A stronger rupee would make our exports costlier for foreign buyers and provide an edge to our regional competitors, like producers of textile goods in India and Bangladesh. This seems to be the prevailing view, and it cannot be rejected outright.

However, looking at the historical record, the question arises: has repeated depreciation of the rupee over time made the national economy export-oriented or import-oriented?

The export-import gap has been rising despite the spurt in exports following almost every currency depreciation. But local exporters had generally to pass on the benefit of the weaker rupee to foreign buyers.

In such situations, while the quantity of goods exported thus increased, the per unit value of the merchandise dropped. Owing to adverse terms of trade that each devaluation brought, there had been a huge transfer of wealth on account of both Pakistan’s costlier imports and cheaper exports, barring during brief periods of boom in international commodity prices.

Between fiscal years 1990-91 and 2007-08, Pakistan’s net ‘barter terms of trade’ showed a ‘significant worsening behaviour,’ according to a study titled ‘Analysing the terms of trade effect on Pakistan’ by Nishat Fatima of the Pakistan Institute of Development Economics. During this period, the term of trade index with 100 for 1990-91 declined to 55 per cent in 2007-08.

According to the study, the worsening terms of trade led to a substantial decrease in GDP in all these 17 years. As a ratio of GDP, the effect averaged minus 1.62 per cent. A report quoting the State Bank of Pakistan said the index stood at 53.91 in the first quarter of 2013.

The frequent, rather almost continuous, currency depreciation in recent years has been coupled with volatile and prohibitive interest rates, discouraging investment. So, we were left with an import-oriented economy with a tardy growth rate which picked up only with huge injections of foreign capital.

Economic growth has been foreign debt/capital-driven while the going was good. Self-reliance was put on the back burner despite this unsustainable growth model. The situation currently seems to be no different, with the rupee gaining strength from the Saudi grant of $1.5 billion.

The persistent rupee depreciation has provided the inefficient export-oriented industries, focused mainly on traditional export products and foreign markets, the ‘crutches’ to hang on. Along with other subsidies, it did away with the need to rapidly improve productivity, value-addition, quality, prices and make goods and services globally competitive.

Today, Bangladesh, with no raw cotton, is giving tough competition to certain segments of Pakistan’s textile industry. But the industry alone cannot be blamed for domestic policy failures.

While setting the exchange rate, the government should not be swayed by the irrational logic of the forex market and currency speculators. It must gradually go back to basics and look at the purchasing power parity (PPP) of the rupee and the dollar.

There has to be some balance, at least in determining the exchange rate, that takes into account the rupee’s PPP and the market exchange rate. It is only then that the rupee will enjoy a greater degree of stability and help improve efficiencies in the economy. This can only be done by stepping up import substitution in areas where the country enjoys domestic advantage while making strenuous efforts to boost exports.

Looking at the immediate impact of a stronger rupee on exports, one cannot ignore that the price of energy, which has been agitating the minds of both businessmen and domestic consumers, will come down.

As is being speculated, it is just a matter of time for the interest rate to come down. After all, rupee appreciation would help reduce inflation. It would also cut the cost of imported inputs that are used in export-oriented industries. What is more significant is that it would end one source of ‘rent-seeking’ that comes in the form of currency devaluation.

Cheaper imports because of a stronger rupee can be managed, wherever needed, with regulatory duties to protect local industries for the short-term. However, existing tax exemptions, based on patronage, should go.

In the current phase of economic development — and this is the general practice worldwide — selective and temporary protectionism in international trade must be combined with a free, least regulated, domestic market, but with curbs on cartels, monopolies and oligopolies, to allow new entrants in different fields of economic activity.

The greatest challenge for the private sector is to liberate itself from the chains of crony capitalism. And the government should provide the right environment for it. A stronger rupee may be seen as a beginning.