Musharraf’s administration and Pakistan’s economy

Musharraf’s administration and Pakistan’s economy

Sharif Shuja

PAKISTANIS have much to smile about today. Economic growth is up, according to the conventional economic indicators. This good news comes after a dismal period of more than a decade, especially in the commodity-producing sector. Exports have increased substantially in the past year and the current account shows ever-growing surpluses. Capital inflows are up, and the relatively small stock market has boomed. Budgetary trends are consistent with the declared targets. While inflation rates have gone up recently, they are still within manageable limits. All this would have apppeared unlikely even a few years ago.

The 1990s was a very adverse decade as far as the material conditions of most Pakistani people were concerned. Average growth rates of national income plummeted to less than 4 per cent per annum, compared to the earlier decade’s rates of more than 6 per cent per annum. As a result, the incidence of poverty rose in 1999 to 34 per cent, from 17 per cent two decades earlier. This deceleration in growth was associated with low rates of investment, as private investment failed to pick up and counterbalance the decline in public spending.

Though the sanctions imposed on Pakistan during that decade over its nuclear programme had been a factor, the economic mismanagement of the government played a greater role. Industrial growth rates almost halved, from 8.2 per cent to 4.8 per cent per annum. The percentage of households living in absolute poverty increased from 21.4 per cent in 1990-91 to 40 per cent in 2000-01. By June 2001, more than 56 million Pakistanis were living below the official poverty line.

The Pakistani pattern has been characterised as ‘growth without development’, because, despite its respectable per capita growth over the second half of the twentieth century, the country systematically underperformed on most social and political indicators such as education, health, sanitation, gender equality, fertility, corruption, political instability and violence, and democracy.

General Pervez Musharraf, immediately after taking power, concentrated on developing the economy and on improving governance. With a population now approaching 150 million, and a high incidence of poverty, there can be no doubt that the primary challenge for any government would be to improve the living standards of the people. Musharraf’s administration concentrated on the macro-management of the economy, in order to lay the foundation for sustained growth. Infrastructure, in terms of communications, energy and water supply, was given priority, with the long-neglected railway network receiving attention so that it became profitable. Highways and ports remained priority areas, notably in Balochistan, where the Gwadar Port project proceeded apace, as did the Saindak project, both with Chinese assistance. Social services, including education and health facilities, were allotted increased resources, with special emphasis on science and technology.

In the contemporary world, a country’s international relationships can contribute significantly to its economic development. Musharraf gave due weight to this aspect, and sought the cooperation of major international financial institutions such as the World Bank and the IMF, in stabilising the economy in general, and managing the country’s debt problem in particular. In several ways, the willingness of the Musharraf regime to be a key ally of the US in the war on terror had substantial effects upon the economy. It has meant the waiver or rescheduling of more than one-third of Pakistan’s external debt, which provided much-needed short-term relief. It has led to increased foreign aid flowing to Pakistan.

At present, Pakistan is receiving from the USA $700 million annually in bilateral assistance, $84 million monthly to defer cost incurred in the anti-terrorist effort and $1.7 billion in funds from the International Financial Institutions (IFIs) where US support is crucial. Pakistan has benefited from debt rescheduling and streamlining of remittances from overseas Pakistani workers. Islamabad has also taken measures to make the environment attractive for foreign investors. There has been a steady increase in Direct Foreign Investment (DFI) over recent years. This is partly due to the investor-friendly policies, and partly to efforts made by Musharraf to induce friendly countries to invest in Pakistan.

Some key results have been achieved. This significant cash inflow has enabled the government to balance its books, increase economic growth and get back in the market for new weapons for the military. Additionally, revenue collection was improved, resulting in a substantial decrease in the budgetary deficit. The rate of inflation that had been in double digits over several years came down. The country’s foreign exchange reserves grew at a fast pace, and rose to nearly $12 billion, which is equivalent to the cost of imports for 10 to 11 months. The most important breakthrough was achieved when exports rose above the static level of $8 billion in 2001, which was maintained, with the target of $11 billion for the current year well within reach.

The main thrust of financial management has been that the government promotes an environment conducive to investment and growth, and the private sector then utilises the opportunities for profitable activity. There are several elements involved in improving the environment. These include reduction of the debt burden, improving governance, and liberalisation of credit for the private sector. However, the government has still done little to improve the conditions of ordinary people, either in terms of more productive employment opportunities or better provision of basic services. As has been the case, the current growth is essentially benefiting a small elite that includes both the landed and industrial classes and the urban professional groups. India’s recent elections saw the ruling Hindu nationalist government voted out by millions of voters who felt left behind by the economic boom. This result has an impact on neighbouring Pakistan. The Musharraf government faces a similar challenge as its surging economy benefits only a small elite.

Recently the US 9/11 Commission called for a long-term US commitment to Pakistan, to ensure Pakistan’s stability and dependability as an ally. It says, ‘If Musharraf stands for enlightened moderation in a fight for his life and for the life of his country, the United States should be willing to make hard choices too, and make the difficult long-term commitment to the future of Pakistan … Sustaining the current scale of aid to Pakistan, the United States should support Pakistan’s government in its struggle against extremists with a comprehensive effort that extends from military aid to support for better education, so long as Pakistan’s leaders remain willing to make difficult choices of their own’.

The recommendation will bear fruit only if the US commitment is to the welfare of 150 million Pakistanis and not merely to the survival of General Musharraf’s regime or the dominance of the Pakistani military-intelligence complex. With defence gobbling up a major portion of the budget, key sectors like health and education bear the burden. Those who suffer are the ordinary people–more and more continue to fall below the poverty line in the trade-offs made to support the military.

There are three power centres in Pakistan: (1) the feudalists and the elite with their money; (2) the army with the guns and (3) the ulema with its jehadi army and the claim to be ‘protectors of Islam’. Most Pakistani people are lost somewhere in between.

The problem for democracy or social justice in Pakistan is that it is being controlled by a handful of families, and the system they created is corrupt and self-serving. The people have seen no significant developments. Pakistan’s political elite has been notably unsuccessful in nation and state-building. The army works in tandem with the feudal landlords, who have been allowed to keep their huge lands. Land reform is not done in Pakistan. This feudalism is at the heart of the country’s problems. Landlords are quite powerful.

The feudal prototype in Pakistan consists of landlords with large families possessing hundreds or even thousands of acres of land. They seldom make any direct contribution to agricultural production. Instead, all work is done by peasants or tenants who live at subsistence level. The landlord, by virtue of his ownership and control of such vast amounts of land and human resources, is powerful enough to influence the distribution of water, fertilisers, tractor permits and agricultural credit, and consequently exercises considerable influence over the revenue, police and judicial administration of the area. The landlord is, thus, lord and master. Such absolute power can easily corrupt, and it is no wonder that the feudal system in Pakistan is humanly degrading.

The system, which some critics say is parasitical at its very root, induces a state of mind which may be called the feudal mentality. This can be defined as an attitude of selfishness and arrogance on the part of the landlords. It is an attitude nurtured by excessive wealth and power, while honesty, justice, love of learning and respect for the law have all but disappeared. Having such a mentality, when members of feudal families obtain responsible positions in civil service, business, industry and politics, their influence is multiplied in all directions. Indeed, the worsening moral, social, economic and political crisis facing this country can be attributed mainly to the powerful feudal influences operating there.

Almost half of Pakistan’s Gross National Product and the bulk of its export earnings are derived primarily from the agricultural sector controlled by a few thousand feudal families. Armed with a monopoly of economic power, they easily pre-empted political power. The political power of the feudal class is derived from their economic power, while their political power enables them to consolidate and expand their economic power. This combination has given them control over national affairs and enabled them to thwart democracy in maintaining their hegemony.

The Pakistani historian and political scientist Iftikhar H. Malik, for example, argues that, having been given land and power by the British, the feudals have managed to hang on to both ever since by using a combination of winning and brute force. ‘A new generation of aristocrats’, Malik writes, ‘with degrees from privileged Western universities, have seen to it that their near monopoly of national politics and the economy remains unchallenged. In lieu of political support to a regime, whether military or quasi-democratic, feudalists exact favours through ministerial positions, loans and property allocations’. Malik argues that in periods of both military and civilian rule the feudal families have been the power behind the throne.

The feudals employ some strategies to remain in powerful positions. Many have married their children to senior figures in the army or bureaucracy. Both sides gain from the arrangement: the civil servant or army officer wins some of the social respectability associated with land-ownership; the feudals gain access to corridors of power. Another tactic is for close relatives to join different political parties and contest elections against each other. Whoever wins the election, the family will have someone in the National Assembly.

General Musharraf’s regime stated its concern about the feudals. In February 2000 it announced plans to carry out a massive land reform programme to remove what one official described as ‘centuries old feudalism’. In October 2000 it issued a report ‘Decentralisation and the Revolution of Power’ that called for rapid land redistribution so as to empower landless peasants. The report was impressive, but there is little indication that Musharraf is serious about implementing land reform. To do so would involve a major confrontation with some of Pakistan’s most astute politicians.

The events of September 11 further reduced the chances of Musharraf tackling the feudal issue. With Islamic extremists clearly defined as the enemy, Musharraf knows that he cannot afford to jeopardise the feudals’ support. Since the feudals are more committed than most Pakistanis to the maintenance of the status quo, Musharraf is well aware that they can be relied upon to back up and support his campaign against the forces of radical Islam. This demonstrates that the Pakistani army is not only a military machine, but also a political organisation.

The army is also a major player in the Pakistani economy. Taken together, the military’s enterprises account for nearly 3 per cent of Pakistan’s gross national product. General Musharraf presides over a vast industrial, commercial and real estate empire, with assets and investments of at least US$5 billion. This military-commercial complex is a little-known network of some foundations that were originally created to promote the welfare of retired servicemen, but have since branched out into numerous money-making ventures manned by 18,000 serving and retired military officers.

The military has five major business groups. The biggest–in fact it is the biggest conglomerate in the country–is the Fauji Foundation. It has assets worth nearly $2 billion, which include sugar mills, chemical plants and fertiliser factories. In the energy sector it owns a gas company and power plants. As well as generating funds, the Fauji Foundation runs its own welfare programmes and owns over 800 educational institutions and more than 100 hospitals.

The second largest military business is the Army Welfare Trust (AWT). While the Ministry of Defence runs the Fauji Foundation, the AWT is answerable to the Pakistan army. Its assets, worth nearly one billion US dollars, include one of Pakistan’s biggest financial institutions, the Askari Bank. It also owns farms, real estate businesses, sugar mills and plants which produce petrochemicals, pharmaceuticals and shoes. Unlike the Fauji Foundation, the AWT does not run any charitable projects. About half of the income generated by the AWT is used to pay army pensions.

The remaining three military businesses, which are all run by the army, are the Frontier Works Organisation (FWO), the National Logistics Cell and the Special Communications Organisation. The FWO is a road construction company which, since 1966, has undertaken projects worth around half a billion US dollars. The Special Communications Organisation is responsible for supplying telecommunications services to the people of Pakistani-held Kashmir. The National Logistics Cell, which employs serving army officers, is a transport company, with a fleet of over 2,000 vehicles. It has also been involved in road and bridge construction.

One of the reasons that the army’s economic units are so successful is that they are in a good position to lobby for tax exemptions and subsidies. By managing to register itself as a charity, for example, the Fauji Foundation has avoided paying tax on its income. The military’s enterprises also benefit from the fact that Pakistani consumers favour organisations which have army backing because they believe they will never be allowed to go bankrupt. The extent of the military’s economic interests is significant. Its direct interest in the performance of the Pakistani economy provides another motive for its involvement in the political process.

One interesting point to note here is that almost all the major government and semi-government departments, including diplomatic posts, are today headed by retired or serving army personnel. This more than anything else demonstrates the regime’s lack of confidence in the ability of civilians to efficiently run national affairs. Musharraf does have a vision of where Pakistan should be going. He wants a modernist, liberal Pakistan in which there is religious tolerance and respect for the law. He has provided a certain stability and economic growth in Pakistan. The country is on track for three successive 5 per cent GDP increases, and foreign reserves now stand at US$10 billion.

I may not support Musharraf as a ruler in uniform, but admit that he has been good for the nation, and I do appreciate his taking smart decisions at the time of need. After September 11 he found the courage to say that the Islamic radicals did not represent mainstream Pakistani opinion. Many Pakistanis welcomed his remarks with enthusiasm. However, some segments of Pakistan’s security force and the army are supporters of the Islamists. The alliance between Islamists and Pakistan’s military has the potential to frustrate anti-terrorist operations, and radicalise key segments of the Islamic world. What can be done? Unless Pakistan backs away from Islamist radicalism, and unless the all-powerful military can be persuaded to gradually reform on secular lines, the country’s vulnerability to radical Islamist politics will not wane. I, as a Pakistani citizen living abroad, have based this judgement on my research and long-time working experience in Pakistan.

There is no reason why Pakistan should not return to the situation prevalent in the 1950s when half of Pakistan’s exports went to India and 32 per cent of its imports came from India. Again, with a peaceful border, both sides can reduce their troop deployment by 200,000 or more and their military spending by 20 to 30 per cent. Politically too, peace between them will help break the toxic link between communalism and mutual hostility. Phobias and hatred towards each other are crucial to stoking religion-based politics in Pakistan as well as in India. It will take a great deal of effort, and not a little imagination, to sustain the peace process and make it yield positive results until a durable reconciliation is reached.

COPYRIGHT 2005 Contemporary Review Company Ltd.

COPYRIGHT 2005 Gale Group