We often get too involved in the ad hoc developments to lose sight of the big picture. "IMF or not?" was the question that occupied minds as well as headlines for quite a few weeks now. The prime minister's and president's visits have been seen in the same light.

The IMF is very much there in the big picture as far as Pakistan is concerned but it has a history too. It reminds of structural adjustments programmes and enhanced structural programmes. And poverty and enhanced poverty too. So, naturally, there were misgivings about Pakistan going to the IMF.

There have been voices advocating alternatives, taking a middle course. Others took the categoric stand against the Washington Consensus, arguing this is the ideal time to break free from the system Pakistan is currently stuck in. An example of how Argentina managed to achieve this forms a part of this Special Report along with case studies of how the current inflation is affecting the poorest of the poor.

But, as said earlier, the IMF is only a part of the story. What are the factors responsible for the current economic crisis, what is the nature and extent of our problems and what is the way forward were some questions that we wanted to address in this Special Report. A detailed interview with Kaiser Bengali is not aimed to project the government policy but to understand the problems and their possible solutions.

The core issue that needs to be addressed is the lack of the trust of the national and international investors and consumers in the capability of the national economy to perform once again. That can only be achieved when the government becomes a trustworthy partner in the social contract.

The government has to win back the trust of the investors, the consumers and ordinary citizens by ensuring transparency in the uses of the revenue collected from the tax and the international donors.

If those citizens who pay their taxes and still have to be vulnerable to the whims of the market, it means a deficit of trust will be produced.

All of these concerns have to be addressed before hope becomes possible.

Pakistan is once again applying to the IMF for a loan, after most of its 'friends' abandoned it to the whims of the International Financial Institutions (IFIs). Much of the discourse surrounding the issue has sought to justify the act on account of there being no other 'alternative' than accepting the loan.

Arundhati Roy's term 'failure of the imagination' aptly describes such an attitude. The failure lies in being unable to imagine a path that is fundamentally different from this recurring pattern of debt and dependency that our policy makers have put us in for decades. The failure is further compounded by the fact that the IMF is once again asking our state to further privatise our national assets and remove all subsidies, while the American economy is itself in the middle of the largest nationalisation in history. It would be possible to imagine a different course if we look at a country much like ours, in a crisis quite like ours, that chose to placate not foreign investors, but its own people: Argentina.

Although the inherent danger in comparisons is that no two things are entirely the same, the comparison is still valid, if only for the severity of the crisis. In 2001 Argentina, until then a poster child for IMF policies, was struck by a severe financial crisis as a result of these policies. IMF advice had forced the government to stop spending on welfare services so as to balance its budget, resulting in a sharp decline in health and infrastructural facilities and a general decrease in purchasing power. Moreover, financial and market liberalisation in general led to the domination of foreign banks and corporations, lack of government supervision over financial manipulations (much like in the current US crisis) and the rest of the ills such as tax cuts for the rich, income redistribution to the already well off and a severe trade deficit. All this precipitated the crisis and led to further problems when the deregulated financial sector suddenly suffered an immense flight of capital, much like today's Pakistan. By the end of the year, more than half the population was pushed below poverty line. The people went to the streets, and governments collapsed within a matter of months.

At this critical juncture, Nestor Kirchner, the then president of Argentina, managed to realise that the IMF prescription was actually not the solution, but the major part of the problem.

The IMF plan was for Argentina to go in for further privatisation of public assets and more deregulation, along with maintaining very high real interest rates, in the hope of "restoring investor confidence" and once more attracting foreign capital into Argentina, the standard Neoliberal prescription that was the cause for the crisis in the first place. Instead, the new government plan for the economic recovery (or the 'Pheonix Plan' as it was aptly called) envisaged a different role for the state, not as a facilitator for foreign interests, but as a welfare state providing basic services to its people. The government directed its attention to domestic producers. It used a stable and competitive exchange rate to ensure that domestic production revived and grew. It focussed on improving the consumption of ordinary people and reducing poverty. It provided services at more accessible rates, often through re-nationalisation or controls on pricing of utilities. Most significantly, the government, by threatening default with Argentina's external creditors, forced a majority of them in 2005 to accept a debt write-off agreement that effectively cancelled 65 per cent of the value of their outstanding debt. An amazing achievement indeed.

Today, Argentina is one of the fastest growing economies in the world, after China and Venezuela, a growth of about 8 percent. More important, however, is that the growth is based on sound foundations such as an increasingly diverse economy. They have also managed to find newer and better trading partners and investors, such as the Bolivarian Republic of Venezuela, that do not invest with the conditionalities of the IMF. For all practical purposes, the crisis is over and the economy is growing from strength to strength.

Of course, the Argentinian case required a reconfiguration of the relationship between the powerful and the powerless, policy makers with a different vision and a different set of priorities -- an ability of imagine possibilities beyond the banalities of Neoliberalism. Perhaps that is the real limit of the comparison between Argentina and Pakistan.

People who migrated to Lahore in search of work and in hope of better living conditions are seriously considering to go back to their villages because they find it hard to have two square meals a day in the the city.

Around 56 residents of a slum in Islamabad Colony, Pakki Thatti Lahore, say they will move back to their villages soon because the cost of living has gone up too fast. There are eight one-room houses in a 16 marla compound with seven to eight people living in them on average. The rooms are not plastered. Families living in the compound share a common latrine and a bath. The rent they are paying for such a living is Rs2000 each per month and there is pressure on the tenants to increase it to Rs2500 and those with more family members and earning hands in the family, to Rs3000.

Nearly all the women here work as domestic help in the nearby kothis while men do not have any skill, so they are labourers. "It's a lucky day when a man gets work," say women in this slum.

In the same compound live two sisters, Razia and Rani, young mothers with small children, in two separate houses, who do not have electricity connection. "We cannot afford to pay the electricity bills. With little children we cannot stay away from home for long so we earn little. The long summer passed without electricity and still life seems unmanageable here." The young women are from a village in Tehsil Chunian.

Razia and Rani's mother came to the city from village ten years back with a dozen children. She had married off only her eldest child then. The idea behind moving to Lahore was that the boys, six of them, would get some skills to help them make a living. They landed in Pakki Thatti, a slum full of migrants from villages close to Lahore, touching the Multan Road. Families living in this area are mostly from Chunian and Pattoki.

"The boys have been doing odd jobs since we came to Lahore, working as a helper here and there. Sometimes it's a chanaywala, at other times they land at tandoors or at a shop as a salesman, almost all the older boys in the family have tried their hands at selling remote control device for television. Most of the time they have to go far from home to sell them off. My ten-year-old has been selling boiled eggs in winter for two years. He would stay out at the bus adda of south bound coaches and buses on Multan Road till 10:30 at night. Last winter was bad -- there were no buyers so it all ended up in loss. Now he has joined a chicken seller as a helper," says the mother.

Of the six boys, only one got a job in a factory where the boys make kurtas on computer designs. Now the work has almost come to a halt because of electricity loadshedding.

Girls in the family work as domestic help which doesn't pay anything decent as everybody knows. Two of the brothers in the family are at present running a small general store in the Pakki Thatti area but it doesn't yield any profit.

"We cannot manage to live in the city because the rents have gone up in the last few years -- so have the utility bills. The cost of food has also increased manifold. We can't manage two square meals a day anymore.

"At the village there will be no electricity and water bills, no rent to pay -- we have a house of our own there. I learnt about property tax in city. Thank God, there is no such thing in villages. At least we will get food there. You help someone pick vegetables from their fields and they give you lot of vegetables at the end of the day for free. Vegetables can be had from the fields in any case -- for free. Fuel is a big issue in city. Wood comes expensive. There you get it for free," says the mother. But she doesn't know that in many villages wood is being sold just like it is being sold in cities.

Another woman in the area, Irshad, 30, says, "We came to the city ten years back because we felt we would die of hunger for there was no work that could fetch us money at Chunian." Before coming to Lahore she and her siblings had been weaving carpet at the looms set up in homes at Chunian and were paid four rupees for completing a row. The family thought they could not survive like that and migrated to Lahore in search of better work opportunities. The girls found work as domestic help around their home while luckily the only son was taken as an apprentice by a tailor and now is a ladies' tailor in the area. Irshad, however, is deeply distressed because her husband's rickshaw has been stolen which she and her husband had bought after fetching much loan from the people they knew. The couple feels lost and looted in the city and she is thinking of going back to the village with her three children to cut the cost of living while here husband can work in the city.

The officials sitting in the union council office in the area are not very sympathetic towards these people. They call them outsiders who bring with them a host of problems but we must be grateful to these migrant villagers for the domestic help they extend us. For now some of them are ready to go back.

We all find ourselves lamenting about how costly things have become these days and thus can't shop for our favourite clothes and accessories as often as we used to or would want to. Some concede that yes they have had to cut back on their dinning out and as their money just seems to evaporate if they are going to cafes and restaurants every day.

However, people such as Safiya and Khurshid along with their five children have had to literally tie stones around their stomachs in order to survive amidst the prevailing economic crisis.

This family of seven resides in a semi-urban community in the vicinity of the Chungi area en route to Kasur. Their humble abode is an extremely dilapidated condition, yet repairs are out of the question due to their extra expense. An average citizen curses at the indiscriminate load-shedding, yet Safiya and Khurshid's home doesn't even have an electricity metre. They have to borrow electricity from their neighbours and compensate them later.

The primary breadwinner of the household is Khurshid who sets out every day with his with his small cart of fruits, and pushes it through the streets come rain or shine. On average he manages to earn around Rs250 on a daily basis. Yet, even on such a meager income, Safiya and Khurshid are educating three of their older offspring by sending them to local religious and government run primary school. "Even though the fees are quite nominal and the school provides the text books, bearing the expense of the stationary has become next to impossible for us," exclaims the grave faced Safiya. She often has no money to give to her kids to purchase stationary items which makes the children miserable and they start crying or fighting. Sometimes there is not even enough money to buy soap and the children have to wear dirty uniforms to school.

Safiya relates that things have become so bad of late that she couldn't even afford to get treatment when she was suffering due to a bout of jaundice. It was only when her sister insisted on paying for the medicines that she was able to find relief from her affliction. However, in the event of her younger son contracting typhoid, she had to seek out a loan in order to meet the related medical bills. "I also try to contribute to the family income by stitching or sewing clothes but the orders come few and far between."

With little Arshad tugging at the hem of his mother's shirt, Safiya gives in to her mental distress and tearfully reveals that at times she is unable to cook food for her family as there is no food in the house. "We have to plead to our neighbours to give us some food to subside the hunger pangs in our bellies."

"Pakistan has no choice but to go to the IMF, at least in the short term," declares Kaiser Bengali, a strong critic of the economic performance of the eight years of Musharraf regime. In an earlier interview with TNS at the start of this year, Bengali had predicted the current economic crisis.

The economist who now stands on the other side of the fence is believed to be the brain behind the government's policies, even though he may not be a visible member of its economic team. He now predicts a textile crisis in the next few months in the country.

National coordinator Benazir Income Support Program (BISP) and member National Finance Commission from Sindh, he surprises by his pro-industry views in this exclusive interview with TNS panel. Some of his suggestions to the government might seem overly optimistic, even revolutionary, but he thinks they are possible "if democracy is given a chance".

Excerpts of the interview follow:

The News on Sunday: How crucial is it for Pakistan to go to the IMF?

Kaiser Bengali: I think in the short term there is no alternative except going to the IMF because all financial agencies, commercial banks, even countries, take their cue from IMF. IMF is like a certifying agency. When there is an agreement with the IMF, other agencies and banks and countries consider it safe to lend because they consider you under the discipline of the IMF. There is a reasonable surity that the money they are lending will be returned.

It was all good for negotiation purposes that Shaukat Tareen and others talked about plan A, B and C; plan C meant going to the IMF. But, at this point, plan A and B will only work after plan C is approved because the ADB and the World Bank are going to give us money only after IMF's surity.

I would like to underscore here that even though going to IMF is now plan A, there should be a plan B, about the structural measures to take so that this sort of situation does not arise again.

TNS: Tell us about the nature and extent of economic crisis that Pakistan faces today?

KB: The crisis is structural. It was in the making for thirty years but was aggravated during the last eight years. Without the policies followed in the last eight years, we would have lasted a few more years but we were heading for doom.

In the 1970s, especially between 1972-77, the GDP growth rate was less than 5 percent per annum. But the growth rate of development expenditure was 21.0 percent per annum, four times higher than GDP. This means that we were investing whatever surplus the economy was generating back into the economy. In 1977-87, GDP growth rate was about 6 percent per annum, development expenditure growth rate was 2.7 percent per annum, which means we were re-investing half of the GDP growth rate in the economy.

In the last 30 years we have not invested in our infrastructure, both physical and human. A lot of our infrastructure is non-productive and is falling apart. The basic problem is that economy is not producing what it ought to produce. Our food production growth rate for the last one decade is about 1 percent per annum, population is growing at 2.5 percent per annum, so shoratges are bound to occur. The government has been dealing with it in a manner how an economy should not be managed. If there is an onion crisis, they immediately import onions from India. When local prices crash, they go below the cost of production for Pakistani farmers so next year they do not plant that particular crop. Today's crisis is transposed into tomorrow's without solving it.

TNS: What else can the government do if not import the commodity, in case of shortage?

KB: You have to see why the shortage has occurred. If one crop is sown in a limited quantity, it is at the expense of some other crop which is either being consumed less or is being imported. Let's take wheat and sugarcane, both Rabi crops. The wheat procurement price is now fixed at Rs950. What will happen is that farmers will grow more wheat and less sugarcane. So there is going to be sugar shortage. So we have to see importing which crop will be cheaper. These are the kind of calculations that governments do make before taking decisions.

In the last eight years, there was so much neoliberal imposition that they disbanded all such government agencies that were making these calculations. There used to be a committee headed by the advisor to the finance minister which met very regularly, at least once a week, to look at market prices. That committee just stopped meeting and the government said the market will take care of itself and the market did. When we rely on the market alone, we should not be upset about hoarding which is a legitimate activity according to the market.

In this 30 year perspective, we have no infrastructure to work with today. In the last eight years, the government did not invest a single rupee on power generation and now we are facing a power crisis which is affecting us in more than one ways. Almost 80-90 percent of small manufacturing businesses have shut down. They can't afford to put up generators. There is a change in the pay structure of workers who are no longer being paid monthly wages but per unit of production.

TNS: What is the immediate economic crisis?

KB: Two crises we are facing are about the rupee gap and the dollar gap. The rupee gap means that the government is spending more than it is earning in terms of revenue. There aren't enough rupees. In the last fiscal year that ended in June, the government collected one trillion rupees in taxes. But it spent Rs1.16 trillion on only three heads of expenditure -- debt servicing, defence, and civil administration. So we are like a factory which is spending more money on headoffice and security guards when there is no money for raw material and spare parts. Such a factory is bound to shut down. We have to reduce the number of guards. There were about 20 federal secretaries till 15 years back, there are 43 now. There used to be one ministry that dealt with culture, sports, tourism, women development, now there are seperate secretaries for all of them.

TNS: And what about the dollar gap?

KB: Dollar gap comes in terms of imports exceeding exports which gives you the trade deficit. Then there is services deficit because when you are importing goods, you are using foreign ships and paying to their shipping companies. That is the services expenditure. You are using foreign insurance companies to insure your goods coming in and going out and you pay premium for that. Our imports began to rise very fast while the exports remain stagnant. One reason is that our industry is stagnant. The reason why our industry is stagnant is because there is no infrastructure. We have only been exporting three things in the last 60 years: rice, leather and cotton.

Rupee has devalued so we should be exporting more but you will not see that happening, because we don't have anything to export. Other than cloth we have nothing and even that is a shrinking market internationally. Competition is very high and even in cloth we don't export garment. We export low value-added bed linen and towel. We have not taken that technological leap because for thirty years we did not invest in human and physical infrastructure. Today we are at a point where we have nothing to export. But the imports are rising because, for the elite, the lifestyle has to be the same as in Switzerland -- from Lindt chocolate to BMWs to foreign restaurants to Costa Coffee. But what has happened with all this services sector coming in all these enterprises -- including telecom companies -- is that they earn their revenues in rupees and remit their profit in dollars. So we have created dollar outflows without corresponding dollar inflows.

TNS: So you mean the number of government employees should be reduced?

KB: The size of the government should be reduced, not just the employees. There are so many government organisations that are doing no work at all. There is a ministry of education, there are four federal departments of education, the National Education Foundation, there are four provincial education foundations, then there is a National Commission for Human Development. I have been told that there are 67 autonomous organisations related to education. In Islamabad, there is the Academy of Education Planning, there is Curriculum Development and look at the state of our education. I can list 50 such organisations that ought to just shut down. I think we can save a 100 billion rupees in government expenditure, just on the civil side.

TNS: Isn't that going to create massive unemployment?

KB: You have to manage that. You don't need to throw everyone out. The government can create a surplus pool and transfer everyone there. By doing that you are saving about 40-60 percent expenses on rent, paper, electricity, fuel etc. Because these organisations are there, they organise activities to make their presence felt, and spend money. The same is true of defense. There is an organisation called the Coastguards which has a civilian function of defending the coastline, controlling smuggling etc. Coastguards has always existed under the army. The Navy protested that it should be given to them because they are the custodians of the water. Army, of course, resisted. The compromise was the creation of the Maritime Security Agency for the navy. They both do the same task.

If you drive from Lahore to Peshawar, you will find a cantonement, on average, at every 40 kilometres. These were set up in the colonial times because there was a danger of Russian invasion. Now we have friendly regimes up to Almaty. I don't see why we need all those cantonements now. Today, we have more generals and brigadiers than we had in 1969, when in terms of mileage we had longer borders to protect. We have smaller borders to protect now but the size of army has gone up. Some years ago the head of ISPR was a brigadier, now he's a major general. I am at a loss to understand what exactly does a major general do that a brigadier could not.

TNS: But how and why this sudden and rapid depletion of foreign exchange reserves?

KB: It is rapid because there is more import -- of mobile phones and imported cars. When Shaukat Aziz and his team said that import of machines is going up, actually they included cars and phones in their definition of machinery. You can hardly think of factories that have been set up in this country. In the 1970s, when I was a student, the newspapers had weekly advertisements about the sale of shares at the time of setting up of a new public limited company. I haven't seen even 20 such advertisements in the last 20 years, only some telecommunication companies and modarbas and leasing companies, all in the services sector and not in the commodity producing sector. But you know services sector can only ride on the back of a commodity-producing sector. We can only sell things that we are producing but we are selling what we are importing. We are importing everything.

Not only that we export only the three commodities, we export largely to six countries in the world. All economists have been saying this for years that a recession in one of these countries is going to devastate our economy.

In the next few months we are going to have another crisis: Our textile industry is going to collapse, because of the recession in the United States. Of the total US imports from the whole wold, Pakistani imports are about 0.2 percent but of our total exports to the whole world, one quarter are to the US. So if, because of recession, US imports from Pakistan decline from 0.2 percent to 0.1 percent, for Pakistan it is going to be 10-15 percent decline in its exports. Then a recession in the US is going to cause a recession in the EU and our exports to EU would also come down.

TNS: What is the role of oil prices in causing the trade deficit?

KB: You see what Shaukat Aziz had done was that he allowed trade deficit to increase and when people pointed it out he said it was manageable because there were so much capital inflows coming in. Capital inflows were like a thin blanket that they put to cover all gaps. But when the gaps became large, the blanket was blown away. That is how we have this deficit, and that is why we need 4 billion dollars to cover the gap. We kept arguing then that it was very dangerous, that all our capital inflows are portfolio investments and privatisation proceeds. None of it was hard manufacturing-sector brick and mortar investment. We warned that it would go away fast as it comes and that is what happened. That is the dollar crisis -- very large trade deficit, rapidly growing services deficit and no capital inflows. Who will put money in a country with such a large trade deficit?

TNS: So how do we get out of this?

KB: In the short term I see no alternative but to go to the IMF. That Shaukat Aziz has set us up for this.

TNS: Isn't that going to be a politically unpopular?

KB: It is. But governments have to make a choice. You can either keep the pain to the government or pass it on to the people. IMF asks you to reduce the budget deficit which you can either do by cutting down the social and development expenditures, cutting out employment opportunities or you can reduce it by reducing the non-development expenditure. This is the choice.

TNS: How come the dollar stayed stable for eight years and the previous government claimed to have dollar reserves of 13-14 billion. What happened all of a sudden?

KB: This is like a doctor treating his patient with steroids and the patient is bouncy and full of energy. But there comes a point when everything is bound to collapse.

TNS: It is said that the dollar was kept stable artificially.

KB: Before 9/11, Pakistan had no dollar reserves. None of the statistics were good; the 2000 statistics were the same as 1998. Two things happened after 9/11. One, the US needed Pakistan as a frontline state, so they did this massive re-profiling of our data. Pakistan was allowed to pay back the money it owed as debt after 30 years. That saved Pakistan a billion dollars a year, and that went into our reserves. Two, the Federal Bureau of Investigation (FBI) in the US started investigating all the currencies and bank accounts. Pakistanis in the US thought they would freeze their accounts, and so they rushed and sent their money to Pakistan.

Other than that, no attempt was made to bring in dollars. The Middle-Eastern big businesses, in real estate etc., who came tp Pakistan in 2003-2004 also earned their profits in rupees and sent them back in dollars.

TNS: So what should the government have done?

KB: The government should only allow foreign investment where we should be getting one dollar and ten cent for each dollar sent abroad. Otherwise we should not allow foreign investment where we are not getting dollars.

TNS: Do you think the present government is aware of the challenges and is going in the right direction? What is the role of leadership in all this? How do you compare the present times with 1971?

KB: I think such an assessment can be made in three to four years. When Zulfikar Ali Bhutto took over, the country had broken up but the country that survived was not on fire. This government has taken over with the country on fire, and it has been only doing the firefighting. When the building is one fire, you first think of putting out the fire and not what you are going to do after the fire. So right now it's just firefighting.

TNS: Countries which cannot produce goods make up for it in services, by exporting services. Can we do that?

KB: There is no country in the world that exports services alone. Even in the case of very advanced countries, like the USA, which export software and biotechnology etc. their base continues to be manufacturing. Countries like Saudia Arabia have a resource-based, one-crop economy. Countries like Australia and New Zealand have high agricultural yield.

TNS: One of the biggest exports of Australia is education.

KB: They have done that. We have not invested in human resource. We don't have skills. In all these telecommunication towers that we see around, when a fault develops, the engineer has to be flown in from abroad to fix it. This is what neoliberalism has done to our education. We left everything to the market and there is a market for MBAs and IT professionals who get Rs50,000 as starting salary. This way they are able to repay the money they paid to the private institutions in 3-4 years. This is not true for a graduate in Mathematics. So there is not a single private sector institution that gives Mathematics education. There is no centre of excellence in Mathematics. But if you don't produce mathematicians, you won't produce scientists and hence no technologists.

That is why we are not producing any technology; we are only consumers of technology. We import these mobile phones and of course we have MBAs to sell these phone. So we have become salesmen for the products of the world. We do not produce or innovate.

This happened in the last thirty years. The first thing is we need to reduce the size of the government.

TNS: How can the PPP government do that, when it has promised to give employment?

KB: First of all people need jobs. Whenever a government is elected, this will be the first demand of people. So there is pressure on the government and they do give jobs but look at the kind of jobs they give. These are jobs worth Rs5000-10,000 a month. But we are talking of institutions that are spending billions of rupees. National Reconstruction Bureau (NRB) has a budget of 90 crore. Who is involved in NRB? There are consultants being paid 400-500 dollars a day. There are people who earn half a million a month. The jobs that politicians give are jobs that don't matter.

TNS: How is the security paradigm pitched against development in the case of Pakistan today?

KB: I would put it the other way round. It is the lack of jobs, poverty, despondency that has created a security situation. In interior Sindh, the jobs of dacoits are advertised. Someone who has reached the bottom of despair and you tell him that there is a chance of going to heaven, he is very easily convinced because he has nothing to lose. Maybe there is a heaven and he'll get something there.

TNS: What do you suggest to the government to revive agriculture?

KB: In agriculture I think a couple of good steps have been taken. The most important is raising the procurement price of wheat to Rs950 a maund because what we were doing was that we were giving a low price to our farmers, and so they were putting lower acreage into wheat. There was shortage and we had to import. So we were giving Rs510 a maund to our famer and Rs1250 to the Canadian and Australian farmer. So that was not a very intelligent thing to do, especially if you don't have foreign exchange. This will give us proper output of wheat, and there will be no shortage.

TNS: But this is not the only solution, increasing yield is important too?

KB: Yes for that you need to increase the development budget, line the canals, improve water management, introduce modern technology that saves water. These are all capital intensive projects and money will have to be invested in them.

TNS: And what about industry?

KB: I think we have created a structure that is anti-industrialisation. If I have a million dollars, the last area I would invest in is industry. My profits from speculating in the stock market, land market, hoarding goods are far more than if I put my money in industry. Services and retail sector is untapped. So why not open a jewellery shop, why not open a super market?

This is where significant fiscal reforms are required. I would reduce the sales tax on manufactured goods from 16 percent to about 5 percent or 7.5 percent. Then I would levy capital gains tax (CGT) on stock market. That is not going to give more revenue, because when you impose CGT, you reduce volumes. But the whole idea of this tax is to reduce volumes. The stock market is supposed to raise resources for investment but that has not been happening in Pakistan. There is no addition to capital for investment purposes. So we need to have CGT but exempt dividends from taxation so that the companies have the incentive to mobilize resources, put up new machinery, factories and so on. When you reduce the profitability in stock markets you are, by implication, improving the competitive power of industry.

There is so much speculation in land. You can cut the size of this market by one very simple measure. Have a law according to which if I have a property worth of 1 crore of rupees, and I am selling it to someone, on paper I show it sold at Rs20 lakh, the law must say that this transaction will go on the website. There is a ten day waiting period and in those ten days, anyone can bid for this piece of land. Then if somebody comes up with a price of 25 lakh then I shall be bound to sell it to that person. Then people will start registering that property at the actual price.

By doing this, first of all the government will get more revenues. Then because it is no longer profitable people will not speculate in land. There will be genuine buyers and sellers, land prices will come down, housing costs will come down, rents will come down. It is extremely important to bring down land prices for the purposes of industrialisation.

In Karachi the biggest industrial areais SITE, the industrialists prefer to set up a housing project there which is more profitable than setting up an industry. If you want to develop industry, you have to artificially keep the land prices low; instead we have artificially kept the land prices high. If you can control the cartels and make this law, you have controlled it.

Then industry also suffers from under invoicing of imports. So the import duty imposed to protect local industry has actually become useless. Again you do the same thing. Everything that is imported is put on the website and you can't clear it from the port for ten days. So those who have under invoiced their products are made to suffer a loss.

TNS: Have you suggested these measures to the government?

KB: I have. But in government things move slowly. There is a long debate. But if the media projects it strongly, the government may be forced to take it up sooner. These are costless solutions -- making a law on land sale and imports. Not only does the government gets revenues, more importantly, the sectors which are competing with industry for investment funds will get out of the picture and industrial profits will go up. For that you need to reduce sales tax. Already energy prices have gone up so high that manufacturing has become unprofitable. You have to cut somewhere and the government should cut its share. 60 percent of the total taxes that we get are from industry, so industry is the golden goose that is going to give you employment, income, and you are killing it by over-taxing it, unlike the services sector and retail sector.

TNS: The fuel prices are going down internationally. But the benefit is not being shared by the consumers?

KB: What happened was that when the fuel prices were rising for one whole year, the government did not raise prices and subsidy went up. Now when the government has raised prices, the subsidy has been eliminated although some people in government say there is still some subsidy on diesel. So, in a sense, now the government is breaking even. If they reduce prices, it will again create a subsidy. Subsidy creates budget deficit which creates inflation. On the other hand if they reduce prices, they will get good headlines in the media but there will be inflation.

TNS: Should we not do something to reduce this dependence on fuel?

KB: Yes surely. 50 percent of our oil import and oil consumption is diesel, just one single item. This is because 95 percent of our goods transportation is by trucks (NLC played a major share in shifting the revenue away from the Railways). It is standard knowledge that per ton fuel cost by rail is significantly lower. If we can shift our long distance goods transportation from road to rail, our diesel consumption will go down. Diesel imports will go down and the pressure on foreign exchange will go down. This is something we should start; it will take us at least ten years to start benefiting from it but at least it will be a step in the right direction.

I don't think the existing railways can be reformed. Two reasons: one, the established railway bureaucracy is too set in its old ways to really run a modern railway; although to their credit trains are running every day, thousands of miles. Two, any repair that you carry out on the track will disrupt rail traffic since we only have one track. I think we should build a new railway line on the right bank of River Indus and it must be a line that is capable of running trains at a speed of 150km/hour. If I can go from Karachi to Rawalpindi in 12 hours, and if it's a night train, I will not fly. In developing countries like Malaysia, you get a cabin that is like a hotel room. We can also do that. You cut down on aviation fuel import; everything about airline industry, every nut and bolt, is imported. We'll need fewer airplanes.

We have made our economy completely import-oriented, for a country that does not export much, because for this elitism that we are paying the price for, everything has to be high quality, that has to change.

TNS: How much is the law and order discouraging the foreign investor?

KB: The companies dealing with fireign investors have their meetings in Dubai, because foreigners have a travel advisory against coming to Pakistan. Airlines too have stopped coming here.

TNS: Where does accountability lie in the whole scheme?

KB: When you don't have a democratic government, there can be no accountability. If there was accountability for the prices that began to rise in 2005 [this is not the first year of inflation by the way], questions would have been asked. I work with government now. I can tell you ministers are scared of parliament. If democracy continues, and I am using the word 'if', improvements are going to kick in, gradually, in fits and starts but they will. I can see it happening. Look at this historic development, parliament has an in-camera session and the services chiefs go and make a presentation before the parliament as civil servants which they actually are. Even if that briefing was not meaningful, as the opposition leaders are saying, the symbolism was extremely important. It established one point: who is answerable to whom? Even Musharraf resigned because he was afraid of impeachment; all along presidents have sent parliaments home, this is the first time parliament has sent a president home.

These are significant political developments and if we continue like this for five years, we would have turned the corner.