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Archive for July, 1991

The black network

In an escalation of its ongoing problems, BCCI has been labelled by TIME magazine in its latest issue as the world’s sleaziest bank. A chart depicts the structure of its activities in organised crime. Pakistanis have been skeptical about charges of drug money laundering, massive fraud etc, feeling that BCCI was being selectively ostracised when a whole field of western international banks were engaged in the same “accounting” shenanigans. However, one charge stands out as a complete shock, the allegations of the existence of the so-called BLACK NETWORK headquartered in Karachi. This clandestine division is supposed to be 1500-strong with a global intelligence operation and a Mafia-like enforcement squad. TIME magazine has further alleged use of sophisticated spy equipment and techniques along with bribery, extortion, kidnapping and murder etc and that BCCI has been involved in the lucrative arms trade business and the transportation of drugs and gold. Banking misdeamenours can be passed off as routine white collar crime, these fall within the realm of gross criminal activity bordering on terrorism and must be investigated forthwith. No civilization can survive without adhering to the laws governing civilized behaviour, to countenance such criminal activity or protect the perpetrators would tantamount to becoming collaborators or accessories to such crimes. No government on Earth can afford to be associated with such an entity, unless of course the Rubicon has been passed and the Government has become a slave to its dictates.

The Government of Pakistan (GOP) seems to have taken a very serious note of it and the Finance Minister, Mr. Sartaj Aziz has ordered an enquiry to be conducted by the State Bank of Pakistan and the Defence Services (presumably the ISI). The banking authorities of many countries have been clamouring that BCCI’s operations in Pakistan must be closed down, in solitary defiance of such requests the State Bank of Pakistan has kept BCCI going. This may be because of national pride in an institution that became an international success, real concern for protecting the savings of domestic depositors and the effect that it will have on our on-going export trade, a fair amount of which had been handled by BCCI, particularly the hand-knotted carpet exports. However, the present charges are so serious in nature that unless handled with the greatest care, the enemies of Pakistan will have a field day in defaming Pakistan as a nation in international circles. At the very least, Pakistan bankers have built up an enviable professional reputation internationally and unless we take steps for immediate damage-control, their present and future credibility will be irrecoverably undercut, GoP must decide immediately whether the country can afford to become a financial pariah internationally. It may be true that the interests of a few hundred thousand local depositors may be affected, ostracisation and isolation by forces that govern international banking will be economically disastrous for the whole population of Pakistan. Already living on a desperately thin edge, anything affecting the banking operations of our financial institutions will have a devastating effect on our economy. While we must certainly stand up and ensure that all patiently false accusations are effectively rebutted, as much as one may not like to believe otherwise, the bitter truth seems to point to definite evidence of wrongdoing by BCCI internationally. In the face of such wrongdoing, GOP must modify its protective stance. Any hint of an eyewash will have a counter-productive effect on us. Sources close to and within BCCI have described that report of BLACK NETWORK as sheer fantasy, it is, therefore, also in the interests of BCCI that an independent enquiry comes to the same conclusion. TIME magazine has alleged that a serious investigation against BCCI is hardly possible when a fair amount of our ruling elite, among them senior government officials, businessmen and politicians, stand to be exposed as they were using BCCI as a conduit for their ill-gotten gains, both for transfers and deposits. Reluctance on the part of our officials will only land credence to this theory and cast doubt on our intentions. To that end, some steps need to be taken post-haste, the first of which is what to do about BCCI operations within Pakistan. BCCI operations can be continued in a manner that does not affect our domestic depositors or ongoing export trade, the State Bank of Pakistan must immediately remove all senior BCCI officials from their posts and replace them by bankers from other financial institutions, pending the results of a complete investigation. It may be appropriate (and internationally circumspect) to associate some private renowned international investigation agency so that the results of the investigation becomes credible internationally. It is no use evading responsibility by falling back on the emotional aspects of nationalism, when there is a cancer in the country’s continued financial credibility, surgery for its removal may be a painful exercise but it has become necessary.

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Pragmatism in privatisation

To reinvigorate the moribund economy, it is necessary to carry out privatisation, denationalisation and deregulation. It is an accepted fact that this activity will create unemployment and there will be a time lag of 2-3 years before the economy picks up and employment opportunities are created. This government is as committed to this exercise as the regimes before them, the emphasis being much more pronounced at this time.

The primary aim of the aforementioned exercise being to creating employment, there are primary and secondary objectives to be achieved simultaneously but most important is the maintenance of the AIM selected. Given the sorry state of the economies in the socialist world, Adam Smith is more in fashion, Carl Marx has been consigned to the dustbin of economic history. While no one questions the basic premises set forth by the present regime, what has been called into question is whether the implementation is being processed through a well thought out plan and whether the disinvestment of public assets comes under the qualifications inherent in basic fair play. Unfortunately on both counts, there is definite lack of confidence about the government’s credibility, both among the intelligentsia and the masses, the swinging of the pendulum from one extreme to another without proper planning or sincerity may result in the economy going from the frying pan into the fire.

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The collapse of a dream

On Friday 5 July 1991, the Bank of England moved to close down BCCI operations in UK, simultaneously banking authorities in Luxembourg and Cayman Islands took action to freeze BCCI assets and stop all their banking functions. Over the weekend 14 other countries including US, Japan, Spain and Germany moved to shut down BCCI activities and seize the assets of the Bank within their respective domain. Such action was taken because BCCI was believed to be on the verge of financial collapse following allegations of massive fraud. Mr Pierre Jaans, Director Luxembourg’s Monetary Institute, which overseas banking in the country and where BCCI was registered said that the Bank had posted huge operating losses in 1990 which had not been made public and thus had to take huge loans to cover the losses as there was no capital left. Mr.Pierre Jaans further alleged that being insolvent, BCCI had engaged in conspiracy to deceive clients, shareholders and auditors. The Bank’s accounts were already overdue and the auditors, namely Price, Waterhouse and Co, had reservations which necessitated immediate action to safeguard the interests of depositors, bona fide creditors and the shareholders themselves. This punitive measure has brought BCCI to its knees, financial institutions work on the basis of depositor confidence, the combination of shutting down operations and loss of market reputation means that as an effective banking institution BCCI is finished in international circles.

Some move against BCCI was anticipated, the scope could never ever be envisaged. Before any financial institution collapses there are tell tale signs about the impending catastrophe, even if these are forced by internal financial shenanigans. Except for the drug money laundering case, relentlessly being pursued in the US, there were no real warning signals. The Bank of England must have had considerable proof about the alleged fraud before it engaged in such sweeping action, it is unimaginable that they would subject hundreds of thousands of depositors in over 69 countries to such acute financial distress, most of these are of Asian origin and in effect has wiped away their business strength developed over many years of hard work. Price, Waterhouse and Co had certified BCCI’s accounts for 1987, 1988 and 1989, the major fraud seems to have been perpetrated in 1990. If the misdemeanour took place during the certified period, then we shall wait to see what punitive action is taken against Price, Waterhouse and Co.

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Political roller coaster

Nawaz Sharif’s first 180 days in office have long-term economic significance, the results will be more apparent in the years to come. This has been an outstanding achievement, in the economic situation that we had been thrust in during the Gulf crisis it required courage to take the necessary institutional reformatory steps to loosen bureaucratic control over the economic life of the nation rather than opt for stop gap temporary intervention. While one agrees totally with deregulation and privatisation, the method of carrying out denationalisation and privatisation needs rectification as it should be more people-oriented in the Thatcher-mold as well as worker-oriented to ensure robber-baronism does not return to torment the people of Pakistan. If it is seen by the masses that the “goodies” are being dashed out to the chosen few, the streets will react with unrestrained venom.

In sheer contrast to the glow in the economic field, Nawaz Sharif is in deep political trouble as the political roller coaster ride of the last 210 days suggests. The people need a stable law and order situation, even more they require that justice not be denied to them. Given that the IJI Government has an overwhelming Parliamentary majority and that two contentious politico-economic issues, the NFC award and the CCI are behind us, the political morass that we are thrust in is largely due to emphasis on a wrong set of priorities and faint-hearted tentative political initiatives, particularly the lack of will in the building of democratic institutions. Since the PM’s grounding of political life has a narrow base in time and experience in contrast to his business acumen, the wide gap in the two sectors is not surprising. Given that he has had two tough years of political sandblasting before he ascended the hot seat, one would have expected him to give greater attention to the needs of the masses which form his political base rather than resort to lip-service rhetoric only.

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Intolerance

Abdul Sattar Edhi has been described as the “Mother Teresa” of Pakistan, a well-deserved epithet for an outstanding person, yet for sheer organisational achievement in single-minded help to the destitute, the dying and the dead, he surpasses the old lady in Calcutta by miles. For many he is a Pakistani icon of sorts, the charitable service he provides has become so all-pervasive that we have started to take this for granted. Charity is essentially a one-way street and while Edhi has not demanded any gratitude for his work, he has been harassed enough recently to make an impassioned outburst against the prevailing situation in Sindh. Of great concern to those who admire him has been his threat to re-migrate to India. While Edhi could not be expected to know much about the internal situation in India, particularly in Punjab and Kashmir, he has inadvertently given an opening to Indian propaganda that they will delightedly exploit. Whatever may be the situation in Sindh today it is far better than in the Indian States bordering Pakistan, our media does not go to any lengths to portray the real environment of insecurity within India, unfortunately the Indian media blows any situation within Pakistan way out of proportion.

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