Prime Minister Benazir Bhutto argues that Pakistan can look forward to a better future
Do you see an imminent resolution to the dispute with the MQM in
Karachi is much more peaceful today than it has been; violence has
declined appreciably due to the co-ordinated efforts of the law
enforcement agencies. I am a political person and I believe in solving
every political and non-political issue through dialogue and discussion.
I do not believe in confrontation and, being an optimist, I always hope
and look forward to the best.
The government and the Altaf Group had been engaged in dialogue in order
to find ways to resolve the problems in Karachi and I am sure that we
will soon resume these discussions. The most important issue on the
government's agenda is the restoration of peace and harmony, and we hope
that the Altaf Group will soon realise that its confrontational strategy
is useless, and will give the people of Karachi a break. I believe that,
if the Altaf Group prolongs the situation in Karachi any further, the
city's people, who are already fed up with violence and disruption, will
hold Altaf Hussein accountable.
I am confident, however, that we can move ahead with the dialogue. There
have been fresh contacts recently and the Altaf Group team has been
meeting with the Governor of Sindh. The leader of the government's
negotiating team has renewed the invitation to representatives of the
Altaf Group with particular reference to re-opening avenues for
negotiation with them. Their positive response would help to bring early
peace to Karachi.
What have been the economic effects of violence in the city?
Despite the general law and order situation, Karachi continues to
receive an encouraging response from foreign investors. This surely is
an indication that there is no economic stagnation in Karachi.
Recently, the ground-breaking ceremony for an ICI chemical plant took
place in Karachi. The investment, at US$450 million, is ICI's single
largest investment in the world. In January this year I performed the
ground-breaking ceremony for a coal-fired power project at Keti Bender,
not far from Karachi, and, more recently, another ceremony for the huge
Karachi Mass Transit Project, largely funded by Canadian firms. These
major events should dispel the impression that Pakistan, particularly
Karachi and its surroundings, is economically stagnant.
How do you gauge present relations with India?
Much as we would like to have normal and tension-free relations with
India, a number of outstanding problems have impeded our progress in
that direction. My government has been sincerely trying to resolve all
outstanding issues, including the core dispute over Jammu & Kashmir.
Foreign Minister-level talks in January 1994 did not yield tangible
results because of the negative attitude of the Indian side, and we are
concerned over the stalemate between us. We hope that the deterioration
in our relations can be halted by progress in resolving the Kashmir
issue, which will also make it possible to settle other differences.
In this context, Pakistan has made several specific proposals to promote
non-proliferation, arms control and disarmament. We are waiting for a
positive reply from the Indian side. We have also proposed an agreement
for the mutual reduction of armed forces, which would enhance security
at lower levels.
We hope that, now that the general elections in India are over, the new
government will shun a rigid stance and enter into a meaningful dialogue
with us to solve these contentious issues. Nevertheless, we must be
cautious: India continues to engage in an arms build-up. The deployment
of Prithvi missiles, the development of the Agni ballistic missile and
India's ambitious nuclear programme, coupled with its ambivalent
attitude to the Comprehensive Test Ban Treaty, do not auger well for the
The nuclear issue has clouded relations with the US. Do you see
relations improving in the near future?
Since my government assumed office, we have made concerted efforts to
improve relations with the US, which had reached a stalemate due to the
imposition of the Pressler amendment. The Clinton administration has
responded positively, and continues to assure us that it wants to
revitalise and broaden relations, especially given the changed world
scenario after the end of the Cold War.
A non-proliferation regime in South Asia must be equitable. There is
increased realisation of this in the US. We look to the US
administration to take a mature and balanced view of the situation. I am
confident that the Brown amendment will form the basis of a redefined
relationship between Pakistan and the US. It will enable the two
countries to broaden and deepen mutually beneficial co-operation in
diverse areas, including economic co-operation.
Rumours of a coup attempt circulated in late 1995. Were these rumours
The matter is sub judice, and I would not like to comment. I will say,
however, that democracy in Pakistan is now an integral part of Pakistani
society; all institutions of state are operating under their
How are relations with the IMF?
Let me make it very clear at the outset that the government has never
relented in its commitment to pursue basic economic strategies aimed at
achieving macro-economic balance and pressing forward with economic
reforms and structural changes.
Under ESAF/EFF (1993/94-1995/96), we could not achieve certain targets
for the second year of the programme, such as GDP growth and fiscal
deficit and inflation reduction, because of supply-side constraints.
Three consecutive failures in the cotton crop coupled with bad weather
affecting minor crops reduced GDP and pushed up inflation.
However, we have continued to make substantial progress in terms of
implementing the structural reforms envisaged under ESAF/EFF. For
industries, the sanctioning process has been eliminated and only very
few price controls remain. Most restrictions on foreign investment have
been removed. In agriculture, export duties and restrictions have been
eliminated and in-put subsidies are being phased out. The exchange and
trade regime has been liberalised and the rupee is freely convertible on
the current account. Financial reforms have led to the disbandment of
quantitative controls on money supply and the autonomous powers of the
Central Bank have been enhanced. Progress in privatisation has been
fairly rapid: more than eight industrial establishments have been
privatised. A milestone was the disposal of strategic shares in the Kot
Addu Power complex along with transfer of management. Work is in
progress on privatising power and gas distribution systems as well
as the Pakistan Telecommunications Corporation. The exemption of agriculture
from direct taxes is being gradually eroded, the federal government has
already imposed a wealth tax and three of the provinces have levied an
agriculture income tax. The fourth province might introduce a similar
tax in the next budget. Last but not least, there is now a greater
stress on decentralisation, privatisation and deregulation and
opportunities and incentives are being provided for greater public
participation in national development.
As I have already mentioned, we had to alter the pace of fiscal
adjustment and tariff reduction in the budget for 1995-96 due to
supply-side constraints which were beyond our control. But, as is
evident from the measures enumerated above, we have continued to
implement the broad policy reform agenda with great vigour and
When the new financial year began in July 1995, certain unfavourable
trends emerged on the foreign trade account, with a decline in exports
and a sharp rise in imports. This adversely affected our foreign
exchange reserves, which declined significantly, though never to
alarming levels. To arrest further falls, the government decided in
October to take emergency action. The rupee was devalued by 7 per cent,
a regulatory duty of 10 per cent was imposed on imports and petroleum
prices were raised. Action was thus taken to stimulate exports and to
restrain domestic demand.
To further shore up our balance of payments position and restore
confidence, we negotiated a stand-by arrangement with the IMF. It is
worth noting that, while stand-by arrangements usually deal with the
problem of immediate stabilisation, the agreement with Pakistan contains
a number of provisions for structural reform.
We are confident that we shall not only be able to implement the
stand-by agreement but also negotiate a new, multi-year ESAF arrangement
by the end of 1996.
I may mention that the performance of the principal sectors of the
economy during the current year has been very encouraging. After three
years of low growth, output will rise by over 6 per cent in 1995-96.
Progress has been particularly striking in agriculture, where output will
rise by over 6.6 per cent, with cotton recovering from the problems
which have plagued it in recent years. The external position has
stabilised to a considerable extent. Exports are picking up, and imports
slowing. Foreign reserves have stabilised at a reasonable level. The
government is doing its utmost to reduce the budget deficit. Tighter
demand control combined with improved output has helped to contain
inflationary pressures. The performance criteria for the quarter ending
December 1996 provided in the standby has already been met.
I may conclude that economic prospects for Pakistan are very
encouraging. We are moving towards macro-economic balance, both on the
fiscal front and in the external account. The agenda of economic reform
is being implemented vigorously. We are confident that Pakistan has
embarked on the road to economic progress and sustained growth of high
Foreign investment is a vital element in economic development. What
measures have you taken to build investor confidence in Pakistan?
We have taken a number of measures to build investor confidence. We
pulled down the retrogressive system of approvals, sanctions, permits
and licences to put Pakistan on the road to a free enterprise economy.
The gamut of productive activity, be it economic, social or service, is
now open to foreign investors, who can hold up to 100 per cent equity in
any productive venture without a Pakistani partner. The Pakistani rupee
has been made fully convertible and foreign investors can repatriate
funds at any time without restriction. The macro-economic stabilisation
programme is successfully under way. Through strict fiscal discipline,
we have been able to bring down the budget deficit from 8 per cent to 5
per cent. Exports are increasing, improving our balance of trade. These
measures have had a very positive effect on price structure and
inflation is falling.
The economic liberalisation, deregulation and denationalisation policies
which we started some six years ago have been in operation continuously.
There is complete consensus among all major political parties and
splinter groups over our policies.
We have designed a number of policy packages for attracting investment
in the agro-food industry, chemicals, electronics, energy and special
industrial zones. The concessions and incentives offered are matched
virtually nowhere else in the region. To consolidate various measures
taken by the government, and to help investors in their investment
decisions, we have set up a one-stop-shop, the Board of Investment
(BOI), which has identified a number of profitable projects on which
pre-feasibility studies have been prepared and distributed amongst
With a view to acquainting the international investor community about
Pakistan's investor-friendly environment, and the availability of a
large number of incentive packages, Pakistan organised investment
conferences in many capital and technology resource-rich countries such
as the US, the UK, Germany, South Korea, Malaysia, Singapore and Japan.
Besides these physical measures, we have been successful in creating an
investor-friendly culture within the bureaucratic circles of Pakistan
and the international investor community is finding a discernible
change in the economic culture of the country. Our efforts have
generated a lot of confidence, and more than US$25 billion-worth of
What are the key challenges ahead?
As the head of a government of a developing country with a large
population, issues and problems demanding my attention are many. I can
read out a long list of pressing issues and problems, but I shall
confine myself to listing just a few.
Within the country, issues requiring urgent attention include
unemployment, low literacy levels, lack of healthcare facilities,
especially in rural areas, and a political opposition that refuses to
rise above partisan considerations even on non-controversial issues. On
the regional and international canvas, we have a many times larger
country to our east which continues to develop and stockpile weapons of
mass destruction, posing the most serious threat to Pakistan. We also
have to counter an adverse Western perception of our peaceful nuclear
programme, a perception that is, ironically, fuelled and strengthened by
propaganda from India. We also, ofcourse, have the Kashmir issue, which
enjoys a high priority on our agenda.
So, you see, I have quite a long list to handle.
To TopTo Archive IndexTo Contents
©Kensington Publications 1996