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The loan recovery drive

  1. New rules for custom's valuation
  2. Whitening the black money
  3. The loan recovery drive
  4. The number of dividend declaring companies significantly high
  5. Risk management
  6. Tools for competing in job market

 Hopes and fears

From Shamim Ahmed Rizvi, Islamabad
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 range.

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 drive.

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.