The FTA with Indonesia again signals the government’s inclination towards increased export revenues to offset aid bottlenecks, in keeping with the post-IMF posture of reducing dependence on non-trade exogenous inflows. Yet the FTA model should prompt the government to bolster industry and manufacturing urgently, since our miniscule export mix invariably tends towards more imports than exports, compromising the main purpose of preferential trade arrangements in the present market environment.
Ironically, closing the chapter on foreign funding has not diminished the government’s appetite for cheap money, as its debt belly continues to swell from unprecedented borrowing from the money market. And since heavy government presence chokes credit markets and crowds out private sector investment, the subsequent scenario is a non-starter when it comes to enhancing production and incorporating value addition in exports.
So, yet again we have a prudent policy, set in the right direction, but with flawed fundamentals that can end up doing more harm than good. The more accommodative monetary environment, the trade deals with eager partners, all fail to deliver when market specifics are not adjusted rightly. Failing necessary measures, we’re more likely to record increasing inflation and trade deficit rather than the contrary, hence a more restricted fiscal position for the centre, demanding a swift return to borrowing.
Our able finance managers obviously realsie the centrality of trade enhancement to sustained growth necessary for snapping out of stagflation. They must ensure adequate investment and energy supply to manufacturing, so our production matures enough to positively exploit natural comparative advantages. Gyrations in the international financial system are prompting a radical overhaul of trade relationships across the world, with Asia’s emerging economies taking the lead in the bottoming out process. We must be part of this progressive change, or risk being counted among chronically low growth economies for a long time.
