Good
Governance Issues and the Musharraf Regime:
An Analysis
Dr. Sohail Mahmood
Asst.
Professor,
Area
Studies Centre for Africa, North & South America,
Quaid-i-Azam University,
Islamabad
The
Musharraf regime faces serious governance challenges. The first major external
challenge is the globalization of the world economy and the accompanied shifts.
The trend is occurring partly because of the reduction in communications and
transport costs in recent decades. Globalization has increased capital flows
and trade worldwide. Some developing countries that opened their economies
appropriately have been successful in achieving prosperity in less time. Since
1990, capital flows to developing countries have increased six-fold, according
to the World Bank. This development has been linked with another important
global change – a paradigm shift towards development of a global knowledge
economy. The two coupled are perhaps the single most significant change of our
times. We are living in an era that is characterized by rapid change due to
various technological, economic and social changes. Countries have jumped from
poverty to attaining world economic power in a single generation. Technological
advances in telecommunication and computers proliferate in an ever-increasing
stride. Great changes have come about at the same time as a massive
transformation of the global economy is taking place right before eyes. History
is being squeezed as never before, so to speak. Rapid development of
telecommunications and global trade has created a global economy of truly
staggering proportions. Markets have gone global lately. Unquestionably, on a
diversity of dimensions, the world economy has become far more integrated in
the past few decades than it used to be. Trade is one such measure.
International transactions in equities and bonds and the daily turnover on the
foreign-exchange market have both risen at an amazing rate over the past 20
years. It is now a well-known fact that daily turnover on the currency markets
frequently surpasses the global stocks of official foreign-exchange reserves.
The issue is whether central banks can any more influence exchange rates by
buying and selling currency in the markets. Flows of foreign direct investment
have also risen swiftly, although nothing like as rapidly as transactions in
securities and currency. The World
Economic Survey notes that the demand of economics shape both culture and
politics. It argued that perhaps the nation state has come to a turning
point. In future, the need for
communication and mobility between economies shall gain importance. This need
shall create an increasingly homogeneous global culture that in turn will
promote economic integration and gradually fog the political frontiers between
countries. [1]
The
future trend of regionalization is sure to grow. Countries are coming together
in an effort to integrate their economies to achieve economies of scale and
other advantages. A successful experiment is unfolding in front of our eyes in
the shape of European Unions. North America is coming together under the
umbrella of NAFTA. It is speculated that a new form of arrangement should be
made at the regional level. Instead of normal competition, countries should
seek various options through which they may share resources and join hands in
countless ways. Supranational institutions are in the making. At times, it is
referred to as “government by cartel”. The
World Economic Survey argued that states are “pooling power in order to
retain and increase it, in just the same way that a firm in a cartel gives up
the freedoms to sell all it can in order to gain share in the group’s fatter
monopoly profits. So far the state’s freedom of actions have barely been
touched by the global market; should it become more circumscribed, expect more
rule by cartel”.[2]
There
are other profound changes taking place which are worth mentioning. Technological
advances in telecommunication and computers proliferate in an ever-increasing
stride. Great changes have come about as a result of the massive transformation
of the global economy taking place right before eyes. History is being
“squeezed” as never before, so to speak. Surely, a “new industrial revolution”
is under way. Advances in computer technology and telecommunications are moving
rapidly on, eroding national boundaries, shrinking distances and extending the
domain of the global economy. Increasingly, this reconstruction is tending to
convert states into “mere servants of international markets”. These
technological changes are also bringing about “a transformation in the realm of
ideas, starting towards the end of the 1970s and reaching its climax ten years
later with the collapse of communism. That destroyed the system not only in the
form practiced in communist countries but, more important for those in the West
who never experienced it directly, as a sustaining Utopian myth. Judged as
propaganda, 1989 did for big government what 1929 did for laisser-faire”[3].
There is an on-going debate about “globalization”. Is it a good thing or a bad
thing? Do we embrace it or resist it? However, every one agrees that
international market forces have indeed emerged as powerful. Rapid development
of telecommunications and global trade has created a global economy of truly
staggering proportions. The World Bank’s recent report entitled Entering the
21st Century: World Development Report 1999/2000: Summary says:[4]
Globalization is
praised for the new opportunities it brings, such as access to markets and
technology transfer – opportunities that hold the promise of increased
productivity and higher living standards. But globalization is also feared and
often condemned because it sometimes brings instability and unwelcome change.
It exposes workers to competition from imports, which can threaten their jobs,
it undermines banks and even entire economies when flows of foreign capital
overwhelm item [them, Ed.]
How
will these changes affect countries like Pakistan? Will the world economy
growth benefit or hurt us? It all depends on how we handle the complex issues.
There are two views on the subject: the optimist majority and the pessimist
minority. Let us first understand the gist of their arguments. The optimists
display intense faith in science, technology, and western capitalist and
democratic systems. They believe that technology will usher in a new utopia of
material affluence for all. Unprecedented changes are around the corner.
Western civilization will greatly benefit from these technology-led changes. If
the developing countries choose, they can also join the bandwagon of the West,
so to speak. It is for them to decide. In sum, utopia is around the corner.
Pessimists disagree. Things are not so simple they argue. Firstly, they agree
that market forces, for reasons of technology and ideology, have lately gained
the upper hand. This development is deeply disturbing. The gains from
globalization are far smaller than supposed, and the drawbacks much greater.
In addition, such benefits, as there may be, will be divided unfairly within
society. This is a critical point that people tend to ignore.[5]
The new global capitalism shall certainly enrich many but workers will suffer.
The worst sufferers will be the unskilled. Globalization will extend
inequality, intensify poverty and increasingly lead to alienation. These
drawbacks will increase at a time when the capacity of states to respond is
declining. Their failure to act will weaken the foundations of the democratic
states. The prosperity of Pakistan and, ultimately, the success of the country
in an expanding global market are dependent upon the performance of its
government. As sophistication in communications grows, capital, technology and
jobs will move to whichever country offers a competitive edge. To compete,
Pakistan needs to harness technological and scientific advances in the best
possible way to be effective in commerce and industry and in the delivery
service, within both private and public sectors.
Democratization
The
second major external challenge faced by Pakistan is the democratization wave
sweeping the developing the world. People everywhere are demanding a greater
share in power than ever before.
A
good method to achieve it is through decentralization and devolution
mechanisms. Empowering of local government is a global trend. They have been
empowered in many countries in Latin America, Asia, and the Middle East and
Africa. Europe and North America already have a tradition of decentralized
structures in many countries. The question to be asked is why is this
happening. The issue of decentralization and devolution has attracted
considerable attention lately. Out of seventy-five developing countries that
have a population of more than five million, sixty-three developing countries
are engaged in the process of decentralization. What is wrong with highly
centralized systems? Centralized systems fail because of a number of
factors. First, the problem faced is that of low response by the people. The
government activity has been directed from above rather than from demand below.
It is common that the local people reject these gifts from the central
government simply because they have not been involved in the decision-making
process and therefore do not feel that they own these projects. Second, officials
employed by the federal government lack knowledge about local problems and
needs. They do not understand differences in local needs and conditions
because knowledge which happens to be thinly distributed across the entire
community is not available to the central planning agency. Even the greatest
central planning agency can not decide whether, in a particular local village
case, improving the irrigation system or expanding schooling is more
significant at a specific time. Only the local government can decide these
things.[6]
The report Entering the 21st Century: World Development Report
1999/2000: Summary maintains that all but a few democracies have
decentralized political power. [7]
It further adds:[8]
Localization is
praised for raising levels of participation in decision-making and for giving
people more of a chance to shape the context of their own lives. By
de-centralization government [sic Ed.] so that more decisions are made at sub
national levels, closer to the voters, localization nourishes responsive and
efficient governance.
Local
governments are concerned essentially with providing services for the local
communities like municipal services, primary education and health care, These
services are obviously very essential and local governments are given elected
councils so that the citizens can have open access to them and get the services
they desire. Local problems are best handled locally. The governments need to
apply the subsidiary principle in government. The principle simply advocates
that decision-making should happen at the lowest level possible. In other
words, decisions should not go to an upper level (provincial government, or even worse the federal government)
unless it becomes absolutely necessary. It is argued that decentralization is a
tried and tested method to solve acute governance problems in developing
countries like Pakistan. Intense centralization and lack of delegated authority
at lower levels have created a mess of government in several developing
countries like Pakistan.
The
Musharraf regime faces fundamental internal governance challenges, including
demand for public accountability, a weak economy, failed political system,
dysfunctional public services and a problematic development agenda.
1.
Public accountability
Perhaps the most important single issue in the
Pakistani public mind is that of public accountability. The reason is simple.
The country has suffered horrendous corruption at the highest level, especially
in the last twenty years or so - in both eras of the alternating
civilian and military governments. The country has become notorious for
graft and kickbacks throughout the machinery of government. It was widely
acknowledged that the corrupt politicians, in league with bureaucrats, had
pocketed most of the money meant for public services. Ample anecdotal evidence
is available about kickbacks in big-item military purchases. Thus, the top
military brass in Pakistan is also not clean. Previously, corruption had
become epidemic in ruling circles. The poor continue to suffer.
Undoubtedly, there exists a staggering magnitude of corruption in Pakistan.
Estimates of corruption vary. Pakistan is seen as one of the most corrupt
countries of the world only a few years back. The entire civilian era of the
1980s and 1990s is commonly described as one where there was massive corruption
in the state apparatuses. Corrupt officials, according to one estimate,
pocketed nearly half of the appropriations. It has been estimated that a
staggering $100 billion of stolen money has left the country for safe havens
around the world.
The
Musharraf regime promised to tackle the problem of corruption in Pakistan on a
war footing. Soon after it came to power last October it established a very
powerful agency - the National Accountability Bureau (NAB). The NAB’s first
head was General Amjad, a serving Lt. General of the Army. He had a reputation
of great honesty, integrity and commitment to serving the nation. The current
head is Lt. General Khalid Maqbool; another serving Lt. General of the Army.[9]
According to international financial institutions, total size of stuck-up
loans, including all the public, private and commercial banks, was Rs208
billion (about $4 billion) at the end of 2000. The National Accountability
Bureau (NAB) has recovered about Rs 28 billion so far. Many see this as a good
start. The Musharraf regime promised to identify a few big tax evaders, corrupt
officers, and give them exemplary punishment. Critics also point out that the
current workload of NAB includes cases against only politicians,
businesspersons, and bureaucrats. No military official or member of the
higher judiciary, serving or retired, has yet been apprehended by NAB. Why?
By playing favorites, the NAB seems to have lost credibility in popular
perception. People think that every corrupt individual, including the
military top brass and judiciary, should be hauled up in the accountability
net. There should be no exceptions whatsoever. The universal norm of justice
and fair play demands it. In addition, Islam is adamant that all be treated
equally under the law and that every criminal, regardless of his position in
society, be punished. The Prophet Muhammad (peace be upon him) declared
that he would even punish his own daughter if she were to commit a crime.
The noble examples of justice set by the Khulafah-i-Rashidun are also a part of
the Muslim legacy. Under Islamic tradition, absolutely no one can be spared of
a punishment for a committed crime. It seems that NAB has finally bowed under
relentless public criticism of even-handedness in the accountability drive. It
has decided to investigate several shadowy defense deals involving retired
military chiefs. The period under investigation is from 1985 up to the October
1999 military coup. Sources disclosed that the defense ministry entered into
defense deals worth six billion dollars in the last ten years. Some of the
deals are shadowy and involved kickbacks worth at least one billion dollars.[10]
It has been alleged that millions of dollars have been paid in illegal
commissions to secure these defense contracts.[11]
In October 2000, Newsline said:[12]
“while [sic Ed.] the much touted accountability process has neither been
even-handed not[sic Ed.] fair. Arbitrary arrest of businessmen without proper
charges have created a scene and led to the increase in the capital of flight
[sic Ed.]. Its inability to take tough measurers [sic Ed.], thereby ensuring
the writ of the state, has further weakened its authority and fuelled [sic Ed.]
uncertainty. Over the last year, the regime has backtracked on every important
issue in the face of resistance from vested interests”.
Recently, in a dramatic development Nawaz Sharif
and his family left for exile in Saudi Arabia in mid December. The nation was
shocked by the news and there was uproar in the country. In his televised
address to the nation on December 20, 2000 General Musharraf, while defending
his decision, said that Nawaz Sharif’s exile was not a panic reaction but a
deliberate decision taken by him in what he believes was/is the national interest. The decision
demonstrated tolerance and moderation. Extreme action did not disclose the
details of the deal saying that there is a degree of confidentiality in any
deal of such a kind. General Musharraf continues to assure the accountability
process on as before. He has agreed to the request of the Saudi monarchy to
move the country beyond politics of revenge. Because of the introduction of
“money” in politics, all the national institutions are corrupted. He said that
the entire Muslim bloc and Western countries have appreciated the decision.
Life and 14 years of imprisonment for Nawaz Sharif have been converted into ten
years of exile. Sharif paid millions of dollars in fines, and many of his
assets are forfeited. The Sharif family will have to pay all the loans and
defaults against their names. Several hundreds of millions are to be collected
by the state from Nawaz Sharif.[13]
Many viewed the exile as a blessing in disguise for the nation. Others are
adamant that it is nothing but a sell-out of the nation. Meanwhile, General
Musharraf seemingly has lost the goodwill that greeted him earlier because of
the exile of Nawaz Sharif. Notwithstanding all regime clarifications, the recent
release of Nawaz Sharif has seriously eroded the credibility of the General’s
promise to eradicate corruption in the country. This is an obvious setback to
NAB’s effort. Public accountability is essential for maintaining public
confidence in governance, justifying state activities and ensuring the overall
legitimacy of the state. An individual performs best in an organizational
culture that is rewarding and fair. It is possible to make systematic
improvements by pursuing a practical strategy to improve integrity and
accountability in the public service. In sum, the overall performance of the
military regime in this vital area has been less than spectacular.
2)
Weak economy
The
primary components of the economic crisis in the country’s economy are described
as economic slowdown, rising debt, and fiscal deficit.
Since independence, Pakistan has achieved substantial economic growth averaging
about 5% annually. The country has shown impressive economic improvement from
1976-77 to 1986-87. Per capita income grew by an average of 3.46% per annum and
the total GNP grew by an average of 6.50% per annum during the same period.
However, Pakistan is not included in the World Bank’s category of
“Highest-Growth Economies” which included countries like Thailand, South Korea,
China, Singapore, Chile and Malaysia. All these countries have a GNP per capita
growth rate of at least 5.7% during the period 1985-1993.[14]
The growth rate in the last five years or so has been uneven. In 1995-96 real
GDP growth rates at constant factor cost is a healthy 6.8%; in 1996-97 it
decreased to only 1.9%; in 1997-98 it increased to 4.3%; in 1998-99 it again
decreased to 3.1%. The target for 1999-2000 is 5%.[15]
However, the actual growth rate last year is 4.8%. The current year’s target is 5%.
Pakistan
is faced with a serious debt crisis. The total external debt of Pakistan is now
54% of GDP.[16]
Pakistan is caught in a vicious debt quagmire from where there seems little
hope of escape. The 1999-2000 budget total expenditure outlay is Rs526 billion
out of which Rs287 billion went for debt servicing alone. Thus, nearly 56% of
the budget is going to debt servicing.[17]
Luckily, debt-servicing payments declined from $4.7 billion in 1997-98 to $2.6
billion in 1998-99. The significant decline is due to the re-scheduling of
payments of $2.89 billion by December 13, 1999. This is part of an exceptional financial arrangement, which
Pakistan has negotiated with the IMF in January 1999. It has been decided by
the Paris Club creditors to re-schedule $3 billion to give Pakistan some
breathing space till the end of December 2000. Pakistan’s financing gap in
1999-2000 has been estimated as $5.4 billion, which has been fully covered by
these exceptional financing arrangements.[18]
Meanwhile, the country is facing possible default by the end of 2000. The IMF
bailed out Pakistan through a $ 596 million facility package. The breather
qualified Pakistan to secure loans from other multilateral agencies such as the
Asian Development Bank and a rescheduling of loans of about $1.6 billion from
the London Club, which is due in February 2001. The MF set strict
conditionality for its assistance. The GoP has agreed to the following IMF
conditionality [sic Ed.]:[19]
Devaluation
Broadening the
tax base
Strengthening
tax administration
The Asian Development Bank has approved $760
million for the restructuring of the KESC.[20]
Meanwhile total external debt has increased to $38 billion. Pakistan’s total
debt is nearly equivalent to its GDP at Rs3.7 trillion. The regime has to
meet the foreign debt liability of $4.5 billion by end of the current fiscal
year.[21]Through
an elaborate public education exercise, the Musharraf regime must herald a
strategic shift from consumption to investment. Incentives are given to
correct the abysmally low level of savings in the country. The new program
should envisage a concerted effort for the mobilization of savings, including
the introduction of a mandatory pension scheme, strengthening of
financial institutions, strengthening of stock exchanges, the gradual
reduction in state[sic Ed.]
In
fiscal 1999-2000, total revenue receipts are projected at Rs 356 billion only.
Against this, debt servicing and defense respectively swallowed up Rs 287
billion and Rs 142 billion. The total adds up to Rs 429 billion. Revenue fell
short by Rs 73 billion in funding just these two expenditures. Meeting other
expenditures like running the government and development meant further public
debts. However, the previous government had pledged to reduce the budget
deficit. In order to reduce the budget deficit further, the Musharraf regime
will have to raise additional billions in taxes.
The
budgetary deficit as percentage of GDP is 3.3% in 1999-2000 slightly down from
3.4% in 1998-99. The deficit had hit a high of 5.6% of GDP in 1997-98, and
still higher 6.4% in 1996-97.[22]
The tax to GDP ratio has remained stagnant in the range of 11 to 14% over the
last two decades, which needs to be improved. Added together, debt servicing
and defense expenditures exceed Pakistan’s total national income. The current
ratio of tax to the GDP ratio is low at 15%. This ratio is one of the lowest in
the developing world. The tax/GDP ratio in similar developing countries, as
regards the stage of development, is 18-20. Tax revenues in 1996-1997 amounted
to Rs268 billion; in 1997-1998, they increased to Rs286 billion, and further
increased to Rs380 billion in 1998-99. In 1999-2000, they increased [sic Ed.]
to a further Rs351.6 billion. The tax revenue target for current year is
Rs536.7 billion, a large increase of Rs84 billion from last fiscal year.
The Musharraf regime has pledged to reduce the budget deficit. What shall be Pakistan’s stance as regards deficit financing? We recommend that the budget deficit should be reduced to 4% as planned and that it be further reduced to zero in the next five or six years. The Musharraf regime should specify a timetable. A balanced budget makes economic sense and is an Islamic obligation. Islam teaches us to live within our means. One must not spend more than what one earns. What goes for an individual goes for the nation too. The GOP aimed to reduce the size of the fiscal deficit by reducing public sector expenditures and simultaneously increasing revenues. What Pakistan needs to do is to borrow less, increase its own resources, and distribute them in a more equitable and rational manner. We ardently believe in this approach. It is expected that the Musharraf regime will increase spending on the social sector without which Pakistan is doomed. The crisis and economic slowdown is acknowledged by the new Musharraf regime. Shaukat Aziz, the Finance Minister, has recently said that there is “no easy exit from the existing economic quagmire”.[23] The Musharraf regime quickly announced a broad-based economic revival strategy to tackle the fundamental problems. It is determined to move swiftly ahead at reforming the political economy. The question is why has Pakistan’s economic performance remained poor. What is the reason for the slow growth? Most importantly, why has the state failed to deliver? The answer is complex and beyond the