Dealing with banks’ non-performing loans

A LOT of confusion and misunderstanding has been created by several commentators on the issue of non-performing loans (NPLs) of the banking system. They take the absolute amount of such loans at the current point of time and compare it with the quantum of such loans in October 1999 and make a hue and cry that the situation has deteriorated because the quantum of NPLs has gone up.

Such a simplistic approach creates doubts in the minds of the common people about the commitment of the government and the State Bank of Pakistan towards recovery of these loans and distorts the true picture about this important issue. This article is designed to inform the public about the exact magnitude of the problem, the trend over time and the measures the State Bank is taking to tide over this problem.

The State Bank of Pakistan (SBP) is dealing with the NPL issue in a comprehensive manner through (a) an improvement in coverage and reporting of NPLs, (b) a proactive treatment of the existing stock of NPLs, (c) stemming the flow of new NPLs and (d) improving the policy and regulatory environment.

It should be realized that the stock of the existing NPLs will always grow over time even if all the new loans being granted are fully serviced. This will happen because the declared amount consists of the principal and mark-up. By its very definition, if the loan is not being serviced and is overdue by 90 days, then the unrealized mark-up will continue to be added up to the total amount of NPLs.

For example, if on October 1999 the principal amount due on an NPL was one million rupees and the contracted mark-up rate was 20 per cent, then this amount will grow to Rs 1.2 million in October 2000, Rs 1.4 million in October 2001 and Rs 1.6 million in October 2002. So it can be seen that if the principal amounts overdue to the banking system in October 1999 were Rs 160 billion and these loans fell in the category of NPLs, then three years later they will swell automatically to Rs 256 billion, assuming that the contracted mark-up rate was 20 per cent per annum.

Thus, one can expect that a 60 per cent increase will take place in the total quantum of NPLs within a three-year period, even if every single new loan is performing well. The second complication arises if the NPL is denominated in foreign currency which is the case with 13 per cent of all NPLs. These were granted by the foreign branches of NBP, HBL, UBL and Allied Bank, assuming that these loans were granted when the rupee-dollar exchange rate was Rs 46 to $1 and the principal amount overdue was one million dollar. At the time the loan was granted, its value on the books of the bank was Rs 46 million.

Today, when the exchange rate is Rs 59, the same NPL will be shown as Rs 59 billion — 28 per cent higher than the original value declared in October 1999. This excludes the mark-up overdue which will also move up and if this mark-up is included, the same NPL will be at least 40 per cent higher in value in October 2002 (as the dollar mark-up rate has been lower than the rupee mark-up rate). Thus it should be seen that without any fault of the bank its aggregate value of NPLs (denominated in foreign currency) has escalated by 40 per cent.

(a) Improvement in coverage and reporting: The SBP inspectors have begun to apply more rigorous standards of classification. In September 2000, they detected that some of the public sector specialized banks were reporting only default or overdue portion of their non-performing loans instead of total outstanding amount of such loans. This led to an upward revision in the volume of NPLs reported by these banks and resulted in an addition of Rs 47 billion of loans classified as non-performing which were not shown as such in the period prior to September 2000. Thus, overnight the total volume of declared NPLs rose by Rs 47 billion.

The SBP has also revised the valuation method of collaterals underlying the classified loans and brought them in line with international practices. The banks can now take into account only the minimum realizable value of assets mortgaged or pledged for determining the provisions. The realizable value shall be the value that could currently be obtained by selling the mortgaged/pledged assets in a forced/distressed sale condition. The banks have been asked to earmark additional provisions against the revised valuations of collaterals.

It can be seen from the above illustrations that the increase in absolute amounts of NPLs cannot be ipso facto attributed to any deterioration in the underlying quality of assets, but has occurred because of the stricter enforcement of regulatory, accounting, valuation and prudential rules.

Despite the above factors, the overall quantum of NPLs by the end of June 2002 amounted to around Rs 259 billion — an increase of only 47 billion in the last three years. This increase is equivalent to just the one time adjustment made in September 2000 to the stock of NPLs as a result of the improvement in the reporting methodology. While the nationalized commercial banks have brought down their non-performing loans, the largest single change has been in the category of specialized banks. Their NPLs have risen from Rs 19.3 billion to Rs 67 billion because of this one time adjustment. To the banking regulator, it is not the absolute amount, but the ratios of NPLs to total advances which are the relevant indicators of the quality of assets and the adequacy of capital of the banks. There are two ratios which ought to be monitored — the gross NPLs/gross advances and net NPLs/net advances. The reason for monitoring these ratios is straight forward and logical. As the banks grant new loans of good quality after a careful appraisal and due diligence, these ratios are bound to decline over time and the overall quality of assets of the system will improve. More important, it is non-provisioning of these NPLs that poses a systemic threat to the health of the banking system. The higher the provisioning, the lower is the systemic risk.

In June 1999, the ratio of gross NPLs/gross advances of the banks and DFIs was 24 per cent and is almost the same today. Had this under-reported amount of Rs 47 billion been added to the portfolio of banks, particularly ADBP and IDBP, in June 1999 the ratio of gross NPLs/gross advances on a comparable basis would have been 29 per cent. On this basis alone it can be seen that the ratio of gross NPLs to gross advances has declined by at least five percentage points over the last three years.

The more gratifying feature is that the ratio of net NPLs/net advances has declined from 15 per cent to 11 per cent as the banks and DFIs increased their holding of provisions to Rs 142 billion which covered 56 per cent of their classified portfolios of both foreign and domestic loans. The situation will further improve in 2002 as the banks make more provisions against a declining portfolio of NPLs.

(b) Proactive treatment of the stock of NPLs: The State Bank is still not satisfied with this declining trend of these NPLs, as the spread between the deposit and lending rates is still high because of this drag. It has adopted a multipronged approach to resolve this issue. First, it has put pressure on the banks and DFIs to accelerate recovery. During the past three years, an amount of more than Rs 40 billion or 20 per cent of 1999 outstanding stock of NPLs has been recovered in cash.

Second, it has decided to distinguish between wilful defaulters and circumstantial defaulters. The cases of wilful defaulters have been referred to NAB for action under the NAB Ordinance. NAB has helped in recovering (including rescheduling) Rs 17.5 billion so far from these defaulters.

Third, the Committee on Revival of Sick Units (CRSU) has been authorized to restructure the NPLs and revive the underlying sick units which are found to be financially and economically viable.

Fourth, the government has created an asset resolution framework in the form of Corporate and Industrial Restructuring Corporation (CIRC). This body acquires the bad loans from nationalized banks at a discount and auctions them publicly, thus taking away the assets from the existing owners and repaying the proceeds to the banks.

Fifth, as there are aged loans which can hardly be recovered for reasons of passage of time and the diminution in their value, the SBP has developed general guidelines for the use of bank boards of directors to write off these loans, particularly to help small and medium borrowers.

Finally, 80 per cent of these non-performing loans are concentrated in seven public sector banks and DFIs. NDFC has been merged with NBP. UBL has been privatized and HBL is in the process of privatization. IDBP and ADBP are being restructured and NBP shares are being floated. As this link between political loans and the public-owned banks will be severed, the probability of huge accretion of bad loans in the future will be minimized.

The banks are in the business of risk taking and there are occasions when exogenous shocks or business cycles or frequent changes in government policies do turn some of their assets sour. Until and unless there is no personal motive of the bankers or any political pressure, the write-off of loans and cleaning up of their balance sheets is the normal practice of the banks all over the world.

Pakistani banks should not hesitate to take appropriate action on the basis of transparent criteria and policy guidelines. The board of directors and the regulators should exercise oversight and make sure that the decisions taken by the bank management conform to the approved criteria and guidelines. Only wilful defaulters should be taken to task and made to repay their full liabilities. Legal action should be taken against them and their cases referred to NAB.

To be concluded

The writer is the governor of the State Bank of Pakistan.

Iraq war & US economy

IN THE United States, the news each night is dominated by the possibility of a US war on Iraq. Saddam Hussein has been a despot for many years, since long before he lost a desert war to the United States. Why is he now, suddenly, the focus of American ire?

The Bush administration tells its citizens that he is a great threat, but little seems to have changed, materially, in recent years, other than the terrorism of September 11, 2000. And, try as they might, the officials and agencies of the incumbent administration have found no credible link between Al Qaeda and Saddam Hussein.

So why has the rumour or war dominated the airwaves, taken over the front pages of the newspapers? This is a complex question, deserving of a complex answer.

First, there is September 11. Americans were deeply touched, and the American psyche profoundly altered, by the events of that day when terrorism became a reality and not just a distant threat for a great majority of Americans. The need to confront terrorism, to protect the American nation against eruptions of destructive violence within its borders, has deep resonance for those who live in the United States.

Yet the unhappy truth for the Bush administration is that its onslaught against Al Qaeda has not been going very well. After an initial victory over the Taliban in Afghanistan — a ‘lesson’ taught that those who harbour terrorists will suffer grave consequences — the war on terrorism has had few victories to trumpet. Osama bin Laden has not been caught, nor has his purported worldwide network of cells and operatives been exposed and demolished.

Thus, a war on a recognizable enemy, one that purportedly can be bombed into submission and defeat, entices many Americans. The Bush administration, quite likely crassly, has used the promise of a victory over Iraq to transform, much like a magician with quick fingers, a red silk handkerchief into a rabbit. Quick, presto, the wand is waved, Al Qaeda disappears, and Iraq is in front of the nation’s eyes.

Then, there is oil. Iraq possesses, after Saudi Arabia, the richest oil reserves of any nation on the planet. In a roiled Middle East, with increasing questions in Washington about the links between Saudi money and the funding of Al Qaeda’s operations, Saudia Arabia is no longer a totally secure source of relatively cheap oil. This petroleum-based administration — Mr. Bush made his first money in oil; Mr. Cheney was formerly the CEO of Halliburton, one of the world’s major oil production service companies; and the most important single stream of campaign contributions for Mr. Bush’s presidential run came from the energy industry in his native state of Texas — knows all too well how important oil is.

Those in the US who prefer the simplicity of paranoid formulas often believe that oil is the sole motivation behind America’s sudden, implacable need to invade Iraq. But, as stated earlier, the answer to the question, ‘Why Iraq, why now?’ is likely complex, overdetermined by a number of pressures which are impelling the administration forward. (That none of the pressures are rational, or defensible, does not make them any less real for those who meet to chart strategy in the Bush White House.)

Third, and of remarkable importance, the proposed assault on Iraq serves domestic political purposes. There is a Congressional election approaching, less than a month away. This summer the Democrats were hopeful of sustaining their one-vote majority in the Senate, and of retaking control of the House of Representatives. The issue of war emerged, and once again, the magician was at work: the issues which gave the Democrats hope that the voters would put them in the majority have been pushed back behind the curtain, while the magic rabbit of Iraq dominates the political stage.

Through this legerdemain, the rumour of war has buried a statistical story of semi-catastrophic proportions. The narrative of a forthcoming armed conflict — in this case against the evil wizard ‘Saddam’ — is far more dramatic than a recitation of numbers, and so the current economic condition of the United States is pushed to the back pages of newspapers.

In the past four years, the US lost two million manufacturing jobs, ten per cent of its manufacturing work force. One of five jobs in making automobiles was lost, as was one in three jobs in textile manufacture. The number of people living in poverty is up, as is the number of Americans without health insurance. As are personal bankruptcies. In the United States, unemployment is rising, long-term unemployment is rising even more rapidly, and a ballyhooed ‘economic recovery’ is nowhere in sight.

The most stark and stunning news appears on the financial pages, where the daily reports of stock prices are listed. Stocks, of course, are not the economy: but they are an index to both what is happening and a possible augury of what is to come. But although stock prices tell a story, the newspapers these days address them merely as a daily phenomenon, not as a narrative of historical dimension.

The stock market is in precipitous decline. The aggregate numbers, which are either buried deep in the financial section or not reported at all, are stunning.

By the close of the third quarter of 2002, the Dow-Jones average, America’s most widely cited measure of the valuation of its major corporations, had dropped 32.7 per cent since its high on April 11, 2000. Thus, it lost almost one-third of its value. In the great stock market crash of 1929, The Dow Industrial index fell 48 per cent over two months, but thereafter it rallied for the next five months. So although the fall in stock prices of the nation’s largest corporations is not as precipitous as it was then, and has taken place over a longer period, it is nonetheless steep, even by historical proportions.

The numbers get even worse if we look at the NASDAQ, the market on which most stocks in the emerging economy are listed. On March 10, 2000, it was at 5,048; at the end of the third quarter of 2002 it stood at 1,182. That is a drop, from peak to current trough, of 76.8 per cent. Compare that with the drop between October 29, 1929, (“Black Thursday”) and the bottom of the Depression market, on July 8, 1932, a period when the market declined 89 per cent. Seventy-seven per cent is not far from 89 per cent — and the NASDAQ is still plunging.

If market conditions were improving, there might be some reasonable explanation for the lack of news about the severity of the market declines. But things are not improving, but getting worse. Reuters reported of the third quarter that “stocks wrapped up a brutal September with a sell-off dragging the Standard & Poor’s 500 and the blue-chip Dow to their worst quarter since the crash of 1987.”

‘Well,’ might claim Bush administration officials and hawks clamouring that Saddam Hussein represents the nation’s biggest threat, ‘these are just stock indices. Just numbers on a graph.’

In the just-ended third quarter, the Wilshire 5,000 total market index dropped 17 per cent. That means that $1.9 trillion in market value disappeared in this ‘invisible’ stock crash. To put it another way, in the past three months, investments in American stocks lost an amount equal to $7,000 for each US citizen. (The current American population is just over 288 million people.)

According to Wilshire Associates, close to eith trillion dollars in investor wealth has evaporated since the spring of 2000. That figure which means that the US stock markets lost an amount equal to three quarters of what the world’s leading economy produced in the past year. That eight trillion dollar loss in market capitalization is greater than the national debt of the United States, now standing at $6.62 trillion. By my calculations — since the newspapers and securities firms refuse to report this decline, acquiring figures and a using one’s calculator are the only way to find out exactly what has happened in the past two years — the eight trillion dollar decline in wealth means that an amount roughly equal to $29,5000 per person has disappeared into the pit of the plummeting stock market.

By many measures the United States is in the midst of the largest, deepest, stock market decline since the stock market decline of 1929 initiated a world depression that would last well over a decade. Why are these figures not on the front pages of our newspapers?

Figures make tough reading. (Drumbeats for war make a more enticing cadence.)

And bad economic news shakes consumer confidence. The amazing fact that Americans keep buying, even in the face of a major decline in corporate equities, is the only bright spot on the economic horizon. If the media reported, with large headlines, what is happening in the equity sector of the economy, consumers might not be so ready to spend the money they have, or to borrow money to spend now and pay later.

Most important, though, for understanding the invisibility of America’s stock market crisis that the spectre of war with Iraq keeps the nation occupied. The conjurer dominates the stage, the hand is quicker than the eye:. One only sees what the magician wants us to see: Saddam Hussein, the wizard of evil who must be overthrown. “Regime change,” as it is called in the higher reaches of Washington’s defence establishment, becomes the nation’s central preoccupation.

But magicians notwithstanding, the market crash has huge consequences for America — consequences which will not disappear even though the news of it is submerged or even invisible.

What does the market plunge mean for the future of Americans whose retirement funds are heavily invested in the stock market? One quarter of Americans have an employer-based retirement plan, known as a 401(k). An even greater percentage have invested the savings they hoped to use in retirement, in mutual funds. When the market crashes, so do their plans and their hopes for retirement.

What does the loss of capitalization mean for American corporations seeking money to expand, to ‘grow’ not just themselves but the American economy? The answer is simple: investment in business, in growth, is hard to come by.

What does the huge decline in stock prices mean for America’s ability to fund the proposed war in Iraq and its consequent occupation? Senator Ted Kennedy recently estimated the war would cost $100-200 billion. But when the stock market plunges, so do tax revenues. According to figures compiled by the US Congress, capital gains taxes amounted to $129 billion in fiscal 2001. Rising stocks lead to profit taking; when investors take a profit, they pay taxes on it. Falling stock prices mean that the taxes formerly realized from capital gains taxes are no longer available. A fiscally hard-pressed government — and the US nation’s surplus of $127 billion in 2001 is already predicted to be a deficit of $157 billion by the end of 2002 — will not be able to fund both a war and social services. So social services will be slashed, as will every other government expenditure except military activity.

Americans, if they were to believe the media reports which confront them each day, would think that all that faces their nation is a national security menaced by Iraq, and a need for prompt and unilateral military action. Many believe exactly that: they watch the television news, and put their faith in the nation’s leaders.

So, perhaps the magician’s act on the centre stage of American politics is not as good as those who scripted it thought it would be. Still, the magician commands the stage, and despite a declining economy, war with Iraq seems to be part of his act.

The writer is Professor of English at the University of Vermont and columnist.

The Pimpernel of Hindukush

‘WE seek him here, we seek him there, those Frenchies seek him everywhere. Is he in heaven, or is he in hell? Where is that damned elusive Pimpernel?’

Osma bin Laden has become the modern version, the evil twin, of the Scarlet Pimpernel, Baroness Orczy’s rescuer of French aristocrats from the guillotine. Lately, not a bomb explodes without it being blamed on Osama’s Al Qaeda organization. In recent weeks, Washington has accused Al Qaeda of an assault on a French tanker, attacks in Pakistan, the killing of a US marine in Kuwait, and the frightful bombing of a Bali discotheque.

Given these alarms, one would imagine Al Qaeda to be a vast, octopoid organization whose tentacles span five continents. But this view, heavily promoted by the Bush Administration and media, is as wrong as Bush’s claims that terrorists are ‘on the run.’

Al Qaeda, to repeat what this column has been saying since 9/11, is a small, tightly-knit organization of about 300 hardened ‘jihadis,’ created as a role model, rallying point, and ideological beacon for militant Islamic resistance movements around the globe.

The US has been unable to destroy Al Qaeda because of its small size, secretive nature, and mobility. According to leaked Pentagon reports, the US invasion of Afghanistan last October proved counter-productive because it scattered Al Qaeda operatives far and wide, making it much harder to locate or monitor them.

Only one senior Qaeda figure, Mohammed Atef, has been killed. The alleged Qaeda members so far arrested, and now being tortured in Pakistan, Afghanistan, Egypt and Guantanamo, are either mid-ranking members or small fry.

The Scarlet Pimpernel of the Hindukush, Osama bin Laden, remains in hiding, probably somewhere on Pakistan’s northwest frontier. So, too, Ayman al-Zawahiri, Al Qaeda’s chief operating officer, the real force behind the organization. Zawahiri was a doctor in Egypt until he was wrongfully arrested, jailed and savagely tortured. After being released, Zawahiri formed Islamic Jihad, a murderous underground organization that battled to overthrow the US-backed regime of Gen. Husni Mubarak.

A small number of Qaeda-run paramilitary camps in Afghanistan served as a training ground, and social centre for thousands of young Muslim men from many nations who came to fight for Taliban or in a variety of jihads, or holy struggles, against what they viewed as oppression. All these groups were branded ‘Al Qaeda terrorists’ by US government and media, ‘though they were not part of Qaida and had nothing to do with the 9/11 outrages. The largest group was some 5,000 jihadis being trained by Pakistani intelligence for combat in the Indian-ruled portion of Kashmir, and a similar number of volunteers who had joined Taliban to fight the Northern Alliance, which was the old Afghan communist party under a new name. .

There were 3,000 Uzbek fighters battling to overthrow Uzbekistan’s brutal, communist dictatorship, and smaller numbers of jihadis from Indonesia, the Philippines, Muslim western China, North Africa, Egypt, and other Islamic nations. They were called ‘terrporists’ and either killed, captured, or scattered by US and Russian-backed forces.

During the 1980s, the US and Saudi Arabia organized and financed 100,000 young Muslims from across the Islamic world to go fight in the Great Jihad in Afghanistan. I came to know well these ‘mujihadin,’ both in Pakistan and Afghanistan. In 1986, Sheik Abdullah Azzam, the spiritual and political mentor of Osama bin Laden, told me, ‘once we have driven the Soviet imperialists from Afghanistan, we will go and liberate Saudi Arabia, and then Palestine, from western imperialism.’ This remains Osama’s policy today.

After the Soviet defeat, the mujihadin scattered across the Muslim world. They became known as ‘Afghani,’ and were held in high esteem for their valor and faith. But when some of these veterans decided to try to overthrow the dictatorial regimes of the Muslim world, the west and their local foes branded them as ‘terrorists.’ While there is no formal linkage between Al Qaeda and militant Islamic groups in Asia and Africa, an old-boys’ network of war veterans allows for secure and effective communications, as well as occasional cooperation.

Washington would like to blame all violent anti-western incidents on Al Qaeda. Doing so is convenient and present a simple black and white image. Bin Osama and Qaeda reinforce this mistaken view by applauding anti-western attacks, no matter how heinous or ineffective

In reality, the US now faces scores of violent anti-American groups from Morocco to Indonesia, inspired by Osama bin Laden’s defiance, and enraged by the suffering of the Palestinians and the Iraqis. Pakistan’s recent elections underline the growing resentment felt by many Muslims as their governments are increasingly forced to implement western policy.

President Bush’s invasion of Afghanistan and his impending war against Iraq have spurred radical groups to violent action against western targets. The Bali bombing, for example, may well have been the long-threatened retaliation by the Indonesian Islamic radicals against Australia for enthusiastically sending its SAS special forces to Afghanistan. The bombing was a horrifying, cowardly act, but so is dropping 1,000 kg bombs on villages and apartment buildings, or using C-130 gunships against wedding parties..

Due to increased security measures in North America and Europe, the ‘soft’ targets of choice may increasingly be western tourists, diplomats, and businessmen.—Copyright Eric S. Margolis 2002

The challenge for liberals

PAKISTAN’s recently concluded elections have thrown up a new set of questions that may further complicate and exacerbate the already existing contradictions and conflicts within the society in general and the power structure in particular.

The entry of the religious parties into the parliament in full force, with their barely hidden contempt for the western model of parliamentary democracy, and their espousal of fundamentalism does not bode well for the future of liberal democracy in this country.

Why were they able to sweep the elections in two main provinces of the country as well as make serious inroads in the major cities of the country? What were the ideological undercurrents and the power play that underlay the run up to the elections? If the religious right had an agenda why wasn’t the moderate mainstream able to counter it any better? These are some of the questions that we seek to address.

It is clear that as far as the parties other than the MMA are concerned, their campaign was bereft of any powerful economic or social themes or ideological debate. It contained only one remarkable feature namely the divide between pro and anti establishment political groups, something not insignificant in itself. Probably for the first time in our history a political grouping (PML-N) having its base and roots in Punjab stood up to the might of the establishment and contested the elections partly on the platform of rejecting President Musharraf’s changes in the Constitution.

The military made no pretense of hiding its desire to have a permanent share in the future power set-up and declared that it was going to call the shots as far as all the important issues were concerned. The civilians who were to be transferred power were to operate within the shackles of the many constitutional amendments the government had put in place.

The two major mass parties, the PPP and the PML(N) that had at earlier times accepted a de facto role of the army in the power structure did not come on board this time round. Equally importantly, most politicians of all hues and colours rejected the constitutional amendments invoking the establishment of a National Security Council and the overbearing presence of the president. The PML (QA) appropriately nicknamed the King’s party was the only exception, a role not uncommon to the gentlemen who are its leading lights. In this backdrop the two major parties (PPP and PML-N) contested the elections with their backs to the wall faced with the formidable power of the state machinery arrayed against it. Confronted with this adversary, both these two parties, which can be characterized as politically moderate or liberal to different degrees, failed to counter the onslaught with any rallying cry that may have propelled them out of the proverbial corner into which they had been pushed.

The fragmented parliament and the divided house that these elections have produced is as much a consequence of the concerted effort of the establishment to achieve these very results as it is the failure of the moderate, liberal elite to present an alternative vision; a credible thesis against poverty, injustice and disempowerment of the masses.

It was simply not adequate as far as the electoral response was concerned to be a champion of unfettered parliamentary rule if that had failed or held no promise of a better future for the people. Faced with such a choice the response of the people has been quite rational. Where the state sponsored candidates offered them the hope of a respite through their patrons and by virtue of their proximity to the centres of power, they have voted for them in the form of the PML(Q) or the other such groups (Millat Party, NA, SNA).

Where, as in Sindh, the issue of the establishment and its conflict with the mass aspirations is better internalized, the PPP was able to keep its hold in a very significant way. However in other places it has been a different story. That the religious right has won big not only in the frontier and Balochistan but has also made inroads in Punjab and Sindh suggests that the issue was not only the anti-US sentiment as a fallout of the Afghan war but a certain populist appeal emanating from the egalitarian message of religion.

While the extent of this disillusionment with the liberal agenda is not too extended, as manifested by the election results, it may well be the beginning of a more general trend since the same abysmal human condition prevails in all parts of the country. If the educated middle class of Islamabad offers its only (urban) seat to the MMA while the same happens at several seats in Lahore, Karachi and Hyderabad, this is a phenomenon that clearly transcends the confines of the Afghan war fallout. A population betrayed again and again by the liberal politicians has sought an alternative in the religious leaders and their worldview.

There are two main ingredients of this worldview as manifested in these elections as well. Firstly recourse to the theme that religion offers the remedy to all the ills faced by society and secondly (maybe a corollary of the first) an anti-modernity that perceives the cultural attitudes of the modern world as manifestly alien. The former theme however carries within it a hope for the deprived, as religion with its egalitarian message emerges as the “the heart of a heartless world, the sigh of the oppressed”.

Whether it can or cannot deliver on these promises is of course another matter but the populace, at least a significant part of it, has chosen to test their leaders on it. It is a trend that should be of concern to the liberal political opinion and politicians since it is a clear cut expression of their own failure to present an egalitarian vision of the future and the path towards it.

Where do the liberals stand on the question of redistribution of wealth and resources in our societies? Have questions of class and of economics based on class ceased to be our concern? More importantly what are we going to do in a practical way to address these concerns if we have them? Why did we not react more powerfully on the manifestations of social injustice, as for example on the recent issue of the right of the people to the land they have tilled for generations as opposed to the right of the elites, both civil and military, to appropriate these lands and their produce? Our indifference on such issues has alienated and shall continue to further alienate even larger sections of people from liberal democracy.

Involved in our NGOism and our myriad poverty studies and workshops we have failed to respond to the human tragedy that confronts us daily at our very doorsteps. We and our modernity stand condemned in the hearts and minds of this class as they wander from door to door in posh neighbourhoods asking simply to fill their cans with water, plain simple water, which they have no access to as a matter of right.

Our modernity and its tools posit themselves as the weapons with which we disempower them since this is what they lack as they toil fruitlessly generation after generation. Like the mythical Sisyphus they roll this heavy boulder up the hill only to roll it down back again. However (borrowing an analogy from Sartre) as they roll it back they shall at some time ponder at the meaninglessness of this existence and when they do so we shall stand condemned.

The coming years may most likely see much greater instability and conflict if the religious right tries to convert its electoral gains into manifest changes and wrest power from its traditional brokers. As this struggle intensifies both the privileges and the worldview of the liberal elite will come under increasing attack.

As a society we may sink into even greater obscurantism and traditionalism if we don’t confront the social and economic crises in our society with a much greater commitment to the people and their rights. Liberal democracy as we cherish it will only be able to survive if its message is coupled with that of social justice.

If we continue the way we have been going, it is well within reason that the religious right, given time enough, will be able to convince a sufficient number of people that this system holds no future for them. They (the religious right) may do so because the fundamental tenets of liberal democracy run counter to their claim of having all the answers for all the times.

The people, however, may respond in the affirmative because they will perceive the system as being irrelevant to the satisfaction of their basic needs, namely a right to the amenities of life and of livelihood. Unless of course, the privileged make liberal democracy work to the satisfaction of those very wants that the disempowered are demanding.