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Corporate Governance

One of the better initiatives of the State Bank of Pakistan (SBP) is to encourage financial institutions to adhere to the “Code for Corporate Governance“ framed in 2002. While SBP is mostly concerned with monitoring financial institutions, the code is applicable for all corporate entities. The most tangible step has been the establishment of the “Pakistan Institute of Corporate Governance” (PICG). Appointing Zahid Zaheer, a respected senior corporate executive of proven great ability and experience as its Head showed positive intent and seriousness of purpose. Hopefully PICG will train independent directors structured corporate responsibility, and they in turn will translate this into ensuring viz (1) a fair return for the investors and (2) a merit-oriented professional environment for all the employees.

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IMF Conditionalities versus Economic Realities

The major reforms that the Bhutto government is depending upon to bail out the economy and the country from its present state of crisis are IMF dictated strictures such as (1) controlling of expenditures (2) increasing revenue collection (3) imposing financial discipline in public sector financial institutions (4) imposition of farm taxes (5) extending General Sales Tax (GST) to cover every product and (6) reduction of defence expenditures. It is only due to the existence of our very vibrant parallel economy that we remain alive and well despite being supervised by the most atrocious team of economic managers that this country has ever known. Since almost all social and political aberrations have origin in the economy, the social divide and political crisis we are immersed in can be said to be caused by the partial failure of the economy, directly attributable to mismanagement.

Whereas most of the reforms sought by the IMF are neither uncalled for nor surprising, at least one does not reflect geo-political ground realities. Almost all governments are guilty of excessive expenditures, mostly because of lack of control or deliberate misuse of funds earmarked for (1) entertainment (2) travel (3) telephone calls (4) transport and fuel (5) medical and (6) personnel. Arguing how to control all this would be futile, let us simply “privatise” the concept of bureaucratic perquisites (“perks”). To provide transportation and fuel, the Government should select a standard economy car (Suzuki Alto, Khyber or Margalla or equipment depending upon the Grade) for the public servant and lease it out at 50% of the lease cost, the government bearing the balance, giving the public servant a fixed amount for a driver and fuel, on a sliding scale depending upon the city classification (whether expensive, average or low cost). Let the bureaucrat contribute to medical insurance from a government approved panel, the government paying for the insurance premium. As regards using government employees as household servants, this should be forbidden except in the case of few public residences such as the President’s, PM’s, Governor’s, Supreme and High Court Judge’s and Minister’s. For telephone calls, give the bureaucrat a fixed amount for local calls and have him justify each long distance call before reimbursement i.e. if it could not be done by E. Mail or courier, if it was that urgent. Elected representatives who become public servants (i.e. Ministers, Advisors etc should have a little variation as aforementioned e.g. their vehicle can come from a small staff pool — and no more than one vehicle, an economy model at that).

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Fuelling Inflation

Having written barely eight weeks ago about the Federal Government’s “austere monetary policy” and “tight fiscal control” which had kept inflation “within acceptable limits”, it is not very palatable to eat one’s words, in the face of the evidence at hand one has to. That Ms Benazir’s Government has increased fuel prices in a mini-Budget barely 3 months from the annual Federal Budget is not the only problem, it potentially carries the force-multiplier effect of instituting double digit inflation, it is the type of economic time-bomb that brings political fortunes into question.

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Money and Power

The three major reasons for the deterioration of the financial institutions in Pakistan are (1) nationalisation (2) dependence of both the government and the private sector for liquidity exclusively on the banking system and (3) pre-emption of substantial part of the credit by the government. A myriad number of smaller inter-locking factors have contributed to the decline of the credibility of financial institutions in Pakistan but most can be traced back to these aforementioned over-riding reasons.

Two major concerns led to the nationalisation of the banks in the early 70s by the first PPP regime. Of primary concern was the fact that control of finances of the country interfacing with that of assets were in the hands of a very small minority. The other reason was that the priority sectors were neglected inasmuch social and even economic development were not supported by credit allocation viz, agriculture, small industries corporation, transportation, construction, etc. Money was concentrated in the urban areas at a severe cost to the rural areas. A great bulk of the credit was going to industry and trade which claimed about 67% of the credit given to the private sector with only the balance 33% going to the rest of the private sector economy.

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Looking Forward with Hope

The Annual Report of the State Bank of Pakistan for the financial year 1986-87 examines a number of imponderables, drawing attention particularly to the malaise in the economy because of weaknesses in financial and planning policy of the Government. Despite adverse weather conditions, a higher growth rate of 7 percent was achieved but with no significant remedies for structural weaknesses such as deterioration in public finances and the balance of payment situation, with the Government forced to resource to bank borrowing for budgetary support, particularly in view of the adverse public reaction to the initial annual budget. The significant achievement of the State Bank Report was that it was candid and gave a lucid summary of the ills pervading the body economic. Congratulations are in order to the authors of the Report for expressing with candour for the first time the deep need to restructure the basis for economic planning. It is a clear signal to others involved in the business of statistics that the business of Government is apt to suffer if perceived through rose-tinted glasses.

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