Pakistan's Ambitious Economic Reforms Target Feudal Lords

PAKISTANIS are being forced to tighten their belts to make up for several years of irresponsible economic management, which has left public finances in a mess.

Moeen Qureshi, a former vice president of the World Bank, who was appointed transitional prime minister in July, has begun major economic reforms.

Some of the measures are sensitive and have been opposed in the past. For instance, for the first time in Pakistan's history, politically powerful feudal landlords are being required to pay income and wealth taxes.

In the past, successive Pakistani governments have failed to tax the feudal lords for fear of a backlash. Other measures include steps for closer scrutiny of company accounts and investigation of corrupt officials.

The measures announced by Mr. Qureshi two weeks ago, followed an earlier 9-percent devaluation of the Pakistani rupee to boost sagging exports. Pakistan's trade deficit was $3.26 billion for the year ending June 30. At the same time, the measures to raise revenues are meant to bring down the budget deficit. Government inaction

``The deep malaise from which our society and economy suffers today is not the result of the action of one administration. It is the cumulative consequence of both the actions and inaction on the part of the governments over the last two decades,'' Qureshi said recently, while announcing the new steps.

During the past week, the government has begun a fresh campaign to recover money from bank clients who borrowed up to 62 billion rupees ($2.06 billion) over the past decade, and subsequently defaulted or used their political clout to get the loans written off.

On the list are well-known names such as former prime minister Benazir Bhutto, her husband Asif Ali Zardari, two ministers in former Prime Minister Nawaz Sharif's cabinet, and two senators in Pakistan's upper house of Parliament.

The loan recovery campaign has begun almost at the same time as another effort by the electricity and phone companies to recover about 16 billion rupees ($534 million) in unpaid phone bills.

The government's campaign has been criticized by some politicians and business leaders on two counts: It has raised inflation for the common man and it goes beyond the mandate of an interim government whose primary function is to hold elections. Fears of rapid inflation stem in large part from a 21-percent increase in petroleum prices this year.

Ironically, many analysts say that only a short-term government led by a leader such as Qureshi, who has no interest in seeking political office in the future, can go forward with such measures. No career aspirations

``Neither Nawaz Sharif nor Benazir Bhutto will ever do what Mr. Qureshi has done, because sensitive decisions would have created an uproar in their own parties,'' says a senior official in Islamabad, who spoke anonymously. ``They [Sharif and Bhutto] may criticize these steps but they will live with them, because this would be the only way to improve the financial picture without taking responsibility for unpalatable measures.''

Despite domestic criticism, there is a good chance that the reforms will remain in place. The recent measures have already been welcomed by the International Monetary Fund in Washington.

The IMF has just announced a $350-million standby loan facility for Pakistan, and Pakistani officials are hopeful that a further three-year loan of $1 billion will be announced once a new government comes to office in October.

The conditions attached to the loans are considered to be the most important assurance that a future government will not reverse Qureshi's reforms.

In addition, Qureshi has the backing of Pakistan's powerful Army generals, who brokered the deal which brought him to office. ``The reforms have been explained to the generals and they understand their importance'' says another senior official. The Army is expected to back the reforms, out of fear that further growth in the deficit could eventually force it to reduce the large defense expenditure.

As a result of support from the IMF and the Army, Qureshi's reform package appears to have a good chance to survive.

But critics charge that while steps such as taxing the agriculture sector are an important breakthrough, other measures such as the devaluation are likely to cause undue inflation and may even reduce economic growth rates.