First Major Blow for Accountability?
On March 22, 1994, the State Bank of Pakistan (SBP) took significant action to restore the credibility of the Pakistani banking system by removing the top management of Mehran Bank and replacing them with an SBP-appointed Chief Executive. At the same time, FIA arrested the real owner of the Bank, Yunus Habib. To support the case against this gentleman, the Governor SBP laid out the findings of a Committee headed by a Deputy Governor of the Bank, viz. (1) Mehran Bank had been repeatedly violating the statutory liquidity requirement by failing to maintain the liquid assets as provided under Section 29 of the Banking Companies Ordinance 1962, (2) Mehran Bank had been extending loans and advances far in excess of the credit limit set by SBP in clear violation of SBP directions, (3) Mehran Bank had been issuing false certificates in various areas, (4) the management in clear violation of commitments, had given liberal export refinance to defaulters, and (5) the Mehran Bank has committed a breach of trust by not depositing rupee equivalent of US$ 36.7 million (Rs.1.1 billion) to the SBP against the sale of Dollar Bearer Certificate (DBCs) within the stipulated time frame.
On Feb 1, 1994 in an article in THE NATION entitled “DETERIORATION OF FINANCIAL INSTITUTIONS” we wrote that, “The overall environment is one of lack of accountability. In this wild-west atmosphere financial cowboys ran riot. One esteemed gentleman as Provincial Chief of a major NCB advanced hundreds of millions of rupees to fake companies owned by his associates. When this was discovered and he was removed from office, he twice made a comeback on the strength of pressure from authoritative quarters. Instead of being brought to trial he was “permitted” to “honourably” resign. Subsequently he was given permission to open a private bank by the Nawaz Sharif Government, to the credit of SBP they refused to let him become either Chief Executive or Chief Operating Officer, this restriction being made on the basis of the SBP reference to his original bank. However, it is widely rumoured that he is on his way back into the financial corridors of one of the remaining NCBs, this is certainly not on the basis of his reputation but on other “considerations”. He symbolises a pattern of survival manifest in all those engaged in malfeasance, these men are good for conducting financial mayhem in all political seasons”, unquote. Continuing to record the saga of this gentleman in an article entitled “Money and Power”, in THE NATION on Feb 15, 1994, to quote “With bureaucracy letting control slip somewhat to some politicians, a new class of senior banking executives ran riot in the wholesale plunder of the banking system in collaboration with them. If any non-governmental organisation (NGO) with investigative experience is given a mandate (and an incentive as bounty, say 10% of the plundered total they manage to locate), Pakistan’s financial coffers can be refilled dramatically. Excellent data may also become available to the Income Tax and Wealth Authorities e.g. the gentleman who plundered over Rs.4000 million from the banking system. The present modus operandi has become so blatant that people of known dishonesty are increasingly put into control of some financial institutions with impunity, their lack of credibility and reputation makes them insecure and thus totally dependent on their masters for their continued existence, a solid insurance for their continued loyalty. Even the last bastion of financial integrity in the country, the universally esteemed State Bank of Pakistan is now under attack”, unquote. While one must not condemn a man without giving him a chance to have his say in court, the fact of the matter remains that Yunus Habib’s financial misdemeanours were widely known throughout the Pakistani banking system. How ISI’s foreign exchange funds came to be parked in Mehran Bank is another story that one may not press for media disclosure in the national interest but why was Mehran Bank reluctant to part with the ISI’s money and where did it get the courage to hold such powerful institution as the ISI ransom? Enough smoke exists to focus on the source of the fire in a closed-door enquiry.
The Acid Test of Disinvestment
In the face of one of the most far reaching economic decisions of the last two decades, that of allowing commercial banks in the private sector, the Nawaz Sharif Government has simultaneously decided to go whole hog for disinvesting the Nationalised Commercial Banks (NCBs), using Muslim Commercial Bank (MCB) as the guinea pig. Leaders of Third World countries are known to usually try and search for windmills off the beaten track to tilt against, another sorry example of negating an excellent decision by a bad one. The NCBs must compete in a free financial market atmosphere and if they fail to stand the heat, to die a natural death by themselves. Given that Mr. Sartaj Aziz has stated that a comprehensive economic reform package revolutionizing Pakistan’s economy would be announced in 6-8 weeks, this unholy, unseemly rush to offload a commercially viable NCB from public sector aegis becomes more mystifying, to say the least.