Do not deal with this state of affairs would mean that the trend is accelerating and the situation continue to deteriorate. Pakistan could soon be in a position where it will be difficult to recover.
If the country must be saved, the operation will touch many fronts. There should be reforms in the way the country is currently working on: in politics, economics, and as a society.
Among the most important areas needing reform is the role of government and how government should rule. In a globalized world, there are many influences on politicians. Some of them work directly as in the case where the IMF imposes conditions on countries that go to it for help that Pakistan has done on many occasions, most recently in 2008. In some other cases, the influence is exerted indirectly and less obviously. In this context it is worthwhile to explore the political environment in which Pakistan will need to work if he wants to improve the functioning of its economy. Even if the country returns to the Fund that may need to do before too long, you find that this institution will be reading from a script very different.
The state in Pakistan is currently working in the sphere of economy, which reflects to some considerable extent an approach that was developed by political theorists who work in the development of numerous financial institutions based in Washington.
Called Washington Consensus, this package affects ten areas of policy making. One of the most important of these is fiscal discipline by ensuring that governments remain in reasonable balance account. An economy in developing countries could have a deficit, spending more than increases in taxes. Generally, a deficit of three per cent of GDP is considered within acceptable levels. The bigger the deficit could trigger inflation if the money was funded by the central bank's printing.
Financing the deficit by borrowing from the banking system crowds out private investors, increasing the rate of interest. Pakistan has done wrong in this area; clock keeps up deficits well above the comfort zone. It 'was the government's inability to keep the deficit under control has led to its withdrawal from the IMF program late last year.
The second element concerns the Washington consensus that change the shape of public spending from indiscriminate spending of up to maintain a structure of large luxury Journal or provide large subsidies favored constituencies. Disbursements preferred by the government should include education, health and infrastructure. Pakistan is doing little about these, rather than spend large sums unduly on activities that do little for the public good.
Reforming the tax system has been included under the agreement. It involves increasing the tax-to-GDP ratio to the point where the government could undertake meaningful programs for the creation of public goods. These include the improvement of human resources of the county, improving the quality of governance, improve safety, and providing a regulatory system that forces the proper behavior of the private sector.
Financial liberalization was another aspect of the consent. It allowed ample space to the banking system, insurance companies and other financial houses to operate, but some basic rules of prudence must be observed. The agreement also required a unified and competitive exchange rate. This could be achieved only by allowing the market to set it. But markets have been influenced by many other public policies, particularly those relating to controls on capital flows across borders. Initially this item was on the freedom and the release of capital that caused the Asian financial crisis of 1996-97, when large amounts of money came out of the banking systems of these countries, as well as their capital markets.
The agreement also promoted privatization suggesting that the state is not a good manager of economic enterprises. In fact, the World Bank wrote a scathing report entitled Bureaucrats as Managers, powerfully suggesting that the bureaucracy could not be entrusted with the management of industrial enterprises, banking, insurance, utilities and brokerage houses. Bureaucracies have done everything in Pakistan following the nationalization spree in early 1970 putting untrained bureaucrats in charge of companies of which they knew little and cared less. The result was loss-making enterprises that have put a large burden on already strained government. Should not only be economic entities generally in the hands of private entrepreneurs, the Washington Consensus has suggested to put in place a regulatory system that allowed free entry and exit to private companies. The only constraint that should be imposed is that in areas where it has been affected people's health, products to be produced and used to provide compliance with the standards established by the regulatory system. In allowing the companies already established out there need to ensure that the capital of those who had invested in companies in bankruptcy had some protection in relation to expectations, when investments were made. The Washington Consensus focused a significant amount of its attention on trade, supporting the free movement across international borders and creating a level playing field between different actors in the trading system. Most of Pakistan in this area was pretty good - at one point was the most open economy in South Asia. What has changed the country has imposed levies on trade to improve the income tax.
The consent also informed the governments to facilitate foreign direct investment, or FDI. But FDI flows have declined dramatically in recent years the security situation has deteriorated drastically.
The final part of the Washington Consensus refers to the creation of a regime that ensures the security of property rights. Pakistan has fallen behind in creating an environment that is considered acceptable by all those who own property in the country or would like to acquire it. Land holding rights are based on antiquated systems, dating from the Mughal and early British. They provide an enormous discretion to the responsible protection of these rights. The land registration system is one of the most corrupt in the world in developing that contribute to the overall level of corruption considered to be much higher than expected for countries in development of Pakistan.
What this brief overview of the Washington consensus policies shows that a large part of the package, the original formulation remains valid for Pakistan and offers a menu of options that policymakers should look at whether there is a real interest in addressing economic malaise of the county.
