current affair articles

Appointing the State Bank governor

Despite the restructuring of the State Bank of Pakistan (SBP) over a decade ago, its autonomy question remains unresolved. During the PPP government, two governors resigned due to differences with the then executive. Salim Raza and Shahid Kardar both had to quietly resign rather than resist the temptation of the political executive to spend beyond the monetary policy parameters. The third governor, who recently resigned due to personal reasons, continues the trend. There is a strong argument that elected governments have to deliver on their promises of patronage, given how the political system works. However, without generating sufficient revenues and reforming the taxation system, the expenditures emanate from reckless deficit financing, i.e., printing of notes. This is why Pakistan has witnessed some extraordinary bouts of inflation. Price levels have been rising since the present government took over and only recently they have stabilised. Whatever the finance minister may have said (e.g., hoarding causes price hikes), it is well known that fiscal improvidence and monetary expansion are contributing to inflation. One way to tackle this trend is to enhance the policy rate but this impacts the credit needs of the private sector. Borrowing nearly Rs2 billion a day from the SBP cannot be a prudent or sustainable option. Of course, in the short term, raising revenues may not be possible but the government has to set limits. This is what the SBP has been prescribing. Pakistan’s recourse to the IMF in recent years has resulted in a situation where nearly 25 per cent of the annual budget is reserved for IMF debt repayments. The erosion in the value of the rupee has further increased the value of foreign debt close to Rs500 billion. Each time the government intends to tighten the monetary policy, it increases its domestic debt burden as it happens to be one of the biggest borrowers from the central bank. There is no option but to pursue a tighter fiscal policy with a controlled monetary expansion. Therefore, a robust and an autonomous SBP is vital for economic management. The departure of the SBP governor is not a good sign. There seems to be a regulatory void in the country as the key appointments in various regulatory authorities are vacant. Few are disputed in courts and the ‘loyalty’ test is being applied on potential candidates. It would be a travesty if the SBP is treated as just another government office, for it simply is not. The SBP’s primary role is to issue notes, act as a regulator of the financial system, as the bankers’ bank and as banker to the government, as well as setting the monetary policy. It is also a key actor in managing public debt, foreign exchange and acts as policy adviser to the government on its economic relationships, especially that with international financial institutions. By no means is it a commercial bank as many — including those in the political elite — view it to be. The Musharraf government imported a good commercial banker as the finance minister. This betrays a limited understanding of the way economic policymaking works and why it is important to have professional and experienced economists who can think beyond the imperatives of balancing the books and marketing brands of their ‘success’. The Musharraf bubble burst even before it could be branded and today, many of our economic woes are directly linked to what happened during the period 1999-2007. Dr Ishrat Husain, as a competent manager of the central bank, turned it around and its internal restructuring remains one of our recent success stories. By attracting good professionals and encouraging many to pursue higher education, the SBP has a good team available. This is why its next governor needs to be an economist, and not a financial wizard, to lead the institution and furnish pertinent advice on macroeconomic policy to the government. The SBP is not an attached wing of the finance ministry nor is it a platform to reward a loyalist. Its governor has to provide independent advice, as well as regulate the financial system’s operations. It is hoped that the government would resist the temptation to treat it as just another appointment. TTP’s pre-conditions for peace-talks In relation to all the government-Taliban peace talk hustle a lot have been said from both sides of the opposing spectrums as what the conditions should be, how the talks should proceed, what is going to be offered and what not and so on. However, what came out today was a new piece of thread whereby the negotiators of Pakistani Taliban insurgents said that ‘there was no chance of peace in Pakistan until the government embraces Islamic Sharia law and US-led forces withdraw completely from neighbouring Afghanistan’. So this tough condition came in as a serious heart-breaker to all the high hoping analysts and politicians who were looking forward to the peace talks between the Pakistani government and the Pakistani Talibans which was a beam of hope that could have brought an end to the Tehreek-i-Taliban Pakistan (TTP) insurgency that has rocked the country since 2007. As reported in the media, Maulana Samiul Haq, the head of the TTP's three-man talks team, said, there could be “no peace” in the region while there were still US troops across the border. His comments were corroborated by his fellow TTP negotiator Maulana Abdul Aziz, who also said the TTP's long-held commitment to imposing sharia law across Pakistan was not open to debate. “Without sharia law, the Taliban won't accept (the talks) even one per cent,” he said. “If some factions accept it, then the others won't accept it.” “Their real agenda is sharia,” Aziz said, suggesting that all Pakistan's secular courts based on the common law system be abolished. “I don't think the government will accept this but they should, because war isn't the way forward.” On Afghanistan, Aziz said an endorsement of the security pact with Washington would scupper hopes for regional peace. “We think these (Afghanistan and Pakistan) are two brotherly countries. Peace in Pakistan means peace in Afghanistan and vice versa,” he said. If Afghanistan signs the agreement, he said, “war will continue, and the clash between Muslims and the US will continue.” “If the agreement goes ahead, then the losses they (US) have experienced before, they will experience once again,” he added.“If Americans remain in Afghanistan, there will be no peace in the region, it will be same, it will be unsafe,” said Samiul Haq. It would now be hard to bring about any fruitful results, if the whole system of governance has to be altered before making the TTP’s negotiators to come down to some common ground. The peace talks could become as useless as one could think, if there are to be strict pre-conditions imposed to what would be discussed and done and what not. Let’s see what the talks bring about. A farce gone too far NOW that the Taliban too have nominated their representatives for the negotiations, a state of shambles is unfolding. With both teams more or less standing on the same side of the divide, it is virtually a dialogue within outlawed militant outfits. The government has walked straight into a trap with the Taliban dictating the rules of the game. Now it will be extremely difficult to extricate the country from this intensely dangerous situation. It is a farce that has gone too far. It is all the more theatrical since Nawaz Sharif has set up a four-member team to negotiate with the militants. The team he chose is an interesting mix of a highly controversial ex-intelligence officer, a retired diplomat, a senior journalist and one of his special assistants. Given the soft spot most of these members apparently have for the militant cause, it was not difficult to get the Tehreek-i-Taliban Pakistan’s (TTP) endorsement of the team. The militants could not have wished for a better committee packed with fellow travellers. After all they speak the same language and share the same narrative. Apparently with nothing much to do, the team members spend most of their time projecting themselves on television talk shows. One marvels at the way Rustam Shah Mohmand, a nominee of the Pakistan Tehreek-i-Insaf (PTI) on the team, articulates the Taliban case. Everything will be fine if you give them control of the tribal areas and pull out troops from there, he tells us. So, no big deal; allow the TTP to establish an Islamic emirate in the tribal territory. Never mind if the militants want to extend their rule further to the surrounding districts of KP. Absolutely no harm if Swat is handed back to Mullah Fazlullah and let the TTP control a part of Karachi as well; after all, they’re our brothers. And why must we create problems for the militants if they are helping their Afghan brethren undertake ‘jihad’ against the foreign forces in Afghanistan and hosting holy warriors from other Muslim countries. After all, they are fulfilling their religious obligation. It doesn’t matter if suicide bombers kill some more women and children and continue to blow up schools. ‘Give peace a chance’, don’t we all agree? This argument goes on. It is getting more preposterous after the TTP named its own five-member team for the talks. In a very shrewd move, it picked its representatives from the outside rather than from within its own ranks. It was a masterstroke to include Imran Khan in the team along with hard-core clerics known for their close ties with militant groups. His nomination by the outlawed group may have come as a political embarrassment for the PTI chief, but the TTP’s decision was well calculated. Not only has Imran Khan been one of the most ardent supporters of talks, but to some extent he also owes his party’s victory in the general elections in KP to the militant group. Although he has declined to be part of the team, the TTP can always rely on his support. It’s a politically clever move by the TTP to involve, on its behalf, clerics and leaders of Islamic parties. It not only broadens its support, but also allows the militants space to manipulate public opinion. The talks are to be monitored by a 10-member TTP shura comprising hardened militants with a bounty of millions of rupees on their head. There is a Rs50 million reward for the capture of Fazlullah, the new chief of the TTP. That also raises questions about the legality of the whole process of negotiations. The TTP is a proscribed terrorist organisation, and it is in violation of the Constitution for the state to engage with it. The outfit has declared war on Pakistan and has claimed responsibility for attacking security installations and killing our soldiers. The government would be legitimising all those terrorist actions by unconditionally negotiating with them. There is no indication that the group is willing to give up violence and accept the nation’s Constitution. What the militants really want is the rolling back of the state’s authority from the area of their operation. It has taken the lives of thousands of soldiers to re-establish the writ of the state in most of the tribal territories and pulling back will have disastrous consequences for the country and regional security. One of the myths bought by many of our political leaders is that the TTP is fighting for the democratic and economic rights of the tribal areas. Nothing can be farther from the truth. The fact is that the tribal people have suffered much more through rising Taliban militancy. The militants have slaughtered hundreds of maliks and many more have been killed in suicide bombings on tribal jirgas. The atrocities have forced the people to flee their homes in the conflict areas. It will be disastrous if the TTP is allowed to take control of the tribal belt and enforce its own version of the Sharia system there as is being suggested by members of the government’s negotiating team as well as some political leaders. The people of the tribal areas would be the biggest victims of any such deal. Surrendering to terrorists never brings peace. Conceding to the TTP’s demands would lead to the unravelling of this state. And it will not just be the tribal areas when the entire country is under threat. Regulation, Pakistani style GETTING the government to be an enabler rather than a disabler is the real challenge. The weaknesses of our economic system(s) can be traced to a deficiency of governance at one level or another. The most crucial aspect of this is the desire of the state machinery to regulate most activities, a task carried out by creating visible and invisible road blocks. Small enterprises, in view of their size and limited managerial resources, suffer more than larger enterprises from the cumbersome rules and regulations, their uncertain application and arbitrary amendments with little, if any, redress. There is a need to reduce the footprint of the state by dismantling the overextended regulatory framework and apparatus strangulating private activity, facilitating corruption and shackling the economy’s growth prospects. A large part of the regulatory framework is structured around antiquated and superfluous laws and rules. It exists because of lack of clarity on the role of government, in a world that has changed dramatically over time. Frequently, new products and instruments are available that are more effective mechanisms for achieving the objectives underlying the laws or administrative arrangements for their enforcement. For instance, there are building and electricity inspectors to ensure the safety of private buildings used for public purposes. These services are not required if such buildings are comprehensively covered by insurance companies. Through this instrument the owners of such buildings can be spared the frequent visits of such government functionaries, who would be denied opportunities to extort bribes, while assuring the public’s safety in using these buildings. At times the regulations actually block private efforts to improve productivity, efficiency and sustainability of operations. For instance, the sugar industry needs restructuring to become viable, involving mergers and closures of a number of inefficient sugar mills with small capacities. Unfortunately, provincial government policies prohibit the relocation and consolidation of mills, required for achieving economies of scale and maintaining competitiveness, adversely impacting efficiency and productivity of investments. The theological principle to regulate economic activity based on complete distrust of the market and a belief in the state’s omnipotence has restricted the space for private-sector operations. The role of markets is underestimated in the belief that the state is much more knowledgeable and objective and that markets are often rigged and imperfect and private behaviour shortsighted. Even civil society in Pakistan is suspicious of markets and provides the bureaucracy with an excuse to regulate. The bureaucracy opts for direct controls rather than market-friendly fiscal rewards and punishments not only because of the powers that it gives them to extort money but also because they prefer certainty of command and understand little about the subtlety of induced behaviour. Owing partly to the nature and history of Pakistan’s economic development, where even the middle class was not the product of a dynamic growth process but was created through public-sector employment, we seemingly cannot visualise economic growth without support and patronage. Thus, civil society continues to view the state as an all-powerful paternal entity that is supposed to protect us against all risks and also provide for all occasions. Not surprising then that government continues to be large and unaccountable and rules rather than serves. Flawed concepts drive us to mimic big countries in constructing complicated state apparatus. Unfortunately, donors also provide us uniform advice, persuading us to set up the same institutions as in developed countries. Resultantly, we have regulators for each market, at times two for the same market — for example the State Bank and the SECP are simultaneously regulating financial institutions, and in the case of modarabas there is the third regulator, the religious/Sharia board. In several instances (eg Nepra, Ogra, PTA, Pemra, etc) regulatory bodies have been created more to park retiring, well-connected civil servants who clearly do not possess the skill set required to perform the job to which appointed. The official concept of a typical regulator is the head of the agency, two to three assistants (called ‘members’, again mostly retired bureaucrats), PAs and peons, office space, several cars and mobile phones. How the government views their utility is evident from its insistence that their decisions be implemented only after review and notification by the government. And without competent regulators privatisation could result in a public sector monopoly being replaced with a private sector monopoly. Every good organisation makes periodical attempts to clean its own house. All procedures and practices are subject to a fresh review. However, our governments hardly ever question their own mechanisms and practices, except to protect their interests and those of the civil servants. Many agencies in the public sector are moribund with little or no accountability for the quality of their output, even for delivery of services. Hence, there is a need to redefine its role and the way it carries out its business, which would involve a major reduction in the areas of its activity. Based on the discussion above the logical way forward would not be to review individual legislation and rules, and amend them through patchwork (our standard operating procedure), but to disband all regulatory laws in one sweep, demanding that those wanting regulation of an economic activity should argue their case with supporting regulatory proposals. Of course, such an exercise will have to be well planned so as not to create a void in some essential areas that can be readily identified beforehand. Urban battleground SINCE the killing of Chaudhry Aslam, there’s been growing alarm about the onslaught against Karachi’s police officers. The number of officers killed on the job has been steadily increasing each year, from 41 in 2009 to more than 160 in 2013. The renewed interest in this trend is primarily a manifestation of fears about the outlawed Talibanisation of Pakistan, with each cop killing being viewed as a step further in the Pakistani Taliban’s encroachment of Karachi. But the violence against police officers, and the official and public response to it, has far greater implications for Pakistan’s future than in the context of the fight against the Taliban. The killing of police is hardly a new issue in Karachi, a city in which officers who do their duty, and those who don’t, are equally under threat of violence. When the police stay within their jurisdiction and perform their role as law-enforcers, they become the target of reprisal attacks by the groups they pursue. For example, Aslam made it to the Taliban’s hit list for capturing and killing numerous militants. Similarly, dozens of police officers involved in Operation Clean-Up in the early 1990s have been abducted or killed over the years. Ironically, the police’s failure to enforce the law also leads to the targeting of officers. Karachi is a savage city, the battleground of various violent actors, including political parties, criminal gangs, militant groups and extortionists. The police are yet another violent actor in this embattled landscape: they too are armed, and they too compete for the same resources that criminal elements do — the proceeds from smuggling, prostitution, extortion, and land grabs. The competition for these resources is brutal, and police officers can be killed alongside gangsters and smugglers for taking too much of their share or trespassing on a rival’s turf or takings. Much has been written about how the police need to be made less corrupt and apolitical, not only to improve law-enforcement but also, it increasingly seems, for the sake of their own safety. But the security of police officers also has broader relevance for law and order in the city, and Pakistan. It is troubling that the government has failed to respond to this violence by providing the police with more recruits, training, better equipment and support from paramilitary and military forces, when needed. Rather than reinvigorate the police, the state’s response is often to replace them: think of the Rangers carrying out special operations in Karachi or the Frontier Corps reigning in Balochistan. Even in Swat, where the army was meant to hand over security to local police, it’s instead establishing a cantonment to make its presence permanent and pervasive. The police force’s growing inability to protect itself, and the state’s instinct to replace rather than reform, risk making the institution redundant. As it is, many officers in Karachi are refusing to show up for duty, while others stay sequestered in thanas, scared of what might befall them if they play an active role. The gradual withdrawal of the police from the urban landscape will only exacerbate existing problems, not least, it will allow violent groups to proliferate and operate unchecked. Even more than it is today, Karachi will become a city of enclaves, each guarded by a private militia, each primed to fight its neighbours. And in a fast urbanising Pakistan, other cities may start to face similar challenges in the absence of strong policing. The retreat of the police from its traditional law-enforcing role will also result in the expansion of the military’s role in domestic law-enforcement. We have already seen this cycle play out in Balochistan, and also witnessed its grave consequences. Militaries, even when they operate in a domestic context, continue to tout the mantra of national security to avoid transparency and accountability. They also impose security from the top down as a self-serving entitlement, rather than a service to the public. But the domestic need for policing has little to do with securing the nation — it’s about maintaining order from the bottom up, community by community. The difference between the army and the police is the difference between orders and negotiations, protocol and understanding, big picture and hyper local, absolute means and arbitration. Communities need policing, not securing, to function and endure. Moreover, a growing military role in domestic law and order would enable the army to hold on to power and large budgets at a time when the institution should be scaling back to create more space for civilian governments. Ensuring that the police feel safe enough to do their jobs is essential for Pakistan’s democratic trajectory. Poor and dead THERE is hardly a family in Pakistan, middle-class or above, that does not have a relative in Canada, or a juvenile working in its kitchen at home. As one migrant put it, he does not mind having to vacuum his home in Toronto but he would look askance at equating himself with a servant by clearing the meal table in Lahore. Here, we live our own version of the British sitcom Downton Abbey, in which the landed gentry lived in comfort above while their menial staff slaved in the pantry below. In that series, when the young daughter of the aristocrat lapses by marrying their driver, it is the driver who moves up the social ladder into the big house, not the other way round. A serial shown on a local television channel had a parallel storyline with a difference. A middle-class Pakistani father discovers his daughter is interested in some boy of whom he disapproves. Irate, he forces her to marry their young servant, and when that marriage collapses (the servant becomes more interested in his master’s wealth than his daughter), the father makes her marry her juvenile underage cousin. Millions of families throughout Pakistan must have watched that serial and empathised with the trauma of the young girl. Not one of them is likely to recall the plight of the teenaged housemaids assaulted or beaten to death by their educated employers. If anything of them remains, it will be as statistics in a thin file, buried in the cemetery known as police records. In Pakistan, the good die young; poor housemaids die even younger. Whoever chooses to write a social history of Pakistan will find it difficult to pinpoint the exact moment our hearts stopped beating for our fellow citizens. Was it in the 1950s when the anti-Ahmadi riots stained the Mall at Lahore red? Was it when we chose after 1971 to ignore the sufferings of the thousands of prisoners of war and civilians in protective custody? Was it when in 2007 we watched the streets of Rawalpindi being hosed down, diluting a fallen leader’s blood as it trickled down the drain? Or was it when we saw body bags being delivered to hospitals throughout the country as if they were daily medical supplies? Of course, there never is any one single trauma, no unique Pearl Harbour, that causes a nation to galvanise into a unified remonstrance. Reaction to tragedy is a slow process. It takes time. Meanwhile, crises, like the relentless drip of water on a prisoner’s forehead, gradually numb a people’s consciousness into an inert, unresisting acceptance. Pakistan can be described as a country whose leadership over the years has institutionalised callousness and indifference to a level where it is indistinguishable from public policy. The state’s ownership of its citizens has been privatised. It no longer has a stake or interest in them. Were doomsday to occur tomorrow, were Pakistan to implode suddenly, it would solve all its myriad problems. It would certainly satisfy many an armchair Cassandra. Countries with a population of over 180 million humans, however, do not disappear into a black hole of non-existence. They continue to exist because like Mount Everest they are there. The more mundane reason is that international creditors cannot bring themselves to unplug the life-support system that sustains such bedridden economies. The truth is nations survive because ultimately the will of the people is more resilient than the wilful errancy of its leadership. In India, class barriers have been eroded by the tsunami of widespread education. In Pakistan, class barriers have themselves become the barriers to the wider dissemination of education. And again, while India has demonstrated that mass education produces a vibrant middle class, Pakistan has inverted that maxim and made the middle class responsible for its own education. Anyone in government concerned with education would be hard-pressed to provide a clear vision of the contours of Pakistanis in 2030. Will they be open-minded citizens capable of integrating in a modern world? Will they continue to remain stratified in the present class distinctions? Or will they migrate and clear tables in Toronto? There are some who would maintain that the churning of a troubled childhood produces geniuses. Take Charles Dickens and Charlie Chaplin. Both of them spent their precious childhood doing menial labour. Dr Abdus Salam (our sole Nobel laureate) came from a backwater: Maghiana in Jhang district. Dr Salam’s birthday anniversary on Jan 29 should be celebrated as our equivalent of Martin Luther King Day in the US. King lived and died championing emancipation; Salam lived and died advocating education. Salam, Dickens, and Chaplin are names those unfortunate maidservants would never have recognised. But then, they could barely write their own. Another round PAKISTAN blipped briefly into view here in Washington D.C. this week as Sartaj Aziz and Khawaja Asif did the circuit in another round of the Strategic Dialogue. In a visit less than 72 hours long, they met with the secretary of state and gave a press conference. Then came meetings with the CIA chief, the secretaries of energy and defence, and a two-hour long intense session with National Security Adviser Susan Rice. The president of the Overseas Private Investment Corporation (Opic) and Rajiv Shah, administrator of USAID also managed to get a word in edgewise in a dialogue that is otherwise all about Afghanistan. Along the way they managed a stop at the Atlantic Council where adviser Sartaj Aziz spoke about “his vision for regional peace”. The talk focused mostly on why regional cooperation is the key to economic development, as well as overcoming the menace of terrorism. A few throwaway caveats by adviser Aziz pointed to the supposedly toughening attitudes towards terrorism back in Islamabad — reference to the “so-called Mujahideen” of the 1980s, for instance. But the adviser also showed a nuanced view of the menace of terror. The threat operates on three layers he said: sectarian, ethnic and ideological. In different places, at different times, these three levels combine in varying ways to produce a multifaceted danger that will take skill as well as force to eliminate. Shuja Nawaz, director of the South Asia Centre and host of the event, cut to the chase in the question-answer period, where he opened with this question: are the people of Pakistan and the various institutions of state behind you in this fight? “There is a broad spectrum of opinion in Pakistan regarding the question of terrorism and how to deal with it,” replied Aziz, and went on to talk about the role that conspiracy theories have played in muddying the discourse. “But democracy is about building consensus,” he reassured the audience, and that his government was comfortable it would be able to go into any operation with a consensus. Alan Kronstadt — the lead researcher on Pakistan at the Congressional Research Service — was the first to speak from the floor. America has given billions of dollars over the years to Pakistan as counterinsurgency support. Where has all this money gone? “Those funds were not wasted,” countered the adviser. They were used to build forces that can be used in the fight, but these forces now need better coordination, particularly intelligence cooperation. Those forces are now dispersed across the provinces, and across the various services. “We need to pull together the scattered elements of our experience,” he said, to fashion an effective response with all the tools that those billions have created. The advisor was careful to remind his audience that America needs to think about more than just its own interests when departing. “We hope Pakistan’s concerns can also be kept in mind, unlike in the early 1990s when our concerns were not kept in mind when that war drew to a close.” What role will Pakistan play in Afghanistan following America’s departure? The adviser sought to put such anxieties at ease by pointing out that he himself has had three separate meetings with Karzai since the new government came to power in Pakistan, following which the stream of negative comments about Pakistan subsided. “In his own meeting, Prime Minister Sharif managed to convince Karzai that Pakistan sees Afghanistan’s stability as important to its own stability.” Sure, but how deep does that reassurance run? Between Pindi and Kabul might yet be a bad place to find yourself in a few years’ time. But here’s what’s on my mind when I look at post-withdrawal Afghanistan: central to securing Afghanistan’s stability is the Afghan National Army. And the ANA is wholly dependent on foreign funding to pay its expenses. In 2013, the US pumped close to $12 billion into the ANA, but its annual expense is estimated at just above $6bn post departure, assuming costs don’t spiral out of control. Thus far the US has had little success finding partners willing to help foot this bill in any meaningful amount. An army without a fiscal apparatus behind it is like a car without fuel. And a car that runs out of fuel in a bad neighbourhood usually gets stripped down and sold for parts. The vision for regional peace and development that adviser Sartaj Aziz laid out before us was one that is widely accepted, and stays within the bounds agreed on in Istanbul 2011: trade, particularly in natural gas, can tie the region together in mutually beneficial partnerships. The massive energy surpluses of Central Asia and Iran can feed the growing energy hunger of South Asia for decades to come, and create transit rents along the way, enough to give the ANA maybe half of a fiscal framework. But governments in Pakistan have been talking about this agenda for almost a decade now. Some progress towards regional integration has indeed been made over this time, and it would be unfair to doubt the adviser’s wisdom in urging his government to adopt this course, as well as the latter’s sincerity in pursuing it. But as Aziz Sahib himself pointed out, not everything that needs to happen to realise this vision is under the control of the government of Pakistan.