The Economics of Kerry-Lugar

That opposition leaders and conspiracy journalists continue threaten to deny the funding offered by the Americans in the Kerry-Lugar bill shows that they have a fundamental misunderstanding of basic economics. While they mistakenly proclaim that the bill is a threat to Pakistan’s sovereignty, a real threat to Pakistan looms: economic collapse. The best option for Pakistani people is to accept the investment offered in Kerry-Lugar. Here’s why.

According to Finance Minister Shaukat Tareen, if Kerry-Lugar is not approved then Pakistan will face a budget deficit of $800 million.

Finance minister said: “The bill is under discussion in senate and if it is not passed by the senate then we would have to choice but no seek IMF’s help to fight war against terrorism and for the social development.” This was said in accordance with the weakening dollar which has compelled the government to take immediate steps with the help of State Bank of Pakistan (SBP), to convert foreign reserves in two or three different currencies. Tareen said that this is utterly shameful for us and we do not want to beg money from others, but it is now inevitable that this process would continue from IMF. “Pakistan will receive an amount of $521 million by November 15 from IMF”, he added. He said that value added tax is being introduced from July 1, 2010 suggestions and steps are being taken in this regard.

He stated that we would not launch any of the schemes for whitening of money so that the common people could be saved from paying direct taxes, adding that everyone in the country would be included in the tax net. He said that if there is any conflict between Planning Commission of Pakistan and Economic Advisory Council, the Planning Commission should end and the Economic Advisory Council should be maintained and remain intact.

The fact is that Pakistan requires some assistance from other nations at this time. We are in the midst of both a global economic recession and fighting a battle against extremist militants that threaten not only our own independence, but the peace of democracies around the world. For this reason, our friends in the US are not giving us alms, they are aiding their partner, Pakistan.

Opponents of Kerry-Lugar make arguments about national pride, but when it comes time to support the nation economically, they are nowhere to be found.

The “Ghairat” lobby, always eager to mobilize street protests of the “Go America Go” variety, never runs a campaign to get the nation to pay taxes. Ditto for the industrialists and traders that support the various factions of the Pakistan Muslim League and the landowners that are incharge of the Pakistan People”s Party. Few Pakistanis know we have a tax-to-GDP ratio of 8%, even below Ghana, which collects 15% of its GDP as revenue.

It is fashionable to say we will break the proverbial begging bowl (kashkol) and tighten our belts. This is a good populist slogan much beloved of some Urdu columnists. As prime minister, Mian Nawaz Sharif championed this view and became rather popular among middle class urban Pakistanis. He started the National Debt Relief Program with the explicit purpose of raising donations from overseas and rich Pakistanis. Only $178.3 million were collected against the then outstanding national debt of $35 billion. Of this only $28 million was in donations, $1.6 million in Qarz-e-Hasana, and $148 million was in profit bearing deposits. So much for “Ghairat” and hyper nationalism trumping economic realities.

As we have proven in a previous post, the non-military investments that are made in Kerry-Lugar will help build Pakistan’s economy. The economics are not in doubt. If a free and democratic Pakistan is to survive, we will require some assistance. This is not a question of national pride, nor is it a question of sovereignity. It is a simple case of economics.

4 thoughts on “The Economics of Kerry-Lugar

  1. Dear Sir
    Our economic difficulties are definitely a dillema for us but are’nt we suppose to explore its causes.I earnestly feel that instead of opting for a nationwide controversial(may be politically motivated) the government should have introduced some steps decreasing the perks of a huge cabinet, parliament and other entourage of burocarcy.But for to solve any problem of any magnitude you need to have a sincere intent which is definitely missing from our elite who consider it thier right to enjoy such perks and not to loose thier turn which may not be offered to them again.To support government all venture irrespective of thier morality should not be sole aim of this web site.
    Thanks and regards

  2. Kerry Luger Bill seems attractive regarding the phase of development that USA declares to do in Pakistan & will directly finance the affected govt/semi govt departments & not hand over the approved amount to the political filth of Pakistan. This clause may not be acceptable to the political filth. But will it implement justice, law & order in Pakistan is the question. Pakistan is facing India as the worst enemy since 1947 and Indian army and govt commit dogmatism from time to time thus making Pakistan Army the world’s most active and skilled army. USA has also been extending hands of friendship towards Pakistan’s worst enemy India of and on & if it wants friendship with Pakistan it must treat Pakistan equally and India must not be preferred over Pakistan in any instance or department of life. Political dogmatism making a common man a victim since 1947 must be ended from Pakistan instead of finding Meer Jafar/Meer Sadiq community from Pakistan’s political filth as USA has damaged Pakistan’s sovereignty a lot by buying/selling Pakistan’s political filth & destroying a common man, working day & night to keep Pakistan’s solidarity and development. USA will not damage or try to damage Pakistan’s nuclear capability as Pakistan is using it for peace & constructive purpose and not for any sort of destruction or terrorism.

  3. I would just like to present a writing that I was checking on DAWN.COM and I guess this very important issue raised should be considered as well

    http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/news/pakistan/04-The-problem-with-aid-qs-03

    “The problem with aid”
    By S. Akbar Zaidi
    Dawn News; Monday, 19 Oct, 2009

    In the large bevy of commentators writing on the politics of aid to Pakistan, many of whom are not really trained or qualified to offer considered opinion, the one category which is absent is that of economists.

    One would have expected economists to offer comment, analysis and opinion on an issue which has considerable economic consequences and repercussions, as well as political ramifications, but their absence is indicative of a greater malaise that affects the economics profession.

    Some economists who have spoken in favour of aid to Pakistan, particularly US aid in the form of the Kerry-Lugar bill, have now become mere spokespersons for the current regime and are parroting what the government is saying, searching for explanations which justify this latest aid package to Pakistan. Some of these very same economists have in the past written strongly against US (and other) official development aid to Pakistan, and have questioned the political economy of aid more generally. Today, hoping to benefit or find favour with the incumbent regime, they merely show their unscrupulousness.

    A second category of economists which is complicit in its silence is that booming class called consultants. These economists, and increasingly other social scientists, have benefited immensely from the lucrative packages which come in the name of so-called research attached to most donor projects and to aid. Islamabad is brimming with hope and expectation as consultants await the billions promised by foreign taxpayers to the Government of Pakistan. Hoping that a large chunk will come their way, these consultants are unwilling to question the politics of aid.

    Most aid is conditional, and it ought to be, with the possible exception of charitable and humanitarian aid, although this too often carries some conditions. Governments giving out their taxpayers’ money are answerable to them and have every right to decide which country should receive what kind of aid. Recipient governments need to examine these conditions before they accept any form of assistance.

    Often some countries reject such offers of aid, grants and loans on grounds of the conditionality imposed, as Malaysia did following the 1997 Asian financial crisis, or in the name of nationalism and pride, as India did at the time of the tsunami. Other countries, dependent on aid, are immune to any such careful analysis and are grateful for whatever comes their way.

    Throughout the modern period, bilateral economic assistance and financial aid has always been politically motivated. In the Cold War era, ideology and partisanship with a particular political camp determined which countries received aid from the two superpowers. Fighting communism or defending socialist ideals, often to create satellite states or influence in different regions of the world, determined aid-giving.

    Although the bipolar nature of the world has changed, political considerations beyond economic need or justification still determine which countries receive as much aid as they do. Since 2001, it has been politics, not economic considerations, which has been behind the huge increases in official aid to Pakistan, Afghanistan and Iraq, often to prop up weak and unpopular governments.

    While some economists working for the government have welcomed the latest aid package to Pakistan on the very simplistic grounds that it gives us foreign exchange, this justification trivialises the vast political and economic repercussions of receiving assistance, with or without strings attached.

    While the negligent and wasteful use made of economic assistance in the form of corruption and inefficiency is commonplace, and that it lines the pockets of officials of often fledgling governments is well known, perhaps a key negative effect of depending on aid is that it becomes a habit. Aid dependence is one of the most serious consequences of aid and it takes countries away from attempting to undertake far-reaching economic and financial reform. When aid is so readily available, why bother undertaking unpopular measures, such as raising taxes and lowering the fiscal deficit and increasing savings and investment?

    Difficult political decisions which may create employment and reduce poverty, such as land reforms, are also abandoned. While many governments are faced with resource constraints, aid bails out governments that are in dire need of reform and offers short-term, rather than structural, solutions.

    Moreover, it is this short-term nature of aid which causes further aid dependence. Being bailed out once in a while is an acceptable safety net, but building roads, hospitals and schools on donor money is folly. Social-sector and infrastructure projects are notorious for their tardiness and their prolonged gestation period implies domestic resources being put in areas or sectors where the government may have had other priorities.

    Moreover, while schools and hospitals might be built by donors who may well be altruistic, the non-development expenditure of running such projects can be a burden on the local exchequer. The Social Action Programme of the 1990s is probably the best example of this.

    With donors determining the type of aid and its intended purposes, domestic priorities are often compromised by governments whose eyes sparkle at the offer of apparently ‘free’ monies. Building infrastructure in remote areas or supporting health programmes which have few users may sound beneficial but such efforts can be wasted.

    Often governments don’t want such projects, often the supposed beneficiaries are not consulted and do not use these facilities, resulting in a global landscape littered with unused or half-built donor-funded schools, roads and hospitals. Donor assistance ends at the end of the project, leaving infrastructure and social capital to waste away. Quick-fix solutions often come undone just as swiftly.

    While many countries are eager to line up to receive money, only those countries that have a clear economic programme and road map, and those which are undertaking difficult structural reforms on their own, ought to use aid to supplement their efforts. Countries like Pakistan, which are highly dependent on aid, will continue to be so because it is the only option that our governments will ever consider. Under such circumstances, all discussions about the accompanying conditionalities are irrelevant. The conditionalities are not the problem.

  4. If USA are real people They have to help to make what Pakistan need That is NOT your $$$$$$.
    We need CLEAR way of life in Pakistan
    that 17, 52b and all orher is have aclear meaing that Zardari and company and it partner in USA are making money on poor lifes of pakistan.
    And UE with other are says nothing because they have % on it.

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