Those who take profits abroad were not doing justice
to the country
By AMANULLAH BASHAR
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
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
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
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.