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How to manage our financial indiscipline ?

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The root cause is ' corruption'

By Prof S. Sabir A. Jaffery
Apr 03 - 09, 2000

Our financial indiscipline is massive and multidimensional. Its manifestations are widespread. Any attempt to illustrate them would be a futile exercise since the majority of the populace is already seized of them. There would hardly be a person who, directly or indirectly, in one way or the other, would not have fallen prey to them.

What is more alarming is the common belief that the situation is, or at least seems to be, incorrigible. The disease has since been diagnosed. Different drugs have been administered, one after another. Several "consultant physicians", both indigenous and hired from IMF museum, assumed in rotation charge of the patient, each claiming his prescription to be the panacea, devolving on himself the Kar-e Maseehai, and claiming to bring the dead to life. Yet the relief is not forthcoming. On the contrary, we are heading fast toward a total collapse. Why is it so? What is that which is instrumental to such an undying devastation? Sooner an answer to these questions is found, better would it be for our financial health.

There are several reasons for our financial ruin. But, the basic derangement that is the root cause of all other failings, which dominates all other shortcomings, and which counters all the corrective measures, is Corruption. Nationwide consensus already exists on this premise.

Once we reach the conclusion that corruption is the basis of all other evils, the question that arises next is how to check this menace. The most widely prescribed line of action for eradicating corruption is to strengthen accountability process. The proposition, although sounds expedient, is not an unmixed blessing. Punitive actions, no doubt, have their own impact. However, they can not be the substitute of preventive measures.

It may be argued here that severe punishment operates as deterrent against crime. This is not the whole truth. The dogma is akin to the "Consent" or "Acceptance" Theory of Managerial Authority. One may possess formal authority which is obviously meaningless unless the authority can be effectively used — and it can only be used effectively if it is accepted by those on whom it is exercised. Formal authority, in fact, is merely nominal; it becomes real only when accepted. Likewise, it is the attitude of the individual convict that determines the impact of punishment. Habitual criminals don't care even for life terms. Capital punishment also fails to tame the hardened outlaws. Moreover, punishments often convert the casual wrongdoers into hard-liners. Again, the crimes, which for one reason or the other are not surfaced, go unpunished. On the other hand, wide-ranging and indiscriminate punishments create an atmosphere of fear and apprehension, which tends to vitiate initiative and decision-making capability. Lastly, punishment for one offence can be averted by committing another. As an Urdu verse reads: "if entangled by talking bribe, get off by offering the bribe."

What therefore we actually ought to ensure is that the crimes, which have not been committed, shall not be committed. This needs a socio-cultural set up that has built-in checks to prevent wrong doings.


The first and the most effective step in this direction is to enforce complete documentation of financial transactions in all walks of life. Ours is a cash-ridden society. Most of our day-to-day financial transactions are settled in cash. This, on the one hand, facilitates embezzlement, and, on the other hand, makes it difficult to lay hand on the culprit for want of adequate proof. The underlying temptation encourages swindlers and borderline wrong doers to adopt wrongdoing as a permanent way of life. Hence, tax evasion, bribe, commission, kick back, misappropriation, fraud, embezzlement, and all sorts of financial swindling flourish in a cash-nurtured society.

We are otherwise quite fond of following the West. But for our cash cuddling, we just disregard their cash-less culture. In U.K. the highest denomination currency note is that of sterling 50/-. Bearer cheques for amounts exceeding a couple of thousand sterling presented for encashment on banks' counters are few and far between. In USA, if one makes cash purchases for a few thousand dollars, the sales girl casts at him a conspicuous look and passes gestures at her colleagues around her, as if the poor fellow was an African parrot flown into their civilized world. As against this, we prefer to make transactions of huge amounts in cash. This serves the underlying ulterior motives most faithfully. We have to dispense with this culture if we want to have financial discipline in our ranks.

In cases where documentation becomes unavoidable, a small part of the money involved is declared, while the remaining major part changes hands surreptitiously. The most glaring example is that of undervalued registration of sale deeds of immovable properties. This is how the vendor evades wealth tax, the vendee saves the duty on the amount paid beneath the table, and the functionaries of the sub-registrar's office get their share of butter and honey. The only loser is the public exchequer

These transactions take place right under the nose of the people at the helm of the affairs, inflicting on the exchequer a loss of millions of rupees every day in the wake of the persistently deficit budgets, smashing the national economy year after year. All concerned have turned deaf ears towards such a massive monetary swindling as it serves their vested interests, notwithstanding the cost the nation has to pay for it.

According to a recent report, government is considering to increase the stamp duty on registration of immovable properties as a move to increase the revenue. This again is an attempt to put the cart before the horse. Such approach has never worked in the past. It would have bcen more result-oriented if these transactions were documented for the full amount of the deal at half the current rate of duty. Then alone the objective of generating more revenue could be achieved. Moreover, the illicit money put into circulation through back door, resulting in hyperinflation, would have ceased to exist. Things would not end here. It would have further impact of discouraging the practice of illegal gratification in the sub-registrar's office, and also compel the parties to the deal to declare their wealth and source of income.

Tangible steps towards documentation

We recommend the documentation process to take effect with the following three steps taken simultaneously.

1 Financial transaction in cash for a sum of money exceeding Rs.10,000/- should be declared illegal through an Act of Parliament. After two years, this amount should be reduced to Rs. 5,000/-. Violation of this law should be treated an offence punishable with fine equivalent to ten times the money involved

2. No debt or financial obligation, public or private, for amount exceeding the prescribed amount should be recognized by law as paid or settled unless it is paid through approved banking channels. In other words, currency notes should not remain legal tender for payment of claims beyond the specified amount.

3. Currency notes of the denominations of Rs.1,000/- and Rs500/- should be demonetized straightaway, and their value credited into the bank accounts of the owners, without requiring them to declare the source of acquisition

To achieve this objective, developing of banking habits and popularizing of cheque currency are prerequisites. On the contrary, we have been consistently attempting to discourage and depopularize the use of cheques. All bank instruments, such as, cheques, demand drafts, payment orders, etc. are subject to irrational and unjust government duty. Till lately, a cheque leaf alone would cost Rs.5/.

The usance foreign bills of exchange are subject to heavy stamp duty both in the drawer's and the drawee's country. To do away with this, and to simultaneously retain the basic characteristic of usance, the International Chamber of Commerce introduced Deferred Payment Credit to serve as an Acceptance Credit sans bill of exchange. This shows the eagerness of the trading community round the world to remove all sorts of snags obstructing or even discouraging smooth commercial operations. As against this, we are seeking to harness our business culture to qualify for a "respectable" entry into 21st. Century by way of raising the rate of stamp duty, or by unduly taxing our commercial papers. This is high time the government withdraws all sorts of duties currently levied on bank papers / transactions, as it recently did in case of excise duty on cheques.

An excuse usually made against augmenting the use of cheques is the low literacy rate in Pakistan. How strange is this? We didn't mind switching over to credit cards and ATMs, which indeed is a function one step ahead of cheque culture, but are scarce of cheques. The excuse is nothing but a hoax. Our bankers have never been deficient in handling the accounts of illiterate persons, purdah nasheen ladies, or disabled account holders. Training material of our banks and code of banking practices are quite self sufficient on this count, and our bank officials are well versed with the practical snags and legal requirements of maintaining such accounts. Illiterate villagers taking agriculture loans or making Hajj deposits utilize banking services without reservations. The practice can be further developed. Simultaneously, more effective measures should also be taken in all earnestness to raise the literacy level.

One more obstacle in the way of popularity of cheques is the lack of effective legal cover against their dishonour. Government had a plan to provide that cover. Some spadework had also been done in this regard. God knows what happened to it. Apparently, it is committed to cold storage. Something positive needs to be done in this regard expeditiously, if any decisive role is intended to be assigned to cheques in our monetary system

It is also argued that if cash transactions are restricted in Pakistan, people will buy dollars by their concealed wealth or transfer their illicit wealth out of Pakistan through hundi. This again shows lack of perception. Who on earth would sell dollars or draw hundi against currency that would have been left with no purchasing power?

According to a recent notification of CBR, payment of a sum exceeding Rs.50,000/made after lst January this year other than by crossed cheques, bank drafts, or payment orders shall not qualify for tax credit, adjustment or deduction, or refund or drawback, or zero rating of tax, etc. Yet another case is that of GST, which currently is the boiling point of govemment-traders relationship. These denote a half-hearted beginning of a really good job, whereas what is needed is a full-blown action in one go, before it is sabotaged by vested interests

Omission: No less an evil

Corruption has two faces: one, the wrongdoing, i.e. commission: two, the wrongful undoing, i.e. omission. The former means: "to have done what should not have been done". It is visible by nature. The latter signifies: "not to have done what should have been done". It is by nature invisible, and therefore tends to be more disastrous.

The commissioning part of corruption can be identified, prevented, controlled, and brought within the ambit of law. We had so far been discussing this aspect of corruption. The other facet of corruption, i.e. omission, is outrageous for the reason that the law finds itself helpless in attacking it.

The inaction, dereliction, or delayed action is as harmful as committing of sin, but it ends in greater devastation as its effect is not quantifiable; its impact can not be measured. It may take as great a toll as loss of half of the country and may still remain unidentified. It can not be controlled or countered by law or by administrative orders. You can stop a man from doing a thing, but you can not make him do a thing over a period of time if he is not willing to do it.


Excessive security of job has been mainly responsible for inefficiency. This must be done away with. Each employee, from top to bottom, has to justify his or her being in the job every day. This, in other words, means that powers of hire and fire should vest in the management. There may be instances when this power is exploited or misused. To check and control excesses of management, Courts of Banking and Financial Ombudsman be established, which should be committed to award summary judgements in not more than a fortnight

Trade unions have done immense harm to industry. These should be banned. Courts of Banking and Financial Ombudsman will be there to guard the interests of employees and the account holders.

Seniority should be assigned the same sanctity in all the organizations, especially in banks and financial institutions, as it enjoys in judiciary. All prestigious placements and postings, and promotions should base on seniority. Reasons of supersession should be advised in writing to the aggrieved person. Corruption in banks increased manifold, both in magnitude and dimensions, after the politicians and bureaucrats placed their cronies at the helm of affairs at the cost of seniority, mercilessly exploiting the name of "merit".

Punishments and rewards should be prompt and transparent. Undue interference and meddling from any quarter should be curbed with iron hand as it kills initiative and power of decision making.

All sorts of perks for all categories of staff, irrespective of grade and rank, must go. Transport provided to an executive due to the nature of his job should be used strictly for official purposes only. Family members should not be allowed to use or share the official car with the executive. However, salaries should be rationalized to match the cost of living. These should be raised twice a year: once, effective from 1st. January as normal grade increment; next, from 1st. July, at the prevalent rate of inflation.

Recently, government has banned purchase of new cars. Earlier, late P.M. Mohammed Khan Junejo had also taken the similar action. What was the outcome of that is everybody's knowledge. Why should we then resort to such actions, which can be reversed any time? What is actually needed is the basic revision of Service Rules, eliminating the very provisions of perks and allowances, so that future governments may not be able to reverse the decision simply by administrative orders, without getting through the Parliament.

Some other causes of inefficiency and corruption in government offices are: lengthy and cumbersome procedure; undue secrecy of government businesses; and, centralization of powers. Services of professional bodies may be utilized to ameliorate and simplify procedures, which may be widely publicized so that people should know what they are exactly required to do. Thus, extortion of money from them would become, if not impracticable, at least difficult.

Honestly speaking, our post offices are grossly underutilized. Recent decisions regarding paying of utility bills at post offices, and promises to deliver computerized identity cards at the door steps of the people indicate extended utilization of postal services. Studies should continue to discover more areas in which postal services can be utilized profitably.

Speculative schemes launched by certain banks in the name of innovation tarnished the image of a highly sophisticated profession. State Bank's belated ban on these schemes was given a hearty welcome by the nation under the notion, "better late than never". Nevertheless, to one's shocking surprise, the scheme is emerging once again. This is the latest example of an ill conceived decision, which is bound to provide cover to illicit wealth and to facilitate the whitening of the black money. Prize bonds schemes are also speculative that create easy money, leading to all sorts of dubious practices. All such financial papers, which are prone to speculation, gambling, games of chance, and money laundering should be withdrawn forthwith.