Karachi: Pasban Democratic Party President Altaf Shakoor has said that the rulers are ready to entrap ‘Naya Pakistan’ in old snare of debt. Addressing a crowded press conference at the Karachi Press Club (KPC) here Wednesday that the rulers from the day one were ready to burden Pakistan with more foreign loans and they just befooled the nation that they had more option than to extend their begging bowl to the door of International Monetary Fund (IMF). Renowned economist and Dean of Institute of Business Management (IoBM) Dr Shahida Wizarat said if the rulers show sincerity with the nation and country there are really some alternatives to the IMF loans. She said our rulers are making same mistake over and over again to seek IMF loans, adding no country in the world has ever got economic freedom with the IMF recipe. Quoting Einstein she said: “The definition of insanity is doing the same thing over and over again, but expecting different results.” She reminded that the rate of growth of Pakistan’s economy was quite impressive prior to 1990, but it declined thereafter. Borrowings from the IMF causing massive increase in debt and the conditionalities gave rise to the most serious growth crisis Pakistan has ever faced. This was reflected by a stagnating economy, de-industrialization, closing down of more than 5000 industrial units, massive unemployment, decline in real wages, increase in hunger and poverty. Dr Wizarat said there was hardly any development after getting the IMF loans that is why the 1990s is known as the lost decade. She said the growth and development crises gave effect to a distributional crisis. The rich got richer and the poor got poorer. According to an ADB estimate, of the total population living in the cities 50 % were living below the poverty line, whereas in rural Sindh the percentage was as high as 85%. She said the economic crisis led to increase in crime, robberies, suicides and murders. This was followed by political polarization and instability in the country resulting in downfalls of governments. She said the standard IMF policy prescription for countries faced with balance of payment crisis is to devalue the currency which through reduction in export prices is expected to expand the demand for exports. By making imports more expensive the demand for imports is expected to be reduced. This narrative does not take low elasticity of demand and supply of exports and imports into cognizance. She said with low demand and supply elasticities, the expansion in exports and the reduction in imports might not happen, as a result the trade deficit instead of declining, might actually wide.Dr Wizarat said devaluation by increasing the price of imports unleashes inflation, which the IMF tries to curtail through monetary tightening, resulting in decline in investments, output and employment. IMF’s external sector strategy has been used unsuccessfully in Pakistan since the 1990s. While devaluation has not reduced the trade deficit, increase in interest rates to combat inflation results in recession. She said she has already formulated an alternative strategy which is superior to the IMF strategy on account of the following: First, with hindsight we know that devaluations for the last many years have not increased exports nor reduced the demand for imports; and any reduction in import demand is at a very high cost to the economy in the form of deindustrialization. “We are also cognizant of the adverse ramifications of devaluation on inflation, investment, output and employment”, she added. in view of the above, she proposed a ‘selective’ demand restraint rather than ‘across the board’ demand restraint. Second, she added, I have tried to pass on the cost of adjustment to the well to do segments of the Pakistani population that have been beneficiaries of current policies. Third, the proposed strategy tries to break the tradeoff between economic adjustment and economic growth by trying to bring about an ‘expansionary adjustment’ rather than a ‘recessionary adjustment’. Fourth, I am not trying to increase foreign exchange reserves by increasing exports only, but have focused on expanding exports, reducing imports, increasing remittances, foreign investment and financial assets to increase the flow of foreign exchange reserves. Dr Wizarat proposed that as short term measures the import of luxury and consumer goods should be banned and essential consumer goods should be imported on barter. She said a selective demand restraint rather than across the board demand restraint reduces the import demand for consumer and luxury goods, creating space for the import of essential capital goods, industrial raw material and machinery required for economic development. The strategy also passes on the cost of adjustment to elites and wealthy classes, instead of the middle and poor classes. The cost borne by the wealthy classes will be marginal as compared with the tremendous socio-economic political cost entailed in the IMF strategy. She said that import of essential goods like petroleum through barter trade can also release the pressure on foreign exchange reserves. Moreover, it can bring about an ‘expansionary adjustment’, rather than a recessionary adjustment entailed in the IMF strategy. As medium to long term measures, she suggested to exploring substitutes for essential imports. She said the demand for petroleum products can be reduced by switching to alternatives sources like wind, solar, nuclear and hyderal power. Similarly,demand for edible oil can be reduced through education and inculcating awareness of excessive consumption of fats as is customary in our diets.She also urged for exploring alternative export commodities and markets. She said Pakistan being an agricultural country has a lot of potential for exporting agricultural products for which we have to find alternative export markets. Dr Wizarat also suggested adopting gold reserve management strategy. She said after the abandonment of the gold standard, central banks hold major portion of their reserves in currencies, but allocate a certain portion to be maintained in gold. Central banks now resort to trading in gold in a crisis management situation only. However, India and Israel are successfully using gold reserve management to maintain their liquid foreign exchange reserves by buying gold quietly from private suppliers and selling it at an appropriate time to enhance their foreign exchange reserves. The gold reserve management strategy can be used to strengthen the liquid foreign exchange reserves when required through a buy back agreement in dollars. The economic expert urged implementation of Cartegna Protocol and Phyto sanitary standards. “If Pakistan wants to avert free fall in the export of food, cotton and cotton manufactures, it will have to ensure quality assurance of its products. It will have to adopt Cartagena Protocols on risk assessment and biodiversity and pass the Labeling Law so that we can categorize our exports into organic, hybrid and Bt.” She said we have to decide whether we want to keep obliging seed companies by increasing the demand for their GM seeds, which they can’t sell in West (due to health conscious customers) at the cost of losing our export markets and ending up with a serious crisis in our current account and balance of payments. She said sovereign countries charge for the use of their infrastructure, highways, air ways, etc; but Pakistan’s highways, roads, air passages, etc have been made available to oblige ‘friends’. Multinational companies (MNCs) are also getting Pakistan’s resources almost free and earning lucrative returns on them. We need to charge market-based rates for the use of these facilities by foreign companies and governments. She suggested that all agreements signed between Pakistan, MNCs and governments need to be revisited. She said capital flight has been a source of great concern for economic stability of the country. Flight of capital is being done both legally and illegally through a very liberal foreign exchange regime for transfer of foreign exchange for education, medical treatments, holidays, etc and the use of credit cards. Pakistan can learn a lot from the experience of other countries. A foreign exchange regime in accordance with our own macroeconomic needs must be crafted to responds to the challenges instead of copying the liberal regimes and IMF dictates blindly. She said the government needs to make new policy measures to attract foreign remittances and introduce policies that ensure people’s investments earn good returns within the country. Dr Wizarat recommended that we repatriate looted Pakistani assets transferred abroad and allocate percentages of these for debt servicing, construction of dams and other development projects. A taskforce comprising of NAB officials, economists and others can be constituted to work out the modalities. She said the public finance regime can be made equitable, progressive and self reliant through increase the percentage of direct taxes to at least 50 % of total taxes generated. Wealthy segments of the economy should be brought within the tax net. These include imposition of taxes on incomes generated in agriculture, stock exchanges, real estate, etc. She said the increased revenues that come through increase in taxes be directed towards increasing health and education budgets in development expenditures. Attractive saving schemes need to be developed that will increase savings from their dismal rates. She said while CPEC is taking care of investments in the power, transport and communication sectors, complimentary government investment in social infrastructure and facilities will help in overhauling the structure and crowding in of private investments as well. She said using transfer payments to increase the real income of the lower middle class and poorer segments of the population by providing quality health and education. However, Iqbal Hashmi, Chief Organiser Pasban Democratic Party, said that the rulers instead of relying upon the foreign consultants should take benefit from the expertise of our own experts to steer the country from prevailing economic crisis, which would be further aggravated if the rulers entangled the Naya Pakistan in old trap of IMF loans.
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