SOME unkind people are calling the budget a non-budget - no doubt another conspiracy hatched in the Presidency! The excuse that the new government had very little time to prepare the budget is lame. When a four-decade old party that claims to be both national and the largest and which has held power thrice before, comes to power again, one reasonably assumes that it would already have a coherent and viable vision of its economic policies and strategies ready to put into place. One does not expect such a party to first acquire power and then start thinking about what to do with it. The budget is conspicuous by certain glaring absences. To be fair, these absences have been perennial, but from a “popularly elected people's government” one expected better in this time of grave economic, political and social crises topped by crises of identity and integrity in a country that has been at war with shadows for seven years. The budget lacks vision and strategy, short, medium and long-term. It is littered with the usual populist tactics - form without substance - give with one hand and take more with the other. Like the ‘Benazir Card' will give Rs 1,000 monthly to the very poor but by removing subsidies it raises prices of essential commodities more. Would one be unreasonable in calling it a tactical propaganda sop? Actually, this should have been expected from a party with a poor track record in economic management (not that other parties have track records to write home about) and a very good one in economic destruction, particularly in its first term, (not that other parties haven't done their goodly bit to destroy the economy during their time). Another absence is that there is no modicum of even a hint of a strategy for firefighting and crisis management that is the dire need of the times and which one had hoped for. By removing subsidies, they may be redressing the fiscal deficit but they are not addressing the domestic and world food crises that are growing to alarming proportions. That's inhuman. When there are no human beings left, whom will they make the next budget for? The World Bank? The IMF? The Bank is always blamed for insisting on subsidy removal, but it has denied that it has ever insisted on such a thing. Then there is the most glaring omission of all, a historical contradiction that underlines how heavily the Feudal-Tribal Complex holds Pakistan hostage, like America's Military-Industrial Complex holds its economy hostage, which is why they start or encourage unnecessary wars in order to keep it going - apart from testing their new weaponry and strategies in battle conditions. Our finance ministry has been talking about increasing revenues, but how many more drops of blood can it continue to squeeze out of one stone without enlarging the tax net beyond 2.5 million registered taxpayers out of a population of 170 million? Disgracefully, incomes from agriculture still remain untaxed even though it contributes between 23 and 25 percent to our GDP. One would have imagined that in a crisis so acute, the full impact of which is yet to come, we would finally have touched these unholy cows and taxed their unearned incomes, just as earned urban incomes are taxed. But it was a pipe dream. How do you expect a tax on incomes from agriculture when the top guys running the government are feudal lords themselves (or pretend to be) and hold the likes of the primitive and tyrannical sardars of Balochistan in high esteem? The excuse that agriculture is a provincial subject is just so much poppycock. It doesn't matter whether a subject is provincial or federal; income tax is a federal subject and the theory is that annual incomes above a certain level are to be taxed no matter from what source earned. They will tax dancing girls but they will not tax the incomes of the feudal robber baron and the tribal warlord chieftain. And they expect us to treat them with respect? Yet the hue and cry amongst those who pretend to be educated is that they didn't impose a capital gains tax on shares! An economy in which banking is the most profitable sector has got to be an economy with a deep-rooted malaise. An economy that is based on usury (as against normal interest) can never make it. Normal interest should not be more than two, maximum three, percent above the official inflation rate and its ‘spread' i.e. the difference between the lending and deposit rates should not be more than 2-3 percent either. Anything above that becomes usury and underlines the incompetence and corruption of bankers and ours are as incompetent and corrupt as they come, our usual wishful thinking aside. Nothing has been done to address this. At a time when investment is sorely needed to shore up foreign exchange reserves, the State Bank of Pakistan (SBP) increased interest rates to stem the flight of capital. It helped, but it also stemmed the flow of investment. Why the sudden flight of capital that forced the SBP to do this? Therein lies a tale both comic and tragic. When the new “people's coalition government” was formed, its first finance minister was Mr. Ishaq Dar of ‘Darnomics' fame, a name given him mockingly by economists of the World Bank (not that they are much to write home about either - B-grade graduates of Ivy League universities former World Bank Chief Economist and Nobel Laureate Stieglitz calls them). Mr. Dar, I'm told by some of his party colleagues, took it as a compliment! (“No Harmonics in Darnomics,” one of them said). He was finance and commerce minister on October 12, 1999, the day General Musharraf took over to much countrywide celebration and rejoicing, even by all democracy-loving politicians and political parties except, of course, Mr. Dar's. The economy he left behind defies credulity. When Dar took over again as finance minister this year, he immediately went into a loud lament about the poor state of the economy. Actually, he was trying to get his own back by suggesting that it was just as bad as the economy President Musharraf says he inherited from him. He even went so far as to claim that the figures were fudged! Finally, when he went to Washington he got a much-deserved ticking off from the World Bank for such recklessness and irresponsibility. This is the typical lament of losers who know that they are going to fail and start making excuses even before they have started. But that is where the joke ends and the tragedy begins. Dar was not just anyone making these bizarre claims and outlandish accusations. He was the finance minister, and the world had to take him seriously. Result: there was an immediate flight of capital and the SPB started hemorrhaging dollars like mad. Estimates have it that $5 billion left the country in a few days. Moody's downgraded Pakistan's credit rating. If there were a prize for stupidity, Mr. Dar would be the prime candidate. Why, in these days of leaders and their offspring getting ‘democratically' elected unopposed, Mr. Dar would have no opponents. Mercifully, we didn't have to suffer this economic genius for long as his leader withdrew his ministers from the cabinet before they could do further damage. Now damage control or further damage is firmly in the hands of the People's Party. The choice is theirs. To check the hemorrhaging the SBP raised interest rates by 1.5 percent. It had little choice. It worked, but the big downside was that the viability of existing projects reduced or vanished and uncommitted investment paused and faltered. Now only mavericks will be our lot, you know the type who follow Lord Rothschild's dictum, “The time to make money is when there is blood on the streets.” Since a good deal of our consumerism has become credit-based with the introduction of consumer financing, default has increased and bankers are suddenly finding themselves transformed into used car salesmen. By the way, interest rate hikes don't have an iota of an effect on our inflation because our inflation is petroleum price driven, not demand driven. Our economic crisis is driven by a global economic crisis, which in turn is driven by the slowdown in the US economy, which is the engine of the world economy. It has just begun. Wait till the end of the year. There is no sign in the budget that our economic managers understand this. It is not the first economic crisis Pakistan has faced but it is unique because it is driven by international factors that are not in our control, hence the need for crisis management and firefighting. These are singularly lacking. What is badly needed is that our economic managers quickly acquire an understanding of the global economic crisis and the factors that are driving it. That we will talk about next week. __
