Bank Loans Written Off by Musharraf Government

Source: www.AdeebPress.com

Top Guns Got Over 53 Billion Rupees Bank Loans Written Off	15th November 2007
by Rauf Klasra

ISLAMABAD, Pakistan, 23 October 2007 (The News): As the present [Musharraf] Government completes its five-year term in office on November 15 [2007], it has been officially disclosed in a secret report that the top guns of Pakistan got 53.499 billion rupees bank loans written off on the basis of a decision taken by the financial team of General Pervez Musharraf in October 2002.

This shocking disclosure has been made in a secret report submitted before the Public Accounts Committee (PAC) of the National Assembly which has been requested to take up the issue at the earliest time to know the reasons behind such a massive loss to the public exchequer facilitating the privileges of the present [Musharraf] Government.

As the present [Musharraf] Government would claim to be the first in the history of Pakistan that has completed five years in office, at the same time it would also be 'credited' with writing off such an unprecedented amount of loans within its five years in office to facilitate top guns of the [Musharraf] regime.

The report shows that a total of over 50,000 persons - including politicians, civil and military business concerns, and business tycoons of Karachi, Lahore and other areas - were the direct beneficiaries of this massive favour.

Two sitting chief ministers of the [Punjab and Balochistan] provinces [Chaudhry Pervaiz Elahi and Jam Muhmmad Yousaf] and their families, having big business concerns and stakes, are also beneficiaries of these written off loans whose details would be discussed in the committee meeting.

Although in the past, reports of written off loans have been appearing at different forums including the National Assembly, this is the first time that the total written off amount has come to surface.

The Chief Minister of [Punjab] province, [Chaudhry Pervaiz Elahi], whose family owns sugar mills, also got loans written off under this scheme. The Chief Minister of [Balochistan] province, [Jam Muhmmad Yousaf], got loans written off outstanding against his ghee [cooking oil] mills. Even some foreign firms and multinational companies and a private bus service operating from Lahore to different cities of Punjab were also extended this facility.

Earlier, soon after elections in October 2002, the then Finance Minister Shaukat Aziz and his financial team at the State Bank [of Pakistan (SBP)] approved a 'written off loan scheme' in the same month (October 2002) after certain top politicians of the [Musharraf] Government put them under pressure to ease financial burden of loans from their business concerns.

In the garb of writing off non-performing loans of small businessmen, these top guns quietly got billions of rupees written off. An official of the PAC confirmed to The News that a report has been received containing the details of loans written off during the last five years.

Copy of the report available with The News shows that soon after the October 2002 elections, General Pervez Musharraf's financial team decided to launch a scheme to write off loans of the big guns as it set the minimum limit of written off loans at Rs 0.5 million. This 0.5 million condition deprived small growers and small businessmen of this scheme and only big guns were the beneficiaries.

The report said that prudent banking practices and prudential regulations issued by the State Bank required securing loans through best guarantees, viable credit approvals, proper documentations and effective monitoring and follow up to avert flow of cases of non- performing loans. On the contrary, cases of non-performing loans were allowed to be accumulated by the banks and the SBP.

Instead of launching an effective campaign for recovery of such loans, the SBP issued an incentive scheme to the banks/DFIs in October 2002 for writing off NPLs [Non-Performing Loans] of the organizations showing "loss" for three years or more. The NPLs for the purpose of the scheme were divided into three categories: category A included NPLs up to Rs 0.5 million, category B included NPLs ranging from Rs 0.5 million to Rs 2.5 million; whereas, category C included NPLs more than Rs 2.5 million. The big political families and top guns exploited the third category of the written off loans to get billions of rupees outstanding against them written off from the banks.

However, the report has pointed out that for the settlement of B and C category cases the banks/DFIs were required to recover maximum possible amounts on the basis of outstanding amount vis-a-vis forced sale of available assets. The purpose of the scheme was to clean the balance sheets owned by banks/DFIs to make them ready for privatisation.

As a result of the scheme, the banks/DFIs settled over 50,000 cases involving outstanding amount of 74.879 billion rupees; whereas, only 11 billion rupees could be recovered. The report claims that the scheme resulted in realization of only 15.15% of the outstanding loans but major portion of the loans was either written off or could not be recovered.

Meanwhile, the Auditor General of Pakistan (AGP) in its report to PAC has opined that this practice resulted in encouraging defaulters with an extraordinary financial burden on the public exchequer.

The report said the shocking written-off loans issue was raised with the Ministry of Finance and SBP management. The matter was also discussed in subsequent meetings in the recent past with the last one held in March 2007.

Meanwhile, a SBP official has argued that the writing off of loans in the banking sector was under a policy guideline issued vide circular No. 29 and that the losses mentioned by audit did not pertain to the SBP.

But the AGP in his report has observed that such a huge write off may be looked into which was made possible due to circular No. 29 of SBP and recoveries be made from the plunderers of public exchequer.

Talking to The News, Minister of State for Finance Omar Ayub strongly defended the policy of the [Musharraf] Government to introduce a scheme to help the borrowers settle their Non-Performing Loans (NPLs) with the banks including the National Bank [of Pakistan (NBP)].

He said that these NPLs were settled in the light of circular No. 29 issued by the State Bank. Omar said, a total of 50,414 borrowers availed the facility of settling their loans under this scheme which he confirmed was introduced in October 2002 after general elections.

Omar said that these decisions were taken by the boards of these banks that were quite independent and were not under the influence of the [Musharraf Military] Government. He said actually these Non-Performing Loans were becoming a burden on the banks itself so the decision was taken to rather settle them after offering them a package.

Omar did not subscribe to the notion that top guns of the [Musharraf] Government, including chief ministers or ministers, had got their loans written off under this scheme. He also rejected the impression that these loans were written off as a bribe both to the politicians and big businessmen.

When told that even NBP had written off loans outstanding against some top politicians, Omar replied: "We need to understand that banks were deciding those cases in their own business interests without caring for pressure from any side."