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    We must repair our reputation

    We must repair our reputation

    By Shahid Javed Burki

    PAKISTAN today is more dependent on the world outside than ever before. Unfortunately the outside world has a poor impression of the country. This poses a serious problem for the policymakers in Islamabad. For as long as foreigners continue to view us with indifference - even, sometimes, with contempt and hostility - we cannot resolve our most difficult problem at this time: a serious constraint on the availability of resources.

    This has prompted the current managers of the economy to focus so much of their attention on putting in place yet another IMF programme. Our relations with the Fund have once again become a national obsession. Everyday most newspapers carry stories about the state of play between the Fund and the authorities in Islamabad. Should we have gotten so involved with the Fund once again or should we have adopted a different approach?

    Before I answer this question let me go back to history for a while. In the few months I was in charge of the Pakistani economy, I also spent a great deal of time in securing the release of a tranche from the IMF. The Fund had cited the change in government in Islamabad as the reason for not releasing the money. The Fund asked me a question: "How could we assume that the programme under implementation would be owned by the Leghari-Khalid administration?" I persuaded the Fund that we were not only planning to implement the negotiated programme. Our intention was to go much further and put in place a programme for bringing about a deep structural change in the economy.

    The Fund staff seemed persuaded but there was a surprise waiting for me when I arrived in Washington with my team to negotiate the release of the tranche. Michel Camdesus, the Fund's managing director, told me that the Fund Board was deeply disappointed with Pakistan. It was troubled that a dozen programmes negotiated over several years had failed midway through implementation. Given this poor record, Mr. Camdesus expected a rough passage of the Pakistani programme through the Board. He invited me to attend the Fund's Board - a rare occasion when a finance minister is invited to speak to the Board - to improve Pakistan's impression and reputation. "You have to carry a part of my burden," he told me.

    I have a vivid memory of the Fund Board meeting. It lasted for several hours. I spoke for about an hour and then responded for another two to the questions - often very hostile - raised by the Board members. The impression that I came out with was of a very poor reputation about Pakistan among the principal shareholders of the Fund. This poor impression was freely communicated by the Board members to their constituencies, including the private sector. In other words, Fund Board's unhappiness with Pakistan had spread to the private financial markets.

    Some of the lessons I learnt from that experience have been incorporated in the articles I have written for these pages. I have advocated that the only reasonable way of dealing with the Fund is to start with a well-developed programme that encompasses three things - stabilization, adjustment and revival of growth. The little information that I have on the ongoing dialogue with the Fund suggests that we have laboured on the first two, leaving the important subject of economic revival to a later day. That is a mistake.

    To move further along with this essay, let me pose four questions: Why have we focused so much of our attention on doing a deal with the Fund? Why have we taken a relatively narrow stance in developing a programme of reform that would be acceptable to the Fund? How critical is a programme with the Fund in restoring our reputation with the foreign investment community? Is there something besides a successfully negotiated - as against a successfully implemented - Fund programme we need to do to restore the confidence in us of the economic and financial world? It will take more than one weekly column to answer these questions. I seek my readers' indulgence to spread the answers over a couple of weeks. This is an important subject and we need to go over it carefully.

    It is the correct strategy to focus on getting a Fund programme in place. That is the only way we can deal with a serious liquidity as well as an equally serious solvency crisis we currently face. Liquidity crisis is the result of our inability to service the large payments that are due in the next few months. To be able to do this, we need a quick and respectable infusion of capital from the Fund. But the solvency crisis is even more serious.

    In an earlier article I had provided some simple arithmetic on the solvency situation created by the large and increasing burden of debt. We built up this burden for the simple reason that for a very long time we ignored with abandon the simple principle that every prudent housewife follows: it never pays to spend more than the breadwinner earns.

    We ignored this principle for we were spoiled by the generosity of our friends and that of our own people living and working abroad. The foreigner was generous because he needed us. We were once an important ally for Washington in its duel with Soviet communism. The Pakistani expatriate community was also very helpful for it had great faith in the country's future and considerable confidence that the money remitted would not be forfeited. Neither of these equations are in play today.

    Following the collapse of the Soviet Union, we have lost our usefulness for Washington. If Washington has a lingering interest in us, it is for negative rather than positive reasons. It was the strength of our convictions and the muscle of our armed forces that made Pakistan into a useful ally for so long. Now we are seen allied with a combination of forces the US views poorly. On a widely watched TV programme - CBS's Sixty Minutes - broadcast a couple of Sundays ago the portrait presented of Pakistan was that of a country in which the central authority has lost control over the forces representing Islamic fundamentalism. The item was presented under the title: "Pakistan: America's Worst Nightmare."

    But we have not only lost the confidence of the foreign community. We have also forfeited the trust of our own expatriates. We did this by freezing thousands of foreign exchange accounts maintained by them in the banks in Pakistan. This was a careless and callous act committed in haste and without much reflection on its long-term consequences. Our citizens living abroad are now reluctant to place their trust in the country's financial institutions once again.

    In the light of all this we have to forge new economic relationships with the world outside. We have to reduce our dependence on official capital flows - for these will not be available to us in large amounts - and look to private investors to provide the resources we so desperately need. But to get the international financiers to take interest in us, we have to improve our image first. This must not be just an exercise in public relations. It has to be aimed at a substantive improvement in the areas in which we are seen to have failed. In this context, it is good to start with the Fund but to approach that institution in a different way. We have to look for the Fund's support for a comprehensive programme that begins to address our weaknesses and failures. And we must not seek just one tranche that would tide us over for a few months. We should seek capital flows that would keep flowing in for a number of years. But for that to happen we need to repair our reputation. We can do that by presenting and implementing a comprehensive package of reform that deals with all the fault lines in our economy.

    It is in the area of governance where our perceived failure is doing the greatest amount of damage to our reputation. Some of this perception is based on reality and some of it is the result of our recent history. It is correct that we have not succeeded in creating a set of institutions to serve different classes of people - investors and consumers in the country and potential foreign investors. There is a widespread concern that Pakistan does not have the institutional base to encourage foreign investment. When the investment community speaks of an institutional base it means a legal system that can be relied upon to quickly settle contractual disputes. It means a bureaucracy that can work quickly to take actions required under numerous regulations imposed by the state on private activity, both domestic and foreign. It means an educational system that could provide needed human resources. And, it means a security system that is able to protect life and property. Absent any of these, and the foreign investor becomes exceedingly cautious. That is where the situation is today with respect to investors' sentiment about Pakistan.

    The negative view of poor governance in Pakistan has also been exacerbated by the frequent changes in administrations and the frequent changes in the political structure. Every analysis of Pakistan in the western press and in western academic journals starts with a reminder to the readers that during our fifty-three year history, the country was under the direct rule of the military for twenty-five years. The military has provided four heads of government since 1958 and it is not clear whether this tradition will end anytime soon.

    To the impression of instability produced by this see-saw between military and civilian rule is the country's propensity to dump a great deal of invective on displaced leadership. This tradition goes back to the start of the Ayub Khan era when all the politicians who had preceded him were labelled incompetent crooks. And so it has been ever since. This has strengthened the impression abroad of Pakistan always remaining in the grip of extremely corrupt politicians and bureaucrats. Each new administration has attempted to give the impression of working hard and in a clean way to improve the economic well being of Pakistan's large population. And each administration was condemned vigorously by the one that succeeded it.

    The only way to develop a better reputation for the country's governance is to give it a political structure that will stay in place and to create a system of accountability that deals with corruption on an ongoing basis. The fact that the Indian courts have recently sentenced a former prime minister and a former chief minister to long jail terms for corruption has not deterred business people to do business in that country. This news was treated in a positive rather than a negative way. It was seen as a reflection of a system of governance that works. It was not viewed as another episode in the life of a very corrupt system.

    In the next week's article I will present some ideas on how we can engage the international financial institutions - the IMF and the various multilateral development banks - in a deep restructuring of our economy. And once having engaged these institutions, I will suggest how we can spread the word to the resource-rich international financial community that Pakistan, once again, is ready to do business.

    #2
    My sincere thanks to Mr. Burki for an open and honest article. I hope that Pakistanis take note of this and work towards making the south Asia subcontinent a better palce for all.

    In a nutshell, Mr. Burki is admitting that you can't be successful if you carry a jihadi gun in one hand and a tin cup in the other. Pakistan has a choice to make. Does it want to become a Turky or an Afghanistan in the future.

    Comment


      #3
      Hey i don't want to be no turkey.
      To close to being called a chicken.

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      CROIRE A L'INCROYABLE
      You can't fix stupid. So might as well troll them!

      Comment


        #4
        Prince_x, may I ask where this article came from?

        I would like to read further material from him...


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        They shoot partypoopers, don't they?

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