May 6, 1998
Mr. Chairman, Excellencies, Ladies and Gentlemen!
It brings me great pleasure to address this distinguished gathering. The Asia Society has played a commendable role in promoting cooperation and understanding among policy makers, business leaders and the intelligentsia. The current Conference is a manifestation of the Society's efforts to bring these eminent personalities together to deliberate on the critical issue of "Reinvigorating Growth." This forum, therefore, provides me a unique opportunity to share Pakistan's viewpoint with you on the Challenges and Priorities of the issue.
These final years of the twentieth century pose a new and different set of challenges for us. Despite the radical transformation of the world in the recent past, the foremost human priority remains economic well-being. The overwhelming majority of human kind is caught in the chilling grip of poverty and deprivation. Disparities in incomes between nations and amongst people are startling. Unless this is redressed, global progress and stability will remain a distant dream.
The gap between the rich and the poor nations continues to widen. The benefit of rapid advances in science, technology, and informatics are but shared by a few developed and privileged nations. In this world of interdependence, however, an island of prosperity cannot sustain itself in an ocean of poverty. Prosperity and peace must go hand in hand. The purchasing power of the majority of the world's population must be raised. We must strive for an interdependent world if four-fifths of humankind are to be saved from the deep abyss of poverty.
It is gratifying that progress has been made on some of these issues. There is now and expanded and freer flow of goods and services. The process of globalization and integration, advancement in communications and information explosion has turned the world into a "global village." Today, more and more people are enjoying the fruits of economic and technological advancement, political emancipation, the freedom of speech and action than ever before.
In the past thirty years, a number of Asian countries have merged as fast growing economies, graduation from a less developed to an advanced status. The miracle of East Asian nations, notwithstanding the current economic turmoil, has given hope and inspiration to others. The economies of countries, mainly in Far and South East Asia, have progressed at an impressive pace. Their achievements in social development too have matched their economic progress. There is hope that the next decade will be a witness to global recovery, although at a modest pace, and Asian countries will maintain the path of rapid growth.
However, while the progress was very visible and enjoyed by the 200 million people living in East and South East Asia, a financial crisis suddenly knocked at their door and played havoc with the economies of Thailand, Malaysia, Korea and Indonesia where serious social and economic suffering shave come to the fore. According to World Bank estimates at least 1.2 million people are currently unemployed in Korea. 1.7 million in Thailand, and about 9 million in Indonesia.
The real concerns about this crisis are (1) its suddenness, and (2) the nature of this crisis which did not follow the course of such crises in Latin America in the 1980's and that in Mexico in 1994 where micro-economic imbalances like high fiscal deficits, large current account gaps, and rampant inflation had played the eminent trick. In the case of most East Asian countries, the macro-economic fundamentals were fairly satisfactory.
The roots of the crisis can be traced the large flow of unregulated and inadequately reported flow of private capital to the affected countries going into imprudent lending to sectors like property or services. In other words, this was crisis stemming from the capital account deficit. Countries like Pakistan which have not yet opted for capital account convertibility or had limited access to private capital, escaped the contagious effects of the crisis.
On the other hand, countries like Thailand which followed inflexible exchange rate policies, together with unregulated access to private foreign capital, faced more serious consequences in terms of slow down of exports and greater pressure on the exchange rate.
Some blame has also been apportioned to corrupt practices and favoritism that an unregulated system often encourages.
This naturally focuses our view on the need for broad ranging financial sector reforms to supervise and regulate capital flows, to improve accounting and disclosure standards, and introduce effective risk management. Beyond these readily recognizable inadequacies of the financial sector and exchange rate policies, there are many other causes of this crisis which have not been fully identified or debated till date.
I would like to mention them briefly, as food for thought, in the expectation that these will be explored more intensively in the ongoing debate on this subject:
a) the role of the private lenders in the crisis, as distinguished from the role of the borrower. By this, I mean the need for regulation or non-regulation of these agents who make money by trading currencies rather than goods.
b) The sudden and unexpected outflows of capital from the countries of investment due to changes in confidence or perception of confidence in the markets of their operation.
c) the role of the multilateral agencies in responding to such crisis and the adequacy of inadequacy of the present arrangements.
These factors if analyzed carefully will throw much light on the perils of globalization. There is now a growing realization that excessive liberalization or total reliance on market forces is not the most desirable course. There is need for safeguard but only some of these safeguards are within national control. Others require international action, which may not be easily forthcoming.
Viewed in this context, it will be appropriate to call this a crisis of global financial management and not just an Asian crisis. I am, however, confident that with the support and assistance from international agencies and countries like Japan and China, a resumption of growth will take place within this year, although it will take another 2 or may be 3 years for the rate of progress to revert to its earlier dynamic path.
With these observations, I would now revert to the subject of reinvigorating growth. As you all know Asia is a market of more than three billion people which is expanding and opening at a fast pace. The growth of the population, though decelerating, is still high in many countries Asian countries. The rapid pace of economic growth coupled with urbanization and changes in habits and consumption patterns are enlarging the markets for goods and services. In many countries, non-tariff barriers have been eliminated and tariff walls have been lowered. These, on the one hand are offering greater access to foreign products and on the other forcing domestic industries to restructure, improve efficiency, and acquire competitiveness. The composition and pattern of imports are distinctly undergoing a transformation. They are becoming an attractive market for high-tech products and processes and their imports of tradable services are expanding.
Thirty-nine per cent of the world population, a latent world market, and 45 per cent of the world labor force is in China, India and Pakistan alone. The present trends indicate that these countries are set to grow two to three times faster than the industrialized countries. China is fast emerging as a world power. The Chinese Economic Area defined as China, Hong Kong, and Taiwan is predicated by the World Bank to rank ahead of both Germany and Japan in GDP, and approaching the size of the US by the year 2002. During the recent economic downturn in East Asian countries, China took a bold and commendable decision not to devalue its currency thereby stabilizing the economics of neighboring countries.
The emergence of new states in Central Asia has created a confluence of interests in there region. Pipelines from the Central Asian countries running East and West will bring enormous benefits to the entire region. Collaboration in the areas of transit routes, credit facilities, technical assistance programs, and banking present vast economic opportunities. The newly independent Central Asian Republics are carrying out political and economic reforms which would help their integration with the outside world.
Today, Central Asia and South Asia are on the move. Conditions are being created for rapid economic growth in both regions. In the case of South Asia, trade liberalization is now the norm. Tariffs have been drastically reduced and quantitative restrictions will soon be entirely eliminated. Open markets have unleashed tremendous consumer demand. Huge infrastructure projects are already underway, and the prospects for a South Asian free trade area early in the next century, will further accelerate growth and trade in the region.
The greatest potential for business lies in exploiting the complementarities of Central and South Asia. The energy-rich Central Asian Republics can meet the demand of the populous and rapidly industrializing South Asian countries. In turn, the South Asian sates can provide the Central Asian Republics with technical know how, managerial services, and a whole array of consumer and intermediate goods. Importantly, the shortest routes from Central Asia to South Asia and to world markets, pass through Afghanistan and Pakistan.
These complementarities are already being exploited. A number of major projects, especially in the energy and communication sectors are underway. Given its strategic location at the nexus of Central and South Asia, Pakistan has taken the lead in initiating such projects. A five dimensional corridor is being opened from Central Asia to Pakistan which would carry road and rail traffic, electricity transmission, and natural gas and oil by pipeline.
To further the enormous potential of these tow regions, Pakistan will be hosting the first ever Central Asia-South Asia Economic Summit in Islamabad from 13-15 September this year. It will be a pioneering initiative to bring together two regions with great economic potential in terms of complementary of resources and expertise. It will be the revival of the "Silk Route" which in the distant past served as a commercial and cultural link from Europe to China, and Central Asia through Turkey, Iran and Pakistan 9then part of India). It has now captured the imagination of the international business community and I am confident that the business magnates present here would find the CASA Summit of great interest. They are cordially invited to attend the moot.
Thanks to the technological development and changed scenario of today, the successful investors have to look beyond international frontiers. For achieving economies of scale and globalized quality standards, the investor community has to concentrate on regional markets without regard to the national boundaries existing between the countries of a region. It is this context that the multinational investors have to locate manufacturing hubs for marketing their products to the vast multitude of consumers in the CASA region and the affluent Middle East. Closeness to the markets served will be beneficial both to the consumers and the manufacturers vending their goods. Resilience of an economy to shocks and its providing a level playing field to all may be other criteria sought by the investors.
In Pakistan, our endeavor is to usher in a new era of self-sustaining growth underpinned by broad-based prosperity. My government is committed to the economic and social transformation of Pakistan. Economic growth must be wedded to social welfare. This is the essence of stability and prosperity without which the hope of progress will be a mirage.
We have taken up with renewed vigor the agenda of deregulation, liberalization and privatization. In the past one year wide ranging reforms and policy measures have been introduced which have yielded positive results. The Programme of Economic Revival initiated in March 1997 is helping promote industrial growth and exports and is providing a more competitive edge for our products. The Financial and banking Reforms coupled with the Programme of Capital Market has provided greater autonomy to the Central bank and is enhancing discipline, stability and efficiency in the banking and the capital market sectors. The Incentive Package for Agriculture has ensured high production and better returns to the farmers. The cumulative effect of all this has had an extremely positive impact on our economy.
Our efforts to reduce the budget deficit through control of expenditure and broadening the tax base, despite many difficulties, have started yielding encouraging results. The balance of payments position has improved substantially, mainly due to the expansion in exports and home remittances. Our new Investment Policy focuses on the areas of high value addition, exports, high-tech, agro-based, chemicals, minerals, oil refining and fisheries. Additionally, we have taken the bold step of opening up the economy for foreign direct investment on a repatriable basis in non-manufacturing sectors as well. This implies that agriculture, infrastructure, services and the social sectors are now open for investments by foreign companies and entrepreneurs. The process of privatization is proceeding apace and public sector enterprises in the areas of banking, finance, energy, transport and communications have been offered for disinvestment.
We are acutely aware that the past neglect of human development is now constraining our growth prospects. My government is committed to the objectives of equity, social justice and economic development. These can best be served by expanding the availability and quality of social services, particularly in the areas of basic education, health and population welfare. It is essential that concrete efforts are made to eradicate poverty and lessen economic disparity. A Social Action Programme and a Programme for the Alleviation of Poverty as well as other similar measures have been introduced to substantially improve human resource development.
This is an age of interdependence. We expect that a spirit of fair play and constructive competition will prevail in the new trading regime. The World Trade Organization must not only create a level playing field, it must also protect the disadvantaged nations from any form of exploitation. While carrying out its mandate of reducing tariffs, promoting access to markets, protecting intellectual property rights, and encouraging the free flow of global trade and services, the new international economic regime must pay special attention to maximizing the trading potential of developing countries.
The strategy for reinvigorating growth should focus on balanced growth, on a wider dispersal of opportunities, and on securing the integration of developing countries in the global market. This must be ensured by investment in their natural resources; by expanding their infrastructure, especially the transport and communication links; by developing their human resources; by enhancing their productivity and efficiency; and by the stimulation of demand. In this context, priority should be given to:
a) assisting the developing countries in their policies and programs of deregulation and liberalization, in particularly by safeguarding against likely adverse developments in the transitional period.
b) undertaking structural adjustment in the advanced countries in order to stimulate demand for imports,
c) ensuring liberal equitable systems of international trade and economic relations to ensure, inter alia, greater access for manufacturers of developing countries in markets in the developed world, in accordance with the WTO Agreements, and
d) resisting new protectionist tendencies specially those on environmental and social grounds; and intensifying efforts for transfer and diffusion of technology to the new power house economies.
The tremendous productive potential for reinvigorating world growth has to be harnessed properly to avoid economic and social dislocations on a large scale. Peace and development are indivisible and poverty anywhere is a threat to prosperity everywhere.
Ensuring world peace and banishing poverty should therefore be high on our agenda. Globalization and economic integration should be sustained and enlarged through openness and market friendly policies at the government level, and expanded inter-state flow of goods, services, finances, technology and knowledge at the private level. Adequate national and international safeguard should also be evolved. In the liberalized world economy where private financial flows and inter-firm corporate transfers have assumed a dominant position the world business leaders have a critical role to play. We hole that they will play this role diligently and boldly!
The Asian countries must cooperate closely to prove equal to the challenges of the next millennium. Let us not be deterred by the enormity of the task before us. Let us harness our assets and resolutely move forward towards ever higher achievements. Before concluding I would like to invite the Asia Society to organize their next Corporate Conference in Pakistan in the year 1999 or 2000.
For more information on the Prime Minister and Pakistan visit
its official government site at http://www.pak.gov.pk/