1998 — An eventful year

Nation moving fast towards the next year to face carry-forward challenges and new unseen miseries

Dec 28, 1998 - Jan. 03, 1999

The year-998, having many distinctions to its credit, has written a new chapter in the history of Pakistan by placing it on the world map with the title of a "Nuclear Power", of course a mile stone, brings a sense of pride to the nation.

The year 1998, however, was generally termed as a difficult year by the people belonging to different walks of life, particularly the trade and industry community.

Majyd Aziz, Chairman, SITE Association of Industry, while expressing his concerns over the 30 per cent increase in water charges, 25 per cent increase in petrol prices, 20 per cent increase in Sales Tax, freezing of foreign currency accounts, said that all of these steps have their cumulative effects on manufacturing sector which ultimately reflects the stagnant economic growth of the country. Around 25 per cent of industrial units in SITE industrial area alone are lying closed while the remaining are running below their actual capacity.

The year was marked with a major event i.e. the election of a new head of the State. Mohammad Rafiq Tarar, who was elected as the 9th President of Pakistan, by securing a record 374 votes out of 457, polled in the National Assembly, Senate and all the four provincial assemblies on January 1, 1998. Chief Justice Ajmal Mian administered the oath to Mr Tarar the following morning.


Pakistan signed an accord for $10 billion Social Action Programme phase II(SAP-II), on January 27, 1998, with the World Bank-led multi donors support group, was another major event of the year.

Under this agreement, "the donors would provide $2billion soft loan for the programme." According to Ian Morris of the multi donors support group, the strategic change in government's policy convinced the international donors to offer $2billion assistance for the $10 billion SAP-II.

The focus of the second phase of the SAP would be on alleviating poverty, decentralization of management and enhancement of community participation. The representatives of the donors group that included United Kingdom, the Netherlands and Asian Development Bank, lauded the policy of the government aimed at ensuring transparency and proper utilization of donors' aid.

A number of conditions were also put by the donors to curb corruption, appointments without merit and clumsy use of funds.

It was also made clear by the World Bank and donors that no accord would be possible if certain conditions were not met including the elimination of corruption. They had also stressed that conditions should be improved to make the programme successful.

Consequently, Pakistan government agreed to enforce strict procedure to guarantee transparency and efficient use of funds in the implementation of SAP-II which would continue for five years. The government also agreed for not making political appointments against the vacancies to be created by new projects under the programme. The vacancies are to be filled by the auditor-general of Pakistan on merit.

Under the agreement Pakistan would have to increase its literacy rate from the present 37 per cent to 60 per cent. Morris said that the donors believed that all the four provinces would be able to improve health, education, sanitation and population planning facilities through SAP-II. For the next five years SAP-II would be the largest single development programme in all the four provinces.

The programme was launched with community participation and involvement of non-governmental organizations and lauded the commitment of the federal and provincial governments to support SAP to bring basic changes in social services structure. This programme is aimed at reducing poverty and enhancing the standard of living of the people by providing access to essential social services particularly for women and the poor.

The project has four components and 27 sub-programmes in each province/federal area, relating to elementary education, primary health care and population welfare. The project is for five and a half year which began from Jan.1, 1997 and will be completed by June 30, 2002. SAP-II envisaging a total expenditure of Rs498.837 billion out of which donors are to contribute about $2.01 billion.


March 2, 1998 had its own significance as the government launched fifth population census and house count on this date after a 17-year long wait. The counting process, involving 300,000 civilian and armed forces personnel at an estimated cost of Rs1.40 billion, ended on March 18, 1998.

According to provisional results and census figures, the total population of the country estimated at 130.58 million, rising from 64.2 million, recorded in the 1981 census. The figures also revealed that population growth rate has declined to 2.61 per cent per annum as against 3.06 per cent, calculated in the 1981 census.

Sindh's total population was put at 29 million, indicating an increase of more than 50 per cent over the 19 million figure of 1981.

The population of Punjab rose from 47.2 million in 1981 to 72.5 million this year. The population of NWFP went up by 17.5 million from 11 million while in Balochistan the population increased from 4.3 million in 1981 to 6.5 million in 1998.


Pakistan carried out a successful flight test of the surface to surface Hatf-V (Ghauri) missile having a range of 1,500 kilometres and a payload capacity of 700kg, on April

The missile was tested to hit a target at 1,100 kilometres and it completed the exercise without any error. The test was a significant stepforward in Pakistan's indigenous missile and satellite launch programmes, related to defence. It was developed by Pakistani scientists without any foreign support with pure indigenous resources with the provision of upgrading the range and payload capacity of the missile.


The serious irregularities including payment of kickbacks and commission in finalising the Independent Power Projects (IPPs) deals were indicated by the government in April 1998, which led to a serious controversy between government and the IPPs. The government promulgated an ordinance on April 18, 1998 empowering it to cancel power contracts found to have been secured deviously. The ordinance also stipulated a prison term of up to seven years and an undermined fine, for those found guilty of payment of commissions and bribes.

According to an official announcement, thorough investigations were required into a lot of corrupt practices in which the IPPs indulged. It was also announced that licences of those IPPs, found guilty of corruption, would be cancelled. The IPPs were also forced to reduce power tariffs as the country's economic situation does not permit to continue to buy electricity at heavy tariff rates. This controversy involved the international donor agencies, having their stakes in these projects. The International Monetary Fund (IMF), while negotiating for $5.5 billion rescue package, forced the government to resolve the tariff issue with the IPPs. The issue was ultimately resolved after a series of negotiations between the representatives of the two sides.


The year, under review, carried a number of important developments certainly having far-reaching consequences on the socio-economic conditions, as well as political system of the country. On top of the list was the eventful day of May 27, 1998, the fateful day when Pakistan joined the exclusive club of nuclear nations by conducting five nuclear tests of varying intensity in Chagai hills, a remote region of Balochistan desert.

The successful completion of a series of nuclear tests carried out by Pakistani scientists, as a matter of fact, was a rejoinder to level the hostilities of India, which had earlier conducted nuclear blasts on May 11-13, posing a serious threat to Pakistan.

The credit, however, goes to the present, as well as, the past governments, and Pakistani scientists who provided a nuclear tent immensely needed for the security of the country through balancing of power in the region.

The nuclear status, however, brought a series of challenges including economic sanctions and other implications to be faced by the nation as the price for taking the decision of going nuclear against the backdrop of the world pressures.

While defending Pakistan nuclear tests, Prime Minister Nawaz Sharif had described them as aiming at restoring the strategic balance in the South Asian region, disturbed by Indian nuclear tests.

Contrary to the highly provocative statements, issued by the Indian Prime Minister and members of his cabinet, ever since India conducted its nuclear tests, Prime Minister Nawaz Sharif maintained his cool and offered his Indian counterpart a dialogue to remove decades-old differences between the two countries.

Benazir Bhutto, the leader of the opposition, while commenting on the situation, however, had declared, "the tests were forced upon Pakistan by India which have created a new phase of grave threat to Pakistan's survival. She said that because of these tests Pakistan had been plunged into a "deeper crisis" and threat to its security was even grave than that the country had experienced in 1971. "Pakistan will have to pay heavy price on the economic front," she remarked.

Pakistan again carried out its sixth nuclear test on May 30, completing a series of nuclear tests.

Commenting on the sixth test, the then chief of the Army Staff, General Jehangir Karamat said that Pakistan's nuclear tests have corrected the strategic imbalance in the region. Stressing the need for a careful monitoring of the regional security environment, the former COAS said, "We did not have to start a race nor was there a need to escalate tension with unnecessary rhetorics." "This new balance to the military equation could lead to restraint and rationality as learnt from the painful process, the US and former USSR had gone through in the cold war era," he remarked.


The promulgation of emergency under Article 232 of the Constitution by President Mohammad Rafiq Tarar was an immediate effect of the nuclear blasts on May 28, 1998, hence, suspending the fundamental rights.

Although, the proclamation of emergency had created an impression that it had been promulgated in view of a threat of external aggression, yet it was mostly used for freezing of Foreign Currency Accounts (FCAs) with immediate effect. The Ordinance promulgated under Article 232, read as: "Whereas clause(2) of Article 233 of the Constitution of the Islamic Republic of Pakistan provides that while a proclamation of emergency is in force, the President may, by order, declare that the right to move any court for the enforcement of such of the fundamental rights conferred by Chapter 1 of Part II of the Constitution as may be specified in the order, and any proceeding in any court which is for the enforcement or involves the determination of any question to the infringement of the rights so specified, shall remain suspended for the period during which the proclamation is in force."


On May 28, 1998, the government froze all Foreign Currency Accounts till further orders restricting the withdrawal of foreign exchange from these accounts. However the FCA holders were later allowed to withdraw their money in local currency, if they need so..

By virtue of another Ordinance, issued by the President, the Federal Government was empowered to make provisions for regulating payments in foreign exchange. The Ordinance was called the "Temporary Restriction) Ordinance, 1998.

The law provided that during the period in which a proclamation of emergency under Article 232 of the Constitution was in force, various safeguards provided under Protection of Economic Reforms ACt 1992 pertaining to foreign exchange or the right to bring, hold, sell withdraw, transfer, pay or take out foreign exchange, shall remain suspended.

The State Bank of Pakistan suspended payments from export earnings in foreign currency and made some changes in foreign exchange rules relating to imports and foreign travel. Although, the SBP allowed opening of fresh foreign currency accounts from June 22, 1998 under a new scheme, it, however, failed in attracting the attention of the depositors.


The freezing of the FCAs, amounted to $11 billion at the time of temporary restrictions imposed under the cover of emergency declared by the government, resulted in many a financial consequences. The forex reserves fell by $101 million to about $1.271 billion within three days of the nuclear tests. The reserves position on May 23, 1998 was $1.372 billion. The stagnant flow from external resources also adversely affected the reserves position. The step of freezing FCAs shattered the confidence of the depositors in the financial system. The shake of the confidence was reflected in the declining trend of the home remittances and poor response to various government scheme such as dollar bond scheme to improve the forex reserves of the country.

The SBP Governor, justifying the restriction on FCAs, said that in order to avert the possible onslaught of withdrawals in the wake of nuclear blasts the freezing of FCAs had become inevitable. Before May 27, the government was borrowing at much higher rates to enable the banks to encash the foreign currency demands. The entire amount of $11 billion of the FCAs was already consumed by different governments on various accounts, especially in respect of country's trade deficit. The immediate solution to avoid heavy withdrawals was freezing of the foreign currency accounts. Though the government at the highest level regretted the step later on. This forex reserve position besides creating uncertainty among the depositors also led to serious economic implications including negative sovereign credit ratings of the country.


Following the freezing of FCAs, the Government announced three exchange rates-- one for official purposes, one for the conversion of Foreign Currency Deposits and the third, to be fixed by the licensed money changers. For the purpose of conversion of foreign currency deposits into rupee, banks were allowed to maintain a rate of Rs46 to a dollar.

Although, various relaxations have so far been given by the government especially to facilitate imports and exports, the FCAs are still frozen. The FCA holders, however, have been allowed to convert their deposits into the "Dollar Bonds", a scheme, launched by the government offering various tax exemptions, LIBOR plus extra incentives.


The United States announced sanctions against Pakistan, claimed that the sanctions are aiming at targeting the government rather than the people. Deputy Secretary of State, Strobe Talbott said that sanctions were aimed at sending a strong message to would be nuclear testers, to influence Indian and Pakistan behaviour, target their governments rather than people and minimise damage to other US interests.

Although, apparently the sanctions were claimed to be softer, yet their implications were visibly reflected in the conduct and behaviour of the international lenders even Islamic Development Bank using delaying tactics in disbursement of the agreed loans. Similarly, Japan also announced imposition of sanctions against India as well as Pakistan. The sanctions have, however, been partially removed by the two countries yet their implications have left their shadows on the national economy.


The Federal Budget for 1998-99 worth Rs606 billion, announced on June 13, 1998, did not carry any special tax measures against the backdrop of the international pressures in the wake of the nuclear tests. Despite of looming sanctions and uncertainty, surrounded the country's ability to mobilise foreign resources, the budget's dependence on external resources continued to be a massive Rs142 billion as much as 14.7 per cent more than what was received during the last budget period.


The nuclear tests carried out by Pakistan had earned a massive support of the people for the government. The overwhelming support extended by the nation on nuclear issue had created a national spirit amidst all segments of the society as the nuclear issue had emerged as a consensual national priority. Instead of consolidating this sense of national cohesion, the decision to build Kalabagh Dam in the National Agenda, announced by Prime Minister Nawaz Sharif on June 11 brought a setback to the prevalent spirit. The ill-timed announcement of the controversial issue of Kalabagh Dam was strongly opposed by all the PML allies in the three provinces of NWFP, Sindh and Balochistan except Punjab.

Sensing the strong opposition of Kalabagh Dam, the Prime Minister had to announce that the Government would take the political parties of the smaller provinces into confidence over the construction of the Dam.


The government, on July 18, 1998, announced a 25 per cent increase in petrol prices which, it claimed, was necessary to offset the impact of sanctions. According to official version, the increase in petrol price was made because the government needed Rs20 billion to fill the financial gap resulting from international sanctions. The continuation of this increase has no justification now, as the sanctions imposed by the United States and Japan have been waived. It is, however, unfortunate that the political parties outside the government instead of raising such issues affecting the poor, always remain busy in petty matters and party interests.


The Quran and Sunnah was declared as the Supreme Law of the land through a 15th Amendment Bill, to enforce Shariah in the country.

The announcement was made by Prime Minister Nawaz Sharif while addressing the National Assembly on August 29, 1998. Although, the proposed 15th Constitutional Amendment was passed by the National Assembly standing committee on law and justice in the absence of the opposition members on August 29, it has yet to go through the Senate. The move is, however, being opposed by the political and religious parties in the country.


In an extraordinary development on Oct.7, 1998, Gen. Pervez Musharraf assumed charge as the new Chief of the Army Staff (COAS) replacing, with immediate effect, Gen. Jehangir Karamat, who stood retired. Gen.Karamat's three-year tenure was due to end on Jan 9, 1999.

It is believed that the press statement, given by Gen.Jehangir Karamat, led to his premature retirement. Gen.Jehangir, it may be recalled, had said that political mandate needs to be translated into institutional strength, otherwise "we would have a permanent election campaign environment in the country." The statement had suggested that this could be done by establishing a structurally-tired system with clear responsibilities at each level. A national security council or committee at the apex would institutionalise decision making if it was backed by a team of credible advisers and a think tank of experts.


A 50 per cent cut in the additional surcharge of electricity, providing a 30 per cent relief to the power consumers, was announced by the government on Oct 11, 1998. According to official announcement, the relief was possible as a result of detection of irregularities and corruption in some of the power plants established in the private sector during previous government which showed that commissions had been taken. The irregularities in contract with Hubco had been found and as a result of legal measures, Rs10 billion would be saved annually. This saving would be used as compensation the consumers.


The month of October was full of fateful events and consequences. The most painful incident was of course the tragic death of the world renowned personality of Hakim Mohammad Said.

Hakim Said, the Chancellor of Hamdard University, founder chairman of Hamdard Trust and the former governor of Sindh, was brutally murdered in front of Hamdard Clinic on Oct 17, 1998 in the early hours. The shock waves of this national tragedy were widely felt not only around the country but also in the other part of the world. The tragic death of Hakim Mohammad Said, however, proved a turning point in the political scenario of the country in general and in the Province of Sindh in particular. The incident led to a series of major political events including breaking up the political alliance between ruling PML and Muttahida Qaumi Movement (MQM), suspension of Sindh government of Liaquat Jatoi, and imposition of Governor's Rule in the province under emergency provisions of Article 232(c) of clause (2) of the Constitution on Oct 30.

Earlier, the Prime Minister had accused that an MPA and seven other activists of MQM were involved in the murder of Hakim Said. The government had given three-day warning to the MQM handover the accused involved in the murder failing which there would be a parting of ways. Reacting on the warning, the MQM decided to scrap their alliance with the PML and quit the government.


On November 30, 1998, the government extended the period of restrictions on serving food in wedding ceremonies for another three years. The restrictions were originally imposed for a period of two years which were due to expire on March 1999. Although the decision was widely welcomed as it helped eliminating many a social ills from the society, yet the restrictions have their own implications on the economic side. The loss of interest, specially of women folk and children in attending the marriage ceremonies due to absence of food, their has extremely declined, thereby affecting the business activities in diversified business sectors. At least one dish of food could be helpful in keeping the wheel of business moving in different sectors.


Promulgation of an Ordinance increasing the Sales Tax from 12.5 per cent to 15 per cent with effect from Dec.1, 1998, added to the problems of the poor.

By virtue of the Ordinance, the government armed itself with the powers to further amend the already issued notifications in this connection or modify them for doing away with exemptions given to the sales tax assessees.


The year 1998 has now come to its conclusion, leaving its carry-forward challenges, to be faced by the nation in 1999. On top of these challenges is to maintain the economic sovereignty against the backdrop of formidable foreign debts. The ball is now in the court of the managers to tame the privileged class irrespective of the social status to bail the economy out of the crisis. The uneducated, simple, honest, hardworking but patriot majority of this country, however, has always risen to the occasion.