, 2009 (Public Law 111–32) and such amounts may be transferred back to the Fund if the Secretary of Defense, with the concurrence of the Secretary of State, determines that such amounts are not needed for the purposes for which initially transferred.

(B) TREATMENT OF TRANSFERRED FUNDS.—Subject to subsections (d) and (e) of section 203, transfers from the Fund under the authority of subparagraph (A) shall be merged with and be available for the same purposes and for the same time period as amounts in the Department of Defense’s Pakistan Counterinsurgency Fund.

(C) RELATION TO OTHER AUTHORITIES.—The authority to provide assistance under this subsection is in addition to any other authority to provide assistance to foreign countries.

(D) NOTIFICATION.—The Secretary of State shall, not less than 15 days prior to making transfers from the Fund under subparagraph (A), notify the appropriate congressional committees in writing of the details of any such transfer.

(b) Submission Of Notifications.—Any notification required by this section may be submitted in classified or unclassified form, as necessary.

(c) Appropriate Congressional Committees Defined.—In this section, the term “appropriate congressional committees” means—

(1) the Committee on Appropriations, the Committee on Armed Services, and the Committee on Foreign Affairs of the House of Representatives; and

(2) the Committee on Appropriations, the Committee on Armed Services, and the Committee on Foreign Relations of the Senate.

SEC. 205. REQUIREMENTS FOR CIVILIAN CONTROL OF CERTAIN ASSISTANCE.

(a) Requirements.—

(1) IN GENERAL.—For fiscal years 2010 through 2014, any direct cash security-related assistance or non-assistance payments by the United States to the Government of Pakistan may only be provided or made to civilian authorities of a civilian government of Pakistan.

(2) DOCUMENTATION.—For fiscal years 2010 through 2014, the Secretary of State, in coordination with the Secretary of Defense, shall ensure that civilian authorities of a civilian government of Pakistan have received a copy of final documentation provided to the United States related to non-assistance payments provided or made to the Government of Pakistan.

(b) Waiver.—

(1) SECURITY-RELATED ASSISTANCE.—The Secretary of State, in consultation with the Secretary of Defense, may waive the requirements of subsection (a) with respect to security-related assistance described in subsection (a) funded from accounts within budget function 150 (International Affairs) if the Secretary of State certifies to the appropriate congressional committees that the waiver is important to the national security interest of the United States.

(2) NON-ASSISTANCE PAYMENTS.—The Secretary of Defense, in consultation with the Secretary of State, may waive the requirements of subsection (a) with respect to non-assistance payments described in subsection (a) funded from accounts within budget function 050 (National Defense) if the Secretary of Defense certifies to the appropriate congressional committees that the waiver is important to the national security interest of the United States.

(c) Application To Certain Activities.—Nothing in this section shall apply with respect to—

(1) any activities subject to reporting requirements under title V of the National Security Act of 1947 (50 U.S.C. 413 et seq.);

(2) any assistance to promote democratic elections or public participation in democratic processes;

(3) any assistance or payments if the Secretary of State determines and certifies to the appropriate congressional committees that subsequent to the termination of assistance or payments a democratically elected government has taken office;

(4) any assistance or payments made pursuant to section 1208 of the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 (Public Law 108–375; 118 Stat. 2086), as amended;

(5) any payments made pursuant to the Acquisition and Cross-Servicing Agreement between the Department of Defense of the United States of America and the Ministry of Defense of the Islamic Republic of Pakistan; and

(6) any assistance or payments made pursuant to section 943 of the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009 (Public Law 110–417; 122 Stat. 4578).

(d) Definitions.—In this section—

(1) the term “appropriate congressional committees” means the Committees on Appropriations, Armed Services, and Foreign Affairs of the House of Representatives and the Committees on Appropriations, Armed Services, and Foreign Relations of the Senate; and

(2) the term “civilian government of Pakistan” does not include any government of Pakistan whose duly elected head of government is deposed by military coup or decree.

TITLE III—STRATEGY, ACCOUNTABILITY, MONITORING, AND OTHER PROVISIONS

SEC. 301. STRATEGY REPORTS.

(a) Pakistan Assistance Strategy Report.—Not later than 45 days after the date of enactment of this Act, the Secretary of State shall submit to the appropriate congressional committees a report describing United States policy and strategy with respect to assistance to Pakistan under this Act. The report shall include the following:

(1) A description of the principal objectives of United States assistance to Pakistan to be provided under title I of this Act.

(2) A general description of the specific programs, projects, and activities designed to achieve the purposes of section 101 and the respective funding levels for such programs, projects, and activities for fiscal years 2010 through 2014.

(3) A plan for program monitoring, operations research, and impact evaluation research for assistance authorized under title I of this Act.

(4) A description of the role to be played by Pakistani national, regional, and local officials and members of Pakistani civil society and local private sector, civic, religious, and tribal leaders in helping to identify and implement programs and projects for which assistance is to be provided under this Act, and of consultations with such representatives in developing the strategy.

(5) A description of the steps taken, or to be taken, to ensure assistance provided under this Act is not awarded to individuals or entities affiliated with terrorist organizations.

(6) A projection of the levels of assistance to be provided to Pakistan under this Act, broken down into the following categories as described in the annual “Report on the Criteria and Methodology for Determining the Eligibility of Candidate Countries for Millennium Challenge Account Assistance”:

(A) Civil liberties.

(B) Political rights.

(C) Voice and accountability.

(D) Government effectiveness.

(E) Rule of law.

(F) Control of corruption.

(G) Immunization rates.

(H) Public expenditure on health.

(I) Girls’ primary education completion rate.

(J) Public expenditure on primary education.

(K) Natural resource management.

(L) Business start-up.

(M) Land rights and access.

(N) Trade policy.

(O) Regulatory quality.

(P) Inflation control.

(Q) Fiscal policy.

(7) An analysis for the suitable replacement for existing Pakistani helicopters, including recommendations for sustainment and training.

(b) Comprehensive Regional Strategy Report.—

(1) SENSE OF CONGRESS.—It is the sense of Congress that the achievement of United States national security goals to eliminate terrorist threats and close safe havens in Pakistan requires the development of a comprehensive plan that utilizes all elements of national power, including in coordination and cooperation with other concerned governments, and that it is critical to Pakistan’s long-term prosperity and security to strengthen regional relationships among India, Pakistan, and Afghanistan.

(2) COMPREHENSIVE REGIONAL SECURITY STRATEGY.—The President shall develop a comprehensive interagency regional security strategy to eliminate terrorist threats and close safe havens in Pakistan, including by working with the Government of Pakistan and other relevant governments and organizations in the region and elsewhere, as appropriate, to best implement effective counterinsurgency and counterterrorism efforts in and near the border areas of Pakistan and Afghanistan, including the FATA, the NWFP, parts of Balochistan, and parts of Punjab.

(3) REPORT.—

(A) IN GENERAL.—Not later than 180 days after the date of the enactment of this Act, the President shall submit to the appropriate congressional committees a report on the comprehensive regional security strategy required under paragraph (2).

(B) CONTENTS.—The report shall include a copy of the comprehensive regional security strategy, including specifications of goals, and proposed timelines and budgets for implementation of the strategy.

(C) APPROPRIATE CONGRESSIONAL COMMITTEES DEFINED.—In this paragraph, the term “appropriate congressional committees” means—

(i) the Committee on Appropriations, the Committee on Armed Services, the Committee on Foreign Affairs, and the Permanent Select Committee on Intelligence of the House of Representatives; and

(ii) the Committee on Appropriations, the Committee on Armed Services, the Committee on Foreign Relations, and the Select Committee on Intelligence of the Senate.

(c) Security-Related Assistance Plan.—Not later than 180 days after the date of the enactment of this Act, the Secretary of State shall submit to the appropriate congressional committees a plan for the proposed use of amounts authorized for security-related assistance for each of the fiscal years 2010 through 2014. Such plan shall include an assessment of how the use of such amounts complements or otherwise is related to amounts described in section 204.

SEC. 302. MONITORING REPORTS.

(a) Semi-Annual Monitoring Report.—Not later than 180 days after the submission of the Pakistan Assistance Strategy Report pursuant to section 301(a), and every 180 days thereafter through September 30, 2014, the Secretary of State, in consultation with the Secretary of Defense, shall submit to the appropriate congressional committees a report that describes the assistance provided under this Act during the preceding 180-day period. The report shall include—

(1) a description of all assistance by program, project, and activity, as well as by geographic area, provided pursuant to title I of this Act during the period covered by the report, including the amount of assistance provided for each program or project, and with respect to the first report a description of all amounts made available for assistance to Pakistan during fiscal year 2009, including a description of each program, project, and activity for which funds were made available;

(2) a list of persons or entities from the United States or other countries that have received funds in excess of $100,000 to conduct projects under title I of this Act during the period covered by the report, which may be included in a classified annex, if necessary to avoid a security risk, and a justification for the classification;

(3) with respect to the plan described in section 301(a)(3), updates to such plan and a description of best practices to improve the impact of the assistance authorized under title I of this Act;

(4) an assessment of the effectiveness of assistance provided under title I of this Act during the period covered by the report in achieving desired objectives and outcomes as guided by the plan described in section 301(a)(3), and as updated pursuant to paragraph (3) of this subsection, including a systematic, qualitative, and where possible, quantitative basis for assessing whether desired outcomes are achieved and a timeline for completion of each project and program;

(5) a description of any shortfall in United States financial, physical, technical, or human resources that hinder the effective use and monitoring of such funds;

(6) a description of any negative impact, including the absorptive capacity of the region for which the resources are intended, of United States bilateral or multilateral assistance and recommendations for modification of funding, if any;

(7) any incidents or reports of waste, fraud, and abuse of expenditures under title I of this Act;

(8) the amount of funds authorized to be appropriated pursuant to section 102 that were used during the reporting period for administrative expenses or for audits and program reviews pursuant to the authority under sections 101(c)(2) and 103;

(9) a description of the expenditures made from any Chief of Mission Fund established pursuant to section 101(c)(5) during the period covered by the report, the purposes for which such expenditures were made, and a list of the recipients of any expenditures from the Chief of Mission Fund in excess of $100,000;

(10) an accounting of assistance provided to Pakistan under title I of this Act, broken down into the categories set forth in section 301(a)(6);

(11) an evaluation of efforts undertaken by the Government of Pakistan to—

(A) disrupt, dismantle, and defeat al Qaeda, the Taliban, and other extremist and terrorist groups in the FATA and settled areas;

(B) eliminate the safe havens of such forces in Pakistan;

(C) close terrorist camps, including those of Lashkar-e-Taiba and Jaish-e-Mohammed;

(D) cease all support for extremist and terrorist groups;

(E) prevent attacks into neighboring countries;

(F) increase oversight over curriculum in madrassas, including closing madrassas with direct links to the Taliban or other extremist and terrorist groups; and

(G) improve counterterrorism financing and anti-money laundering laws, apply for observer status for the Financial Action Task Force, and take steps to adhere to the United Nations International Convention for the Suppression of Financing of Terrorism;

(12) a detailed description of Pakistan’s efforts to prevent proliferation of nuclear-related material and expertise;

(13) an assessment of whether assistance provided to Pakistan has directly or indirectly aided the expansion of Pakistan’s nuclear weapons program, whether by the diversion of United States assistance or the reallocation of Pakistan’s financial resources that would otherwise be spent for programs and activities unrelated to its nuclear weapons program;

(14) a detailed description of the extent to which funds obligated and expended pursuant to section 202(b) meet the requirements of such section; and

(15) an assessment of the extent to which the Government of Pakistan exercises effective civilian control of the military, including a description of the extent to which civilian executive leaders and parliament exercise oversight and approval of military budgets, the chain of command, the process of promotion for senior military leaders, civilian involvement in strategic guidance and planning, and military involvement in civil administration.

(b) Government Accountability Office Reports.—

(1) PAKISTAN ASSISTANCE STRATEGY REPORT.—Not later than one year after the submission of the Pakistan Assistance Strategy Report pursuant to section 301(a), the Comptroller General of the United States shall submit to the appropriate congressional committees a report that contains—

(A) a review of, and comments addressing, the Pakistan Assistance Strategy Report;

(B) recommendations relating to any additional actions the Comptroller General believes could help improve the efficiency and effectiveness of United States efforts to meet the objectives of this Act;

(C) a detailed description of the expenditures made by Pakistan pursuant to grant assistance under section 23 of the Arms Export Control Act (22 U.S.C. 2763; relating to the Foreign Military Financing program); and

(D) an assessment of the impact of the assistance on the security and stability of Pakistan.

(2) CERTIFICATION REPORT.—Not later than 120 days after the date on which the President makes the certification described in section 203(c) for a fiscal year, the Comptroller General of the United States shall conduct an independent analysis of the certification described in such section and shall submit to the appropriate congressional committees a report containing the results of the independent analysis.

(c) Submission.—The Secretary of State may submit the reports required by this section in conjunction with other reports relating to Pakistan required under other provisions of law, including sections 1116 and 1117 of the Supplemental Appropriations Act, 2009 (Public Law 111–32; 123 Stat. 1906 and 1907).

(d) Appropriate Congressional Committees Defined.—In this section, the term “appropriate congressional committees” means—

(1) the Committee on Appropriations, the Committee on Armed Services, and the Committee on Foreign Affairs of the House of Representatives; and

(2) the Committee on Appropriations, the Committee on Armed Services, and the Committee on Foreign Relations of the Senate.

Passed the Senate September 24, 2009.

Attest:

Secretary

111th CONGRESS - 1st Session - S. 1707

AN ACT

To authorize appropriations for fiscal years 2010 through 2014 to promote an enhanced strategic partnership with Pakistan and its people, and for other purposes.

Kerry Lugar Bill (Text)

Courtesy: United4justice’s Weblog

URL: http://united4justice.wordpress.com/2009/10/08/kerry-lugar-bill-text/

Source: http://thomas.loc.gov/home/gpoxmlc111/s1707_es.xml

URL: http://thomas.loc.gov/home/gpoxmlc111/s1707_es.xml#HD21CAA40FFF04D6A9295F70635912277

"UNQUOTE"

How to Boost Pakistan's Foreign Exchange Reserves.

Status of Pakistani Economy is in Perilous Condition

Pakistan is being pushed to the Wall by the World, we are practically begging to every donor to help us; at least now we must stop our bureaucratic approach, open our eyes and diagnose the real problem and look for solution.

Non Resident Pakistanis (NRP)’s Home Remittances & Investments in the Country can be the best source versus International Donors who are always on our throat and making us swallow the strictest of conditions for their Loans/Aids/Grants.

Deterrents against Investment in Pakistan

Lack of Security is creation of Missing Basic Facilities required by Human Beings. Basic Health Care, Employment and Proper Shelter are still desired in Pakistan after passing 62 years of its independence.

Potential Investors

One must admit that present security conditions in Pakistan and in the World are not conducive to attract any Foreign Investment from only an investment point of view. One can still rely on NRP Business Houses. They may still be convinced with sovereign guarantees & extraordinary benefits.

Potential Segments

This can be done for Power Generation, Mining, and Oil Exploration & Export oriented industries like Fisheries from Catching to Export & other perishable items like Fruits, Vegetables and other agricultural products from growing to Export by using latest technology to increase their per hectare production, picking, cleaning, packaging, preservation, and transportation in refrigerated containers maintaining required international standards. By increasing our Exports and avoiding present wastages, lesser production per hectare & sub standard quality, we may generate good amount of Foreign Exchange for our country.

Support to Existing Industries

STATE BANK OF PAKISTAN

Presently, we do not have required infrastructure to attract foreign investments, so with whatever little resources we have we should give our best shoot to boost existing industries, whereby at least they will continue to provide employment to unemployed and slowly and gradually environment would change. Similar sort of incentive & support must be provided for NRP’s and institutions who are servicing them. They are employed all over the world and without much demand can contribute a lot for the betterment of Pakistani Economy. What they require from us is a timely payment to their Parents, Friends and Relatives in Pakistan.

Foreign Exchange

Pakistani Currency

US Dollar

Pound Sterling

UAE Dirham

The business of Exchange Companies is Cash Oriented; therefore the withholding tax on A Category Exchange Companies and their Franchises must be removed due to the overall cost involved. The tax so deducted is surely easily not recoverable and therefore the companies have no choice but to inflate the cost to the remitters. This precisely results in additional USD 4 – PKR 300 to the remitter of PKR 100K. In the scenario to absorb this cost, companies offer the lower rate to the beneficiaries, which eventually may lead to discontinuation of remittance through official channel. The potential damage is much higher that actual business. This withholding tax withdrawal to the Exchange Companies must be seen positively as application of Tax should be at least depending on realistic profitability of Business and not in the form of Advance Payment, which at times results minimum four times higher than expected profits.Government of Pakistan (Finance Ministry) through SBP is offering SR 25 Incentive / Benefit to the Banks even when the remittances originally are made by the Exchange Companies / Remittance Companies from Middle East / Abroad. When the objective of the Regulators / Policy Makers is to increase the Home Remittance volume, and additionally knowing that the formation of Exchange Companies is meant to improve this area, this incentive should also be passed on to all Exchange Companies, especially those which are engaged in the remittance business, and having relationship with the major overseas remittance companies. This will surely be an encouragement for them to not only increase the volume, but will help them expense more to achieve the higher targets.

The A Category Exchange Companies should be allowed to export all currencies except USD. This once again was and is the part of original planning for the Exchange Companies. Banks are reluctant to open the FCY and even PKR accounts for exchange companies, and therefore depositing FCY with the Bank is a difficult task. In case the currencies are deposited, the cost incurred on such deposits is high. In order to get the maximum benefit of such exports, Exchange Companies should be bound to surrender 90% of the proceeds in the inter-bank market to keep the exchange rate stable. In fact the higher amount so received will help keep the rate at the decent level. The balance only 10% should be allowed for the outward remittances for individuals and even small importers. Undoubtedly the help to small importers will bring more transparency apart from saving to the SBP direct FX Reserves. Presently, it is being misused and exported illegally by unauthorized /disorganized operators who don’t have any borders and this can be verified if one compares the statistics of past volume and current volume handled by Exchange Companies by way of depositing these banned currencies in their FC Account with local banks.

The Banks are excessively charging on the FCY deposits, while also not entertaining at times by not establishing the accounts, as mentioned above. In the first case, the extra charges obviously increase the Exchange Companies funds cost heavily. The extra currencies conversion into USD results further cost to the companies. This technical business activity surely gives the Banks lucrative FXearning while incurring cost to the Companies, without much substance. The solution would be to export as mentioned above, and to ask the Banks to open accounts of Exchange Companies and only charge at the time of conversion into USD through FX rate, without any flat flee.

On the lighter note, it is mentioned that the passenger allowances of USD 10 K per passenger should be restricted over a period, not every time they fly out. Moreover, the SBP should look at the FCY private accounts more judiciously and carefully because at times used unnecessarily for the remittance and other FX activities which should remain limited to Non Resident Pakistanis. It is further mentioned here that it should remain limited to Financial Penalty; the other punishments highlighted may develop uncontrolled fears which will not help in business concentration and operational efficiency at the higher levels.

Pakistan's Economy - IMF and World Bank

Imran Majeed wrote:

Aamir

Also plz see what the new Financial Advisor to the PM Mr. Shaukat Tareen says on rupee slide.....and well he is giving positive and hopeful vibes as per this news report...and its good.....we need positive vibes

Tareen sees banks' cartel behind currency fall RECORDER REPORT

Copyright Business Recorder, 2008

http://www.brecorder.com/index.php?id=818799&currPageNo=1&query=&search=&term=&supDate=

=======================================

Dear Imran Sahab,

As per my humble and poor knowledge:

Remains of the Failure Financial Policies of the previous Military Government [General Musharraf Martial Law 1999 - till his resignation in 2008] have now been surfaced.


May please be read while keeping in mind that the note was written in 2004:


I had compiled a note on [US DOLLARS/IMF/WB POLICIES] Pakistani Economy on a different forum in March 2004 when General Musharraf and his Foreign Imported Economic Advisors [Shaukat Aziz, Mohammad Mian Soomro, Dr Ishrat Hussain] and one of them was present Advisor for Economy [Shaukat Tareen - basically an Import of Nawaz Sharif who placed Shuakt Tareen in Habib Bank for starting the Ruining Process of the Largest Bank in Pakistan which Shaukat Tareen successfully did with the help of his Corrupt and Inefficient team of CITI BANK EXECUTIVES wgo came with him in HBL at the cost of Pakistani Bankers] Prime Minister Gilani, were enjoying complete freedom to implement the policies results of which are being faced by Pakistan nowadays are as under:


GDP:

Purchasing Power Parity- $ 311 Billion.

Real Growth Rate- 4.5%.

Per Capita: Purchasing Power Parity- $ 2,100.

GDP Composition by Sector:

Agriculture: 24%

Industry: 24%

Service: 51%

Population Below Poverty Line:

35%

HOUSEHOLD INCOME OR CONSUMPTION BY PERCENTAGE SHARE:

Lowest 10%: 4.1%

Highest 10%: 27.6%

DISTRIBUTION OF FAMILY INCOME :

41.

INFLATION RATE {Consumer Prices}:

3.9%

UNEMPLOYMENT RATE:

7.8% Plus Substantial Underemployment.

BUDGET:

Revenue: $ 12.6 Billion

Expenditure: $ 14.8 Billion

DEBT EXTERNAL:

$ 32.3 Billion

ECONOMIC AID RECIPIENT:

$ 2.4 Billion

DISMAL ECONOMY:

Pakistan, an impoverished and underdeveloped country, suffers from internal politically disputes, low levels of foreign investment, and a costly, ongoing confrontation with neighboring India. Pakistan’s economic prospects, although still marred by poor human development indicators, continued to improve in 2002 following unprecedented inflows of Foreign Exchange Reserves have grown to record levels, supported by fast growth in recorded worker remittance. Trade levels rebounded after a sharp decline in late 2001. The government has made significant inroads in macroeconomics reform since 2000 but these are all tall claims as majority of the population living under back breaking poverty and no benefit of much talked about International Aid has trickled down to the common man. Although it is in the second year of its $ 1.3 Billion IMF POVERTY REDUCTION AND GROWTH FACILITY, Pakistan continues to require waivers for politically suicidal reforms. Long terms prospects remain uncertain as development spending remain low, regional tensions remain high, and political upheaval weakens Pakistan’s commitment to hinge on Corps Performance dependence on foreign oil leaves the import bill vulnerable to fluctuating oil prices; and efforts to open and modernize the economy remain uneven. One of the key themes identified was globalization and its attendant Structural Adjustment Programmes (started in Pakistan in 1988). Together with an increasing national debt, loans and conditionalities, the roll back of the state and push towards privatization, these have had a major impact on the local economy and on Social (can be read as Health) through increased poverty and the erosion of safety nets. The contradictory policies of international financial institutions, and to a lesser extent, those of bilateral and multilateral agencies, contributed to the problem.

The same institutions supporting or implementing social reform programmes also had agreements with the Government of Pakistan introducing conditionalities that are unhelpful, or that actually undermine the ability of people to cope with negative developments. These further marginalise the Social development (read health). Existing global economic structures and the New World Order continue and intensify the depletion of natural resources through unsustainable development policies. Globalization has also led to financial and human mismanagement of available national resources and a mismatch between indigenous needs and allocations as well as a brain drain out of the country. There was also concern at the donor-driven nature and/or dependency of many, if not all, of the initiatives for women. These are therefore resisted by government/state implementors and also not sustainable beyond the support cycle. They are further disadvantaged by being generally perceived as part of the "western", "donor" agenda, incompatible with religio-cultural social norms and traditions, and, thereby, unworthy of GoP ownership and commitment. At the national level, globalization entails a roll back of the state in certain sectors. The abdication of the state from its primary responsibilities of providing for the basic needs of and security of its citizens is furthered by imposed policies which call for (a) the privatization of social sector services such as water and health, and (b) the removal of protective social sector measures (e.g. subsidies ensuring food security). In Pakistan, the situation is made worse by a highly centralized administrative and taxation system, the concentration of power and resources in the hands of a small minority, and bureaucratic hurdles that impede institutionalization of efforts. Indeed Pakistan is witnessing erosion of state institutions and their capacity. Additionally, efforts promoting women’s empowerment have to contend with frequent political changes that negatively impact on policies and interventions and an ad-hocism in planning and implementation that prevent continuity.

INTRODUCTION:

The Argentinean citizens - or Pakistanis, for that matter - are not unique in having military/civilian dictatorships imposed upon them, which are then sustained by massive doses of international loans. Around the world, this recursive relationship between dictators and global capital serves the purpose of enslaving people through increased indebtedness while forcing them to open up their markets for increasing the profits of large multinationals through threats of loan recalls etc. The insecurity of dictators and their need to silence all opposition is a well-calculated advantage in this relationship to international capital. An added advantage is that once the dictators have been deposed, the people of that country remain indebted as the loans were taken in their name, regardless of the fact that beyond lining the pockets of the ruling junta, these loans served little developmental purpose. As the IMF imposes devastating demands for the privatization of public resources that will increase social polarization, our government only responds with pleas for patience.

The Rulers in the Third World seek legitimacy from Law, Constitution and Judiciary to enforce the agenda of Ruthless Global Capitalism which came in any Third World Country in the shape of IMF and World Bank Reforms through their specially trained Foreign Based locals Preppy Bankers/Consultants for destroying the Infrastructure or Industrial Base of any developing country for making that particular country a Market for Capitalist Powers even at the cost of Rising Unemployment, Suicides, Sky Rocketing Utility Bills, Retrenchments, Golden Hand Shakes rather Iron Kick, Political Anarchy, Polarization and what not. These Technocrats care a damn for such sensitive issues the only thing they are bothered about is Structural Reforms for the sake of manifold profits and web of IMF and World Bank. As per Mr. Ayaz Amir of Daily Dawn {www.dawm.com} "These Finance men and other 'technocrats' who have made it in the World Bank and the IMF, but who remain unfulfilled for not having exercised raw political power in their homeland, are always more impressed by caretaker regimes and military dictatorships than by anything with a democratic colouring. In a democracy they have no place but through the good graces of an unelected dispensation they can hope to attain high political office. Which is why high-flying members of this tribe can be seen rushing to Pakistan, keen to save the country, whenever a government falls.Military rule is not a function of the military alone. Whole classes of collaborators have flocked to the army's standard whenever it has seized power. From Ayub Khan onwards, no military ruler ever lacked the advice or the services of international bankers able to speak the language of Wall Street or the New York Stock Exchange. Nor the best legal advice. Nor the collaboration of willing judges ready to view everything through the eyes of necessity".

Despite all the powers why Legitimacy from the Parliament of the so-called Corrupt Politicians? Why there are dictatorships in the Third World , the only reason which is quite understandable that Dictators are not answerable to any body and they can implement the Structural Reforms of IMF and World Bank without any hinderance and politicians cannot without a debate in a Parliament though our Politicians do not have an exemplary but at least they hold a debate in the Parliament and it is entirely a different matter that they hold debate like Fish Market but that what democracy is. If these Reforms are so good for the people then why People are not happy and committing suicides due to unemployment. Why the benefits of these Reforms are not trickling down to the people.

IMPACT OF WRONG POLICIES RESULTED IN LAWLESSNESS, RISING UNEMPLOYMENT AND SKY ROCKETING PRICE HIKE:

The extent of the intensity could be judged by an editorial of a serious newspaper Daily Dawn dated 21-03-04 Karachi that it virtually ripped apart the Governor State Bank Dr. Ishrat Hussain.

“QUOTE”

The State Bank Governor, Dr Ishrat Hussain, has made it something of a habit to criticize the press for what he considers to be ignorant reporting of economic policy and for presenting a distorted picture of the economy. He repeated this charge during a lecture in Islamabad the other day when he reportedly advised his audience of students not to be taken in by the "garbage thrown by the newspapers" and other opinionated persons airing various theories about the reasons for Pakistan lagging behind other nations.

While it is true that some newspaper comment may be ill informed or not as well researched as it should be and that a straight-talking State Bank governor may not be such a bad phenomenon, glib generalizations are unwelcome, wherever they come from. It remains a harsh fact that our economic managers have become so engrossed with the task of setting things right at the macro level that they have assumed an attitude of total indifference to the mounting problems of the common citizens.

Is it talking 'garbage', Mr Governor, to say that flour prices have hit Rs18-20 a kg, with an inflationary effect on other essential commodities? Is it 'garbage' that petrol prices and utility rates have been steadily going up? That even the so-called middle classes are finding it increasingly difficult to afford housing, clothing and schooling from their eroding incomes? Is it 'garbage' that people in the big cities have to spend hours commuting between home and workplace? That more people are slipping below the poverty line despite the much trumpeted and atrociously named "pro-poor" policies? Is it 'garbage' that unemployment is rampant and we have growth without job creation?

The State Bank governor also said at the same Islamabad function that the people were to be blamed for sluggish growth because they did not save enough and invest in the economy. How much can a family with an income of Rs12-15,000 a month save? And if you do manage to save, how much return do the banks give in savings? Small depositors actually get a negative return. If, Mr Governor, you are not overly concerned with the citizens' everyday woes, at least don't trivialize them. And if you can't do anything to improve the average Pakistani's lot, kindly keep quiet. Dumping garbage is not anyone's monopoly.

“UN-QUOTE”

The days are not far when the people of Pakistan would be facing a Economic Crunch which is being faced by the People of Argentina (Economy of Argentina was far more sound than Pakistan), Bolivia, Brazil and other such countries where the World Bank and IMF have implemented their "Structural Reforms" through Rightsizing, Downsizing, Retrenchments, Withdrawal of Subsidies from several Public Utilities, and Rising Power/Energy/Gas Tariff/Fuel (All have recently been raised).

What did the genius of (Late) Dr. Mehboobul Haq, Mr V.A Jafferi, Mr Hafeez Pasha, Mr Sartaj Aziz, Mr Shaukat Aziz and several World Bank Employees inducted in our Nationalized Commercial Banks and State Bank do for the common people, we are in a far worse position. Now as per World Bank's Country Assistance Strategy (CAS) the Economy of the country is in risk then why the Finance Minister and The Governor State Bank is claiming quite opposite, either World Bank is lying or they both are lying to hoodwink the poor people of this country. Above all the Rogues in the World Bank are now telling a Muslim Country about Modern Islamic State (What is that?). The World Bank is also worried about the outcome of coming Elections (if these are ever held) because of their so-called Structural Reforms which have made the life of common people miserable due to rising cost of Utilities and Unemployment. The only Structural Reforms is done by WB/IMF was Rising Graph of Suicides. What an irony these atheist, ruthless and un-godly World Bank officials are now telling us about Modern Islamic State whereas they and their Reforms are for the Survival of The Fittest whereas Islam stands for survival of everybody weak or strong. One wonders do they believe in God as observing their policies in the Third World which have ruined Millions of people are enough to open our eyes.

AS PER SOME ANALYSTS THE SBP’S FIGURES / STATISTICS ABOUT THE ECONOMY DOES NOT SHOW THE TRUE PICTURE:

The SBP authorities, off and on, have been claiming that since 1999, high cost commercial debts of around $4.5 billion have been repaid, while the fresh low-priced debts of about $2.5 billion have been contracted. This assertion has neither been confirmed by the data published by the SBP in the quarterly reports issued during FY-02, nor in the annual report (AR) under review. On page 151, it has been stated that the short-term commercial debt of around $1.9 billion has been repaid during FY02. Such large short-term commercial debts never remained outstanding during the last 3-4years.

The data of the short term/medium term commercial debts outstanding at the end of these years as contained in Table 8.7 are: TABLE I


Table I:

Figures in million US$

Year Short term Medium term

FY - 99 152 1160

FY - 00 130 1100

FY - 01 257 1103

FY - 02 183 314

When the quantum of short-term commercial debts was not so large, the assertion of the repayment of $2.5 billion on this account during the last two years or so is not comprehensible. The repayment of the old (high-priced) debts and the contracting of the fresh low-priced debts has been described as the "substitution" of debt from hard to soft (page 143). Here, it has also been mentioned that the World Bank's costly old loans of $900 million were repaid during FY-02. The question is "were these loans repaid prematurely?". If not, the repayment was a routine matter unless the country intended to default or declare a moratorium. It is thus not a real "substitution".

The economic managers could claim the credit only if they had repaid the old loans without creating fresh burden for the public. As for the pricing, the annual report adds that the borrowings from the IDA are at zero interest rate, but neither the interest rates on the borrowings from the World Bank, the Asian Development Bank etc., have been specified nor has it been indicated whether these loans are on the "fixed" or floating" interest rates.

The IDA does not charge interest, it levies nominal service charges of 3/4 per cent p.a., but the other two multilaterals lend at the market-based and floating rates. If that position is correct, the borrowings from them may look cheaper at the moment because the prevailing rates at present are lower but nobody could predict the interest rate behaviour during the long period of the next 2-3 decades, and today's cheaper debt servicing may become a difficult legacy for the coming governments.

The assertion of the repayment of $900 million to the World Bank during FY-02 is also not corroborated by the data given in the Table 9.8 (page 167) where payments to the World Bank have been put at $231.9 million only. This cannot be taken as the net out-go because the amounts of receipts from the IDA/World Bank have separately been indicated in the same table.

At the time of concluding the debt reprofiling arrangement with the Paris Club, it was claimed that there would be a debt relief of about $2.7 billion during the 3-year period. But it has surprisingly been mentioned on page 147 of the annual report that "despite the restructuring, Pakistan's external debt servicing liabilities has increased from $5.1 billion (in FY-O1) to $6.3 billion (in FY-02).

Exchange rates: The AR states that there has been a complete "U" turn in the exchange rate management policy of the SBP e.g., there was a shift from the one-sided sale of the US dollar to inter-bank market and keeping a cap on the exchange rate on the sale/purchases from the inter-bank market/abolishing the cap on the exchange rate and rather monetary policy was used to quell the market pressures.

How far the monetary policy helped in keeping the rupee/dollar parity at the desired level is rather a matter of deeper study. The SBP has, however, been able to undertake a shift in the policy, primarily because of the heavy generation of foreign exchange through purchases of dollar from the kerb/inter-bank market, the inflow of remittances from abroad by the Pakistani workers through banking channels, receipts of foreign grants, receipts for the provision of logistic support to the American troops in connection with the Afghan war, inflow on account of remittances of the amounts disbursed under foreign loans/credits after the removal of the post-nuclear blast sanctions, (imposed in 1998) etc,.

All this was as a consequence of September 9, 2001 events. Some of these sources comprised mainly one time operation. What is to be emphasized here is that the heavy inflow of funds from abroad enabling the SBP to take a "U" turn in exchange rate policy was not the result of policies pursued by the present economic managers. It may be mentioned here that the previous SBP Governor had also resorted to the purchases of dollar from the kerb market but it was at the limited scale because he was hand-tight by the IMF, while this time the IMF gave a free hand in this regard.

Even under the old system, when the banks were operating under the Nostro limits fixed by the SBP, they used to approach the SBP for the supply of dollar only when the market was short on any day. In a situation where the forex inflows exceed the market outflow needs, the banks would not naturally approach the SBP and the "U" turn would more or less be automatic.

On page 184 of the AR, it has been observed "as per the historical trends the rupee/dollar parity are generally characterized by long periods of stability before being interrupted by sharp phases of depreciation". The assertion relates to 13-year period 1990-2002 as it is linked to figure 9.31 (page 181 of AR). To examine the above assertion, an endeavour has been made to study the rupee/dollar exchange rate behaviour over a longer period of time. The rupee was pegged at 4.76 to a dollar until May 10, 1972. The next day, the government of Zulfiqar All Bhutto fixed the new parity at Rs11, depicting the devaluation of rupee to the extent of 56.73 per cent. In February, 1973, the dollar was devalued by 10 per cent, and the rupee was not proportionately devalued and consequently, the revised parity was fixed Rs9.90 per dollar. This fixed parity continued till January 9, 1982. From January 10, 1982 the rupee was defined from the dollar and was put on the managed float under which the Governor, SBP, used to review dollar/rupee parity daily and changed it when necessary.

Under the above arrangement, the dollar/rupee parity was changed on 67 occasions in 1982 (45 depreciations and 22 appreciations), on 28 occasions in 1983 (17 depreciations and 11 appreciations), on 39 occasions in l984 (27 depreciations and 12 appreciations), on 22 occasions in 1985 (13 depreciators and 9 appreciations), on 18 occasions in 1986 (15 depreciations and 3 appreciations), on 15 occasions in l987 (8 depreciations and 7 appreciations), on 26 occasions in 1988 (24 depreciations and 2 appreciations), on 38 occasions in 1989 (35 depreciations and 3 appreciations), on 47 occasions in 1990 (31 depreciations and 16 appreciations), on 53 occasions in 1991 (46 depreciations and 7 appreciations), on 26 occasions in 1992 (23 depreciations and 3 appreciations), on 36 occasions in 1993 ( all depreciations), on 20 occasions in 1994 (18 depreciations and 2 appreciations), on 20 occasions in 1995 (18 depreciations and 2 appreciations), on 20 occasions in 1996 (all depreciations), on 6 occasions in 1997 (all depreciations). The year-over-year details of the devaluations of rupee against dollar are given in the table below: TABLE II

Table II

Depreciation of Rupee against US$

Year End Beginning Year over Year depreciation

A B C=A-B c*100/A %

1982 12.84 9.90 2.94 22.90

1983 13.50 12.84 0.66 4.89

1984 15.36 13.50 1.86 12.11

1985 15.98 15.36 0.62 3.88

1986 17.25 15.98 1.27 7.36

1987 17.45 17.25 0.20 1.15

1988 18.65 17.45 1.20 6.43

1989 21.42 18.65 2.77 12.93

1990 21.90 21.42 0.48 2.19

1991 24.72 21.90 2.82 11.41

1992 25.70 24.72 0.98 3.81

1993 30.12 25.70 4.42 14.67

1994 30.80 30.12 0.68 2.21

1995 34.25 30.80 3.45 10.07

1996 40.12 34.25 5.87 14.63

1997 44.05 40.12 3.93 8.92

(Source F.E. Circulars issued by SBP from time to time)


The parity of one dollar=Rs44.05 remained in force till early 1998 when the authority for fixation of dollar/rupee rate was delegated to the banks by the SBP. Thereafter, atomic detonation took place in May, 1998 and numerous changes were introduced and taken back from time to time.

The observation in the report that the rupee had witnessed a long period of stability before being interrupted by sharp phases of depreciation is not borne out by the trend of rupee depreciation under the managed float system which was in vogue from January, 1982 to early 1998. The changes during all these years were by and large gradual and small.

There has no doubt been comparatively higher devaluation of rupee during (September October) 1995, 1996 and 1997 but these changes can be attributed to our failure on at least two out of these three occasions to comply with the conditionalities of the IMF viz-a-viz the Extended Structural Adjustment Facility (ESAF), the Extended Fund Facility (EFF) agreements and the suspension of fund inflow thereunder compelling us to run after the IMF for emergency funding under the stand-by agreements at a much higher interest rate, and the September-October sharp devaluations of 1995, 1996 and 1997 may have to be visualized in that context.

During 1999-2001 too, the rupee remained stable for some time only because of the cap imposed by the SBP and fluctuated when the free float was allowed to become operative and during that period too, the changes were not abrupt but gradual, though sharp.

Liberalization: During the regimes of Nawaz Sharif, a number of liberalization measures were introduced in the field of foreign exchange which, inter-alia, include eliminating the import licensing system, empowering the banks to first fix exchange rates for various currencies in terms of Pakistan rupees and later to also fix the dollar/rupee rate, grant forward covers to the importers/exporters etc., without the recourse to the SBP, opening Pakistan's stock exchanges to the foreigners etc,. Most of these liberalization measures had to be taken back in the post- detonation scenario in 1998. The present government revived the said liberalization measures, besides introducing the new ones. The AR under review speaks of the introduction of the following new measures:

* The condition of approved commercial transaction for any inter-bank deal was abolished. (In other words speculative purchase/sale of foreign exchange between the banks was made permissible).

* The limits on foreign exchange payments relating to travel and health were also abolished.

* The facility of back-to-back remittances was reinstated, (banks were allowed to issue the travellers cheques against the surrender of equivalent amount in foreign exchange in cash).

These liberalization measures were taken as a part of the "Pink Pill" treatment which the IMF administers to the ailing economies the world over. But there will hardly be any instance in the Latin America, Asia and Africa where the patient may have been cured by the IMF treatment.

At times the IMF treatment is rather hard and unnecessary for the "ailing" country. For example, the individual private travel quota of $500 every two years was raised to $1000 and then to $2,100 every year as per IMF tenet. There was a general complaint that because of the kerb market premium, individuals used to draw private travel quota from the banks and sell them in the kerb market instead of undertaking the travel.

To put an end to the malpractice, the government imposed 5 per cent tax on the release of travel quota in mid-l990s which effectively checked the malpractice and amount of release by the banks on this account was sufficiently curtailed. But this became unacceptable to the IMF and the tax had to be withdrawn in less than a year. However, at the present juncture, where free market premium has collapsed, liberalization is not likely to lead to the malpractice of the past.

The speculative foreign exchange purchase/sales is a dangerous phenomenon if it is opened to the public. Since this at present remains confined to the inter-bank transactions only, it may not prove so harmful, as the SBP monitors the exposures of the banks. It would be recalled that the speculation coupled with complete freedom on the inter-country capital movement was one of the reasons which collapsed the East Asian Tigers in 1997-98.

Another item collapsing these economies was opening up of the bourses to the non-residents because these markets are merely the speculation shops and the money brought therein is a "hot money" recall of which at any time can upset the balance of payments of the less developed economies.

The portfolio investment has no point of advantage for the developing countries as it neither creates new employment opportunities nor expands the production base resulting in export boost. But the developing countries have perforce to swallow the IMF's this "Pink Pill"as well.

The Malaysian Prime Minister was the only sane voice who after 1997 debacle advocated exchange controls including the controls on capital movement. He also saved his country from the IMF "Pink-Pill" treatment by not accepting its assistance and successfully managed the crisis. Other countries like Indonesia accepted the IMF's offer and everybody knows where they stand at present.

We had opened up our stock exchanges in early 1990s. How this benefited our country can be gauged from the following statistics of inflow/outflow in/from the Karachi Stock Exchange as given in the SBP AR (page 124) under review:



Table III

Figures in million Rs

Year Inflow Outflow NET INFLOW(+)
NET OUTFLOW(-)

1996-97 8392.6 8618.7 (-) 226.1

1997-98 31224.4 27831.9 (+) 3392.5

1998-99 8869.9 9997.8 (-) 1127.9

1999-00 7433.8 8562.4 (-) 1128.6

2000-01 2306.5 8148.9 (-) 5842.4

2001-02 5993.0 10795.4 (-) 4802.4


It would be seen from the above data that Pakistan has lost substantial amount of Rs 9,734.5 million during the 6-year period by opening up our stock exchanges to the foreigners. This figure shall further rise if we take into account the funds remitted by the overseas investors through the kerb market during the period when such remittances were under the ban clamped by the SBP due to precarious foreign exchange position, immediately following the nuclear blast in May, 1998. But alas, we have to follow the IMF diktat in any case because during our over half a century history, we did not get a sincere leader like Mahatir Muhammad.


According to some Pakistani Experts,

"QUOTE"

The so-called Foreign Reserves of 16 Billion US Dollars were fake in fact, as the government deferred the repaymentof borrowing and debt servicing for quite long, besides subsidies on various items [which are now being withdrawn at the cost of the sufferring of common and poor Pakistanti (40% are living below poverty line].

The ever changing State Bank Policies and dirty role of Commercial Banks has put the pressure on Pakistani Rupee; resulting 24% indirect devaluation of the Pak Rupees against US Dollar.

The Role of Exchange Companies incorporated in 2002-2003 is also not very healthy as their activities have also been restricted which is tantamount to dragging them into un-documented trading.

The recent prohibition of the Export of Foreign Currencies by Exchange Companies has also played a very vital role in putting the pressure on Liquid US Dollars.

If the exchange companies are binded to a certain limit for Import of Liquid US Dollars against their Export of various international currencies the crunch on Pak Rupee will be reduced considerablly as banks were allowed to import liquid US Dollars and Pond Sterling in November 1995.

The policies governing Banks and Exchange Companies should be reviewed.

Truth about General Musharraf's Alleged Economic Reforms

From several TV Talk Shows on Federal and Provincial Budgets also decalred as 'Tax Free and People Friendly too ' show the The Imported Economic Wizzard of the Government one comes to know that things are not very convincing as portrayed by the government representatives particularly for the common people.

The resources by which the Reserves have been increased to US Dollars 15.00 Billion keeping in view the Trade Deficit of US Dollar 11.00 Billion.

(This reflects the Non-functional of our industriesand Export. Leave the figures on paper aside)

The rise of the Revenue is due to the following reasons:

1- Remittance by overseas Pakistanis. The quantum is not known.

2- American Aid US Dollars 5.00 Billion.

3- Debt Rise (Borrowing from International Agencies)approx US Dollars 5.00 Billions.

4- Aid for Earthquake [Actual Figure not known]

5- Deffrred payment (Relaxation) of Instalmentforeign debt by Paris & London Clubs and other lending agencies.

Tall claims by the government that the budget is common man friendly and relief oriented but what about the price hike?

The GDP is claimed 7% whereas the government itself has declared inflation of 7.9% (though it is not less than 13%).

What is the barometer to judge the inflation if not price hike?


The parity of one dollar=Rs44.05 remained in force till early 1998 when the authority for fixation of dollar/rupee rate was delegated to the banks by the SBP. Thereafter, atomic detonation took place in May, 1998 and numerous changes were introduced and taken back from time to time.

The observation in the report that the rupee had witnessed a long period of stability before being interrupted by sharp phases of depreciation is not borne out by the trend of rupee depreciation under the managed float system which was in vogue from January, 1982 to early 1998. The changes during all these years were by and large gradual and small.

There has no doubt been comparatively higher devaluation of rupee during (September October) 1995, 1996 and 1997 but these changes can be attributed to our failure on at least two out of these three occasions to comply with the conditionalities of the IMF viz-a-viz the Extended Structural Adjustment Facility (ESAF), the Extended Fund Facility (EFF) agreements and the suspension of fund inflow thereunder compelling us to run after the IMF for emergency funding under the stand-by agreements at a much higher interest rate, and the September-October sharp devaluations of 1995, 1996 and 1997 may have to be visualized in that context.

During 1999-2001 too, the rupee remained stable for some time only because of the cap imposed by the SBP and fluctuated when the free float was allowed to become operative and during that period too, the changes were not abrupt but gradual, though sharp.

Liberalization: During the regimes of Nawaz Sharif, a number of liberalization measures were introduced in the field of foreign exchange which, inter-alia, include eliminating the import licensing system, empowering the banks to first fix exchange rates for various currencies in terms of Pakistan rupees and later to also fix the dollar/rupee rate, grant forward covers to the importers/exporters etc., without the recourse to the SBP, opening Pakistan's stock exchanges to the foreigners etc,. Most of these liberalization measures had to be taken back in the post- detonation scenario in 1998. The present government revived the said liberalization measures, besides introducing the new ones. The AR under review speaks of the introduction of the following new measures:

* The condition of approved commercial transaction for any inter-bank deal was abolished. (In other words speculative purchase/sale of foreign exchange between the banks was made permissible).

* The limits on foreign exchange payments relating to travel and health were also abolished.

* The facility of back-to-back remittances was reinstated, (banks were allowed to issue the travellers cheques against the surrender of equivalent amount in foreign exchange in cash).

These liberalization measures were taken as a part of the "Pink Pill" treatment which the IMF administers to the ailing economies the world over. But there will hardly be any instance in the Latin America, Asia and Africa where the patient may have been cured by the IMF treatment.

At times the IMF treatment is rather hard and unnecessary for the "ailing" country. For example, the individual private travel quota of $500 every two years was raised to $1000 and then to $2,100 every year as per IMF tenet. There was a general complaint that because of the kerb market premium, individuals used to draw private travel quota from the banks and sell them in the kerb market instead of undertaking the travel.

To put an end to the malpractice, the government imposed 5 per cent tax on the release of travel quota in mid-l990s which effectively checked the malpractice and amount of release by the banks on this account was sufficiently curtailed. But this became unacceptable to the IMF and the tax had to be withdrawn in less than a year. However, at the present juncture, where free market premium has collapsed, liberalization is not likely to lead to the malpractice of the past.

The speculative foreign exchange purchase/sales is a dangerous phenomenon if it is opened to the public. Since this at present remains confined to the inter-bank transactions only, it may not prove so harmful, as the SBP monitors the exposures of the banks. It would be recalled that the speculation coupled with complete freedom on the inter-country capital movement was one of the reasons which collapsed the East Asian Tigers in 1997-98.

Another item collapsing these economies was opening up of the bourses to the non-residents because these markets are merely the speculation shops and the money brought therein is a "hot money" recall of which at any time can upset the balance of payments of the less developed economies.

The portfolio investment has no point of advantage for the developing countries as it neither creates new employment opportunities nor expands the production base resulting in export boost. But the developing countries have perforce to swallow the IMF's this "Pink Pill"as well.

The Malaysian Prime Minister was the only sane voice who after 1997 debacle advocated exchange controls including the controls on capital movement. He also saved his country from the IMF "Pink-Pill" treatment by not accepting its assistance and successfully managed the crisis. Other countries like Indonesia accepted the IMF's offer and everybody knows where they stand at present.

We had opened up our stock exchanges in early 1990s. How this benefited our country can be gauged from the following statistics of inflow/outflow in/from the Karachi Stock Exchange as given in the SBP AR (page 124) under review:

TableII

Table IIIFigures in million Rs

Year Inflow Outflow NET INFLOW(+)NET OUTFLOW(-)

1996-97 8392.6 8618.7 (-) 226.1

1997-98 31224.4 27831.9 (+) 3392.5

1998-99 8869.9 9997.8 (-) 1127.9

1999-00 7433.8 8562.4 (-) 1128.6

2000-01 2306.5 8148.9 (-) 5842.4

2001-02 5993.0 10795.4 (-) 4802.4


It would be seen from the above data that Pakistan has lost substantial amount of Rs 9,734.5 million during the 6-year period by opening up our stock exchanges to the foreigners. This figure shall further rise if we take into account the funds remitted by the overseas investors through the kerb market during the period when such remittances were under the ban clamped by the SBP due to precarious foreign exchange position, immediately following the nuclear blast in May, 1998. But alas, we have to follow the IMF diktat in any case because during our over half a century history, we did not get a sincere leader like Mahatir Muhammad.

MISQUOTING THE FACTS:

Economy is a fascinating subject. You can use the same data and statistics to prove or disprove a point. And if you indulge in selective use of these data, you can succeed in conjuring up a picture of the economy entirely unrelated to the ground realities. This has been happening in this country over the last at least 44 years or since 1958 to be precise. The fiction of high growth during the Ayub era has been repeated so many times without being challenged that now even those who created this fiction have come to believe in it. The fact of the matter is, it was during this period that due to the wrong economic policies of the then official economic managers our comparative advantage -the agriculture sector-was totally destroyed and Pakistan became a net food importing country. Food grains imported free under PL480 used to be sold in the market dirt cheap rendering local agriculture production uneconomic and using the rupees thus obtained to finance the burgeoning budgets without the need to collect taxes. These were the years when we, with our own hands, destroyed the tax culture in the country and encouraged businessmen to evade taxes.

During the second five-year plan period ( 1960-65) the US provided assistance to the tune of 35 per cent of government's development budget and 45 per cent of its import bill. Several factors had made this remarkable expansion possible. Expenditure on Indus Basin works replacement, which amounted to $1.5 billion during the 1960s alone, were financed either directly by foreign assistance or indirectly by counterpart funds generated by the sale of PL480 commodity assistance. The availability of $ 800 million of non-project assistance during 1960-65, nearly 90 per cent from the US, was the second major factor in expanding foreign flows. A key element was the multi-year agreement in October 1961 on an expanded PL 480 programme with the US, totalling $621.5 million for the remaining period of Second Plan; more than half the amount was for wheat imports and about 20 per cent was for vegetable oil imports. The US support for Pakistan's industrialization efforts consisted of expanded capital assistance for infrastructure development, increased technical aid to ease " skills shortage" and PL 480 concessional sales, which generated local currency for public investment and made it easier for Pakistan to finance industrialization by keeping agriculture prices low and thereby extracting an invisible surplus from agriculture. The short term results of these efforts were surprising. The industrial sector, dominated by textiles and large-scale industry, grew at annual rates approaching 24 per cent while agriculture stagnated, barely keeping pace with population growth. In the longer term the pace of growth in the industrial sector could not hold for obvious reasons and it too began stagnating like the agriculture sector. And as soon as the US dole stopped after the 1965 war all the shine from the Ayubian growth simply vanished swiftly and in the process not only we lost half of Pakistan but the country was facing a default situation by the end of the decade of 1960s. If the Ayubian growth had been real, we would not have had to face at least the ignominy of a default which was averted by the succeeding democratic government of ZA Bhutto by obtaining three rounds of rescheduling between 1971-73.

The second fiction that has been created by the vested interests is the so-called comparatively better growth during the martial law period of General Ziaul Haq as opposed to the shrinking growth during the decade of democracy in the 1990s. Well here is the truth about this fiction. In the period between 1979 and 1990, Pakistan had probably received economic and military assistance amounting to as much as 25 billion dollars. This includes about $900 million annually from the US, $500 million annually from Japan, $500 million annually from Western and multilateral sources, $150 million annually from China and about $500 million annually from Muslim countries. A lot of dollars and military equipment meant for Afghan 'Mujahideen' and 'Mohajirs' was also siphoned off by the conduit en route. It is very difficult to reach even an approximate figure for the amount of money and arms that Pakistan received during this period because a lot of cash also went into the pockets of those in Pakistan who were supposed to deliver them to their final destination. And if this amount is estimated conservatively to be about $250 million annually and added to the $3 billion of remittances coming home from overseas Pakistanis annually, you reach an amount of another $25 billion bringing the grand total of most of the concessional dollars that Pakistan received during the ten years of Afghan war to about $50 billion. This is what has been reflected in the growth rates of those years and not any real progress in the real economy. That is the reason why when Zia died in the air crash in August 1988, the then finance minister Mehbubul Haq had to rush to the IMF for a paltry SBA of $250
million as the forex kitty was almost empty!

A third fiction is being attempted to be created these days, again by the vested interests that the decade of 1990s was a lost decade and in the three years of the military government the country's economy has taken a turn for the better. Nothing can be further from the truth. And here is the truth about this latest fiction. During the so-called lost decade of the 1990s population growth rate fell below 3 per cent. There was a 28 point fall in the infant mortality rate from 116 per 1000 live births in 1990 to 88 in 1999. The agriculture sector posted robust growth, and wheat production was in surplus which had eluded the country for several decades. The primary budget deficit was converted into a surplus. Defence expenditure was reduced to a significant extent. A major boost was achieved in electricity production in the face of load shedding which had brought the country's economic wheels to a halt in the late 1980s. And there was a major breakthrough in the availability of telecommunication facilities. All this was done at a time when following the application of Pressler amendment in 1990, the US had stopped all its assistance to Pakistan and the flows from multilateral aid agencies had come down to a trickle because of what in those days was called 'donor fatigue' and also because the concessional resources were needed more by the newly emerging independent countries in Eastern Europe after the collapse of the Soviet Union.

So, a country addicted to foreign dole during the previous two military rules was suddenly facing a forced withdrawal symptoms. The situation was further compounded when in 1998 we exploded our nuclear device and then followed it up with the Kargil adventure in 1999 and finally ended up with a military coup. So,in the late 1990s we virtually lived under all kinds of sanctions. In the absence of dole and faced with the need to service the debt incurred by the military rule of General Zia, the democratic government had to borrow at commercial rates. Again, it was during this decade that the elected governments discontinued the economically stupid practice of borrowing from the banks for the budget at 0.5 to 1.05 per cent interest rates resources which the banks were mobilizing at the rate of 18-20 per cent. With the advent of the practice of bank borrowing at market rate it was but natural for domestic debt to go through the ceiling.

The military government which came in October 1999 inherited not only the economic negatives that were accumulating over the last 44 years but also two very significant positives. One was the successful conclusion of the first round of debt rescheduling from the Paris Club which had also qualified Pakistan for the 9-month SBA which was the second most important positive. Not only this. During the decade of the 1990s, the country had recorded an annual average growth rate of 4.5 per cent without any dole as opposed to the dole loaded 6.8 per cent growth rate of 1960s and equally dole-loaded 6.5 per cent of 1980s. And as compared to this dole-less 4.5 per cent growth rate, the present government in the last three years of dole-loaded economy has not even been able to cross an average annual growth rate of 3.6 per cent. If you take out the dole portion from this growth rate you end up with negative growth. That is the reason why most commentators use the word 'recession' liberally for describing the present state of the economy. In the 1980s the investment growth rate was 4.2 per cent against 12.5 per cent in the 1990s and a negative 4.9 per cent in the outgoing year (under the military regime).

The growth rate in fixed investment was 3.7 per cent in the 1980s while it was 12.2 in the 'lost decade' and in the outgoing year (2001-02) it was negative 5.9 per cent. Public investment growth rate was 2.6 per cent in the 1980s, it was 11.4 per cent in the 'lost decade' and it was a negative 17.7 per cent in the year 2001-02 under Musharraf's military regime. This massive negative growth in investment is another and perhaps a more persuasive reason why most commentators have started using " the word ' recession' quite liberally". All these figures mentioned above have been taken from Statistical Appendix of Economic Survey 2001-2002. And here is some more data from the same document. In the dole-loaded 1980s the total average annual investment was 18.7 per cent of the GDP, it was only fractionally below at 18.3 per cent in the decade without dole ( 1990s) and a paltry 13.9 per cent in the dole-loaded year of 2001-02.

The figure of 15.6 per cent of the last full year of democratic government against the average of 10 years of 1980s to make his point and there too he has misled the readers into thinking that in the decade of 1980s the country had achieved investment amounting to as much as 19 per cent of the GDP on an annual average whereas the Economic Survey ( 2001-02) says that the average annual investment during the 1980s was 18.7 per cent. One must be sure the expert who made the Economic Survey know the difference in billions between 19 per cent of the GDP and 18.7 per cent of the GDP. The fixed investment during 1980s was 17 per cent, it was 16.6 per cent in the 1990s and 12.3 per cent in the third year of the present military government. Public investment was 9.2 per cent in 1980s, 7.5 per cent in the 1990s and 4.7 per cent in the third year of the military government. Private investment was 7.8 per cent of the GDP in the 1980s which jumped to 9.1 per cent during the dole-less period of 1990s but then went down steeply to 4.7 per cent in the dole-full year of 2001-02. The overall budgetary deficit was 7.1 per cent during the 1980s when the government was borrowing at throwaway interest rates from the banks for budgetary purposes, it went down to 6.9 per cent of the GDP in the 1990s when the government was borrowing at the market rates and it was 7 per cent ( this figure has been quoted from the federal budget in Brief 2002-2003-page 48) during the year which is being touted by the military regime as the year when it had achieved a level of macro-economic stability as never before in Pakistan's history.

The total revenue collection in the 1980s was 17.3 per cent of the GDP, 17.1 per cent in the 1990s and 16.8 per cent in the out-going year ( this is ultimate in stagnation). The massive dole that this government has received plus the highly generous debt reprofiling obtained from the Paris Club in December 2001 (the foundation for which had already been laid by the last democratic government in January 1999) for services being rendered in the war against international terrorism and not in recognition of any significant improvement in the official management of the economy (which otherwise would have reflected in the real economy) has helped Pakistan to record a record improvement in current account deficit. Dole was again the reason why in the 1980s the current account deficit was controlled at 3.9 per cent of the GDP. Without dole the governments of 1990s succeeded in keeping this deficit at 4.5 per cent while the present government which also enjoys a massive debt reprofiling has been able to keep it at less than single digit. This improvement in current account deficit caused mostly by foreign dole and one shot remittances flow has helped the government to accumulate a massive forex reserves of $7 billion.

Again, without de-emphasizing the importance of such a huge amount in the forex, one would still like to insist that there is a total disconnect between the real economy and this amount of forex. That is the reason why no sane person would want the government to use this amount to kick-start the economy. As soon as that is done the entire forex would disappear. The situation reminds one of a Pakistani movie of 1960s Saath Lakh in which the groom is promised a dowry of Rs 700,000 on the condition that he would not use it ( You can only see the amount and touch it, but not use it, the hero was told by his would-be father-in-law). What then is the real worth of the massive forex reserves? The Governor of the State Bank, Dr Ishrat Husain, himself has answered this question: " Since the alternative strategy to draw down reserves and allow the government to prime pump the domestic economy will prove short-sighted, expose Pakistan once again to the enhanced the risk of default on its external debt and liabilities in the future and generate uncertainties and turbulence in the markets, the more viable way to accelerate growth is by inducing private sector to invest. " This will require, in turn political stability and consensus by all political parties on a long-term economic policy vision and direction for Pakistan, a more business friendly environment, a less contentious and adversarial relationship between the bureaucracy and the businessmen, improvement in internal and external security situation (General Musharraf, the President, General Hafeez of the NAB and General Naqvi (Now Daniyal Aziz) of the NRB are not listening Doctor sb.!!) and the continuation of structural reforms and governance agenda." But even if all these instructions of Dr. Ishrat are followed in letter and spirit by the government, the private sector would still not move because over the years it has been observed that as long as the public sector spending remains on a tight leash the private sector too goes into a shell. So, in order to induce the private sector to come out of its hibernation, the public sector would have to take the lead.

For this the government would need resources which are not being generated because of the continued economic stagnation which is the result of deepening recession in the investment sector. The question to Dr. Ishrat and Economic Surveour of the Government is, how long would it take for the on-going structural reforms to enable Pakistan's economy to generate enough resources on its own to finance accelerated public sector investment in order to induce the private sector to start playing its due role of 'engine of growth' and take the country out of its recessionary depths which is only expanding poverty and pushing up steeply the rate of unemployment? The reference in Dr. Ishrat's article to the Asian crisis is totally irrelevant to Pakistani situation. In the first place Pakistan was not touched by the crisis and Dr. Ishrat knows why. Secondly, those affected by the Asian crisis are countries which export and import goods, services and money whereas Pakistan is a predominantly an importing country. So, what the so-called Asian tigers and Japan are doing today to protect themselves from a repeat of the 1997 crisis cannot be grafted on Pakistan, especially in the matter of accumulating reserves through purchases. One agrees completely with Dr.Isharat's four reasons why a country needs to accumulate reserves. But then this does not obviate the need to debate his method of accumulating the reserves to see if it suits the economic ground realities obtaining as of today in Pakistan.

A GLIMPSE OF MISMANAGEMENT IN WAPDA & KESC WHOSE SKY ROCKETING BILLS ARE ALSO THE MAIN CAUSES OF SKY ROCKETING PRICES:

The recent auditor-general's report of the misappropriation of Rs 4.56 billion in WAPDA during 1999-2000 confirms of the rampant corruption in this organization. According to the report, Rs 3.30 billion were lost due to financial impropriety, whereas hundreds of millions were lost due to overpayment, accounting errors, cisclassification of tariff rates, misuse and theft. Corruption and lack of financial management constitute to be a deep-rooted problem, which should be tackled in the interest of both Wapda and the consumers, who have to suffer because of frequent hikes in power rates and poor maintenance resulting in breakdowns, fluctuations, tripping and excessive billing. In a news item, it has been reported that the new Water and Power Minister would monitor the power sector for the benefits of the consumers.

At present KESC bills show following taxes/charges/surcharges etc., shown here with percentage in addition to the amount charged to the actual use of ELECTRICITY CHARGES for the units consumed between 500 and 1000). Fuel Adjustment Charge (30 %); Surcharge (14 %); Addl. surcharge (276% ); Electricity duty (6 %), total 326%. If this was not enough, KESC rounds off the amount of bill to Rs. 100/- which is always in favour of KESC. And when it rarely favours a customer, KESC, retracts the "favour" by showing this amount as ''arrears as on--in the next month's bill. " And the annualized rate of penalty at which KESC penalizes its client for late payment is over 100 percent (Rs. 500 on a bill of Rs. 4800. KESC justification is that, govt. takes away the major share from them--e.g. : the tax on Fuel is over 50 % -- and if it is reduced to half of this rate, then the harassed customers may possibly be given some respite by KESC. These negative factors contribute to the high cost of electricity, the impact of which has to be borne by the power consumers. Financial discipline and reducing corruption in WAPDA should have been the priority of the army-led management. But instead, it took the easy way out by demanding increase in power tariffs and punishing the consumers. We hope that the recent report from the Auditor-General's report will galvanize WAPDA and the new Minister to examine the mismanagement and the corruption in the organization. It must take appropriate steps to reduce its losses and give some relief to its consumers by reducing its energy charges and by doing away with the additional surcharge, now up to an astounding 276 % of energy charges. The government must also reduce its share in the fuel tax from the figures given above. And at the same time, brief WAPDA and KESC to act like Customer friendly commercial organizations rather than robber barons.

HOW TO MANAGE EXCHANGE RESERVES:

Economics, more than any other social science, is the prime target of art of lying with statistics. Though, extent of its execution may vary on the whims of its executioner. Truth, unfortunately, is its ultimate casualty.

Our economic masters, past or present, never fail to hoodwink their public about true picture of exchange reserves of our country. For instance, it is barely mentioned in the their current bravados that our exchange reserves were more or less stagnant at $1.7 billion level prior to the events of September 11,2001, less than half of that of Bangladesh that was the poor half of once united Pakistan. Of course, any mention of colossal Indian reserves ($65 billion) and their continuous robust growth over the last three decades is a taboo in any scribe on the subject.

But, to our chagrin, donor countries neither accept our claims at their face value nor our interpretation of statistics supplied by our institutions. Their insistence on a close scrutiny of our data pertaining to exchange reserves and budget deficit at our costs and time is, indeed, demeaning. In several instances, both the IMF and the World Bank have even questioned the probity of our statistics and confronted us with embarrassing revelations about their manipulation by the official bureaucracy.

Therefore, first and foremost, it would be an act of infinite wisdom, if the concerned institutions prior to any construction of deductions and inferences upon them promoted an aura of confidence in the integrity of our statistics.

Furthermore, the SBP should educate public at large on importance, character and structure of the exchange reserves and their significance in the realm of economic affairs of the country. Mere crowing on their recent meteoritic rise is not enough. Public and politicians may be slow learners, but SBP would find its staunchest allies in them once they have absorbed their lessons well. Earlier data on reserves should be realigned also on the basis of a universally accepted definition for their meaningful employment in economic and social planning.

The SBP reporting of "liquid" and " cash" reserves in the Press is quite confusing. If these terms are different in substance, then it should be clarified at the outset. Furthermore, a reader is also confounded on the implication of the term such as " reserves with banks" If these are the SBP reserves in-transit or in deposits with banks free and clear from any restrictions; then it should be stated unambiguously or still better, not at all reported for avoidance of any confusion in the public mind.

Now on the subject itself, we should restructure our exchange reserves for their endurable growth in value and returns. Instead of a pedestrian exercise in fund placement, its management should reflect finesse and prudence worthy of an upcoming nation. In this vein, some suggestions are outlined in the following paragraphs:

Gold and other precious metals are now viewed as "barbaric" relics from the past and, thus, are no longer in fashion as reserves. In fact, their prices in global markets are subject to wide fluctuations on the basis of their individual supply-demand equilibrium. For example, price of an ounce of gold has seen a peak of $850 with a trough of$275 over the last three decades. Its overall price trend has been downward during this period. Its owners including several central banks have experienced substantial losses in their portfolios due to depreciation in its value, besides, incurring substantial recurring safe keeping costs.

Hence, lustre of gold as a "store" of value has disappeared. Several central banks, in particular, the Reserves Bank of Australia and the Bank of England have sold their gold bullion stocks in recent years and have exchanged them with stable earning assets. It would be a wise course if the SBP avails current high level of gold prices around $320 to an ounce and sell its currently valued $600 million gold reserves for augmenting its cash reserves. Pakistan, thus, can retire some of its high-cost debts with substantial savings in interest costs.

A sound exchange reserves policy entails a dynamic review of international economic trends in currencies, trade and aid flows and external and internal economic factors embracing a country. In our situation, keeping reserves in a single currency such as US dollar is myopic as well as imprudent. Our first priority should be to preserve its portfolio value and then to earn a sound return on our investments on long-term basis.

The US economy and its dollar have been on a downward path for quite sometime similar to its earlier slippery course in 80's. This was, however, expected due to sever balance of payment problems and lengthening shadows of recession fuelled by erosion in market value of its stocks and shares. Despite an aggressive discount rate policy, the US federal reserve has failed to prop up its national currency so far. Dollar is not expected to fare any better in coming years, and indications are that quite a few nations would ditch it for alternative reserves currencies such as Euro and Japanese Yen.

In my view for a host of reasons, the SBP defence of dollar is imprudent. Even relatively wealthy and strong economies of Europe and Asia have failed to stem the tides of its decline despite their incessant support of it for their own economic interests. Their currencies, thus, have gained as much as 20 percent against US dollar during this year. Therefore, with benign rate of inflation, rising level of overseas remittance and high domestic interest rates, it would be futile for the SBP to defend current Dollar-Rupee parity unless it wants Pakistan to slave on the pattern of Banana Republics that are agalore on a wide scale in Africa and Latin America.

Pakistan's objectives of poverty alleviation, job creation and reduction in its budget deficit could not be promoted realistically unless its present economic stagnation is overcome quickly. Rejuvenation of our industry and agriculture, in preference to service sector with high capital costs and low employment potential, is necessary towards these goals. However, growth of above sectors is currently hampered due to excessive burden of high costs of capital, energy and other industrial and agricultural inputs that are predominantly imported into the country.

A realistic competitive value of Rupee and its cost of funds structure would set the ball rolling in the right direction. Henceforth, competitive edge of our economy would grow sharper through cost effectiveness of our goods and services for export as well as for domestic consumption in the long run. It is an essential recipe also for revenue growth with out extortion and price stability with out cumbersome regulatory mechanism.

THE POOR NEED A NEW DEAL:

Our economic managers effusively claim resounding success in rehabilitating the economy that according to them was in the doghouse prior to their arrival on the scene. In particular, they mention their achievements of the last three years in some exogenous macro-economic fields. In simple terms, that should translate into improved position of balance of payments, foreign exchange reserves and a benign rate of inflation.

Though, official inflation data are unreliable, and require a detailed review, it is suffice to state that inflation is also imported into Pakistan like most of other goods. The present global recession and ensuing lacklustre industrial output has lowered the demand and, thus, the prices of major inputs, and is responsible for current general low level of inflation in Pakistan.

However, official circles now sheepishly concede that despite this "spectacular" turn-around in some economic indicators, the level of mass poverty instead of showing decline, in fact has significantly expanded during this period. Even the IMF and the World Bank and other donors have expressed their concern in this respect.

Income distribution statistics in Pakistan are unreliable as well as sketchy, mostly drawn out of samples that hardly represent the reality on the ground. But, even they confirm that the most deprived group of the population in the lowest 20 per cent, shares little over 6 per cent of income now; while in 1970-71 it shared its best at 8.4 per cent level.

The same year, middle-income group in 60 per cent received about 50 per cent of this income that now has dwindled to a level of 44 per cent. The winner, of course, is the of top 20 percentile of elite group that received a lion share of over 50 per cent of income, that was at 41.5 per cent level in1970-71. Current data only confirm that middle income and lower income groups have been squeezed further like a lemon for the residual benefit of top 20 per cent of income earners.

But, the devil is in details. According to same official data, a poverty line benchmark is set at an annual per capita income level of Rs7, 800; that is $130 at current exchange rate. This level is less than half of a single day income of a well-connected middle management level public sector whiz kid, employed under newly framed "merit" based policy of the outgoing military regime. Thus, it is obvious that we have obscene income disparities in Pakistan that defy all norms and perceptions.

The same statistics reflect deep rural-urban divide. Poverty is more pronounced in our villages and in our farmlands that constitute the bulk of our population. Our rural poverty is not a new phenomenon, it is the sum total of many millennia of prevalent socio-economic structure of our society. Deep rooted in Hindu caste system, it was nurtured both by the Moghuls and the British for their own ends as the Karma of the poor.

The resultant feudalism was the fountainhead of their imperial prowess and mass poverty of their subject. The feudals fought their wars and extracted revenues for them. In an unholy alliance with them, they ruled India with an iron fist, while the rest of the population toiled in conditions of abject poverty.

Thus, Pakistan at birth inherited a social order that was in need of a major overhaul. But, unlike India, we made only feeble and half-hearted attempts in this direction. In early years and even in subsequent three decades, our economy went through a rapid expansion that to some extent brought relief to our burgeoning poor population.

Our poverty levels, thus, were caped, and in some years we even experienced their modest decline that picked up steam in the decades of 70-80.When our economic growth rates, foreign aid flows and remittances of our workers started tapering off, our poverty graph started shooting up once again in the nineties.

Our current reported unemployment rate is ludicrously placed at 7.8 per cent that is less than Germany and France. In fact, it is an insult to the common sense of the common man and our planners should take note of this. At present, our agriculture is burdened to support 60-70 per cent level of our rural population.

Its conditions of subsistence farming, and its experience of the fast population growth rate, even higher than our urban centres are responsible for a steady stream flow of migration into shantytowns of our sprawling cities. Thus, further exacerbating poverty problems of our rapidly growing urban centres.

Unfortunately, real solutions elude our armchair economic wizards whose undying myopia for western economic system is mostly responsible for our current sorry state of social and economic affairs. Their recipes are devoid of any original thinking and, in fact, are only relevant in the context of boom-bust economic cycle of rich countries.

Pakistan with an annual per capita income of less than $450 cannot be in league with the countries in $25000- $35,000 income bracket. Unrealistic prescriptions based on economic stimuli of adjustments in the level of taxation; in borrowing costs and in monetary aggregates do not effectively work in an economy of mass poverty operating at subsistence level.

A recent addition to this armoury is "rationalization" of manning levels of industrial and financial enterprises in the public sector whose main proponents are the IMF and the World Bank. This exercise has been carried out quite extensively in Pakistan with soft loans support from international donors.

It is attractively titled as a "golden handshake" scheme for softening its blow to the affected persons. A large number of workers under this scheme have been cajoled into going home with hefty compensation package. Though, its direct adverse impact on them is minimal, its baneful impact on our society is a swelling in the ranks of unemployed in a domino process of expansion. Some estimates, thus, place eight million more souls joining the club of chronically unemployed, though the actual numbers of the affected in the above scheme were stated to be around 350,000 only. Without any availability of western style social safety network in our country, perhaps, this was the "most" unkindest cut of all that pushed more people into the poverty line.

However, this exercise did not improve the financial health of concerned enterprises and in great many cases their performance has deteriorated further. Their operations are still saddled with high operating and manning costs with no perceptible improvement in their cash flows and eventual profitability. Even in public perception, the quality of their services has shown little or no improvements and a great many of them have survived with huge subventions from the government, without which their operations would not have been viable.

Most enterprises have not paid any dividend or return either to the government or to their investors. The government poverty reduction programme with its entire wherewithal so far has proved long on promise and short on performance as is obvious from its results of the last three years.

In the process, however, it has built up a vast expensive institutional network whose manning costs are prohibitive and whose capacity for the delivery of desired social objectives is limited. Poverty is a disease whose victims need compassion as well as treatment, which can only come through the dedication of institutions as well as of individuals involved in this cause.

A well-balanced long-term funding is an essential prerequisite for the success of any poverty reduction programme. Considering that more than 80 per cent of our people are afflicted with poverty, substantive and prioritized allocations from public exchequer and generous contributions from public and private donors are required for stemming its rising tides.

This is not an easy task. Almost 75 per cent of our national budget is consumed in debt servicing and in military spending that are inherently inflexible under the prevailing political milieu. Emerging pressures, both internal as well as external, can easily erode the remainder of our fragile resources to the ultimate disadvantage of the poor of our country.

Hence, unless we find enough space in our budget for this purpose, our programmes would remain dependent on external and internal borrowings and donations from international agencies. This, however, is only possible with a sizable expansion in our tax base. But, here we are already stretched to the limit. Indirect taxes that yield most of our revenues are regressive in their effects and hurt the poor more than exacting any real revenues from the rich. Hence, unless we resume our high growth rates of 60s and 70s in 6 per cent range, we are likely to be ineffective in our revenue raising endeavours. Just think that an addition of 2.5 per cent to our current growth rate could yield us annual incremental revenues of Rs100 billion that would enrich our social action programmes for the benefit of the poor.

The poor are in need of a new deal if the scourge of poverty is to be rooted out. The present institutional support package of collateral-based lending is unrealistic. In most situations, the poor have very little collateral to offer, or it is already consumed in their subsistence borrowings.

In the past, our poverty levels declined only when we had achieved high levels of manpower export along with rapid economic growth, or both as experienced during the decades of 70-80. In the prevailing environment of severe global recession, it would not be an easy task.

Furthermore, in the present context, only skilled labour can be exported mostly in the fields of new technology, medical and security services provided we effectively develop this market niche. But, it would require intensive investment in human and social capital.

On purely domestic scene, in addition to mobilization of manpower in repairs and improvements of our economic infrastructure, it could be groomed into the fields of information technology for the promotion of good governance and an open society. This should relieve sufferings of our masses in general and, in the long run, should minimise frequent eruptions of social disorder. Also, it would promote an investment friendly environment in the country that is necessary for attracting new investments as well as for the revival of the existing moribund industry.

POVERTY AND ECONOMIC DISPARITY ARE THE REASONS OF LAWLESSNESS, SO-CALLED JIHAD AND TERRORISM.

With more than 12 million men and women unemployed and almost 50 million people living below the poverty line in the country then what do expect Flower Boquet or WANA in every street of the country. Over three years, 8 million more persons are reported to have been pushed down below the poverty line in the last three years only. The industry is virtually crippled, market has shrunk, fields are barren and villages and cities present a picture of lawlessness, crumbling infrastructures and depleting health and education facilities. Top business corporate leader, wants the present government to go for an immediate five-year suspension of "World Trade Organization's operations in particular, and in general the World Bank and the IMF precepts alien to the local genius of growth strategy".

"Unemployment of educated elite and revenues mismatch for public spending" are the two national issues. "These issues can be addressed only through an approach towards growth economy - investment - high tech value added investment, and dovetailing the international financial institutions' (IFI's) policies with local priorities."

The cursed free trade slogan, was not being practised by the developing world itself. The IFI policies and free trade slogan, have deprived the local investment of competitive advantage and have been acclaimed at the cost of political, economic and social sovereignty of the developing countries - Pakistan included.

The government's should take note of an average annual GDP growth of 4.9 per cent maintained in the country since 1951, which is attributed to "country's abundance of resources, high quality human resources and dynamic entrepreneurship".

The government should address the issues of unemployment of educated elite and revenues matching expected public spending among others to ensure "economic growth leading to our socio political sovereignty". Rising poverty, an outcome of undemocratic and poor governance, has emerged as a critical and central issue in the economic development of Pakistan. It is now recognized by the World Bank that sustainable economic growth not institution building is possible without closing the widening social gaps and reducing poverty. And what is no less significant that the poor need a representative government that is accountable to the electorate rather than a military ruler to exercise their sovereign right and in order to prosper.

A World Bank report on "Poverty in Pakistan, Vulnerabilities, Social Gaps and Rural Dynamics" has a valuable piece of advice for the dictators.

It says: "The key distinguishing feature of non-elected governments is the inability of the citizens to hold them accountable on a regular basis. This leaves such governments freer to pursue policies that were at odds with citizen interests which seems to have been the case of public governance in the 1980s."

The report also makes an indirect reference to the rotation of military and civilian rule and its implication for economy and poverty levels. It holds the view that "the character of electoral politics in Pakistan undermines the provisions of public services to the poor in the impermanence of elected governments. This shortens the horizon of the decision-makers and reduces the penalty to them of reneging on any electoral promise they do make."

"Notably, in other countries, where political parties are well developed and constitutional government has been observed over several electoral generations, the cost to political parties of reneging on policy promises are much higher. Hence policy promises of parties are much more important electorally, than they are in Pakistan and the role of the individual relationships in politics is much less."

The WB report covering the decade of 1990s indicates a grim picture of the growing social gaps. The poor and the rural inhabitants in Pakistan are being left behind. The social gaps and fissures are becoming more pronounced and have become a critical factor in impeding growth.

And it points out that "the emerging crisis surrounding debt is matched by the chronic and more silent crisis of social gap. If the country does not close its social gap, its long term ability to grow economically, alleviate poverty and sustain its debt will be fundamentally compromised, warn WB officials." This view is further strengthened by the observation of the WB president James D. Wolfensohn who says that, "empowering the poor people and the defranchised - the people at the fringes- and giving them a real stake in society is the key to building stronger institutions required for long term sustainable development." His advice is, "pick up signals about needs and problems, specially from the fringes and balance competing interests." Growth in productivity and incomes must be socially sustainable.

"Pakistan faces challenges and opportunities unprecedented in its history", says the report which is part of an ongoing project to understand poverty , growth and human development.

In a dialogue on the electronic media, economist Dr Shahida Wizarat said here last week that the country was facing a crisis of growth, a crisis of development and a political crisis linked to it.

Quantifying the cost of poor governance in Pakistan, The International Country Guide Risk, published by Political Risk Services, New York, shows that "if Pakistan had exhibited similar performance with respect with the rule of law , bureaucratic quality and corruption during the 1990s, per capita income would have been $300 higher."

Similarly, one set of the WB estimates looking at the effect of education on growth , controlling for other factors, finds ten percentage points increase in secondary school enrolment is associated with a 0.5 percentage point yearly per capita growth.

The WB says that neither debt reforms nor the mere availability of donor funds is likely to resolve problems of low growth, sluggish investment, building of infrastructure and adequate advances in social indicators. The country's current predicament is rooted in structural factors that are often linked to issues of governance.

Pakistan should work to spur economic growth that will mitigate the fiscal crisis. In the past, focus on fiscal policies that de-emphasized social spending were implemented with excess leakage and insufficient attention to efficiency and equity and eventually gave rise to both fiscal and social gaps.

Governance problems were main reason that deficit-funded investments in the 1980s failed to yield long term growth dividends. If these dividends have been realised, the debt incurred would now constitute a small fraction of the GDP.

Investment that provides employment is regarded as the engine of growth. In view of the uncertain governance environment, Pakistan has failed to reap substantial private investment from its significant liberalization efforts. Governance uncertainties have a negative impact on growth.

The key issue of closing the social gap and reducing poverty, according to the WB, is not that the fiscal objectives should be compromised. Rather, it is the weak government that is at the root of the problem. Reforms that reduce waste and leakage in all areas of fiscal policy, especially in development , and that deepen the rule of law have direct effects on the efficiency of spending. Thus fiscal constraints that exacerbates the social gap, are relaxed. Such reforms also increase growth, expanding the size of the pie available for debt reduction. Attention needs to be focused on governance reforms to promote growth. And to add to what the WB says, the strategy for realizing the full potential of growth has to be focused and driven by poverty alleviation programme.

The emerging market needs prosperous consumers with improved purchasing power to buy goods and services produced by domestic industry, suffering from low capacity utilization.

In textiles, the capacity utilisation is stagnant at 87 per cent in spindles and 45 per cent in rotors. The car industry is operating at 40 per cent of the installed capacity. The sugar industry's output is about 3.5 million tons against its ability to produce 5.5 million tons. Cement plants are operating at 60-70 per cent of their capacity. All major traditional industries are operating much below their full potential that needs an expanded domestic market, to be realized. In the current global and domestic environment, investments have been made to strengthen existing business. The trend needs to be reinforced.

The World Bank is also rightly focusing on the agenda for land reforms to broadbase prosperity in the rural areas, where two-third of the country's poor reside. It has identified "inequality in land ownership", and, the "crop sharing pattern" as factors responsible for "low farm yields" and high levels of poverty. Agriculture provides raw material and market for industries. It is the foundation of the national economy. Land reforms would raise farm productivity and incomes and reduce the level of poverty. The economic growth has to be domestic-driven.

HOSTILITIES TO REFORMS BEING IMPLEMENTED AT THE BEHEST OF IMF AND WORLD BANK:

One wonders whether public support is a function of suave explanations or whether it is a function of the outcomes which should be visible to the naked eye. We are a public that is getting increasingly restive with the passage of time as it is not just the past three years when these 'reforms' were introduced. The country took off in this direction around late-1980s which direction was maintained overall by both the PPP and PML governments as a compulsion of the beggars who could not be the choosers or so it was explained by the apologists in defense of a route that has been disputed strongly by many independent economists.

These opinion makers require no fresh explanation to be convinced or otherwise of the policy path we have been treading since late-1980s and more ardently since October 1999 with the induction of a private sector counterpart soul mate of the IFIs as our finance minister.

As for the general public, it is not the intricacies of the policies that interest them as much as the outcomes that they have been waiting for since the grey Ayubian decade of the 1960s when they were first promised the trickle which has not reached them ever since. Nor does the trickle appear to be anywhere nearer even after the turn of the century when it is unfortunately being promised again after considerable developments in development theory and practice in the last half century that turned the trickle-down model on the head.

Instead of discarding it into the dustbin of history, our finance minister keeps reviving this archaic concept much to our collective embarrassment. Against this irrational backdrop, is it at all possible to explain the rationale of current policy direction to a general public that has been bitten several times over and is, therefore, exceedingly shy? An exercise in winning the public over should, therefore, demonstrate a visible break from a past policy route and a faster response to their pent-up needs for whose satisfaction the current generation of the deprived is not willing to wait even half as long as their previous generation did.

There is a need for swift action and speedy delivery. We, therefore, need to determine if there are developments in the offing that would satisfy the basic requirements of the exceedingly bright but equally deprived and, therefore, an impetuous fire-brand upcoming poor generation.
We also need to figure out if there are any silver linings on our policy front that would engage the enormous talent amongst the poor youth that would otherwise be wasted due to our collective indifference, neglect, and selfishness.

Unless our policy direction is tested on the above touchstones, we will have no new rationale to give to either our general or special publics. On the contrary, we should be preparing for crisis management of a situation that is likely to explode sooner rather than later if it has not started exploding already. Discerning minds ought to see eruptions taking place already from a rumbling volcano on which we seem to be sitting tight and pretty oblivious of the reality which the privileged view only as "negativism," if presented in its stark form. Should our 'reform' effort then try to merely keep the sea of discontent contained?

Or, should a definite thrust be made in the direction of reversing the tide of discontent that might otherwise trivialize all effort made in the name of 'reform'? Given the state of affairs, it is in the latter direction that visionaries ought to be moving and fast.

This is no longer a wish horse that we beggars would like to ride. The World Bank has already recognized the need for meaningful land reforms as a sure way to take a jab at the root cause of poverty and deprivation in the country.

It is reportedly working on an agenda for land reforms in Pakistan to raise agricultural productivity, reduce rural poverty, and realize the full potential of economic growth.

The key issues of land ownership inequality, crop sharing pattern, and low farm yields have been recognized by the World Bank. During the 1990s, land concentration has increased in the hands of big farmers. This has implications not just for agricultural productivity, farm output growth, and poverty but also for the pattern of demand for industrial goods, industrial growth, and thereby overall economic growth of the country that the finance minister wishes to hit with a strategy that remains mostly unrealized due to the absence of underlying necessary conditions that should also be sufficient.

The naive reformers in the country have proposed corporate farming for Pakistan to address some of the above issues which too has been strongly disputed as it is akin to eating cakes if no bread is available. As already explained extensively before, corporate farming suits the conditions of development in the developed world and is by no means suited to our conditions of underdevelopment which require solutions specific to our needs. A cornerstone of our much sought-after-solution is meaningful land reforms which dire need appears to have been seen in the quarters of the World Bank. If the World Bank is able to throw it up visibly on the national reform agenda, it will indeed be a very welcome development.

Needless to add that a one-time land reform effort will not be like hitting a home run as relentless follow-up in the form of 'continued reform' will be required to achieve the goals of land reform as are being articulated already by the World Bank. While the World Bank's intended direction as above is welcome, one wonders if the timing is appropriate politically. For, it was in the past three years when the country experienced a relative freedom or so it appeared from the influence of interest groups from the big farming community in the policy arena. At that time, land reforms remained a deferred item as the policy elite claimed preoccupation with a host of battles on other fronts and preferred not to open this front in agriculture. On the contrary, they have come close to succumbing on the issue of corporate farming which will be a devastating route to follow, as cautioned before.

Although better late than never, the World Bank has kicked up the issue of land reforms around a time when big farmers or their scions have returned to the assembly halls and will soon make way also into the executive branches of the governments at the national and provincial levels. How the land reform proposal will flow past these barriers that are the negative spillover effects of Pakistan's democratic process will remain to be seen.

Suffice it to assume that it should flow as smoothly or as forcibly as the IMF-WB-mandated free market agenda has been moving for the past over a decade irrespective of the party in office or the type of government and regardless of public opinion. If "beggars have not been choosers" thus far, then will the right to choose be given now? If the right to choose has been denied all these years and will be given now, then it will be safe to conclude that the land reform effort, even at the behest of the World Bank, was half-baked and half-hearted. And, that the elite-elite alliance of the world is all too pervasive to allow a meaningful change in the lives of those on the peripheries of the third world.

That this has implications for the issue of terrorism occupying the centre-stage of the world should be seen by the IFIs before they give in to the persuasions of our landed gentry. Land reforms should then be pushed through as an integral component of the anti-terrorism strategy of the developed world.

The marginalization and displacement of the peasant and farm workers should be pre-empted through effective land reforms so as to also prevent their induction into informal armies in the name of religion which have been providing alternate forms of sustenance and livelihood, of late. Only then will we move towards a win-win situation required essentially to make the world a safe place for all its inhabitants, the importance of the resolution of the disputes in Palestine, Chechnya, and Kashmir notwithstanding.

It will be through the above route that a mutuality of interests will be struck between Pakistan's general public and the IFIs'. Otherwise, the sovereignty issue will remain valid and will be trumpeted by those political segments that do not have much to offer by way of feasible alternatives.

Sovereignty issue comes up whenever there is a divergence of interests. So, of those who raised the issue of sovereignty, there is a group of professionals that offers many alternatives, a part of which is now being heard from the World Bank in the form of land reforms. The politicians who raised the issue of sovereignty could find their way into the legislative halls although without popular alternatives that one might still like to hear from them as well. The sovereignty issue will be taken care of if consensus emerges on the direction of economic strategy that requires a radical turn.

While the World Bank may now attempt to push this new policy line, it will need to brace itself for formidable resistance from not just the powerful big farm lobbies but also from those policy elite who remain propped up in the policy corridors with the help of elite influence. It is this latter group that would much rather have a lot of breath and energy consumed in once again trying to explain the rationale behind a market reform process that has given more grief than bliss to the people of the country.

People do want to know how the problem of shortfalls in revenue generation and high fiscal deficits can be addressed meaningfully in an iniquitous taxation structure and a growth-averse environment which has backward and lateral linkages as briefly reviewed herein. While CBR does need a reform, is it possible to do so very effectively for an organization caught in a web of national and cultural influences? And, while micro-level reform is certainly the need of the hour, how meaningful might it be unless reform is also initiated in parallel at the macro economic level (as discussed here) with reform process flowing in all directions and then getting ironed out at the centre? These are not issues that can be compartmentalized as either issues in macroeconomics or development economics or organizational management or political economy. These issues cut across fields and disciplines and require inter-disciplinary approaches. Better still, according to Gunnar Myrdal who depicted the famous Asian Drama in 1968, there are no economic, political, social, anthropological, or psychological problems; they are just 'problems' which should be studied not in isolation but in their mutual relationships due to their inter-linkages and complexity. If this approach is taken, then there would be little need to privatize a turned around bank with all its negative spillovers of staff retrenchments and unemployment especially after the bank has been turned around.

There will also be little need to keep the utilities viable by jacking up the tariffs. May be there has been development on this front which is why IMF's planned focus is now on turning the utilities around instead of increasing the tariff indiscriminately. But if a bank or a utility can be turned around in the public sector, why can it not continue to function effectively in the public sector? It is good management that is needed both in the public as well as in the private sector. To put up a turned around organization for sale just because it is a part of a financing package betrays an absence of a rationale that no amount of explanation can make up for.

To say that it is a way of inducing investment and thereby output, growth, jobs, and poverty alleviation is that long-winded trickle-down route which is disputed strongly in development theory and refuted in practice. Notwithstanding the importance of investment, it is a departure from sole reliance on this outmoded route that we need to make in order to hit that home run for which the nation has been waiting for over half a century. That the World Bank has almost seen the need for a radical change to strike at the root cause through meaningful land reforms is a silver lining indeed.

So, it is not the general public that requires explanations of a path treaded in vain repeatedly before. Rather, it is the rationale behind the new light now beginning to emanate from the World Bank that needs to be explained to the domestic policy makers instead.

LAW-ENFORCEMENT AGENCIES/INTELLIGENCE AGENCIES, POLICE AND LAWLESSNESS:

The inherent attitudenal problem of the Law Enforcement Personnel, especially the police with whom the common man interfaces everyday, is one of the chief causes of deteriorating law and order scenario.

The total absence of accountability & sense of responsibility within the ranks of L.E. Personnel provide a cool shelter to the organized crime syndicates and ameteur youth. Often the area SHO/Intelligence Agencies/ Law Enforcement Agencies are found in league with the criminals they are supposed to nab. This is a point of no return and the present Police Order 2002 further empowers the tyrant (Police).

The political concept of civilian control over the Law Enforcement Agencies doesnot find any place in the present day Pakistan. LEAs/Police/Intelligence Agencies are law unto themselves, only they can check their own misdeeds. But unfortunately in any Third World country it would be naïve to expect an armed person to respect the Civilian Command. The equation results in lack of trust and total subservience of civil society, hence increased hatred and chaos.

The Judicial Inactivism and lack of capacity in Judiciary to act as a check over police multiplies the gravity of situation. Any respectable citizen, agrieved by Police and LEAs has no immediate remedy. He doesnot know where to go and what relief would he be entitled to. The State has virtually obliterated all the instant remedial channels against police excesses. The only choice now available to a citizen is to keep silent and bear whatever he is made to go through. Needless to mention the articles safeguarding Civil Liberties in the Constitution of Islamic Republic of Pakistan.

The Political Expediencies of the incumbent governments are also equally responsible for undermining the respect and honour of the subjects of the state. It is a comon place observation that Police/LEA used for Political Agendas. When such a latitude is given to a person holding a gun, it is foolish to expect fair performance from him.

Liveable wages for state functionaries, modest accommodation, self-respect sense of honour and dignity are the fundamentals to be provided to all if we hope to achieve a semblance of Order and Rule of Law.

Future Actions Needed which will ultimately make some difference :

1. Redistribute available arable state land with access to water, credit and roads, to landless peasants.

2. Carry out land reforms and provide disincentives and incentives for effective implementation; (e.g., strict non-availability of credit to large landowners who have not repaid previous loans; no credit for tractors and harvesters purchase)

3. Encourage gainful employment of rural people by providing a cash incentive (such as partial interest refund on bank-credit) for those who pursue labour-intensive cultivation.

4. Levy a progressive agricultural income tax on all landowners of holdings above subsistence acreage, care being taken to keep taxes on smallholders low and affordable. For example tie tax rates to size of acreage farmed, and substantially increase the rate for those using tractors.

5. Create employment for the rural skilled and unskilled, through projects of needed physical infrastructure (e.g. farm-to market roads, storage silos, wholesale market facilities.

6. Provide credit and incentives for peasants/smallholders growing food other than wheat and sugarcane (vegetables/fruit for at least one season) and cash crops strictly for the domestic market.

7. Provide greater credit and incentives for those who exclusively grow food crops.

8. Make credit available for other agro-based entrepreneurships.

9. Make personal credit available to eliminate the ills and steep charges of non-formal moneylenders (up to 120% annually) that entrap men and women in perpetual debt in rural and urban areas.

10. Help combat water-logging, salinity and soil deterioration by avoiding the causes, namely use of High-Yield Variety seeds that require huge quantities of water; and the use of chemical fertilisers, pesticides, herbicides and weedicides, that destroy vital organisms and nutrients in the soil that are essential to soil health.

11. Remove (a) heavy subsidies to big farmers that virtually amount to free credit and are a disincentive for diversification in commodity agriculture towards value-added goods, b) Institute proportionate cash rewards/incentives to revenue and irrigation officials by performance as measured by criteria requiring the receipt of water entitlements by all farmholdings (including the smallest) falling under their jurisdiction.

12. Adopt a new concept in multi-purpose education/training/ extension services in the form of primary agricultural schools/centres with a rural/agricultural based curricula that includes organic farming, livestock management, soil and water management, and nutritional and self- healthcare knowledge.

13. These would double (by shifts) as children's schools and adult training centres.

14. building/s should be low-cost and of indigenous materials and built by local contractors using local labour.

15. A minimum of 50% of the trainees/pupils/ beneficiaries must compulsorily be women and girls.

16. They must compulsorily be located in the village-centre and not on any feudal/private landholding.

17. Ensure 50% allocation for female headed households in all public and private sector land and housing programmes.

18. Take into account the special needs of women with disabilities in the aforementioned macro- and micro-level agricultural policy and programme measures.

Other poverty reduction measures (N.B: recognizing that these are only temporary stop-gap measures and not a substitute for socio-economic development programmes).

1. Take affirmative action to accord priority to low-income members of the society in disbursement of funds and provision of social services, e.g., Zakat and Bait-ul-Maal funds,

2. Promulgate labour laws and rights to cover the majority of Pakistani labour, i.e., low-paid contract and informal home-based workers, or non-unionized industrial workers, who are denied minimum wages and facilities under sub-contract mechanisms arranged by large and medium industrial concerns, including multinationals, to circumvent the law.

3. Reduce or alleviate the triple burden of women’s work: reproductive, domestic (unremunerated) and productive (remunerated), through sharing and reducing child-care responsibilities and household work, including water, fuel, fodder, food preparation, preservation and storage, livestock and traditional craft-work.

4. Provide support to urban working women, especially factory workers, in the form of facilities e.g. child-care, transport, hostels, trade unions, relaxation of age of entry/re-entry into the labour market.

5. Recognize and address the special needs of female-headed households, including the right to formal record, title deeds of land ownership, credit, education, vocational skills training and affirmative action in employment. Also, extending these rights to women in traditional male-headed households.

6. Address other dimensions of poverty, including bonded labour . Establish public-private-NGO partnerships to enlarge, expand and replicate some of the successful NGO initiatives and pilot programmes over the past 5-10 years.

7. People with Disabilities:

8. Ensure that all poverty alleviation programmes specifically address the needs of people with disabilities;

9. Devise alternative employment that requires skills that can be adapted in line with the limitations and special needs of peopel with disabilities;

10. Make available skills training to all disabled people;

11. Provide credit to those with disabilities on softer terms.

AUDITOR GENERAL REPORT

ISLAMABAD: The State Bank of Pakistan has suffered a massive loss of over Rs6.2 billion ($109 million) in the murky sale and purchase of dollars from the kerb market, the Auditor General of Pakistan has found during routine checks of State Bank accounts. According to some estimates almost $10 billion have so far been purchased by the financial wizards of the Musharraf government to boost foreign exchange reserves in the last 4 years. The total reserves stand at $12 billion.

This financial irregularity has been brought to the notice of General Pervez Musharraf by the Auditor General of Pakistan who recently came to know about this financial mess. But his findings have simply been dumped and the presidency is sitting uneasy over the case, hoping that the scandal would not explode in the media. Ironically the policy to buy dollars from the open market was introduced by the Nawaz government after Pakistan went nuclear in May 1998 which brought all kinds of sanctions from all corners of the world.

Musharraf continued with this policy but the scale was multiplied manifold and large scale irregularities were committed but ignored by the financial managers. The scandal involves buying dollars from money changers and middlemen at rates much higher than the prevailing open market rates.

“No one knows who was the supplier of these billions of dollars, who negotiated the deals, how prices were determined, who benefited from the extra amounts paid to the dealers and whether any attempt was made by the State Bank to regulate the massive purchases at the best available rates which could have saved millions of dollars,” a financial expert in Karachi told the South Asia Tribune. The expert said the massive loss to SBP occurred because of big financial transaction of dollars through inter bank channels in a bid to temporarily inflate the figures of foreign reserves.

State Bank is said to have paid between Rs 2-3 per dollar over and above the prevailing inter bank rates. According to one expert almost $5.2 billion was purchased from the open market moneychangers and the rest through the inter bank market, between July 1999 and June 2002. Governor of the State Bank, Dr Ishrat Hussain, is on record having said that these purchases helped Pakistan avoid new short-term commercial loans, and saved $400 million per annum in the shape of future debt servicing liability."

The post 9/11 situation provided a new window of opportunity for Pakistan. A surge in remittances through the banking channels started as US started scrutiny of money transfers, especially to determine whether dollars were flowing to terrorist organizations. This flow through the banking channels strengthened the rupee against the dollar and the rate dropped from over Rs64 to a dollar to Rs 59.53 by July 17, 2002.

The SBP management was of the view that as a result of growing inflows, and relatively subdued import volumes, Central Bank had to intervene in the inter bank market more aggressively to stabilize rupee-dollar parity at around Rs60 to a dollar to cushion exports from Pakistan against undue competition. Dr. Hussain was also reported as saying that reserves were used as a tool of exchange rate and monetary policy management. The SBP used inter bank market to affect monetary policy by either supplying domestic currency to the market or buying it against foreign currencies.

Defending this policy of dollar purchases to build up reserves, SBP had maintained the position that for ex level serves as a major confidence factor in the perceived risk assessments of a country. The costs of debt become much higher when the lenders know that country had no option except raising new loans to meet its obligations. Since nuclear tests of May 1998, and resultant sanctions, external capital flows also turned negative: minus $380 million in 1999-00 and minus $738 million in 2000-01, which was not tenable for a developing country with a large debt burden.

Despite this difficult situation, according to the State Bank, the country paid $3.76 billion in 1999-2000, $5.1 billion in 2000-01, and $6 billion in 20001-02 in servicing the external debt. Had there been no purchases, threat of default or much higher debt levels were quite imminent, SBP maintained defending its positions on dollar purchases from the open market.However the questions about the procedures of these purchases, what criteria were applied, who were the suppliers and who were the middlemen have not been addressed.

According to a NAB source, if just two extra rupees were paid for each dollar to favorites, the total purchase of $5 billion would mean an whopping Rs 10 billion going out to unknown middlemen and agents of the big and the powerful, including many serving and retired generals.
“This bonanza would be hard to resist and the State Bank authorities are acting dumb and deaf about these issues because revealing the details could mean exposing many big names in the current government set up,” an analyst said. It is however Prime Minister Jamali’s responsibility to clear these issues as his government would be blamed in future when these scandals are probed by future NAB authorities. Experts say if action was not taken now, Mr. Jamali would be seen as an accomplice. Yet the Auditor General of Pakistan has already officially set the ball rolling by sending a report to the Presidency. The stone walling at the Presidency is keeping the lid tightly closed on the massive scandal. Once names start appearing about the currency dealers and their powerful backers, the Musharraf Government will have to answer many questions, especially about alleged corruption at the higher levels.

Five audit reports of Pakistan Army containing details of "financial and administrative irregularities to tune of Rs 40 billion" in defence budget in 2001-2002, were tabled in National Assembly here Monday. The Auditor General of Pakistan in his five reports has identified many "common lapses and negligence" on the part of Army, such as "prevalent practice of violation of rules, procedures, regulations, weak internal financial control over spending." According to the AGP, these irregularities cover only the accounts of defence services, controllers military accounts, special audit report of GE (Army services), special audit of DW&CE (Air and DW&CE(Army) and cantonment boards. Many other audit reports of the federal ministries were also tabled in the House but their financial impact is less than that of the audit ontaining the details of irregularities in the military. Over three dozen overnment owned public enterprises were found involved in irregular spending of Rs 17 billion during the year 2001-2002.

According to the AGP, the audit report on the accounts of defence services has topped the list of irregularities as over Rs 29 billion were found misused, Rs 27 billion, recoverable, violation of rules, Rs 761 million, mismanagement, Rs 165 million, violation of propriety Rs 8.5 million, recoverable Rs 213 million, overpayments Rs 5.9 million, irregular expenditures Rs 43 million, unauthorized expenditure Rs 10.2 million, extra and avoidable expenditure Rs 2.6milloiin and others Rs 1.2million.

The special audit report on GE army services Rawalpindi covers irregularities. Mismanagement Rs 790 million, misuse Rs 2.9milion, recoverable Rs 109million, violation of rules Rs 32million and others Rs 40milloin. The audit report on the accounts of controller of military accounts covers the irregularities of Rs 6 billion on account of irregular expenditure, mismanagement Rs 56 million and unauthorised payments Rs 228 million.

The audit report on accounts of defence services (DP division) covers the irregularities of Rs 858 million, recoverable Rs 18million, negligence Rs 2.3 million, unauthorised/irregular expenditure Rs 1.4 million, violation of rules, Rs 217million and others Rs 72million. Special audit report on the projects of DW&CE (air) DW and CE (Army) covers irregularities of Rs 132 million, violation of rules Rs 16.358 million, overpayments Rs1.4 million, recoverable Rs 4.8 million, others Rs 4.4 million. Special audit report on the accounts of cantonment board covers the irregularities of Rs1.9 billion on account of mismanagement, recoverable Rs1.6 billion, violation of rules Rs34milloin and others Rs 7.7 million.

CONCLUSION:

If the situation is not handled pragmatically this could trigger of a new great game of what others would say BALKANIZATION of the country as predicted by famous scholar Robert D Kaplan in his research articles published in The Atlantic undercaptioned The Lawless Frontier and The Coming Anarchy, to quote in his own words:

“QUOTE”

“The feebler the state becomes, the more that nuclear weapons are needed to prove otherwise. At major intersections in the main cities of Pakistan are fiberglass monuments to a rock that was severed in 1998 by underground nuclear tests in the Baluchistan desert – celebrating the achievement of nuclear power. Do not expect Pakistan to pass quietly from history. Pakistan's problem is more basic still: like much of Africa, the country makes no geographic or demographic sense. It was founded as a homeland for the Muslims of the subcontinent, yet there are more subcontinental Muslims outside Pakistan than within it. Like Yugoslavia, Pakistan is a patchwork of ethnic groups, increasingly in violent conflict with one another. While the Western media gushed over the fact that the country has a woman Prime Minister, Benazir Bhutto, Karachi is becoming a subcontinental version of Lagos. In eight visits to Pakistan, I have never gotten a sense of a cohesive national identity. With as much as 65 percent of its land dependent on intensive irrigation, with wide-scale deforestation, and with a yearly population growth of 2.7 percent (which ensures that the amount of cultivated land per rural inhabitant will plummet), Pakistan is becoming a more and more desperate place. As irrigation in the Indus River basin intensifies to serve two growing populations, Muslim-Hindu strife over falling water tables may be unavoidable”.

“UN-QUOTE”

References:

1- WORLD BANK

http://www.worldbank.org/pakistancas

http://lnweb18.worldbank.org/sar/sa.nsf/083c4661ad49652f852567d7005d85b8/926d45008ea758fc85256bf1007762a9?OpenDocument

2- Truth about Ayub's golden era

http://www.dawn.com/2002/08/26/ebr6.htm

3- The Observer, London October 10, 2001The globalizer who came in from the cold Joe Stiglitz: Today's winner of the nobel prize in Economics by Greg Palast

http://www.zmag.org/noblestiglitz.htm

4- States of unrest: Resistance to IMF policies in poor countries

http://www.wdm.org.uk/cambriefs/DEBT/unrest.htm

5- What do Pishtakhara, Okara and Sri Saral have in common? By Aileen Qaiser

http://www.dawn.com/2002/09/24/fea.htm#1

6- Protesters Pledge to Shut Down D.C.

http://story.news.yahoo.com/news?tmpl=story&u=/ap/20020926/ap_on_bi_ge/capital_protests_4

7- The truth about lost decade and high forex reserves suggest something else

http://www.dawn.com/2002/08/12/ebr1.htm

8- Truth about Zia's 'status quo' era By Special Correspondent

http://www.dawn.com/2002/09/02/ebr7.htm

3- Challenges for new leaders By Sultan Ahmed

http://www.dawn.com/2002/11/14/op.htm#2

4- Of growth and management of exchange reserves By Abu Saeed A. Islahi

http://www.dawn.com/2002/11/18/ebr2.htm

5- Poverty: a critical issue in economic development By Jawaid Bokhari

http://www.dawn.com/2002/11/18/ebr1.htm

6- Search on for next PM's PS

http://www.dawn.com/2002/11/18/fea.htm#1

7- Hostility to IMF, World Bank reforms By Dr. Mahnaz Fatima

http://www.dawn.com/2002/11/25/ebr2.htm

8- Discrepancies in the SBP's annual reportBy A.M. Talha

http://www.dawn.com/2002/12/02/ebr8.htm

9- The poor need a new deal By Abu Saeed A. Islahi

http://www.dawn.com/2002/12/09/ebr1.htm

10- MUSHARRAF SITTING ON MULTI-BILLION DOLLAR SCANDAL

http://www.satribune.com/archives/mar28_apr3_04/P1_dollars.htm