FROM CITIBANK TO PM HOUSE

With Musharraf gone soon dust will settle and historians will decide where to place Musharraf in history. A lot has been said about Musharraf and lot more will be said but at the moment it’s crucial that we analyze the destructive role that Shaukat Aziz played in wrecking the backbone of Pakistan’s economy.

Aziz was not someone who came out of the blue he was the most lethal economic manager that was sent to Pakistan by our masters in the West. When Pakistan’s experiment with democracy started again in 1988 former executives from IMF, World Bank and other shady organizations started flying into Pakistan and taking over Finance and Economic affairs into their hands. Shaukat Aziz was not just another finance minister of the Bank or IMF he was an EHM (Economic Hit Men).John Perkins was economic hit men for the National Security Agency and now has come clean and wrote the details of his working career into two bestselling books. This is how he explains what an EHM is “Economic hit men (EHMs) are highly paid professionals who cheat countries around the globe out of trillions of dollars. They funnel money from the World Bank, the U.S. Agency for International Development (USAID), and other foreign "aid" organizations into the coffers of huge corporations and the pockets of a few wealthy families who control the planet's natural resources. Their tools include fraudulent financial reports, rigged elections, payoffs, extortion, sex, and murder. They play a game as old as empire, but one that has taken on new and terrifying dimensions during this time of globalization. I should know; I was an EHM.” (Confessions of an economic hitmen by John Perkins)

The people who think that Aziz did wonders for Pakistan’s economy are totally mistaken. Sustained economic growth does not take place unless there is investment in research and development, expansion of industrial base, expansion of social economic projects, and real development of rural and urban areas. What Aziz did was totally different he started expanding the economy at the macro level resulting in increase demand of luxury goods from foreign countries. This resulted in widening the gap between the rich and the poor. The economy of Pakistan is in utter chaos. Inflation, trade deficit, sky rocketing fuel prices, shortage of power generation, and weakened Pakistani rupee have caused the economy of Pakistan to go into a whirlpool. On the surface the issues of inflation, trade deficit, fuel prices looks simple yet inside look at these issues reveal a different story. The economic managers have masterfully planned and executed economic policies that have turned out to be total disaster for the country. Pakistan’s economy was in chaos when General Musharraf took power; there were sanctions on Pakistan which were imposed after 1998 nuclear test. IMF had cut off aid to Pakistan; this aid started flowing again when Mr. Shaukat Aziz was installed as finance minister of Pakistan by Gen. Musharraf. Once he was installed the ball was set rolling for big corporations to come and invest in Pakistan at their own terms. Monetary policies were liberalized and investment was encouraged. For example all the international companies that have invested in Pakistan got huge tax benefits from the government. Then they were allowed to take all their profit out of the country and were not required to invest any amount in research and development. What we see all around us is that Telenor, Warid, and other companies are setting up cellular networks in our country. But what are the costs associated with it? For example the only country in the world where Telenor has 100% ownership is Pakistan. This in itself is extremely flawed policy that the government approved. All these companies and their associated cell phone manufacturing companies did no investment in Pakistan resulting in Pakistan importing over $1 billion of cell phones. This surely is a unique statistic for a third world nation like Pakistan. During the first three years of Shaukat Aziz’s tenure as finance minister, many macro-economic indicators recorded downward trend for three consecutive years in a row. Even after 9/11 econimc situation was not good. Once Pakistan became the frontline state in war against terror and strategic partner of the United States the economy showed signs of improvement due to financial support of US including cash grants, re-profiling of external debt of $ 12.5 billion, fresh loans from International Financial Institutions (IFIS) on soft terms and market access. Post 9/11 also saw huge quantities of remittances pouring into Pakistan from overseas Pakistanis. The total remittances to Pakistan in post 9/11 era from September, 2001 up to December 31, 2005 stood at over $ 16 billion. This resulted in Pakistan foreign currency exchange to increase sufficiently. These are only macroeconomic level gains and they don’t trickle down to 80% of the population. Today trickle down economic theory has been discredited and thrown away for good by all first world industrialized nations of the world. It is no surprise that those policies are still continued in countries like India, Pakistan, Argentina, Central Asian republics, and other countries.

First and foremost Pakistan started taking structural adjustment loans from IMF and World Bank. Banking sector was the first to be reformed. Interest rates were lowered first, and then money supply was increased to the public. Increase in remittances, allowed the banks to make liberal advances even at lower interest rates. It was the first time in history of Pakistan that banks allowed financing at rates lower than the inflation rate. The GDP growth rate of 7%, 8% during 2005, 2006, and onwards was consumption-led growth rather than real industrial production. Banks started issuing loans to consumers for auto financing, home financing, and other such schemes. Most importantly credit cards were handed out to middle class and lower middle class people as well. The biggest problem with banking operations in Pakistan is that banks throughout the world operate on a profit margin between 8 – 10 %. Banks in Pakistan are allowed to operate at a very healthy profit margin of 30% or even 35%. The result of increasing the money supply was that the lower and middle class now had access to small loans and credit cards this resulted in sudden increase in demand for air conditioners, televisions, microwaves, washing machines, and refrigerators. This in turn put tremendous burden on the national electricity grid. There was a plan which involved constructing the Thar Coal Power Project which could have generated 5000MW of electricity. An American company was interested in pursuing this project but the project was vetoed by Shaukat Aziz, later on a Chinese company was interested in the same project but it was again vetoed by Shaukat Aziz, who by now was also the Prime Minister of the country. A review petition was also filed by the Chinese company to President Musharraf but to no avail. Thar Coal power project was deliberately put aside so that in future the energy crisis in Pakistan could worsen. Indeed it has worsened, as right now there is shortage of at least 3000MW. Now Pakistan is going to import 1000MW electricity from Iran. Kalabagh dam has been ready for construction since 1985 but no sign that the dam would be built anytime soon. This increase in demand of electricity based goods resulted in increased demand for import of more technical products. Pakistan is unfortunately a country where assembly of most goods takes place but manufacturing is not done. For example, air conditioners are made but compressors are imported, similarly motors, chassis for cars, engines for small and large vehicles, generators, copper wiring, machine tools, and many other products are imported. The textile sector which is the biggest exporter of Pakistan was hit very badly by the power crisis. This has resulted in decline of exports from textile sector. The textile sector and the agricultural sector was badly ignored and left to rot.

Privatization was another important goal of Shaukat Aziz, he sought to privatize, Pakistan State Oil (PSO), Steel Mills, PTCL, among many other banks and corporations. PSO is our economic backbone it has 80% of our oil carrying and refining capacity. PSO supplies oil to PIA, Pakistan armed forces and all government related institutions. Aziz did not get adequate time to sell off PSO. The plan was to get Chief Justice Chowdary out of the way and then go after PSO. Steel Mills privatization was stopped by Supreme Court Chief Justice Iftikhar Chowdary after the news leaked that it was sold for a value less than the cost of the land on which the mill is located. We should keep in mind that at the moment Steel is a hot commodity and it is in high demand in emerging economic giants like China and India. Well renowned Indian industrial tycoons are buying steel mills in other countries, for example, England, Brazil. It is no wise decision to allow foreign investors to buy the nations steel mills, and allow the investor the luxury to sell it in future to any buyer who may even be an Indian National.

PTCL is another organization which was sold to Etisalat. PTCL was sold for less than its real value. When the bid was filed by Etisalat for the purchase of PTCL there initial offer was low. The irony was that there offer was accepted. Etisalat defaulted on timely payments of their installments. At this moment the bid should have been cancelled and Etisalat should have been reprimanded according to the procedure. Instead a summary was sent to President Musharraf by Shaukat Aziz asking him to allow PTCL to be sold to Etisalat at a new price and new terms and conditions. Shockingly this was accepted by President. The result was the disaster that we all are facing right now. Since Etisalat took over PTCL they have fired many technical staff through the golden shake hand scheme. They have increased the local call rates exorbitantly that has caused difficulties for the local caller. Local calls are generally free within the city in most parts of the world. But in Pakistan local call rates have been increased a lot. Rates for dial up internet have also been increased resulting in per hour cost to be around thirty rupees. The results of PTCL privatization are now coming clean as for weeks thousands of its employees were on strike. Privatization of Karachi Electric Supply Corporation was another disaster. The biggest disastrous law was the exemption of capital gains tax on stock market investment. For all his tenure stock market was exempt from capital gains tax. This resulted in billions of rupees being invested by the elite 0.5% and in return they made more money and in the end paid no taxes. They invested this money in real estate throughout Pakistan. They did this because there is no real estate investment tax. This resulted in property prices being jacked up by the elite class who holds houses and plots for investment purposes, artificially increasing the prices. This is not all during his time as finance minister and prime minister more than Rs. 600 billion of loans were written off. The burden of all this was and still is suffered by the people of Pakistan. The oil prices and 16% general sales tax (GST) are an example. There is no place in the world where the government collects 16% GST. It has to be world record of some kind that a third world country charges 16% GST from its citizenry. The government did this because it was unable to impose agriculture tax and get tax money out of the filthy rich elite.

The list of economic disasters that were deliberately carried out by Shaukat Aziz are long and good enough to fill a book but these are just some examples of what he did and what he tried to do. Irony is that right after coming into power this government has carried on exactly where Aziz left. As per instructions from IMF they have agreed to end all subsidies by December 2008. Subsidies on oil, gas, electricity, and agriculture will be finished. This will result in 100% increase in prices of all these commodities. The GST was 15% during Aziz’s time now its 16%. The parliament (house of crooks) has passed a law which states that Kalabagh dam will never be build. This is a real shocking decision that will destroy Pakistan’s water resources and our agriculture sector but not surprisingly none of the political parties even bothered to talk about it. No NGO, Lawyers, media, no private enterprise none what so ever raised their voice. Without Kalabagh dam Pakistan will become a land where there will be severe food and water crisis within the next decade.

Late finance minister of Pakistan Dr. Mahbul ul Haq (who is also known as father of modern development economics, and was roommate of Amartya Sen at Cambridge) said in 1985 that Pakistan is heading towards becoming Congo no one believed him but we are still heading in that direction.

Talha Mujaddidi
Aug 19th 2008