Posted by: Administrator | 30 September, 2006

President address on Asian African Summit

25 April 2005,

Bismillah-hir-Rehman-nir-Raheem. Excellency Mr. Hiddayat President Indonesian chamber of commerce and industry, Excellencies and distinguish Ladies and Gentlemen.

It is indeed a privilege for me to participate in this business summit which is an essential component of the Asian African summit and the Asia Africa sub-regional organizational conference process. The topic of this session the role of private sector in achieving progress and eradicating poverty in Asia and Africa is a vital importance to our people and emphasizes the need for appropriate solutions and approaches to attain these objectives before saying any thing else let me admit in front of this August gathering, I am not economist I am a soldier so it is my proud privilege to be talking of economic matters and poverty alleviation but let me say what ever I am going to say is the practical aspects that I have learned through on job training so what I am going to give you is my on job training experience that is a clever move to cover up what ever negatives I may.

Ladies and gentlemen, having said that poverty and deprivation breeds despair hopelessness and extremism and thus constitute the greatest challenge of our times. It is a threat not only to progress and prosperity in our global village but also constitute the core of extremism and terrorism. I would like to share my views on Policies for development pursued over the years by the countries of the south the lessons that will learn from these policies which were pursued and then I would like to give you an over view of Pakistan’s own experiences in Poverty alleviation and finally on south Asian cooperation.

Excellencies, ladies and gentlemen, the third world government across the globe have been following a variety of developmental policies over the years which found favour with politicians and planners, these policies where experimented with amended reforms and even reversed depending upon their results. Developmental models during the 60s and 70s led to the growth of public sector. Governments continued to support and sponsor very costly public sector enterprises even at the cost of heavy hemorrhaging leading to increase fiscal deficit and inflation and this was exactly Pakistan experience also. Experience showed that even profitable public sector enterprises could not optimize effects on the economy they lack the incentives to optimize performance and output besides being prone to corruption and political manipulation. Clearly new alternatives had to be found and thus emerge the role of private sector.

I think we in Pakistan learned the hard way having managed public sector enterprises to the financial decrement of the economy of the Pakistan. The central challenge to economic planners in Asia and Africa was to alleviate poverty and joblessness quit clearly it was understood that economic growth in itself alleviates poverty through a trickle down effects of its own however during the process of accelerating the economic growth and allocating funds towards fast returning developmental projects the finance lay an ensuring that expenditure remain within critical fiscal deficit limits and also the sufficient allocations where made towards effective poverty reduction programs so that people did not start falling below the poverty line. This was a fine balance that needed to be struck through strict fiscal discipline. This is exactly what our experience in Pakistan was in the initial stage when I came on the scene. The sources were limited we had to ensure that people did not fall below the poverty line in increasing numbers on the other side we need to divert maximum funds towards development projects they where self contradicting. Therefore balance have to be struck in the centre of both, also may I say in a free market economy giving an increasing role to the private sector created an additional dilemma of keeping growing disparities between the rich and the poor under check on one hand and preventing over concentration of wealth in a few hands on the other.

An overview of global economic situation in late 80s shows that the poverty in many countries of the south Asia reduced. Most of the East Asian countries including those of south East Asia achieved economic transformation with reduction in poverty on a scale that is without precedent in social history. East Asia was able to reduce poverty by half in just two decades this is the Asian miracle worthy of emulation by most countries of the South Asia. The success of East Asian economies and their strong economic growth ought to sound economic management with active role of the private sector.

The phenomenon of intra-regional and inter regional cooperation in trade and investment was also optimize for mutual economic 2 gains. The other remarkable aspect of their policies was the emphasis in social development. Massive investment in education health and skill development to enable their people to take advantage of employment opportunities in the private sector that has become both the engine of economic growth and an instrument of poverty reduction through planned job creation.

 However large parts of the South Asia especially in south Asia and Africa have yet to catch-up with the trends set by East Asia. According to world bank’s global poverty measures ’97-‘98 report during this period the number of people living on less than dollar a day increased in south Asia and sub Sahara Africa. The percentage of the very poor declines slightly in south Asia but remains constant in sub-Saharan and Africa If there is East Asian model to serve as an example success in poverty reduction in the countries of this region will depend on a combine effort of the government and of the private sector.

Effective strategies for economic growth and poverty reduction have to be base on a greater role for the private sector. This new role for the private sector was developed within a matrix for economic structural reforms whose major constituents were privatization, deregulation, liberalization and good governance. Generally the most visible mechanism for inviting in the private sector has been privatization in order to flourish and grow the private sector needs well sort out deregulations and liberalization strategies coupled with efficient and fare regulatory regimes and practices.

This mix generates economic growth and development and enhances the capacities of both the public and private sector to combat and reduce poverty.

Ladies and gentlemen quit clearly the private sector becomes a potent vehicle for combating poverty through a range of positive consequences on the economy of the country and these positive attributes include number one the private sector is the engine of growth for an economy and economic growth is the prerequisite for poverty alleviation. Number two a thriving private sector enhances revenue flows to the government; number three vibrant private sector generates jobs and boosts employment. It leads to a more skilled and educated work force. Number four private enterprise encourages openness to ideas initiative, innovation opportunity and empowerment. It is more merit and performance oriented and therefore inculcates efficiency.

Private investment has shown to be more closely associated with growth than the public sector investment and lastly the private enterprises span a wide variety of activities and modalities that can contribute towards poverty reduction including micro enterprises at one end, small and medium enterprises in the middle and large enterprises at the other end and at the higher end this combination also invites Foreign Direct Investment (FDI) inflows which are also vital for stimulating growth. I would like to interject the note of caution at this point the private sector cannot be left totally unchecked it must exist with the broader frame work of good governance.

The government has the responsibility not only to protect the basic rights of its citizens in terms of its social contract but also to put in place efficient rules and regulations that impels the private sector to behave as good cooperate citizens while ensuring healthy competition within them selves. The government as a whole has a role to play to further stimulate economic development through focus education infrastructure development promoting structures industrial and technological advancements and effectively putting into place the business and investor friendly environment.

The government must also help the capacity building and ensure the environmental protection for these purposes it is vital that bureaucracies are competent efficient and reasonably motivated.

Ladies and gentlemen at this point I would like to turn to our experiences in Pakistan a very holistic approach was adopted towards poverty alleviation this was then strategize into implementation modalities the first task was to identify clearly the sections of society where poverty and joblessness existed. This led to the realization that poverty was mainly a rural phenomenon where 70 [%] per cent of the population lived but also the other facet of joblessness leading to poverty was the urban population which we divide into two categories. The urban educated unemployed and the urban uneducated unemployed so these where the three categories of society which we thought needed poverty alleviation and needed job creation to elevate them from their conditions. We target population for poverty alleviation, it was clear Pakistan’s poverty reduction strategy then conceptualize to be implemented in a composite manner on many fronts with active involvement of all government agencies, civil society and the private sector most of all. The fronts identified were four number one accelerated economic growths, number two rural and urban developmental projects, number three easy and wide accesses to micro credit and number four targeted interventions. The 3 thrust of our economic policies to accelerate economic growth with stable macro economy indicators this would have its own trickle down effect towards poverty alleviation. Macro economy was stabilizing mainly through first of all reducing fiscal deficit substantially. This mainly involved freezing of Defence expenditures in spite of the threat perception that we had and when I say freezing in real terms reduction in Defence expenditures if you take inflation into account checking establishment cost which was another very big expenditure and also controlling massive financial hammer aging in all the public sector co operations of each one of them was running in loss and had to be subsidized and therefore there was hammer aging burden on the national exchequers and therefore the fiscal deficit was high and these three areas where concentrated on, and we reduced the fiscal deficit from nearly double figures one time but when I came on the scene it was around 8 [%] per cent. We reduced it to under 4 [%] per cent.

The second area for macro economy stabilization was converting the balance of payment deficit into surplus, this involve reducing debt service liabilities which was the major chunk of our expenditure through repayment expensive debt and debt re-profiling which we managed and then on the other side while we reduced our expenditures we increase our exports earnings substantially increasing our remittances if was to quote a figures our exports in the last four years have been increased by about 80 [%] per cent. The remittances in the last four years increase about 400 [%] per cent and Foreign Direct Investment [FDI] has increased by about 100 [%] per cent and we expected them to increase substantially more in this year. This converted the balance of payment from deficit to a surplus so that is how macro economic stability was brought about and may I say it continues to be extremely stable with each macro economy indicators to be positive.

The second element as I said rural and urban development projects which is the second target area for poverty alleviation. The rural development focus was on enhancement of agricultural production through yield intensification and better water resource management and development, wastage of water has been prevented through brick lining of water courses and additional land has been brought under cultivation through construction of new canals and new water reservoirs. Incentives given to farmers through a special –what we call in Pakistan special “Kissan Package” it’s a farmer’s package which I personally announced and their easy and vastly increased access to financial credit was ensured through all the private banks. Farmer earnings were also increased through better government announced support prices for their crops all these measures have led to vastly increase the injection of money into the rural economy going into the hands of farmers.

The emphasis now on encouraging the private sector to establish agro based industry focusing on dairy products and food processing amid at value addition and job creation through what we are calling a white revolution because Pakistan is the fifth largest milk producer of the world but no where on the scene of dairy products so this was the rural development part of it. On the urban development we are focusing on intensifying labour or man power incentive sectors of the industry within this housing and construction has been given priority through well thought-out incentives.

IT and telecommunication have also been our special focus to cater for the employment of educated unemployed. Local industry as a whole has been boosted through improving the duty and tariff structure in their favour. Small and medium enterprises are especially encouraged as they are seen as the incubators of new entrepreneurs. Instrument of employment promotion and most of all facilitators of spreading wealth rather than concentrating in the few large business houses, our experience in the past was there was a period when our industry grew but the wealth got concentrated in few hands there were known as 22 families but how ever now we are ensuring that the wealth gets spreads and well spreads into the population through encouraging SMEs more than large business houses. These measures ladies and gentlemen have yielded phenomenal industrial growth we had 18.2 [%] per cent industrial growth last year and we are hoping for the same percentage this year and we intend to sustain this growth and that is what will create jobs for the unemployed labour and for the unemployed educated category of people through focusing on IT and telecommunication. The third area of focus for poverty alleviation was micro credit bank facilities open in the form of Khushali Bank or welfare bank through initial public sector financing additional micro credit banks are being opened in the private sector. The out reach of these banks has been expanded rapidly to reach out to all the districts of Pakistan feeding people at grass root level and I think this access of small amounts of money at the grass root level to the people of Pakistan mainly concentrating on women is what actually contributing to 4 the poverty alleviation and may I add that it has been found that women are more responsible for retuning their loans than men. That is my finding. So this is micro credit side.

Lastly ladies and gentlemen, I spoke of targeted interventions reaching out to the poorest of the poor is the last area of our poverty alleviation program in Pakistan Zakat donation at 2 [%] per cent is deducted by all banks from the savings of every account holder as a religious obligation. A comprehensive Zakat strategy has been put in place where out right grants are given to the poorest to start a small business activity and financially sustaining and this business activity is given to them in accordance to their environment that they are living in or accordance to their capacity. Other than this food support programs and other measures are also in placed to benefit the totally down predawn and there are other areas where we reach poorest of the poor. Other than these immediate and mid term measures the government is also cautious of the long term strategy of improving the quality of Human Resource specially the education. Improving literacy levels harmonizing the education with the local needs and developing the technical education is the focus so this was the story of Pakistan’s economic stabilization and poverty alleviation strategy.

I am very proud to say that it has yielded in positive results and for the first time in our history of 57 years poverty and joblessness have declined we are resolve to maintain this downward trend. So ladies and gentlemen this was our experience with the private sector and with the public and private joint efforts towards reviving the economy and contributing towards poverty alleviation. Finally I would like to turn to south Asian cooperation in the economic field. Actions more than words is the need of the hour, South Asia provide market for the goods of the North and also mainly depend on the markets of North for its produce, South Asian trade and economic ties are extremely limited this needs to be rectified. Institutional arrangements need to be put in place to facilitate the private sector interactions within the developing world. Intraregional cooperation leading to inter regional trade and investment facilitation need to be focused on the Bandung conference is the right step towards enhancing economic cooperation between Asian and African regions of the South. Easing visa regimes and giving preference to intra South Asia economic cooperation will allow the private sector to be more dynamic within regional organizations. We need to co-opt private sectors and business chambers providing them an opportunity to interact on the margins of official activities

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