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A strategy for foreign economic policy.

A Strategy for Foreign Economic Policy

With the restoration of democracy in Pakistan efforts are being made to evolve foreign economic policies in consonance with the present needs and challenges of Pakistan society. The Government of Pakistan is cognizant of giving a new shape to the foreign policy pertaining to the political economy so that Pakistan can conveniently enter the 21st century. It is, therefore, desirable that a new format for foreign economic policies is developed which can place the Pakistan society on sound footings.

Trade with less developed and developed countries has grown increasingly in importance in Pakistan which is contributing to an enhancement in the level of exports. Export diversification is being encouraged in Pakistan. Comprehensive reforms are being made in agricultural trade giving rise to expanded market access for goods. Much, however, remains to be done. Protectionist policies do operate as a major impediment to trade. It seems that tariffs are still high. Non-tariff barriers are more insidious than tariffs because they remain largely hidden. Free trade, if promoted to the desired extent, can lead to robust economic growth by fostering competition and to an efficient allocation of scarce resources. It will benefit Pakistan by providing cheaper rise in unavailable products. Exports will allow Pakistan to enjoy the benefits of imports by earning the foreign currency needed to pay for them. Further reductions in existing restrictive practices would increase both the volume of trade and real incomes worldwide.

Trade protection has emerged in Pakistan as commanding attention of economists and policy makers. Protectionist policies cannot solve the trade deficit, as it is largely due to macro-economic forces. Prime Minister Nawaz Sharif feels that the trade policy in Pakistan rests firmly on the foundation of free and open markets. Hence the nation will oppose protectionist policies because Pakistan's growth in future will depend on trade. Fresh efforts have to be made to improve market access including specialized negotiation to reduce barriers to trade in tropical products, internal resource base products and textiles. The nation also expects the final package to include agreement in services, trade related investment measures, and production of trade related intellectual property.

The policy makers in Pakistan are becoming conscious of the need to improve savings and investment patterns, export promotion work force training and education, research and development, and corporate behaviour. A need is being felt for steps to stimulate industrialization, employment, and privatization. This is because Pakistan shares with other developing countries the costs of promoting development.

Export is a vital part of the economy in Pakistan. They provide jobs and enable Pakistan to import vital goods to meet domestic demands. The Government seems to be interested in ensuring that exports are consistent with the foreign policy. Quite a few controls apply to equipment and technology of importance to the economy of the country.

A new strategy in regard to the promotion of foreign economic policy could be aimed at reforming the structure and growth of economic system. A second element could be a new approach to commercial bank lending. A third element comprises credits from international financial institutions that are linked more closely to reforms. Economic reforms permit market forces and private enterprises to play a larger role in the economy, encourage greater savings and investment, reduce budget deficits, and liberalise trade and financial systems. The Government may find it useful to promote market-oriented international investment, free of discriminatory treatment, that impedes or distorts investment and related trade flows. It may also find it useful to welcome foreign investment and extend to it the same treatment that it seeks for Pakistan investors abroad.

The future growth of nation's economy is closely linked to the functioning of the World Bank. The Bank, founded in 1945, lends at market related rates of interest to the developing countries. We have also coordination in Pakistan with the International Development Association that was established in 1960 to provide credits on concessional terms to the poor countries. We also have links with the International Finance Corporation which, since its establishment in 1956, has sought to mobilize resources for private sector development. We can also make reference to the Multilateral Investment Guarantee Agency which began operation in June 1988 for ensuring private foreign investment in developing countries against non-commercial risks such as expropriation, civil strife, and inconvertibility. These agencies promote economic development and work to raise living standards by investing in productive projects and by promoting the adoption of sustainable economic policies. Although these agencies have traditionally financed infra-structure, they also invest in people. By expanding opportunities for education, health care, and housing, they help the poor to help themselves. Agriculture and rural development are also emphasized, particularly by the International Development Association. More recently, the World Bank has provided structural and sectoral adjustment loans which are conditioned on economic policy reforms.

The position of Pakistan in world society will depend more and more on an open and growing economy based on economic and political freedoms. The World Bank's coordination with Pakistan would be conducive to humanitarian and environmental concerns. Since the Bank has made important progress in supporting development projects that protect the environment, the Government can call on the Bank to assign high priority to incorporating environmental considerations in its lending. The World Bank seems to respond flexibly to the changing needs of Pakistan. Measures to support sustainable economic growth continue to be at the centre of its lending programme. The Bank can be requested to promote private sector development in Pakistan, to catalyze private capital flows, and to ensure that economic resources are used effectively to protect and sustain the environment. The Government of Pakistan can support the IMF's central role in the international financial system. The system can help Pakistan maintain stable, open world trade and payments system. It can help Pakistan restructure its economy on a more market-oriented basis. It can provide resources with a view to help Pakistan implement debt and debt service reduction operations negotiated with commercial bank creditors. In addition to macro-economic and structural reforms, the International Monetary Fund can also encourage new foreign investment and also repatriation of flight capital as an important component of foreign economic policy.

As Pakistan's economy becomes increasingly interdependent, with it the need arises for the cooperation to be built in the economic system with major industrialized countries. An agreement can be reached to establish a framework for multilateral surveillance of economic policies. The Government can undertake measures to refine the coordination process, including the adoption of immediate term objectives and short-term performance indicators to assess policies. The Government can also agree on coordinated monetary and fiscal measures to sustain global growth, foster external adjustments, and increase exchange rate stability. Efforts have to be made to sustain economic growth with low inflation. The current inflationary pressures warrant vigilance. The Government of Pakistan will be well advised to promote consistent and compatible policies to sustain the economic expansion with low inflation and reduced external imbalances. Given the changes occurring in the global economy with its implications for Pakistan, the coordination process will remain an essential framework for addressing new challenges and ensuring economic prosperity.
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Author:Haider, S.M.
Publication:Economic Review
Date:Mar 1, 1991
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