Liberal financial policies needed to
By AMANULLAH BASHAR
Apr 10 - 16, 2000
The State Bank of Pakistan (SBP) has restored the freedom of foreign
portfolio investors to remit funds outside Pakistan without its prior approval with effect
from March 30.
According to this decision, foreign institutional investors can remit
funds without SBP's approval through the banks that act as their custodian as well as
maintain their special convertible rupee accounts. Under this decision the international
brokers were also allowed to remit commission earned in Pakistan. A committee comprising
officials of Karachi Stock Exchange and the State Bank of Pakistan and the custodian banks
made the decision in the light of the recommendations.
Arif Habib, the Chairman of Karachi Stock Exchange had described the
decision as a welcome step as he felt that it would send a positive signal to
It may be recalled that restriction on foreign exchange out flow was
placed in Pakistan soon after nuclear resorts in May 1998. Later the curb was lifted on
remittances of profits and dividends on foreign direct investment as well as payment of
private foreign loans in the first month of the current year.
Another leading operator at Karachi Stock Exchange welcoming the step
said that although it is a positive step in the right direction to restore the confidence
of foreign investors in Pakistan markets yet there is still a great room for improvement
to restore the confidence of the investors in a big way. He said that the present team of
the economic managers has a plan to put the public sector entities on sale through stock
markets. This programme needs implementation of the financial and other policies in letter
and spirit to achieve the desired results. For the past many years, different governments
in Pakistan are making efforts to dispose of public sector organizations through
privatization however no visible results have been achieved so far. The relaxation allowed
on remittances on portfolio investment is directly related to invite foreign investors to
participate in the forthcoming programme of privatization of public sector organizations.
However any complexity on practical side may disturb the results. The forthcoming
privatization is likely to bring a massive business boom in our stock markets, which may
be instrumental in bringing stability to our economy. However reports appearing about the
stringent checks on remittances to guard against excessive outflow of foreign exchange may
not send a positive signal to the investors, he felt.
Referring to a recent report about the checks and guards being placed
by the banks, he said that speaks in a different way.
Currently the banks are exercising following checks on remittances
abroad and the funds out of dividends earned by portfolio investors. According to report,
he said that banks are maintaining a record of client requests showing whether the request
is specific or on case to case basis or it is in the form of standing instructions.
The banks are keeping record of copies of dividends/ warrants/ pay
orders. They are also maintaining record of copies of cash statements reflecting current
cash balance in special convertible rupee account along with the statement on the date
when dividends were credited into these accounts. The banks are gathering evidence of
dividends also including the certificate of Central Depository Company showing investment
or registration of security in the name of the investors. The banks are making it sure
that the sources of credit into special convertible rupee accounts are not other than (1)
foreign inward remittances (2) credits due to sale proceeds of shares and dividends and
(3) transfer from another special convertible rupee account. Banks are keeping an eye over
partial remittances of dividends to avoid excess outflow. According to report that bankers
are exercising even greater checks in cases of outward remittances against sale proceeds
of shares. The banks are asking for the related sale bill from the member of the stock
exchange showing the amount of sale proceeds. Where the security is on the central
depository system they are demanding a chronological transaction statement showing all
movements of the security in the name of the investor.
The stock exchange player felt that it is okay as far as the safeguards
against the excessive outflow of foreign exchange were concerned. However it's a delicate
issue especially for the choosy international investors. Our economic managers who are
making every effort to put the national economy back on the right track will have to see
whether the disciplines in the financial sectors are equally good as are allowed in other
competing countries of the region or not. We have to restore the confidence of the
investors through attractive but firm policies. The investors are free to go where they
are given respect. They would not tolerate obnoxious bureaucratic hurdles, which has
already caused damages to the general reputation of bureaucracy in Pakistan.