New Reforms Help Mend Pakistan's Economic Troubles

MOEEN QURESHI got a rare opportunity to practice what he had long preached - sound developmental economics.

The nearly 30-year veteran of the International Monetary Fund (IMF) and World Bank was appointed prime minister of Pakistan on July 18. He quickly instituted a major package of reforms that has slowly helped the troubled nation emerge from an economic crisis.

Mr. Qureshi recently returned to Washington, after handing over power to Benazir Bhutto, a former prime minister just reelected to office.

Early last summer a political battle between the country's president and prime minister gave birth to political uncertainty and unstable economic conditions.

Foreign-exchange reserves fell, share prices on the stock market dropped, government borrowing increased, and business confidence declined. The trouble only intensified concerns about Pakistan's inability to repay $500 million in loans that became due in September. The political crisis ended in an Army-backed deal that forced both President Ghulam Ishaq Khan and Prime Minister Nawaz Sharif to resign and call for new elections.

Qureshi was chosen to be interim prime minister in part because of his political neutrality, but primarily because it was hoped that his economic expertise, acquired during his years as an international civil servant advising developing countries on appropriate economic measures, might help turn around Pakistan's economy.

Soon after taking office, Qureshi took radical measures to improve Pakistan's economy: He implemented reforms to make the central bank autonomous from political interference; started a campaign to recover unpaid electricity, gas, and telephone bills, amounting to more than 16 billion rupees (US$534 million); and introduced new laws to recover up to 80 billion rupees (US$2.66 billion) in defaulted loans. Revenue laws also were changed to make politically powerful, rich feudal landowners pay income and wealth taxes, ending their previous immunity from such taxes. This helped recover the foreign-exchange reserves at a crucial time for an economy in need of loan repayments.

``The most important reforms aim at good governance,'' Qureshi said in an interview before returning to Washington. ``I feel that this country has been run previously by governments that have had almost feudal characteristics.

``It's not the fault of any particular government. It's the system that has evolved in that way, and public resources, public assets have been used as a means of political patronage.''

MANY officials are watching closely to see if Qureshi's program will stay on course. Some have raised concerns in response to Prime Minister Bhutto's statements that several of the reforms could come under review. But it is not clear if Bhutto's remarks were mere election rhetoric or an indication of future policy. In part, Qureshi's reforms are protected by tough IMF conditions on loans to Pakistan from that multilateral institution. The IMF has praised the reforms and signaled its approval with a $277 million standby credit announced last month.

Pakistan's new government is also expected to seek up to $1.2 billion over the next three years in a combination of loans under the Extended Structural Adjustment Facility and the Extended Finance Facility, designed to tighten requirements on controlling government spending.

Qureshi's best hope for protecting his initiatives now lies in the future role of Pakistani leaders and the country's people. To those leaders, he says: ``We have to begin to appeal to the ethos of the people and to tell them that paying taxes, avoiding corruption is a social responsibility, and here, examples must be set at the top.

``If we've got to build a healthy democratic system, then the people must expect that their rulers are in fact their servants rather than their authoritarian rulers.''

But more important, he says to the people: ``I believe that the Pakistani public is much more conscious and much more sensitive now about the misuse of power and authority in government and about its use for political purposes.''

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