Big business seems to have taken over the PTI-led coalition government. All those powerful lobbies representing various vested interests like the automobile industry, the sugar mafia, the real estate racket, the engineering bonanza etc., led from behind the scene by the even more powerful Overseas Investors Chambers of Commerce and Industry have over the nine months chewed away the entire socio-economic road-map of Naya Pakistan to implement which the ruling Party had entered the government in August, last year.
Signaling the complete take-over was the ouster of Asad Umar from the finance ministry. Asad’s team has disappeared along with him. The Finance Secretary has already been changed. The other day the SBP governor, Tariq Bajwa submitted his resignation and the FBR Chairman, Dr. Jahanzeb Khan stood transferred. The incoming PM’s advisor on finance Hafiz Shaikh is expected to bring his own team. Shaikh is a former IMF man who has also worked with the Musharraf government, first as Sindh’s finance minister and then as privatization minister at the Centre. Next we see him as the finance minister in the Zardari cabinet. And not surprisingly he is being joined by an IMF man as the SBP governor. The new faces that appeared on scene following the mind-boggling changes at the top mark the unfolding of a new socio-economic road-map that leads Pakistan straight into the Washington Consensus trap.
Fund’s policy prescriptions
This trap is made up of a set of 10 economic policy prescriptions considered to constitute the “standard” reform package promoted for crisis-wracked developing countries by Washington, D.C.-based institutions such as the International Monetary Fund (IMF), World Bank and United States Department of the Treasury. The term was first used in 1989 by English economist John Williamson. The prescriptions encompassed policies in such areas as macroeconomic stabilization, economic opening with respect to both trade and investment, and the expansion of market forces within the domestic economy.
Subsequent to Williamson’s use of the terminology, the phrase Washington Consensus has come to be used fairly widely in a second, broader sense, to refer to a more general orientation towards a strongly market-based approach (sometimes described as market fundamentalism or neoliberalism).
The Consensus as originally stated by Williamson included ten broad sets of relatively specific policy recommendations:
- Fiscal policy discipline, with avoidance of large fiscal deficits relative to GDP;
- Redirection of public spending from subsidies (“especially indiscriminate subsidies”) toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment;
- Tax reform, broadening the tax base and adopting moderate marginal tax rates;
- Interest rates that are market determined and positive (but moderate) in real terms;
- Competitive exchange rates;
- Trade liberalization: liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs;
- Liberalization of inward foreign direct investment;
- Privatization of state enterprises;
- Deregulation: abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudential oversight of financial institutions;
- Legal security for property rights.
The main reason why the PTI’s socio-economic road-map could be chewed away so easily and that too by the lobbyists of the big business was that it was based on unfunded information and unconfirmed reports without any underpinning by universally recognized principles of political economy.
Road-map for social well-fare state
An elected Prime Minister or/and his finance minister need not be professional economists. But since the manifesto of the PTI had promised to establish a social-welfare state on the lines of Riasat-i-Madina, one had expected the two, Imran Khan and Asad Umar to know as to what socio-economic policies were needed to be followed to achieve this objective. It turns out, they didn’t even know what they were talking about or promising from the container. For example, in the very first month of his term the PM was talking about creating wealth by promoting the country’s private sector. He seemed totally ignorant of the fact that no social-welfare state can be established by promoting the private sector. It only inequality that gets promoted when you promote the private sector This is what free market economy has proven: The world’s 62 richest billionaires have as much wealth as the bottom half of the world’s population, according to a new report from Oxfam International. The wealthiest have seen their net worth soar over the five years ending in 2017. Back in 2010, it took 388 mega-rich people to own as much as half the world. And the Top 1% own more than everyone else combined — a milestone reached in 2015, a year earlier than Oxfam had predicted.
It was state capital not private capital that had actually created any assets and/or wealth in the country during all these 71 years of our existence as an independent country.
Most of the major industries in the country in the early days were set up using the state capital and not by private capital. In fact, even textile and chemical industries used to be set up with state capital by the PIDC and then sold to private sector for peanuts.
One of the main policy points in the ten-point Washington Consensus is broadening of tax base. We have had about 12 Fund programmes in recent years. But none of these programmes could succeed in broadening the tax base because our private sector does not want to pay its taxes. On the other hand, the IMF since it is basically a developed world’s instrument for promoting free market economy and discourage planned economies has readily given a waiver on this issue every time a government failed to accomplish what the Fund had prescribed.
The interregnum provided by the nationalism spree is another story deserving a separate treatment. But here again there is enough evidence that ZA Bhutto was sent to gallows on trumped up charges because of, among other things, he was all but ready to implement radical taxation reforms with tax on agriculture income as its flagship reform. One must also keep in mind that ZAB did not nationalise any of the privately owned textile mills or industries that were set up in the country by foreign investors. And in the short span of four years he had also created assets like Heavy Mechanical Complex, Heavy Electrical Complex, Fertilser factories, Machine Tool factory and Special Steel factory etc. in the public sector. All essential for setting up import substitution industries.
During President Zia’s regime with Ghulam Ishaq holding the finance portfolio in his economically ignorant hands the regime not only ate away the assets created by ZAB in the public sector but it made the country go into the reverse direction while trying to denationalize the units that Bhutto had nationalized, ending up bureaucratising the economy. For running the government GIK would borrow from nationalized banks at rates less than 06 per cent while the banks were mobilizing resources at 10-15 per cent. This was the surest way to destroy the country’s banking system and keep a legitimate tax culture from taking roots in the country.
And it was about this time that the term users’ charges was introduced in our socio-economic litany. This was the beginning of the end of the social welfare model of economy the first PPP government had tried to introduce. We suddenly entered the luxury of free market economy which has led us into the trap called Washington Consensus.
And by this time the infamous multilateral aid agency, the Paris Club had started dictating our annual budgets. Successive annual budgets were being framed on the basis of the anticipated project and non-project aid for the year which were chosen keeping in mind the economic interests of the donors and not that of the recipient. Once when the then planning minister Dr. Mehbubul Haq was asked about being a consistent client of the Paris Club, his answer was revealing. He said the foreign aid is in fact an expression of confidence of donors in our economic health!
What the then official economic managers had refused to see was that out of each aid dollar, 99 cents would go back to the donors in the shape of consultation fee, imports from donors dictated by transfer pricing system, shipping charges etc. And the residual cent would be pocketed by the corrupt civil-military bureaucracy.
An impossible task
The model of Imran’s Naya Pakistan was built around simplistic assumptions such as: tax collection would double to Rs8 trillion simply because people trusted Imran Khan and therefore would pay their due taxes honestly. Or that foreign exchange reserves would go up in large numbers because Imran’s well-wishers in foreign countries would start remitting billions of dollars because they trusted him and were certain that he would not steal from the public exchequre as did the Sharifs and the Bhuttos.
The annual money laundering amounting to $10 billion, as estimated by Imran would be saved because the corrupt rulers would have disappeared as soon as he took over the reins of the country
And the siphoned off money amounting to $200 billion stashed outside Pakistan would be brought back the very next day after he is installed in the PM’s office. With this money all our foreign debt would be repaid and Pakistan would still be left with $100 billion. With no more foreign debt to pay and foreign reserves going up by a colossal $100 billion, the PTI promised the following: one crore jobs over five years and making 50 lakh housing units.
It did not take more than eight months to burst the Naya Pakistan bubble. And now he wants to build his social welfare state on the lines of Riasat-i-Madina with the help of the IMF! An oxymoronic idea, to say the least.