In mid-November, the government unveiled some measures that indicated a welcome, if belated, change in its earlier insouciance towards the economy and its management.
Many of the measures undertaken seemed largely intended to reassure the IMF and other friendly donors that it had awakened to its responsibility in economic management and was keen to build a monitoring-and-oversight structure that would guarantee that the funds obtained are used with prudence and sagacity and yield commensurate results.
Whether it is a reversal of the Musharraf regimes virtual disbandment of the planning machinery and its capture by the Generals cronies, is not yet clear. The steps taken so far are a far cry from the ideal institutional structure needed to ensure the achievement of development goals on a continual and sustained, rather than on an ad hoc basis and stop-and-go manner, as had been the case for much of the last three decades. Indeed, some of the steps taken e.g., the emergence of multiple centres of direction of economic management, raise doubts and confusion about the real intentions behind them.
After the many hiccups suffered during the course of the transition from election to assumption of power, the government awakened to the need for choosing an economic team to deal with the looming crisis. The budget exercise was undertaken somewhat perfunctorily, as the budget-makers were hamstrung by the commitments already made by the outgoing regime, which continued to insist on continuity, rather than change, leaving little room for its manoeuvre.
Several factors like political strife with the coalition allies, the judicial crisis, the insurgency in FATA and Baluchistan, galloping inflation and load-shedding distracted attention of the government from the real problems of the economy. It was also creating nervousness in the business community and the stock market, giving rise to capital flight and depreciation of the rupee.
The confluence of these factors were further reinforced by two other factors, namely the continued violation of Pakistani territory by US forces and the deterioration in the US financial crisis.
These factors forced the governments hands to confront the rapidly deteriorating financial situation highlighted by the rapid depletion of foreign exchange reserves by about $10 billion between July and October, 2008, and by a depreciation of the rupee by almost a third vis a vis the dollar, bringing it to the brink of default on its foreign loans by the end of the year.
A new non-political head of the finance ministry, Mr Shaukat Tarin, a former banker, with the title of finance advisor was appointed with the specific mandate of tackling the financial mess and preventing a possible default.
The newly-elected President, as well as the newly-appointed Finance Adviser, began a search of viable strategies to look for reliable donors who would roll out the needed cash.
After visiting a number of countries and forming a group of Friends of Pakistan in New York, who would be willing to support both the immediate and medium-term financial needs, Mr Tarin came up with three plans. Plans A (temporary relief from donors) was a non-starter and Plan B (long-term commitment by trusted friends and allies) was a pie in the sky.
With Richard Bouchers terse remark there was no money on the table in a preliminary meeting of Friends of Pakistan in late October and the largely unfruitful results of the high-profile foreign tours, the government was left with its last resort of seeking the assistance from IMF. The latter was only too eager to oblige at a time when its own raison detre, at least in its present form, was becoming questionable, notwithstanding the recent efforts to resuscitate it to deal with the global economic crisis.
President Zardari himself was averse to knocking the IMFs door, which is an anathema to a populist politician, especially when he was attempting to craft new terms of endearment with the United States. He was keen to present the war on the Afghan border as our own. The same logic was used to present the IMF agreement as a home-grown plan to make the bitter pill to be administered later, a bit more palatable.
Even so, the initiative taken by the government to form a Panel of Economists, under the chairmanship of Dr Hafiz Pasha to assist it in preparation of a stabilisation plan is a welcome move. Such ad hoc exercises, in the absence of a stronger commitment to systematic research and regular exchanges among competent experts and research institutes, often yield insignificant results. They are prone to be used by incumbent governments for their own narrow ends and limited agendas. They do little to help in the candid elaboration of the choices facing the nation. To be useful and productive, such exercises need to be undertaken with adequate preparation in independent fora.
In the past, the Panel of Economists were set up to review the work of the Planning Commission embedded in the five-yearly plans. That tradition has long been given up, both as a result of the jettisoning of the planning process since the 1970s and the resort to ad hoc economic management, largely under the combined auspices of national and international bureaucrats.
It is about time that the planning process be reinstated and a more systematic, as well as innovative, approach be adopted. That would require the resumption of the Five-Year Plans discontinued since the 1980s which were supplanted by Medium Term Plan Framework (MTPF) under the influence of the IMF and the World Bank.
Indeed, the entire structure of the planning machinery needs to be reviewed by the Parliament to synchronise it with the changed political and economic situation. The key positions of Deputy Chairman, Chief Economist and members of the Commission should not be filled arbitrarily, but based on strict criteria relevant to the post, in order to give its work the necessary credibility.
At present the Deputy Chairman is a re-instated bureaucrat, chosen more for his connection than for his vision and expertise, the part-time Chief Economist, though qualified, wears two other hats as full-time director and vice-chancellor of PIDE, which are supposedly autonomous institutions; the commission members are retired civilian and military officials.
To complement the planning machinery, there is also a need for establishing and funding academic and research institutions, which currently survive on donor and consultancy funds.
Unfortunately, Pakistan has a had poor tradition of conducting independent research on economic and social issues and an even poorer record of using it as an input into planning and policy-making. This is largely the result of continued dependence on foreign aid inflows, which often come with their own complementary baggage of policy advice, rendering the formulation of home-grown policy packages largely surreal.
There is, therefore, a need for a more robust institutional structure for planning and economic management to ensure that the economy attains a sustainable path of development which it has continually veered away from in the past.
