Things to learn from India

WHILE I was in India last month I came across an American friend who had also travelled to Delhi to pursue some interest in development economics. This was his first visit to the country and he was initially very impressed with what he saw. He had also read Thomas Friedman’s book from which I quoted in the column last week. “India is indeed an economic superpower; one that will change the structure of the global economy”, he said to me, fully agreeing with Friedman’s thesis.

My friend was impressed with the hotel in which both of us were staying; impressed with the sights and sounds of Delhi; impressed with Gurgaon, the centre of Delhi’s high-tech economy; impressed with the way the Indian middle class was engaged in their country’s development.

He also liked what he saw of Indian art, Indian music, and the country’s film history. He asked me whether there was much in common between India and Pakistan; after all the two were once part of the same economic and political entity. When I said that the two countries had much in common and that what he had read and heard about Pakistan was not the Pakistani reality, he seemed very sceptical about my response. I am sure he attributed it to a misplaced sense of patriotism.

When I left Delhi and returned to Washington, my American friend and his wife went on a tour of the “golden triangle” — tourist sites in Delhi, Agra and Jaipur. They then saw a great more of the real India. Remembering the conversation we had he called me upon returning to the United States. He said that he had seen two Indias; one was well integrated into the global economy, the other was poor, extremely crowded, with poor infrastructure, poor housing, and an incredible number of street dwellers. The second India was not very different from Africa, a continent he knew well. He was now not very sure whether to see India as a success story or one still struggling very hard to succeed.

This account of first and second impressions of a development expert from the West raises a number of important questions. Why is there now so much talk in fairly informed circles about India becoming an economic superpower? Why do so many commentators such as Thomas Friedman believe that India, en route to becoming a superpower, will be able to overcome fairly quickly a number of obstacles that have kept so many developing countries trapped in poverty and backwardness? Why is it that so many people see so much negative in Pakistan and so much positive in India? What are the lessons that Pakistan could learn from India’s success and how could it also develop a different image for itself other than the one popular in the West? Why was it that while India was widely viewed as a rapidly modernizing society, Pakistan had come to be seen as backward and unwilling to join the rest of the world? In other words what has contributed to India’s seeming success and Pakistan’s seeming failure as economies and as political systems?

There are many reasons why the world views India and Pakistan so differently. I will mention four of them. The first is the way Pakistanis project their own country. The second reason is the amount of investment the Indians have made in higher education, the point underscored by Friedman in the passage quoted in the article published in this space last week. The third reason for the perception about India’s bright future is that it has now in place several institutions that work in various sectors of the economy. These institutions now have a record that provides comfort to the participants in the economy, both domestic and foreign. The fourth reason is the way the Indians have created a political system that accommodates diversity and allows participation to most segments of the population.

I will have more to say about these explanations over the next couple of weeks. Let me first deal with the damage Pakistanis themselves do to their image. In a recent conversation with me, L.K Advani in Delhi made an interesting point. He said while there are many differences among Indian politicians and political parties on domestic issues, there is almost complete understanding on foreign policy and how the country should be presented to the world outside. That is certainly not the case for Pakistan. Let me take one example of the difference between Pakistan and India in this respect.

It was certainly not prudent for the government of Pakistan, including President Pervez Musharraf, to discourage Mukhtaran Mai from visiting the United States, fearing that she would expose the worst about the country’s society and culture to the western audiences. In fact, by attempting to stop her from visiting America, Islamabad inflicted greater damage to its image than would have happened had she not been constrained. President Musharraf’s confession that he had himself ordered that Mukhtaran Mai should not be allowed to travel to the United States resulted in extremely hostile articles and editorials in several American newspapers.

When the visit did take place it did a great deal positive for the country’s image. She proved to be a good ambassador for Pakistan. The message she gave and the one that was picked up by the media dealt with the way many people in Pakistan are handling an issue that had previously not received much attention. Women’s place in Muslim society has become a subject of considerable interest in the West, not just in the United States, and by dealing it with openly and by saying that she had received support from many segments of Pakistani society she told the West that there are many people in her country who are deeply concerned about the way women are treated in some parts of Pakistan and by some segments of society.

Nicholas Kristof of The New York Times who first drew the attention of the readers in America to the Mukhtaran Mai case wrote yet another article describing the Pakistani woman as the Rosa Parks of the 21st century. He couldn’t have paid a greater complement. It was Parks, a black woman, who by refusing to surrender her seat to a white passenger in a bus, lit the fuse that resulted in the civil rights movement. The movement that began with this one act of defiance brought about palpable change in the way white America treated coloured people.

By suggesting that Mukhtaran Mai may have done the same in the Muslim world with respect to women’s treatment, Kristof is making a positive point about the receptivity of these societies to accommodating change. The Pakistani government would do well to encourage rather than fear people such as Mukhtaran Mai.

While Mukhtaran Mai was visiting the United States another high stature woman also came to the country and addressed at least one influential audience. Khalid Hasan was at that meeting and in his report published by The Daily Times he made a powerful argument. While this person has been extraordinarily brave in bringing to light human right problems in Pakistan, her presentation in Washington condemned everything about her country. It is this type of all-embracing condemnation of everything Pakistani that leaves the impression that there is nothing good happening in the country, wrote Hasan for his newspaper.

I am not arguing in favour of blind patriotism; I am suggesting, instead, that it is very disturbing that many Pakistanis use deep antipathy towards the country — a development of recent years — as a passport for gaining access to think tanks and the editorial pages of major newspapers. I can’t think of any Indian writer of repute or an activist who would be so vocal in condemning all aspects of life in India.

The second reason for India’s increasing reputation is the effort it has made to produce a highly educated and skilled class of people not just in computer sciences but in a number of other disciplines as well. Indian names are prominent not only in information technology but also in business management, economics, finance, medicine, engineering, literature, cinema, and music. This is in part the result of a long history of scholarship in the country and in part because of the very intelligent choices made by the Indian state in the first few years after gaining independence. Amartya Sen, the Nobel Prize winning Indian economist, celebrates India’s advance in several fields of knowledge in a recent book titled The Argumentative Indian.

Sen argues that a number of advances made by the West during the period that began with the Enlightenment are owed to the Indians in the pre-Christian period. Most of the knowledge accumulated in India in those early times was communicated to the West by Arab scholars who translated Indian classics into Arabic. He also argues that India’s eclipse during the period of European colonialism was the consequence of neglect of education after the golden period of Hindu scholarship. This was of special concern for Rabindranath Tagore, another Indian Nobel laureate.

“In my view the imposing tower of misery which today rests on the heart of India has its sole foundation in the absence of education. Caste divisions, religious conflicts, aversion to work, precarious economic conditions — all centre on this single factor,” wrote Tagore in 1930.

I should note in passing that while India values its Nobel laureates, Pakistan chose to ignore the only person to have won this distinction as he happened to belong to the Ahmadiya community. In November 1996 when Professor Abdus Salam’s body arrived in Pakistan for burial, the Pakistani state chose to ignore the event, fearful that any official recognition would invite the wrath of religious fundamentalists. I was at that time a member of the interim cabinet headed by Prime Minister Meraj Khalid. I suggested that the government should designate a high official to receive Professor Salam’s body. I was told that that would be politically risky.

The government of President Pervez Musharraf is now making an effort to close the large knowledge gap that has emerged between Pakistan and India — between the Muslim and non-Muslim worlds. Islamabad is spending large amounts of money on higher education. However, what needs to be recognized is that such efforts will only succeed if there is a fundamental cultural change, if people begin to recognize that there cannot be any success in rapidly evolving global economic and political systems unless society awards high premium to the acquisition of knowledge.

India took the right decision when it chose to establish institutes of technology and institutes of management in various parts of the country in the 1950s. These institutions have produced tens and thousands of engineers, scientists, and managements gurus who are sought after in the western world. While students from Pakistan are finding it increasingly difficult to gain admission into foreign universities, recruitment teams from the world’s most prestigious universities and corporations routinely travel to India to bring that country’s graduates to college and corporate campuses.

There is a clear lesson in this for Pakistan. The country has to begin to value acquisition of knowledge as a primary occupation for the society. Nothing should be allowed to stand in the way of this objective, certainly not religious beliefs, especially when the religion we follow places so much emphasis on the acquisition of knowledge.

Beyond the boundaries

I DID not find any one from the media. But I watched the editor of an Urdu daily, Aziz Burney, offering Eid namaz at Rajghat, Mahatma Gandhi’s samadhi, to atone for the bomb blasts in Delhi. His wife recited the Quran and their two children sat in reverence. Burney had felt appalled over the crime a few Muslims had committed, tarnishing the name of Islam.

Burney’s is a welcome gesture because there is already a whispering campaign among the Hindus — thanks to the RSS-BJP combine — that the Muslim population in India does not speak out against the acts of terrorism in the country. This is not true. I have read statements by several Muslim leaders, a few from Kashmir as well, condemning terrorism. They have bemoaned the bomb blasts in Delhi in no less terms.

The Indian Muslims have, however, a point when they say that why it should be incumbent on them to condemn terrorism every time some incident takes place. Since most of the perpetrators of blasts have turned out to be Muslims, the community, unfortunately, has to bear the cross. But I must add that the Muslims in India are different from Muslims elsewhere. For example, during the Taliban-Al Qaeda days in Afghanistan, Muslims all over the world participated in the sectarian war in the name of jihad. But not a single Indian Muslim rallied behind the call of the so-called holy war.

The Indian Muslims are, indeed, angry that cross-border terrorism is giving them a bad name. The Pakistan establishment does not realize the gravity of dangers and difficulties it creates for the community and the support it builds up for the Hindutva crowd whenever there is a bomb blast in India.

The Lashkar-i-Taiba (LeT), which has been found responsible for the blasts in Delhi, has its men in Pakistan. Even though Islamabad has banned it, some in the Pakistan establishment continue to support the LeT. Incidentally, the prisoner whom BJP Foreign Minister Jaswant Singh had conducted to Kandhar, heads the outfit.

Despite the solemn assurance by President General Pervez Musharraf, first to former Prime Minister Atal Behari Vajpayee and then to Prime Minister Manmohan Singh not to allow terrorists to use Pakistani soil for their activities, cross-border terrorism continues. Maybe, Musharraf is helpless. But the general impression is that he is not doing enough.

Only the other day, the 9/11 commission on terrorist attacks in the US asked Washington to put pressure on the Pakistan government to stop the menace. “Pakistan remains a sanctuary and training ground for terrorists,” said the commission. This is a slap on the face of President Bush who earlier in the week applauded Musharraf by name as an ally in the fight against the “radicals in Islam.”

No doubt, the epicentre of terrorism is now Bangladesh. All the banned organizations in India or Pakistan operate from there. But the control is in the hands of the Islamic fundamentalists in Pakistan. The terrorists know no boundaries. They have only their purpose to serve: to kill and to disturb the rhythm of citizens’ lives. Even Pakistan is not safe because they have again struck in Karachi, more or less at the same place where they had killed the French men some time ago.

At one time, the Pakistan president would himself argue that it was a “freedom struggle.” He has become silent after Manmohan Singh has said again and again: “Terrorists cannot be freedom fighters.” However, the thinking of the Pakistan establishment has not changed. One of Musharraf’s senior ministers, who admitted the other day that he provided assistance to the militants from Kashmir when they first crossed the border, said at a seminar in Lahore some days ago that he would be riding the tank going to India. The only inference that India can draw from this is that either the Pakistani establishment is divided or the assurance to stop cross-border terrorism is eyewash.

The thesis that acts of terrorism can put pressure on New Delhi to hold talks on Kashmir is wrong. The effect is to the contrary. In fact, if violence were to stop India would have to per force discuss Kashmir.

I am not sure whether the Indian and Pakistan prime ministers discussed Kashmir at the Saarc summit in Dhaka. But terrorism must have been discussed since this was very much on the mind of Manmohan Singh after the Delhi blasts. The recent incidents at Srinagar are reportedly the handiwork of the new branch of LeT. The Pakistan establishment should realize that such incidents are bound to have an adverse effect on the peace process. It is welcome to see that the opening points of contact on the Line of Control (LoC) have not been disturbed in any way. They should not be, because they are important arteries for rehabilitation work. Also they may one day soften borders between the two Kashmirs.

One thing noticed before the opening of entry points was that there was no sense of urgency in New Delhi and Islamabad. India took its time to arrange the foreign secretaries’ meeting and Pakistan took 16 days to initiate work after it reached an agreement with the Indians on the opening of the LoC points. The real reason for the delay, as a dispatch by the Gulf News foreign editor points out, is what an Indian official said: “We cannot say this publicly but it is not because of landmines or landslides. It is because of Pakistan. They simply do not want to accept Indian help or relief. Geography and history dictates that we must help but they don’t want to accept our offers.”

This may well be true because some in the Pakistan establishment and most among the fundamentalists do not like greater contact between the peoples of the two countries. New Delhi has taken some unilateral steps — giving visas to senior citizens at the Wagah border — but Pakistan has not reciprocated these. The number of Indians getting visas has gone down in spite of Islamabad’s repeated statement to increase people-to-people contact.

The Pakistan establishment has a lot to explain because the spirit of Saarc is being defeated by discouraging contacts among the people in the region. With Afghanistan being a Saarc member, people-to-people contact has to increase. A new set of possibilities has arisen in the region. Manmohan Singh said in his speech at the summit that the right to transit passage should be applicable to the Saarc countries. It means that Dhaka can send its goods to Pakistan and Afghanistan through India. It also means that Pakistan can send its goods to Nepal and Bangladesh through Indian highways. Above all, it means that South Asia as an entity is beginning to take shape.

The writer is a leading columnist based in New Delhi

Syria under siege

HENRY Kissinger once remarked that “there cannot be a war in the Middle East without Egypt and peace without Syria”. The importance of this observation has never been more evident than now. Countries hostile to Israel or perceived to be an impediment to its expansionist policies have either been humbled by the US or confronted in an aggressive manner.

The occupation of Iraq and efforts to lay siege to Iran have been part of this strategy. Libya’s Colonel Qadhafi, long regarded as an inveterate enemy of western interests, has been humbled. The only remaining country that has resisted Washington’s pressure is Syria. President Bashar Assad’s father Hafez Assad foiled all efforts to impose Israel’s supremacy in the Middle East during his 30-year rule. Bashar continues the struggle despite overwhelming odds.

President Bush is equally determined to continue with his mission to subjugate Syria to ensure that Israel has no potential enemy in the region. In this space, I had earlier chronicled the brazen measures that the Bush administration initiated to bring Syria to its knees in the name of the war against terror. Syria was declared a part of the “axis of evil” and subjected to sanctions. Not content with this provocation Syria has been blackmailed for alleged involvement in the assassination of the former Lebanese prime minister, Rafik Hariri, on February 14.

In an unprecedented move, the US successfully moved the Security Council to conduct an enquiry into the killing of Hariri. German prosecutor Detlav Mehlis was given the task of doing so and presented his report to the UN Secretary General Kofi Annan last month. Mehlis found “converging evidence” of senior officials of Lebanese intelligence and Syrian security officials of complicity, but did not find the Syrian government directly involved in the episode.

The report did not mention any names but stated that “there was probable cause to believe that the killing could not have been carried out without the approval of top ranking Syrian security officials”. The report is still incomplete and Mr Annan has authorized the investigation to continue until December 15.

The US media has named the brother-in-law of President Bashar, Asef Shaukat, currently the chief of Syrian intelligence and his own brother Maher Al Assad as ring leaders. It is alleged that these names were in the first version of the report but were deleted in the final version. The mysterious circumstances under which Syrian interior minister Ghazi Kanaan committed suicide on October 10 is being explained in terms of Syrian complicity and a cover-up of the circumstances of Hariri’s death. Kanaan had served as Syria’s intelligence chief in Lebanon and hence the theories incriminating Syria.

Washington regards the findings as enough evidence of Syrian complicity and in the coming days is likely to intensify its campaign to isolate Damascus and seek economic sanctions through the Security Council, even though there is little likelihood of other members going along with the US position until the final report.

To weaken the resolve of Bashar Assad, an aggressive policy of intimidation, both covert and overt, has been employed. The Newsweek reported that the US had debated launching military strikes inside Syria against camps allegedly used by insurgents operating in neighbouring Iraq. Secretary of State Condoleezza Rice opposed the move calling for a diplomatic isolation of Syria instead.

There were also reports that Bush having declared Bashar Assad’s behaviour “totally unacceptable” had offered the Syrian president a deal to end his regime’s international isolation in return for Syria agreeing to cooperating fully and adhering to any demands by the UN enquiry into Hariri’s death; allowing any Syrian suspect named in the report to be questioned and stand trial; stop interfering in Lebanon where Syria has been accused of a series of recent bomb attacks; and to stop recruiting, funding and training volunteers to take part in Iraq’s insurgency.

President Bashar Assad has so far faced all pressures and strong arm tactics with brilliant diplomatic trapeze. Syria has rejected the report as “politically motivated” and “containing false accusations”, but has reiterated its “commitment to the decision of international legality and cooperation with the international community.

Difficult days are ahead for Syria and any major mistake could cost Assad his presidency. Bashar Assad has taken a number of initiatives to defuse the situation, and convince the US and the West that it is not unwilling to meet their concerns. He has built a sand wall along the 600 kilometre border with Iraq and deployed 7,000 soldiers to arrest infiltrators into Iraq. He has complied with Security Council Resolution 1519 for the withdrawal of Syrian troops from Lebanon and shut down the offices of Hamas and the Islamic Jihad. He also received Palestinian leader Mahmoud Abbas, and thus indirectly endorsed peace negotiations between the Palestinian Authority and Israel.

The US, however, is not content with these measures. Its fundamental objective is to co-opt Syria as a partner in the peace efforts to achieve US interests in the region, making Syria abandon support for Hamas, the Islamic Jihad and Hezbollah, terminate ties with Palestinian rejectionist groups and develop good relations with Baghdad.

It is ironical that President Bush should seek retribution for alleged Syrian complicity in Hariri’s murder when its administration has authorized the CIA to kill presumed terrorists and Congress has sanctioned funds for the overthrow of the government of Iran. Again the targeted killings of Hamas leaders by Israel within Israel and outside as state policy has not attracted any condemnation or Security Council action.

Syria until now has displayed great patience and forbearance. However, it is very likely that neocons in the Bush administration may make further demands to force Damascus to make critical choices.

Despite a noticeable “behaviour change”, the goal post for the US and Israel remains “regime change” and as such the coming days will pose a crucial challenge to Bashar Assad and stability in the region.

The writer is a former ambassador

The Alito memo

SUPREME Court nominee Samuel A. Alito Jr.’s now-famous 1985 memorandum is unsettling. The memo, part of an application for a political appointment in the Justice Department during the Reagan administration, reveals an energetic young conservative driven by discontent with important (and, in our view, beneficial) Supreme Court rulings and eager to alter the lay of the legal land. Mr Alito describes being “particularly proud” at helping to advance legal positions “in which the government has argued in the Supreme Court that racial and ethnic quotas should not be allowed and that the Constitution does not protect a right to an abortion.” Judge Alito has put some distance between himself and the memo in the days since its release, particularly on abortion, but it has rightly discomforted some moderates whose support he will need.

This application represents Judge Alito’s views and can’t be dismissed as the work of a lawyer on behalf of a client. While the memo may shed light on his views of decisions by the courts headed by Chief Justices Earl Warren and Warren E. Burger, it does not reveal whether he would seek to overturn them now. It has now stood as good law for a generation. Judge Alito has a 15-year record as a judge that is more recent and perhaps more predictive of his likely handling of hot-button cases. But his rulings as an appeals court judge, where he is bound to follow Supreme Court precedent, also have limits as predictors of how he would behave when free to set precedent. In his January hearings, Judge Alito will rightly be asked about both aspects of his record.

— The Washington Post

Truth about good financial management

THE debate on the contribution to the turnaround in Pakistan’s economic fortunes in recent years of better government macro-economic and financial management, of the faithful implementation of IMF conditions, of debt rescheduling and the generosity of donors after 9/11 continues to rage.

This discussion is meant to argue that the government exaggerates the contribution of its good management of the economy to push up the growth rate. It will argue that there are some key areas well within the control of the government in which achievements have been disappointing. Four such areas of policy failure are discussed below.

The first is the failure to further deregulate the economy, eliminate multiple taxes and get the government off the backs of people through reduction/removal of discretionary powers by repealing or amending many of the outdated regulatory laws and rules that unduly burden the private sector’s cost of doing business, while providing opportunities for corruption to government functionaries.

With the exception of the CBR, where policy and institutional reforms have certainly reduced the private sector’s cost of doing business in the last two years or so, the government’s other efforts (including traditionally weak areas relating to political stability and law and order) to reduce the cost of doing business have not borne much fruit. Hence, even the recent improvement in our international ranking with respect to the domestic environment for private investment does not bring much comfort since China, which ranks several notches below us on this table, attracts most of the world’s foreign direct investment.

The speed of government decision-making continues to be leisurely, compared with the pace at which changes are being made by our international competitors in maintaining their competitiveness. As usual, in a rapidly changing world, we are doing too little too late to address the growing gap between ourselves and our competitors.

In contrast with the daily rhetoric on the high quality financial management supposedly reflected in the marked reduction in the budget deficit, it is instructive that the better balancing of the books has been achieved by cutting down development expenditures, and as a result of the debt re-profiling done by our creditors after 9/11 rather than by expenditure re-prioritization and revenue enhancement.

The gap between government expenditures and its tax revenues continues to be close to seven per cent points of the GDP, the differential that existed in 1999/2000 with the tax to GDP ratio actually worsening from 13 per cent of the GDP to under 10 per cent. That a part of this gap is now being filled by non-tax revenues which are expected to decline as more profitable enterprises like PTCL are privatized cannot be a source of comfort for the future in terms of sustainability, highlighting the macro-economic management capability test of the government, particularly after the October 8 quake.

While acknowledging the major strides made by the State Bank in modernizing and strengthening the capability of the institution to perform its supervisory and regulatory functions and the independence it has shown in its periodic reviews of the economy and the government’s economic and financial management, it has singularly failed to fulfil its primary responsibility with respect to monetary policy. At a time when both the exchange rate and monetary policy were the easiest to handle, thanks to the surfeit of liquidity and the abundance of cheap money in the financial system, the central bank did not perform its principal duty of controlling inflation.

Inflation, contrary to official claims, has not been soaring simply because of the rising prices of oil and food owing to the raising of the support price of wheat. It is also soaring because of the huge increase in money supply allowed by the State Bank, well above the rate justified by the expansion in the economy. As a result, Pakistan has the dubious distinction of having the highest inflation rate in this region; India faced similar pressures but has an inflation rate hovering around the five per cent mark.

In other areas of its jurisdiction the performance of the central bank is judged by its success in controlling inflation. Here the State Bank has stoutly defended its monetary management which resulted in inflation almost reaching double digits. It takes pride in having adopted an accommodating monetary policy that stimulated economic growth by keeping interest rates lower than the rate of inflation and did not use the capital inflows from abroad to retire expensive debts. However, the pursuit of this strategy and a monetary policy that was working at cross purposes compromised its role as an independent agent mandated to keep inflation in check through an interest rate adjustment.

The monetary overhang of 27 per cent by the end of 2004 (less than five per cent of which has been absorbed to date in 2005) is keeping inflation close to nine per cent. With inflation at such levels, the catastrophe of October 8 has hit the economy. A colossal amount of money will be required for the massive relief effort and the gigantic task of reconstructing the devastated infrastructure and houses and buildings, getting the crippled economies of the affected areas up and running again and relieving the misery of what are essentially the poorest sections of the population.

These demands will keep inflation under pressure, requiring deft handling; although for some officials it may provide yet another convenient excuse on which to lay the blame for the continuing inflation. Therefore, the biggest test in recent years for the State Bank has come precisely at a time when leadership change is due at the central bank. The new situation demands that the new governor should have a sound understanding of monetary economics. Owing to poor monetary management a huge opportunity has also been lost to develop a market for low-cost housing finance, hitting the less affluent segments of society, already suffering from the ravages of inflation.

While the financial system was flushed with funds, the federal government managed its debt poorly. When it could have borrowed at low interest rates for a while it stopped issuing seven-to-10 year Pakistan Investment Bonds that could have enabled it to borrow funds at seven per cent. It chose instead to offload six month T-bills at two per cent or so when inflation had begun to climb and there was every sign that the interest rate structure would change and rates would rise sharply.

This flawed strategy cost the government and the taxpayers dearly as the debt profile got skewed in favour of short-term debt. The cost of this poor financial management has been massive — and could be as much as Rs. 100 billion over the next 10 years. While the government should have raised more long-term and relatively cheap debt, it took the bizarre decision to discontinue issuing bonds of longer-term maturities and relied more on short-term bonds.

The short-term debt instruments which were earlier being floated at low interest rates are now being replaced by expensive bonds at high interest rates. Moreover, if the Etisalat-PTCL deal does not go through then the government will have little choice but to borrow another Rs.120 billion to Rs.150 billion at 13 per cent in the form of 10-year bonds resulting in actual loss and not just in cost terms.

Similarly, international capital markets are ostensibly being tapped to diversify the government’s sources of funding and to reduce dependence on multilateral lending agencies for financing. The impressive launching of the first round of bonds, it has been argued, has facilitated Pakistan’s reappearance on the radar screens of investors for not just debt instruments but also for foreign direct investment.

With the government struggling to find ways of utilizing foreign exchange reserves, one is at a loss to understand what it wants to do with the additional mobilization that is being planned at interest rates higher than what we would have to pay for borrowing from the World Bank and the ADB.

These inflows would, at best, earn a relatively nominal return from their investment in other income earning instruments. The overall outcome of such a transaction would be a net capital outflow, since the servicing cost of the bond would be higher than the income stream from the proceeds of these bond sales.

It is not quite clear what would be achieved. The cost of such endeavours will be high since there would be a worsening of the debt profile, with more short-term expensive debt, when cheaper debt of longer-term maturity is readily available from the World Bank and the ADB. The argument that even China with its massive reserves is raising money from international financial markets through bonds of relatively shorter term maturities fails to realize:

a) that when at the turn of the century Pakistan was on the verge of defaulting on its debt obligations it was largely because of the short-term debt that it was finding impossible to service; and

b) China has close to three times Pakistan’s rate of national savings and can afford to adopt even a wrong strategy. It can make such a mistake (this is not to suggest that by raising money from international financial markets it is making such a mistake) as it can easily bear the cost of correction.

The argument that by venturing into international financial markets we can set a point of reference at which we can borrow in the future is misplaced. Our ratings are being monitored and revised continuously. Therefore, our credit rating, and the rates at which we can borrow, could be different every time we enter the market.

A faux pas was also committed in that the Islamic Sukuk bonds were issued on a floating rate at a time when the interest rate environment was changing and the rates were beginning to climb, again reflecting the poor quality of financial planning.

Finally, losses were, and continue to be, incurred on account of poor currency hedging for servicing external debt and because of the currency mismatch of assets and liabilities.

The writer is a former finance minister, Punjab