Pakistan is finally close to an agreement with the International Monetory Fund. The writing had been on the wall for long as interest rates climbed, utilities became expensive and inflation soared. The voices of the people have been shifting and growing disgruntled. There is an argument, however, for giving the incumbents some latitude given the poor performance of the previous governments.
The government needs to realize that it needs to set its house in order. Unless that is done, visits by foreign leaders, assistance from friendly countries and prospects of hitting oil and gas reserves won’t help.
Concerted efforts have in the past led to economic miracles. Four countries stand out in this regard. They are Taiwan, Japan, South Korea and China. The East Asian development model can also help Pakistan prosper.
Each of the above named countries has sustained double digit growth for longer than a decade. They have thus surprised the world with their agility in economic decision making, infrastructure building and finally technological sophistication. Three policy elements have been key to their achievements. They are: agriculture sector reforms, export oriented manufacturing and financial repression.
The government needs to realize that it needs to set its house in order. Unless that is done, visits by foreign leaders, assistance from friendly countries and prospects of hitting oil and gas reserves won’t help.
Concerted efforts have in the past led to economic miracles. Four countries stand out in this regard. They are Taiwan, Japan, South Korea and China. The East Asian development model can also help Pakistan prosper
The governments were able to strip big landowners of their large estates, depriving them of their political clout. The huge tracts were then divided into small high-yield land holdings. This resulted in an agricultural surplus.
These governments realised that taking their industrial sector to the next level required introduction of high-end technologies. This, in turn required, capital to import the machinery and talent. They, therfore, focused on exports. Increasing the exports is a great way to generating the cash needed for development. It requires economies of scale, low energy costs and competitiveness. An export orientation creates a pressure for minimizing costs and promotes a technological catch-up so that the industry fares better in the longer term.
However, an export orientation wouldn’t have worked in isolation. The interest rates, capital controls and the exchange rate, too, had to be favourable. The East Asian governments engaged in extreme financial repression, maintaining reasonable interest rates and tight capital controls. This spared these coutries from extreme fluctuations of exchange rates that were to prove the undoing of Thailand and Indonesia during the Asian Financial Crisis of 1998. It was by maintaining low exchange rates that these countries ended up leapfrogging from poor to rich economies in a matter of years.
In Pakistan, however, we see a different kind of forces at work. Only recently the key interest rates has been raised to 10.75 per cent. Inflation has touched a five-year high of 9.4 per cent. The exchange rate has been on a slippery slope. The rupee has reached the historical low of 141 to US dollar in the inter-bank market. Petrol prices have been raised by Rs 6 a litre.
The land owning class refuses to allow inclusive agriculture.
The depreciation of the rupee will not help the exporters much unless the cost of doing business is brought down. The government needs to incentivise the installation of solar and other forms of renewable energy.
There is a compelling need to learn from our neighbors and divert all our energies, attention and efforts to implementing the East Asian Development model. This will require strong political will, a wise economic policy and structural changes to start with.
The writer is a freelaner