Pak Fm Moots Asia Contingency Fund

Pakistans finance minister Sartaj Aziz argued over the weekend in favour of an Asian arrangement for handling temporary liquidity problems faced by Asian economies. Talking to Business Standard, he pointed out that the Asian economies between them had foreign exchange reserves in excess of $300 billion (not counting Japan), and that this was much bigger than the IMFs kitty. If some of these reserves could be put into a common pool, countries in the region could dip into the pool when they faced temporary liquidity crises, he said.

He felt that such an arrangement could include a no-conditionality drawal facility equal to a countrys own contribution to this pool.

 

Aziz is a Harvard-educated economist who authored Pakistans economic reforms programme in early 1991, shortly before Dr Manmohan Singh began a similar exercise in India. Now in his second term as finance minister, he has launched a fresh reform drive in Pakistan, with even greater opening up of the economy to foreign investment and sweeping privatisation of the banking system, among several other measures.

Dwelling on the many issues thrown up by the Asian flu, Aziz said a major contributory factor had been the lack of information on the private sectors external debt commitments. He felt that the Bank of International Settlements in Switzerland could provide information daily to every country on the amount of trading that has taken place in its currency, so that central banks knew what was going on in currency markets around the world. Otherwise, he argued, ringgits were being bought and sold in the US every day without the Malaysian authorities knowing anything about it. He felt the BIS was better placed than the IMF to provide this information on a daily basis.

Asked if a global central bank needed to be created in order to handle any repeat of the Asian crisis, Aziz felt this would be discouraged by the US, as it would reduce the global role of the dollar. However, he felt that the coming of the Euro would create for the first time a new currency with international acceptability at a level that could be a rival to the dollar. And many developing countries would be willing to go with the Euro rather than the dollar, he felt.

Talking of the Pakistan economy, Aziz said it would be difficult to sustain its past performance of 6 per cent growth in the future, because Pakistans savings rate was only 12 per cent of GDP (barely half Indias level) and its investment rate 16 per cent.

Hence it was imperative that Pakistan attract sizeable foreign investment, and this was why he had thrown open virtually every sector of the Pakistan economy to foreign investment, including trade, finance, real estate and of course industry.

He hoped to double the level of foreign investment in Pakistan, from the current level of $700-800 million, to $1.5 billion.

He felt there was no domestic political problem caused by the further opening up of the Pak economy, or by the privatisation drive.

On the macro-economic situation, Aziz said he hoped to reduce the fiscal deficit from 6 per cent of GDP to 5 per cent, and to bring down the current account deficit (on trade) to about 3 per cent of GDP. Pakistan recently devalued its currency, bringing it down to Rs 45 against the US dollar.