Barters, dominoes and Pakistan
The dominoes are falling all over Eastern Europe. The great socialistic society has been torn apart, exposed as a farce, symbolised by the expensive taste of the communist elite ensconced in exclusive hideaways while exhorting the faithful masses to make economic sacrifices. The bigger they are, the harder they fall, case in point Erich Honercker who lived in studied luxury along with his close aides in a wallet enclosure near East Berlin — and is now being hounded by an outraged populace bent upon making him pay for their years of denial compounded by the corruption of their leaders. It took 44 years but the economic ineptitude of socialism has been glaringly exposed.
Prime Minister Ryzkhov of the USSR pleaded with his COMECON partners last week to establish a vast common market and pay for goods from each other in hard cash instead of barter! In the late 60s and early 70s, Pakistan entered into a number of Barter Agreements with COMECON countries, Sweden and Finland besides China. The underlying concept behind these Barter Agreements was sound. Since Pakistan was short of hard cash, barters would be used as a vehicle for the purchase of integrated machinery, our goods and commodities paying for our requirements in a sovereign reciprocal trade. Essentially the Barter arrangements had honest foundations, chicanery came later and with it the perpetration of one of the greatest frauds in the history of commerce in the world, force-multiplied in the decade of Martial Law, alive, well and still flourishing during the PPP Government. While the Communist nations once spoke endlessly about the wonders of socialism, they became rank capitalists when dealing with us. A huge conspiracy of silence, cushioned by money did not permit anyone to penetrate the smokescreen.
Equilateral barters have been converted perforce into unequal transactions. Barter is supposed to be sovereign trade between two nations, i.e. the produce of one nation is exchanged with the goods and commodities of a reciprocating nation. Since it works its way around the parameters of GATT, IMF frowns upon it, discouraging the trade by withholding credits to member IMF countries indulging in it. Various stratagem are thus employed by our Ministries of Finance and Commerce to keep Barter flourishing, one of them being that a Barter trade between an IMF member country and a non-member escapes IMF sanction. Since the COMECON countries were non-IMF, this was quite easily done. In the case of member IMF countries, a special device called a Special Trading Agreement (STA) was used. This was reflected as trade between two participating trading corporations in host countries, thus avoiding IMF sanctions.
The Trading Corporation of Pakistan (TCP) became the official corporate body in Pakistan to handle such trade under the Ministry of Commerce. The financial umbrella is provided by an Inter-Bank Agreement between the two nominated banks of the participants, in our case it has been mostly the National Bank of Pakistan. Once all the pieces are in place the State Bank of Pakistan issues a circular to all concerned so the foreign exchange transactions envisaged can take place. Some examples are the TCP-Sukab and the TCP-Kemira OY Barters designed to reflect that Trading Corporation of Pakistan has trade with SUKAB and KEMIRA OY, respective trading conglomerates of Sweden and Finland. These are the two largest Barters but the TCP knows nothing about them either, matters have reached a stage where the Chairman TCP does not even sign the agreements anymore.
The Federal Ministry of Commerce directly handles these barters, technically it is not equipped to do so but does so because the local agents of the respective trading partners find it convenient to deal directly with the Ministries of Commerce and Finance. The Barters with Poland, Romania, Czechoslovakia and Bulgaria are similarly directly handled by the Ministry of Commerce. These Barters envisage that we are supposed to get integrated machinery, telecommunication equipment, power plants, automatic products, etc., from the respective Barter partners. In actual fact not much of the products from these countries arrive in Pakistan, very little from Sweden, less than that from Finland, almost nothing from the COMECON countries except from Russia which to an extent feeds the Pakistan Steel Mills of machinery and spares.
The Barter countries do sell goods and commodities to Pakistan but mostly from third countries. For example DAP Fertiliser, wheat, palm oil and even sugar comes on Barter, DAP and wheat are essentially from USA, Canada or Australia, Malaysia for Palm Oil, while sugar comes from Brazil, Cuba and Nicaragua mostly. To pay for all these products, Pakistan has to export a basket of traditional and non-traditional goods and commodities weighed normally in favour of the latter to these countries. According to the Barter Agreements these must go to the Barter partners and not to third countries but this is not so actual practice. Most of our products land up in third countries. While this would not normally be a problem the fact that we give 10% 17% premium on purchases makes it a severe handicap for our exports through normal channels. This premium on their sales to us allows our Barter partners to discount and thus undercut Pakistani exports to our traditional markets for rice, raw cotton, naphtha, molasses, textiles, textile products, fish and shrimps, etc. This causes a severe spiralling price effect downwards on our exports as we then end up competing with ourselves.
Unfortunately for us we have to pay in order to finance our non-traditional exports to non-traditional markets. While this would be alright in case if we were to have STAs with known Multi-Nationals who would endeavour to find new markets away from our traditional buyers, one cannot understand why we have been prepared to give Most Favoured Nations prerogative to the COMECON countries who have been opposing us tooth and nail on every issue under the sun. In the last decade they have directed vituperative attacks on us over the Afghan problems and they have spared no opportunity with which to belabour Pakistan with in economic terms these countries were disaster areas, exposed now as such. It makes no sense why we continue to embrace them economically.
The PPP Government should not cover the wrongdoing of various ministries under the Martial Law Regime. Therefore, it would be in the fitness of things for the Public Accounts Committee (PAC) to publish a full list of all actual trade transactions under all STAs and Barters, giving the premium granted (and the rational thereof) in each case during the decade of Martial Law. These trade transactions would necessarily show that most of our trade items have gone (on papers only) to our Barter partners, e.g., Naphtha meant for Bulgaria is shown as going via Socotra (Eden), it always manages to reach Japan via Singapore, molasses always reaches West Germany, raw cotton is trade in our traditional market, Manchester, etc. At the same time, almost 80-90 per cent of the imports will be seen to be coming from other countries.
The question arises, why was (and is) such a trade permitted, condoned and even encouraged? Whereas inducements cannot be proved, it is definitely implied, why else would bureaucracy become so cooperative and remain cooperative for over a decade? There is also distinct evidence of deep penetration of the Ministries by gnomes in place who have worked for their communist masters and may pose a great problem in the future as agent provocateurs. The Ministry of Finance has all the information about Defence Purchase, can you imagine the type of information leaks possible?
The Barter parties have been strong enough to keep away genuine Multi-Nationals (MNCs) attempting Countertrade (CT) with Pakistan. In 1988, TCP, in the face of great reluctance from the Ministry of Commerce, signed CT agreements with five MNCs, each of them having assets of more than US$ 1 billion. The then Federal Secretary of Commerce ensured a slow lingering death of these CTAs by not allowing an import list. Each of the MNCs exported products upto the extent of their swing limit, i.e., US$ 5 million and then came to a dead stop and watched helplessly as commodities were imported at will on Barters, the Barter partners keeping the CTAs pit so that competitive price bidding could be avoided. Pakistan lost millions of US dollars, the COMECON countries, Sweden and Finland had a windfall.
What about those countries having no-premium Barters or Special Trading Agreements (STAs) like China or Bangladesh? Well, trade does go on but they get the Least Interested Nation Treatment — nobody in the Ministry of Commerce is even bothered to renew the agreements many months after they have expired, the attitude is, don’t call us we’ll call you. In the case of Bulgaria, a friendly COMECON Barter partner which is ensuring that Muslims in Bulgaria either change their name or are evicted to Turkey, our former whiz-kid Dr Mahbubul Haq, pushed off to Sofia before the agreement expired and not only enhanced the quantum of trade but inserted a clause allowing them greater freedom in third country trade. Unless one cleans out the cesspool in the Ministry of Commerce (which incidentally does have intelligent and honest officers tasked nowadays to do anything but Barter or STAs), one is likely to keep on witnessing a turkey shoot on our economy.
Faisal Saleh Hayat has to get his own house in order. One does not hope for much given that one of his bureaucrats while commenting about criticism about the Ministry of Commerce with respect to corruption and inefficiency, said that “we do read it but we take no notice of it”. Smugly perhaps, that about sums it up. Will our Barter trade dominoes also fall with their communist masters in Eastern Europe or will they go on prospering?
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