Economic Perception and Reality
Blessed with a bountiful supply of economy-sustaining resources, the country’s economy has been successively mauled by a cabal influenced by Harvard Business School model theorists, populist leaders charmed by the romantic socialist economic notions of the 50s and 60s and commercially ignorant bureaucrats bent upon imposing their Kafka-esque will on the economic destiny of the nation. We happen to have one of the most resilient economies in the world. It had to be in order to survive some very destructive economic Rasputins over the years. Notwithstanding the fact that we Pakistanis love to run ourselves down, the economy is certainly in better shape than 3 years ago.
Loan Default
The State Bank of Pakistan (SBP) had to invoke on short notice little-used sections of the Banking Ordinance to change the management of United Bank Limited (UBL). Great fanfare had been made about UBL being privatised. Government of Pakistan (GoP) had already accepted an offer from Saudi Basharahill, a little known company owned by Saudi magnate Dr. Basharahill, capitalised at ú 2000 in an off-shore UK tax haven. For reasons suspected but not really known, the UBL privatisation deal seems to be in doldrums and SBP’s drastic action, ostensibly on behalf of GoP, seems to be a desperate move not only to shore up UBL’s defences against depositors’ run on the bank that was gathering momentum but also to divert attention from the privatisation debacle. Despite UBL being systematically looted by its own managers and by its powerful Union over the years, the strong foundation and inherent strength of the bank had ensured that the bank remained profitable till 1993. With the advent of the Ms Benazir regime, a sustained campaign began to induct only “loyalists” into the UBL hierarchy without any thought given to their integrity and competence or its adverse effect on UBL’s credibility as a financial institution. The appointed functionaries started dishing out questionable loans that far exceeded mismanagement and malfeasance (M&M) pre-1993. Haemorrhaging badly, UBL was put on the auction block for privatisation in what really amounted to be a rather motivated fire sale. That the whole edifice of cards was bound to come down on detailed scrutiny was a foregone conclusion that only the most optimist of GoP’s decision-makers could have been hoping to camouflage and/or avoid.
Pakistan’s Nationalised Commercial Banks (PNCBs) and Development Finance Institution (DFIs) are suffering from chronic bank default. If UBL is seen as an offender, it is only because privatisation has brought it into focus. Default has been taking place for over two decades. Probably the worst case of financial bungling may be in Habib Bank Limited (HBL) where excesses by banking executives, both professional and non-professional, reached such alarming proportions that in comparison Younus Habib (remember him) seems to be a petty thief. Once this scribe himself approached VA Jafarey to intercede in what was clearly an outrageous scam by the present bank management, Younus Dalia included. VA Jafarey, PM’s Advisor on Finance replied he could only advise the Pakistan Banking Council (PBC) to look into it but was powerless to take any action himself. With such toothless tigers in charge of financial monitoring, what does one expect? Put VA Jafarey out to pasture and/or put him out of his misery. One hopes that the saying “the bigger they are, the harder the fall”, does not come true for Pakistan’s biggest retail bank. National Bank of Pakistan (NBP) seems to be in a healthy state but figures (like appearances) can be deceptive, only time will tell whether NBP is doing as spectacularly as M B Abbasi is professing or whether the media projections are just another window-dressing for poor banking practices that may have fooled all (including this scribe) into glorifying him personally. As far as the DFIs are concerned, the lesser said the better, almost all of them are in trouble of some kind or the other due to loan default. Some like the NIT, ICP and NDFC are facing a liquidity crunch in being caught up themselves in the share market whirlpool or in trying to bolster a sagging share market on behalf of GoP.
Magic Wand or IMF Stick?
What others would not attempt in a lifetime, Moeen Qureshi’s Administration has carried out in less than eight weeks. MQ has had the courage to face upto problems affecting the lives of a majority of the Pakistanis in supersession of the motivated interests of a privileged and elite minority, a class act by any standard of measure.
Some Days in May
The indications are that the Caretaker Government has weathered the immediate financial storm that arose out of the Presidential dismissal of the Nawaz Sharif regime and the dissolution of the National Assembly. After a staggering first week when banks had to import US dollars to meet the rush of depositor withdrawals, the run has been stemmed. Except for those panic-stricken in the wake of the make-up of the Caretaker Government, the rest took notice of the repeated pronouncements of the Caretaker Finance Minister that they would continue the liberal policies of the Nawaz Sharif government. While decrying the Singer, this amounted to support for the Nawaz Sharif Song of the three D’s, Deregulation, Disinvestment and Denationalisation. This was a pragmatic acceptance of the obvious, that the policies annunciated by Nawaz Sharif would lead to the economic betterment of the nation and his far-reaching liberal reforms were starting to permeate into society on a broad front.
The fact that the economy has remained stable after surviving such a shock and has not continued to erode is because of the resilience of Pakistan’s economy, primarily because of the parallel economy that still persists in elongevity and secondarily due to the building up of investor confidence in institutions rather than individuals. As such, Nawaz Sharif, in a perverse way, has helped to stabilise the present Caretaker government, they are reaping the benefits of his courage and far-sightedness in unshackling the hold of the bureaucracy on the economy. What has been done in the way of reforms cannot be immediately undone. Market forces, rather than government instructions, have created an in-built resilience. Recognition of the obvious by the Caretaker Government meant that they shied away from being labelled as Undertakers of the economy, what could have happened if the situation had been handled less adroitly is open to speculation.