The Effect of Nepotism
Corruption is the main side-effect of nepotism. The moment we negate merit as the only touchstone for selection, the seeds of corruption are well and truly sown. In developed countries democracy ensures selection, appointment and/or advancement on the basis of merit. Unfortunately the worst form of nepotism was practiced by our so-called “democrats” when in power. Democracy is meant to ensure that merit alone is the arbiter of success but our “democracy” was not accountable and when a system is not accountable it is to be expected that patronage will be rampant on a wide-scale. Because of this lack of accountability in Third World countries the situation is perverse, democracies tend to reward favourites, that in turn makes the system tailor-made for corruption. When any authoritarian rule substitutes democracy, the major reason usually given is to stamp out the nepotism and corruption. In the initial euphoria of correcting wrongs, an authoritarian system does fall back on merit. Only when things settle in place the client-patron relationship takes over and things go back to being far worse than in any democracy.
How have the institutions of this country been corrupted? Mainly by installing favourites without merit, in decision-making positions. Those unworthy of selection then proceed to run riot in the institutions at all levels, bending the rules to accommodate their favourites in turn, in time the whole institution becomes rotten to the core. Lacking ability or management capacity, those without merit have as their primary aim and function the lining of their own pockets and/or living high at the expense of the institutions. Obviously this cannot be done without ensuring the appointment of hand-picked cronies in key decision-making slots. A cycle of nepotism is created which deepens the corruption psyche. Even if the person appointed without merit is not corrupt, which happens from time to time, the lack of efficiency, knowledge, experience, managerial capacity, etc encourages others down the line to indulge in corruption, secure in the knowledge that ignorance and incompetence of their superiors will prevent any discovery, a built-in inferiority complex preventing those in power from exercising their authority as it should be used.
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.