Tuesday, May 4, 2010

What would I do were I the finance minister? By ANJUM IBRAHIM

ARTICLE (May 03 2010): Each new Pakistani government has, like its counterpart in other nations developed and developing alike, appointed its own finance minister. However, unlike the rest of the world, the majority of our finance ministers have not been elected but selected with many retired international bureaucrats, a handful of serving commercial bankers and a smattering of economists, who have left this hapless country more vulnerable to crisis than their past performance in their area of expertise would have warranted.

It is very easy to criticise, but difficult to act in a responsible manner given our political milieu, or so has argued many a former finance minister. This is used to explain endorsing policies that have compromised the country's economy time and again. Here are a few examples that highlight the need to hold past finance ministers accountable for their dastardly policy actions.

Salman Shah as the finance minister of the former government must be held accountable for his decision to subsidise oil and its products, which had such disastrous consequences for the economy that the country is still reeling from its effect as attempts to bring the deficit to sustainable levels continue. For him, to argue that it was a cabinet decision cuts no ice because Shah did have the option to resign but chose not to exercise it. Shaukat Aziz's decision to privatise state-owned entities, like Pakistan Steel Mills, on terms and conditions that were regarded as suspect by the country's Supreme Court, damaged the entire privatisation process and he needs to explain his take on the process as opposed to the policy itself.

The decision to freeze foreign currency accounts by the Nawaz Sharif government after the international community stopped all assistance in the aftermath of our nuclear test - the single most disastrous policy decision that had lasting repercussions and compromised foreign inflows as well as eroded domestic confidence, require an explanation.

Benazir Bhutto's decision to fill state-owned institutions with Jiyalas is held responsible for poor performance of the state-owned entities that continue to account for heavy annual budgetary injections to keep them afloat. Z A Bhutto's policy of nationalisation was held to be accountable for plummeting productivity and increasing unemployment levels, though not on the scale as is evident these days with high cost of borrowing and a massive energy shortfall.

Critics counter this contention by pointing out that our finance ministers have been no different from our army dictators: once they are appointed, or once the coup is successful as in the case of military dictators, political considerations outweigh economic considerations. Thus while Pakistan's military dictators have all formed a king's party, and quite easily at that, the members of that party as well as members of the civilian governments have all routinely extracted their pound of flesh - flesh that may consist of looking the other way when they flout public procurement rules, take out right bribes for awarding contracts or indeed get paid for approving lucrative appointments. Such activity requires complicity from the country's bureaucracy as well as the armed forces that have ruled this country for longer than the civilians have. In other words when the PPP alleges that corruption is pandemic in this country and not restricted to politicians and more particularly the PPP politicians they do have a valid point.

In this context what can a finance minister with no political clout do? A qualified finance minister defined as someone with appropriate experience and qualifications may not be what Pakistan needs at this stage. What we do need is a finance minister, who constantly challenges those who appointed him. That this has not been done in the past no longer holds true.

Shaukat Tarin was an honest man and he constantly challenged the insistence of his cabinet colleagues to award a contract to one party over another, and the most glaring example of this is the third party audit that confirmed public apprehensions about the non transparency of the rental power project contracts. In addition he is the first finance minister this country has had who resigned without being coerced into it. The new Advisor to the Prime Minister on Finance has, therefore, an extremely tough act to follow.

What must he do that would make a difference and make him fondly remembered in our history? Unlike Tarin, his expertise is in economics, however, we would hope that he displays as much integrity as was displayed by his predecessor in fighting corruption and tendering a resignation when his hands were tied by his colleagues. But with respect to the budget, he needs to make some radical changes.

One such change must be to allocate adequate amount to education in this country - an objective that is supported by the 18th Amendment that promises to provide education to all. The absorption capacity of this sector is probably low in this country, however, one would hope that the government does allocate 5 percent of the budget to this sector - expenditure that must be monitored and carefully audited to ensure its success.

A literate Pakistan would automatically lead to a more discerning electorate, which may not suit some politicians' re-election plans, and a population less susceptible to dogma of whatever ilk. At the same time, a literate Pakistan would automatically reduce the annual outlay on health and result in a more productive workforce that would increase the country's gross national product. Each subsequent year, thereafter, there must be at least a one percent rise in education budget as a percentage of the total budget till literacy rates are 100 percent.

Secondly and equally importantly the de facto finance minister must trim the development budget to what is doable. It is unfortunate that in this respect, Shaukat Tarin's example must not be emulated as he indicated a development budget rise of over 50 percent which he could not deliver at the end; and within the development budget, there is a need to allocate a hefty 80 percent to enhancing power generation and cutting down on transmission losses. Let us have one infrastructure sector that meets demand and is efficiently run.

On the revenue side, the next budget must end all exemptions, especially those to specific sectors like the income of the rich landlords. In this regard, it is unfortunate that the hundred plus amendments to the Constitution did not include making farm income a Federal subject. Thus there is a concern that exemptions are unlikely and may best be deferred.

If the new Advisor on Finance can just achieve these three policy goals, he would go down in history as the man who changed the economy of Pakistan and put it on the road to wealth.

Source: http://www.brecorder.com/index.php?id=1052080&currPageNo=1&query=&search=&term=&supDate=

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