After much dogged resistance, the “dream team” at the finance ministry — comprising Mr V A Jaffery, Mr Qazi Aleemullah, et al — has been to ordered to take a back seat by prime minister Benazir Bhutto. Mr Jaffery, it is said, toyed with the idea of calling it a day but was quickly persuaded to change his mind. Qazi Sahib, of course, never thought of any such thing, so we will have to wait for the day when he is given his marching orders by someone less prone to vile flattery than Ms Bhutto.
The new “darlings” are Mr Mohammad Yakub, governor of the state bank, and Mr Shahid Hasan Khan, the PM’s special assistant for economic affairs. Can these two gentlemen succeed where their predecessors have failed so miserably?
There are many reasons for Ms Bhutto’s failure to manage the economy properly. But one merits special mention. Ms Bhutto is genuinely clueless about economics and finance. Yet she has insisted on retaining the finance ministry in her own hands by refusing to appoint an honest, competent and full-fledged finance minister who knows his job. There is only one explanation for this — Ms Bhutto has wanted to exploit the vast resources of the finance ministry for personal and party political goals. That is why her husband, Mr Asif Zardari, has kept the levers of financial power firmly in his hands and has blithely appointed cronies to head the various development finance institutions and public sector banks.
Mr Jaffery fitted nicely into this scheme of things because he is a mild-mannered person not given to creating hurdles in the path of Ms Bhutto and Mr Zardari. As for Qazi Sahib, he is a master sycophant who has achieved the dubious distinction of digging the graves of two gullible prime ministers in a row. Under the circumstances, what can Mr Yakub and Mr Khan, who have both been at the receiving end of Ms Bhutto’s stick for the better part of last year, hope to achieve?
Fortunately for both gentlemen, however, all may not yet be lost. They have come in at a time when Ms Bhutto is herself at the receiving end of the stick from various quarters and the venom has been taken out of her sting. She has no choice but to hunker down, swallow her pride and listen to good advice for a change. What sort of a new mini-budget have the new “darlings” given us?
Another devaluation (of 8 per cent) has been announced. This should, finally, bridge the wide gap between the official and kerb rate of the dollar, restore a sense of realism to the exchange rate and put an end to speculative currency trading which has fueled economic instability. It will help exporters meet their targets. And it may even give the government a justification to reduce tariffs without hurting infant industry or lowering revenues from import duties (because most imports are relatively inelastic).
The rest of the package, worth some Rs 40 billion, is as sensible as it could hope to be under the circumstances. There is a cut in expenditures of about Rs 27 billion, with most of it coming from the development budget and only Rs 4 billion from current expenses. New taxes amount to about Rs 13 billion, with agricultural tax amounting to Rs 2 billion and the rest coming from various sources like passport fees, withholding tax, excise duty, foreign travel, etc. Gas rates are also up by 10%. The alternative package, proposed by the “dream team”, would have levied at least Rs 20 billion in new taxes.
The new measures will, of course, be criticised by some elements. In particular, some people will rush to the conclusion that the development budget should not have been cut by 20% because the cuts will adversely affect on-going public welfare projects. But this is misplaced thinking: the development budget is, and has always been, inflated for political purposes. Consequently, it has leaked like a sieve. One estimate suggests that if there were tight and transparent methods of dispensing funds from this source, this budget could be cut by at least 30% without affecting the viability of any project. At any rate, the new cuts apply to non-core areas of the budget and should not create any problems.
The other point of contention is the small amount levied in agricultural tax. This is a more substantial objection. At least Rs 5 billion could have been raised from this source by applying a tax equivalent to Rs 100 per acre per year. But it is a start and we should be thankful for small mercies.
The more fundamental question, however, remains: why is Ms Bhutto loathe to take proper decisions at the right time? Why is she always leaping without looking? Ms Bhutto is afflicted with an incurable disease common to many third world leaders: it is called “the arrogance of power”. That is where the problem lies. And a bevy of darlings will not be able to cure her of it.