Open and Col­lab­o­ra­tive Gov­er­nance

Easy ac­cess to in­for­ma­tion, es­pe­cially through mo­bile phones and the so­cial me­dia, has en­abled cit­i­zens to give their feed­back on gov­er­nance-re­lated is­sues.

Southasia - - COVER STORY - By Huza­ima Bukhari & Dr. Ikra­mul Haq

What new mea­sures did you in­tro­duce at the State Bank of Pak­istan?

The State Bank of Pak­istan (SBP) and the bank­ing sys­tem had been func­tion­ing like sub­or­di­nate de­part­ments of the Min­istry of Fi­nance up un­til 1993 and the bank­ing sys­tem was at the verge of col­lapse due to mis­man­age­ment. From 1993 to 1999, leg­isla­tive re­forms were in­tro­duced at a scale un­prece­dented in the bank­ing his­tory of the coun­try. The SBP was made au­tonomous de jure, the mone­tary pol­icy was freed from the shack­les of the MoF, the Pak­istan Bank­ing Coun­cil was abol­ished, bank­ing su­per­vi­sion ca­pa­bil­i­ties of the SBP were strength­ened, the grip of trade unions on banks was bro­ken, the cap­i­tal base of public­sec­tor banks was strength­ened and their gov­er­nance im­proved to make them ready for pri­va­ti­za­tion, cor­rupt bankers were suc­cess­fully re­moved and pros­e­cuted and the man­age­ment of com­mer­cial banks was given to pro­fes­sion­als.

Un­for­tu­nately, sub­se­quent SBP man­age­ments did not ad­here to the re­formed frame­work and the SBP and the bank­ing sys­tem have drifted back

de facto to the pre­vi­ous position of sub­or­di­na­tion to the MoF with its as­so­ci­ated ad­verse ef­fects. The world’s ma­ture economies have not han­dled them­selves as well as they should have. Do you agree with this?

I agree. While the cen­tral banks of the de­vel­oped coun­tries have be­come more ef­fec­tive and co­or­di­nate their poli­cies well to han­dle in­ter­na­tional fi­nan­cial crises, gov­ern­ments in sev­eral de­vel­oped coun­tries have in­dulged in waste­ful spend­ing and avoided tax re­forms. As a re­sult, they face un­man­age­able ex­ter­nal debt, a slow­down in eco­nomic growth and high unemployment. Do you think bank­ing is a flour­ish­ing sec­tor in Pak­istan? What are your thoughts on Is­lamic bank­ing?

Com­mer­cial banks have reaped huge prof­its in the re­cent past, tak­ing ad­van­tage of three things. First, gov­ern­ment bor­row­ing from com­mer­cial banks gave them an op­por­tu­nity to make prof­its with­out fac­ing the threat of debt de­faults and with­out hav­ing the ur­gency to mo­bi­lize ad­di­tional de­posit re­sources. Sec­ond, the SBP failed to im­prove gov­er­nance of banks by re­duc­ing the in­flu­ence of large share­hold­ers in the busi­ness of running banks on a dayto-day ba­sis and their ma­nip­u­la­tions con­trib­uted to ris­ing prof­its at the cost of small de­pos­i­tors and gen­uine bor­row­ers. Third, the SBP did noth­ing to re­duce the in­ter­est spread and the banks were able to mint huge prof­its by giv­ing neg­a­tive real rates of re­turn to de­posits. In the process, the bank­ing sys­tem be­came in­stru­men­tal in trans­fer­ring re­sources from the poor de­pos­i­tors to the rich bor­row­ers. Only a strong SBP and strong pru­den­tial reg­u­la­tions can rec­tify the sit­u­a­tion.

Is­lamic bank­ing is in name only. The real Is­lamic spirit behind pro­hi­bi­tion of fixed rate of re­turn on lend­ing was to stop the ex­ploita­tion of the poor bor­row­ers by the rich money lenders. In Pak­istan, the cover of Is­lamic bank­ing is used by banks to ex­ploit the poor de­pos­i­tors to make huge prof­its. How suc­cess­ful has micro-bank­ing been in Pak­istan?

Not very suc­cess­ful. The rea­son is that banks feel com­fort­able only in deal­ing with es­tab­lished busi­nesses and large com­pa­nies for lend­ing pur­poses and do not wish to spread the scope of lend­ing to small and medium bor­row­ers who have dif­fi­cul­ties in meet­ing their col­lat­eral re­quire­ments. Lend­ing on the ba­sis of col­lat­eral, rather than cash-flow anal­y­sis, is the eas­i­est course of ac­tion and banks do not wish to de­part from that. prac­tice un­less the SBP was to ini­ti­ate the process in a big way. What fu­ture do you see for for­eign banks here, con­sid­er­ing that a num­ber of them have al­ready left the coun­try?

Our do­mes­tic bank­ing sys­tem is quite de­vel­oped and there is no rea­son why the coun­try should de­pend on for­eign banks for its gen­eral bank­ing busi­ness. In fact, the short-sighted ap­proach of our past gov­ern­ments to sell do­mes­tic banks to for­eign­ers to gather some for­eign ex­change to tide over short-term scarcity of for­eign ex­change re­serves has cre­ated a sit­u­a­tion in which there will be heavy trans­fer of prof­its abroad by for­eign-owned banks. Both from the point of view of na­tional se­cu­rity and eco­nomic in­de­pen­dence, the gov­ern­ment should avoid sell­ing any more do­mes­tic banks to for­eign­ers or al­low­ing for­eign banks to do or­di­nary bank­ing busi­ness through branches spread all over the coun­try. How­ever, for­eign banks should be wel­come to open a few branches for for­eign trade fi­nanc­ing in big cities. The World Bank has sug­gested that Pak­istan should grant the sta­tus of the Most Fa­vored Na­tion to In­dia and that the two coun­tries must sign power trans­mis­sion and trade agree­ments. Do you ap­prove of this?

Leav­ing aside the po­lit­i­cal as­pects of their re­la­tions, both Pak­istan and In­dia can ben­e­fit from ex­panded trade be­tween them. The prob­lem is that nor­mal­iza­tion of eco­nomic and trade re­la­tions is not plau­si­ble with­out progress on the se­cu­rity and po­lit­i­cal fronts. Not much can be ex­pected on the trade side with­out mean­ing­ful progress in re­solv­ing the out­stand­ing dis­putes through peace­ful means.

As­tate­ment on the home­page of the World Bank In­sti­tute (WBI) reads: “More than one bil­lion peo­ple do not have ac­cess to clean wa­ter, elec­tric­ity, and other ser­vices cru­cial for their health and liveli­hood. Fail­ures in ser­vice pro­vi­sion have been linked to poor gov­er­nance, the lack of trans­parency and ac­cess to pub­lic in­for­ma­tion, weak ac­count­abil­ity re­la­tion­ships, and low lev­els of cit­i­zen par­tic­i­pa­tion. The main chal­lenge that of­ten con­fronts coun­tries at­tempt­ing to un­der­take gov­er­nance re­forms is not "What" (what is the prob­lem and what are the reme­dies for it?) but “Why” (why does the prob­lem per­sist?) and “How” (how to man­age

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.