Wednesday, 16 September 2009

Zubair Iqbal's reply

ConYour comments, though oft-repeated, are valuable and should be considered for continued progress toward an alternative solution--if possible--for Pakistan's economic malaise.

There is little doubt in the argument that unless macroeconomic conditions are right and sustainable, economic development cannot be maintained. Hence, there is little merit is being flippant about macroeconomics, even by a Nobel laureate. I agree that one should not disregard the building blocks--which in cases such as subsidies to maintain a "wrong" exchange rate and promote protectionism are a cause of macroeconomic imbalances--but a tighter macroeconomic stance strictly adhered to, would force corrections to prices and, thus, help restore sustainable growth.

"Conditionality" has been given a bad name by countries like Pakistan which have been able to break it and still continue to obtain financing. I agree conditionality works only if strictly enforced--it is in the long term interest of the country as well as creditor countries. But so-called political realities get in the way--they are not a favor to Pakistan, they are a palliative which string the poor country along. I would rather have strict conditionality, in particular, by donor ,who should be ready to "walk away" if Pakistan is not willing to set its house in order. One conditionality that I would strongly support is linking disbursements by donors under the Tokyo Agreement to a permanent and durable improvement in tax revenue generation so that Pakistan will have the in-house capacity to finance its fiscal needs. This will not only strengthen its ability to face shocks, but also improve equity with sound economic development.

In this context, I fail to understand the merit of your criticism of improving revenue generation. Simply because the Shaukat Aziz adminstration squandered the incease in revenues does not make the proposed policy "wrong".

It is good to know that you consider the issue of poor governance as central to the malaise that we are facing. The question is how do you fix it--a slow process will get us nowhere as we are already lagging behind our competitors. I would like to see a dramatic--convulsive?--action to get the masses force a change in the attitudes of the ruling-- as you call it, rent-seeking-- elites. A confrontation with tax evaders could break the vicious circle, reduce the power of rent-seekers, and get a virtuous cycle moving.

I would encourage you to propose an alternative approach to addressing the economic problems that we are currently facing. I am sure, after having spent almost thirty years advocating the IMF-supported adjustment programs, you have acquired the wisdom and experience to propound an alternative.