Ishrat Husain retired as the governor of the State Bank of Pakistan, the country's central bank, on December 1, 2005 after a six year tenure. Dr Husain, who holds a masters degree in development economics from Williams College, Massachusetts, USA, and a PhD in economics from Boston University, Massachusetts, earlier held several senior positions at the World Bank, including director for the Central Asian republics.
He visited Mumbai last fortnight for the Asia Society's 16th Asian Corporate conference, where he was a panelist on a session on regional economic cooperation. Asserting that Pakistan was able and willing to compete with India economically, he told Deputy Managing Editor Ramananda Sengupta that the dispute over Kashmir had to be resolved before real progress could be made by the two nations.
At the conference, you spoke about the possibility of $5 billion in bilateral trade. What are the impediments to that right now?
As someone who is very much interested in economic cooperation, I believe that India is such a big market that it can remove these barriers and nothing will happen. Actually they will get cheaper goods from Pakistan worth two-and-a-half, three billion dollars and they will be able to supply goods to Pakistan for nearly the same amount. So a lot of new business will be generated. Then there is a lot trade through Dubai and Singapore which is expensive because it has to be routed through these places. That trade would be diverted to the regular bilateral trade.
So I think it is in the interest of both countries that all these impediments should be removed.
Pakistan keen to boost trade with India
For this third party trade, what kind of figures are we looking at?
Two-and-a-half billion dollars of Pakistani exports to India and two-and-a-half billion dollars of Indian exports to Pakistan. So we are talking of five billion dollars.
And products?
Wide-ranging products. Textiles. From India, machinery, iron ore, tractors, farm equipment from Pakistan, there are lot of raw material which India needs, textiles, bed linen and other things,. They are very cheap compared to getting it from elsewhere.
In your speech, you referred to General Musharraf rather than President Musharraf.
No, No. He is our president and I work with him.
At the SAARC summit in Dhaka, both sides spoke of an element of mistrust. Is that only at the political level, or across the board?
The people to people cooperation and interaction gives each side a better understanding of each other's country. So I don't think there is any mistrust at the people's level. But because there is a dispute between India and Pakistan, that dispute has to be resolved. President Musharraf keeps talking about a composite dialogue in which this dispute had to be taken care of. Other confidence building measures also need to be undertaken.
But we have already taken lots of confidence building measures.
Yes, and that's a good thing to carry on. And our president has made some proposals, and there should be some dialogue on those proposals.
Is trade with Pakistan possible?
I have seen that while the people of both sides seek friendship and peace, there is still a lot reservations at the political level on both sides.
But that's also softening up. As the leaders get to know each other. I think Manmohan Singh and President Musharraf they have quite good relations. So I don't think that is going to be a problem. Mr Vajpayee and President Musharraf also had good relations, so things are improving. But what is required is a resolution of the basic problem. If that is resolved, then everything else will follow.
So you are saying the Kashmir issue has to be resolved before any real steps are taken?
Yes. That has to be resolved. Before any other steps can be taken.
Indo-Pak peace: The McDonald's theory
Does that include granting of Most Favoured Nation status to India?
No, MFN is on the non-trade barriers.
Is there any other SAARC nation which has similar problems like Pakistan re non-trade barriers?
Every nation has problems because non-tariff barriers are bothering many countries, they are not only for Pakistan. But the other countries have entered into some kind of agreements with India biletarally, so that has softened up the non-tarriff barriers. But there is no bilateral agreement between Pakistan and India. I think we should do this under the aegis of SAFTA, but there is a study going on between the two nations.
Are you a member of that group?
No, I am retired now, but the ministry of commerce is involved.
During your stint as governor of the State Bank, what changes have you seen in bilateral economic relations?
I think there are more business people coming in and trying to familiarise themselves with each other's markets, and trying to look at the opportunities. That is a very important thing for businessmen in both nations.
The second is that we have started the banks in each country. That is a very very positive step. It took a lot of time for the two central banks to reach this agreement, so that is a very important achievement.
What do you think about this talk of a South Asian economic union?
Oh that will happen. But not right now. It will happen later on, when you have more confidence building measures.