Economic reforms: Part - X

The second Nawaz Sharif government (Feb 1997 - Oct 1999) was formed with an overwhelming majority. However, the mood of the government was indelibly affected by a long series of unfortunate events triggered in the aftermath of Nawaz’s defiant April 17, 1993 speech against the president – the dissolution of the National Assembly, its restoration by the Supreme Court, political turmoil in Punjab and the intervention of the army chief that led to simultaneous resignations of both the prime minister and the president, paving way for an interim government and mid-term elections in October 1993.

Unlike the jubilation and enthusiasm of the first government and a very large number of economic reforms formulated through six task forces, this time the disposition from the outset was grim and ominous. There was an IMF programme that the previous government had concluded just a day before it was removed. The Nawaz government, unlike in the past, initially agreed to own the programme but soon aborted it, considering it politically unpalatable.

As soon as the government secured the passage of a constitutional amendment that removed the infamous Article-58(2)(b), a fresh resolve took over the government, to hold all those responsible for its leaders’ miserable treatment and bring them to account to prevent a recurrence of the ugly events. The suo-motu notice taken by the SC of an incident in Faisalabad, where the chairman of a local development authority was ordered to be handcuffed during a presentation given to the prime minister, compounded the situation. It quickly blew into a full-blown crisis between the prime minister on the one hand, and the chief justice and the president on the other. It ended after a large body of judges revolted against the chief justice and removed him from the office. The president was left with no choice but to resign in early December 1997. Nearly a full year was consumed in this political wrangling.

Within months, another disruptive event would vitiate the government’s focus on economic management. On May 28, 1998, Pakistan conducted its own nuclear tests after India had done so on May 11. The freezing of foreign currency accounts that followed the tests were a major blow to the investors’ confidence. Furthermore, Pakistan was subjected to economic sanctions by the OECD countries.

In the aftermath of the US’s cruise missile – that flew over Pakistan – attack on Afghanistan in August 1998, things began to soften up in Washington and efforts were made to revive the IMF programme to enable Pakistan to seek debt rescheduling from the Paris Club. Just around that time, in a major cabinet reshuffle, the old finance team (Sartaj Aziz and Dr Hafiz Pasha) were replaced with a new team led by Senator Ishaq Dar. This, however, also underlined the PM’s increasing reliance on his close confidants.

However, alongside these activities, accountability became the government’s focus. The task was assigned to a new department (Ehtesab Bureau) in the prime minister’s office and was headed by another PM confidant who had ferocious zeal to go after all those accused of wrongdoings. Evidently, as it soon transpired, it was aimed at eliminating political opponents and lost credibility and legitimacy. In fact, the government had been bogged down so badly in this matter that the army chief, who was considered to be a detached, reserved and a quiet general, felt the need to advise the government – in a lecture at a military college – in October 1998, to restrain and focus on economic and security problems besetting the country. He suggested that a National Security Council, comprising civilian and military leadership, would be an effective forum to face national challenges. This led to a disproportionate response from the prime minister who sought General Karamat’s resignation. The general obliged since he never wanted to rock the boat of democracy.

The economic environment, evolving in this background, was in sharp contrast to the euphoria of the first Nawaz government. Then an MNA, Khawaja Asif was appointed the chairman of the Privatisation Commission. He had the reputation of a business-friendly man committed to taking forward the agenda from where it was left by the previous government. The most significant transaction proposed by him was the sale of PTCL’s shares to a strategic investor. Under the previous government, 12 percent shares had already been circulated in the stock market. In February 1999, during an investors’ conference, the prime minister was persuaded to announce that he planned to privatise all remaining PSEs before June, 1999. This statement didn’t inspire investors’ confidence as it was clearly based on an unrealistic assessment of what the commission could accomplish.

The programme, however, didn’t progress much. Only 10 industrial/real-estate units were privatised for a total sum of Rs642 million. These units included automobile, vegetable oil, roti plant, duty-free shops, two hotels and some federal lodges. In a separate transaction, 70 percent shares of the Habib Credit and Exchange Bank (now known as Bank Alfalah) were also sold to a UAE group for Rs1.6 billion. For the PTCL transaction, Jardine Fleming, an investment bank, was appointed as the financial advisor. They even prepared the Information Memorandum (IM) but events overtook this effort.

Within months of London’s investment conference, the economic environment had further deteriorated as the Kargil War erupted and consumed a great deal of the leadership’s attention. Even after the war was over, differences emerged between the prime minister and the army chief, appointed less than a year ago after resignation of the previous chief. This growing gulf between the two most powerful offices finally culminated in the overthrow of the elected government by the military chief.

By all standards, the entire period was filled with disruptions and turmoil. Economic management was peripheral. However, Ishaq Dar brought a new vigour to economic management. He stabilised a free-falling rupee, nearly revived the IMF programme and secured Paris and London clubs rescheduling, giving a breathing space to an economy in distress.

Two of the key economic reforms he accomplished were opening of the interbank forex market where all foreign exchange is competitively traded and the creation of new foreign currency accounts based on the SBP’s 25 percent reserves requirement called the FE-25. Banks can use 75 percent for their business. This measure eliminated the possibility of accounts being frozen in the future. He also secured the Council of Common Interests (CCI) approval for the privatisation programme, a charge frequently raised against the process.

To be continued

The writer is a former finance secretary. Email: waqarmkn@gmail.com