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One year in the political life of Nawaz Sharif An objective assessment

In order to complete an objective assessment of the past year, it is necessary to discuss the economic and political sectors along with their social inter-action. In a nutshell the 365 days of the Nawaz Sharif regime has been as eventful as the preceding 20 months of the Benazir rule.

Economic Sector
The economic sector has been the region of Nawaz Sharif’s greatest achievements, fundamental changes have been effected in the system that are both courageous, and far-reaching. To a country suffocating under bureaucratic red tape, the reforms have been breath-taking, an instilling of pure oxygen into the body economic. Revolutionary changes in the Foreign Currency Regulations have been effected in a bid to make the domestic climate more conducive to foreign investment. This most fundamental of reforms was needed to revitalize the economy in allowing free movement of foreign exchange in and out of the country in conjunction with allowing Pakistanis and foreigners to own and freely operate foreign currency accounts within and outside the country. Like Hong Kong and Dubai, Pakistan has thus become a free exchange area. This major step removes the psychological mindset and physical roadblock discouraging foreign investment, particularly the private entrepreneurial skills of private businessmen. Most of our top businessmen have been maintaining foreign accounts illegally, by making it legal a mere technicality has been waived. There are risks manifest in the loosening of such controls, some suspect our currency may end up rapidly depreciating, like in Latin/South America with possible flight of capital. On the other hand our economy is buttressed by strong, positive factors like food self-autarky, a wide range of skilled blue and white collar manpower and an innovative, enterprising populace with an avid and keen approach to commerce and industry.

Allowing foreign companies permission to borrow unlimited amount from local and foreign finance institutions and also purchase shares at will of listed companies on the Stock Exchanges, private limited companies partnerships etc is again an innovative move to revive our sick industries, particularly in the textile sector. Foreign private investors can now conceivably purchase controlling interest in various idle industrial and commercial units at comparatively cheap cost, pump in badly needed capital and expertise to revive their functioning, thereby bringing these units back into the economic mainstream. There is always a danger of speculators taking the money away later to more lucrative ventures in other countries but they cannot physically take away the revived industry. Without the commercial sophistication, technical expertise and cash-flow that foreign entrepreneurs can bring into Pakistan, we cannot hope to compete effectively in the open foreign markets.

Effective March 1, 1991 Letters of Credit (LCs) can be opened up in most cases without obtaining import licences from the Chief Controller of Imports and Exports (CCI&E). This is both a symbolic and physical delinking from the artificial public sector controls suffocating the economy. Rather than unnatural vested-oriented bureaucratic checks, market realities will now govern the imports of a wide range of commodities and items. These may be of individual commercial risk to importers since everyone and his uncle may rush to import a particular item in great temporary demand causing excess supply against the requisite demand and thus commensurate drop in prices. Artificially created favourite-trader monopolies have been destroyed by this option, with credit institutions making a merit-based decision founded on their evaluation of (1) market requirement and (2) profitability. Bureaucratic corruption has bedevilled Pakistan since the creation of the country, growing by leaps and bounds in the last decade, this is at least a significant step to eradicate it. Individual corporate disaster may be more commonplace but in contrast to the great boon to the common man who will have a choice of a variety of freely imported items at competitive prices, this should be acceptable. There may certainly be some danger in the running wild of the economy, our institutions are resilient enough to withstand those extraneous pressures that would imperil our hopes for economic emancipation, particularly because a parallel black economy has been operating in any case.

Plans cannot be complete without making a few other important concurrent reforms in the energy and taxation sectors, given that the communications field is being given due emphasis.

Perhaps the most beneficial agreement in an essentially agrarian economy has been the Water Apportioning Accord. For over 45 years we have been subject to living with ad-hoc arrangements that divided the available water but would not allow the Provinces to plan how to use any surplus if that was available. Horrifying as it may seem, every Province was thus been left with many acres of cultivable land that were lying unused because in the uncertain situation no one could take any decision to cultivate that land. According to Ministry of Water and Power officials, Rs 2 billion is lost annually for every ONE Million Acre Feet (MAF) of water, Rs.20 billion annually. The Nawaz Sharif’s Government prime success is in getting all the Provinces to amicably agree to the Accord, the solution may not be a completely agreeable one for everyone, but at least it is a starting point from where lively discussions are more likely rather than disagreements because the grey area has become limited. There are some debatable issues, viz (1) about the actual quantum of water (2) the likelihood of upper Riparian Provinces drawing their full share even if there is a known shortage in any given year and (3) the quick establishment of an Indus Water Management Authority.

The higher figure of 117.35 MAF used for apportionment has raised fears in the minds of experts about accurate implementation of the Accord. NWFP has got far in excess of its present share on the present ad-hoc basis (and more than either the Akbar or Haleem Commissions had recommended). At the same time Balochistan has gained substantially on a pro-rata basis. While Sindh may have had a marginal increase, the major cutback has been in the Punjab allocation. Instead of giving credit to Punjab for their apparent sacrifice and silent acceptance of it, critics in Sindh and NWFP have raised an unnecessary hue and cry. One finds their only legitimate concern is in the implementation of the award, to allay such fears it is important that the Indus River Water Management Authority be constituted forthwith. In sum total the Federal Government and the four Provinces deserve credit for the Accord. Flaws exist in every agreement, but the nation has a document which has been created by Provincial consensus, which can be improved further in the future without resort to contentious acrimony and endless debate while precious water keeps flowing down the river. There is an ambiguity about whether the Accord clears the way for Kalabagh. No one can doubt the benefits of the proposed Kalabagh Dam to Pakistan, however, the emotions in NWFP and Sindh run extremely deep and threaten to be divisive to the integrity of Pakistan. Some decisions cannot be made for economic reasons alone, Kalabagh Dam must become a closed chapter keeping the unity of the country paramount. However, painful economically it may be, some decisions have to be based on realpolitik.

A notable development has been the National Finance Commission (NFC) Award. This was preceded by the Council of Common Interest (CCI) which had decided the parameters on which the division of funds between the Provinces would be based, the cardinal principle being that the basis of apportionment of revenues from the Central Pool would be the 1981 Population Census and that the Provinces would have full right on the profits accruing from the resources based in their territories. Instead of having to live on handouts from the Federal Government, the Provinces have become financially autonomous, primarily based on their own resources. The centralized control of State funds had led to unlimited corruption and limited development. The basis of revenue garnering should be a direct relationship between taxation, gathering of profits and spending thereof. The Central Pool has been divided 80:20 between the Provinces and the Federal Government, with Punjab getting 53.88%, Sindh 23.28%, NWFP 13.54% and Balochistan 5.30% according to their respective populations in 1981. The divisible pool has been enlarged and estimated at Rs.59.25 billion, thus 80% due to the Provinces is estimated at Rs.47.40 billion, divided in the ratio — Punjab Rs.27.435 billion, Sindh Rs.11.035 billion, NWFP Rs.6.418 billion and Balochistan Rs.2.512 billion.

To the original basis of collection of revenues from income tax, sales tax and the export duty on cotton has been added excise duty on tobacco, tobacco manufacturers and sugar, cumulatively totalling an additional Rs.10 billion. The CCI had already decided that profits on Hydel generation, royalty on crude oil and surcharge on gas would all accrue to the Provinces adding Rs.14.3 billion to the total available to the beneficiary Provinces. The effect of NFC has been to strengthen the resource base of the Provinces thus allowing them to be financially autonomous of the Federal Government. One of the effects would be to allow Provincial Governments to allocate more funds for rural development, concentrating in developing refurnishing the infrastructure for education, medical facilities and transportation while increasing employment opportunities significantly. This will stop the present flow of migration from the rural areas to the bigger cities, thus curtailing the rapidly deteriorating law and order problems in the major urban areas, Karachi being the greatest regret for the unemployed. The villages also lack energy, rural roads, heavy machinery/equipment and other essential services that is the right of every citizen. With the uncertainty for obtaining resources from the Federal Government and the paucity thereof gone, the Provincial Governments will be able to balance their Budgets or make arrangements themselves to increase their resources. While one cannot discount the material value of the NFC award, the more important value has been psychological insofar as the Provinces, which coming into more frequent contact with the average citizen, can themselves solve their problems or give the reasons for not doing so at the basic level instead of holding out an annual begging bowl and hoping for the best.

One of the most important decisions was to go ahead with the privatisation of banks starting with the test case of the Muslim Commercial Bank (MCB). With permission for more banks in the private sector also in the offering, critics advised caution in the MCB privatisation move. The principle of disinvestment was not really contested, of concern was (1) the possible disruption of economic activity by concerted union action (2) the manner in which the Bank was being privatised (3) the price being asked for and (4) the effect on banking services on the common man who is usually the last person a private financial institution would really want to walk in through the door.

A landmark economic decision has thus been taken in transferring the ownership of Allied Bank Limited (ABL) into the hands of its employees. Management and Labour of ABL had banded together to make the Allied Management Group (AMG), GOP accepting their bid at a debatable Rs 70 a share in contrast to the sale of the much more profitable MCB at a bargain price of Rs 56 a share to a Consortium of private entrepreneurs. Over 7,000 employees of ABL have thus become shareholders in a unique arrangement which has all the elements of succeeding. This represents one of Nawaz Sharif’s finest economic initiatives.
The most important factor that needs elucidation (and eulogy) is the formation of the Management-Labour Consortium in ABL. There have been suspicions and grievances about each other on either side, it speaks very highly of the workers that they have imposed faith in their management, it speaks even higher of the management of ABL that they have managed to retain the confidence of the workers. This mutual trust is an awesome responsibility for both, discretion and sincerity have to be exercised in continuing this mutual confidence and team effort into profitability for themselves. On the side of the workers, they will have to exercise restraint in their demands, even sacrificing perquisites to ensure that the Bank remains a viable financial institution. As regards management, they must ensure that their dealings are honest and above board. Any hint of wrongdoing would be economically disastrous, a feeling that management is syphoning off funds or living the life of potentates could bring down this coalition. Khalid Latif, elected head of the AMG, has led his people with great confidence and purpose into a first victory, down the line he will have to take tough decisions to retain their confidence in his ability and integrity. In any management group there are free-loaders whose services have to be dispensed with, in conversation with Khalid Latif one is impressed with his pragmatic honesty and commitment. In the first flush of success, the bank’s workers have pledged a freeze on their salaries and allowances for one year, this spirit of sacrifice must be emulated by executives up the line. This unique experiment is going to be watched by interest by all and sundry including the management and labour of other State-owned enterprises. The rich elite have aspirations for taking over these enterprises for a song along with their collaborators in bureaucracy. While a group of people who would love to see Khalid Latif and party succeed, many who would ensure that they should come to grief. AMG is an economic experiment that has much more than the ownership of one bank at stake, in balance is the whole direction of the economy, a comprehensive master plan for management-worker cooperation in maintaining industrial peace and thus a conducive economic environment for more investment. Cohesive management that can withstand internal and external pressures can only be successful by a judicious juxtaposition between the aspirations of the workers of an establishment in relation to the needs of commercial entity. In this respect one commends AMG in making a bid in contrast to the UBL workers who made a non-serious non-commercial offer for the ownership of UBL.

The phase-wise allotment of 51% of the shares to the employees and the rest to the general public through the stock market has been an extremely wise decision. Genuine privatisation must be broad-based, the concentration of wealth evokes the fear of “robber barons” ruling the roost. As aforementioned, the adversarial relationship between workers and management in Pakistan has been transformed in this entity into a working cooperation. With the masses taking a monetary interest in their success through the purchase of shares in ABL, the correct balance between entrepreneurship and social obligations will be created. As the sorry state of the social infrastructure in the private sector has shown, our entrepreneurs, with honourable exceptions, have not shown any great social responsibilities towards their employees. The public sector has had two great plus points over the private sector insofar as it has provided continued to provide employment even during a recession (albeit at economic cost to itself) and the employees have had reasonable access to medical, transportation, housing, etc (sometimes to the point of abuse to their privileges). Now a unique situation has come into being that extends the responsibility of apportioning socio-economic requirements onto the workers themselves who now have a prime responsibility to make the institution work even if it entails sacrifices down the line. The participation of the masses in share purchase was thus an important formula for implementation of the privatisation concept for the good of the general public. The decision by GOP that the shares transferred to the employees will be non-transferable for five years is also extremely welcome and wise, it discourages exploitation by brokers.

The performance of economies are dependent upon their financial institutions, this is the locomotive that propels the economy forward. In practical terms it creates cash liquidity that can be channelised into working capital or purchase of capital equipment, both for old enterprises and new investments. With the handing over of ABL to its workers a situation has been created where the new entity and the State-owned banks are going to compete with privately owned Banks, the healthy competition will be a tremendous boost for the economy while ensuring better facilities and services to the common man. This was an interesting triangulation where the government has taken a positive step in keeping industry and finance apart. Unfortunately, the recent decision to privatise/denationalise the rendering financial institutions has been less than well received. The Government had to withdraw the offer to sell outright the National Bank of Pakistan within 24 hours because of the adverse reaction. One totally disagrees at the “Garage Sale” of the nationalised government owned units in the manner and mode it has been carried out.

There is a wave of renewed hope throughout the State-owned industrial and commercial sector, the limits of which cannot even be defined economically, the prospects are so effervescent. The hard working management and labour are the best judge of how their enterprises became loss-making, they will be able to rid themselves of any corrupt, indolent and inefficient individuals within their own midst in a democratic display of fairness. Every individual will be confident that his earnings will be commensurate with his input, the jury that will decide this will be that of his own colleagues rather than that his livelihood be made subject to arbitrary justice having no relevance to merit. Motivation is a strong factor in enthusiasm and performance, by creating the sense of ownership, in however small a degree, GOP has rejuvenated worker confidence. If GOP will persist with these policies, then we begin to see hope that merit will prevail over nepotism and favouritism. For the Nawaz Sharif Government this may be small step in ensuring social justice, for Pakistan this is a giant step in economic emancipation.

The Nawaz Sharif Government has set about the Herculean task of reinvigorating the economy of Pakistan with some breathtaking moves, frankly speaking beyond the wildest dreams of the most optimistic of those committed to the free enterprise system. This government has done its homework on its predecessors well, making sure that the economic mechanism of the State is under firm political control. The Minister for Finance is not just mere window-dressing for bureaucrats, his utility is not confined to supporting only his own individual interests. Instead of surviving as a front man, the usual role of Finance Minister, Sartaj Aziz knows his job and the authority that goes with it, using that authority to formulate and cobble together a pragmatic, action-oriented policy and then making sure that the bureaucracy supports the implementation thereof to the exclusion of vested interest. While destiny, perseverance and the PPP’s ill-conceived persecution had a part to play in bringing Nawaz Sharif to the PM’s chair, he is extremely fortunate in having the finest Finance Minister that this country has ever had. Unhampered by the need to indulge in any self-propagation, the unassuming self-effacing Sartaj Aziz has carried out the most far-reaching reforms in the economic history of Pakistan. An inefficient and corrupt system that had eroded our economic future and threatened to drive it into oblivion. These have been revolutionary reforms. Bold steps have been taken to change the entire moribund infrastructure strangulating our economy, that it has been managed to overcome the red tape of a recalcitrant bureaucracy has been managed without the democratic government self-destructing is a virtuoso performance for which no plaudits can be enough for his Finance Minister.

Objectivity is often lost in the Third World by not being fair. Ms Benazir certainly left the economy in better shape in August 1990 than when she inherited it in December 1988 but the elected IJI Government got it in a far worse shape in November 1990 than when the PPP Government left it, mainly because of the interim Gulf crisis. The basic difference is that Ms Benazir’s economic handlers seemed not to want to tinker with the system, floundering at the altar of political expediency and sheer timidity, as such their achievements were limited. Instead of practical surgery, Ms Benazir kept using doses of remedial medicine. Nawaz Sharif’s Sartaj Aziz has had full political blessings to go full speed ahead with revolutionary economic changes, betting the survival of the government on the economic amelioration of the masses instead of relying on the whims and penchants of the gnomes in bureaucracy who have shown how adept they are in the overthrowing of governments not conforming to their taste.

Nawaz Sharif had two options in dealing with the economy viz. (1) consolidate and effect cautious reforms spread over a period of time or (2) effect a series of revolutionary changes to revamp the whole infrastructure. If he had adopted the first course, he may have been as successful as Ms Benazir in making some gains but given our many economic handicaps problems that would have meant simply keeping pace with our problems, the equivalent of standing still. To ensure that more was done than just remaining content at not losing ground, Nawaz Sharif had to adopt the second course. Whenever revolutionary reforms are enacted, there is always fear of backlash and reaction to the changes. The road is one of calculated risk with a bunch of bureaucrats waiting in the wings to set a series of ambushes, that Nawaz Sharif set a former bureaucrat to be his Finance Minister shows that he did not discount the power that bureaucracy wields and that Sartaj Aziz was uniquely qualified to find his way through the economic minefield laid out by them. On balance, the Nawaz Sharif Government would have come out with an As for Effort and Achievement if it had not been for the Coop Scam.

Politics and economics are irreversibly intertwined, one has no substance without the other. Given the track record of IJI in economic affairs, the Nawaz Sharif Government should be politically stable, yet it is in the area of their greatest expertise that the government is mired in trouble. The reasons can be traced back to the first years of the last martial law when a new breed of white collar criminals discovered an extremely sophisticated way of making easy money from the gullible masses by establishing illegal investment companies, giving out large sums as “profit”. We are now in the third scam period of the illegal finance companies in the last decade or so, this has the potential of destabilizing this democratic government. For any country, the collapse of an elected administration is always a tragedy.

Profit generation is the essence of any commercial enterprise, the actual percentage varies greatly from business to business. The minimum return expected is 15%, around 25% profit is considered to be a very healthy return. A return on investment of more than 40% per annum is exorbitant, in Islam there are specific injunctions against usury and profiteering. However, that is the way of the modern world of commerce and enterprise, the making of exorbitant profit is now the done thing to survive as successful business entities.

Commencing a year or so after the 1977 Martial Law, there have been three distinct periods when the general public have been fleeced of their hard earned savings by the temptation of receiving a guaranteed high interest. This exploitation has been possible by the unscrupulous because of a number of reasons, not the least among them the enormous black money in kickbacks in the hands of government servants, the repatriated funds of our expatriates and the commuted pension of our ex-servicemen and other pensioners on retirement. This has been further bedevilled by the wide gap between the lifestyles of these aforementioned categories in the villages, towns and cities in Pakistan and their less fortunate neighbours, leading the neighbours to aspire for quick returns to keep up with the Joneses next door.

This aspiration of the general public for quick profit was a heaven-sent opportunity to the God-less, looking to exploit ignorance and greed to their unholy benefit. The tactics used did not require any great genius, more shocking has been the knowledge that the nouveau riche, the middle class and pensioners are so gullible (and so greedy). The sponsors of the finance companies had no intention of doing honest business, they very well knew that in this day and age, a constant generation of interest as high as 40% (or more) was impossible. This “pyramid” game has been played with only one deadly purpose, to defraud the unsuspecting and the innocent, it being taken for granted that the clever and the cunning would not be that foolish. As such, the victims have been relatively harmless people who find themselves twice bitten, sustaining injury due to losses of their capital and embarrassed in looking like dumb clucks.

The fact that the perpetrators of this fraud had premeditated malafide intentions is an important consideration when deciding upon their punishment. This scam has now happened thrice and at least twice has been the subject of investigation. One must wonder why no one was ever brought to book, leading to the conclusion that the culprits were quite rightly confident that they were immune to any enquiry or prosecution. There was substantial blatant evidence on record, there being so many victims that it would have taken blind men not to notice the malfeasance. One can only conclude that the “catchers” were paid to ensure that the enquiries remained inconclusive. Before attempting another enquiry unto the latest round of financial scandal, one must investigate which of the investigators were involved in earlier enquiries and ensure that they are not in a position to influence future enquiries, the catchers must first be put into the rye.

Various newspapers and magazines have recently come out with fantastic figures of loans obtained by senior political personages of the present Government from the defaulting cooperative finance companies. One must caution here that the taking of loans from the cooperative finance companies does not necessarily constitute a crime by itself but on the other hand these cooperative finance companies have certainly committed a crime by acting as a lending institution in clear violation of the Banking Laws. As such there is prima facie evidence of misdemeanour against them. Next, we must establish is whether the cooperative finance companies gave the loans on a fixed interest-basis to the recipient of the loans, this would be contrary to Islamic Laws, usury being taken as an unacceptable crime in Islam. In the last stage, an internal audit can disclose whether the interest being given to the depositors was in excess of the interest being obtained from the loanees. If so it would mean that a favour was being done to the recipients of the loan as a barter for some government consideration, it would be a “smoking gun” pointing to fraud on the part of the finance company, malafide intentions and misuse of government authority on the part of the recipients of the loans.
While any enquiry must be a due process of the law, the social factors to consider must be the state of disappointment, mental anguish and frustration among the affected that has led to social disorder of sorts. A large number of people who put their money into these deposits are ex-servicemen and civilian pensioners, almost 90% of them are of the junior-most cadre. Tempted by the dangling of publicised disclosures of regular high profit gains in front of them by motivated (and even innocent) persons in each village, town and city locality, people rushed to deposit their life-savings to take advantage of this largesse from heaven. While this scam was going on, the intelligence agencies surely must have fed information up the ladder to the highest reaches in the land. It had become common knowledge that a major fraud was in progress and their silence seems increasingly like abetment. For those in power this is the third time that lightning has struck while they have been in positions of power. The question arises, why was nothing been done to stop this great scandal? Those who are the guardians of the law have a special responsibility to society, that some of them may have become entangled in this morass, whether advertently or inadvertently, is inexcusable and raises another question, that of the level of morality in the exercise of administrative responsibility. Unfortunately, the fingers point to culpability on one or more issues and erosion of confidence in their credibility to deliver justice according to the laws of the land.

To compound all this, instead of bringing the errant companies to task, there are rumours of an attempt being made to bail out these fraudulent finance companies by massive infusion of funds from the nationalised and newly “privatised” banks directly and indirectly. This is not only throwing of good money after bad, it is denuding the entire banking system in Pakistan of liquidity at a crucial period in our economic life. It is not being done in the public good but in the individual good to save individual financial empires and individual positions of authority in the Government. One must repeat here the taking of loans for commercial or industrial use is not a crime by itself but the cover-up of what has become common knowledge is raising questions about the propriety of how such loans were disbursed, on what considerations and the way they have been utilised.

The results of the economic reforms over the past year will be more apparent in the years to come. This has been an outstanding achievement, in the economic situation that we had been thrust in during the Gulf crisis it required courage to take the necessary institutional reformatory steps to loosen bureaucratic control over the economic life of the nation rather than opt for stop-gap temporary intervention. While one agrees totally with deregulation and privatisation, the method of carrying out denationalisation and privatisation needs rectification as it should be more people-oriented in the Thatcher-mold as well as worker-oriented to ensure robber-baronism does not return to torment the people of Pakistan. Unfortunately at the moment it is being seen by the masses that the “goodies” are being dished out to the chosen few, the streets might well react with unrestrained venom.

Political Sector
In sheer contrast to the glow in the economic field, Nawaz Sharif is in deep political trouble as the political roller coaster ride of the last 365 days suggests. The people need a stable law and order situation, even more they require that justice should not be denied to them. Given that the IJI Government has an overwhelming Parliamentary majority and that two contentious politico-economic issues, the NFC award and the CCI are behind us, the political morass that we are thrust in is largely due to emphasis on a wrong set of priorities and faint-hearted tentative political initiatives, particularly the lack of will in the building of democratic institutions. Since the PM’s grounding of political life has a narrow base in time and experience in contrast to his business acumen, the wide gap in the two sectors is not surprising. Given that he has had two tough years of political sandblasting before he ascended the hot seat, one would have expected him to be more sensitive to the needs of the masses which form his political base rather than resort to lip-service rhetoric only.

Among the major reasons used to sack the Ms Benazir Government in August 1988, three which stood out as casus belli were endemic corruption, gross misuse of power and failure to tackle the law and order problem in Sindh. Less than a year later, an evaluation will show that some of the personalities may have chan

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