Money Matters

75 years in retrospect

Money Matters
By Sirajuddin Aziz
Mon, 08, 22

The Nation celebrated the 75th year of its founding. This piece would be published, depending on available space. The thought I want to develop here is that the contents of this piece will fall easily into place and will resonate with the readers because the night before we would have amply demonstrated and witnessed what kind of a nation, we are!

75 years in retrospect

The Nation celebrated the 75th year of its founding. This piece would be published, depending on available space. The thought I want to develop here is that the contents of this piece will fall easily into place and will resonate with the readers because the night before we would have amply demonstrated and witnessed what kind of a nation, we are!

The gong of 12:0am would have been adequately met by the sound of gunfire (guns of all types), across the length and breadth of the country. Thanks to the Zia years, we have learnt the most violent way to convey, we are happy. Jubilation is now equated to how long it takes past midnight for the guns to go silent. There is nothing wrong with celebration, including some revelry, but to indulge in indiscriminate aerial firing that on many occasions costs loss of precious innocent human lives, is not representative of the ideals, upon which the country was founded. We kill a part of Jinnah's Pakistan every year on such occasions, through indiscipline, disunity and with faith in tatters.

In writing this retrospect, the intent is not to showcase social ills of the society, but to review the development of economics, business, management practices and governance. In doing so some tracing of the changes in attitudes and behaviour is necessary to develop the perspective.

I recall my school years of the late sixties and early seventies, when on Independence Day, we would still attend school, albeit for a few hours, to be part of the flag hoisting. It was followed by the National Anthem that would be sung with incredible passion, which could tear a chord in the hardest of hearts. This used to be followed by speeches, debates, distribution of prizes for making a mark in extracurricular activities; and the icing used to be the speech by the Rector, who would invariably trace the struggle for independence, and would with heart and soul exhort students to adopt the ideals espoused by the Quaid, with slogans like, Unity, Faith and Discipline. (The narrow minded in later years even distorted the arrangement of these words). We would then be given a packet, containing chocolates, with a lapel pin of the Pakistani flag that we would proudly flaunt, by pinning it to our school uniform shirt for the whole month of August. All this has changed; not for better.

These activities are now replaced with motorcyclists who to celebrate the Independence Day, drive their scooters that are devoid (deliberately) of silencers, in all the cities and towns-- they indulge in reckless acrobatics (with no sympathy for their parents) --- their skills qualify them to drive the scooter in the well of death, in a circus. This youth is the future of our Nation.

In 1947, our exchequer was empty. In the distribution of assets and liabilities, India short changed us, in fact, besides Kashmir, the receivable from India is part of the unfinished agenda of partition. Most industries were located in India, we inherited very few functional industries. We were cash strapped. During the initial years we used the same currency as India. In meeting the obligations of the state, we desperately needed cash. Two individuals, who stood out to support us were, the ruler of Hyderabad State, The Nizam, Mir Osman Ali Khan and Raja Sahib of Mehmoodabad, of Lucknow. They generously doled out cash to the newly independent Pakistan. The First Governor of the then newly formed State Bank of Pakistan, Mr Zahid Hussain, had worked with the Hyderabad civil services in very senior capacities and hence had deep links; as regards Raja Sahib, he was more like a son to the Quaid. It is recorded in history that an Englishman pilot, Sidney Cotton, would fly out of Hyderabad at least twice a week, with a plane load of cash to Karachi. He would keep his altitude very low to escape the bleep on Indian radars.

Pakistan was unfortunate to lose besides the Quaid himself and Nawabzada Liaqat Ali Khan, many founding members of Pakistan, in the very first few years. India on the other hand had continuity with Jawahar Lal Nehru, presiding, alongside stalwarts like Vallabhbhai Patel, Dr Rajendra Prasad, Maulana Abul Kalam, etc. In them India found political stability, which allowed them to focus and develop a sound economic base. Pakistan was struggling for political stability.

Under Nehru’s leadership, India adopted the socialist economic model, Pakistan went and adopted unfettered capitalism. India had successfully implemented its five year economic plans. With unrestrained capitalism, Pakistan soon found concentration of wealth in the hands of the few. It is then that Dr Mahbubul Haq is credited to have coined the infamously famous, term, of “22 Families”, who had managed to gather control over almost 87 percent of total assets, including banking and financial assets, in a very short span of time. Undoubtedly during late fifties and the decade of sixties, Pakistan made great economic progress. Several industries were set up. The state formed specialised financial institutions like Industrial Development Bank of Pakistan, PICIC, Investment Corporation of Pakistan, etc to boost manufacturing, and to grow the capital markets. Long-term funding requirements were made available through these specialised institutions; no commercial bank was called upon to lend long-term.

Political upheaval during 1969-1971, created economic havoc. Following the miserable and heart wrenching break up of our country, we lost East Pakistan and with it a lot of export-based industries. We took the socialist route, immediately thereafter, once Zulfiqar Ali Bhutto, assumed office in Islamabad. A long lasting damage was done through the nationalisation of key industries, including banking and finance. Capital flight took place; investors’ confidence was shattered. Soon labour unrest followed, hitting productivity levels to their lowest.

In fairness, the malaise in the banking and financial industry did not set in during Bhutto’s rule, it was Ziaul Haq who politicised the industry. Political appointees and political loaning was at its peak, that ultimately led to Himalayan inventory of non-performing loans; regrettably, most default was deliberate, and not necessarily the outcome of changing economic conditions.

During the Zia years, while the economic growth was consistently high (5-6 percent), yet there was continuous simmering, demanding greater economic and political freedom, that eventually was gathering momentum. Nature removed Zia from the scene.

The elections that followed brought Benazir Bhutto, who despite her amazing popularity had no economic agenda to deliver. She was removed through political machinations.

The period, 1992-1999, saw the musical chairs political drama, played out at Islamabad, which kept the nation entertained, but at a huge cost to the economy. The presidents, liberally used article 58-2b to keep packing off governments on charges of corruption, with and without convincing or incriminating evidence of misdeeds.

The freezing of foreign currency accounts, following the nuclear detonation, served as a final blow to investors’ faith in the commitment of the government. Illogical move to remove the army chief whilst he was returning from an overseas visit, paved the way for imposition of yet another Martial Law. The initial years of the military regime augured well for the economy of the country. With the new world order in place and the war on terror, Pakistan made good strides in privatisation. The economy prima facie was doing well, but then President Musharraf got himself entangled with the vile political culture, which led to his Waterloo.

Since then the economy is struggling and political stability is at its lowest ebb. The past four months have given us more economic woes and misery. The road to recovery remains far and distant.

On the corporate side, there has been some good in terms of adopting international best practices. The regulatory environment is more stable and strengthened. The “Seth culture” although on decline, still persists in certain economic segments. The fundamental wrong with the “Seth Culture” is of attitude. The owners believe that they alone are blest to “think”. So they hire, mediocrity, since they have to be doers, not thinkers. This stifles growth of the horizon of thinking. Boards with family domination exist still, the condition of having independent directors, in spite of requirements, is yet to be fully established, for serious implementation. The loose interpretation of related party is usually used out of context. The requirement of female directors on the boards has been instituted, but it is more cosmetic, than real. It is hoped that independent directors will be more on the boards then non-independent, as we progress. The promising aspect is to have directors, who are certified by independent bodies, together with this, is the requirement to have directors, with special skillsets, like sound understanding of finance, risk, IT, etc. These regulations over long-term will bring around higher and better standards of good governance.

The education sector has been victim of utter neglect, by the government. We have an army of graduates and postgraduates, who need education... That’s the kind of decline in the overall standard of education. This impacts the economy of the country and in the long run it hurts very badly... and we are witnessing it now. We have failed to create institutions in the shape of MIT’s--- India on the other hand, has so many such institutes, the Kanpur IT, Hyderabad, New Delhi, etc. We as a society accepted illiterates as governors of provinces, who by virtue of this office also become chancellors of universities, which shows the attention and importance we gave all these years to higher education. There is so much to do here.

Economic policymaking has never been our strength, at least, on the counters of implementation. Since there has been prolonged political instability for 75 years, there is no consistency in economic goals and plans.

Every new occupant in Islamabad brings a new recipe for economic plans, with each being worse than the previous. Even today, we are rudderless and the only rudder is the IMF or the “bowl” we place at the door step of Saudi Arabia, UAE, and Qatar, etc.

The thought to ponder is can we give a different direction to the country in the next 25 years, that's when we shall be observing the 100th anniversary of our founding? Do we have the talent, the vision and the resources? The answer to all of this is a resounding and loud “YES”. We just need to get our act of unity, faith and discipline, in place. The results are assured.

We have come a long way...but have still, a longer way to go. In Robert Frost’s words, “miles to go, before I sleep....”

– The writer is a senior banker and freelance columnist