Dr. Shahida Wizarat
Dean CESD, IOBM & President Independent Economists and Policy Practitioners
It seems strange that in spite of having a well trained and equipped armed forces, in possession of state of the art nuclear technology, population of 22 crore people, the fear of physical and ideological threats to Pakistan are more severe today than any time in the past. With well educated, patriotic and honest Pakistanis having been marginalized, the country has been taken over by aliens and foreigners, who are formulating our national security, finance, economic and strategic policies, with massive transfers of our wealth and assets taking place specially since the unleashing of neoliberalism in Pakistan, and intensified in the last three years. The aliens that have been let loose on Pakistan are playing havoc with our national security and finances, taking us towards economic meltdown.
While from the sidelines we continue to worry about the possible threats to the country’s territorial integrity as a result of using our airports, motorways and hotels as collateral in case of default, handing over the State Bank of Pakistan to the IMF/India/USA, with ramifications on Pakistan’s strategic interests, leaving the Kashmiris in the lurch and settling the Jammu, Kashmir and Ladakh conflict on Indian terms. All these severe threats are staring in the face of all those who care about what happens to Pakistan, while Pakistani officials sitting on important positions, leading princely lifestyles at our expense are callously pushing Pakistan into a quagmire, least bothered about the consequences of their policies.
Pakistan started borrowing heavily from the IMF in the 1990s. As a result, structural adjustment and stabilization policies were formulated and imposed. During the last thirty years these policies have failed miserably in Pakistan, like they have in other countries that borrow from the International Financial Institutions (IFIs). The failed technocrats are trying to impose failed prescriptions, which instead of resolving our crises are pitting us deeper into the quagmire. According to Einstein “insanity is doing the same thing over and over and expecting different results.” Isn’t it obvious to them, like it is to us that these policies are not yielding the desired results? Country after country is failing as a result of being on the IMF program, but no alarm bells are ringing. Are the International Financial Institutions and the army of PhDs working for them insane as per Einstein’s definition of insanity, as they have continued to make them work in developing countries for the last almost 75 years without success. At the outset the economists working for the IFIs appear to be insane. But deeper introspection convinces me that they couldn’t be insane. How can insanity afflict all these academics simultaneously? Insanity would then appear to be a highly infectious disease which afflicts an academic working for the IFIs. And simultaneously afflicting the management running the IFIs, and some academics working in the developing countries where they bring havoc. While some of us realize that neoliberal policies are worsening the economic situation, and are therefore not insane.
If the economic managers are not insane why are they imposing the ‘one size fits all’ policies, in spite of the havoc they are causing in developing countries? It seems to me that those who are formulating these policies are not trying to achieve the stated results. Take the case of Pakistan. The stated objectives of the policies formulated for Pakistan are not what is stated openly, but the desired results the economic managers are trying to achieve are hidden from us. That is, the policy is formulated for Pakistan, but its desired result is to be achieved elsewhere. Let us first examine the policies the WB-IMF formulate for Pakistan and their impact on Pakistan and countries which control voting shares in the WB-IMF.
The standard IMF policy prescription for Pakistan and countries faced with balance of payment crisis is to devalue the currency, which through reduction in export prices is expected to expand the demand for exports. By making imports more expensive the demand for imports is expected to be reduced. But because of low elasticity of demand and supply of our exports and imports, the expansion in exports and the reduction in imports does not always come about. Therefore, the trade deficit does not always decline. Moreover, imports become more expensive, which on account of being capital goods and industrial raw material increases the cost of production, rendering industry non-viable. This has resulted in closure of industries and deindustrialization in Pakistan in the 1990s and at present.
Let us now examine how devaluation and its adverse impact affects countries controlling voting shares in the WB and the IMF. Devaluation makes not only Pakistan’s exports cheap, but also those of other countries exporting the same products. So the net beneficiaries are consumers in the countries controlling voting shares in the WB and the IMF. They get these exports from Pakistan and other countries exporting the same products at low prices.
Devaluation also lowers the parity of the Pakistani Rupee (and other developing countries’ currencies) causing increase in debt payments. By pushing us deeper into debt these policies are making Pakistan (and other developing countries) poorer and more vulnerable. In addition, it increases the real income of
Pakistani technocrats working for the WB-IMF and drawing their salaries and pensions from them.
Devaluation by increasing the price of imports unleashes inflation, which the IMF tries to curtail through monetary tightening, resulting in decline in investment, output and employment. Since increase in prices is on account of increase in price of oil, industrial raw material and capital goods due to devaluation, inflation in not due to demand pull factors, but is a cost push phenomenon. But IMF has been trying to fight cost push inflation through applying demand pull strategy since the 1990s, i.e. through increasing the lending rate. I have been raising my objections to this since the 1990s, pointing out that this has resulted in worsening inflation as high interest rates increase the cost of production and prices. This results in further decline in output, employment and business profits worsening the recession. In the 1990s it resulted in closure of 5000 industrial units rendering 20 lakh workers unemployed, increasing poverty level to 50% of the population, whereas in rural Sindh it was 85% according to the Asian Development Bank.
But increase in policy rates are beneficial to citizens of countries that control voting shares in the WB-IMF. The policy rates in these countries are very low or zero, high rates enable them to earn lucrative rates overseas. But developing countries do not benefit from these capital inflows as they are short term in nature, more like “fair weather birds” who visit only when the weather is good but leave when the weather becomes harsh. Therefore, they cannot be used for financing long term economic development needs in developing countries.
Moreover, the adverse impact of devaluation on industry in the form of deindustrialization in developing countries has a positive effect on developed countries, particularly in view of their perception that industrialization in the developing countries is causing deindustrialization in the developed countries.
Independent Power Producers (IPPs)
The World Bank played a very important role in bringing the IPPs to Pakistan. Very lucrative rates of return were assured to them, and the contracts ensured their interest at the expense of the host country Pakistan. GOP was made to undertake purchase of the power generated by them even if it was in excess to our needs. At a stake holders conference in Karachi at NIPA (now National Management Institute) I asked the World Bank why forces of demand and supply for power was not being allowed to determine the power rate since the IFIs believe in free market and are against interventions. But the GOP, IFIs and the IPPs went ahead with the IPPs, ensuring fat returns to them and protecting their interests. The Policy has resulted in production of very expensive electricity which has made Pakistani industry non-viable and increased circular debt.
GENETICALLY MODIFIED ORGANISMS (GMOS)
Hazards of GM farming have been discussed in my earlier studies. They reduce nutrient content in foods and increase allergic reactions. They have been found to increase cancer and cause Horizontal Gene Transfer between modified organisms and human bacteria. Moreover, they have raised social and ethical concerns about restricting access to genetic resources and new technologies, loss of traditions e.g. saving seeds, private-sector monopoly and loss of income of small and poor farmers. Problems related with pest resistance, contamination of non-GMO crops due to cross pollination and potential toxicity of GMOs have been pointed out by the FAO. During the last few years there has been a sharp increase in cancer in Pakistan, at the same time when the consumption of GM food products increased in Pakistan.
On account of these adverse impacts, many countries such as Russia, Japan, Australia and several EU and African countries have banned consumption of GM seeds and crops. If they are harmful for human health and the environment in the developed countries, these are equally unfit for human consumption in Pakistan. But all the Pakistani politicians unanimously voted to amend the Seed Act in the National Assembly in March 2015 and in the Senate in June 2015. The PMLN Punjab Government even made attempts to arrange for $70 mn from the World Bank to purchase GM seeds from Monsanto at a time when the country’s external indebtedness had exceeded $74 bn. Successive Pakistani governments from Musharaff, PPP, PMLN and PTI onwards have promoted GM technology trying to increase the sales and profits of western chemical companies, at the expense of the health and environment of the Pakistani population.
Balochistan, Khyber Pukhtoonkhwa (KPK), Kashmir and Northern Areas are resource abundant regions of Pakistan. We have abundant energy, fuel and mineral resources, but these have not been exploited due to poor management, corruption and vested interest. We have enormous renewable and nonrenewable energy resources, which are more than that of the oil rich Gulf countries. We have the second largest salt mines, fifth largest copper and gold reserves. We have more than 436.2 million barrels of oil and 31.3 trillion cubic feet of proven gas reserves. Our current oil production is 65,997 barrels per day, while gas production is 4 billion cubic feet per day. We have the world’s second largest coal deposits of 185 billion tons, equivalent to 618 billion barrels of crude oil.
Natural resources, conflict and growth literature reveals that countries that export resources in raw form suffer from the resource curse. While countries that convert the natural resources into manufactured goods provide employment, generating incomes, leading to growth of output and productivity. In Pakistan successive governments have doled out our resources for free or for peanuts and in raw form and have experienced great personal prosperity, while the people of Pakistan and smaller provinces have become poorer living “nasty, and brutish” lives.
Very fine quality clay in Nagar Parker is alleged to have been given to a country at zero royalty for 100 years. A western company selling drinking water has been provided free water to the tune of 43.4 bn liters over the last few years and land leased free of cost in Karachi. We are exporting our gold, copper, precious stones, rock salt, rare earths, apricot kernels, indigo plants, etc, in raw form at nominal rates. Countries which do not have these resources, import them from Pakistan and establish industries converting our natural resources into finished products, creating wealth for themselves, while we are selling them for peanuts and suffer from the ‘resource curse.’
We are signing lease agreements instead of inviting open bids through international tenders for prospecting, exploration and mining of precious metals in smaller provinces, unlike the procedure adopted for iron ore mine in Rajoah, Chiniot district by the Punjab Mineral Corporation. The Punjab Mineral Corporation is mine designing and processing the pure metal, which is the property of the Punjab Government.
And while I am writing this article a deal is being finalized between the PTI government and Tethyan Copper Co. It is stated that the Prime Minister is trying to save the $5.9 billion penalty imposed by ICSID on Pakistan. But the true worth of the project is $ 1 trillion which is being awarded to TCC for $260 billion to save $5.9 billion penalty! This arbitration by ICSID is illegal and unlawful as pointed out by Professor Jeffrey Sachs, and should therefore be challenged by the GOP, rather than succumbing to their blackmail.
Moreover, our air and land routes were used for free or nominal rates by NATO for the Afghan War, whose combined expenditure with the Iraq war during 2001 to 2008 according to Stiglitz and Bilmes was to the tune of $ 3 trillion. Even such wealthy nations are using our strategic assets and routes for free. The foregoing shows that Pakistan’s natural resources and mineral policy is formulated for the benefit of rich countries and their companies, making them prosperous, while people where these resources are found and Pakistan suffer from the resource curse and continue to live in abject poverty.
SBP SUBORDINATION TO IMF
The proposed Act is not about the autonomy of the SBP, but about subordination of the Government of Pakistan to the SBP and the IMF. Pakistan will be maintaining this white elephant, which will not pursue any objectives which promote the wellbeing and prosperity of the country. It’s only interest will be to ensure servicing of debts, especially foreign debts. The Act will result in the collapse of the financial sector of Pakistan which will create a void in meeting the industrial, defense, strategic, CPEC and regional integration financial needs of the country. US will be able to use the SBP to further its political agendas related with Balochistan, Kashmir and KP.
Government of Pakistan is being forbidden from borrowing from the SBP stating financial discipline as the reason, but observe the plundering of public money by those with links to the IMF, employees of Federal Reserve or foreign nationals. The top management positions ie positions of Executive Directors and Directors have increased many fold over the last twenty years, i.e. ED from 4 to 18 and Directors 14 to 30, with salary more than 3 million per month. Directors are getting salaries around 2 million or more along with medical facility, club membership and other benefits. Annual salary raises are as high as 300,000 to 400,000. Moreover, plundering of public money is being further done through declining Leave Preparatory to Retirement and paying double salary for the last six months for no service to the Bank.
While the proposed amendments in the SBP Act will have very grave consequences on Pakistan’s economic, financial, strategic, political and social well-being, the major beneficiary will be US, UK, India and Israel.
NATIONAL SECURITY POLICY (NSP)
NSP states that geo-economics will dominate geo-strategic. Actually there is no trade off between them. They go hand in hand, with each reinforcing the other. But what is the policy all about? The policy is pushing Pakistan to let go its strategic goals and objectives like Kashmir and Afghanistan, to sacrifice its strategic interests for economic interests. The NSP is about US and Indian strategic interests to dominate the region.
What will be the political fallout of this policy? First, it is cutting Pakistan to size. It implies that Singapore with a population of 5.686 million and Israel with a population of 9.217 million will be countries with strategic goals and objectives, while Pakistan with a population of 22 crore, state of the art nuclear technology and finest armed forces and intelligence agencies will not have strategic goals and objectives. It means that Pakistan will not have any global strategic vision for 2050. Second, it is an attempt to break the strategic relationship between Pakistan and China, a relationship that has brought strength to both the countries. Through rolling back CPEC, it will frustrate our efforts to give development to Pakistan. For the past 75 years we have looked towards the west and IFIs to give us development, but all we got was increase in debts, recessions, increase in poverty, social strife and installation of Economic Hitmen on important positions. Third, certain portions of NSP have been kept confidential and no war with India for next 100 years appears to be one of them. This will ensure that the border with India will become peaceful to relieve Indian forces to join QUAD and take on China. We are making the same mistake that we made in 1962 of not settling the Jammu and Kashmir Issue with India when India was at war with China.
In my previous articles I have suggested that Pakistan and China should join hands to resolve our conflicts with India. NSP is proposing an exact anti thesis of that. Fourth, Kashmir cause is being dumped for good, and moves to combine Azad J&K with Occupied J&K will pave the way for an Independent Kashmir. After amending the UN resolution to add the option of an independent Kashmir, controlled by India and the US and used for conducting surveillance on China and Russia. Fifth, downgrading relations with China will also jeopardize Pakistan’s defenses. Moreover, our isolations spells disaster for the country, as western powers isolate the victim first before taking punitive action against it, as we saw in the case of Afghanistan, Iraq, Libya, etc.
With regard to Afghanistan, this will be the second time we will abandon Afghanistan under US pressure. Earlier we did it in 2001 after 9/11. How will Afghanistan trust us again? How will China and Russia trust us? How will anyone trust a country that cultivates strategic relationships with countries only to drop them like hot potatoes? Government of Pakistan has neither recognized the Taliban government nor provided any financial help to Afghanistan. NSP is nudging Pakistan to adopt an Afghan Policy which instead of promoting Pakistan’s interest, promotes US, U.K. and Indian interest in Afghanistan and the region. This is corroborated by the Prime Minister’s tweet to invoke Responsibility to Protect (R2P) for Afghanistan. This clause is invoked for getting international help for countries faced with a humanitarian crisis, where governments have been responsible for the crises. Prime Minister’s request to invoke R2P for Afghanistan appears an attempt to blame the Taliban government for the crisis in Afghanistan, whereas in fact it was caused by the US withholding $9 billion of Afghan assets. But more worrying than this, is my apprehension that the Prime Minister in view of his growing warmth with Bill Gates and Cargill is trying to get the international community to supply Genetically Modified (GM) food to the Afghan population, which are banned in 64 countries due to their toxic effects. Western consumers are getting their organic foods grown in Pakistan and other developing countries. It will be very cruel to expose the vulnerable Afghan population to serious diseases after facing war for almost 40 years.
The installation of a ‘Made in US-UK’ Government of Pakistan and providing it funds as revealed by the Foreign Funding case, currently being heard by the Election Commission, makes it likely that Pakistan’s strategic interests are being sacrificed to accommodate US-UK and Indian interests. Perhaps that explains why the Government of Pakistan is withholding recognition of the Islamic Emirate of Afghanistan. But why the Peoples Republic of China and the Russian Federation, both sovereign countries are withholding recognition of the Taliban Government? Aren’t we facilitating the return of US, UK, India to Afghanistan?
US-U.K. agenda of taking the world to the colonial world order of yester years started in full swing post 9/11. Country after country’s established order was dismantled. The queue had Afghanistan, Iraq, Libya, Syria, Sudan, etc. Pakistan is now standing on top of the queue, with a Government composed of US and U.K. nationals fully supported by their agencies and pursuing the economic, political and strategic interests of countries that control voting shares in the World Bank and the IMF. Previous governments also contributed to this as the foregoing analysis showed. Pakistan would have been a difficult country to demolish in view of its nuclear status. But it is also an easy country to demolish as it is a Predatory state, where almost every holder of public office is a predator. There doesn’t seem to be any resistance from any quarters to the demolition of the state, as recent amendment to the State Bank’s Act in the National Assembly showed. Apart from individuals resisting it, state institutions were conspicuous by their absence. The lust and greed of a few hundred predators are playing havoc with the lives of 22 crore people!
Those occupying high public offices in Pakistan are appointed by U.S. and U.K., with Pakistan paying their salaries and perks. These public officials take their salaries and perks for granted. But if they want appointments or extensions in their service, they have to deliver. Why would they or anybody pursue Pakistan’s interests when their appointments and extensions depend on promoting the interests of powers that appointed them?