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Exploiting (and Rewarding) Merit

The major difference between the public and the private sector is that private entrepreneurs recognize merit as the touchstone for success, in the public sector (as in bureaucracy) merit can often be a disqualifier. Public sector can be roughly equated to a hereditary monarchy, with heritage, nepotism and favoritism the prime ingredients for career advancement. While the private sector is not completely free from the use of connections and influence for being upwardly mobile, merit commands far more weightage in rewarding performance. The major reason for privatization and denationalization is to provide better management, inculcating corporate culture dedicated to cost-effectiveness devoted to a positive balance sheet, in effect more (profit) for less (overheads).


Elsie is Not a Girl

Unlike most nations where individuals excel in some discipline or the other, Pakistan has been blessed with professionals of world comparison but we do not seem to recognize this varied excellence. It would be nice from time to time to eulogize our own potential. Which other country can boast pilots and doctors of world compare in such large numbers, or for that matter, bankers? Even in sports, hockey and squash we ruled the world for quite some time, in cricket we have (and have had) the best individual players. Many of today’s top airlines in the Middle East and Asean made their beginnings on the strength of PIA’s airline management staff, pilots and engineers, two of the largest hotel chains in the world began with PIA’s participation. Let us recognise Air Marshal Nur Khan’s initiative in most of these fields of excellence.

Agha Hasan Abedi turned Bank of Credit and Commerce International (BCCI) into one of the leading banks of the world. The institution remained very much synonymous with the personality of its maker. The seamy side in the Bank’s operations may have suited special clients but without Agha Sahib’s constant monitoring the whole system had a tendency to explode in the face of its investors and it did. With bad legal advice and gung-ho activists in collecting “private deposits”, BCCI became vulnerable (So-called Black Network, 30 July 91 THE NATION) and thus targeted for extinction. Big money transactions are commonplace in every large international bank (there being a very tenuous fail-safe line with respect to money laundering), BCCI was singled out for punitive action and a dream based on Pakistani professional competence was brought to an end (The Collapse of a Dream, 30 July 91, THE NATION) with the reputation of Pakistani bankers in shreds, or was it? Pakistani banking professionals continued to excel in other international banks, particularly Citibank (The Banking Professionals, 15 Oct 91 THE NATION). Our present Finance Minister, Mr. Shaukat Aziz, is on leave of absence as Head of “Private Banking” in Citibank, the largest conglomerate in the world, formed by a merger of Citibank and Travellers Group. Habib Bank’s Shaukat Tarin, UBL’s Zubyr Soomro (both Citibank) and NBP’s Mohammadmian Soomro (Bank of America), all left US$ one million plus (Rs.5 crore plus in today’s Pakistani Rupees) salary packages abroad when they were motivated to return to Pakistan in 1997. And this when not counting their bonuses in preferred stocks which ran into millions more! Under very trying political circumstances, all three have been very successful in bringing the nationalised commercial banks (NCBs) back from virtual extinction. In comparison Allied Bank, run by the old crowd, has been a virtual role model for corruption, inefficiency and nepotism of the worst kind. Messrs Tarin, Soomro and Soomro’s virtuoso performance was achieved by assembling a bunch of Pakistani professionals in the banking industry from abroad, almost all of whom were persuaded to leave secure jobs at the call of their country. As financial compensation they opted for less than 20% of what they were getting abroad. Worst off was probably Mr Moinuddin Khan, who resigned as Head of Standard Chartered in Hong Kong, to come as Chairman Central Board of Revenue (CBR). Faced with public criticism at his “high salary” in Pakistan and the foreign exchange crisis post-May 28, 1998 he opted to work without salary, living off his savings. The moment he started to give sleepless nights to the “fat cats”


Recovery of Illegal Wealth

Making money illegally has become institutionalised. To break that cycle, a concerted effort must be made to recover illegal wealth so that the acquisition of wealth illegally attracts exemplary punishment. Wealth that is not declared is illegal, or whether it be held in one’s own name, relatives, proxies, nominees, dummies, etc or in the name of individuals/groups, business entities, etc. For any wealth declared there has to be a source of income, an income on which commensurate tax must have been paid. For wealth traced out that is not declared, there can be only one rule of law, confiscation by the State without recourse to any caveat. Illegal wealth is usually kept either in a real estate within the country, though abroad it is mostly in numbered accounts or under the cover of offshore companies in UK and elsewhere. After years of fruitlessly chasing after people in the traditional way of searching for assets of the rich who had the money to finance the use of smart tax lawyers and accountants to keep money in safe tax havens, the US Internal Revenue Service (IRS) has now switched over to collecting information about the lifestyle of individuals and calculating tax thereof. This change in modus operandi has made it increasingly difficult for people to enjoy their wealth without coming under the censure of the tax-man. Theoretically this could be possible in Pakistan but our Income Tax Department which has checking of tax evasion as their primary reason for existence has more individuals within the department with illegal wealth than any other commensurate group of individuals, except maybe in comparison officials of Customs and Excise and/or Immigration. Without fear of discovery retribution thereof, the show of wealth is so blatant that one tax man displays at least four “Chughtai” miniatures prominently in his house, each painting worth over Rs.2-3 lacs. Obviously we cannot expect our tax-men to blow the police whistle on themselves or on whom they consider their own (for a price, of course).

There have to be priorities in the chasing of illegal wealth. Illegal wealth must first be classified into (1) mega-wealth, ie. those who have acquired wealth far in excess of their declared income, above US$ 12.5 million (Pak Rs.500 million approximately), (2) super-wealth, between US$ 5-12.5 million (Pak Rs 200 million to Rs.500 million) and maxi-wealth, upto Rs.200 million ie. US$ 5 million. A few are in the super-mega class ie. US$ 1 billion and beyond. Illegal wealth within Pakistan will rarely be in bank accounts or either in one’s own name. It will invariably be held in real-estate, stocks and shares, in industries, etc. A far greater amount is invariably held abroad through various sleight-of-the-hand structuring, however Pakistanis (and Indians and Bangladeshis) tend to keep a substantial amount in banks and other financial institutions in numbered accounts. Many corrupt bureaucrats lost their ill-gotten life-savings when BCCI crashed. Different teams must go after priorities set, within Pakistan and abroad. In Pakistan, the FIA made an excellent headway in tracing out the wealth looted by the cooperatives, finance and investment Companies in the 80s but the poor depositors did not get even a fraction, most went into the pockets of corrupt FIA officials. The lifestyle of our Income Tax, Customs, Excise and Immigration staff can be assessed from the real estate records in the posh areas in Karachi of KDA Schemes 1 and 5, PECHS, Defence, Bath Island, etc. One will find an inordinate amount of property in the names of females and children. How can they justify the type of income that can afford such valued real-estate ?


Reorganising the Banking Sector

Third World countries that aspire for economic prosperity have to ensure that their financial sectors are adequately equipped to fuel sustained growth. Financial institutions are the bedrock on which to plan the building of industry and commerce in a world perennially short of development funds, lately Less Developed Countries (LDCs) are concentrating their energies on revitalizing this sector. In Pakistan, we pay a lot of lip-service to such notions, in actual practice we consign reformation ideas to the dustbin and progress is far from satisfactory.