SOON after its induction in March 2008, the elected government faced an abrupt increase in international oil and food prices. It resulted in a huge current account deficit and diminishing of foreign exchange reserves to a dangerously low level within a few months.

While the shock exposed the myth of economic growth under the previous regime, subsequent events also brought into limelight the lack of capacity and competence of the new ruling elite to put the economy on a sound footing.

Some people wrongly associate the current `economic crisis with the global financial crisis, which had its origin in the US. That the crisis in Pakistan came at the same time as the global financial crisis may be merely a coincidence. However, it has one thing in common with the US financial crisis, that it too is self-inflicted!

The problem arises from the policies the successive governments had followed. The new ruling elite obviously has no plan based on indigenous resources and capability to follow. They tend to look outward for assistance. Hence the `Friends of Pakistan` forum came as an answer to their prayers. The new regime`s initial response was to extend the begging bowl to their `friends` for immediate relief.

Perhaps, they thought the services they were rendering to the US in its `war on terror` were sure to induce the `friends` to immediately dole out at least $10-15 billion to `tide over` present difficulties. These hopes were soon dashed when Richard Boucher made clear in a news conference in Islamabad that “the `friends` wouldn`t throw money on the table,” which has been interpreted to mean that any assistance will follow a thorough assessment of Pakistan`s plans.

As `friends` did not come forward, they moved on to other plans. The latest is that seeking help from the IMF would also make `friends` and IFIs provide funds to Pakistan. But subsidies on food and fuel were eliminated. Thus the regime was doing all it could to please the IMF.

A point to ponder what is the fundamental source of our economic problems? It is no different from the malady that ails the world`s biggest economy, the United States, which our ruling elites have made their role model, though in the wrong way. They imitate all its flaws and ignore its strengths. Let the experts say what they will; the similarity between the two can be described simply as living beyond means.

The scale may be different, but the approach is the same. The Pakistani leadership failed to see that while the US could afford to stall the inevitable implosion far longer because their national currency is a reserve currency and they can raise money selling dollar-denominated bonds on world capital markets. Pakistan could ill-afford to live beyond its means. In the words of Time, “America`s chief export is debt. On the other hand, debt is our chief import!

The source of Pakistan`s problems is the very loans so eagerly sought by the ruling elite. To add insult to injury, they call such loans, obtained with tough conditionalities attached, `aid`. The so-called `aid` is a misnomer because it is credit, to be ultimately paid through the nose by the nation, and amounts to putting the country`s economy under a permanent oxygen tent. Meeting the huge current account deficit through credit is unsustainable unless we tap domestic resources. While increasing the external national debt, external assistance is largely wasted, expropriated and recycled back to the creditors.

The assistance from the industrialised countries and the IFIs particularly is weighted with conditionalities. Recipients are compelled to follow given recipes. If these recipes were so sound, the lenders` own economies wouldn`t be facing the severest recession since the Great Depression, necessitating a massive $700 `bailout!`

Indigenous saving and investment, rather than external capital flows, should be the mainstay of our economy. If we can somehow put our industry and agriculture on a sound footing, if our ruling elite have the necessary credibility, we can certainly tap the foreign currency owned by Pakistanis, both residents and non-residents, for investment.

Pakistan`s government may be poor, but its elite are rich. It should not be difficult for them to raise a substantial amount, if they cough up even a tiny percentage of their foreign assets for a national cause! They are said to have huge assets worth hundreds of billions of dollars abroad.

The slide in the value of the rupee is largely due to the rush on dollars, courtesy the rich elite. The rush on foreign `hard currency` is the very reason the economic crisis has deepened. One wonders what `safe havens` the rich elite of this poor land have in mind, at a time of global financial crisis that is in danger of turning into a global depression?

If people stop buying dollars and stashing them abroad, and if non-essential imports are banned, perhaps the economy can possibly right itself in due course of time.

On a longer-term basis, it is time they start prioritising the real economy, the one in which the people work extremely hard to produce wealth, and control the tendency of the rentier and speculator class that feeds the `casino economy` Unfortunately borrowing from the IMF will only sustain the economy for a little longer before it comes crashing down again.

The policy of credit-addiction has been applied for decades to no real effect. The creditors usually tie down their offers to hard and painful conditionalities — `reforms` that led us nowhere in the past and are unlikely to do so now! The current regime discontinued the subsidies, and exorbitantly increased power charges, thereby compounding the people`s miseries. In the absence of economically productive utilisation of loans, how long will they last?

Pakistani ruling elite, which include the business elite and economic planners, have simply been moving in circles all these years, trying to secure their personal and group interests. Interest groups vie for a piece of the cake and the ruling elite caters to their whims. The planners think they have all the time in the world to keep tinkering with fiscal and monetary policies to `turnaround` the economy.

Both foreign and domestic economic policies are in urgent need of reappraisal, as also resolved by the parliament recently. The repercussions of our acceptance of conditionalities go much beyond the economy! No amount of ad hoc borrowing from external sources can cure the real malady, which are lopsided priorities, corruption, bad management and living beyond means. The economy can only be sustained by honest, hard work and good planning and governance!