Death of An Economy

My topic deals with Pakistan, its relationship with the IMF and man Bank, and its internal worrys that be causing unemployment, distress, frugal crisis and longing. I sh merely be analyzing the federal agency using the neo-classical theory, as it is what the economists of the Pakistan g oerning body and the IMF be using to alleviate the economic instability of the verdant. raft in the sub-continent, Pakistan is a low-income dry land, with great promise for removeth. Unfortunately, it is held back from reaching middle-income status by chronic troubles exchangeable a rapidly increment population, sizable g overnment deficits, a heavy dependence on overseas aid, re live governmental instability and large military uptakes. It is to address these fundamental faults in Pakistans prudence that the IMF has initiated the Structural Adjustment Programs (SAPs) in the country. This is reasoned in hike up detail later in the paper.Like all developing countries, Pakistans p opulation is largely employed in the agricultural sector, which accounts for about 48 pct of the labor force. In todays world the Industrial and Service sectors ar the largest growing areas of a developed countys economy. Yet Pakistan completely employs 39 percent of its population in Service, and a subtle 13 percent in Industry. This is a paltry figure, compared to the employment statistics of a developed country.Pakistan is to a fault heavy dependent on a bingle exportation crop, cotton. Hence the countrys fortunes rise and go with the cotton market. It is no wonder that on that register are so many poverty stricken mass in Pakistan. When approximately half the population is involved in a in truth volatile market, a lot of the time, a lot of people will be burnt by price fluctuations.The country is also subject to the mercy of the weather. Focussing on a major cash crop government agency precise little diversification. This translates to mass hunger and hard times for the agricultural sector whenever the agrarian lands are ravaged by floods, or conversely, by droughts.Even to a greater extent importantly, Pakistans agricultural sector is attach by large landowners, controlling most of the production. Hence, only a minimal amount of the profit from exports goes to the ugly people working for the large farmers. It is these people who constitute a large portion of Pakistans population. It is also these people who are living in abject poverty in the rural regions of the country, devoid of the regenerate to feed their families.This is a great illustration of a theme discussed in World Hunger, Twelve Myths. Lappe, Collins, Rosset and Esparza discuss the commonly believed myths about why hunger and poverty exist. In it they clarify this very important site hunger does non exist overdue to a shortage of available food, but because of fear and berthlessness, resulting in the anguish, grief and humiliation felt by the hungry and poverty stricken.Pa kistan is a classic example of this theory. ground on a feudalistic system, especially in agriculture, Pakistani society is primarily controlled by feudal overlords, (a.k.a. the politicians or relatives of politicians), who own or oversee most of the agrarian land and industrial base. Being supra the law, due to their political influence, these corrupt people undersurface literally get away with murder. Thus, keeping their laborers muted and underpaid is no hard task. Anyone who dares to complain is used as an example for potential future unrest. As a result, the people in their elakhas, (controlled lands), remain destitute in the throes of poverty, unable to help themselves due to their miss of power and the fear of the thekedars, (large landowners).By a lack of power, I refer not to a dearth of tangible prowess but to a scarcity of basic human rights. These are the same rights that people in developed countries take for granted. The right to vote for whomever one feels anal ogous is missing. Instead a lot of villagers are forced to vote for the local anesthetic land owner due to a combination of fear and ignorance a fear of the repercussions of a potential loss by the feudal lord and the ignorance of any means to grapple this same overlords wrath. Very often there is also no choice of candidates. thither are very few people unbidden to risk their own and their families safety by hurry against their subjugators.All this goes against the very nature of the free market economy that Pakistan is supposed to be running. While the IMF and World Bank are using Neo Classical theory to address the nations problems in the capital, half the country is still macrocosm run under the feudal system. Till this system is broken, and the considerable discredit classes are empowered there is not a dent that can be do in the countrys poverty and hunger issues. Rather the problem will continue to grow right under the economists noses.Pakistan is also set back by ethn ic problems, having numerous groups including Punjabis, Pakhtoons, Sindhis, Balochis and Mujahirs. Speaking distinct languages, the different ethnic groups do not get along very well as is witnessed by the numerous clashes between Sindhis and Mujahirs in the violence torn city of Karachi. The language barrier also translates to a lack of mobility of labor, which is a key to economic success under neo-classical theory. Hence the large sparsely be province of Balochistan is presently under utilized. Due to a lack of available labor, industries are tough to set up. If the language/ethnic barrier could be overcome, the rich lands of Balochistan could potentially become the saviors of Pakistans economy.Pakistan also has a very week industrial base. Being an ex British colony it suffers from a similar problem to the one ailing a number of the African and South American countries. This issue is that the colonists never daunted building up the necessary base for industrialization. While the rest of the world was busy building this base, avid colonists who did not care about the country and thus paid no attention to its development were exploiting countries same Pakistan. Hence Pakistan is permanently playing catch up to the rest of the developed world leaving very little money for social services to help the situation of the unforesightful.The literacy rate in Pakistan is also very low. In 1992, the official literacy rate for the adult population was said to be a low 36 percent. Even more dismal was the statistic that listed 45 women being educated for every man. With this dearth of qualified personnel, there is no room for economic yield as there are no new minds to drift the growth. Women are also the primary food producers in Pakistan. If they are not being educated, it means that they are not up to date on the latest production techniques, which in turn translates to inefficiency and the aforementioned ignorance. erst again it all ties into the powerlessn ess that marks the hunger and poverty-stricken. Women represent 54 percent of Pakistans population. If they are not allowed to wield their rights to an education and to vote, how can the country be expected to progress? It is care communicate a man with one leg to run.Like some other trine world countries, in Pakistan, nonstandard housing, inadequate sanitation and water supply, and widespread malnutrition contribute to spread of disease and to high infant, childhood, and maternal mortality. The hint causes of death are hired guntroenteritis, respiratory infections, congenital abnormalities, tuberculosis, malaria, and typhoid fever, all preventable diseases. Unfortunately the poor, uneducated lower classes are not given enough attention by the corrupt officials running the country, which is resulting in their situation deteriorating year by year.These, along with other economic and social issues are causing immense hunger and poverty in Pakistan.Presently Pakistan is passing through an unprecedented economic crisis, made worse by the global recession. The turmoil in domestic markets and the imbalance between resources and liabilities threatens to roll back the low-down levels of economic development and industrialization that Pakistan has achieved so far. Had it not been for a reasonably strong agricultural base, the situation would be much worse.This situation has been caused by a mixture of issues, including the near sightedness of politicians and their persistence in quest politically popular, but economically disastrous policies. An example of this is the detonation of a nuclear bomb a year ago. Simply to show off to India and the rest of the world, as well as to raise their local popularity, the Pakistani government decided to go ahead with an unnecessary test that brought economic sanctions against them and also exist them a lot of their aid from western countries.However, much more important have been the structural reasons central this dete rioration, all of which have been contributing to the growing feeling of desperation the hungry and poverty stricken have been experiencing. Before this paper begins finding solutions to the problems at hand, we need to remind ourselves of the key issues.1) One major problem that Pakistan needs to deal with is the fact that its expenses are far more than its revenues. Partly due to decades of lax fiscal management, but more because of myopic policies in its external relations, the militaristic structure of the state and the narrow mountain of its rapist elite, Pakistan is Rs 100 trillion short of the money to simply keep its existing machinery operational. How is a tertiary world country supposed to develop an infrastructure when it is spending more than its net revenues on only two items, debt servicing and defense? In fact, Rs 18 billion of its defense has to be financed to borrowing. The Pakistani government has not been governing it has simply been acting as a debt-securing ag ency.2) Lately the government has been touting the fact that it has achieved the IMF compel budget defect target. What it neglects to mention that it achieved the target through questionable means. Firstly, it drastically reduced its developmental expenditure from 7.5 per cent of GDP in the early 90s to a paltry 3 per cent, which translates to a cutback of 140 billion in present prices.A cutback of expenditure of such extent in the governments purchases of private sector goods like cement, pipes and cables and services like engineering explains why a number of private sub-sectors are at the point of closing down, operating at a vastly reduced capacity. This is adding to the issues of hunger, poverty and unemployment being faced in Pakistan. The government has also reduced the amount it givers to the provinces by Rs 30 billion, transferring some of its debt to the provincial governments. In other words the government has done nothing to resolve the issue of structural defect.3) What s worse is that not only has developmental expenditure been sharply curtailed, but that the scarce resources set aside for infrastructure whole kit have been diverted to less productive investings_like the new motorway and the new Lahore airport. This massive reduction of the reality sectors developmental activities is causing a contraction in employment opportunities for Pakistans growing number of middle class educated youth. This is particularly serious in the areas where the private sector is improbable to locate due to the lack of infrastructure.Thus the really poor areas continue to live in poverty due to the governments inability to provide adequate physical and social infrastructure or create an environment for private sector investment. It has also not been able to maintain law and put and is guilty of not living up to its contractual obligations which is further discouraging foreign and domestic investment in the country. The treatment of its foreign currency account h olders and IPPs make it year illust place this point.4) Pakistan suffers from the typical problems that all third world countries suffer. One of these is massive corruption at all levels, estimated at Rs 100 billion a year. This means that a large portion of national wealth has been stolen from the poor. No wonder, the country is unable to deck up itself out of the quagmire of poverty and hunger.5) Tax evasion is another issue that the government needs to address. consecutive governments have failed to establish a tax culture due to an inequitable structure, which taxes different sources differently. An example of this is provided by the large farmers who, despite now getting higher international prices for their crop, are unwilling to pay the modest levels of provincial taxes.The political leadership itself does not pay its taxes diligently. Thus, unless companies owned by sitting ministers install business relationship based systems for tax accounting, it will continue to be d ifficult to enforce retail taxes. Also, the repeated arc down of the government to shutter-down threats of traders and the repeated refusal of large land-owners to meet their tax obligations is increasing the burden of taxes on the confused poor, the organized sectors, and the honest people foolish enough to pay their taxes. If the rich are not willing to meet their responsibilities, how are the poor supposed to survive?6) There is the additional problem of a cattle farm of between 5 an 6 per cent of GDP per year between domestic national savings and investments which translates to approximately Rs 150 billion being financed from external borrowing. This further adds to the crippling debt that is allowing the IMF and World Bank to deputize in the formulation of domestic economic policies.7) The external debt of around US$ 34 billion is more than 50 per cent of GDP, and four times the annual foreign exchange earnings. Pakistan can neither give nor service this debt. So far I has only postponed the inevitable, default by piling up further debts at abominably high rates.8) Pakistans exports compromise 0.2 per cent of world exports and diversification from a single crop economy has remained an elusive dream. so to hope for exports to be the driving force of economic recovery, as the government is doing, would require an astronomical rise in exports, and the price of cotton. In other words it is impossible.9) The countrys ability to export is also affected by sluggish world trade, which coupled with an over valued currency, is rendering Pakistans exports uncompetitive. With the rise in the price of oil, the gap between import bills and export receipts is widening.10) Until now this gap has been met with remittances and short-term borrowing. But due to a decline in remittances for a number of reasons and Pakistans declining credit, this is no longer an option. It therefore seems that it is impossible to maintain the present levels of growth rates and imports a s well as meet debt servicing.11) Public sector industries are also deeply in the red due to over-manning, corruption, and the protection given to large defaulters of utilities. The combined debts of just WAPDA and KESC, (which deal with electricity and gas respectively,) are Rs 91 billion tour the loans of 18 public sector enterprises is close to Rs 250 billion.12) The government is offering 15 to 18 per cent interest rates on its saving schemes which is far to high for it to be able to generate high enough returns to service the debt and still have enough left over to finance developmental activities.13) Most of Pakistans industry faces the issue of negative or nominal growth, while value-added industry is operating at 30% below capacity. The limited growth is due to a lack of comparative advantage, the lack of credit availability and a high interest rate. Despite inflation being well below double digits, interest rates are as high as 15 to 18 per cent on loans This is too high to keep the present economy afloat, let alone raise it to a maintainable level of growth.14) There is also a lack of confidence in the government by the private sector. How can a government that cannot even handle domestic pink of my John issues be expected to turn around an economy that is in the throes of a downward spiral? Therefore the private sector has been occupied in short-term trading and currency speculations which do nothing for growth or the welfare of the state.15) An obvious result of this situation is that the disparity between the rich and the poor has grown. The percentage of the poorest 20 per cent of households has fallen to 7 per cent while the richest 20 per cent are receiving over 45 per cent. The low rate of economic growth and the high rate of inflation over the last few years have left the poor with no buying power resulting in almost a third of the population living below the poverty line. There is also anger amongst the poor about the fact that the incid ence of increased taxation has been heaviest for them expenditures on services for them have declined. Social tensions are rising with the growth of the absolute number of poor, illiterate and jobless, as employment opportunities and wages decline due to the stagnating economy. Such conditions are hardly conducive to political and social stability, without which growth will remain a distant dream.On top of all of this, Pakistan is plagued by the curse of the IMF and World Bank. Constant defects in the current account of the balance of payments and depleting foreign exchange reserves is causing the extension of credit to become an exercise in haggling and bargaining. Each time there are negotiations along with a string of conditions devoted to the loan.The release of credit is then delayed until each and every condition of the IMF has been met. The only way that Pakistan can now secure loans and vital extensions on its debt is to institute the Structural Adjustment Programs that hav e been drawn up by IMF economists. The problem is that the benefit of these programs is questionable. Most countries have suffered immensely from them. Instead of improving the economy, these programs have been destroying them. Unfortunately, like other countries that have yielded to the them, Pakistan is virtually being taken over by the IMF, along with the World Bank.