THE State Bank of Pakistan has intervened to save the rupee, which on Tuesday continued an inglorious slide against the dollar, and thus against all other currencies, from around Rs 60 to the dollar to Rs 74.60, thus ending one of the main achievements of the Musharraf government, and rekindling memories of the falling rupee during the last PPP government. The rupee was under pressure, according to the stock market gurus, because of negative economic developments and political uncertainty. The negative economic developments are two: first, the international oil prices are still rising, and a sustainable level, if there ever was one, has been passed a long, long time ago; second, food has become more expensive, with Pakistan forced to import wheat. Both oil and food can be imported for money, and Pakistan had no extra source of foreign exchange to meet these new demands. As a result, the rupee came under pressure. The State Bank can only make the descent of the rupee as smooth and painless as possible, but it cannot really avert it. Therefore the measures it has taken must be viewed as temporary palliatives rather than permanent solutions. The State Bank has not made the traditional response of releasing the national foreign exchange reserves and releasing dollars for sale, the step that most expect and why, the common reasoning goes, we have reserves in the first place. That is mainly because there are unmistakable signs of this having already been tried, which would explain the massive draw-down on our foreign exchange reserves. Another reason is that forex reserves do not help defend a currency, as has been shown repeatedly, most notably during the 1997 Southeast Asian meltdown, and if they are spent liberally, merely end up in the coffers of currency speculators. The State Bank has made sweeping changes in the foreign exchange regulations, suspending the forward cover facility, and reducing the advance payment against exports from 50 percent to 25 percent. Another change has been of timings. The State Bank has cut, from 4.30 pm on Mondays to Thursdays, and till 1 pm on Fridays and Saturdays, to 2 pm and 1 pm respectively, a total of twelve and a half hours. The State Bank Governor should work with the governments, both federal and provincial, not just to reduce their demand for foreign exchange, but also on economy measures that will reduce their deficits. The deficits can be met by the forex inflows the country will receive, but the governments will not only help the hard-pressed taxpayer, but themselves and the economy as a whole, if they were to bring their runaway deficits, caused by an excess of luxury, under control.