Deterioration of Financial Institutions
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.
How to Rob Banks, Pakistan Style
The President issued an Ordinance late Friday evening amending the Banking Laws on confidentiality that was preventing the Pakistan Banking Council (PBC) from publishing the full list of loan defaulters including those who had their loans written off. Among the many bold acts of the Caretaker PM uptil now, this has been the most courageous by far. It is a clear indicator that the man means business, Moeen Qureshi’s present initiative can only be exceeded if he makes public the list of drug barons and their contacts in the various walks of life in Pakistan.
Those who are electoral candidates among the loan defaulters have uptil Sept 13 to clear their dues to be eligible for taking part in the general Elections. Since the list reads like a Who’s Who of the elite it is a safe bet that the non-politicians among the list must be cursing the fate that brought Moeen Qureshi to the fore and front in Pakistan. One hears a good deal of muttering about “exceeding his mandate” being bandied about. It is, therefore, safe to presume that this act will not go unchallenged, legally and extra-legally, by those who have plundered the financial institutions at will. The bank robbers committing armed dacoity in Pakistan have not managed to together equal even one-third of the figure written off on “merit”, Rs 1.50 billion, what to talk about the total default of Rs 60 billion, nearly US $ 2 billion.
The Present Scenario
The year 1991 saw a great boom in the stock market in Pakistan. This was a natural result of the far-reaching reforms made by the present government in opening the shackles from the economy. Among other measures, as the restrictions governing movement of foreign exchange regulations diminished, there has been a net inflow of foreign exchange into Pakistan, mostly from Pakistanis living abroad. With growing confidence in the seriousness of GoP to go further down the road to economic emancipation, money that had been domestically hoarded has also come back into the market. With bucketfuls of money being pumped into the acquisition of shares, the stock market became extremely bullish. This has been further accentuated by the wide ranging reforms in the financial market, resulting in the opening up of many financial institutions, among them Modarabas, leasing companies, private banks, etc. Every new offering in the stock market obtains a premium for a unit share, now anybody who has some money salted away (and has the time and inclination) and applies for shares in new public ventures, manages to clear a profit of between 150-200% on his/her original capital if the application is successful in the computerized drawing of lots. In a manner, it is legalized gambling.