The Myth of Growth:Pakistan's Lost Opportunity

Lost opportunity??? It was never in their hand.

Zeemax Sb.

>Secondly, Pakistan imports a full $1 billion per month more than it exports. The per capita import would be India =$113, Pakistan =$186. Pakistan thus imports $73 0r 65% more per capita than India, therefore the drain on reserves which it makes up by selling the family silver. <

According to the world bank data is as follows (2000, 2003, 2004) in billion$:

Exports of goods and services (% of GDP) 13.6 16.9 16.0
Imports of goods and services (% of GDP) 14.8 16.3 14.9

http://devdata.worldbank.org/external/CPProfile.asp?SelectedCountry=PAK&CCODE=PAK&CNAME=Pakistan&PTYPE=CP

Can you please explain w/ ref to ``Pakistan imports a full $1 billion per month more than it exports.``

JK

Musa

#34 Zeemax Sahib: Thank you very much. That is an Amazing story.

Yes MannyD Bhra that was the Jam Sadiq Ali`s (late) family from Sanghar. His wife is Hindu and descendant of Raja Dahir. Their children had the choice to adopt either religion and two daughters are still Hindu. Jam Sadiq was at one time the most powerful man in Sind and Chief Minister of Sind.

About the other board, Yar some people just twisted my view and led the whole discussion into a mud throwing contest ... not pleasant at all ... `muft badnaam kya`.

Zeemax: I think you wrote the article at the request of Mr. Tahmed. It is an excellent and intelligent piece compared to the general run of the mill floatsam on Chowk and raises the standard of Chowk writing.

I`ll have to read it very carefully to see if `it`e too late to make amends` because you are far more intimately familiar with the Pakistan economy than anyone else, but I agree with the other conclusion. The USA can not consume and keep on borrowing. The trade deficit is just too huge for USA to keep working as the financial engine to soak up the world production. China and others have to come in and help to get a new equilibrium in a slow methodical fashion rather than the step disruption like that of the great depression.

On Jawahra`s board, I think you formulated your view point very well towards the end. Sorry I did not go thru all the other posts and summarize the method.

Sometime ago I think you mentioned that you knew the descendents of Raja Dahir. Is that true or am I mistaken?

#31 by arjun_m

...why is Pakistan`s forex stuck at 11billion$. India`s just went up to 154billion $. Pakistan has higher exports per capita than India....

Good you asked that question because the answer may be quite revealing for those uninitiated with how Pakistan is run.

Firstly, Pakistan reports its total reserves as Held with Central Bank plus Held with commercial banks. These were $9 billion+ $2.2billion = $11.2 billion at end March. This manner of reporting is quite misleading because the only reserves that the central bank can actually use are those held by itself, and not those held by commercial banks; because they are dollar deposits of the public. To use those Pakistan would have to freeze the foreign currency accounts all over again. So the actual reserves were $ 9 billion. The figures are a simple deception but the common man doesn`t know it.

Secondly, Pakistan imports a full $1 billion per month more than it exports. The per capita import would be India =$113, Pakistan =$186. Pakistan thus imports $73 0r 65% more per capita than India, therefore the drain on reserves which it makes up by selling the family silver.

Other factors are differences in capital control regimes. Most significant being full capital convertibilty for individuals across the board in Pakistan, while in India it is only for foreign exchange earning NRIs. Pakistani residents can buy flats in Dubai. Indian residents cannot.

zeemax: why is Pakistan`s forex stuck at 11billion$. India`s just went up to 154billion $. Pakistan has higher exports per capita than India.

HP #20

`` We see that many countries in East Asia and even in South America have benefited by linking their economies with the current system. Capitalism has a problem. It offers nothing to the poor but in many countries now the trend is to mix capitalism with the socialist ideals of basic benefits for the common folks. South America is moving towards that end and in fact, I see that even the US is at the verge of becoming convinced that some of the socialist programs help the poor and they are being adopted by the free market conservatives too. ``

Capitalism works the best when individuals are willing to take risks.

When a greater percentage of the population is empowered to take risks the outcomes for a capitalist society is better. It is simply the law of large numbers.

zeemax sahib, i remember what samsung ceo once said...money (capital) is the cheapest and most easily available commodity. what is expensive are good ideas, projects. in todays globalized economy, money will fly in as soon as you show ability to give more than 5% return on us $ terms..(subject to risk)..so its not a surprize that a trillion rs cash has not resulted in robust institutions for economy.

#26 by masadi on April 14, 2006 3:34pm PT


the billions that go without an education


Comrade masadi: the arabs have all the oil in the world and haven`t built educational institutions worth a damn...whose fault is that? please don`t tell me the it`s the arab rulers, backed by the west. Why doesn`t the arab street rise up against that? you seem to be doing a lot of rising up against non-muslims you preceive to be persecuting muslims....

``The soviets were dumb``

Wow..........what a way to sweep aside the failures of the 70 years of soviet communistic experiment spanning generations of educated marxists...........if some body still hopes to replicated this experiment in an `Islamic` communistic state with the green book replacing the red book then I know what type of totalitarian ideology that person is professing........

HP in #20 <<< The reason I don’t see an alternative is because there is none now >>>

HP sahib, this is not correct. We have analyzed and studied the problems. Those problems have easy solutions, why that is not tried is because of monopoly of power and the vested interests. This does not mean the alternative isn`t present, it means that the alternative is choked to death before being tried becuase the few have too much to lose. Forget about what I have been saying for many years now, read the 2005 Human Development Report by the UNDP, their intro on global poverty and you can read the same thing in their analysis as well.

Suppose you see someone raping your family holding you at bay upon gunpoint, and you see a pattern of such rape going on in the community you live in. Even if you don`t have power to stop it at the current time, will you not raise awareness and try your best to stop it. The first step is recongnizing it for what it is, if you give up on the first step,throw your arms up in the air and say, ``I have a fork and a knife, they have ak47s, what the hell can I do``, then chances are the 1001 forks and knives in the neighbourhood will never become aware that collectively their power is greater than the ak47 weilded by these criminals. Now more than ever the stakes are too high, can you put a price on all the lives that have been lost due to want, the millions that have been denied the opportunity to be born due to high infant mortality, the billions that go without an education, the hundreds of milions whose life expenctancy is almost half that of Americans, in ohter words the Americans get to live two whole lifetimes compared to their one. These ``costs`` are much higher than any benefit of this rape we get in the capitalist marketplace. Are they not?

HP <<< you would perhaps understand that the split was based on nationalism >>>

The soviets tried to implement socialist principles onto a rural/agrarian society, whereas Marx`s analysis brought forth the revolution in an advanced capitalist stage. They preempted the revolution, thereby converting their system into state capitalism, whereas the Americans incorporated socialist principles to abort the revolution. The soviets were dumb the US elite were comparatively smarter. Nationalism serves the same purpose as religion did in the past, it is a distraction from the real issues and a convenient tool of the elite.

zeemax:

you are right that state should spend in areas no one else would.

that would be infrastructure development, mass education, water supply, pollution control.

but having state-run enterprises doesn`t look good to me, atleast in india. maybe in pak situation is different.

you have given eg. of singapore. singapore did/does have state-owned telecom, airlines (?) but under the condition that it would either have to make profit or close down.

in india such entreprises are mostly loss making and stay in place because of subsidies and grants at the cost to the tax-payer.

do you think if pak gov had put some seed money into these entreprises, they would have become innovative, efficient companies able to withstand all kinds of internal/external competition. if yes, then pak gov. should have done that

if no, then theres no point. when the gov. money would have evaporated so would have the jobs.

also, once you have a state run company the beuraucrats become managers, not a good way to run businesses, atleast in india.

#9 by masadi

.... in short a rape of the `third world` ....If only this author would put as much thought into understanding Quran and Islam as he does in these issue...

Masadi, we agree on everything including the rape of the `third world` part. We only differ on the pacifist/rationalist/ apologist stance as far as Islam is concerned.

I have been commenting on Pakistan`s economy time and again. Some of the facts I append below will suit either arguement.

1. It was the informal sector of Pakistan`s economy that sustained the GDP during the sanctions and also created a vibrant parallel economy. This sector was brought to the knees through the Sales Tax. Much of the plants were closed and substituted by cheap imports from China. Result: retardation of the domestic growth and import substitution. Value added taxes failed to serve the purpose they were meant for.

2. Consumerism has increased manifold in the middle and rich class while the low middle class has fallen into the poverty line. The prices of daily commodities have risen threefold in the past 5 years but salaries have not even doubled. So the demand has been satisfied for a limited few through credit cards, leasings, real estate etc. Those who cannot efford these have fallen by the way.

3. It is not the farmer who benefits from the high prices of sugar and wheat but rather the middleman and various lenders of fertilizers, pesticides, fuel and hard cash. Average farmer is far below where he was.

4. The benefits of low interest rates were never passed to the consumers. They were absorbed by big and not so big borrowers as a booty and not recycled into growth. In fact the low interest rates had an adverse effect on people who had put their lifetime savings in banks and other schemes against monthly payback terms. These people last their subsistence, took the money out of banks and invariably lost it to swindlers.

Cheerios

Sorry for the long response, but it may further clarify my position.

#2/3 by chaltahai

.... self reliance means having the resources, capital, man power along with resources of the natural kind combined with a kaleidoscope of comparative advantage to maintain sectoral driven growth...what do you tink is the solution?...

Amongst the pre-requisites you mentioned, Pakistan does have resources like capital, man power as well as natural resources. What it does not have is comaparative advantage vis a vis the international market. My contention is that it is impossible to leap-frog to comparative/competetive advantage in international markets without following the process of industrialization through import substitution. Since Pakistan did not follow that route, its domestic industry does not have the necessary value addition/effeciencies which others do. My favorite example to illustrate this phenomenon is that Pakistan can now never produce even microchips because they sell them by the pound in Taiwan.

In my opinion, the only answer is return of the State Sector, return of capital controls, and exit from WTO.

Also, do you think propping up SBU`s by synthetic valuations and infusion of capital is a good strategy? WHy not let the market determine the price and then see which SBU`s can be maintained as gov`t holdings.

I don`t think any State Enterprise should be propped up. You gave China`s example, but even China does not prop up any enterprise through federal resources. China`s enterprises are mostly provinces` responsibility. Re the second part of your observation, certainly this should and actually is done as in case of Pakistan Telecom amd Karachi Electric (KESC) which are both listed on the stock exchange.

The crucial factor in running a state sector is `management` alone, and nothing else.

#4 by Urstruly

... the question is, what will happen when these exceptional circumstances will cease to exist. How will consumers pay off their debts? It was one thing to steal money from people of Pakistan but it is quite another stealing from global soodkhors...

To answer how the consumers will pay off their debts, you`ll need to look at the `kind` of debts being entered into by consumers. It is credit cards, auto-mortgages, and lease finance for household durables. All of these are short-term debts and secured in case of the latter two. There is some housing finance but very little and that too against brand new built-up properties only in prime areas. Banks know the worst that can happen is credit default. In case of the unsecured credit cards, the interest/fees/hidden costs etc are upwards of 36% p.a. while the industry average of default is 5%. So basically, a core credit card balance is recovered in less than three years by banks in case of ALL borrowers, while even if the full 5% debtors default, the balance 95% keep providing the profits. In case of the secured finance, any default of three months or more means re-possession and the loss in the asset`s value has already been more than made up through instalments and fees paid. In short, the consumer is doing fine now and will continue to do so for a couple of years. When he cannot pay, its just too bad. It doesn`t hurt the banking system.

#7 by ally
why is (basic) health and (basic) education not improving and why are rural ppl still really badly off? Why are there not decent roads where we need them? Where did that Trillion Rupees go?

That trillion rupees are with banks and lent out to the consumers in the above areas which I listed. If these had been in the State Sector, only then the social/infrastructural issues could have been dealt with. But that was obviously not the priority.

#8 by HisExcellency
...Who would buy government securities after the freezing of foreign currency accounts by Nawaz Sharif in 1998? Your recipe might work in 2006/7 (now GOP`s credit perception and worthiness is very healthy)... but 5 years ago it would have been a damp squid.

Not at all. The freezing of foreign currency accounts was completely a different scenario and not to be confused with this. Foreign currency accounts were not the asset of the Government but those of the people and it forcibly seized their asset. In this case the Govt. had bought the foreign exchange outright from the people (through banks) at their own wishes and paid them equivalent Rupee and that was that. There was no liability to the people. Next, about the credibility issue, the government securities are primarily not meant for the general public given the huge marketable lots but for banks. Besides, no country can default on their domestic debt because they have a printing-press. If that had been done, the banks would have received a risk-less fixed return of, say, 17% from the Government, instead of being forced to change course for the sheer necessity of having to do something with an additional trillion rupees of public`s deposits in absence of corporate demand, and ending up lending retail at huge profits to only the urban middle class with no benefit to the country as a whole.

Another large investor in these securities would be the small pensioner who lost out completely when the rates collapsed and his fixed income certificates started earning 8% instead of 19%. Therefore his mass exodus from these into stock markets etc. where he was slaughtered in March 2005 when the bubble suddenly burst. It is a very sad story.

#11 by Netizen

are you saying the state/public sector could have become a job creator for the masses for a long time?

In case of Pakistan`s particular circumstances, yes. That is exactly what I am saying.

if a public sector is running in-efficiently how long that would have lasted??

As long as you want it to remain in the public sector. If you want to off-load it at any point, that is always possible. The point is that private sector is usually not interested in large infrastructural projects with long-term payback as opposed to quick-win low capital short turn-around ventures. I would too rather have my money back plus profit in three years instead of thirty years. Given this obvious conflict of interest, the State has to step in where the private investors won`t.

would the public sector created any value or wealth for the country???

Sure. Why not. For instance most of telecom/heavy mechanical/engineering/advanced reaearch & tech all over the world except USA is in the public sector. In case of Singapore, the State even has an investment arm for equity investments abroad (Temasec). State sector has somehow become a 4 letter word when it is essential for development.

#12 by HP

Securities are issued by the governments to raise funds ... If a governments needs to disburse a windfall without investing it into long term projects itself, it needs to relax the credit thru various means or holdback on money printing....(relaxing credit) can lead to inflation ...If the government wishes to holdback on printing money, it will have to adjust the exchange rate and it will have an impact on Export and imports both. In this case, the time elapsed between the windfall and the policy development and execution is not enough to make a judgement call.

That is exactly the path Pakistan chose i.e. relaxing the monetary policy resulting in inflation, and kept its artificial currency peg intact to save export markets. But It was wrong to begin with. Consider the example that suddenly you got the news that a distant aunt had died and left you a million dollars. You can either spend all of it on credit cards, a flashy car, and split-airconditioners for yourself; or you can spend it on building a factory so that your grand-sons/daughters could share in your good fortune years down the road.

#13 by bjkumar
... It is not clear to me if your beef is with the overall direction of the fiscal policy of the Pakistani Government or its short-term tactics...

I hope my example of a sudden inheritance may have clarified my beef. It is with the overall direction. Of-course short term strategies are a part of the overall direction.

...And what makes you such an expert? ...

Exactly. This is no rocket-science. We have the benefit of recent history as near as post- WWII. There are dozens of examples of countries which developed and those which didn`t. How do you think India is now well on its way? It is by doing exactly the above. Capital controls, tight money, and the State doing what the private sector was not interested in doing. Above all, India never let foreign capital in unless it had something permanent to leave behind such as technology. Pakistan gave it all away for free.

Hubco, for example, the largest private sector power producer had a total equity stake of about $900 million. Rest was debt. It took out that investment within three years through upto 200% dividends plus royalties. And the whole project employs just 60 people. If they want they can close it today and walk away. No sweat. But noone else can run it because they outsourced all the technology instead of importing it. That is the difference between India and Pakistan`s treatment of foreign investment.

#18/19 by Zeena

Who we are fooling here? I strongly believe Pakistan is a failed state, yes, booming for the President of Pakistan, booming for MNAs , MPAs, Islamabad. That is where booming economy going to...........tsk,tsk.tsk....Haan, booming MY FOOT...............

ZeenaJi, that is exactly what I am saying too. That it is only booming only for maybe 25% Not more than that. We are on the same page. But I disagree when you say iys a failed state. Not yet. It has all the ingredients for succes as well as windfalls with `Allah`s` help when needed the most. Bust should we always count on that? And squander that too when it comes? Most people seem to think that it is `Mumlakat-e-Khudadad-ePakistan` so it will always be alright. I don`t think so. I think we should give Allah a much needed break and do something ourselves.

The most basic of human rights is survival-with-dignity. The State has to provide that first through gainful employment, or through a social security net in the meantime till it can. There`s no third way. The squandering of resources, in the manner I described, is not only casually dismissive, but outright criminal.

Rgds