IMF's largest loan to the country of the future, Brazil.

South America’s largest country with maximum population, Brazil has been hit by a number of internal and economic crisis, but it did not collapse.

“For so long, Brazil was a nation brimming with potential but held back by politics, both at home and abroad. For so long, it was called a country of the future, told to wait for a better day that was always just around the corner. My friends, that day has finally come. And this is a country of the future no more. The people of Brazil should know that the future has arrived. It is here now. And it’s time to seize it.” Those were the strong and inspiring words of US President Obama during a speech in Rio de Janeiro in March 2011, and rousing applause that followed was proof that Brazilians agreed. Brazil is the country of the future. But when it comes to books, is the situation the same? Are their indeed opportunities for international publishing companies to participate in this gigantic nation’s booming economy?

We are aware of the fact that Brazil is one of the most powerful country in South America in economic terms and thus is leading the other countries in South America. In the global economy Brazil has acquired a strong position as it has large and growing agricultural, mining, manufacturing and service sectors. According to the World Economic Forum, Brazil was the top country in upward evolution of competitiveness in 2009, gaining eight positions among other countries, overcoming Russia for the first time, and partially closing the competitiveness gap with India and China among the BRIC economies. Important steps taken since the 1990s toward fiscal sustainability, as well as measures taken to liberalize and open the economy, have significantly boosted the country’s competitiveness fundamentals, providing a better environment for private-sector development.

Those who have watched financial crises in emerging economies over the past few years would have noticed that there has been a high concentration of financial crises in Latin America. In mid 2002 Brazil’s economy was suffering from persistent fiscal and current account problems due to which the Brazilian economy  was on the verge of a crisis and feared that the economic policies would be significantly altered after the elections. The presidential elections in Brazil in October 2002 had put a great pressure on Brazil’s economy as the left – leaning  candidate would win the elections. The likelihood that Luis Inácio Lula da Silva might win the election caused substantial capital outflows, as markets worried that existing market-friendly economic policies could be overturned. To over come Brazil’s fear of economic decline and being unstable, a stand-by arrangement by International Monetary Fund helped restore confidence, calmed the financial markets and stabilized the Brazilian economy. The loan given by International Monetary Fund to Brazil is the largest ever made by the institution. 

The loan announced by IMF to support the Brazil’s economic and financial program was about $ 30.4 billion. The $30 billion that the IMF lend to Brazil over the next 15 months was in addition to $15 billion that the country received a year ago that was supposed to help prevent its economy from being infected by financial "contagion" from Argentina. Most of the $15 billion loan was already drawn down. The IMF managing director Horst Kohler while making the announcement noted that "the new program will contribute toward ensuring the maintenance of sound economic policies. In this regard, the commitment that the leading presidential candidates has given to the core elements of the program already appears to have helped market confidence. As the next government builds on progress achieved with this macroeconomic policy framework, Brazil could be expected to progressively regain market access."

Lula da Silva’s election victory improved Brazil’s economic and financial situation. The country's new government pursued policies that were both prudent and courageous, combining fiscal and monetary discipline with critical initiatives to relieve poverty. The contribution given  by IMF was basically to restore the confidence so that the new government would have time to put in place its policy framework. Brazil overcame all the challenges coming it’s way in 2002 only through good policymaking and sound choices. This shows that a good political system is one of the most crucial elements to make a claim and important status on the international front as well as bringing one country from rag to riches.

Other countries have received packages that are bigger if bilateral aid from the United States and other wealthy countries is included. But none of them got as much from the IMF as Brazil, and financial markets have often treated pledges of bilateral aid as suspect. Under normal circumstances, Brazil is entitled to borrow only up to about $12 billion from the IMF. Today, the Brazilian economy is reaping the benefits of the continued implementation of strong stabilization and social policies, in the context of a favorable external environment. Real GDP growth is projected to rise from 3¾ percent in 2006 to 4½ percent in 2007. Strong social policies have recently helped place Brazil among the high ranking countries in the UN Human Development Index.


Fizza Kamal (BSS-7)

The Shift...Blunder or Loyalty to the state?

When Pakistan emerged on the world map, Quaid-e-Azam laid stress on the creation of a State Bank in 1948 and it became operational on 1st July 1948; because he knew the importance of a strong and prosperous economy for an impending affluent state of Pakistan.

Pakistan was born with a centrally planned economy where state directs the economy. It is an economic system in which the central government controls industry such that it makes major decisions regarding the production and distribution of goods and services. Privatization is the conception of Free Market Economy in which the prices of goods and services are determined in a free price system which offers prices in accordance with the demand and supply of products. It was introduced in Pakistan in the late 1980’s to increase efficiency of the industries and create a competitive market in Pakistan so as to improve quality at a reduced price through innovative cost-efficient methods.

What we observe in the world as free market economy today it is thought of being used by our politicians for widening their circle of greed. There is a general perception that Privatization for the sake of expanding the scale of corruption was the motive of many governments. But if we analyze the performance of Privatized institutions we see a very contrasting picture. Some institutions have rendered marvelous results while other carried on to the path of demise.

During 2002 and 2003, government started preparation for KESC’s (Karachi Electric Supply Corporation) privatization, which eventually finalized on November 29, 2005 with a 71% transfer of ownership to a consortium of the Saudi Al-Jomaih Group of Companies and Kuwait’s National Industries Group (NIG), with the government still retaining a 26% stake. The privatized consortium was unable to improve the Company’s financial and operational crisis. The privatization of KESC has left us into fits. Since the privatization of KESC we have had an increase of nearly 200% in the price of per unit of electricity and it keeps on increasing till today without any betterment in the quality of delivery.

But if we observe the privatization of PTCL, we observe that since privatization PTCL has emerged as a comparatively stronger product in the market as its graph was going down day by day before the manifestation of ETISILAT (which is an Abu Dhabi based company).

It has developed itself as a strong competitor in the Telecommunication and Broadband industry. The experience of ETISILAT played an important role in this accession of quality.

Now if we observe the Privatization of Pakistan Steel Mills we see clear and evident indications of corruption in the whole process. The consortium involving Saudi Arabia-based Al Tuwairqi Group of Companies submitted a winning bid of $362 million for a 75% stake in Pakistan Steel Mills Corporation (PSMC) at an open auction held in Islamabad. the consortium of Saudi Arabia-based Al Tuwairqi Group of Companies, Russia's Magnitogorsk Iron & Steel Works and local firm Arif Habib Securities paid a total Rs21.6 billion ($362 million), or Rs16.8 per share, to take control of Pakistan's largest steel manufacturing plant..Lowering the costs of a share from Rs. 17.43 to Rs. 16.18 without assigning any reason was a reason that forced Supreme Court to take “Suo Moto” action against its privatization. And it stated in its verdict that “A constitutional court would be failing in its duty if it does not interfere to rectify the wrong, more so when valuable assets of the nation are at stake,”

Likewise the privatization of our banking sector also yielded some good results that have raised the standards of our economy. Banking sector turned profitable in 2002. Their profits continued to rise for the next five years and peaked to Rs 84.1 billion ($1.1 billion) in 2006. Pakistan's banking sector has remained remarkably strong and resilient during the world financial crisis in 2008–09.The credit card market continued its strong growth with sales crossing the 1 million mark in mid-2005. The Federal Bureau of Statistics provisionally valued this sector at Rs. 311.741 million in 2005 thus registering over 166% growth since 2000.

In Pakistan, the shift from a command economy to a market economy is proving to be so fluctuating because the shift is very ambiguous. There are many factors that play an important role in strengthening the roots of Free Market Economy in state. In a society like Pakistan’s, with substantial corruption, privatization allows the government currently in power and its backers to siphon a large portion of the entire net present value of state assets away from the public and into the accounts of their favored power brokers. Without privatization, corrupt officials would have to slowly harvest their corrupt earnings over time. Efficient privatization depends on their being on a very low level of corruption. Also corrupt governments borrow extensively to engage in spending on overly favorable contracts with their backers (or on subsidies or other giveaways). In the end, the public is left with a government that taxes them heavily, and gives them nothing in return. Debt repayment is enforced by international agreements and agencies such as the IMF. Infrastructure and upkeep is sacrificed - leading to a further decay in the economic efficiency of the country over time.

On the concluding note, the shift is very perplexing for a country like Pakistan. Corrupt governments use it to fill their bags of interest, while if a state’s welfare oriented government is brought into power it will still face the problems of transition. What we need to do is go for the second option as it gives us a flicker of hope that a strong economy is a dream that can come to reality for Pakistan.


Abdul Majid Awan (BSS-3)