Did Mundell's Ideas Really Advance the Euro? (int'l edition)

You state that Robert A. Mundell in the 1960s originated the concept of ''optimal currency area,'' which framed the debate that led to the creation of the euro (''Why Mundell won the Nobel,'' American News, Oct. 25). The concept, however, states that three criteria need addressing if a country is not to lose much from sharing a single currency with its partners: openness to mutual trade, diversity of economies, and mobility of factors of production, especially labor.

Greater openness to mutual trade implies that most prices of goods would be determined at the union level, which means that prices would be less susceptible to being influenced by changes in exchange rates. An economy more diverse in terms of production would be less likely to suffer from country-specific shocks, and this would reduce the need for the exchange rate as a policy tool. Greater mobility of people enables the economy to tackle asymmetric shocks via migration and hence reduce the need for adjustment through the exchange rate.

Since the U.S. is the preferred reference nation for this purpose, the European Union scores well relative to it in terms of the first two criteria but fails miserably in the third. This is due to the Europeans' tendency to stick to their place of birth, not only nationally but also regionally.

Thus those who adhere to the concept have always discouraged the creation of the euro. Contrary to what the concept dictates, Mundell is a strong supporter. This is most likely due to his realization that the true motivation behind EU integration is the political unity of Europe--the primary aim of which is to assure lasting peace to the war-torn continent, the dream of the EU's founding fathers.

Ali M. El-Agraa
Professor of International Economics
Faculty of Commerce
Fukuoka University
Fukuoka, Japan

The End of Democracy in Pakistan (int'l edition)

''The world's worst nuclear nightmare?'' (Asian Business, Oct. 25) is a story in bad taste. Why does the West think that an elected Parliament automatically means there is democracy and stability?

Democracy in Pakistan died in November, 1997, when the country's judiciary was undermined by the elected members. Or much earlier when Prime Minister Benazir Bhutto, the darling of the West, was robbing the country and destroying state-owned enterprises.

How can you say the Kargil [the assault on Kashmir in summer, 1999] was a military humiliation for Pakistan? Do you know what the objectives of the effort were?

Despite our problems with the types of government, Pakistan has been a more stable and responsible state than India. We have gone to war with only one of our neighbors. Can you say the same thing about India? Before giving verdicts, you should have a firm grip on ground realities.

Salman Ali
Karachi


Democracy's fault line lies in the political system not being regulated. In 1996, Chief Justice Verna of India's apex court had ordered all political parties to file audited accounts. The same should apply to Pakistan.

By enforcing this ruling, only a couple of viable and mainstream parties would be left to contest the ballot at the polls. The mushrooms would disappear. This would allow democratic culture to take root.

As for the future course of Pakistan, it is a pro-Western country. Its economy is oriented to the Western system. The overthrow of Sharif's government was a long time in the making. He will have a fair trial in due course, and the facts may well prove most of your observations untrue.

Sher Mohammad
Karachi


Democracy itself is not the objective. It is a preferred form of government today, because it is supposed to make rulers accountable for their policies and actions before the people.

The main objective of any government, regardless of its form, is to provide to its citizens security, basic health care, education, infrastructure, and economic policies conducive to economic growth, which in turn must lead to better standard of living for the country's residents.

In the case of Pakistan, democracy failed to deliver, corruption was rampant, poverty was increasing, the literacy rate remained low, and unemployment and violent crime were growing fast. As you noted, Pakistan has the lowest credit rating--this by itself is sufficient evidence of failure of economic policies pursued by its democratic governments during the past 11 years.

It is worth mentioning that some of these policies, which are unpopular with the masses, were dictated by the International Monetary Fund and World Bank. Elimination of corruption, recovery of bad loans and embezzled funds, and stabilizing Pakistan's economy is the declared agenda of the new rulers. As the proverb goes, ''the taste of pie is in eating.'' Six months from now we should have sufficient indicators to tell whether they are capable and really committed or whether these are mere slogans to gain acceptance. It is also important that the new government honor basic human rights and freedom of expression.

Regarding apprehensions about the use of nuclear weapons, these are totally unfounded. The military leadership of Pakistan is fully aware of the intricacies associated with being a nuclear weapon state and would be using it as a deterrent, rather than a tool for aggression. The world should know that the nuclear deterrent has provided Pakistan a realistic opportunity to substantially reduce its defense expenses, now accounting for around 40% of its federal government budget.

Muhammad Aliuddin
Jeddah, Saudi Arabia