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Archive for February, 1996

Hashing the Brown Amendment

A report appeared in “the Washington Post” on Feb 15, 1996 that “a planned shipment of US military aircraft, missiles and other high-tech armaments under the Brown Amendment would be delayed because of Pakistan’s suspected acquisition of sensitive nuclear equipment from China late last year”, unquote. On Friday 23, 1996, CIA Director John Deutsch confirmed an intelligence finding that transfer of nuclear equipment had been made. The “Brown Amendment”, a one-time exemption to US Laws that bar military cooperation with Pakistan because of our alleged nuclear development programme, would have allowed US$ 368 million worth of arms, already paid for, to be transferred to Pakistan. Even though the F-16s were not on the list, the opening up of the logjam was seen in Pakistan by the intelligentsia and public alike as a giant step towards “normalising” the US-Pakistan relationship that had gone out of equilibrium to Pakistan’s detriment since 1990 when the US President had failed to certify that Pakistan had nuclear ambitions. In the 80s during the height of the Afghan War that contributed to the demise of the Soviet Union, Pakistan had been a major beneficiary of US Aid. Coinciding with the winding down of the Afghan War, the ban was not well received by the Pakistan public. This was further exacerbated by US “rewards” in 1991 at the end of the Gulf War for the allied countries that took part on the US side (e.g. Egypt’s entire debt of US$12 billion was waived) while Pakistan which contributed considerable troops, was almost put on the “terrorist nation” watch list.

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Hashing the Brown Amendment

A report appeared in “the Washington Post” on Feb 15, 1996 that “a planned shipment of US military aircraft, missiles and other high-tech armaments under the Brown Amendment would be delayed because of Pakistan’s suspected acquisition of sensitive nuclear equipment from China late last year”, unquote. On Friday 23, 1996, CIA Director John Deutsch confirmed an intelligence finding that transfer of nuclear equipment had been made. The “Brown Amendment”, a one-time exemption to US Laws that bar military cooperation with Pakistan because of our alleged nuclear development programme, would have allowed US$ 368 million worth of arms, already paid for, to be transferred to Pakistan. Even though the F-16s were not on the list, the opening up of the logjam was seen in Pakistan by the intelligentsia and public alike as a giant step towards “normalising” the US-Pakistan relationship that had gone out of equilibrium to Pakistan’s detriment since 1990 when the US President had failed to certify that Pakistan had nuclear ambitions. In the 80s during the height of the Afghan War that contributed to the demise of the Soviet Union, Pakistan had been a major beneficiary of US Aid. Coinciding with the winding down of the Afghan War, the ban was not well received by the Pakistan public. This was further exacerbated by US “rewards” in 1991 at the end of the Gulf War for the allied countries that took part on the US side (e.g. Egypt’s entire debt of US$12 billion was waived) while Pakistan which contributed considerable troops, was almost put on the “terrorist nation” watch list.

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The UBL Story

The Privatisation Commission (PC) threw a party on Jan 29 to celebrate the privatisation of United Bank Limited (UBL) — and nobody came! Correction, out of the two foreign guests invited one did turn up but without the “invitation card” — in this case the Earnest Money. For the fiasco the PC has no one but itself to blame since it had loaded the dice against its own interests (and that of Pakistan) by eliminating the domestic aspirants and narrowing the field of intending bidders to only two foreign competitors, both of Arab origin. This muddied up the so-called transparency in the process, making it a game of real-time “monopoly” where the final moves will come much after Feb 14, 1996, the date of the postponed bidding. Without the threat of local competition, one of the two surviving entities had promptly laid down a condition that the Government of Pakistan (GoP) would keep a deposit of Rs 20 billion in UBL for several years. Faysal Islamic Bank’s request being considered unacceptable, Ms Saudi Basharahill was left as the only suitor. Very little is known about Ms Saudi Basharahill except that its name does not seem to set the financial world alight. Left alone in the bidding process, Ms Saudi Basharahill took advantage and made a brazen “show of force” by making the Bid without the requested Earnest Money. This was too much for even the PC to swallow — or correction, perhaps too much for the PC to try and attempt to make the people of Pakistan swallow and as such the Bid was “postponed”.

In 1992-93, UBL’s basic share price was provisionally estimated at Rs 65. Given that Muslim Commercial Bank’s (MCB) 26% had gone at Rs 56 a share and Allied Bank Limited (ABL) at Rs 60 a share (the then PM Mian Nawaz Sharif giving a special discount of Rs 10 to the ABL employees from the original Rs 70). Rs 65 per share is a modest figure for such an enormous bank as the UBL. It is true that UBL has a very large debt portfolio and pilferage by employees is estimated conservatively annually at Rs 840 million. Annual profits fell from Rs 275 million in 1993 to Rs 59 million in 1994. Mr Shahid Hasan Siddiqui a senior economist and an eminent banker, contends that contrary to general public perception the decline in profitability is not due to stuck-up advances but due to a steep rise in expenses in 1994 as compared to 1993. Expenses increased by Rs 173 million and miscellaneous expenses by Rs 171 million in 1994, a cumulative grand total of Rs 354 million. The commission earned during the same period by the Bank decreased from Rs 1861 million in 1993 by Rs 183 million to Rs 1678 million. Blame the atrocious management by those picked by the government to run the bank as they resorted to wasteful expenditure besides adding surplus staff, many of them political appointees. Blame also the good credit given to perennial bad debtors under sustained political pressure. In contrast the public sector National Bank of Pakistan (NBP) recorded a rise in net profit of 196% in 1993 while privatised MCB showed only 28%. Dr Siddiqui suggested the obvious, it does not matter whether the corporate entity is public or private, with better management (and without induction of capital) and freedom of action, provided credit was not advanced on political patronage, UBL could have shown better profits.

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The Case for a Mixed Economy

Alarge number of Asian and African countries got independence from their European rulers in the 50s and the 60s. Since socialism was in the forefront in shrugging off the yoke of imperialism and capitalism, almost all the leaders were ideologically socialist. Socialism was the romance of the times. Invariably the nationalist leaders followed the Soviet model in their economic thinking, inevitably it led to disaster for their respective economies. While they were certainly right in maintaining that the State had a responsibility to safeguard the socio-economic rights of the common citizen and look after their welfare, by shunning free enterprise altogether they created an inefficient system without any incentive or motivation. The monarchical prerogative of appointing managers was replaced by the qualification of individual loyalty to the socialist system irrespective of ability. Over the years, concentrated education ensured that managers of better quality were created in Soviet Russia and Communist China but those also fell away eventually without incentive. Countries such as Zaire, Angola, Uganda, etc had very little experienced managers among locals at their respective independences. The exodus of expatriates devastated their potential. The most potent example of a sea-change in change in thinking is that of Nelson Mandela, who realized that the loss of white managers would send South Africa into the darkness as had happened to many African countries despite being rich in resources. On the surface, Mandela made a historic black-white compromise, in real sense he compromised on ideology for the economic sake of the people, opting for a pragmatic mixed economy instead of the ideally romantic pure socialist concept. Mandela had the advantage of the Zimbabwe experience to back his ideas, not so leaders like Nkrumah, Sekou Toure, etc who took their people into darkness while promising them light. Desperate to be considered one of the great non-aligned leaders of the 20th century and egged on by socialist ideologues like J.A Rahim, Mubashar Hasan, Shaikh Rasheed, Mairaj Mohammad Khan, late Zulfikar Ali Bhutto took us down the nationalism route into economic disaster in the early 70s. In his defence one can only say that he did rein in rampant capitalism that saw inordinate wealth concentrated in the hands of only 23 families, he simply went too far in his nationalisation binge.

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