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Those who take profits abroad were not doing justice to the country

Feb 11 - 17, 2002

State Bank of Pakistan (SBP) has laid grounds for financial discipline and rules on which the proposed bankruptcy law would be based.

These rules would enable the business companies to multiply their profits, leading to export promotion and economic progress and prosperity of the country.

Elaborating four ground rules at the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), Dr. Ishrat Hussain, Governor SBP said that the first rule was that "profits were not privatized and the losses were not socialized." The Islamic system has a mechanism for the private sector business and which envisages for sharing of profit and losses.

The second rule he outlined, was that the government wanted the business to make profits but some portion of this profit should be paid in taxes to the government so that it can provide the basic infrastructure to the private sector for making more profits in future.

The third rule Dr. Ishrat said was that by and large the profits earned should be re-invested so that more employment opportunities were generated thereby leading to economic prosperity. Businessmen and industrialists who provide economic services and job opportunities are the real heroes of the country. However those who take profits abroad were not doing justice to the country and the government has no sympathy for them".

The fourth ground rule, the governor said was that the profits should be generated through a process of competition and a level playing field and not by illegal means such as favouritism.

The governor was highly critical of the culture of issuing SROs for the benefit of individuals after which the SRO was abrogated. There should be a uniform rule and policy for the ruling and opposition parties, he said.

On the subject of bankruptcy, the Governor said that it was a natural phenomenon in every developed economy as new ventures replaced the old. Though a number of laws on bankruptcy exist in the country but it was important to adopt a pragmatic approach. He underlined the need for very rigorous auditing standards for the corporate sector as well as the banks.

He also called for adopting forensic accounting in the business, which was not existent at present so as to avoid confusion on the issue of wilful and circumstantial defaulters.

The governor also emphasized upon the need for having particular receivables and the training of judges in the banking and corporate laws.

There were no informal means of dispute resolution like the one, which existed in other countries. Such mechanism was the first line of action to resolve the disputes, instead of rushing to the courts for litigation, thus lessening pressure on them. He suggested that the proposed bankruptcy law must have a mechanism for dispute resolution.

Dr. Ishrat stressed the importance of adopting professional attitude of the banks and businesses so as to develop an effective governance structure in the banks and corporate sector. This would lower the rate of bankruptcy. He particularly hinted at the requirement of professional approach by the family owned business and expressed the hope that the business community would try to extend the concept to the corporate sector.

The Governor criticized the bureaucratic rigmarole in the banks and remarked that they should come out of the mechanical procedures and make the judgement on the viability of the proposal submitted by the businessmen instead of showing reluctance to provide the loans. He said that he was very sympathetic to the businessmen who suffered losses due to change of external environment or due to change in government policies in the past.

Speaking on the occasion, Iftikhar Malik, President FPCCI said that the primary objective to organize such a meeting is to formulate recommendations on the proposed bankruptcy law which would be submitted to the State Bank for consideration.

He said that bankruptcy was a global phenomenon and the highest number of bankruptcies took place in Japan. Last year around 1900 business organizations became bankrupt in Japan. Seen in the context of Pakistan there was no information available about the number of businesses which go bankrupt every year.

The FPCCI President emphasized that it was absolutely important that a law on bankruptcy was promulgated as soon as possible so that the business organizations which are intending to become insolvent can act in accordance with law and at the same time are also documented. This would enable us to assess the nature and rate of bankruptcy in Pakistan.

The FPCCI president appreciated the SBP on further reducing the export finance rate by one per cent, which would bring the rate up to 8.5 per cent. He said that the State Bank was doing everything to provide incentives to the exporters and during the last two months the export finance rate has been reduced from 12 per cent to 8.5 per cent. It now depended on our exporters to take advantage of these incentives and boost country's exports.