Thursday, March 14, 2013

Thank You, Hafeez Shaikh!


In 1991, the Oxford-trained Dr. Manmohan Singh became India’s finance minister as India faced severe economic crisis and turned the tide by introducing structural reforms that liberalised Indian economy and put it on the course of becoming an economic powerhouse.

By contrast, Pakistan boasts a long list of financial genius, often imported and dual nationals, including Mohammad Shoaib (1958-66; IBRD), Dr. Mahbub-ul-Haq (1982-88; World Bank & UNDP), Moeen Qureshi (1993; IMF, IFC & World Bank), Shahid Javed Burki (1996-97; World Bank), Shaukat Aziz (1999-08; Citibank), Dr. Salman Shah (2007-08; academia), Shaukat Tarin (2009-10; Citibank), and Dr. Hafeez Shaikh (Finance 2010-13; Privatization & Investment 2003-07; World Bank).

However, all that glisters is not gold because all that’s gold seldom glitters. One wonders why the “known standing, integrity and competence” of these financial wizards could never get translated into actual dividends for the masses? None of these wizards could bring out an economic strategy and reform for sustainable and equitable growth despite their flamboyant credentials and connections. As a result, few have continued to prosper at the expense of the state and the masses!

One wonders further whether the problem lies in the system, its agents and managers, or its factors and users – the people? Are international solutions the best prescription for a local economic malaise? Whose interests do/did these economic czars represent and protect whilst being custodians of the system and of the interests of the people? And above all, whether the civil-military bureaucracy, the supposed guardian of the state and people, has consistently been duped or become accomplice or is just not up to the job?

Most recently, Dr. Abdul Hafeez Shaikh, a former professor at the Harvard and a World Bank Director in Saudi Arabia, now a candidate for the caretaker Prime Minister-ship and termed as a “person of known standing, integrity and competence” by Prime Minister Pervez Ashraf in his letter of recommendation, gracefully quit his ministry after relishing the corridors of power for about ten years and successfully leading the national economy to abyss, with no questions asked by the Parliament, media or courts and no explanation of his Report Card either by the civil-military bureaucracy that first inducted him into the office.

Here are Dr. Hafeez Shaikh’s purportedly top accomplishments:

(1.) Facilitated setting up of a U.S. Customs Drug Enforcement & Interrogation Centre, publicly believed to be a U.S. Army Surveillance & Rapid Response Base, at the Jinnah International Karachi Airport. It is not clear: (a.) How/when did the Army Corps of Engineers assume Customs functions? (b.) Why did the Pakistani Parliament and the Ministry of Defence claim ignorance of this Agreement, whilst the U.S. Embassy in Pakistan claimed that this was all done in agreement with the host Pakistani government? (c.) Would this be an extension of the Personal Identification Security Comparison Evaluation System (PISCES) that remained in use at all major ports of entry and exit between 2002-12 or an extension of the Op Enduring Freedom? and/or (d.) Has this facility been granted to even out the Chinese at the Gwadar Port? Lately, the RFP was also on the FBO website -- so go guess the truth!?

(2.) Facilitated mortgage of the Jinnah International Karachi Airport to international lenders as a collateral to raise Rs. 182 billion through the Sukuk Bonds during 2012-13.

While the government insists that it would not allow the investors/creditors/Sukuk holders any recourse to the underlying asset in case of default, the use of debt-based Sukuk (commodity Murabaha) to meet government-borrowing requirements is in itself controversial. Analysts question that the Karachi Airport Sukuk is not Shariah-compliant since the use of Sukuk for debt financing may be against Shariah (the issue has not yet been determined by the Federal Shariah Court). Moreover, issuing bonds may be a preferable financing tool but it is unwise to use national infrastructure and vital installations as the securities for these bonds.

Earlier in 2005, the Shaukat Aziz ministry had raised USD 600 million through an Ijara Sukuk (a complex Islamic lease Agreement of the land comprising the M-2 Motorway) using Islamabad-Lahore M-2 Motorway as a collateral.

Ironically, Pakistan never seem to learn its lessons from the leasing of infrastructure facilities and real estate, such as Badaber, Chaklala, Tarbela, Shamsi, Pasni, Dalbandin, Jacobabad or RahimYar Khan, to the Gulf sheikhdoms and others in the past. As an analogy, recall that in 1875, the British Premier Disraeli, with Baron Rothschild’s money, bought Khedive Ismail’s 176,602 shares in the Suez Canal stock, who was about to default on his loans extended by European bankers, for GBP 3.68 million, making the British government overnight the single largest shareholder in the company and culminating in the British occupation of Egypt in 1882.

(3.) Oversaw a steep rise in Pakistan’s external debt from USD 45 billion in 2008 to USD 62 billion by November 2012, as the public debt exceeded 62% of the GDP. (Recall that the external debt liabilities stood at USD 22 billion only till the end of 1980s and at USD 38 billion when Musharraf seized power in 1999.)



(4.) Oversaw a drastic weakening of the Pakistani Rupee, as the PKR lost ~40% of its value during the five-year term of the PPP government, falling from about 1USD≈62PKR in 2008 to 1USD≈100PKR in 2013.

With friends like these, who needs enemies?

Pakistan ka Khuda hi Hafiz....

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