No defence with a weak economy

Assuming that general public awakening will bring a new political leadership to the forefront. 
 
Dr Muhammad Yaqub

The country has witnessed a steadily declining economy, a weakening of the conventional defence capability and emergence of a directionless foreign policy during the last several years.
World history is full of evidence that no country has been able to maintain and sustain a deterrent defence and an independent foreign policy with a weak economy that becomes increasingly dependent on foreign handouts. Pakistan had a great economic potential but its economic mismanagement has gradually driven it towards economic bankruptcy. Following the deep slide of the economy, vulnerability of defence and loss of independence in foreign policy were inevitable.
In the context of an all-round decay, there is public clamour for economic recovery, a strong defence and an independent foreign policy. However, there should be simultaneous recognition that a heavily indebted government, with the economy falling apart, is incapable of perusing an independent foreign policy and maintaining a viable defence posture. Accordingly, protection of territorial integrity and pursuit of an independent foreign policy have to be preceded by the strength of the economy. Without economic reforms and economic recovery, any attempt to pursue an independent foreign policy is doomed to fail.
Historically, the economic deterioration has taken place due to systematic economic mismanagement by opportunistic and insincere leaderships that indulged in widespread corruption. The first generation of Pakistanis that struggled to create the country, and sustained it in its infancy are perhaps turning in their graves over the performance of the subsequent generations that brought it to the brink of collapse. Since corrupt practices cannot coexist with strong state institutions and amid rule of law, the institutions were systematically destroyed and laws openly violated by those in power in order to create scope for self-serving economic decisions.
With institutional decay, the lawmakers became lawbreakers, the army lost its high moral ground by indulging in spheres beyond its jurisdiction, the custodians of the legal system began to endorse unconstitutional adventures, In terms of foreign policy Pakistan began to carry an economic begging bowls in its hands and, with less accountability, society in general became more tolerant of corrupt practices.
The nation lost its identity and cohesiveness and degenerated into an unwieldy crowd of individual engaged in self-service, with the government becoming an exclusive club of exploiters. The people of Pakistan are now paying the price for what the ruling class did for such a long time.
If the country has to recover and sustain itself as an independent entity, it must move in a new direction in proper sequence, starting with the cleaning up of the national leadership for the initiation of good governance practices. Whether it will change its direction or fall further in a deeper ditch depends on many unpredictable factors, the most important of which is the way the people use their voting rights in the forthcoming general elections.
The new direction has to begin with the emergence of a new and dedicated political leadership that gives first priority to saving the economy through better management and good governance, and at a later stage builds an independent foreign policy and viable defence on the basis of a strong economic foundation. Any other sequence is neither workable nor sustainable.
The first requirement for the recovery of the country from its present malaise, therefore, is an awakening of the masses for Pakistan to be rid of the corrupt political leadership. Interlocking of political, economic and social power will need to be broken. The existing order must be buried deep in the ground through ballot boxes by the third generation of voters, especially younger perople, who are in majority by now. A government of the majority, for the majority and by the majority of patriotic masses through the ballet box is the only way out.
Assuming that general public awakening will bring a new political leadership to the forefront, it will have to make a realistic assessment of the ground realities to liberate Pakistan from the tyranny of the rich and powerful, the shackles of the divisions in the society and the corruption at all the levels. The rule of law and strong accountability at all levels would need to be established simultaneously with economic policy reforms, including building up of state institutions.
It will have to take drastic economic reform measures to stabilise the economy and restore a respectable rate of economic growth with relative price stability and improving balance of payment outlook before rebuilding a deterrent defence and independent foreign policy. A reverse sequence will not work.
The revival of the economy itself will require proper sequencing in economic planning and its execution. It cannot be started with false promises of immediate prosperity and unrealistic expectations of economic boom. It has to be based on a long-term vision of exploiting the growth potential of the country through mobilisation of domestic savings and investing them in productive priority areas. The policies of patronage and privileges would need to be replaced by those that help improve employment, entrepreneurial efficiency and labour productivity and exploit the agricultural, mineral and industrial potential of the country.
Improving public finances through austerity in expenditure and mobilisation of additional revenue should be the first national economic priority. Reorientation of public sector expenditure, austerity in lifestyle of government figures and the people and habit of living within means at the government and individual level would need to be promoted. Prestige public sector projects and conspicuous consumption would need to be abandoned. The loss-making public-sector enterprises should be privatised and economic institutions allowed functioning professionally, without political interference. The government should concentrate on the development of infrastructure, in particular the availability of electricity and gas for industries and of water for agriculture. To pay for such projects, the governments at all levels will have to mobilise real resources.
The tax/GDP ratio has to be doubled from the present low level by dismantling the underground economy, improvement in tax collection, documentation of the economy, extension of tax net to untaxed sectors and transactions and ensuring efficiency and elasticity of the tax structure and horizontal and vertical equity in tax incidence. Monetary policy would need to be freed from the shackles of the ministry of finance to allow adequate flow of bank credit to the private sector at reasonable interest rates and mobilisation of private sector savings by providing a positive real rate of return.
Rising level of productive investment in the private sector would need to be financed by a similar level of domestic savings. The incentive structure would need to be recast to discourage private consumption and promote private saving. Corporate laws and regulatory framework requires strengthening. Inflation would need to be controlled both by supply enhancement and demand management.
The balance of payments will have to be strengthened by reducing dependence on imports and accelerating exports and home remittances. Reliance on foreign borrowing would need to be severely curtailed while foreign direct investment is encouraged.
The growth rate will have to be pushed up to the range of 7-8 percent and effective measures taken to reduce the population growth. Agricultural productivity will have to be enhanced and labour-intensive industrialisation encouraged to reduce unemployment and poverty.
On the social side, the glaring economic disparities would need to be replaced by a more egalitarian welfare state and national priorities would need to be shifted towards education, health and skill development.
It is a tall order of institutional, social and economic reforms but so is the depth of economic problems. Those cannot be tackled in a short time and by mere cosmetic changes. During the period of rebuilding of the economy and restructuring of the society a low-key foreign policy and a less expensive defence posture would need to be adopted.
In short, national reforms cannot start by focusing on foreign policy and building up of defence capability while the economy is neglected. Those areas have to wait for recovery of the economy from its present state of collapse the way China did in the last sixty years.

The writer is a former governor of the State Bank of Pakistan.

  The power of the axis

China and other emerging markets seem quicker than developed states to recognise the value of closer ties with Africa.

Ian Bremmer

By now, nearly everyone has heard of the BRICS (Brazil, Russia, India, China and South Africa). Less known are the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) and MIST (Mexico, Indonesia, South Korea and Turkey).
These acronyms are the product of brilliant branding, but with all due respect to those who coined them, they tell us nothing about why these countries were chosen as the ones best built to last.
There are so many crucial differences in their circumstances, strengths and weaknesses that they can't possibly be expected to maintain similar paths. Some will rise, and others may fall.
With so much volatility in today's world and so many domestic distractions for the Western governments that have traditionally done so much to contain it, individual emerging markets will need more than strength if they are to fully emerge. They'll need resilience. And that will depend on their ability to give themselves a wide range of options, particularly in the political and trade ties they forge.
In fact, with so many uncertainties these days in international politics - from Europe's crisis of confidence to long-term US fiscal woes to Arab world upheaval and a leadership change in China - a developing country's ability to avoid dependence for security and prosperity on a single dominant ally has become more important than at any time in decades.
Some of the states listed above - Brazil and Turkey, in particular - provide excellent examples of what we might call pivot states, those with the flexibility to pivot among potential partners. But there are other countries and regions that will profit from their ability to pivot.
That brings us to Africa, a continent widely associated in the Western imagination with poverty, corruption, conflict and disease. Yet Africa has become the world's most underrated growth story - in part because many of its governments have developed the resilience that comes with the ability to pivot. You may have heard that Africa's population surpassed one billion people in 2010, but did you know that though Africa and India have similar populations, Africans spent 35 per cent more on goods and services in 2008 than Indians did. The percentage of Africans who live in cities is now comparable to that in China. By the end of this year, the number of mobile phones across the continent is expected to reach 735 million.
Africa has achieved this success in part because many of its governments can now pivot. For decades, African states were forced to turn almost exclusively to the International Monetary Fund, World Bank and Western governments for aid and investment, and the money often came with conditions - like democratic reforms and greater openness to Western investment.
Things have changed. Over the past decade, China has sharply increased its investment in Africa, and state-owned companies have worked alongside the state-backed China Development Bank and the China Export-Import Bank to secure access to oil, gas, metals, minerals and farmland across the continent. In 2010 alone, China's trade with Africa expanded by more than 43 per cent, and the country replaced the United States as Africa's largest trade partner.
China and other emerging markets seem quicker than developed states to recognise the value of closer ties with Africa. That's why the BRIC countries invited South Africa to join their club in December 2010, adding the S. By traditional measures, South Africa's economy can't compete with those of the other BRICS.
This problem has already aroused anger in several African countries, where Chinese workers deprive locals of jobs. There is no reason why Western-based companies can't exploit these vulnerabilities and compete more effectively with Chinese companies. But the real winner in this story is Africa, where dozens of governments now have choices and can expect multinational and state-owned companies from the developed and developing worlds to compete for access to local consumers and favourable investment terms. This is the power of the pivot.

Ian Bremmer is president of Eurasia Group .

   NATO not obsolete

NATO holds regular consultations with all of our partners.

Anders Fogh Rasmussen

Many years ago, I took my children to visit the sites of the D-Day landings in Normandy. I wanted them to understand the sacrifices that others had made so that Europe and North America could enjoy the benefits of life, liberty, and the pursuit of happiness.
We saw the beaches whose names echo through history - Omaha, Utah, Juno. Those beaches remain a memorial to the idea that, together, we can overcome any threat, no matter how great.
We understand the future that could have befallen not only Europe, but the entire world, if North America had not helped Europe in its hour of need. And we know that those landings created a unique bond between our continents.
That bond remains vital for the preservation of our values and our security. But, after the Cold War, many assumed that its institutional embodiment - the North Atlantic Treaty Organisation - would fade away. It did not, because our bond is based not just on common threats, but on shared ideals. It could no more fade away than our desire for freedom could wane. NATO needed no external reasons to exist. Yet history would provide them soon enough.
In Bosnia and Kosovo, NATO intervened to stop massive human-rights violations. In Libya, we enforced a United Nations Security Council resolution to protect civilians. And in Afghanistan, we are denying a safe haven to extremists.
The Alliance has evolved into a true security-management organisation that is flexible, efficient, and cost-effective. The threats have changed, and become more global, and we have changed to meet them.
NATO is developing a ballistic-missile defence capability to protect our European populations and territory against a grave and growing threat. In the Indian Ocean, NATO is working with the European Union and many others to police major sea lanes threatened by pirates. And, in countries around the world, it carries out tasks such as de-mining, disaster relief, advising on how to bring military forces under democratic control, and working closely with the UN to prevent harm to children.
Efforts like these may not make headlines. But security is like health - you never notice it until it takes a turn for the worse. This is why you need insurance. And NATO is the most solid security insurance that the world has. Underwritten by 28 members, it has delivered security benefits to all Allies, year after year, for more than six decades.
This weekend in Chicago, representatives of roughly 60 member states, partner countries, and international organisations will assemble for NATO's latest summit, the largest in the Alliance's history, to tackle some of the biggest security questions of our time.
Our discussions will focus on three issues: the transition to full Afghan security responsibility, the continued development of Allied military capabilities, and NATO's global network of partnerships.
First, we will reaffirm our commitment to Afghanistan's stability and security. Over the next few months, our role will shift from combat to training and mentoring. And, by the end of 2014, Afghans will have full responsibility for their own security.
Second, as our military involvement in Afghanistan nears completion, we must look ahead and develop new capabilities for a new era. At a time when defence budgets are being slashed across the Alliance, this requires a new approach.
By working together to maximise our assets and resources, we can do more with what we have. This is the essence of "Smart Defence." In Chicago, the Allies will commit to this approach as a long-term strategy for improving NATO's capabilities.
Finally, partnerships will figure prominently on the agenda in Chicago. Over the past 20 years, NATO has created a network of security partnerships with countries around the world. Unlike Allies, partners are not covered by Article 5, the North Atlantic Treaty's collective-defence clause. But transnational threats demand multinational solutions, and our partnerships help us to address common challenges.
NATO holds regular consultations with all of our partners. The Alliance helps interested partners with defence reform. And many of our partners bring valuable capabilities and expertise to our operations.
I began by noting my personal identification with the bond between North America and Europe. But this attachment goes deeper than you think. Chicago has long been a home for many European immigrants. My own son lives in Illinois, not far from Chicago, with his wife and two children. Of my four grandchildren, two are European and two are American.
When I think about reasons to preserve our transatlantic bond for future generations, I don't think about my security. I think about theirs. And that is the only reason I need.

Anders Fogh Rasmussen is  Secretary-General of NATO.