Dr Ishrat Hussain, Governor of the State Bank of Pakistan, claims that investment has declined by 37% in the last ten months, the manufacturing sector is virtually stagnant and exporters have under-invoiced to the tune of about US $ 700 million so far this year in anticipation of a devaluation of the rupee. Meanwhile, Mr Shaukat Aziz, the finance minister, is getting ready to bludgeon us with the mother of all budgets.
Unfortunately, the confused political and economic signals from Islamabad are not helping matters. Recently Dr Mahmud Ghazi, an exalted member of the National Security Council, triumphantly declared that the government would extirpate all riba (interest) by December 2000. Since the Minister for Religious Affairs is clueless about economics and finance, his enthusiastic pronouncements about “Islamisation” had the effect of stampeding many civil-military pensioners and widows (who depend on non-Islamic interest-bearing savings in capitalist banks for their sustenance) into the swelling ranks of angry traders and businessmen. This compelled the finance minister to say belatedly that the State Bank was busy preparing a report on how to abolish riba by end-June 2001 so that the required “Islamic” reforms to the banking system would not wipe out the hard-earned savings of the citizenry.
Not to be outdone, the interior minister General (retired) Moinuddin Haider, continues to blow hot and cold. His latest gaffe concerns a statement to The New York Times in which he advocated “a modern, moderate and secular Pakistan”. This was meant to take some of the international heat off Pakistan as a budding “terrorist state” encouraging extra-nation-state jehads. But the general has beaten a hasty retreat. “I never used the s-word”, he pleads, fending off an attack by mullahs and ideologues. And so it goes on. We are now given to understand that Friday instead of Sunday may be ordained as the weekly holiday. This is meant to be another sop to the mullahs, and to hell with the fact that the country reverted to Sunday in 1997 only because the domestic business community wanted to remain in the same trading time zone as its international counterparts.
What is the meaning of this? When will General Pervez Musharraf and his team-mates realise that the problem is not one of a failing economy but one of a failing polity? When will they understand that all the fine tuning of the budget will not lead to the promised land unless there is a basic change not only in the philosophy of how to collect revenues and from whom but also in the rationality of what to spend and on what? When will it dawn on them that foreign investors will not step into Pakistan until domestic investors stop fleeing the country? Indeed, why should “non-ideological” domestic and foreign capital venture into Pakistan when the country is booby-trapped with violent “jehads”, maverick “strategists” and crazed “ideologues”, when two antagonistic legal traditions run side by side sowing confusion, when the sanctity of sovereign guarantees and legal contracts is routinely violated by an unholy nexus between a corrupt corporate state sector and a feeble judiciary, when civil society is constantly being undermined and eroded by armed militias? The finance minister must demand reasonable answers from the military junta. If he doesn’t, his strategy will be doomed to failure.
Pakistan faces a crisis of state and society. The economic crisis which Mr Aziz seeks to resolve is an effect of this political and ideological state crisis and not a cause of it. That is why any attempt to fix the economy without first understanding and tackling the larger state crisis is not likely to yield long-term dividends. The generals would be advised to ponder some enduring facts.
The economy is in a deep recession because no one wants to invest. Investment is down not merely because of high interest rates and reduced government spending but essentially because of political uncertainty at home and threats of international isolation from abroad. These factors in turn are the effects of the military’s secret domestic motives and ambitious regional agendas which deny us the security and certainty of political democracy and the financial dividends of regional peace. Beyond these, some larger facts are worth recapitulating.
The prosperity of post-war Japan and Germany was built on the carcass of outmoded st3ate structures and defunct national security paradigms. The demise of the Soviet Union was predicated on an economic collapse derived from a costly arms race. The unprecedented prosperity of America in the post-cold war period is largely due to the peace dividend arising from a substantial reduction in the growth of military expenditures. India is growing at our Muslim rate of 6% growth while Pakistan is languishing at the Hindu rate of 3% growth — the one is threatening to transform wealth into power, the other impoverishment into weakness. The sooner General Pervez Musharraf swaps economic illusions for political realities, the better for all concerned.