Hopes and fears
From Shamim Ahmed
Jan 03 - 16, 2000
The Military Government has certainly failed to keep pace with the
popular expectation in a number of areas, but their performance in the Bank Loan Recovery
drive is most disappointing. To recover about Rs. 10 billion of defaulted loans out of
over Rs. 211 billion as per latest figures provided by the State Bank of Pakistan
can hardly be described as satisfactory.
When the first batch of well-healed defaulters was caught on November
17, a wave of enthusiasm swept the country. It was commonly believed that about half of
the money involved will be recovered in about 4 weeks time from politically strong and
influential defaulters. People were, however, both shocked and surprised when the Chief
Executiv Gen, Pervez Musharraf in his speech of Dec 15, expressed satisfaction on the
recovery of about Rs. 9.5 billion during the first month of the drive. He assured the
nation the second round of arrests of defaulter would take place in a week or so. It has
not yet happened. Only yesterday some people have been arrested but none of them is bank
loan defaulters. The charge against them is to make money through corrupt practices and
misuse of official position.
Tax evasion and loan defaults are two of the various ills that have
been taking roots for a long time. These problems, however, received a prominent place on
the agenda some six years back. At that time, the amount of defaulted loans was of the
order of Rs. 80 billion. Since then, there has been a growing outcry against this practice
of doing business in Pakistan. Various governments made efforts to curb this practice and
to recover money owed to the government and banks.
However, the unacceptable tendency also increased almost in parallel
with the efforts made to counter it. So, the more the public talked against tax evasion
and loan defaults, the more did their size increase. According to a PIDE study, tax
evasion exceeds Rs.150 billion. Loan defaults now amount to Rs. 211 billion. The two
problems once again appeared very seriously almost on top of the new government's agenda
in the past few weeks.
The new Chief Executive of the country Gen. Pervez Musharraf in his
address to the nation made it clear that recovery of the defaulted loans is on the top of
his agenda. He asked the loan defaulters to voluntarily return all the borrowed money
within 4 weeks otherwise the law of land would deal with them with iron hand and recover
every penny with heavy penalty.
Many deadline in the past were given by previous governments to the
bank defaulters but of no use as defaulters were fully aware that these threats were only
for a political purpose. "Most of the rulers were themselves defaulters and unless
they paid their share there was nothing to worry, the defaulters used to have an argument.
With Gen. Pervez Musharraf taking over, people thought that perhaps the
day of reckoning for the powerful loan defaulters who were violating the law since long
had arrived. They thought that this time the situation is entirely different. There is no
ruling class and there is no defaulter in the administrative setup. So the message is loud
and clear that there is no political gimmick this time and the General means business.
More optimistic analysts believe that amount of voluntary deposits during the 4 weeks may
exceed the cautious estimate of Rs. 100 billion
This achievement can solve the economic problems of the country for
atleast the current financial year giving enough time to the new administration to
implement its programme of economic revival on a long term basis. But these hopes and
expectations seem to have been shuttered.
The problem of stuck-up loans has eluded a satisfactory solution for
about a decade since when the amount of defaulted loans had been on the increase for one
reason or the other. The major cause being the sanction of quite a number of loans by
banks and DFIs was the political pressure. The influential persons in industry and
business were seemingly strong enough to avoid the payment of their loans due to
protection enjoyed by them from the ruling class during different periods of political
regimes over the last several years. Moreover, the weakness in law for the recovery of
bank loans in addition to extremely inadequate number of banking tribunals, has been
further adding to the acuteness of this problem. This in turn has been infecting not only
the banking system but also the financial sector as a whole with distortions on a wide
During all this period the amount of defaulted loans instead of showing
any decrease, has literally multiplied. When Benazir government was dismissed, the
defaulted loan stood at Rs. 140 billion which rose to Rs. 224 billions on 30.6.99 showing
an increase of over Rs. 84 billion during Nawaz Sharif government who won 1997 election on
the slogan of recovering the looted money.
Perhape the General has been trapped in by the lobby who are, since
long, advocating that forceful recovery from defaulter, would not be conducive to the
programme of economic revival. They have been painting the recovery drive as a futile
exercise. It is argued that it would neither result in full recovery nor would it revive
the economy. Those opposed to the recovery drive further argue that it would deter
investment as major investors would be targeted. It was none other than the new Finance
Minister himself who advised against a hard approach as the major investors in the country
might be deterred by the recovery drive itself. Some representative groups are almost up
in arms against it. Many thinkers have also joined the powerful lobby against the recovery
One can be reasonably sure that those who advocate recovery of taxes
and loans are not muddleheaded about it. First of all, the issue of loan and tax
recoveries is either being displaced by the issue of economic revival or is being confused
with it. There can be no sustainable economic revival unless business and industry learn
to fulfil their basic legal requirements. While there are many who do fulfil the legal
obligations, these are perhaps exceptions to the trend. The very size of evaded taxes and
defaulted loans points towards the deviant norm. Unless a departure is made from this
norm, can there be any sustainable economic revival. If a revival is based on the same old
"smart" rules of doing business, it will be short-lived.