Liberal financial policies needed to attract investors

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 international investors.

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.