By Salman Shah | From the Newspaper Dawn 5 August
ACCORDING to a top secret memorandum of the British chiefs of staff dated July 1947: “The area of [West] Pakistan is strategically the most important in the continent of India and the majority of our [British] strategic requirements could be met by an agreement with Pakistan alone.”
In a related British memorandum dated May 1948 it was stated: “The Indus valley, western Punjab and Balochistan are vital to any strategic plans for the defence of the all-important Muslim belt … the oil supplies of the Middle East.” It also stated that Pakistan was the “keystone of the strategic arch of the wide and vulnerable waters of the Indian Ocean”.
Going further back in our history after the first war of independence in 1857, Sir Syed Ahmed Khan showed the defeated and demoralised Muslims the way forward, on a path based on adopting modern knowledge and practices. His Anglo-Muslim University at Aligarh produced our founding fathers and leadership, leading to the birth of Pakistan. The Quaid, a product of British legal training, also envisaged a modern Pakistan firmly anchored as a strategic partner in the contemporary western global system.
Yet today, we find ourselves strategically isolated and mistrusted in the western world. In our alliances with the West we have had mixed results. Whereas, for example, South Korea through its alliances has been able to achieve unparalleled economic and social development, we have not.
For the first decade of our existence, we were literally trying to learn how to govern a new country suffering from birth pangs.
With the advent of military rule in 1958, we started cementing western alliances and also became a role model for private sector-led economic growth and development.
However the first shock to the system came from the 1965 war with India that shook the foundations of our western alliances.
The economic miracle of the 1960s evaporated in the 1970s when the PPP went on a nationalisation spree, badly damaging the private sector which had hitherto been the engine of growth. As a result, the commanding heights of the economy were captured by the state at the expense of the markets. In 2011, huge loss-making white elephants are still a millstone around our budget.
The 1980s bought us cash bounties as well as the scourge of the Afghan jihad, religious extremism, drugs, Kalashnikovs, money laundering and black wealth while the masses continued to suffer. The public sector continued to rule the roost. The Soviet Union collapsed and the market economy spread across the world.
However, in Pakistan, the 1990s was characterised as the lost decade. The alliances of the Afghan war were broken. The reforms needed to usher in the market economy were patchy, and by the time Nawaz Sharif was overthrown in a military coup in 1999, the country was under sanctions, foreign currency accounts had been frozen, interest rates were over 20 per cent, public debt was over 100 per cent of GDP and foreign exchange reserves held less than a few weeks of imports.
The country’s economy had been shattered. Investors had lost their shirts. With Pakistan’s credit rating of selective default the stock market was at its all-time low of around 1,000 points (compared to its peak of around 16,000 in March 2008).
Gen Musharraf took over and 9/11 happened. Alliances were restored, sanctions were lifted, market reforms were implemented and the economy prospered. Privatisation, liberalisation and deregulation propelled the $60bn GDP in 1998 to over $175bn in 2008. Investment reached an all-time high, currency was stable, the stock market was a leader of the emerging markets, public debt dropped to around 53 per cent of GDP. Credit ratings improved three notches and employment generation dramatically reduced poverty.
The new democratic dispensation turned the economic management upside down, politics took ascendancy over economics, capital flight was engineered and foreign investment transactions were cancelled, privatisation was abandoned in an era of escalating oil prices.
Now we are victims of stagflation, high unemployment rising poverty, dropping investment, weakening currency, worsening law and order, rising terrorism, growing corruption and endemic misgovernance. The size of the state is increasing and the private sector is shrinking. The relationship with the West is in disarray and the nation seems to be turning inward, angry and isolationist. So where do we go from here?
We are still one of the most strategically placed countries in the most important part of the world. We have the sixth largest and perhaps the youngest population in the world. Location-wise, there are many opportunities. To the northwest, post-war Afghanistan can be a big boost for us. Second, the entire resource-rich Central Asia region is overcoming its teething problems and looking for trade, oil and gas exports and logistic connections. Beyond it, a reasserting, friendly Russia can be a big plus.
Third, in the west, Iran and Arab competition needs to be managed as a source for economic and social development. Fourth, the Arab awakening needs a peaceful transition to a democratic and prosperous future. Fifth, the vast Indian Ocean rim from the African coast, the Persian Gulf, the Arabian Sea to the straits of Malacca can be an area for explosive rivalries as well as economic growth and trade in which Pakistan has a key role to play.
Sixth, neighbouring China is fast becoming the second-largest economy in the world with huge possibilities for us. Seventh, our colossal neighbour to the east has a dynamic economy but has yet to give us economic or political space. When it realises the need to engage us meaningfully the dividends can be enormous.
Thus, exploiting Pakistan’s geography and demography would be a big advantage for us and inter alia must form the cornerstone of our future alliances, market-based economic vision and governance strategies. One thing is apparent that whenever we had functioning alliances, ascendancy of the markets and better governance, the economy functioned better than otherwise.
It is also clear that South Korea through its alliances, markets and governance took its economy from $8bn in 1970 to over $1,000bn in 2010 whereas over the same time period we took our $10bn economy in 1970 to a minuscule $175bn in 2010.
Going forward, the questions facing us are: can we build an internationally integrated vibrant market economy that doubles every 10 years? Can we wipe out poverty in our lifetime? The answers to these questions are a cautious ‘yes’ provided we put a game plan in place to achieve all this and much more.
The writer is a former caretaker finance minister.