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Archive for November, 2000

IDEAS 2000 a success story

As a Gentleman Cadet (GC) of the Pakistan Military Academy (PMA), Kakul, I was privileged to visit Pakistan Ordnance Factories (POF) Wah in 1964 to see the manufacture of Rifle G3, MG IA3, ammunitions thereof and etc. That self-autarky, made possible by the self-sacrifice of dedicated men who chose to work in Pakistan in contrast to the salaries and perks they would have enjoyed abroad. As a civilian entrepreneur in the early 80s, I was again associated with the sales (and eventual possible manufacture) of small arms, trucks, armoured vehicles, tanks, etc as well as the retro-fitting of vehicles, tanks etc and up-gunning of artillery pieces, as budding arms merchant I got quite an insight into defence procurement and methods thereof. Within three years, some home-truths were also very visible, viz (1) Pakistan has an inherent capacity to produce almost all the weapons and equipment required by our defence forces (2) the procurement system was heavily corrupted and biased against indigenous manufacture because that would end the large commissions/kickbacks in importing the same from abroad and (3) that without private sector involvement in manufacture the future was bleak as public sector efficiency depended upon the person in charge and his motivations. Since we who were pushing the sales were split between purchase of “goodwill” (a sophisticated name for bribes) and not getting involved in it, we parted as “friends”, our side got out of the “defence purchases” business altogether. From time to time one did feel a tinge of envy for the millions of US dollars in commissions the others were pocketing, all very patriotic Pakistanis (according to their definition of patriotism), but since accountability is now a part of the Pakistani life, one thanks God that unlike them we do not have to answer for their secret bank accounts abroad containing millions of US dollars to the State Bank of Pakistan for not repatriating the money and the income tax people for not having paid taxes on it. Of course, one does not expect the Ministry of Defence or the Director General Defence Purchases (DGDP) to ask how these commissions were not declared, because when one has millions to throw around, as well as influence and contacts, silence can be bought/coerced very easily.

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East India Company Executives

The most coveted slots in the job market for a long time were those of foreign companies working in Pakistan, these were in banks, oil companies, pharmaceutical industry, etc. The companies paid well and had a wide range of both visible and hidden perquisites (perks), their training whether in management or botanical folds was in keeping with international standards, they gave an opportunity for travel and posting abroad and lastly, in a society very sensitive to status, they put the individual into a class apart, indeed giving him a choice of elite clubs in the pay package as a status symbol. There were not so many jobs on offer 40-50 years ago, the competition for every slot was very fierce, the job opening depending not only on merit but the clout the family had. In contrast our young men and women now have greater choice, both at home and abroad. Corporate Pakistan really came into being with the advent of PIA as an international airline par excellence under Air Marshal Nur Khan. Local companies in business and industry gradually began to come good with respect to job satisfaction when compared with foreign entities. Taking the early 60s as the base-line, the most sought after jobs in order of priority were with foreign companies, the civil service, PIA, the Armed Forces and then in the medical and engineering professions. The litmus test for job priority preference is that a large number of doctors and engineers opt to become civil servants, but many young civil servants have opted over the years to become executives in foreign financial institutions or other companies.

Casting aspersion on their merit in a sweeping manner would be unfair, but a fair percentage of the young people who managed to get the few slots available in foreign commercial entities in the early days of Pakistan and uptil the mid-60s were mostly sons of serving civil servants or influential landlords, etc. In these days slots for siblings of military officers were rarely available. Since the foreign companies needed to shore up their influence by having such people on their payrolls who had ready access to people with influence, and those who had influence needed their siblings in very lucrative jobs, this was a mutually acceptable proposition, it does not need much imagination to conclude that both sides got a good bargain. Unfortunately this mutual satisfaction came at a high price, influence was used to gain maximum advantage for the foreign entities at the cost of the country. By this time PIA became the jewel in the crown, it took over 20 years of nepotism to turn a merit-oriented airline into a disaster waiting to happen. By the 70s jobs multiplied, more and more deserving young men (and an occasional woman) found employment with foreign and local corporate entities. Merit over nepotism became recognized as necessary for selection, the market competition became very fierce, these companies needed good executives to work efficiently and competently, both in the domestic and international field. The requirement of hiring only those with potential for influence pre-employment faded but those who had got jobs on merit having also influence post-employment became an additional qualification. A rash of young men and women became very much visible on the social circuit. Many had studied in colleges and universities abroad and are now paid handsomely to work for their foreign masters locally in Pakistan. By the 80s a new generation of Pakistanis, more self-confident, assertive and belonging to a wide spectrum of society started to be selective about their jobs, whether with local and foreign companies. With local companies run much more professionally in keeping with international standards, provided the money is right, there is now an inflow from foreign companies to Pakistani entities.

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The Genesis of Corruption

Corruption was alive and well when Pakistan was created in 1947 but it has been very much in fashion in South Asia (and the rest of the world) for centuries. However, many areas of our society had remained relatively safe from its ugly tentacles. Unfortunately the many opportunities created by the inception of the new State and the early loss of credible leaders like the Quaid and Liaquat Ali Khan Shaheed allowed corruption to gradually permeate through and subvert the whole spectrum of society. By 1958 the civilian government had become a full partner to those engaged in corruption. The first martial law tried to stamp out this corruption, the style may be different in this military regime, the substance of primary raison d’etre for clamping authoritarian rule in place of a democracy remains the same. The first martial law did not have as difficult a time as the present military rulers are having four decades later, corruption is now deeply imbedded in the psyche of the entire country, almost without exception. Forty years ago people using foul means gave bribes to overcome their competition, today almost everyone, even those using fair means, must give bribes to get things done.

The fruits of corruption can now be spirited away abroad much more easily than in the olden days when it was invested in property or kept buried in dark places, that has acted as a “force-multiplier” for the proliferation of corruption. Uptil 1857, the British bribed their way into power across South Asia by seducing recalcitrants among the close relatives/associates of various rulers. After 1857, they created a new “loyal” elite by distributing vast tracts of land that became theirs by default of having defeated the vestiges of the old Mughal Empire. This newly-landed gentry owed their loyalty to the British Raj, who in turn promoted their new proteges into aping their customs and traditions. As the tracts of land became smaller and the urban population became larger, smaller units of land i.e. residential and commercial plots, were used by the rulers as weapons of bribe for their own continued rule. The political governments perfected this “art”. In Pakistan the first great exercise of this was in Karachi when the Pakistan Employees Cooperative Housing Society (PECHS) came into being, residential plots were allotted to bureaucrats and then re-sold on the commercial market at astronomical prices, giving windfall instant riches to the “lucky” bureaucrats. Commercial areas such as I. I. Chundrigar Road, etc had already been carved up among the relatives and friends of those who succeeded Liaquat Ali Khan Shaheed. Earlier they were responsible for the “permit” windfall, sanctions for various “commodities”, “industries”, etc that were given to favourites and sold for a premium. A Gulberg appeared in Lahore and a Satellite Town in Rawalpindi, fore-runners to a whole host of such residential societies, formed mainly on black money. Real estate became a haven for illegal wealth. When the more organized Pakistan Defence Officers Cooperative Housing Society (now Defence Housing Authority (DHA) Karachi came into being, money started flowing in from the very rich for purchase of land at comparatively cheaper prices from the military beneficiaries of allotted residential and commercial plots. It was only later that the men in uniform discovered that they could sell the real estate at higher commercial prices to supplement their meagre incomes, mainly to purchase cars and household electrical/electronic goods. Major corruption took hold in society across the broad spectrum of the body politic involving politicians, bureaucrats, businessmen, armed forces personnel, etc. Kickbacks started to proliferate in every procurement contract, every construction contract, every service contract, etc. Of the assessed taxes only 10-15% went to the government, if any, at least 25-30% went to the tax collectors, balance was pocketed by the unscrupulous. The situation now is that we recover only 30% of the taxes that are liable. This has put an enormous economic burden on the State, we are always depending upon loans from abroad to shore up our Budget. We may have even reached a stage of country debt default. With nationalization in 1973, corruption force-multiplied, remaining manageable under political control till 1977. However, things went berserk under absolute bureaucratic rule during the third martial law 1977-1985. By the time the political government of sorts came back to power in 1985, corruption was endemic across the board, during the Bhutto/Sharif/Bhutto/Sharif 1988-1999 political period, it crossed all bounds. Bankers also got into the act, showing means and methods to politicians how to become “instant” businessmen by taking loans from the financial institutions without collateral and without any intention of returning the loans. The word “loan default” came into the Pakistan lexicon. By the 80s a few people in the Armed Forces fell prey to their retired colleagues’ machinations and were rumoured to have taken kickbacks in defence procurement deals. These contracts were large but the uniformed people involved were only a handful. By the 90s, influence and contracts ran Pakistan through a network of nepotism and corruption. When Gen Pervez Musharraf took over, the situation was horrific. The National Accountability Bureau (NAB) was a last-chance solution waiting to happen, something that Pakistan desperately needed to ward off threats to its very existence as a nation.

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Bush or Gore?

By all accounts this is the closest US Presidential race since 1960 when Richard Nixon conceded defeat to John F Kennedy despite lingering doubts about Mayor Daley of Chicago managing a strategic “switch” of some votes (Third World-style) to the Democratic candidate. Based on the polls about popular votes to be cast, Texas Governor George W Bush seems to be still ahead, but in the matter of electoral college votes, it could well be very, very close. The US President is chosen not by adult franchise but by the electoral votes of each State and these differ according to the population. While Bush is expected to carry most of the States, he is not expected to win in New York (33 electoral votes) or California (54), which between them represent almost 25% of the electoral votes needed to win. What is very surprising is that despite the fact of brother Jeb Bush being the Governor, he will probably also lose in Florida (25 votes), Pennsylvania (23 votes) is too close to call. Bush may well win in almost 35 of the 52 States (i.e. about 2/3rds) but could still fall short of the 270 electoral votes needed to win the US Presidency. If colour coding would be used, the coasts would be primarily Democratic while the US heartland solidly Republican. On the other hand Vice – President Gore, striving to be his own man by distancing himself from US President Bill Clinton, if not from his achievements as a President, has major, major problems convincing even the Democratic vote to turn out. To add to that, Ralph Nader, standing as an independent may take away at least 3% of the votes. In any case former Reformist Party candidate and founder Ross Perot has endorsed Bush. In what may be a stinging slap to any home-boy, Gore may well lose his home State of Tennessee to Bush.

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You Can Run, You Cannot Hide

In a judgement that will constitute judicial precedent, a British Court, the High Court of Justice, Queen’s Bench Division, (Royal Courts of Justice), London ordered registration of the judgement and decree dated April 12, 1999 passed by Justice S A Sarwana of the Sindh High Court (SHC). This was in a suit filed by Habib Bank against Mian Aftab Ahmed of Firdaus Spinning and Weaving Mills Limited for approximately Rs 45 crore plus mark-up from Sept 7, 1995 under the Foreign Judgements (Reciprocal Enforcement) Act, 1933. Habib Bank had sought to register and enforce the judgement of the SHC against Mian Aftab Ahmed in the UK since he was residing and carrying on business in the UK. The registration had initially been ordered on Sept 17, 1999 when the banks outstanding claim stood at about Rs 78 crore. Obviously the amount will now be higher.

Habib Bank was represented initially in Pakistan by Liaquat Merchant Associates while the legal proceedings in the UK were filed and pursued by the Bank’s solicitor in the UK, Piers Lane of Lane and Partners in conjunction with Liaquat Merchant, Advocate as the Pakistan legal consultant of Habib Bank. Syed Sharifuddin Pirzada was also appointed as a legal consultant on the Constitutional and Public Policy Issues in Pakistan while Justice (Retd) G H Malik gave audience on behalf of HBL as the expert witness on Pakistan laws and judgments pronounced by the superior Courts of Pakistan. The Honourable Justice Carnwath held in favour of HBL in accepting that viz (1) there is nothing in Pakistani law which makes it inappropriate for the English Court to treat the judgement of SHC as incorrect (2) the judgement was not obtained by fraud and (3) the defendant had an opportunity to defend the suit before October 1999 and registration of judgement and enforcement was not opposed to Public Policy. In the Court itself HBL was represented by Alistair R MacGregor, QC. This judicial precedent will enable Pakistani banks to pursue recovery proceedings against bank loan defaulters who have fled to foreign countries. By persisting with this action despite the psychological mindblock in many quarters that loan defaulters residing in other countries have somehow become outside the pale of law because of their “successful escape” from Pakistan, a clear message has been sent to bank defaulters that given the will and persistence, they can and will be pursued wherever they are for recovery of amounts due under judgements passed by Pakistani Courts of Law.

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Micro-credit Pakistani, Buy Only Pakistani

When individuals and businesses cut down on the quantum of credit they take from the financial institutions, that is a clear danger signal for the economy. On the other hand, acquiring of loans beyond one’s ability to pay back is far more lethal. Defaults lead to liquidity crunch, threatening the viability of the financial institutions. Failing banks are a luxury no economy can afford. In Pakistan, there is an attitude of mind that makes even those with the ability to pay back seem to think that it is their God-given right not to do so. Prudential regulations were on the books of the State Bank of Pakistan (SBP), after Oct 12, 1999 there was greater compliance. Banks are now far more prudent over the past year in lending, collateral is looked at with greater cynosure. With a host of “untouchable” defaulters being “Nabbed”, businesses have become far more conservative in borrowing. As a cumulative result, economic activity is far below the optimum levels which one would term satisfactory for future development. Only when entrepreneurs begin to take calculated risks is such activity generated. With huge loans souring in the manufacturing sector, cash-starved financial institutions generally became gun-shy in giving out large credits, as the cash situation improves lending has not reached commensurate levels. To break out of this Catch-22 situation, i.e. to become profitable banks must lend monies and to avoid losses loans must be carefully engineered, some of the banks have created a new division as a sort of an investment arm, calling it the “Structured Finance Unit” (SFU). As opposed to the activities of the SFU, almost all financial institutions are turning to smaller loans/credits reaching out to a greater number of people. Citibank was a pioneer in consumer credit but indifferent management caused panic situations. And other financial institutions are rapidly catching up. “Khushali” micro-credit bank has been created in the public sector, whether it is effective on the “Grameen Bank” pattern has yet to be seen. Another way of indirect micro-credit is the credit card business, again pioneered on a mass basis by Citibank. Whereas leasing, securitization, etc are among the modes for financing vehicles, equipment, etc, the new financial buzzword is small-credit to individual consumers. Consumer hire/purchase activity of the middle-class fired the cylinders of the economies of the developed world. This easy access to small credit has now finally arrived in the heart of the Third World and has been grasped at with both hands by South Asia’s aspiring millions. One note of caution, if we do not exercise prudence in regulating the micro-credit idea, it can work as a poison pill that will destroy the economy.

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