A Third World Econo-Realist
Dr Ishrat Husain, Governor, State Bank of Pakistan (SBP), who retired in early December 2005 after completing two consecutive and eventful 3 year terms, has been a fascinating study from various vantage points in both my professional and personal capacity, viz being a Director on the Board of a publicity listed financial institution, as a weekly columnist writing on economic, commercial and geo-political matters, and as a friend, A comparable financial intellectual in Pakistan of similar absolute integrity is Dr Abdul Hafeez Shaikh, the Federal Minister for Privatization and Investment. As Pakistanis of good standing, they are both also human beings of some substance; what is really endearing is their humility. Such men are destined for greatness for their country and themselves, provided they are given the chance to do so and not slotted into corners of no consequence.
Dr Ishrat Husain was given the chance by Pervez Musharraf and he grabbed it with both hands, the country is a better place economically because of it. The banking sector, which saw two banks privatized in the early 90s, was still relatively closed in 1999, Dr Ishrat Husain’s steady hand for change put Pakistan’s banking sector reforms far ahead of other developing countries, including newly emerging giants like China, and even India. To quote ex-Senator Sartaj Aziz, formerly Secretary General Pakistan Muslim League and an ex-Federal Minister for Finance, as well as Foreign Affairs, “his contribution has not only been to consolidate and extend the banking reforms in 1997, but to transform the banking culture to the way for the common man’s access to credit and at the same time to stabilize the financial position of the banker”, unquote.
Dr Ishrat managed excellent inter-action with the business players in the country’s economy, big and small, without demeaning the stature of his office. The open-door policy was highly successful in bringing a culture change to the primarily closed-door image of the SBP, engaging the intelligentsia positively in both the urban and rural centers. While one should certainly credit his predecessor Dr Muhammad Yaqub for initiating some of the changes in SBP and in its regulatory functions, Dr Ishrat brought about far-reaching reforms in a low-key but firm manner.
Physically a small man, he is a bundle of unbridled energy, always on the go. A constructive workaholic, Dr Ishrat succeeds in exploiting human resource potential to the full, confident in the integrity of our people, and their resourcefulness. He believes in open debate on various issues and involving the stakeholders in resolution of contentious issues. Throughout Dr Ishrat remains very cool and unruffled. In handling a particular human aberration, he took time out to explain the correct (and mature) modus operandi even while agreeing with me on some of my observations. If you can convince him about something he already has a point of view on, he will change his position. For a person of such knowledge and experience to acknowledge that he could have been mistaken by itself is a sign of self-confidence. His humour helps, as is his ability to laugh at himself.
Dr Ishrat practices what he preaches, always advising patience in suffering the arrogant and/or the stupid and/or the crooked, he has no ego problems. When researching some facts I came across some really “interesting material”, I was surprised to learn that he already was aware and briefed about it, but advised caution in handling the issue, in line with the “greater public interest”. In matters of malfeasance he has been ruthless in exercising his authority to surgically remove that recalcitrant individual.
Appointed Governor State Bank of Pakistan (SBP) on Dec 02, 1999 Dr. Ishrat Husain’s lead role in the revival of Pakistan’s economy got him recognition in January 2005 by the “Banker” magazine of London which declared him as the “Central Bank Governor of the Year” for Asia. During his longish-stint with the World Bank, Dr Ishrat Hussain did a whole range of important assignments, viz (1) Director managing the World Bank’s relations, programs and policies with Central Asian Republics (2) Director, Poverty and Social Policy Department and (3) Chairperson of the World Bank’s Public Sector Group. Serving as Chief Economist for Africa during 1991-94, he went on to become Chief Economist of the World Bank for East Asia and Pacific region, focusing mainly on China. He helped develop the strategic approach to Latin American debt problems as Chief of the Bank’s “Debt and International Finance” Division. Serving the Bank’s Resident Representative in Nigeria he assisted the country in formulating its Structural Adjustment Program (SAP) of 1986. Dr Hussain also designed the Bank’s program to support Ghana’s Economic Reform Program.
Joining the Civil Service of Pakistan in 1964, Dr Hussain served in senior management positions in both “Planning and Development” and “Finance Department” of Sindh Government and as Additional Deputy Commissioner (Development) in Chittagong, East Pakistan (now Bangladesh). Member of the Government of Pakistan’s panel of economists for their five-year Development Plans, Dr Husain’s many books include “Economic Management in Pakistan 1999-2002” and “Pakistan: The Economy of an Elitist State”.
Previous Governors SBP did try their best to stem the rot eroding the financial credibility of the banks and the viability of the economy. His immediate predecessor Dr Muhammad Yaqub, a person of great integrity, despite serving during a period of “democracy” was hampered in not exercising the same independence. As Governor SBP Dr Ishrat achieved quite a few major financial targets, viz (1) Prudential Regulations defining the responsibilities of the Board of the Directors (2) excluding from office those who do not fulfill the criteria laid down for Chief Executive Officers (CEO’s). In one particular case considerable pressure was applied but he stood his ground and did not allow these individuals to come on to the Board (3) prescribed Minimum Disclosure requirements (quarterly and yearly) for banks (4) family representation on the Boards has been limited to 25 percent with remaining Directors independent non-executive non-family members (5) Securities & Exchange Corporation of Pakistan (SECP) Code of Corporate Governance has been applied to banks/DFIs (6) Conflict of Interest Rules have been explicitly laid down barring stockbrokers, money-changers, etc. and all those having any potential conflict, from becoming involved in the management and oversight of banks. (7) Compiled, published and disseminated a Handbook on Corporate Governance for Bank/DFIs containing International Best Practices and SBP’s Instructions. (8) Continually reviewed Corporate Governance requirements for Banks/DFIs in line with internationally recognized best practices. (9) Screened, categorized and rated external audit firms for auditing financial institutions. Wherever deficient, he de-listed or even black-listed them.
The impact of these measures on Pakistan’s financial sector could be summed up in his own words in a lecture delivered earlier this year, viz (1) Market players were disciplined (2) risk Management improved considerably (3) Quality of Board Members and Chief Executives took a turn for the better (4) Ingredients of a stable banking system are taking roots (5) Self-Regulation is beginning to take shape, barring where old habits and practices diehard. Nevertheless the opportunity for malfeasance has been considerably cut down.
One is always wary of Harvard-models for the economy shoved down the throat of third world nations, making the rich richer and the poor poorer. Dr Ishrat has been a refreshing discovery in that he did not forsake the Harvard-model but adapted it to third world conditions, in our case specifically to the Pakistani environment, with practical initiatives instead of theoretical ones. Instead of self-glorification of non-achievements through manipulating the print and electronic media, Dr Ishrat is someone who did something tangible for his country. For keeping his feet firmly on the ground in husbanding Pakistan’s economic realities through difficult times, one would rate him as one of the foremost econo-realists in the third world.
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