A report on the economy


May 17, 2010

MCLEAN: This is with reference to your editorial of May 15 titled ‘Speaking on the economy’. I think the editorial was rather harsh. I don’t think the adviser was hiding anywhere. It is good that he waited, got some understanding of the lay of the land and so on before speaking. However, I agree he could have been more explicit and articulate with a vision of where he wants the economy to go and how he intends to get there.

There is no harm in factoring in the aid pledges from the Friends of Democratic Pakistan or the IMF when we do our arithmetic on financing the economy’s twin deficits. The point is that the financing assumptions should be realistic, not fanciful, like this year.

On one point the editorial was off the mark: exports. The domestic market is probably twice as profitable as exports. This is because it is dominated by concentrated oligopolies and there is little competition. Ask the CCP. In the export market, competition is fierce and price-cost margins are very thin. Yes, trade, tax, interest rate and exchange rate policies do try and tilt the incentive structure towards exports. But on balance there is a strong anti-export bias and the results are plain to see: an export to GDP ratio which is flat or sloping downwards. Or put another way a ratio of exports to imports that has not changed much in 62 years.

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