Stock market controversy
ALLEGATIONS that manipulation by top brokers triggered the stock market crashes of 2005 and 2006 have finally found their way out of business circles and the closeted world of high-stakes equity trading. A focus of media scrutiny in recent weeks, the debate has now entered the public domain following a parliamentary presentation by the former chairman of the Securities and Exchange Commission of Pakistan (SECP). Its repercussions are likely to be felt in quarters that are — or should be — far removed from the day-to-day workings of the stock exchanges. The former SECP chief has alleged that his dismissal in January this year was orchestrated by senior government officials who had consistently opposed his attempts to structurally reform the Karachi Stock Exchange (KSE) in the wake of the March 2005 crash. It is believed that he specifically accused two officials of maintaining close ties with leading brokers suspected of manipulating the market to their advantage — and to the detriment of small and other genuine investors. He further alleged that he was shown the door when he was close to netting the “big fish” who subsequently got away under the new SECP dispensation. In response, government officials present during Friday’s meeting of the National Assembly’s standing committee on finance maintained that these “personal opinions” were not substantiated by documentary proof. The former chairman has, however, furnished the standing committee with a list of brokers who he thought were guilty of wrongdoing.
Irrespective of the veracity of the charges levelled on Friday, it is important that they be followed up without favour shown to any individual who may be party to the recent scams. Some of the highest office-holders in the land are accused of protecting unscrupulous elements who — and this is undisputed — have been toying with the stock market for personal gain. Insiders manipulating the bourses is a global phenomenon and there is nothing epochal about the revelation in this case. What is disturbing, however, is the imputation that top governmental officials are somehow patronising this activity. Moreover, it is significant to note that the former SECP chief did not speak out only after losing his job. In August 2005 he sought permission to resign in a letter addressed to the prime minister, citing “market interventions by senior government officials” that were delaying reform initiatives. He was persuaded to carry on at the time but it seems an impasse was reached in the months that followed.
There are no doubt economic advantages in having a prime minister who is on a first-name basis with business leaders and who understands their community’s concerns. But there is a downside to this relationship in that it makes the office of the head of government vulnerable to charges of favouritism and improprieties. Easy accessibility can, in the minds of critics, be equated with commonality of interest. Immunity from scrutiny and accountability cannot be seen as one of the bonuses of doing business in Pakistan. This impression must be removed. To that end, a start can be made by ensuring that the conclusions reached by the forthcoming investigation into the affairs of the stock market are not biased one way or another. The on-going blame game between the SECP and KSE management must also come to an end. It is the SECP’s duty to guarantee fair play at the bourses and to protect the interests of all investors, irrespective of their clout.
Allegations yet again
IT seems that no amount of assurance or effort on the part of Islamabad can convince Kabul that Pakistan is doing its best to curb cross-border terrorism. Addressing a gathering at the prestigious Centre for Strategic and International Studies in Washington the other day, Afghan Foreign Minister Rangin Dadfar Spanta accused Pakistan of not being able to stop militants from using its territory to carry out terrorist acts in Afghanistan. His criticism is in line with that of his predecessor, Abdullah Abdullah, and President Hamid Karzai who have often blamed Pakistan for the mounting violence and Taliban resurgence in Afghanistan. Nothing could be further from the truth. While there is much to substantiate Afghanistan’s fear of growing Taliban influence in the border areas with Pakistan, the latter has been actively engaged in fighting militants, particularly in the tribal areas in the north, and has succeeded in arresting some key Al Qaeda figures since the war on terror was launched. Moreover, 80,000 troops have been stationed along the long, porous border to counter militant operations. Considering that Pakistani forces have been spread out thin, guarding the eastern border, fighting an insurgency in Balochistan and combating militancy in Waziristan, this is not a small figure.
What is surprising is that the Karzai government is not taking measures to extend its control outside Kabul where Nato forces are having a tough time curbing hit-and-run Taliban offensives. There is total lawlessness in the provinces that are under the sway of warlords and where opium cultivation is fuelling the illicit arms trade. Unless Kabul puts its own house in order, it is unlikely that it will ever be able to stop cross-border terrorism that it now blames on Pakistan which has repeatedly said that a stable Afghanistan is in its interest. With the Taliban gaining strength in the border areas, this is no time for Afghanistan to be indulging in its usual blame game. It must look for closer cooperation with Pakistan in flushing out the militants through sharing intelligence and coordinated operations that can help Pakistan locate and destroy the alleged militant camps on its soil.
Chaotic transport system
ONE is not surprised by the Planning Commission’s disclosure that Pakistan’s “inadequate and inefficient transport system” costs the country an estimated Rs230 billion annually — which is about 8.5 per cent of the GDP. The cost to the economy, the Planning Commission’s annual report says, stems from congestion, poor quality of roads and the inadequacy of the supporting infrastructure. These logistic constraints, the report says, inhibit the competitiveness of the country’s trade and industrial development. The reason for this state of affairs is the absence of a proper transport policy. This is astonishing for a sector which employs 2.3 million people and contributes 10 per cent to the GDP. The report concerns road transport as well as railways, shipping and aviation, but the road transport accounts for 90 per cent and 96 per cent respectively of all passenger and freight traffic.
The chaos one sees in our cities stems from the absence of mass transit systems in cities like Karachi and Lahore and lack of an integrated transport system. At present, road transport, railways and air services operate independently of each other. This is a source of inconvenience to passengers who may want to use all three modes of transport on a given occasion. One can see places like London’s Victoria Station, where bus, train, tube and inter-city coach services operate in tandem with each other. As it exists today, Pakistan’s transport system operates on its own, and government controls exist only on paper. In fact, transporters have turned themselves into mafias and flout traffic rules at will. Notice, for instance, the existence of unauthorised inter-city bus termini in the middle of residential localities in Karachi. One hopes the PC will come up with a comprehensive, long-term plan for developing an integrated transport system — one which is fast, comfortable and cheap.
Pakistan’s democratic predicament
AS during most part of its chequered history, Pakistan stands once again at the crossroads and the 2007 elections could be a landmark event that could shape the future destiny of the nation. It is not merely a question of whether the exiled leaders will return home before the elections or that the embrace of the army would get tighter, but the whole future of the state is at stake.
The questions on everyone’s mind are whether Pakistan is going to move towards becoming a democratic, pluralistic, multicultural and multiethnic society with a happy blend of Islamic values and cultural ethos that can peacefully coexist with itself and the rest of the world. Or would it be overtaken by the “self-righteous” Islamists, who take a doctrinal view of life and drag us into the obscurantist world of the Taliban?
Or will the military elite, which perceives itself as the real guardian of the state, hold on to power with the help of a civilian clientele and keep society politically immobilised? Unless we are able to define our destiny among these competing visions in clear terms, through a transparent and honest political process, we will continue to have a fractured identity and will be perceived by the rest of the world as a failing or troubled state.
What direction the country will take would depend largely on the choices made by our ruling elite, especially the president, in the coming months. Currently, major contradictions exist in our society. The government claims that during the last seven years of its quasi-democratic rule, governance has improved and macro-economic management is better. That may well be true, but the other reality is that vast areas of Balochistan, parts of Sindh and southern Punjab and the tribal belt, as a result of years of neglect, have turned their anger inwards, challenging the writ of the state and refusing to shed their tribal or feudal character with serious implications for the integrity of the state.
At a broader national level, the government’s failure to dispense justice and provide the basic elements of governance to the majority of the people has resulted in fuelling violence. Heavy reliance on the military to perform basic functions of the government, particularly in coping with internal armed conflicts, has further exacerbated the people’s anger. Prejudices and mistrust govern relations between provinces and similar behaviour characterises relations between different parts of the provinces.
The centre and the provinces also have an adversarial relationship, threatening the integrity of the federation and making it almost impossible to achieve consensus on any major national issue, whether it is the construction of dams, division of water and other natural resources or combating terror and extremism. Strong resentment exists against army rule, particularly in the smaller provinces making the task of inter-provincial harmony extremely difficult. Mere religious slogans or empty rhetoric of enlightened moderation and narrow self-serving nationalism have failed to respond to the genuine political demands of the people. Neither has this approach met the demands of security and development.
People no more perceive the state as neutral or merely incompetent, but see it as engaging in manipulation, coercion and plain imposition to serve the interests of the elite, often ignoring the plight of the people. Over the longer term, if the military retains its overweening role, its professional competence will suffer, which is a matter of serious national concern.
The slow pace of the Indo-Pakistan peace process, resurgence of insurgency in Afghanistan and India’s assertion of power in Afghanistan and Central Asia, combined with a potentially dangerous standoff between the United States and Iran, are putting additional strains on Pakistan. In this context, it is true that regimes lacking legitimacy tend to focus more on external issues in order to divert attention from pressing domestic problems.
Nonetheless, the internal and external situations demand that the country move through an orderly transition to genuine democracy that gives the citizens the right to be part of the political process. It is only through the people’s support and involvement that leaders will be able to resolve the current crises. The argument advanced by the president and the ruling party in favour of retaining his uniform in the face of serious internal and international opposition defies logic and political rationality.
Let us look at Israel. We may deplore its brutal policies against the Palestinians, but we cannot help admire that it is the only democratic state in the Middle East that faces all the internal and external challenges by actualising its democratic institutions. If it was a dictatorship or a military rule it would not have survived. Iran is standing up to western pressure on the strength of the people’s support. Indonesia has proved how democracy can stabilise a country and enhance its respect and credibility among the comity of nations. In fact, many of our problems are the result of lack of democracy and our warped power structure.
However, Musharraf’ shedding his uniform and holding free and fair elections or political parties signing the Charter of Democracy should not make us believe that democracy would start blossoming overnight. These no doubt would be major steps forward in the march towards democracy, but would need a sustained commitment on the part of each one of us to make the process irreversible. The process of democratisation brings the contradictions in society to the fore and could even aggravate tensions within it initially.
By bringing about a change in the prevailing power structure, democracy will no doubt circumscribe the power and influence of the currently privileged who will try to sabotage the process and may even align themselves with forces that would like to destabilise the system, as has been our experience in the past. Moreover, many of our political leaders do not have the right kind of democratic credentials and are feudal in their behaviour.
Despite all these shortcomings, democratic governments, howsoever poorly run, have distinct advantages over military or authoritarian regimes — firstly, because institutions enable power to be shared, and as a rule, democratic regimes are more responsive to the needs of the people otherwise they would be liable to be voted out of power. In contrast, we find that authoritarian regimes cater to their own narrow clannish interests or promote their clientele’s fortunes.
In mature democracies there is no place for any one man’s contrived decisions as we have witnessed in Pakistan frequently both during military and civilian governments. The tragedy is that it is the poor who suffer the consequences of it in silence. President Musharraf, during his six years in office, has made honest efforts at improving the economy, undertaken development projects in smaller provinces and enhanced the image of the country.
But over-concentration of power in his own hands and his desire to retain both the offices is contrary to the spirit of the Constitution and has created a bad precedent. Now Pakistan’s greatest problem is the uncertainty about succession, because there is a widespread perception that he would use extra legal means to retain power. President Musharraf has to realise that if he wants to acquire legitimacy in the eyes of the public he has to shed the uniform and contest free and fair elections. Unless he acquires legitimacy, there is no way that the rule of law can be established in the country. Without the legal and moral foundation of the state it cannot aspire for durable political progress or economic development.
President Musharraf’s policy of deriving strength from the army and acquiring legitimacy through economic progress will not work any more. Because what we have witnessed is that political monopoly leads to economic monopolies both at the individual and institutional levels. The present politico-military nexus has used the military’s political dominance for developing economic monopolies in the form of cement and sugar cartels, manipulation of stock markets and favouritism in privatisation deals.
Similarly, low priority for education and health sectors has resulted in a serious knowledge deficit and exploitation of the weak segments of society, whether it is women, minorities or the poor. It is indeed a shame that the educational system of Pakistan is classified as being among the least developed in the world with literacy rates appallingly low and educational opportunities very limited, notwithstanding the tall claims made by the government.
The brighter aspect is that media’s phenomenal progress has contributed to a political debate on national issues and brought greater clarity in the thinking of the people. There are clear signs of Pakistan the inevitability of adopting democratic norms and it will not be that easy for the rulers to take the people’s submissiveness for granted. Bringing about liberalisation through reservation of women’s seats in parliament, a more liberal approach to freedom of the press or the half-baked devolution of power at the local level will not suffice. The litmus test of Pakistan’s democratic credentials would be when civilian institutions oversee and hold the government accountable for national budget expenditures and security policies.
Prudence demands that this time around military should not resist a genuine transfer of power to the parliament, cabinet, judiciary, election commission and other organs of the state. Indeed, the army’s maturity would lie in how it contributes to the strengthening of democratic institutions and democratic culture in Pakistan. Surely, this would also be the best way of strengthening itself and the country.
The writer is a retired lieutenant-general.