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
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
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
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
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
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
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
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.