Samundar Paar

Monday, July 05, 2010

'Don't use price controls to curb inflation'

Shahid Burki concluded his presentation by saying if somehow the country could pass through difficult times Pakistan could grow in a more sustainable way than ever before at about six to seven per cent.

His presentation was followed by a session of questions and answers. Questions and his responses are as follows:

Q: What is your explanation of volatile and highly erratic behavior of the Stock Exchange? Is it manipulated as average Pakistanis suspect?

Burki: My explanation is that it’s based on confidence and there has been loss of confidence on the part of the investor, particularly foreign investors. Karachi stock market did receive fairly significant flow of capital (about six billion dollars). The political turmoil followed by Benazir’s assassination seemed to be endless. Foreign money has just gone out and people have taken money from the stock market and it’s not surprising that there has been such a plunge in the market.

Q: What do you mean by a credible and capable government?

Burki: I think we should give democracy a real chance, but then we should expect political parties also to act in a democratic way. I find it rather disturbing that two of the largest political parties, although talking about restoration of democracy are being run as family enterprises.

The PPP loses its chairman and a will is read out according to which a 19-year kid is appointed as the chairman. I think there was some interview, I didn’t see it myself, where this person, I think Zardari, is asked, is this a piece of furniture that you’re going to hand over to your son. On the other side Nawaz Sharif’s political party is equally dominated by the family.

A political scientist and I did a report for the government of the UK as to how the political system should be developed. We suggested that there should be a code of conduct for the political parties. Elections to top leadership positions should be mandatory. Accounts should be made public and there should be periodic issues of manifestoes and these should be discussed in open forums. The legislatures should have members given appropriate staff to do serious legislative work rather than just become lobbyists for helping their constituencies by exercising pressure on bureaucracy and so on.

In my more optimistic moments I say to myself perhaps these teething problems the country is facing a transition from a military rule to a democratic rule. And in my more pessimistic times I say to myself isn’t it extraordinary that the two leaders who hold the most power are not members of the parliament. How can they with a straight face say we want to make the parliament the decision making body of the country when they themselves are not are not part of it.

Q: Economic prospects of other parts of the country other than Punjab?

Burki: Pakistan is an interesting federation in which each federating unit has its own international border that’s why it’s important to know the provincial autonomy.

If you give provincial autonomy then the growth models they’ll pursue will be different. I think there is a lot of potential for the Punjab to grow. It has a few difficulties compared to other provinces.

But the Frontier province also has a potential but a very different economic structure. It has a very different kind of agriculture system; much more horticulture than crop culture; smaller pieces of land instead of large land holdings; small industrial enterprises; a lot of workmanship in various areas, etc. Moreover it has a tremendous amount of talent available for transport and trade. These are the things which need to be encouraged.

Balochistan is an extremely rich province. It has a lot of resources. Something the government is sitting on and not publicizing very much is that Balochistan has discovered copper deposits. If developed they will be second largest copper deposits in the world after Chile. And there are investors coming into the country or wanting to come into the country.

So, Balochistan could become a very important provider of natural resources like copper and gold. Then it has a lot of potential for generating wind power. The Chinese were at one stage interested in investing in one thousand megawatt unit for generating wind power. Port of Gwadar has been developed and it could become a fairly important source of commerce. Sindh has its own problems whereas Karachi is a highly developed city.

If you give provinces a lot of freedom that will begin to show itself in terms of growth rate and poverty alleviation, etc.

Q: What are your views about the last imported PM Mr. Shaukat Aziz?

Burki: Not much purpose is going to be served by trashing or thrashing Shaukat Aziz. I was his critic for a very long time, although at one stage I was a good friend of his. I think a number of his policies were totally misguided. I don’t think he understood the strategic side of management of development. He relied much more on the availability of easy resources and he got them wherever they were available from.

I had very difficult conversations with him when he was the prime minister. And I could see that he was not interested in strategizing and he was very sensitive about any kind of criticism. And some of his things have done a lot of damage. This neglect of the power sector is entirely his failure. I once used a term ‘Casino Economics’ which a newspaper put on the front page. And promptly I got a call from SA saying that’s very unfortunate use of words.

So, I said to him you tell me I’ve never seen anywhere in the world the following: That you buy a piece of land without knowing what you are buying. You buy a file which is your right to purchase a piece of land at some future date and you have no idea where it is. I said isn’t this ‘Casino Economics’. So, there was a lot of speculation during this period. We’re now paying the price.

I wish I could be sure that our banking system is secure. He says that one of his great achievements is the development of the financial sector. I think he’s right over there. But I’d like to feel more comfortable that given the kind of exposures the banks have to consumer lending (motorcycles, cars, refrigerators, etc.) if there is a serious downturn of economy whether these will impact on the health of the banks. It is something to worry about.

Q: Do you think more money going into nonmilitary aid will make any difference in bridging the gap between the rich and poor?

Burki: It could certainly help. But it has to be targeted into the sectors where money has been short. But Pakistani experience is that even when you put a lot of money if you don’t have the structures that then it’s wasted.

A case in point is a program the WB once ran called SAP (Social Action Program). A lot of money went into this. But educational departments and various provinces were so weak that it resulted in a lot of corruption and waste of money.

Q: What do you think of the National Commission for Human Development under Mr. Nasim Ashraf?

A: I think he’s done some useful work. He’s become controversial. The concept is very good that you build capacity at the local level to get money and put into a right kind of use. He’s shown me some stuff done by independent people which seems to suggest that he’s been succeeding.

There is another controversial program although I think positively about it. This is Higher Education Commission which has an enormous amount of money. My own view is that it’s changing the structure. You now have a new paradigm in terms of rewards given to teachers. University professor has become an extremely well paid individual. Good bright people are now thinking of entering public service will give serious consideration to education which I think is very positive development.

Q: You’ve indicated that the elite was focused on reestablishment of the independent judiciary and the common people seemed to care a very little. What your prognosis on the reestablishment. What would be the effect?

Burki: The elite is focused on bringing the judges back who were fired by Musharraf. But I don’t think the elite is very much interested in improving the performance of the judiciary and that’s where the real issue is. If you look at some of the work that Asian Development Bank and the World Bank have done, it shows very clearly that the systems where legal system is good translates into not only rapid economic development but also more evenly based economic progress because people have recourse to the judicial system if things go wrong. Now the changing of a handful of judges is not going to resolve this problem. It calls for much more fundamental reforms like training for judges, code of conduct for judges and salaries of judges. The ADB has a very interesting program and they are prepared to put in hundreds of millions of dollars. I don’t know where it is going.