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Apres Yaqoob, Banking Deluge?

The political crisis in 1993 has left a residual controversy over the tenure of service of the present Governor State Bank of Pakistan (SBP). Every nation, particularly a developing one, needs a strong and independent State Bank to maintain strict monetary control, specially when the government-in-power tends to be lax with respect to fiscal discipline. It must be said that Pakistan has been repeatedly blessed with good chief executives for this most important institution and, however, abominably some of them may have performed in later life in the cockpit of public office, in their appointment as the head of SBP every individual till date has performed exceptionally well, maintaining their independence without compromising their integrity. VA Jaffery (the much vilified PM’s Adviser on Finance) may seem servile and senile in the service of the PPP regime, one could never doubt his honesty and integrity in the SBP post. Before he manipulated and manoeuvred himself out of both the Presidential office and his reputation, Ghulam Ishaq Khan was a financial bureaucrat of some substance, albeit of the arch conservative kind. The present Governor SBP, Dr Mohammad Yaqoob, carries on the tradition of above par intellectual honesty, integrity and competence of his predecessors during their respective incumbencies. It is almost as if a mantle of impeccable sobriety in keeping with their responsibilities descends upon them as soon as they occupy the SBP chair, restraining their base faculties that tend to burst forth into light in later life.

Yaqoob resigned from the IMF in 1992 and returned home, being offered the SBP job in 1993 on the retirement of the then incumbent, Mr. NH Hanafi. However political events caused quite a bit of constitutional confusion in 1993 and it was not till Moeen Qureshi as Caretaker PM had confirmed his appointment for a single five years term (increasing the length of office from three years) that Dr Yaqoob took office on 24 July 1993. The single five years term was designed to maintain independence of the Governor by removing the possibility of inducement by any Government for another term. On 12 Feb 1994, the present regime was pleased to again change the Governor’s tenure to two terms of three years each and thus the present anomaly. Should the present Governor SBP viz (1) continue for five years till 24 July 1998 (2) leave office after three years on 24 July 1996 or (3) stay in office for three years uptil 12 Feb 1997 when the last amendment came into vogue. Given an independent streak and not given to the pressure of political patronage (though one daresays very seldom publicly), a majority within the present regime will probably like to see the Governor SBP disappear into oblivion on 24 July 1996. Among those trying to bid him a not-so-fond farewell are the major aspirants for this post, prime among them the present Deputy Chairman Planning Commission, Qazi Alimullah who was bitterly disappointed when Yaqoob was named to the SBP post and stopped bestowing the then PM Mian Nawaz Sharif with the customary prayer puffs he reserves for all serving PMs, look what happened to Mian Nawaz Sharif once he was bereft of Qazi Alimullah’s holy breath!

Whatever the ambiguity, the relevant summary has been lying on the PM’s desk for last two months without decision. In contrast to other crucial decision-makers, the PM is a literate human being and understands the international ramifications of failing to appoint a competent individual to the post. Certainly this appointment is far removed than making any Tom, Younus or Khalid President of one of the nationalized commercial bank (NCBs) or the public development finance institutions (DFIs). A combination of nepotism, corruption and laissez faire has led to an inordinate rise in the “bad debt” figure in the public sector financial institutions which stood at Rs 82 billion when Moeen Qureshi was the Caretaker PM and has since shot up in three years to Rs 116 billion, a rise of almost 50% and Ms Benazir’s tenure has still two years to go (at least on paper, if not according to TIME magazine)! At the moment, barring National Bank of Pakistan (NBP), every public financial institution is in a deep hole. NBP is about the only golden goose left and though it has a dynamic chief executive in the form of MB Abbasi and a comparatively small debt portfolio, it is not free from being targeted by motivated interest. The PM’s purported misgivings in her saner moments notwithstanding, our in-house parallel authority has reportedly been interviewing a wide range of colourful candidates for the post on the famous “horses for courses” formula. The criteria laid out for a successful candidate should generally include the fact that he (1) must have a general reputation for honesty and integrity (2) should be competent enough to credibly present the country’s case to the IMF and (3) must be able to render good advice to the government. Political expediencies have special requirements inasfar as the proposed candidates must (a) accommodate his mentor’s wishes without flinching and (b) should not feel shy of compromising his own previously unblemished track record whenever necessary “even to the peril of the nation”. Dr Yaqoob is reportedly a difficult customer to digest in the matter of privatization as well as in the dealing with NCBs (of the UBL and Habib Bank kind) and public DFIs such as Bankers Equity Limited (BEL), Industrial Development Bank of Pakistan (IDBP), etc, therefore the “pliability factor” is of extreme importance as an imperative quality requirement of a successful client-patron relationship.

Dr Yaqoob’s differences with the IMF management rose when he was seen by them as challenging their uncompromising IMF approach towards developing countries and thus causing cracks in that strategy. Dr Yaqoob must find himself at odds with the present economic strategy that should be geared to making a comprehensive change in the tax structure and having a medium term view of the economy. However, critics say he has tended to go in more for micro-management rather than stay with his SBP mandate of macro-management. Monetary policy must be prudent and above all we must be honest in the understanding of the present economic situation. Any effort to defer or postpone radical measures to put the economy on a development course is only an act of political expediency and not one of economic vision. The SBP Governor’s position as one of the prime negotiators with IMF may have been eroded somewhat to the detriment of the country’s interest because of the government’s failure to keep its financial commitment as well as adopting sleight of hand measures such as fudging figures and creative transfer of liquidity. Those who attended the session with IMF negotiators in Autumn last year in Washington when Pakistan was facing a Mexico-type mini-crash remember the forceful authority of Dr Yaqoob in negotiating around the impossible terms put forward by the IMF, getting comparatively “softer” terms for the immediate release of the US$ 600 million tranche.

To quote the SBP Act relating to appointment, duties, etc. of Governor and Deputy Governors as amended by the present regime, to quote para 10 sub-section (3) “subject to the premises of sub-section (11) of this section the Governor shall be appointed by the Federal Government for a term of 3 years and on such salary and conditions of service as the Federal Government may determine, except that neither the salary of the Governor nor his terms and conditions of sources shall be varied to his disadvantage after his appointment”, unquote. Having been appointed on 24 July 1993 for a period of 5 years, it could be argued that the period for Dr Yaqoob expires on 24 July 1998, particularly when he was not freshly re-appointed on 12 Feb 1994. On the other hand, ambiguity tends itself to interpretations by different interests as per their motivation. There are rumours that having the temerity to question the imperious directions of those who matter in the parallel set up, Dr Yaqoob has himself decided to quietly fade away like a good soldier. If the nation is indeed faced with financial apocalypse as some economic doomsday soothsayers predict then he should have gone public with his grievances to preserve the nation’s financial integrity, this personal “escape” is self-serving and does not serve the national interest. On the other hand when some go even so far as to suggest that Dr Yaqoob’s exit is tantamount to financial hara-kiri for Pakistan with respect to dealing with the IMF and other world finance institutions because no other person is available having the credibility wherewithal to stand upto them, the reality is that the country’s graveyards are full of indispensable people.

Naming of some of the candidates being interviewed by the parallel government for the post of Governor SBP would cause embarrassment to the country and one daresays to some of the candidates themselves. Certain characters have not refrained from actively denuding their respective financial institutions of liquidity. To the supreme interviewer it matters two hoots since the prime requirement as far as he is concerned is dog-like obedience of the pliability factor over all other considerations. What we really need in the SBP is a banker who has good administrative experience, some of the bureaucrats being considered have no experience of modern commercial banking and cannot conceivably process even a normal LC (Letter of Credit). Our candidate must give sophisticated intellectual responses to IMF strictures and thus avoid commensurate pressure on economic development strategy, we must have someone dynamic with hands-on experience, not someone who is either past his prime or who ingenuously subscribes to the theory that one can simply roll over the national debt by printing notes. And the printing of currency is an option one can repeat on good authority was indicated not too long ago by the governing authority in the land as a potent panacea for all financial deficit ills afflicting Pakistan’s economy.

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