------------------------------------------------------------------- DAWN WIRE SERVICE ------------------------------------------------------------------- Week Ending : 2 June 2001 Issue : 07/22 -------------------------------------------------------------------
Contents | National News | Business & Economy | Editorials & Features | Sports
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CONTENTS ===================================================================
NATIONAL NEWS + Investors assured of maximum facilities + Nawabshah farmers given state land + 16 killed as coach rams into oil-tanker + Interim PFC award for district govts likely + CE okays budget guidelines + Tax survey impact limited on revenue + Directive to prepare energy plans: 3 and 10-year strategy + 80% IT exemptions may be withdrawn: Selected people and areas + Pakistan cautiously optimistic: Musharraf-Vajpayee talks + IMF okays raise for government employees + Police top 'dirty dozen' chart + Chinese firm to give Rs 116 million loan for lab + Cyclone to hit coastal belt today; Villages inundated + One killed, 350 arrested on eve of Sunni Tehrik strike + New oil refinery being set up at Hub + Proportional Representation system being considered + Deep-sea fishing allowed --------------------------------- BUSINESS & ECONOMY + Pre-budget leaks warm up financial market + State Bank says drought to cost $927 million + Oil, gas attracts $ 911 million investment + SBP's third quarterly report on economy + $ breaks through new barriers: Rupee loses 2.2% in 10 days + ADB concerned at delay in $80 million KESC project + World Bank to give $350 million credit on June 13 + Money laundering hits Pakistan + Budget deficit to miss 5.3% target + IMF letter for third tranche received: Board meeting in July + Banks reluctant to give gas firms long-term loans + Rules relaxed for currency export: FAP team meets Shaukat --------------------------------------- EDITORIALS & FEATURES + The systems Ardeshir Cowasjee + Fog and illusions on the road to peace Ayaz Amir + Let's take the high road Irfan Husain ----------- SPORTS + Thorpe, Vaughan make Pakistan bowlers toil + Pakistan, India set on peace path, says Advani + Political uproar puts BCCI in a spin + Weak opposition saddens Waqar

Investors assured of maximum facilities
By Qurban Ali Khushi

DADU, June 1: Chief Executive Gen Pervez Musharraf on Friday said 
that the economic revival plan announced in 1999 placed prime 
importance on the rapid development of indigenous energy resources  
"as we believe this sector has the potential of reviving the 
economic fortunes of Pakistan."

Inaugurating the Zamzama EWT plant gas-field near Dadu, he said the 
government was making all-out efforts to revive the economy with a 
view to making Pakistan self-sufficient in various sectors, 
particularly agriculture, industry, oil and gas.

He said the government had launched various schemes under a joint 
venture programme and an atmosphere of cooperation, confidence, 
security and protection would be ensured which, he hoped, would 
enhance the size of investment in the country. Underlining the need 
for encouraging foreign investment in the country, he said a 
comprehensive policy had been formulated to provide maximum 
facilities to investors.

The CE welcomed the investment from Australian entrepreneurs, 
particularly in the fields of oil and gas, and appreciated the 
efforts of M/s Broken Hill Proprietary Petroleum (BHPP) which had 
established and commissioned the Zamzama oilfield project within 
two years.

He emphasized the need for a better utilization of resources, 
particularly coal, claiming that Pakistan had the biggest coal 
reserves in the world. Gen Musharraf invited the BHPP to also 
concentrate on exploration of coal. Emphasizing the need for 
execution of the exploration policy, the CE disclosed that the 
government would shortly be announcing a "more relaxed" petroleum 

Since the government aimed at self-reliance, efforts would be made 
to minimize the amount of foreign exchange being paid on the import 
of furnace oil, he said, adding that Pakistan was paying foreign 
exchange of $900 million annually. He said there was a remarkable 
change in the global trend as natural gases were emerging as an 
important factor in the earth's reserves, and added that about 5 to 
7 million cubic gas had been discovered in Pakistan.

The CE said that the energy demand of the country was increasing 
day by day, adding that natural gas would prove to be an 
alternative for fuel. He was confident that foreign investors, 
particularly the Australian firms, would be cooperating with the 
government.  Petroleum Minister Usman Aminuddin also spoke.

APP adds: The CE said this was his vision and goal to increase the 
proportion of gas usage in the economy to over 50 per cent of the 
total energy supplies by 2010. "It is my understanding that the 
production from the Zamzama Gas will bring us closer to realizing 
this goal by adding almost 20pc to the current supplies of gas in 
the country apart from further investment in exploration."

Nawabshah farmers given state land
By Zulfiqar Memon

 NAWABSHAH, June 1: Chief Executive Gen Pervez Musharraf visited 
the agricultural exhibition at Deh Sukhpur, Daulatpur Taluka, here 
on Friday. After visiting the exhibition, the Chief Executive also 
addressed Nazims , Naib Nazims, male and female councillors, and 
peasants at a ceremony in Dadlo Pir village, some 52 kms from 
Nawabshah, where ownership certificates of state land were handed 
over to landless peasants.

He said: "Pakistan is like our family and we will not allow anyone 
to destroy it. We have to remove poverty from the country and for 
that purpose the economy has to be made stronger. "If the economy 
is improved the country would be stronger and that could be done if 
every Pakistani joins hands for the cause."

He said that he was here to award certificates of ownership to 
peasants who had been deprived of their rights for many years, and 
added that state land situated in the riverine area throughout the 
country would be distributed among the peasants.

Gen Musharraf said: "I have taken the start of distribution of 
agriculture land from Deh Sukhpur of Nawabshah." He said that soft-
term loans would be provided for installation of tubewells, 
purchase of fertilizers, seeds and implements to boost crops. He 
said that today he was distributing certificates of ownership of 
3,056 acres of agriculture land to 262 peasants, while earlier the 
governor had distributed 21,000 acres to 1,900 peasants.

16 killed as coach rams into oil-tanker
By Aziz Malik

HYDERABAD, June 1: Sixteen people died and 41 others were injured 
when a coach rammed into a stationary oil-tanker about 80km from 
here on the Super Highway on Friday.

The Karachi-bound Jalbani coach, which was coming from Larkana, 
collided with the tanker near the Dada Bhoy cement factory in 
Nooriabad. The collision was so severe that both the coach (P0099-
Kyc) and the tanker (9634) fell into a ditch. The front portion of 
the coach had to be prised to extricate the bodies from the seats.

Twelve bodies and 25 injured were taken to the Abbasi Shaheed 
Hospital in Karachi, and four bodies and 16 injured were brought to 
the Liaquat Medical College Hospital, Jamshoro, by the highway 
police and the Edhi ambulances. Emergency was declared in the 
Abbasi Shaheed Hospital.

Thirteen of the dead were identified as coach driver Badshah Brohi, 
Ghulam Qadir, 5-year-old Mala, daughter of Khamiso; Nazimuddin, 
Shamshad, Fida Hussain, Constable Qurban Ali of the Dadu police, 
Huzoor Bukhsh, and five members of the same family - Shahida 
Parveen, Sajjada Parveen, Murad Ali, eight-year-old Ahmad Ali and 
four-year-old Mohammad Mithan.

The injured under treatment in the LMC Hospital were identified as 
Hamala, wife of Mohammad Malook; Nawab Khatoon, wife of Abdur 
Razzaq; Mohammad Rajab, son of Mohammad Murad; Mashooq Ali, son of 
Fateh Ali Dokri; Ghulam Qadir, son of Qaiser; Sanaullah, son of 
Illahi Bukhsh; Hazir Ali, son of Dhani Bukhsh; Khamiso, son of 
Wazir Dokri; Maya, daughter of Ghulam Nabi; Gulshad, wife of Ghulam 
Nabi Kambar; Zahid Hussain, son of Ghulam Nabi Kambar; Haji Mehar 
Ali, son of Amir Bukhsh; Mohammad Yousuf Shah, son of Mohammad 
Hussain Shah; Khalil Ahmed, son of Hazir Ali; Hakim and Abdullah.

Ten of those taken to the Abbasi Shaheed Hospital were identified 
as Hayat Khatoon, Rukhsana, Pervez, Noman Ahmed, Imdad Ahmed, 
Sajjad Haider, Ghulam Asghar, Hajiyani, Noor Mohammad and Ayub. Our 
Dadu correspondent adds: The Nooriabad police registered an FIR 
(18/2001) on the complaint of oil-tanker driver Khan Badshah 
against the coach driver. The police impounded both the vehicles.

Interim PFC award for district govts likely 
By Jawaid Bokhari

KARACHI, June 1: Provincial Finance Commission may deviate from its 
original mandate and give an interim Award on sharing of fiscal 
resources between the provincial and (planned) district 

Sources said a decision was awaited on a number of key issues of 
fiscal devolution, taxation powers of district governments and 
provincial responsibilities, without which no medium to long-term 
Award, as originally anticipated, could be formulated or announced. 
The complex issues relating to the Annual Development Plan are 
still unresolved.

Sources said that federally-run institutions which would fall in 
the jurisdiction of district governments, were expected to be 
transferred in mid-August to the provinces to be handed over to the 
district governments which would be in place by then.

The Sindh provincial budget and the district budgets have to be 
finalized and announced immediately after the national budget on 
June 16.

For the transitional period, sources said, only an ad hoc or 
interim arrangement was feasible.

The fiscal devolution plan has been hit by a lack of consensus on 
key issues. A meeting, presided over by Chief Executive Gen Pervez 
Musharraf about two weeks ago, revealed sharp diversion of views on 
fiscal devolution between the National Reconstruction Bureau and 
the federal ministry of finance.

The reconciliation of conflicting views cannot be achieved within 
the span of two weeks before the national budget is unveiled. As 
the current developments indicate, the stalemate may last for at 
least six months or more of next fiscal.

Sources said that Sindh Finance Minister Dr Abdul Hafeez Sheikh had 
directed his department to submit district profiles at the second 
meeting of the PFC expected next week.

District budgets are being finalized, ensuring horizontal equity 
between various districts, says a source in the provincial 

Besides, development programmes have been rationalized. The 
province inherited a portfolio of projects, many of which were 
prepared more on political considerations than for economic 
benefits. Often projects were dropped or funds were denied. The 
outcome is that project execution often takes four-fold time 
because of political changes, weak monitoring and resources being 
spread too thin.

Sources said the province was also facing a problem in respect of 
incomplete projects and in relation to diversion of provincial 
programmes. The issue is how to deal with them in absence of clear-
cut directives and scarcity of funds. To sort out these, more time 
is needed.

CE okays budget guidelines
By Our Staff Reporter

ISLAMABAD, May 31: A high-level meeting on Wednesday approved broad 
guidelines of budget for 2001-2002 with "minimum taxation". 
According to informed sources the meeting which was chaired by the 
Chief Executive, Gen Pervez Musharraf discussed a number of new 
budgetary proposals aimed at undertaking comprehensive structural 
reforms in the Central Board of Revenue (CBR).

The meeting was told that the number of existing taxes were further 
being reduced and that the main tax will be the general sales tax 
(GST), to be effectively recovered from the next financial year. 
Also, the thrust of the budget will be to broaden the tax base but 
without further burdening the common man.

The Chief Executive advised the policy-makers to take special care 
while formulating future policies to protect the interests of the 
common man. Presiding over a briefing on macro-economic framework 
and emerging challenges by the ministry of finance, he said, 
measures should be taken to encourage the agriculture sector since 
it forms the backbone of the economy. IT sector and the 
construction industry also needed encouragement, he added.

Economic Advisor of the Ministry of Finance, Dr Ashfaque Hasan 
Khan, in his presentation stated that the medium-term framework had 
been prepared with a view to improving the country's macro-economic 
environment which was essential to promoting investment and growth. 
He identified five key elements namely; low inflation, low budget 
deficit, appropriate exchange rate, real interest rate and 
consistency in policy which form the macro-economic environment.

Dr Khan also explained this year's developments including the 
impact of drought on agriculture. He said that the industrial 
sector had performed well by registering a growth of 7.8 per cent 
during the first nine months of 2000-2001. This growth was not only 
high but is also broad-based, he added. He further informed the 
meeting that inflation has been below the target while the 
country's exports had picked up. And there had been an improvement 
in the trade and current account balance, he added.

Finance Secretary, Yunis Khan in his presentation gave an overview 
of the economy and the confidence building measures that had been 
initiated by the government. He also gave a brief review of the 
medium and short-term development scenario. In this context, he 
outlined a wide range of measures that had already been taken by 
the government which included abolition of wealth tax, reduction in 
number of taxes, promulgation of anti-dumping law; removal of 
restrictions on export of agricultural products, enactment of 
privatization law and strengthening of regulatory role of State 
Bank of Pakistan. The meeting was attended by federal ministers and 
senior officials.

Tax survey impact limited on revenue
By Our Staff Reporter

KARACHI, May 31: The Central Board of Revenue (CBR) needs to 
collect about Rs140.5 billion between April-June 2001 to meet the 
revised tax collection target of Rs417 billion.

The State Bank's third quarterly report released on Thursday says 
this would imply an average collection of about Rs47.5 billion 
every month till the end of the fiscal year. But the fact remains 
that this level of collection has been achieved only in one month 
in the last six years. (In June 1999 CBR had collected Rs48.2 

Tax collection in the first nine month of this fiscal year stood at 
Rs276.6 billion, according to the report. (CBR says it has 
collected Rs308 billion in the first ten months i.e. between July 
2000-April 2001). Commenting on the tax survey being carried out by 
CBR the State Bank report says that "the contribution of the survey 
to this year revenue collection has been somewhat limited." The 
survey had initially targetted to contribute Rs100 billion to the 
government exchequer. Without disclosing how much the survey has 
yielded so far the report remarks rather sarcastically that "CBR is 
of the view that surveys have generated an enormous amount of data 
which will allow it to increase collections in future."

BUDGET DEFICIT: The report says that the realized deficit in the 
first half of the current fiscal year and tax collection in the 
third quarter provide sufficient evidence that the government will 
be able to meet its budget deficit target of 5.3 per cent of GDP. 
"However, quantitative targets for total expenditure outlay and 
revenues may differ from those envisaged in the federal budget." 
Needless to say that broadening the tax net along with strict 
expenditures control will remain the thrust of the government's 
fiscal initiatives in the current and next fiscal years.

GOVERNMENT EXPENDITURES: Despite an advance payment of salaries in 
December 2000 on account of Eid, total government expenditures were 
8.4 per cent lower than projected under the IMF programme targets. 
But the decline in total outlays was due to lower development 
expenditures. "In addition to this 2.3 per cent lower than 
projected interest payments also contributed to the saving on 
government expenditures," says the SBP report.

Consequently the budget deficit amounted to Rs77.9 billion which is 
Rs26 billion below the IMF target for first half of this fiscal 
year. The report says that of the targetted Rs71.5 billion for 
external financing only Rs43.6 billion was realized due to lower 
than projected inflows from the World Bank and Islamic Development 
Bank. And as the government continued to retire its debt to 
commercial banks, non-bank borrowing contributed the bulk of 
deficit financing. The government financed nearly 60 per cent of 
its deficit from non-bank sources i.e. borrowing through national 
saving schemes as well as newly launched Pakistan Investment Bonds.

Directive to prepare energy plans: 3 and 10-year strategy
By Khaleeq Kiani

ISLAMABAD, May 30: The government has directed energy related 
federal divisions and attached department to prepare three-year and 
10-year perspective plans on energy sector to have a clear picture 
of the future demands and policies in the country.

Official sources told Dawn that Energy Wing of the planning and 
development division has been declared a focal point to coordinate 
efforts of various federal government institutions towards 
preparing the perspective plans.

The three-year plan 2004 would set priorities of the next three 
years and 10-year plan to be completed by 2012 would take into 
account a long term strategy to meet national energy requirements. 
These sources said that gas sector is going to be the main player 
of the energy sector mainly in power generation and fuel 
consumption in view of rising oil prices in the international 
market and being environment-friendly.

The plans would set a clear cut road map for future composite 
energy initiatives involving power generation, transportation and 
other related needs. Primary commercial energy supplies in the 
country has touched over 43 million tons of oil equivalent. While 
the natural gas production has increased by around 10 percent 
during the last year, hydro-electricity generation has declined by 
over 14 percent.

The overall share of various sources of energy supply mix is like 
43.5 per cent oil, 40.5 per cent natural gas, 0.5 per cent LPG, 4.7 
per cent coal, 10.7 per cent hydro electricity and 0.2 per cent 
nuclear power.

Despite increase in gas production at home, import of petroleum 
products increased by over 8.7 per cent last year with a major 16 
per cent share of furnace oil imports (over 6.5 million tons) 
mainly for the power generation, causing around $3.5 billion 
foreign exchange outflow in this sector.

Due to inconsistent and self contradictory policies and unrealistic 
projections in the energy sector in the past have been causing 
crisis in power generation, oil and gas needs and supplies and 
foreign exchange erosion at the same time creating imbalance in the 
system itself.

National demand for electricity has been growing but one sided 
policies resulted in hydel: thermal mix of 28:72 which is almost 
reverse of an ideal situation which Pakistan had maintained till 
end 1980's. Official sources said that the military government 
wanted to set the directions right in the energy sector for a 
longer period so as to avoid future crisis and imbalances that may 
occur in the form of surplus or shortages.

80% IT exemptions may be withdrawn: Selected people and areas
By A Reporter

ISLAMABAD, May 30: The federal government is considering to 
withdraw about 80 per cent income tax exemptions from the next 
financial year. Sources in the Central Board of Revenue (CBR) told 
Dawn on Wednesday that Saeed Ahmad Qureshi committee, formed to 
recommend amendments in the 1979 Income Tax Ordinance, has proposed 
to the government to withdraw maximum exemptions on income offered 
by the successive governments to selected people and areas.

The International Monetary Fund (IMF) mission, which visited 
Pakistan in September 2000, was not happy with these unlimited tax 
exemptions on various sources of income, and reportedly proposed to 
the government to abolish these exemptions, the sources said.

It was recommended that any allowance or facility which is paid 
outside Pakistan by the government to a citizen of Pakistan for 
rendering service outside Pakistan will be grossed up to include 
tax component, while salary of expatriate employees of Shoukat 
Khanum Hospital (existing beneficiaries may not be affected) will 
also be brought into tax net.

The committee proposed to withdraw exemption on pensions of 
employees being citizens of Pakistan by virtue of employment with 
United Nations, Pakistani citizen over 60 years, government and 
armed forces employees. Any sum representing encashment of leave 
preparatory to retirement received by an employee of armed forces, 
federal and provincial government would be taxed, they said.

Interest received by a non-resident for a loan to be utilized on a 
project in Pakistan, approved by the government will be taxed while 
any interest payable to a loan in foreign exchange against export 
letter of credit, which is used exclusively for export of goods 
manufactured or processed for exports in Pakistan will be brought 
into tax net, they said.

The sources said interest on money borrowed from a foreign country 
by an industrialist undertaking in Pakistan for pursuing plant and 
machinery, if the government approves such a loan, will be taxed. 
While, any profit derived by a non-resident in respect of the 
Islamic mode of financing e.g. Morabaha, Musharika to be taxed.

It was also proposed that income received on national saving 
certificates, national deposit certificates, defence saving 
certificates, post office saving bank account, and deposits in 
national saving centres under the national saving schemes and 
monthly income saving schemes where instalment is less than Rs. 
1,000 (w.e.f 30.06.2001) will be brought into tax net.

The committee recommended withdrawing exemptions on business income 
earned by the textbook boards and sports board of all the provinces 
and brought it into tax net.

Any income derived by mutual fund or an investment company 
registered under the Investment Companies and Advisers Rules 1971 
or a unit trust scheme and the income of modaraba will be 
considered to be taxed, they said.

They said any amount paid by an individual by way of personal 
expenditure on medical services and federal education fee expended 
under FEF scheme will be taxed.

The committee proposed that the income from the commercial 
activities of institute of engineers will be taxed while the income 
of private powers projects set up after July 01, 1998 (existing 
beneficiaries will not be affected) will be brought into tax net.

It was also proposed that the amount withheld by civil Aviation 
Authority up to 31.12.1998 on account of security changes are 
redundant, they said.

Pakistan cautiously optimistic: Musharraf-Vajpayee talks
By Syed Talat Hussain

ISLAMABAD, May 30: Pakistan sees the Musharraf-Vajpayee summit an 
opportunity to set the agenda of future talks with India but does 
not expect breakthroughs on significant issues, including Kashmir, 
diplomatic and military sources told Dawn.

A day after Pakistani High Commissioner to India, Ashraf Jehangir 
Qazi, delivered in New Delhi General Pervez Musharraf's letter 
formally accepting Indian prime minister's invitation to talks - to 
the Indian foreign secretary Ms Chokila, Pakistani officials were 
cautioning the need for realism.

"Pakistan is realistic about what can be gained from the meeting 
and does not have high expectations," a source said. "We are 
cautiously optimistic, as one meeting cannot yield much."

"The outcome of the meeting of the two leaders will be significant 
for providing the framework for future interaction," a highly-
placed military source said. Pakistan's approach towards the 
summit, according to the diplomatic sources involved in the 
preparations for the agenda of the meeting, was to find a meeting 
ground where the two countries could talk to each other on a more 
sustained basis.

"It is not a one-off thing," a foreign office source said. "We want 
the dialogue process to be restarted". "Our effort will be to get a 
formal agreement (between the two leaders) on institutionalizing 
this dialogue. If that happens it will be a big achievement," he 

Asked what would be Pakistan's approach towards Kashmir, which is 
the most delicate and emotive subject for both countries, the 
sources said: "Our stand is and will be that Kashmir is a 
tripartite issue: Pakistan, India and the Kashmiris."

He said that no solution could be imposed upon Kashmiri people. 
"The Kashmiris eventually have to be part of the dialogue for 
peace." Asked why the date of the summit was being wrapped in 
secrecy, the sources said that the dates had to be worked around a 
knee operation the Indian prime minister has to undergo in mid-

"That will keep him away in the hospital for around 10 days," he 
said. "The meeting is possible only after that." On the signals 
emanating from India that Delhi would like to engage Pakistan in a 
more comprehensive dialogue, on the region's problems and common 
issues of poverty, the prospects of economic growth, trade and 
battling disturbing social trends like extremism, the Pakistani 
officials acknowledged that the "two sides need to broaden their 
vision". However, they said that "all sources of tensions and 
instability must be addressed, specially Kashmir".

The sources also said that the Musharraf government was taking all 
Kashmiri groups into confidence on the upcoming visit to Delhi. "We 
do not want to give the Kashmiri mujahids the impression that they 
are being abandoned," a government source said. "They will be fully 
in the picture on what needs to be done on Kashmir."

IMF okays raise for government employees
By Our Staff Reporter

ISLAMABAD, May 30: The IMF has allowed the government to increase 
the salaries and pension of its employees, which will cost an 
additional Rs35 to Rs40 billion to the exchequer in 2001-02.

Sources in the multilateral agencies said that good governance 
could not be expected without paying "sufficient and market-based" 
salaries to the civil servants. The IMF officials expect that the 
government would expedite civil service reform to achieve the 
objective of good governance.

The chief executive, Gen Pervez Musharraf, was briefed by Finance 
Secretary-General Moeen Afzal on May 26 about the pay and pension 
committee's report. Mr Afzal, who also heads the pay and pension 
committee, was told to make the report more acceptable as it still 
needed "fine tuning".

A senior official of the finance ministry, Mr Bilal has been 
assigned to finalize the pay structure by next week in accordance 
with the 15 to 20 per cent proposed raise to be formally announced 
in the budget speech of the finance minister on June 16.

"A sizable increase in the pay and pension of the government 
employees and those who have retired, has been okayed by the IMF," 
said a source in a multilateral agency. Wherever possible, he said, 
the government should provide relief to people, including the 
government employees. The top structure of salaries was totally 
misplaced and needed to be improved to expect better performance 
from the government employees.

A source in the finance ministry claimed that the IMF had also 
asked for increasing the income tax ceiling from Rs40,000 to 
Rs60,000 in the coming budget. The Saeed Qureshi Committee has 
reportedly gone further ahead by proposing this exemption to 

At the same time, the government has been asked by the IMF to 
adhere to other conditionalities to avoid distortion in the 
economy. For example, they said, the government should increase 
petroleum prices in early June. Though the IMF officials believed 
that the government was generally adhering to the road map laid 
down earlier to revive the economy, they said the reform process 
needed to be accelerated.

Police top 'dirty dozen' chart
By Sabihuddin Ghausi

KARACHI, May 30: Out of 12 selected government agencies in 
Pakistan, a survey has found police to be the most corrupt followed 
by lower courts, WAPDA, Income Tax, land revenue, customs, passport 
and identity card.

Municipal corporations and development authorities, sales tax, 
PTCL, government-run hospitals and schools were also found to be 
nests of corruption but relatively at a lesser degree than police 
and other departments.

Corruption ratings of these "dirty dozen" agencies was done by the 
Special Task Force on Reform of Tax Administration which made a 
detailed presentation of its report to the Chief Executive Gen 
Pervez Mushrraf in Islamabad early last week.

Headed by Syed Shahid Hussain, a former executive of the World 
Bank, the Task Force includes ten other members drawn from various 
disciplines and professions. It has recommended sweeping changes in 
the country's tax administration and, as expected, has earned the 
wrath of the "status quoist" tax administrators and bureaucrats.

The Task Force solicited views from a selected group of persons who 
included taxpayers, tax administrators and those who represented 
civil society. A five-point scale was drawn up in which one point 
represented "very little corruption" and five points "extremely 
widespread corruption".

None of the "dirty dozen" qualified for the lowest or the highest, 
either one point or five points, but police earned 4.20 points 
followed by lower courts which secured 3.30 points. Wapda obtained 
3.21 points in corruption, Income Tax department 3.21, Land Revenue 
3.15, Customs 3.04, passport and identity card 3.04.

The panel of respondents gave 2.80 points in corruption to 
municipal corporations and development authorities, 2.75 points to 
sales tax, 2.61 to PTCL, 2.46 to government hospitals and 1.96 
points to government-run schools.
"These ratings are important in two ways," the Task Force report 
says and adds "first, they are an indicator for government of 
Pakistan about its priorities, if it launches a department to 
department anti-corruption campaign". "Second, these can be used as 
baseline data to measure any change, trends in corruption, or 
impacts of any anti-corruption campaigns," the report said. 
An overwhelming majority of the respondents (80 per cent) whom the 
Task Force approached to seek their views considered all previous 
corruption reduction measures as "complete failures". The reasons 
given for this failure are the lack of sincerity of policy-makers, 
selective application of laws, enforcers themselves being corrupt 
and lack of understanding of the complexity of corruption.

Respondents were also asked by the Task Force to comment on the 
effectiveness of some initiatives to reduce corruption in the 
public sector, such as outright dismissal of bureaucrats by Ayub, 
Yahya and Bhutto regimes, institutions of checks and balances 
within the organisations like Ombudsman, Ethesab cell by previous 
governments. Many felt these initiatives were politically 
motivated, insincere and focussed too much on punishment.

There was a unanimous view that various tax amnesty schemes had 
helped in spreading corruption rather than curbing it. The 272-page 
report carries a whole chapter on corruption, spread over 26 pages 
and divided into six sub-chapters.

Specific instances of corruption at policy level have been given in 
the report. One of such methods is the overnight changes in import 
duty structure by the CBR by issuing an SRO. These were linked to 
import of BMW cars, steel items, sugar export to India on which a 
rebate of Rs 4,500 per ton was given.

An interesting example is cited of a retired tax administrator who 
visited CBR twice in his whole career for official work. "Both the 
times I had to pay Rs10,000 for my work", is how this tax 
administrator relates his experience, which speaks volumes about 
what's going on behind the high walls of CBR.

The Survey found corruption more endemic in Income Tax department 
where 78 per cent employees are rated as corrupt and Customs where 
76 per cent of employees are seen as corrupt. Sales tax is seen 
relatively less corrupt by both the taxpayers and tax 
administrators. The explanation is "it is a new tax and nobody 
fully understands it".

In an hypothetical exercise, the survey found that for each hundred 
rupees of genuine income tax payments of a Pakistani business 
enterprise, the government can collect only Rs36. The assessor, 
assessee and the middleman tax practitioner share Rs64 among 
themselves and obviously the assessee gets the highest share to 
justify his deal.

Chinese firm to give Rs 116 million loan for lab
By Our Reporter

ISLAMABAD, May 29: A Chinese company will extend Rs 116.5 million 
interest-free loan for the construction and expansion of Quarantine 
Laboratory of the Department of Plant Protection at Karachi.

An agreement to this effect was signed here on Tuesday between the 
ministry of food, agriculture and livestock and China Guangdong 
International Co-operation Companies, the Chinese company. 
According to an official statement, the project is to be started 
soon and completed in fifteen months. The laboratory will test the 
plants and crops for agriculture-related diseases before being 

Federal Minister for Food, Agriculture and Livestock Mr Khair 
Muhammad Junejo said at the agreement-signing ceremony that the 
expansion of Quarantine Laboratory of the DPP would diversify and 
increase the export of agricultural commodities from Pakistan. 
Expressing his gratitude, the minister said the project would have 
significant impact on increasing the competitiveness of the exports 
of Pakistani agricultural goods to the world market.

Mr Junejo said that MINFAL would extend all facilities to the 
Chinese company for the completion of project within the stipulated 
time. "We wish this project to be completed on time and also to be 
followed by many other projects for expansion of agriculture in 
Pakistan," he added.

The head of Chinese five-member delegation Mr Qui Meixing said that 
Pakistan was the first country to whom China had extended this 
facility. He said the project would be completed on time to the 
satisfaction of both the countries and with mutual efforts. He said 
the project, once completed, would give the agriculture business 
and production in Pakistan a big boost. He said China was also 
looking for establishing model agriculture farms in Pakistan for 
which paperwork had already begun.

Cyclone to hit coastal belt today; Villages inundated
Dawn Report

KARACHI, May 28: The tropical cyclone (01A) would hit the coastal 
areas lying between the Indian border and Keti Bander sometime on 
Tuesday, the director-general of the Pakistan Meteorological 
Department told Dawn on Monday.

People living in the low-lying coastal areas should move to safer 
places, PMD chief Dr Qamruzzaman Chaudhry spoke by phone from 
Islamabad. According to Dawn correspondent in Thatta, 12 villages 
and 20 dehs of coastal talukas of Shah Bandar, Jati, Kharochhan and 
Keti Bandar had been submerged by the sea water on Monday morning. 
Leaves of government employees in the Thatta district were 

A PMD website updated at 10pm said the cyclone in the Arabian Sea 
had moved north-eastwards. Positioned at 21 degree N and 68.5 
degree E, the cyclone was spiralling 430km south south-east of 
Karachi and 310km south of Keti Bander.

The PMD chief said the landfall of the cyclone would be prefaced by 
rains and strong winds, adding that soon after the landfall the 
cyclone would lose its intensity rapidly. Karachi faced no major 
threat, he added.

The submerged villages in Thatta included Raboo Malah, Faqirano 
Jati, Gul Mohammad Uplano, Umer Patel, Ismail Uplano, and Tako 
Kanehar. Dehs concerned included Deh Uplanki, Deh Nabi Bux, Deh 
Jaleho, Deh Vari, Deh Datori and Deh Allano.

The Mukhtiarkar of Shah Bandar told Dawn that the majority of 
people were being shifted to the rural health centre at Jungo 
Jalbani and the primary school building. The Thatta district 
administration has established 25 relief camps in Chuhar Jamali, 
Sujawal, Chuch Jahan Khan, Ladaon, Jati, Mirpur Sakro, Garho, 
Ghorabari, Jungo Jalbani and other towns.

A spokesman for the Fishermen's Cooperative Society in Karachi told 
Dawn that currently 500 boats, with around 7,000 fishermen aboard, 
were in the coastal areas. An official announcement issued from the 
Commissioner House Karachi said that some 10,000 residents of Baba 
Bhit Island had been shifted to safer places. People were also 
being evacuated from the Manora Island.

A spokesman for the Pakistan Navy said that choppers and trucks 
loaded with emergency relief goods, were ready. He added that other 
relief agencies had also been put on standby.

The spokesman said that as soon as the civil administration asked 
for help, the navy would come into operation. After a meeting, 
presided over by Karachi Commissioner Shafiqur Rehman Paracha, the 
deputy commissioners of Malir and West had visited various areas of 
their districts, the announcement said.

APP adds: The directors of schools in Hyderabad region announced 
vacations in schools of the coastal areas of Thatta and Badin 
districts. In a press release, they said the decision was taken to 
facilitate the parents to shift to safer places with their 

One killed, 350 arrested on eve of Sunni Tehrik strike
By Our Staff Reporter

KARACHI, May 27: Law enforcement agencies have arrested hundreds of 
religious parties' activists in connection with a strike call given 
by the Sunni Tehrik for Monday.

A man was shot dead and another wounded when three armed men riding 
a motorcycle opened fire at a sweet shop in North Karachi Sector 5-
C-4, according to police. The dead was identified as Tahir, 30, and 
the wounded as Naeem, 28.

Official sources confirmed that 350 Sunni Tehrik and Sipah-i-Sahaba 
Pakistan workers had been arrested since a crackdown was launched 
on Sunday.

However, the Sunni Tehrik and the Sipah-i-Sahaba claimed that 
thousands of their workers had so far been picked up by law 
enforcement agencies.

Three people were wounded in firing and four vehicles were set 
ablaze at different places on Sunday.

Interior Minister Moinuddin Haider, at a function, and the home 
secretary, at a press conference, on Sunday, reiterated 
government's resolve not to allow any individual or group to take 
law into their own hands.

New oil refinery being set up at Hub
By Our Staff Reporter

KARACHI, May 26: A new oil refinery in the private sector is being 
set up at Hub, Balochistan, at a cost of $50 million. The refinery 
will produce six petroleum products.

The plant, being set up by Bosicor Pakistan Limited (BPL), has the 
refining capacity of 30,500 barrels per day, but in first six 
months it will have the capacity of 28,000-30,000 bpd, said 
director BPL, Amir A. Abbassciy at a press conference on Saturday.

The cold commissioning of the refinery will take place from the 
first week of October this year while the full-fledged commercial 
operation will start by the end of this year, he said.

The refinery has the capacity to produce 700 barrels per day (bpd) 
of liquefied petroleum gas (LPG), followed by 2,177 bpd motor 
spirit, 5,500 bpd high octane blending component, 4,350 bpd 
kerosene/jet fuel, 6,973 bpd high speed diesel, and 10,800 bpd 
furnace oil.

Arrangements have already been made through a French company to 
import Qatar Marine Crude Oil ranging between 1.3 and 1.5 million 
tons per annum to produce various petroleum products. The plant 
will have new storage tank for its crude oil and refined petroleum 

On pattern of shareholding, he said, there is a 60 per cent equity 
participation and 40 per cent debt equity.

He said the refinery, purchased and refitted by BPL, was set up by 
Tesoro Petroleum Inc, a US based oil refining and marketing 
company. That refinery has been operational since 1977. It was 
mothballed in 1993. The plant, which is approximately 23 years old 
has been completely refitted in order to achieve a service life of 
at least 20 years from the date of commercial production.

He said that approximately 180 employees in four shifts (one 
standby) including office staff will be employed at the plant. The 
saving expected by import substitution is around $25-30 million per 

An agreement has also been signed with Pakistan State Oil (PSO) for 
procurement of refinery's products. The entire civil, mechanical, 
electrical and cold commissioning works have been awarded to 
Siemens Pakistan Engineering Limited, Amir said.

For the operation and maintenance of the plant, the company is at 
very advance stage of awarding the contract to Marubeni Corporation 
of Japan. Further, a letter of intent (LoI) has also been signed 
with Marubeni for the export of naphta, being used in making of 
polypropylene in Japan. The new refinery is expected to produce 
50,000-70,000 tons of naphta every year.

Bosicor has taken out advance loss of profit insurance with Adamjee 
Insurance Company Limited and re-insured in the international 
market. The sum insured is Rs586 million for the period November 
30, 2000 to April 4, 2,002. The insurance period includes four 
weeks of testing. The insurance coverage, under construction all 
risk (CAR) and erection all risks (EAR) provided by Adamjee, is for 
Rs2.2 billion.

Proportional Representation system being considered: National 
Reconstruction Bureau making detailed study
By Rafaqat Ali

ISLAMABAD, May 26: The government is considering introducing the 
system of proportional representation (PR) in the country, allowing 
political parties with relatively smaller vote bank to enter 
parliament, Dawn learnt from official sources.

The think-tanks of the government, working in the National 
Reconstruction Bureau (NRB), are making a detailed study of the 
system which is working efficiently in many countries of Europe 
like France and Germany.

The government, the sources said, would have no problem in 
introducing the proportional representation system as the Supreme 
Court in its decision validating the military takeover, had held 
that parliamentary form of the government should not be disturbed. 
'Proportional Representation is a form of parliamentary system," 
they pointed out.

The think-tanks expect that quality of representatives would 
improve, as persons with ability to handle macro-level matters 
would have better prospectus for introduction in assemblies as 
listed candidates of parties in multi-member constituencies.

The supporters of the PR system argue that not only it would help 
bring more middle-income groups to the parliament, but it would 
also minimize the possibility of military intervention in future. 
The military adventurists would not be invited by the politicians 
as they would have a stake in the system.

The government's think-tanks believe that the adoption of 
proportional representation system as an alternative to the 
existing majority system, would suit Pakistan's fractious society, 
divided on linguistic and ethnic lines.

Under the new system, political parties would enjoy greater 
importance and non-political pressure groups, tribes, clans, and 
families would have lesser political role. The "independents", 
representing different tribes and clans, would not be in a position 
to dictate their terms.

The position of political parties would be correctly reflected in 
elections in the proportional system and the parties having 
widespread support would not be over-represented and those with 
thin support would not be under-represented.

Small parties would have better prospects of representation in the 
parliament by winning seats in multi-member constituencies 
irrespective of losing in single-member constituencies.

Deep-sea fishing allowed 
By Faraz Hashmi

ISLAMABAD, May 26: The federal government on Saturday decided to 
allow deep-sea fishing but under strict vigilance and a tough 
punitive regime to safeguard the interests of small fishermen and 
to check incidence of poaching.

The decision was taken at a presentation given by Chairman National 
Fisheries Development Board Shafi Niaz to Chief Executive General 
Pervez Musharraf here at the Chief Executive Secretariat.

Federal Minister for Agriculture Khair Mohammad Junejo, Chief of 
Naval Staff Admiral Abdul Aziz Mirza, Chief of Staff to the Chief 
Executive General Ghulam Ahmed, ministers of agriculture and 
fisheries of Balochistan and Sindh, director general Maritime 
Security Agency and other concerned officials attended the 

Installation of Global Positioning Satellite (GPS) monitoring 
system on-board every ship operating within the Exclusive Economic 
Zone of Pakistan has been made mandatory to keep strict watch on 
the vessels, Mr Niaz later told newsmen.

He said an undertaking would be obtained from the vessel operators 
categorically stating that no trans-shipment of catch at high sea, 
no under-invoicing of fish catch and no discard of by-catch in the 
sea would be done under any circumstances, failing which license 
would be cancelled and renewal would be put on hold for three 

The meeting also approved a proposal of the Fisheries Development 
Board to revise the standard agreement to be signed between the 
vessel operators and the government.

The changes proposed in the agreement and approved by the chief 
executive included enhancement of annual license fee of Rs. 500,000 
to one million and revision of royalties.

A sum of $5,000 was charged as royalty from a trawler on 
undertaking a trip of 60-days. The royalty fee has been now 
increased to $10,000 and the duration of the trip has been reduced 
to 45 days. However the medium sized vessels from 100 to 250 
registered tonnage would have to pay $2,000 for a trip of 30 days 
and operate from Korangi Fish Harbor.

The penalties on violation of different nature were also enhanced 
at the meeting. On violation of fishing beyond the period of the 
validity of license has been increased from Rs.200,000 to Rs.1 

On fishing beyond the specified zone the penalty has also been 
revised from Rs.200,000 to Rs.1 million. The penalty of Rs.500,000 
for fishing without license has been increased to Rs.2 million.

The meeting also approved a proposal of Fisheries Development Board 
that a stock assessment survey should be carried out to determine 
marine resources of Pakistan.

The National Institute of Oceanography in collaboration with the 
Marine Fisheries Department would undertake a fresh stock 
assessment survey to ascertain a realistic stock position of the 
marine resources.

It will require financial assistance of some international donor 
agency like FAO, NORAD and JICA. The last such survey was done in 

Mr Niaz also said at the presentation that the governments of 
Balochistan and Sindh had issued licenses to two deep-sea fishing 
trawlers each, in violation of the federal fisheries law.

He also apprised the participants about the reasons for canceling 
licenses of 10 Chinese, 10 South Korean and nine Taiwanese trawlers 
registered in Pakistan. The main reason, he said, was violations of 
conditions laid down in their agreement. He said that their 
respective governments had launched strong protest.

He pointed out that at present there were 18,000 registered boats 
but exact figures about the operational ones were not available 
with the government.

He stressed that the existing boats of small fishermen would be 
upgraded with better gears, latest navigational facilities, 
improved storage and ice facilities and proper training to the 
fishermen so that they could operate between 12 to 35 nautical 

He said Korangi Fish Harbour would also be made operational and all 
necessary facilities would be provided by the federal and 
provincial governments.

On a question he said the licenses would be issued for a period of 
one year on test basis and during this period strict watch would be 
kept on vessels operating in Pakistani waters.

According to another important decision Sindh Minister for 
Fisheries would now head the board of directors of Fishermen 
Cooperative Society.

Pre-budget leaks warm up financial market
By Our Staff Reporter

KARACHI, June 1: Stocks on Friday generally tended further higher 
under the lead of blue chips on active follow-up support, triggered 
apparently by some pre-budget leaks. The KSE 100-share index gained 
another 4.22 points at 1,381.84 points.

Although, the quarterly report of central bank paints a bearish 
economic outlook, as the ongoing drought could have negative impact 
on farm sector performance. There are positive signs of economic 
recovery on long-term basis after the irrigation water crisis is 
over. However, all was not bad with the broader indicators. The 
market sentiment was, however, not influenced by the central bank 
analysis and responded to its own positive basic fundamentals.

The opening was fairly promising as plus signs were witnessed 
across the board but late profit-selling at the inflated levels 
allowed the broader market with trimmed gains. The KSE 100-share 
index early was up about 10 points, as all the leading base shares 
came in for active short-covering. However, towards the closing 
jobbers and short-term dealers moved in and sold at the early rise.

It finally posted a fresh rise of 4.22 points at 1,381.84 as 
compared to 1,377.62 after the leading base shares came in for 
strong covering purchases at the lower levels. All seems set now, 
for the index to breach through the 1,400-point barrier possibly by 
the next week as strong selective buying is re-emerging from all 
the quarters.

"We don't call it the advent of the pre-budget buying but those who 
have links in Islamabad are buying on selected counters in line 
with the budgetary leaks", stock analysts at the Finex authorities 
say. Information leaking from Islamabad about the incentives to be 
given to investors to boost stock trading has lured back a 
formidable section of leading operators, who are making extensive 
buying in sectors where chances of capital gains are pretty sure.

Positive news from the foreign aid front including the release of 
the second tranche of $133m by the IMF, and drought aid from some 
other lending agencies have raised hopes that there may not be 
resource gap for the next fiscal.

An idea of the market's firm stance may well be had from the fact 
that it discounted the reports that the KSE will complete the full 
circle of the T+3 trading system by Sept 3. Earlier, brokers and 
members have opposed the addition of three companies in the list.

"Though bitter pill, we have to accept it as a reality", says one 
broker" but as the system needs heavy cash amounts almost daily, we 
have to tailor our operations according to our financial 
limitations". Although plus signs again dominated the list, price 
changes were mostly fractional and reflected weekend fears. 
However, some second-liners came in for active support and rose 
appreciably under the lead of Orient Insurance, Shadman Cotton, 
Ismail Industries, and Pakistan Telephones, which posted gains 
ranging from Rs1.35 to 4.45, the largest rise being in Pakistan 
Telephones. Others which ascended included Babri Cotton, National 
Refinery, Al-Ghazi Tractors, Lever Brothers and PIC, rising by Re1 
to Rs20.

Fazal Textiles, Shell Pakistan, Cyanamid Pakistan and UDL 
Industries were prominent among the losers, off by Rs2.00 to 5.25, 
followed by Adamjee Insurance, EFU Life, Data Textiles, and Regent 
Textiles, off Re1 to Rs1.80.
Trading volume rose to 83m shares from the previous 73m shares, as 
gainers maintained a strong lead over the losers at 121 to 73, with 
65 shares holding on to the last levels.

ICI Pakistan topped the list of most actives, up 25 paisa at Rs9.65 
on 14m shares; followed by PTCL, firm by five paisa at Rs18.25 on 
8m shares; Worldcall Payphones, higher 95 paisa at Rs18.15 on 6m 
shares; Hub-Power lower 10 paisa at Rs20.20 on 6.260m shares; and 
PSO, firm five paisa at Rs142.50 on 6m shares.

DEFAULTER COMPANIES: Kohinoor Gujar Khan came in for active support 
and was quoted higher by 10 paisa at Rs4 on 46,000 shares; followed 
by Colony Textiles, also up by the same amount at Rs7.80 on 5,000 
shares; and Service Fabrics, easy five paisa at Rs0.55 on 1,000 

State Bank says drought to cost $927 million
By Mohiuddin Aazim

KARACHI, May 31: The State Bank says Pakistan is set to lose $927 
million in the next fiscal year as a result of the drought and its 
GDP is to grow below 3 per cent against targeted 4.5 per cent.
"Therefore the per capita income is likely to remain stagnant," 
says the central bank in its third quarterly report on the state of 
the economy.

In carefully-chosen words, the report states that the IMF programme 
has so far not helped Pakistan in reviving investment nor has it 
facilitated the economy in picking up. The report, covering 
economic developments of the first three quarters of this fiscal 
year, was released here on Thursday.

The report estimates the impact of the drought on the balance of 
payments in detail, examining the possible loss of foreign exchange 
in terms of lower exportable surplus of major crops and additional 
fuel oil imports. It estimates a total loss of $747 million due to 
availability of lower export surplus coupled with an additional oil 
import of $180 million as a result of the drought. Fuel oil import 
goes up in drought as it reduces hydel power generation thereby 
increasing the country's reliance on thermal power generation that 
requires additional import of crude oil.

The report says: "The good standing with IFIs (international 
financial institutions) has not yet helped revive widespread 
investment nor has the economic activity picked up to meet the 
expectations of the public at large." But it adds that medium- term 
financial assistance from IFIs is crucial for the country. And the 
authors of the report hope that if end-June targets are 
successfully met chances of converting the IMF standby credit into 
a longer-term facility by September 2001 are quite strong.

The report confirms that GDP (gross domestic product) would grow 
below 3 per cent in the current fiscal year against the original 
target of 4.5 per cent mainly due to the drought and water 
shortage. The report frankly admits that Pakistan has missed the 
revenue target for both end-December 2000 and end-March 2001 set by 
the IMF despite the fact that tax collection as such has gone up. 
Naturally, the country "will have to request a waiver for end- June 

The report says though the State Bank easily met in end-March the 
revised target of net domestic assets set by the IMF it had to made 
heavy buying of foreign exchange from open market to meet the 
target of net foreign assets. The SBP purchased $1.56 billion from 
the open market in the first nine months of this fiscal year 
against $1.37 billion in the year-ago period.

The central bank says exports have not done well in the first three 
quarters of this fiscal year adding that if the trend persists 
export earnings in full fiscal year would reach $9.2-$9.3 billion. 
The original target was $10 billion.

The report says oil imports exceeded $2.5 billion in the first nine 
months of the current fiscal year but since the growth in total 
import bill remained below the growth in exports, the trade deficit 
narrowed down to 1.7 per cent of GDP from 2.3 per cent a year ago. 
And that helped the country post a current account surplus in the 
third quarter and narrowed the balance of payments gap to $575 
million between July 2000-March 2001 from $1.03 billion in the 
corresponding period of last fiscal year. But this did not ease 
pressure on the rupee as it depreciated in the third quarter when 
SBP reduced its support to the inter-bank market.

The report says during the first nine months of this fiscal year a 
higher average annual rate of inflation was recorded in all three 
price indices when compared with the corresponding period last 
year. Inflation based on consumer price index rose by 4.8 per cent 
in the first nine months of the current fiscal year as against 3.4 
per cent in the year-ago period: wholesale price index and 
sensitive price index rose by 6.7 and 5.4 per cent respectively 
against 1.4 and 1.6 per cent.

AGRICULTURE: The report says that drought and water shortage may 
result in a minus 5.4 per cent growth in the production of major 
crops during this fiscal year against the target of 3.2 per cent. 
And this, in turn, may pull down overall agricultural growth to 0.2 
per cent against the target of 3.9 per cent. Major crops are 
cotton, wheat, rice and sugarcane. The report warns that if the 
existing drought also impacts minor crops and livestock and 
fisheries the overall agricultural growth might fall even below 0.2 
per cent.

LARGE-SCALE MANUFACTURING: In the first nine months of this fiscal 
year, large manufacturing sector grew by 8.8 per cent compared to 
3.5 per cent in the same period a year earlier.

The report says this growth was driven by a sharp recovery in the 
production of refined sugar and value addition in petroleum 
refining. Since the cotton crop this year is 4.5 per cent less than 
the previous year the textile sector grew by only 4.6 per cent in 
the first nine months of this fiscal year against 13.5 per cent 
last year.

EXTERNAL SECTOR: Trade deficit in the first three quarters of this 
fiscal year stood at $1.32 billion, only marginally above the 
deficit in the corresponding period of the last fiscal year. The 
report cites three main reasons for the trade deficit: (i) weak 
international prices for Pakistan's main textile exports (ii) 
higher imports of machinery on account of the textile sector's BMR 
drive (iii) import of sugar and pulses to compensate for low 
domestic production and more importantly (iv) the ballooning oil 
import bill. But what helped the country narrow down its current 
account deficit to $575 in July 2000-March 2001 from $1.03 billion 
in July 1999-March 2000 was heavy foreign exchange buying by SBP 
from the open market coupled with higher inflow of remittances.

The report says the remittances rose to $803.9 million in the first 
nine months of this fiscal year from $678.1 million in the same 
period the year before, mainly due to Hajj receipts and 
compensation for Kuwait war affectees.

Oil, gas attracts $ 911 million investment
By Our Staff Reporter

KARACHI, May 31: Minister for Petroleum and Natural Resources, 
Usman Aminuddin has said that Pakistan has attracted $911 million 
foreign investment in the oil and gas sector in the last 18 months 
while more investment is in the pipeline. 

Speaking after performing the ground breaking ceremony of White 
Oil Pipeline Project of Pak Arab Pipeline Company (PAPCO) at the 
Port Qasim, he said the main thrust of the government was to 
promote foreign investment to develop the oil and gas sector. He 
said the government also wants to improve the existing 
infrastructure for movement of petroleum products. Usman said his 
ministry is concerned at the inadequacy of the existing 
transportation infrastructure against the backdrop of the growing 
oil demands of the upcountry areas. 

On white oil pipeline project, he said that China has accepted 
National Bank's guarantees in place of government of Pakistan 
required for the foreign currency credit of $120 million, which is 
being extended to the contractors of CPECC by China Exim Bank. He 
said with the completion of this pipeline, targeted for December 2, 
2002, up to 12 million tons per year of additional petroleum 
supplies would become available to the upcountry areas which 
account for approximately 70 per cent of the country's total oil 

He said the new pipeline would not only improve oil transportation 
logistics but will also bring about savings in transportation cost. 
The 817 km and 26 diameter underground pipeline commences from the 
FOTCO Oil Jetty, terminating at Mahmoodkot, District Muzaffargarh. 

The cost of the project is $480 million. On gas sector, he said 
the Chief Executive is inaugurating the Zamzama Gas Field in Dadu 
on June 1. The field has already started pumping 60 million cubic 
feet of gas a day in the Sui Southern Gas Company's system. He 
avoided a direct reply when the waiting newsmen asked him whether 
the oil prices are being increased next month, but said that oil 
prices have gone up in international market. 

He said that the price fixation on June 15 will be the last 
exercise on the part of the government and from July 1 oil 
marketing companies (OMCs) will determine the prices in line with 
global price trends after incorporating relevant costs and 
government levies. He ruled out the possibility of any price 
increase in the wake of this move of giving responsibilities to the 
OMCs to fix the prices of petroleum products. 

He said the government has also decided to revise gas prices after 
every six months. On problems being faced by the government in 
drilling oil and gas wells in Balochistan, he said talks were under 
way with the Sardars of the areas to settle the issues amicably. 
Managing Director, Pak Arab Refinery Limited (Parco), Dr Shahid K. 
Hak said out of $480 million project cost of white oil pipeline, 
Parco's equity participation is 51 per cent followed by Shell 26 
per cent, PSO 12 per cent and Caltex 11 per cent. 

The local currency financing amounts to Rs 14 billion and is 
arranged by a consortium of local banks. Mr Wilson, director Shell 
Pakistan, SAQ Razvi, deputy managing director, PSO and Mohammad 
Zubair, director, Caltex also spoke on the occasion.

SBP's third quarterly report on economy

KARACHI, May 31: Following is the summary of third quarterly report 
(July 2000-March 2001) of the State Bank of Pakistan 1 released on 


The continuing drought and water shortages have taken a heavy toll 
on Pakistan's economy. Most recent estimates indicate that overall 
GDP growth in FY01 will decline to below 3 percent. Therefore, per 
capita income is likely to remain stagnant. Despite a falling share 
of agriculture in Pakistan's economy, production of major crops has 
a very direct impact on the manufacturing sector and purchasing 
power in rural areas.2 On a positive note, the country was able to 
post a current account surplus in its balance of payments in the 
third quarter of this year.

Returning to the drought, a shortfall in the production of major 
crops (cotton, sugarcane, wheat and rice) also requires import of 
primary products. Adding to this burdens, the water shortage has 
impaired the country's ability to generate hydel power, which has 
fuelled Pakistan's huge oil import bill in the first three quarters 
of this fiscal year. 

Against a provisional growth rate of 9.6 percent for major crops in 
FY00 (which increased aggregate growth to 4.5 percent last year), 
the revised estimate this year could be as low as negative 5.4 
percent. Despite this exogenous development, Pakistan's cotton crop 
this year will not be impacted. An early sowing season and the fact 
that this is a less water intensive crop (compared to the other 
major crops), have been its saving grace.

Large-scale manufacturing (LSM) recorded strong growth of 8.8 
percent compared to 3.5 percent last year. LSM growth was driven by 
a sharp reversal in the production of refined sugar and high value 
addition in petroleum refining.

Since this year's cotton crop is 4.5 percent less than the previous 
year, the textile sector was only able to post 4.6 percent growth 
against an impressive 13.5 percent in the first three quarters of 
last year. Assisted by an increase in the production of automobiles 
(cars, motorcycles and light commercial vehicles) and certain 
consumer durables (air-conditioners and refrigerators), this was 
able to compensate for textiles.

In terms of Pakistan's fundamental imbalance, tax collection has 
been able to show an improvement in the tax/GDP ratio for the 
second consecutive year with an increase of 14.9 percent this year. 
Nevertheless, there have been slippages vis-a-vis IMF revenue 
targets for two consecutive quarters (end-December and end-March). 
Given the cumulative nature of revenue collection, Pakistan will 
have to request a waiver for the end-June target.

The fiscal deficit on the other hand, is expected to remain 
unchanged from the original target of 5.3 percent of GDP. Most of 
the fiscal adjustment is likely to be made by curtailing 

IMF targets 

Looking at the other targets that are part of the IMF's 
stabilization programme, the ceiling on SBP's net domestic assets 
(NDA) was easily met in end-March 2001. A much-needed relaxation on 
this target (given the problems faced in end-December) was 
negotiated in mid-February, with the result that banks helped SBP 
shift GOP debt to their books. However, the need to increase 
Pakistan's liquid reserves to meet the end-March target for SBP's 
net foreign assets (NFA), did result in heavy purchases of foreign 
exchange from the kerb market. Against US$1.37 billion in the first 
three quarters of FY00, SBP managed to buy US$1.56 billion from the 
kerb market this year. In terms of worker remittances, the larger 
inflows this year was largely because of exceptional inflows on 
account of compensation from Kuwait (for Gulf war affected 
Pakistanis) and the Haj sponsorship scheme. 

External sector

The performance of Pakistan's external sector has been lacklustre. 
Exports have not done as well as targeted, and if the trend 
witnessed in first three quarters of this year persists (an 8.4 
percent increase), exports are likely to reach US$ 9.2 - 9.3 
billion for the full year. Export revenues continued to suffer from 
low international prices despite increased volumes for the second 
consecutive year. The most disappointing results have been in the 
textile sector; given its share in total exports, textiles have 
adversely affected the country's export performance.

Oil imports have already exceeded US$ 2.5 billion during the period 
under review. Nevertheless, the growth in Pakistan's import bill 
has been below export growth, resulting in the second consecutive 
improvement in the trade deficit from 2.3 percent to 1.7 percent 
(of GDP) this year.

The upshot of this is that Pakistan was able to post a current 
account surplus in the third quarter of FY01. This is largely 
because Pakistan's non-oil import bill is almost stagnant in the 
first three quarters of this year compared to FY00. However, this 
did not ease pressure on the rupee, as the third quarter witnessed 
continuous depreciation as SBP support to the interbank market (in 
terms of supplying hard currency) was gradually reduced. Helped by 
lower economic growth this year, the ratios of the external 
imbalances (trade and current account deficits as a percentage of 
GDP) have narrowed.

In terms of the financial sector, despite the fact that the third 
quarter witnesses an increase in bank liquidity, SBP could not ease 
its monetary policy by lowering T-bill rates. With strict 
stabilization targets (especially government borrowing from the 
central bank) and a stagnant Rupee deposit base, lowering T-bill 
rates would have made it harder to meet these targets. Despite 
tight liquidity conditions during the course of this year, private 
sector credit posted a sharp increase on account of the textile 
sector (which no longer had to resort to self-finance as it had 
last year)3, sugar and automobiles. The rise in production of 
consumer durables can also be traced to the increasing popularity 
of leasing facilities. This in turn explains the active role of 
leasing companies in mobilizing long- term funds from the bond 
market to sustain their operations.4

Looking ahead, the fact that Pakistan has successfully met the 
IMF's quarterly targets has enhanced the country's credibility with 
the International Finance Institutions (IFIs). Pakistan's 
performance in the last six months has been greeted by pledges of 
further assistance from the World Bank and the Asian Development 
Bank. Still, adverse external developments may put pressure this 
quarter in building up liquid reserves. If end-June targets are 
successfully met, the chances of converting the stabilization 
programme (SBA) into a longer-term structural adjustment programme 
(PRGF) by September 2001 are quite strong. This will provide the 
breathing space to implement sector-specific reforms in the banking 
system, capital markets, the energy sector, restructuring of public 
sector enterprises, and allow a revival of the privatization drive.

The good standing with the IFIs has not yet helped revive 
widespread investment, nor has the pace of economic activity picked 
up to meet the expectations of the public at large. This situation 
has been further exacerbated by the drought, low international 
prices for Pakistan's exports, depressed demand in the 
industrialized world and inadequate capital flows. Unless Pakistan 
receives medium-term assistance on soft terms to offset these 
adverse effects, the external payment position will remain under 
severe strain. The balancing act between keeping the debt burden 
under control and achieving a healthy balance of payments will 
remain the biggest challenge facing the country in the next few 

2. Executive Summary Real Sector

Developments in the third quarter of FY01 were dominated by the 
acute water shortage in the country. Since agriculture has strong 
spillovers on the rest of the economy, the downward revision in the 
size of Pakistan's major crops will not only tone down economic 
growth projections, but will also require urgent actions to reduce 
the degree of vulnerability of the agricultural sector to weather 
conditions. Declining levels of rainfall for the third consecutive 
year, which resulted in the drawing down of water reservoirs last 
year (to support bumper crops in wheat and rice), does not bode 
well for the future. Given the country's dependency on irrigated 
farming, water management will become a critical aspect of economic 

The adverse impact of the drought on Pakistan's major crops may 
result in negative 5.4 percent growth this year, compared to a 
target of 3.2 percent set at the beginning of the year. If this 
were to happen, overall agricultural growth will be almost stagnant 
this year (growth of only 0.2 percent), compared to 3.9 percent 
last year5. This significant decline will have serious consequences 
for poverty and living standards in rural areas.

Cotton is the only major crop that should be able to meet the 
target set at the beginning of the year. Two factors are 
responsible: first, as a Kharif crop that is sown at the end of the 
fiscal year, the water shortage did not impact cotton as strongly 
as it has others; and second, cotton is not a water intensive crop. 
On the other hand, water intensive crops like sugarcane and rice 
have had to bear the brunt of the water shortage - against full 
year targets for this year, actual production is expected to show a 
shortfall of 15.3 percent (for sugarcane) and 5.9 percent (for 

To add to this problem, impact of the water shortage has not been 
even in the two main agriculture provinces of Pakistan (Sindh & 
Punjab). Other than endowment differences in terms of the flow of 
irrigated water and the larger proportion of brackish groundwater 
in Sindh, Punjab was able to cope with this crisis more 
effectively. The results speak for themselves; area under 
cultivation for wheat and rice in Sindh fell by 29.5 and 20.9 
percent, respectively, while the national average declines were 
only 1.7 and 5.5 percent. A sustainable longer term solution 
requires a more consistent strategy across provinces to build small 
dams / bunds, and to allocate existing canal water more 

Manufacturing sector 

Fortunately, the performance of the manufacturing sector has been 
much better for the first three quarters of this year. Large-scale 
Manufacturing (LSM) was up by 8.8 percent compared to 3.5 percent 
for the corresponding period last year. The source of this reversal 
is the sharp increase in value addition by food, beverages and 
tobacco. More specifically, positive value addition by sugar, 
strong growth in the production of vegetable ghee & cooking oil, 
and a very sharp reversal in the production of cigarettes, allowed 
this sub-sector to grow by 10.0 percent in the first three 
quarters, against negative growth of 17.1 percent in the 
corresponding period last year. After textiles, this is the largest 
sub-sector of value addition in LSM.

The food sub-sector was able to overshadow the lower growth posted 
by textiles, as production of ginned cotton and yarn were lower 
this year. The refining of petroleum products (which is the third 
largest source of value addition in LSM) showed strong growth 
compared to FY00, which was supported by higher imports of crude 
petroleum. These two sectors were clearly the swing factors in the 
high growth shown by LSM.

For the second consecutive year, production of automobiles and 
chemicals has shown rising growth rates. The production of cars, 
motorcycles and light commercial vehicles (LCVs), has been strong 
enough to compensate for the shortfall in the production of trucks 
and tractors. On the supply side, the introduction of new brands of 
compact cars played a large role, while the increasing use of 
leasing enhanced demand for such products. In the chemicals group, 
the largest increases were shown in paints, varnishes / polishes 
and the production of chlorine gas. As complementary goods, these 
products are used by the automobile sector, while chlorine gas is 
used in the preparation of vegetable ghee.

Excluding outliers, the trimmed growth during the first three 
quarters of this year was 9.5 per cent against 6.6 per cent in the 
corresponding period last year. In fact, the sharp negative growth 
in food, beverages & tobacco last year that has been reversed this 
year, has played a pivotal role in narrowing the difference between 
overall and trimmed growths in the two years.

To summarize, low growth in agriculture has been compensated by 
strong growth in manufacturing, which is spearheaded by the food 
group (especially sugar). Despite indications that the country will 
meet the cotton target this year, the fact that this crop is 4.4 
per cent lower than last year, has pulled down growth in the 
textile sector. On the upside, the increasing popularity of leasing 
consumer durables has boosted demand for cars, motorcycles and 
airconditioners / refrigerators.

Fiscal developments

Tax collection in the first three quarters of this fiscal year is 
up 14.9 per cent over last year. Keeping in mind the impact of the 
drought on Pakistan's GDP, growth of tax revenues should exceed 
nominal growth, which means the tax to GDP ratio will improve this 
year. However, even with this impressive growth in revenues, the 
IMF's quarterly targets for end-December and March were not met. As 
a consequence, the end-June 2001 targets stands revised at Rs417.3 
billion, from an original target of Rs430.2 billion. Tax collected 
so far represents 98.3 per cent of the third quarter target, and 
66.3 per cent of the full year revised target. It should be noted 
that ambitious targets set at the onset of the fiscal year (IMF 
programme year), paints a bleaker picture than is actually the 
case, which undermines the perceived improvement in revenue 
collection. In terms of the fiscal deficit, driven by higher than 
projected non-tax revenue and stricter expenditure controls, the 
budget deficit for 1H-FY01 was 0.7 percent (of GDP) lower than 
targeted under the IMF programme.

Monetary Developments

Unlike developments in Q2-FY01, the financial sector was reasonably 
calm last quarter. The sharp retirement of commodity financing to 
banks, the on-going maturity of government securities held by 
banks, and the seasonal plateau of private sector credit during Q3-
FY01, allowed commercial banks to be more comfortable in terms of 
liquidity. Nevertheless, following the events in end-December, 
banks were hesitant about locking in funds and were not forthcoming 
in the fortnightly primary auctions6. It was only after the IMF 
relaxed its end-March net domestic asset (NDA) target, did banks 
place more funds in government securities7. Given the self-
fulfilling nature of expectations, once banks were less panicky 
about this target and more forthcoming in the auctions, it allowed 
SBP to meet the NDA target almost effortlessly8.

Money supply actually fell during Q3-FY01, but is to be expected 
for this period of the year. In aggregate terms, money supply 
increased by Rs66.1 billion in the first three quarters against a 
full year target of Rs147.0 billion. In the remaining part of this 
year, except for commodity financing in end-May and June 2001, 
there is likely to be a fall in net domestic assets of the banking 
system in the last quarter. However, with an ambitious net foreign 
asset (NFA) target for end-June, monetary growth for the full FY01 
will increase from the end-March level, but should not exceed last 
year's increase in M2 (which was Rs 120.1 billion). In effect, 
although inflationary pressures will remain, this is primarily on 
account of cost-push factors and not because of excessive 
purchasing power in the economy.

In terms of sectoral distribution, working capital loans to the 
textile sector increased sharply. Two inter-related factors are 
responsible: first, the textile sector relied more on self- 
financing last year; and second, the increase in lint cotton prices 
raised demand for bank financing. The sugar sector also increased 
borrowing from the banking system on account of an increase in the 
market price of sugarcane and a sharp reversal in the production of 
refined sugar. The bulk of the increase in term financing, on the 
other hand, was driven by the textile and automobile sectors.

Despite an increase in market liquidity compared to Q2-FY01, T-bill 
rates were stable with a mild increase of 50 to 60 basis points in 
March. SBP could not afford to reduce interest rates for two 
distinct reasons: (1) this would have made it difficult to meet the 
NDA target for end-March, and (2) although the third quarter 
witnessed a gradual depreciation of the rupee, SBP feared that if 
its monetary policy was eased, this could unhinge the foreign 
exchange market. The unfortunate consequence of this monetary 
stance was the increase in export refinance rates (in both early 
January and early April) and the expected increase in early FY02.


Annualized average inflation rates have been 4.8 and 6.7 per cent 
for CPI and WPI, respectively (for end-March 2001), but price 
increases in the third quarter have been subdued compared to the 
first two quarters. Although the inflationary impetus once again 
comes from non-food items, the overall impact of this category was 
contained; while retail gas prices increased by an average 20 per 
cent on March 17th, retail petrol prices were reduced by 7.0 per 
cent while diesel prices dropped by 15.7 per cent on March 15th, on 
account of the fall in international oil prices.

In terms of food items, 70 out of 163 posted a price increase 
during the third quarter of FY01. Although only 47 items showed a 
decline, the sensitive nature of these items (e.g. sugar, rice, 
milk and edible oil) appeased the public view on prices.

Capital Markets

The Karachi Stock Exchange (KSE) displayed bearish sentiments in 
the third quarter of this fiscal year. Other than expected 
movements in the KSE index following the announced results of 
heavyweight companies9, the real damage followed a report from 
Merrill Lynch that was published on February 19th. Selling 
pressures following the decision of a large foreign fund to close 
its position in Pakistan resulted in a fall in the KSE index from 
1,511.6 on Feb 19th to 1,324.4 by the end of March. Corresponding 
to this sell-off, the country's foreign exchange reserves were 
depleted by US$64 million during the course of the quarter.

In terms of the dispute between KSE and SECP that surfaced in end-
December, a mutually satisfactory solution was achieved. In spite 
of this, the market's resentment did not disappear. In early May 
2001, issues relating to capital market reforms advocated by SECP 
(specifically the movement towards the T+3 regime) has become 

Looking at the bond market, the issuing of corporate bonds (Term 
Finance Certificates) by leasing companies continued last quarter. 
Although only one company entered the market during Q3-FY01, out of 
the 18 new issues since FY96, six have been issued this year. The 
growing interest in issuing long-tern bonds by leasing companies, 
which account for five of the six bonds issued this year, is 
directly related to the increasing popularity of leasing consumer 

External Sector

Pakistan's external sector was able to show a current account 
surplus in the third quarter of this year. Although this narrowed 
the gap in the balance of payments (BOP) for the first three 
quarters (frown US$1.03 billion last year to US$ 575 million), the 
need to build up liquid reserves during the course of Q3- FY01, 
meant the authorities had to monitor the foreign exchange market 
very closely. In fact, the urgency to increase liquid reserves 
during the quarter resulted in record levels of outright purchases 
from the kerb market; SBP's purchases are already US$1.56 billion 
during the first three quarters. This, coupled with lumpy inflows 
of remittances on account of Haj receipts and compensation for 
Kuwait war affectees, allowed the country to narrow its current 
account deficit.

Looking at detailed trade numbers using custom records, the US$1.32 
billion trade deficit during the first three quarters of FY01, was 
marginally above the deficit in the corresponding period last year. 
The main reasons for this are: (1) weak international prices for 
Pakistan's main textile exports, (2) higher imports of machinery on 
account of the textile sector's BMR drive, (3) import of sugarcane 
and pulses to compensate for low domestic production, and most 
importantly, (4) the ballooning oil bill that has already exceeded 
US$2.5 billion in the first three quarters of this year.

For the second year in a row, growth in export revenues came on the 
back of substantial quantitative increases. The total quantity 
effect during the period July-March 2001 was positive US$759.4 
million, which was undermined by a negative US$432.9 million price 
effect. It should be noted that the bulk of these effects are 
driven by textile exports.

The water shortage has also impacted Pakistan's trade deficit. 
Other than higher imports of sugar and pulses, low water reservoir 
levels have impaired the generation of hydel power. To make up for 
this shortfall, reliance on thermal power generation has increased, 
with the resulting import of more crude petroleum. Looking ahead, 
this issue will continue to pressure the external sector. To 
finalize this summary, given the free-float of the exchange rate 
and the fact that the underlying fundamentals are still weak, the 
rupee continues to witness a gradual depreciation. 

1. Date of commencement: May 7th 2001. Date of completion: May 
21st 2001. 

2. In terms of its impact on manufacturing, textiles and food, 
beverages and tobacco are the two largest sectors of value addition 
in large-scale manufacturing. On the other hand, the crop size of 
cotton and wheat is critical in determining the volume of 
purchasing power in the rural sector. 

3. In terms of working capital loans, against Rs8.9 billion 
disbursed in the first three quarters of FY00, this year witnessed 
net lending of Rs25 billion. 

4. Out of 6 new corporate bonds issued this fiscal year, 5 were by 
leasing companies with a combined mobilization of Rs1.6 billion. 

5. If the wheat crop in FY00 is revised upward to 21.2 million 
tonnes (which is not the case in the 9.6 per cent growth shown by 
major crops last year), the agriculture sector will shrink by 1.3 
per cent during FY01. 

6. This is the main avenue of bank lending to the government. 

7. In broad terms, this target tries to limit government borrowing 
from SBP, commercial banks and non-bank financial institutions 

8. If banks had remained hesitant, this would have either forced 
SBP to sharply tighten monetary policy or resort to other methods 
to meet the target. 

9. In a nutshell, we had negative results for PTCL on January 
25th; positive for Engro Chemicals on January 31st; negative for 
Shell and positive for PSO in mid-February.

$ breaks through new barriers: Rupee loses 2.2% in 10 days 
By Mohiuddin Aazim

KARACHI, May 29: The US dollar on Tuesday flew past Rs63 in inter-
bank market and crossed the barrier of Rs65 in kerb thus forcing 
the rupee down to an all time low.

Bankers said the dollar closed at Rs 63.10/Rs 63.15 in inter -bank 
market as higher than normal outflows pushed up the demand for 
greenbacks amidst relatively low supply.

Bankers said the dollar had shot up to Rs 63.20 in early trade but 
later on it registered a modest fall as panic buying ended at the 
close of the day. On Monday the dollar had closed at Rs 62.75/ Rs 
62.80 in inter-bank market. Thus it gained 35 paisa overnight. 
Bankers said the central bank watched the fall of the rupee rather 
calmly and made no intervention in the inter-bank market.

In kerb the US dollar closed at Rs 65.40/ Rs 65.50 on Tuesday up 
from Rs 64.85/ Rs 64.95 on Monday thus forcing the rupee to shed 55 
paisa or a little less than one per cent of its value in a single 

Currency dealers said the fall of the rupee in inter-bank market 
mirrored in open market transactions. They said as the rupee nose-
dived in inter-bank market dealings and the gap between inter-bank 
and open market exchange rates narrowed down, speculators started 
hoarding dollars from kerb. Hence the fall of the rupee.

The RUPEE SLIDE IN INTER-BANK MARKET: In the past ten days the 
rupee has lost Rs 1.40 or 2.2 per cent of its value against the 
dollar in inter-bank market. What is weakening the rupee so fast is 
a big question. The economic managers have so far not come out with 
a convincing answer leaving general public and professionals in an 
utter state of confusion. Bankers say a major reason for the fall 
of the rupee is that the State Bank has started allowing banks to 
foot oil import bills on their own. Previously SBP was providing a 
major chunk of the required foreign exchange to pay oil bills.

Bankers said more than $25 million flew out of the system only on 
Tuesday-thanks to oil import payments but no SBP official was ready 
to confirm it. Bankers said corporate demand for the dollar was 
also up. Bankers also say that lately SBP has been buying dollars 
from inter-bank market to make debt payments.

The central bank is supposed to have liquid foreign exchange 
reserves worth about $1.2 billion at end-June under the terms of 
the $596 million IMF standby programme.

Bankers say this also limits the SBP ability to intervene in the 
market but sources close to the central bank say this is not the 
case. "You cannot have a stable unless your current account deficit 
comes down," remarked one of the sources. "Making futile attempts 
to intervene in the market is worse than no intervention at all." 
But he said it was naive to presume that SBP had not been 
intervening in the market at all. "Lately the State Bank has been 
buying dollars from the banks on one day only to sell them the 
other day." But bankers say buyings are much larger than the 
sellings and leave no positive impact on exchange rates.

arises why the central bank is not defending the local currency by 
increasing interest rates. Sources in SBP say eventually SBP may do 
this though there are no official indications for such a move. The 
problem is that if SBP tightens its monetary policy to defend 
exchange rates it will not only invite criticism from the trade and 
industry but will actually limit the prospects of economic growth. 
Pakistan economy is set to grow only 2.6 per cent during this 
fiscal year ending in June against the original target of 4.5 per 
cent. But on the other hand if the exchange rate is not defended at 
a certain level and the rupee is allowed to depreciate further 
against the dollar it will only speed up the dollarization of the 
economy and the capital flight besides making servicing of $33 
billion external loans very expensive. But senior bankers close to 
SBP believe that the central bank would be forced to tighten its 
monetary policy before the end of June if it has to keep the 
exchange rate at a manageable level.

And what makes their statement sound logical is that there is room 
for increasing interest rates keeping in view that the inter-bank 
market has been very liquid for some weeks: Call rates have been 
oscillating between 4-5 per cent on an average against the SBP repo 
rate of 13 per cent. Central bankers admit that this high level of 
liquidity in the market is one of the reasons for the ongoing 
decline of the rupee.

STABILITY IN KERB RATES: In the past 10 days the rupee has shed 95 
paisa or 1.4 per cent of its value against the US dollar in the 
open market. But in the mean time the spread between the inter-bank 
and open market exchange rates has narrowed down from Rs 2.80 per 
dollar to Rs 2.35. Bankers say this contraction in the spread is 
luring speculators to hoard dollars in anticipation that the spread 
would eventually expand forcing the rupee down- and allowing them 
to make big money. 

Historically there has been a much larger spread between inter-
bank and open market exchange rates providing incentives to 
speculators. But as Pakistan entered into the IMF standby credit 
programme the Fund started insisting that the spread must be 
contained. The Fund took the position that one solid reason for the 
spread being very large was that the central bank has been a net 
buyer of foreign exchange in the open market. That is why SBP 
sometime does not defend the exchange rate in inter-bank market 
expecting that it would narrow down the differential between inter-
bank and open exchange rates.

ADB concerned at delay in $80 million KESC project
By Khaleeq Kiani

ISLAMABAD, May 29: The Asian Development Bank (ADB) has expressed 
serious concern over a 30-month delay over a $80 million power 
project of Karachi Electric Supply Corporation (KESC) even as 
Karachiite's continue to face repeated power breakdowns.

Official sources told Dawn that an ADB mission which visited 
Pakistan early this month had already declared KWSC 6th Power 
(Sector) Project as "problematic" after assessing its progress as 
"unsatisfactory and partially satisfactory". In view of ADB's 
adverse comments, the federal government has sought a detailed 
report on the subject.

The $40 million loan agreement on 220KV transmission line ring 
around Karachi city was signed in 1994. The implementation on the 
project has been termed as 'unsatisfactory' in view of the fact 
that it was 30 months behind schedule.

The project scope was also declared unsatisfactory as only one of 
the four sub-projects had been implemented as the other four were 
cancelled in spring cleaning of 1998. However, project costs have 
been highly satisfactory as there were no cost overruns. So far, an 
amount of $68.5 million has been released by the ADB.

On the counterpart funding side, the government performance has 
been unsatisfactory that resulted in delay of contract and 
cancellation of other sub-projects while implementation covenants 
were also classified as unsatisfactory.
Audited financial statement was found satisfactory though 
submission of statements were delayed by around three months.

The main cause of delay, the sources said, was disagreement with 
local councils and military authorities on right-of-way access and 
due to the need to take existing lines out of service. Another 
reason was that the remaining packages including conventional grid 
stations and underground cables under the ADB-financed transmission 
system reinforcement and expansion, the bids had been evaluated in 
the first half of 1997. However, KESC's liquidity problem at the 
time impeded further firm commitment and the contracts could not be 

The closing date of December 31, 1998 has been extended by 18 
months, up to June 30, 2001. The KESC's request for utilisation and 
reallocation of loan savings and a further extension of loan 
closing date to June 30, 2001 has also been approved.

The bank mission early this month has given guidelines on 
procurement of 220KV cables, cable sheaths along with 
reconciliation and outstanding disbursement accounts besides a set 
of instructions on how to prepare the executing agency's project 
completion report (EAPCR).

World Bank to give $350 million credit on June 13
By Our Staff Reporter

ISLAMABAD, May 29: The World Bank will disburse a $350 million 
Structural Adjustment Credit on June 13, a senior Finance Ministry 
official said on Tuesday. Talking to Dawn, the additional secretary 
and spokesman for the ministry, Dr Waqar Masood Khan, said the 
World Bank's executive board was meeting on June 12 to formally 
approve the credit. "This will be an upfront single tranche to be 
disbursed the very next day," he added.

SAC, said Dr Masood, was a highly concessional assistance for 
Pakistan to help improve its balance-of-payments position.

The credit, he claimed, would be offered as the government was 
ensuring good governance and an equitable use of public resources. 
The credit would support reforms in various sectors. In reply to a 
question, the spokesman said that initial talks had been held with 
the IMF for securing the Poverty Reduction Growth Facility which 
would replace the $596 million Standby Arrangement expiring on Sept 

In this regard, he stated, detailed talks were expected in July. 
The PRGF, he added, would be a medium-term facility for three 
years. In reply to another question, Dr Masood said that the tax-
to-GDP ratio was being increased from the present 10 per cent to 
14% in the next three years.

Money laundering hits Pakistan
By Jawaid Bokhari

KARACHI, May 28: The United States has placed India and Pakistan in 
the "primary concern list" of countries hit by money laundering 
that accounts for an estimated annual global capital flows of 
$1,000 billion, handled by the world's leading banks.

The US State Department's announcement coincides with the recent 
IMF decision of adding "money laundering" as conditionality for 
providing balance-of-payments support to an aid recipient country. 
Official sources here, however, say that the IMF conditionality is 
country specific and there is no move to apply "money laundering" 
conditionality to Pakistan.

Pakistan's foreign trade is at $20 billion, and official and non-
official remittances estimated at $5-6 billion. Considering the 
size of foreign trade and forex operations, the scope for money 
laundering is very limited when compared to global volume. The IMF 
estimates that the amount of tainted money being cleaned through 
the world's financial system is massive  between $500 billion and 
$1.5 trillion a year.

On May 15, the State Department said that 175 countries had been 
put on three categories of "concern" list. Pakistan is on the list 
of "primary concern."
Yet, in another interesting development, the French are 
investigating the charge of "money laundering" against a major 
Pakistani bank and have detained a senior banker.

Over the past 18 months, the military government has launched a 
vigorous campaign against tax evasion and loan defaulters that has 
resulted in the flight of capital, entrepreneurs and professionals. 
In the past two years, an estimated 5,000-6,000 Pakistanis have 
spent about $1 billion in getting immigration visas to the US, 
Canada and Australia. The flight of capital is estimated officially 
at $1 billion per annum.

Studies carried out in developed countries show that money 
laundering has grown simultaneously with globalization and 
specially, with the lifting of capital control and the development 
of international payment system. Bank of America sees nearly $1 
trillion pass through its internal wires every day, according to a 
foreign press report.

Globalization is also encouraging capital flows from the periphery 
countries to world financial centres, from the poor to the rich 
states, and from the developing to the developed states, says a 
leading economist. The developing states have also been hit by 
brain drain at a time when human resource is seen as the key to 
economic progress.

Islamabad is now making a major bid to divert home remittances from 
unofficial channels to official channel. No questions would be 
asked if remittances are sent through inter-bank market. Incentives 
would be offered in the next budget to lure investment by non-
resident Pakistanis.

Board of Investment officials expect that local businessmen who 
have investments in foreign countries, would respond to the 
opportunity offered by the State Bank decision to allow local 
companies to invest abroad, to move from the informal to the formal 

The US has pointed out that money laundering distorts business 
decisions, increases the risk of bank failures and takes control of 
the economy away from the government. Politicians in the UK and the 
US have expressed dissatisfaction over their countries' efforts to 
tackle money laundering, says London Economist.

A British parliamentary committee said in March that "the 
government should take coordinated, coherent and properly resourced 
action to fight money laundering if the United Kingdom, through the 
City of London, is to maintain its reputation as one of the most 
important international financial centres."

In USA, says the Economist, a report on money laundering by Senate 
Democrats criticized some of the America's biggest bank, including 
Citigroup's J.P. Morgan Chase, Bank of America and Bank of New 
York. In February, Citigroup was involved in investigations against 
Joseph Estrada, the ousted President of the Philippines.

Budget deficit to miss 5.3% target
By Ihtashamul Haque

ISLAMABAD, May 28: The government is unlikely to achieve 5.3 per 
cent GDP budget deficit as prescribed by the International Monetary 
Fund (IMF) during the current financial year.

"Perhaps we will end up having 5.4 per cent fiscal deficit instead 
of 5.3 per cent for a variety of reasons," said Secretary General 
Ministry of Finance Mr Moeen Afzal.

Speaking at a one-day conference on Debt Committee's report here on 
Monday, he said the present government had decided to achieve 
economic stability by bringing about discipline in all the 
ministries and other government departments.

"Every small and big development project now has to be approved by 
the Executive Committee of the National Economic Council (ECNEC) 
and the Central Development Working Party (CDWP) and nobody can 
bypass these organisations," the secretary general said.

The government had invited politicians at the conference to brief 
them about the country's debt problem with special reference to the 
report of the Debt Reduction and Management Committee headed by Dr 
Pervez Hasan.

Talking about reduction in foreign debt, Moeen Afzal said the debt 
committee had proposed viable recommendations to reduce the 
country's huge foreign and domestic debt. He said he agreed that it 
could take three to five years to achieve the desired results. He 
said Pakistan was likely to hit $9.1 billion exports at the end of 
the current fiscal. Likewise, he said the rate of inflation will be 
4 to 5 per cent.

Former Finance Minister and PML leader Sartaj Aziz said the targets 
set by the Debt Committee to reduce debt were very high. He said 
exports position was not competitive and the cost of production was 
very high. "Utility charges are very high and due to Pakistan's 
image abroad, our exports are not increasing," he said.

He said political uncertainty was adding to various problems. The 
target of raising three billion dollars through privatisation and 
to eventually retire the country's debt was too ambitious, he said. 
"In 1990 Pakistan secured hard loans to pay off its soft loans," he 
said, disagreeing with the government that 5.5 per cent growth rate 
could be achieved in the coming years.

Mr Wasim Sajjad said that purchasing power of a common man had 
weakened greatly due to the deteriorating economic situation over 
the years. "Rulers should change their lifestyle and set an example 
for others to follow," he added.

"Nothing could be achieved through halfhearted attempts," Wasim 
Sajjad observed.
Secretary General of the PML like-minded group Gohar Ayub Khan said 
there was no dedication seen in the governments to reduce the 
country's debt. He was of the view that there was a real need that 
the rulers practised austerity. 

He said the use of expensive cars by the rulers should be stopped 
in order to reduce the nation's expenditure. The suspended Speaker 
of the National Assembly Illahi Bux Soomro said it was not fair to 
expect the common man to continue offering sacrifices to reduce 
foreign debt. "The government is not providing any relief to 80 per 
cent of the population," he said, adding only those should be taxed 
who could pay.

Nawabzada Mohsin Ali Khan, former finance minister of NWFP and a 
leader of Tehrik i Insaf, said he did not know where had all the 
foreign loans taken by the successive governments gone. 

He said former prime minister Nawaz Sharif broke the law to build 
motorway by taking away the powers of ECNEC and giving unnecessary 
powers to National Highway Authority (NHA) to execute the project.

Mr Mohsin said that Chief Executive Gen Pervez Musharraf could not 
tolerate 270 members of the National Assembly so how would he 
tolerate 22,000 elected people coming in the wake of local bodies 

Former Commerce Minister Zubair Khan claimed that a joint 
commission of the World bank and the ADB had observed that military 
government's reform agenda was over-extended. "That commission had 
concluded that it was difficult to have a real impact of the 
reforms and also from where the government will finance this reform 
programme", he added.

IMF letter for third tranche received: Board meeting in July
By Our Staff Reporter

ISLAMABAD, May 27: The government has received the draft letter of 
intent (LOI) from the International Monetary Fund for the release 
of third tranche amounting to $133 million under the Stand-By 
Agreement, an official spokesman said.

The IMF board will meet in July to consider the LOI on the basis of 
government's performance in the third quarter (Jan-March) of the 
current financial year, the spokesman said at a hurriedly-called 
press conference here on Sunday.

He said the government had sought a waiver from the IMF on the 
revenue collection target for the current year under the SBA as 
against the 9-month target of Rs279.3 billion it could collect only 
Rs276.7 billion, registering a shortfall of about Rs3 billion.

The spokesman claimed the government had achieved all the 
performance targets and met other criteria set in the SBA for the 
third quarter.

The government's performance with regard to net domestic assets was 
quite satisfactory as against the target of Rs8 billion the actual 
achievement was Rs16.1 billion, he said.

The target for fiscal deficit for the whole year was Rs152.8 
billion and the actual fiscal deficit in the third quarter remained 
at Rs145 billion, lower by only a little over Rs7 billion than the 
target set in the performance criteria with three months still to 

In the performance criteria, the whole year target for bank 
borrowing was set at Rs19.9 billion and in the nine months the 
government borrowed about Rs13 billion. In the remaining three 
months it has to restrict additional borrowing to about Rs6.9 
billion to meet the full-year target.

To a question about foreign exchange reserves, the spokesman said 
it was not included in the performance criteria of the Fund. The 
spokesman said the IMF mission during its just concluded visit 
carried out a preliminary review of the third quarter and held 
meetings with different ministries.

He said preliminary discussions on Poverty Reduction Growth 
Facility (PRGF) were held with the IMF mission but the substantive 
talks would be held after the end of the SBA. Poverty Reduction 
Growth Facility is a multi-billion dollar highly concessional 
medium-term facility, which spans over a period of three years.
The mission will visit Pakistan in the second week of August to 
review the fourth quarter performance, he added.

Banks reluctant to give gas firms long-term loans
By Khaleeq Kiani

ISLAMABAD, May 27: The commercial banks are reluctant to provide 
long-term financing to the gas utilities SNGPL and SSGCL unless 
they pledge their assets and receivables, says a World Bank report.

The report, made available to Dawn, was finalized by the bank in 
consultation with the chief executives of the two utilities and 
submitted to the ministry of petroleum and natural resources on 
April 20.

The bank says the main reason for commercial banks' reluctance is 
the poor financial performance of the utilities and the result is 
that size of short-term financing is too low to commensurate with 
their expansion requirements.

The bank, now spearheading reforms in Pakistan's gas industry, is 
of the view that distorted tariff regime and bad distribution and 
transmission system coupled with fixed and low return on investment 
to gas companies has put the country in a paradox.

The financial performance of the two gas utilities is guaranteed by 
the government through gas development surcharge, calculated on the 
basis of difference between wellhead price and end-consumer price, 
and does not provide for incentives to improve efficiency.

The allowed rate of return on assets of 17 to 17.5 per cent is 
determined on historical basis: the corresponding return on equity 
is of the order of 10 per cent, which is incommensurate with the 
requirements of investors in Pakistan.

Given the fact that much of the debt is expressed in foreign 
currency, the utilities have incurred significant foreign exchange 
losses. Their liquidity ratio and debt service coverage ratio is 
close to or below one.

In this situation, the companies have not paid cash dividend to 
shareholders for many years now. They have also been unable to 
contribute towards their investment programme and build the 
extensions necessitated by the growth in demand.

The bank is of the view that distorted tariff structure in which 
industrial, commercial and power consumers subsidize the household 
and fertilizer sector are equalized throughout the country and do 
not reflect the increasing share of gas produced to the south of 
Sui and shipped to the north.

The report says no seasonal tariffs are maintained so that 
customers do not get signals as to the necessity of saving gas in 
winter, and given the considerable winter shortages there are no 
incentives to build gas storage's in depleted gas fields to improve 
service to the consumers.

Rules relaxed for currency export: FAP team meets Shaukat
By Our Staff Reporter

KARACHI, May 26: Money changers can now take out five foreign 
currencies out of Pakistan instead of selling them to state-run 
National Bank. But they can exercise this liberty only if they 
bring in advance the equivalent amount of these currencies in US 

This was decided at a meeting between a 16-member delegation of 
money changers and Finance Minister Shaukat Aziz in Islamabad on 
Friday, said a press release. President of Forex Association of 
Pakistan Malik Bostan who led the delegation told Dawn that the new 
system would be effective from Monday. He said State Bank Governor 
Dr. Ishrat Husain who was also present at the meeting agreed that 
the new system would work.

Dawn inquiries show that under the new system money changers would 
bring in advance through telegraphic transfers (TTs) the dollar 
equivalent of the foreign currencies they wish to export. Then 
National Bank would send the foreign currencies to Dubai to be 
handed over to the representatives of the money changers. The list 
of the foreign currencies that money changers can export under this 
system include (i) Pound Sterling (ii) Deutsche Mark (iii) Saudi 
Riyal (iv) UAE Dirham and (v) Kuwaiti Dinar. Thus two things become 
clear: (i) Money changers would continue to sell the US dollars and 
all other foreign currencies minus the above- listed five 
currencies to NBP, and (ii) they will not be allowed even to take 
out these foreign currencies on their own as was the practice in 
case of all foreign currencies minus the US dollar before NBP 
started buying these currencies from money changers in April.

Money changers started selling all foreign currencies to NBP late 
last month under an SBP directive that stopped them from carrying 
any foreign currency outside Pakistan on their own. SBP had to take 
this decision to plug leakage's in the name of export of foreign 
currencies that was telling heavily upon the health of the rupee. 
Initially money changers were getting only the rupee equivalent of 
the foreign currencies sold to NBP but later on it also started 
giving them the US dollars against all foreign currencies.

Money changers say they have so far sold $100 million worth of 
foreign currencies including the above-listed five currencies to 

"I hope with the permission given to us to export five foreign 
currencies supply of US dollars will increase in open currency 
market," said Malik Bostan. He said the supply of greenbacks had 
fallen sharply in the market pushing the rupee down during this 
week because money changers were not getting enough dollars from 
NBP in exchange of other foreign currencies. Now that the money 
changers would bring in TTs in dollars against five major foreign 
currencies to be exported by them it would naturally increase the 
supply of dollars in the open market and stabilize the rupee as 

A press release issued by Forex Association of Pakistan said the 
money changers would surrender all such TTs to SBP. Bankers say 
this would help SBP buy dollars from money changers as and when 

The rupee this week remained under immense pressure both in inter-
bank as well as open currency market: It lost 1.3pc of its value in 
inter-bank market and 1.5pc in kerb as demand for dollar rose 
amidst dwindling supply.

INCOME TAX: Bostan said the finance minister also promised to 
resolve the income tax problems of the money changers. He said the 
minister was informed by the delegation that the CBR had lately 
sent notices to some money changers demanding income tax on the 
deals they had struck in the past with foreign exchange houses 
abroad to help boost supply of dollars in Pakistan.

He said the CBR had also started probing the source of income of 
those who had transacted such business claiming that it was in 
violation of Protection of Economic Reforms Act of 1992. He said 
the minister had assured money changers that he would discuss the 
issue with CBR chairman.

Back to the top
The systems 
By Ardeshir Cowasjee

THERE is a world of difference between the Code Napoleon and the 
Code Naqvi, which is soon to fall upon us. Whereas General Napoleon 
Bonaparte did proclaim that his code was indestructible, he was not 
so presumptuous as to maintain it was immutable, unchangeable. But 
General Tanvir Naqvi and his co-generals insist that the laws they 
intend to enforce will forever remain in the form in which they are 
now presented to this country.

The Code Napoleon, officially known as the Code Civil des Francais, 
became the law of France in 1804 and remains extant to this day, 
with revisions. France is one of the great countries and has learnt 
how to live with the world. It is pragmatic, able to smell out 
rats, corrupt prime ministers and their corrupt spouses, and 
crooked admirals of countries with which it does business. It 
comfortably relieves the governments of such countries of much 
money and where necessary bribes with kickbacks, sells its 
submarines, and then decorates the admirals who were so friendly 
and cooperative.

It is not so much the system or the laws which matter - it is the 
men who administer the system and implement the laws. Our province 
of Sindh can boast of having had a few competent men who have done 
their best to effectively govern.

The oldest of such men to come to mind is Astad Gorwala, a Parsi of 
Bombay, an officer of the Indian Civil Service, who spent most of 
his career in Sindh administering the province prior to partition. 
He was incorruptible, a man of the people, sought out by each 
district. When he retired he went back to Bombay and became a 
pamphleteer, constantly opposing the corrupt and the inefficient 
administrators of the government.

I hold a copy of his pamphlet, 'Opinion', of August 28 1979. On top 
of the front page I read, "Weekly Copy, Paisas 5, Annual 
Subscription Rs.2." The page opens up, "Since independence, 
presidents of India have been scholars, gentlemen and scholars, 
politicians, even clowns arousing the laughter of Indians at least. 
Now we have a trickster as president... Why all this trickery, oh 
Trickster Nilam Sanjiva Reddy? You, from the exalted Rashtrapati 
Bhawan, are not likely to make a reply, so we must make do with our 
own humble speculations."

He wrote incessantly against Indira Gandhi and her emergency. But 
when she closed down many a newspaper and arrested and jailed many 
an editor, she gave special instructions that neither Gorwala nor 
his pamphlet was to be touched. And, when Gorwala lay ill and 
dying, Indira took the trouble to call on him at his Ridge Road 
home, his publishing house.

Now to administrators of Sindh who people still remember. We start 
with Kunwar Idris, district magistrate and collector of Karachi in 
the late 1960s and early 1970s, starting his steady rise up the 
hierarchy. When, at the end of 1988, Benazir Bhutto embarked upon 
her democratic adventure, she appointed him chief secretary of 
Sindh. He was of course given orders by husband Asif, which he 
tended to ignore. This was not to the liking of Benazir, who called 
him, told him very firmly that he had upset her husband, and that 
"when my husband speaks you must take it that the prime minister 

He survived with the PPP government until the end of 1989 when he 
had to decide between either taking action according to the 
dictates of his conscience or "responding positively, without 
question, to the party programme and its democratic principles," 
the party and its leader having swum through "rivers of blood" to 
get where they were. His choice displeased Benazir and he was 
shunted into a siding to head Bankers Equity.

Idris retired honorably, is now a member of the private sector, and 
writes a weekly column which is printed besides mine each Sunday. 
As can be judged from his writings, he is highly skeptical of the 
Code Naqvi, with good reason, and its general might do well to have 
a talk with him.

During the first half of the 1970s, ZAB's government found in 
London, happily posted in our High Commission as economic 
counselor, civil servant Abdul Karim Lodhi. His help was sought to 
instigate Benazir Bhutto's election as president of the Oxford 
Union, as had been ordered by her father. He refused to bend, or to 
involve himself in the unorthodox action required of him, and, ZAB 
following form, ordered his dismissal. He was reinstated by Zia and 
was later selected by daughter Benazir to follow Idris as her chief 
secretary in Sindh.

During Lodhi's tenure, Zubair Kidwai was secretary of the 
provincial transport ministry. One fine day Zubair and the 
managing-director of the Karachi Transport Corporation who had been 
summoned to his office were physically threatened by their 
minister, the PPP stalwart Manzoor Wassan. The minister, having 
failed to gain his secretary's acquiescence in wrongdoing through 
purely verbal means, thought he could do so at gunpoint, using his 
armed guards.

The incident was obviously reported to the chief secretary who 
wrote to his chief minister, Aftab Shahban Mirani, asking him to 
immediately issue orders to his ministers and other party members 
instructing them "that no one shall cause firearms or any other 
weapons to be carried into the office rooms. If anybody does so, 
from now onwards, Sir, with due respect, one will have to order the 
physical removal from the secretariat of both the minister and his 
companions bearing arms. The government has provided adequate 
police security in the secretariat. If that is not considered 
enough by anybody, it cannot be supplemented by ruffians ..... Now, 
reverting to the ugly incident, Sir, it so happens that both the 
affected officers have a known reputation for uprightness, 
competence and integrity. One wonders if anything similar can be 
used to describe the errant minister .... Mr Manzoor Wassan should 
personally apologize to both officers, preferably in the presence 
of his private secretary and the two guards (of course, minus their 

Lodhi survived Benazir. Then came Jam Sadiq Ali as chief minister 
of the Jatoi caretaker government who one day swore that for as 
long as he was CM of Sindh Lodhi would be his CS. Two days later, 
Lodhi was removed and installed as head of State Life.

Another strong officer, Saeed Mehdi, was sent to Sindh as chief 
secretary at the start of Nawaz Sharif's second round. He was 
humane, he helped people. Firm, incorruptible, he stood up well to 
the bullying tactics of his chief minister, the corrupt (now 
absconding) Liaquat Jatoi. Jatoi did his best but could not manage 
to get rid of him as Mehdi had gained the trust of his boss Nawaz. 
To Mehdi's misfortune, he was so trusted by Nawaz that he took him 
away from Sindh and posted him as his principal secretary in 
Islamabad. He remained as such until October 12, 1999, when he was 
arrested along with his boss from the prime ministerial mansion.

Nawaz has since hit the jackpot and languishes in Saudi Arabia, but 
Mehdi remains in jail in Pakistan, a forgotten man. It is time 
someone woke up to his existence. It is time for the chief 
executive to pass judgment on his sins or crimes, give him bail, 
and move him over to house arrest. No man who has served with or 
under Mehdi speaks ill of him.

When Mehdi so unluckily left Karachi, his replacement was Zubair 
Kidwai. He lasted with Liaquat Jatoi for eight months and was then 
moved to federal government. When General Pervez Musharraf took 
over, Kidwai was brought back as chief secretary and again managed 
to last a mere eight months with the military government before 
being again shifted to Islamabad and rewarded with the post of 
secretary to the ministry of religious affairs from where he will 
soon retire.

General Tanvir Naqvi should remember that the system he is setting 
up must have checks and balances galore as it will be operated by 
corrupt, venal, inept men, which is all that elections can now 
throw up. Men such as the four officers I have mentioned can well 
be used to help 'restructure', to help in the grassroots devolution 
process, to help set up the Code Naqvi so that it too may last for 
two centuries and more.

Fog and illusions on the road to peace
By Ayaz Amir

THE holy warriors, mindless champions of jihad, are at one end of 
the spectrum; the Track Two peaceniks, who dance the bhangra at the 
sight of Indian border guards and otherwise babble of peace at all 
costs, at the other end. There is, however, no divine ordinance 
which lays down that Indo-Pak relations should be a zero-sum game, 
a choice of absolutes: war or peace, bitter hostility or headlong 

There are real points of contention between the two countries and 
given these, a kind of rivalry or competition between them will 
exist for the foreseeable future. Nor is there anything wrong with 
this. The Berlin Wall fell in the West. In the sub-continent the 
Iron Curtain or, since this is the sub-continent, the Reed Curtain 
is still very much in place. So it is not particularly helpful to 
draw analogies from afar and apply them to our neighbourhood.

When western ideologues, as relentless in their proselytizing as 
the Christian missionaries of the 19th century, say this is the era 
of cooperation and not confrontation they should be looked in the 
eye and asked, "Pray, for whom?" Europe - minus the Balkans and 
Russia - beats the drums of cooperation because it no longer has 
the Soviet Empire to contend with, that dinosaur having crashed to 
earth under its own weight. There are, however, historical knots 
elsewhere which remain to be untied. The new missionaries of 
globalization and international cooperation should be reminded of 
this unfinished business. Of what use is globalization to the 
embattled Palestinians? To the human flotsam caught in the wars of 
Africa? To the despairing people of Kashmir?

Plutarch said long ago that conquerors were always lovers of 
peace: they liked to enter your cities unopposed. Israel is a lover 
of peace: it would like the Palestinians to accept meekly the terms 
of conquest imposed upon them. The comparison with India-in-Kashmir 
I would not like to make because coupling Israel and India in the 
same breath is grist to the mills of the hate-India lobby in 
Pakistan. There is already too much dust (and resulting confusion) 
swirling in the atmosphere. We can all do without contrived or 
manufactured hatred.

But as an aside, let us bear witness to the new imperialism. The 
cold war was an affair of West and East. But the Rome and Carthage 
of the 20th century imposed their mutual hostility upon the rest of 
the planet. Now that the nature of the game has changed, a new set 
of values, without regard to individual differences, is again being 
imposed from above. The gospel changes; the commandments undergo a 
revision. But the fury of the reigning prophets remains the same.

India and Pakistan must settle their differences by themselves, on 
their own terms, and not as a result of outside prodding. India is 
right in this, and Pakistan wrong. The Pakistani craving for 
outside mediation or any other forms of intervention in the 
settlement of the Kashmir dispute is evidence of weakness and 
intellectual confusion. For it is tantamount to saying that on our 
own we are helpless and must count on the favour of friends for a 
favourable outcome in Kashmir.

There are two problems with this approach. Firstly, if our own 
means be insufficient, why should the world (or the US) give us a 
free lunch in Kashmir? Weakness on the ground cannot be turned to 
victory at the negotiating table. Secondly, if someone else brokers 
a deal the terms of it will still favour the stronger party. The 
Camp David and Oslo Accords are not exercises in justice. They hold 
up a mirror to reality and as such they come with qualifications 
attached. Egypt got back the Sinai as a result of the Camp David 
Accords but in return agreed to castration at American hands. It 
still has a powerful military but this military can fight Libya or 
Sudan, not Israel. Camp David saw to this.

Pakistan's on-off fascination with the idea of outside 
intervention in Kashmir is thus based on naive foundations. It is 
also reflective of adolescent diplomacy. Just because we feel 
something will go down ill in India we raise it as a policy option.

True, the UN resolutions on which our Kashmir case rests are 
emblems of multilateralism. Nor is there any reason for us to ditch 
this concept. But at the same time it would not hurt us to remember 
that if ever a halfway solution of the Kashmir issue is struck it 
will be through the collective wisdom of India and Pakistan, not 
through any outside agency. The Simla Accord was meant to be a 
victor's document but its insistence on bilateralism as the vehicle 
for settling Indo-Pakistan disputes is not misplaced. Only a fool 
would extrapolate from this that we should stop airing our concerns 
on Kashmir to a worldwide audience. But public relations is one 
thing, working towards a solution quite another.

Sure, size and economic clout give India the advantage at any 
bilateral table. How to correct this inherent imbalance? This was 
Pakistan's strategic problem in the wake of defeat in the '71 war 
and the Simla Accord which soon followed. For close on 17 years - 
that is, from 1972 to 1989 - Pakistan stopped making even 
ritualistic noises about Kashmir. That was India's historic chance 
to settle with the Kashmiri people and bring them closer into the 
Indian Union. But it bungled the opportunity and is paying the 
price of failure ever since. When India ruefully contemplates the 
wreck of its efforts in Kashmir, it should take time out from 
blaming Pakistan (and the ISI) and ponder a bit over its own 

India's loss was Pakistan's gain. The moment Kashmiri Muslims rose 
against Indian rule, the scales of bilateralism, hitherto tilted 
against Pakistan, were restored to a semblance of balance. From the 
shadows where the Kashmir dispute had lain for full 17 years it 
emerged once more into the light. A strategic error once committed 
cannot be corrected by piecemeal measures. India has responded to 
the freedom uprising in Kashmir by force and repression and not the 
tools of imagination. Therein lies its continuing failure. As for 
Pakistan, it has merely manipulated the lever placed into its hands 
by a combination of Indian folly and Kashmiri discontent. In its 
crucible of dirty tricks it did not forge the lever in the first 

The fact that the roots of the Kashmir uprising lie within Kashmir 
also accounts for the ultimate failure of the propaganda blitz 
mounted by India over the issue of "cross-border terrorism". It 
brought India handsome dividends, and Pakistan no small 
embarrassment, while it lasted. But it could not erase the facts on 
the ground. Heaping embarrassment on Pakistan could not by itself 
put an end to the armed struggle. Hence the change of tack which is 
less a concession to Pakistan than an acknowledgement of reality.

None of this is cause for Pakistan to gloat over. Whatever India's 
compulsions, it is in Pakistan's interests too to walk, in Mr 
Vajpayee's evocative phrase, the high road of peace. Resources 
poured into militarization and such follies as the sub-continent's 
nuclear race are resources taken away from social and economic 
development. We need quiet and tension-free borders much as India 
does. Will the Kashmir uprising last into eternity? What if it 
peters out? What will balance the bilateral scales then?

For a true equilibrium in the subcontinent, our universities and 
colleges must hold their own against India's; our scholars should 
be of the highest quality; our research institutions the envy of 
the East; our maestros the finest exponents of subcontinental 
music; our skill at technology the best in the region; our 
agriculture the feeding source of countries near and far; and 
Lahore's famed Hira Mandi, now sadly going to pot, the hottest 
international destination between Singapore and the Suez Canal.

With inner strength comes outward grace. On Kashmir we must stand 
firm without feeling the need to protest too much, the very 
consciousness of fortitude allowing us to speak with a softer 
tongue. In this context, there is no harm in admitting that the 
Indian invitation to General Musharraf was more sensitively worded 
than our response which had the wooden imprint of the foreign 
office all over it. When will we learn the more subtle use of 

The challenge for both countries is to realize their limitations. 
Pakistan cannot win Kashmir by force, India cannot browbeat 
Pakistan through a mix of swagger and misplaced snobbery. In any 
true negotiations both sides will have to give something, retreat a 
bit from their dog-eared positions. Not that a solution to their 
problems is around the corner. It is foolish even to think on these 
lines. But both countries will have registered a major advance if 
they can learn the art of conversing with each other without making 
a sticking-point of every quibble or comma.

The scope for miracles when Musharraf and Vajpayee meet is thus 
out. But if the two leaders can lay the basis of a politer 
discourse in the subcontinent - a discourse free of the hectoring 
and finger-pointing which seems part of our common inheritance they 
will have done their bit by history.

Let's take the high road 	
By Irfan Husain

Before starting this week's column, let me first make it clear 
where I stand: as an avowed pacifist, I am convinced that human 
life is too precious to waste over land.

OK, I suppose the modern state has a duty to protect its borders, 
but beyond that, to waste blood and treasure on fighting other 
people's battles is something that is neither sensible nor prudent; 
above all, it is not usually in a nation's best interest. Let as 
examine our Kashmir policy to see if it passes this test. Legally. 
We do not claim Kashmir to be part of Pakistan; indeed, even Azad 
Kashmir has its distinct constitutional existence separate from 
Pakistan. What we have claimed these past five decades is that 
Kashmiris should have the right to a plebiscite to decide whether 
they want to become part of India or Pakistan, and in two 
resolutions over fifty years ago, the UN Security Council upheld 
this right.

So far, so good. Having taken up (diplomatic) cudgels on behalf of 
the Kashmiris, why did we have to fight two-and-a-half wars over 
their land? Why must our entire foreign policy be hostage to 
Kashmir? And, above all, why must we maintain a confrontational 
posture vis-a-vis India at a suicidal cost to ourselves? After all, 
there are other (Muslim) causes we support without going to war 
over them. Obviously, we consider Kashmir to be different as we 
hope to gain that territory if and when a plebiscite is held there. 
Let us then admit that our ambitions are more territorial than 
ideological or based on any fundamental principles. Let us also 
remember that there are many unimplemented UN resolutions, but 
mercifully, we do not show any inclination to go to war over them.

We need to keep this central fact in view when we consider the 
forthcoming talks between the Indian and Pakistani heads of 
government. Another fact that must focus our minds is the vast (and 
growing) military and economic disparity between the two countries. 
>From this evident truth flows the impossibility of ever wresting 
Kashmir from India by force. An outgunned nation seek's foreign 
support, but we are more isolated today over Kashmir than ever 
before, so there is no prospect of an alliance to help our cause.

Given these facts, we need to ask ourselves whether our present 
Kashmir policy is sustainable or even desirable. The best we can 
achieve is to continue our overt and covert support of militants in 
that suffering valley, causing civilian and military casualties. 
But having conducted this low-intensity campaign for over a decade, 
we must realize its futility. India can and will sustain this 
conflict for years more if necessary. But can we afford to?

We must understand that in the imperfect world we live in, UN 
resolutions are only as effective as the will of the major powers 
to implement them. Clearly, in the case of Kashmir, nobody in the 
world, including our closest friends, is willing to lift a finger. 
While the issue may be of paramount importance to some of us, for 
the rest of the world it elicits nothing more than one big yawn. 
The unpalatable reality is that Pakistanis tend to get far more 
worked up over 'Islamic' causes than other Muslims do over Kashmir.

There is a school of thought that holds that irrespective of logic 
and cold realities, we must continue confronting India. According 
to these people, ghairat or national honour dictates that we either 
get what we want, or beggar ourselves in the attempt. Never mind 
that our economy is in tatters and that we are in hock to the tune 
of $35 billion to international donors, and a similar figure to 
domestic lenders; never mind that jihadi outfits and other zealots 
wreak havoc within Pakistan, frightening potential investors away; 
and never mind that our hugely expensive and overbearing military 
establishment has been the cause of both political and economic 
underdevelopment. For this small but powerful lobby, the subtext is 
that Pakistan can only be defined through enmity with India. This 
is to be the be-all and end-all of Pakistan's existence. Fifty four 
years after independence, it seems that we can have no destiny 
other than hostility towards our neighbour.

But after all these years of hatred and confrontation, what do we 
have to show for this policy except wasted dreams, shattered lives 
and lost hopes? Surely our people deserve better. Successive 
generations of Pakistanis have had to put up with a ramshackle 
infrastructure, rampant unemployment, grinding poverty, disease and 
illiteracy. Are the champions of ghairat proposing more of the 
same? Must we fight to the last Pakistani for the rights of 
Kashmiris? Ironically, the most vocal proponents of this hard-line 
policy are sitting comfortably abroad while urging the rest of us 
to hold fast.

In his invitation to General Musharraf, Mr Vajpayee talks about the 
need to resume the "composite dialogue" between the two countries. 
This makes sense: to focus exclusively on Kashmir, as many 
Pakistani politicians and columnists would like, is to ensure the 
failure of the talks in advance. The issue is too raw and sensitive 
to be solved overnight. There must be a cooling off period in which 
the killing stops and the hysteria subsides for any breakthrough to 
occur. Kashmir can be put on the back burner while mundane matters 
like trade and travel are sorted out. After all, if we have been 
unable to resolve this thorny issue in all these years, it can 
surely wait a bit longer. What should take priority is to reach an 
understanding on matters that are not so bitterly disputed so that 
we can change the atmospheres in the subcontinent, replacing 
accusations and artillery shells with discourse and reason. I 
realize this is expecting too much of generals and politicians on 
both sides, but then too much is at stake not to demand that they 
put their petty prejudices and pride aside when they sit down to 
parley. The one big favour General Musharraf and Mr Vajpayee can do 
themselves and the rest of us is to leave their tired, hackneyed 
foreign office briefs behind.

The Kashmir dispute has held well over a billion people of South 
Asia hostage for far too long. It has not allowed SAARC, the 
regional grouping, to even approach its true potential; it has 
prevented the people of this vast subcontinent from travelling 
freely; and it has made us all a laughing stock in a world that is 
shooting ahead while we remain mired in old enmities and sterile 
territorial disputes.

Enough is enough. It is time to move on and open a new chapter in 
South Asia.

Thorpe, Vaughan make Pakistan bowlers toil

MANCHESTER (England), June 1: Graham Thorpe was left stranded on 98 
not out when rain interrupted his unbroken stand of 189 with 
Michael Vaughan as England battled back into the second Test 
against Pakistan on Friday.

The home side, tottering on 15 for two at one stage, reached 204 
for two in reply to Pakistan's first innings of 403 before rain 
ended play on the second day with 65 minutes left at Old Trafford. 
The left-handed in-form Thorpe, targeted by the touring side as the 
key to the England batting after making 80 in the first Test at 
Lord's, hit one six and 12 fours during his 224-minute innings. 
Vaughan was 84 not out, having hit 11 boundaries and batted eight 
minutes longer than his partner.

The bad weather will upset the touring side more than their 
opponents. Pakistan need to win to square the two-match series 
after being routed by an innings and nine runs at Lord's, and they 
set out their stall on the opening day, scoring at more than four 
an over as Inzamam-ul-Haq led the line with 114.

Thorpe and Vaughan, however, almost proved his equal as the test 
rattled along at one-day pace, only slowing when conditions 
deteriorated after tea. Earlier, England's openers Marcus 
Trescothick and Michael Atherton had fallen with the score on 15 
and within the space of eight balls, Trescothick bowled by Wasim 
Akram as he played defensively across the line for 10 and Atherton 
snicking a catch behind off a Waqar Younis off-cutter after making 

Thorpe and Vaughan, newly installed as England's number three, 
provided a nice contrast in styles, the Surrey batsman launching 
himself into a series of square cuts while the Yorkshireman relied 
more on sweetly-timed drives.

Thorpe began his innings forcefully if unconventionally, opening 
his account with a top-edged six over the slips off Waqar. The pair 
put on 50 off 49 balls, Thorpe reaching a 71-ball half-century 
which included 38 in boundaries by cover driving off-spinner 
Saqlain Mushtaq to the fence while Vaughan reached his 50 from 79 

Vaughan played only a couple of false shots against Saqlain, 
finding a leading edge as he tried to turn to leg and then dragging 
an inside edge just past his stumps. But his performance, bettering 
his previous best test score of 76 against West Indies at 
Headingley last year, suggested England's injured captain Nasser 
Hussain will not be returning to the number three position after 
agreeing to promote Vaughan above him.

The batsmen's dominance of the opening two days has been amply 
reflected in the number of boundaries rattling the boards. Pakistan 
scored more than half their runs in boundaries - 230, made up of 53 
fours and three sixes - while England have hit 24 fours and one 

Pakistan had resumed the day on 370 for eight, adding 10 before 
Rashid Latif was dismissed for a test-best 71, including 10 fours. 
He was run out by a direct throw from Trescothick at gully. Darren 
Gough ended the innings by trapping Waqar lbw for five. Caddick, 
Gough and fellow pace bowler Matthew Hoggard all took three 

Pakistan, India set on peace path, says Advani

NEW DELHI, May 31: Indian Home Minister Lal Krishna Advani, the 
cabinet number two, said on Thursday Pakistan's positive response 
to India's invitation to talks had set them on the right course for 

Advani spoke favourably of the correspondence between the Indian 
premier and Chief Executive Gen Pervez Musharraf. "Prime Minister 
Atal Behari Vajpayee's letter to him (Gen Musharraf) and his 
positive response to it indicates that talks will begin and we 
shall make good progress," Advani was quoted by the Press Trust of 
India as saying. He was addressing a ceremony of the Indo-Tibetan 
Border Police Force (ITBP) in occupied Kashmir at Leh, 400 
kilometres from Srinagar.

Advani, however, promised there would be no let-up in fighting the 
Mujahideen in held Kashmir. In his response to Vajpayee's 
invitation, Gen Musharraf said he wanted to "overcome the legacy of 
distrust" between the two countries. He said the Kashmir dispute 
was the fundamental cause of tension and needed to be discussed 
candidly along with "all other outstanding issues". Vajpayee said 
on Wednesday he was satisfied by Gen Musharraf's reply.

SUMMIT: The proposed Pakistan-India peace summit in New Delhi is 
unlikely to take place before mid-July because of Indian Prime 
Minister Atal Behari Vajpayee's upcoming knee operation, cabinet 
spokesman Pramod Mahajan said on Thursday. Vajpayee will undergo an 
operation on his right knee in Mumbai on June 7. His left knee-
joint was replaced in similar surgery back in October. "Last time 
it took 10 days in the hospital, after which it will take around 
three weeks for him to be able to walk normally," Mahajan said 
while talking to reporters after a cabinet meeting.-AFP

Political uproar puts BCCI in a spin

NEW DELHI, May 29: India's cricket chiefs were left red-faced on 
Tuesday after the government questioned their plans to play a Test 
match in Pakistan for the first time in 12 years.

"I think we are back to square one," an official with the Board of 
Control for Cricket in India (BCCI) said. "It's all very confusing. 
I am not sure when we will play against Pakistan again."

The BCCI, taking refuge in an official directive that permitted 
cricket matches against Pakistan in multi-nation events, agreed to 
play across the border in the Asian Test Championship.

The India-Pakistan match in the championship, which also features 
Sri Lanka and Bangladesh, was scheduled to be played in either 
Lahore or Karachi over Sept 13-17. Not only did the BCCI publicly 
confirm that India would take part, but it also signed up to a new 
Asian Cricket Council (ACC) ruling that imposes hefty fines on 
teams refusing to play a match.

Sports Minister Uma Bharti, however, stunned cricket officials on 
Monday by saying the BCCI had jumped the gun in announcing India's 
participation in the Asian Championship. "The BCCI should not take 
the liberty of making such announcements," she said.

"To play in Pakistan, the BCCI has to first give a written proposal 
to the sports ministry which in turn would forward it to the 
foreign ministry. The final decision rests with the foreign 
office," Bharti said.

The BCCI's fears were confirmed by Foreign Minister Jaswant Singh, 
who told a press conference Monday the government was not in favour 
of resuming cricketing ties between India and Pakistan. "Cricket 
matches between the two countries were less cricket and more of a 
gladiatorial contest," Singh said.

The BCCI official, who requested anonymity because he did not want 
to "get into trouble," said the sports ministry's flip-flop was 
tarnishing India's image in international cricket. "One day they 
say we can play against Pakistan in multi-nation events, now we 
hear something else," the official said.

"We agreed to the Asian Test Championship because we have a written 
directive from the sports ministry about multi-nation events. "The 
Asian Championship is not only about India and Pakistan. There are 
Sri Lanka and Bangladesh also to contend with."

If the proposed India-Pakistan Test come about, it will be India's 
first on Pakistani soil since 1989. The two sides played three 
Tests in India in 1999 despite unsuccessful threats from Hindu 
fundamentalists to disrupt the matches.
India cancelled a scheduled tour of Pakistan in December and then 
twice pulled out of the Sharjah limited-overs series in the United 
Arab Emirates.-AFP

Waqar hails Indian decision

LONDON, May 26: Pakistan cricket captain Waqar Younis has welcomed 
India's decision to take part in the Asian Test Championship in 
September. Waqar, currently leading the side on a two-Test series 
in England, said he was delighted the Indian government had not 
blocked its Test team from travelling to Pakistan for the first 
time in 12 years.

"I have been looking forward to playing India in Pakistan for two 
or three years," he said. "It's a welcome decision by the Indian 
government. It's good for Asian cricket."

The tournament, also involving Sri Lanka and Bangladesh, takes 
place between September 2001 and February 2002. Pakistan are 
expected to host India at Karachi.

The two teams last met in India in early 1999 but India's last Test 
series in Pakistan dates back to 1989. Earlier this year the Indian 
government refused to allow bilateral matches, although it has not 
blocked meetings within multi-team tournaments.

Former Pakistan captain Wasim Akram, also on tour in England, 
added: "The Indian government has now realised that sport and 
politics should be kept apart. It's for the sake of millions of 
cricket fans from both countries."-Reuters

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