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  • Author: S. Akbar Zaidi
  • Publication Date: 09-2010
  • Content Type: Policy Brief
  • Institution: Carnegie Endowment for International Peace
  • Abstract: Over the last sixty years, Pakistan\'s economy has seen severe ups and downs. Once considered a model for other developing nations, Pakistan has been unable to sustain solid growth. Furthermore, a third of its population now lives below the poverty line, and its literacy rate is abysmally low. Pakistan\'s economic instability stems in large part from low government revenue resulting from the elite\'s use of tax evasions, loopholes, and exemptions. Fewer than three million of Pakistan\'s 175 million citizens pay any income taxes, and the country\'s tax-to-GDP ratio is only 9 percent. Tax evasion means fewer resources are available for essential social services. Pakistan spends too much on defense and too little on development: It has spent twice as much on defense during peacetime as it has on education and health combined. The government knows how to increase its revenue through tax reform, but the rich and powerful have resisted such measures for fear of lowering their own incomes. Without sufficient revenue the government will continue to be burdened with an unsustainable debt. It needs to end tax exemptions for the wealthy and develop broader, long-term economic plans for sustain able growth. In the past, the United States and other Western nations have come to Pakistan\'s rescue by paying off debts and funding development initiatives. Pakistan\'s elite has no reason to support reform as long as these bailouts come with no conditions attached.
  • Topic: Development, Economics, Monetary Policy
  • Political Geography: Pakistan, United States
  • Author: Michael Pettis
  • Publication Date: 05-2009
  • Content Type: Policy Brief
  • Institution: Carnegie Endowment for International Peace
  • Abstract: Participants in the recently completed G20 meeting in London agreed on a number of measures, some substantial and some merely symbolic, but they sidestepped the real issues dividing the major economic powers and, in so doing, failed to address the root causes of the global trade and investment imbalances. This was almost inevitable. China, Europe, and the United States have incompatible conceptual frameworks for understanding the causes of the global financial crisis; furthermore, their conflicting domestic political constraints make agreement on solutions hard to reach. Europeans believe that the root cause of the crisis was excessively deregulated financial systems, and they are skeptical about U.S. and Chinese calls for fiscal expansion, worrying that excessive spending would prolong the imbalances and make the ultimate adjustment more difficult. China also believes that the roots of the crisis lie within the structure of the global financial system, although Beijing insists that it was mainly the reserve status of the U.S. dollar that permitted imbalances to develop to unsustainable levels. China is particularly vulnerable to trade protection and seeks to maintain open markets for its continued export of domestic overcapacity. Like the United States, it is pushing for more aggressive, globally coordinated fiscal expansion. However, because of rigidities in its financial system and development model, its fiscal response to the crisis may exacerbate the difficult global adjustment and may, ironically, increase the chances of trade friction. In a time of contracting demand, the United States controls two-thirds of the most valuable resource in the world: net demand. Consequently, it is U.S. policies that will determine the pace and direction of the global recovery, along with the institutional framework that will govern trade and investment relationships for decades to come. The crisis puts the United States more firmly at the center of the emerging world order than ever. So far, the United States has not understood the need to consider the global outcomes of its recovery policies. Until the major powers can reach consensus about the roots of the imbalance and cooperate on policies to promote recovery, it is likely that the world economy will get worse before it gets better. The United States will drive the recovery process, but in order to do so effectively it will need to recognize its position of strength and negotiate the appropriate agreements with other major powers, especially China, on the pace and nature of the adjustment.
  • Topic: Economics, Globalization, International Trade and Finance, Monetary Policy
  • Political Geography: United States, China, Europe, London