Financial Daily from THE HINDU group of publications
Wednesday, May 14, 2003
Industry & Economy - Economy
Pakistan vibrates with the feel-good factor
KARACHI, May 13
DURING my last visit to Pakistan in August 1999, the economic situation was bleak, to say the least.
Following the sudden freeze on foreign currency accounts (for years now Pakistanis have been allowed to hold dollar accounts in Pakistan's banks) during the Nawaz Sharif regime in 1999, foreign remittances from overseas Pakistanis stopped, foreign exchange reserves had dwindled to a few hundred million dollars and the IMF and the World Bank frowned frequently at a country which was not even able to service its external debts.
But today, the situation is drastically different. The country's foreign exchange reserves have swelled to an all time high of $10.5 billion. Upper end models of Toyotas and Hondas, which had no buyers in the last couple of years, often the reason being that to drive around in a luxury car was to surely give ideas to criminals to either indulge in car snatching, or worse, kidnap its occupants for a huge ransom, are today seeing a premium upward of Rs 1 lakh.
Even the humbleSantro, the top model of which costs nearly Rs 5 lakh in Pakistan, is going at a premium of Rs 30,000. All of a sudden auto manufacturers are not able to keep up with the supply to meet the demand from car buyers.
The climate of fear and economic desperation is no longer perceptible. Parents are once again allowing children to walk unaccompanied to nearby schools, and Pakistan's business capital, Karachi, once again gives an appearance of the confident city it once was. So how did all this happen? Partially thanks to Gen. Pervez Musharraf's cool headed and tactical decision to ditch the Taliban and join the American-led coalition on the war against terrorism after 9/11. An act that the irrepressible Pakistani columnist Adirsher Cowasjee calls "a 360 degree turn which was absolutely necessary." And, partly because of the crackdown or freezing of assets of people, obviously Muslims, on whom the Americans had the slightest bit of suspicion.
Mr Miftah Ismail, Director of the Karachi-based Ismail Industries Ltd, which is in the confectionary business, relates stories of a couple of people "whose accounts were frozen, sometimes for a brief while, just because their name happened to have a Mohammed somewhere." Mr Akhtar K Alavi, General Manager and Director of Adamjee Insurance, says that as the Americans and Europeans started to take a closer look at the various routes money was taking in this part of the world, and the colour of that money, "many overseas Pakistanis started getting jittery. And suddenly home seemed to be the safest place in the world." So remittances from overseas Pakistanis are flowing in, with most of them thinking that in these uncertain times, a little nest of savings is necessary in one's own country. Even professionals and skilled workers might get the boot if the western agencies smell even the slightest hint of trouble. So this year already about $3 billion dollars have flowed in through remittances from overseas Pakistanis, swelling the coffers and increasing economic confidence in Pakistan.
"The banks are flush with funds and with interest rates falling from 17-18 per cent two to three years ago to 12 per cent today, people are buying cars and investing in other necessities. Today, as a corporate I can borrow money at 5 to 6 per cent interest."
On remittances from overseas Pakistanis swelling the foreign exchange reserves, Mr Majyd Aziz, an industrialist and former chairman of the Sindh Industrial and Trade Estate says, "Earlier too much of this money was coming in but it was taking the hundi or hawla route. But 9/11 changed everything for Pakistan. America's agenda changed, and as you know, if America changes its agenda, the rest of the world follows suit.
Thanks to Gen Musharraf we became America's ally in the fight against terrorism and all of a sudden we were no longer defaulting or a failed state. All the unfortunate labels, which Pakistan had acquired, disappeared overnight. With increased economic confidence our exports grew too, and the elusive figure of $10 billion which we had earlier only dreamt of became a reality when it came to our country's foreign exchange reserves, to which our growing exports have made a significant contribution."
But both he and Mr Alavi caution that everything is not hunky-dory. Says Mr Aziz, "Despite the feel-good factor which you are seeing around, we are not out of the woods yet. The foundation has been laid, but to get our economy back into shape will require some tough measures that will hurt... what I call surgery without anaesthesia. Forty per cent of our people still continue to live below the poverty line and to improve their lot will be a tough uphill climb."
Mr Alavi says that though Gen Musharraf is being greatly admired, and rightly so, "it's not as though everything he has done is right. To get the country where it is, he has had to make a lot of compromises, some of which are not right in my opinion. And these are in the political arena too. He has put in place some tainted politicians in order to make political compromise. But the difference is that today in our National Assembly, if opposition politicians can get up and shout for days on end `go Musharraf go' terming him a military dictator, at least they have the freedom to do so."
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