Pakistan's drive to recover Rs 140 billion, written off as bad debts by state-owned sector banks, appears to be a losing battle as defaulters are not serious about the amnesty scheme offered by the government.

The scheme allows them (defaulters) to re-negotiate their loans with the State (Central) Bank or face stiff prison sentences. The Pakistan finance minister, Sartaj Aziz, has estimated the loss to 140 billion rupees by way of loans taken from state-owned and financial institutions.

Most loans, termed as``political bribes'' were sanctioned by the previous government and later written off following instructions from top officials at Islamabad. As a part of the financial sector reforms introduced by the country's State Bank, the government will divest its stake in public sector banks and financial institutions. The government owns about 22 such entities, including the National Bank and the Habib Bank, the two largest commercial banks in Pakistan.

To make the banks attractive to potential buyers, the State Bank has appointed persons from the private sector to run the banks and turn them into profits making ones. Former Citibank Thailand country manager, Shaukat Tareen, who has taken over as president of the Habib Bank, says "I am doing this as a service to Pakistan". However, he has a tough talks ahead of him. Most state-owned banks are over staffed and have incurred huge losses via bad debt write-offs. In the case of Habib Bank alone, 24.7 billion rupees in loans have been written off, says a report by the Pakistan Banking Council, the apex banking body in Pakistan.

Habib Bank introduced a golden handshake scheme (voluntary retirement) last month under which it plans to reduce over 10,0000 employees out of the 32,000-odd staffers the bank has on its rolls.The beneficiaries of the `scheme' were politicians or close associates of politicians. "They can afford to pay back. But they won't and there is no effort on the part of the government to recover this money," says one analyst.

That may change, however, as the government is now under pressure from the IMF to introduce banking reforms. The IMF is considering giving Pakistan $1.6 billion loan under an extended funding programme only if the government becomes serious about economic reforms.

The Sharif government has been blamed for the present state of affairs. The caretaker government that succeeded Bhutto's government in November 1996, had introduced another route with help of the IMF. It proposed the establishment of a Resolution Trust Corporation (RTC) which would take over the debts and pay banks via bonds.

The Corporation would then initiate recovery procedures on its own, in its capacity as a private company. The banks on the other hand will be sold thereby bringing in the much needed funds into the country. The move was backed by the president, Farooq Leghari, who was serious about putting the economy on the fast track. However, the Sharif government, which assumed power in February 1997, let the ordinance promulgated by the president lapse. By ignoring the RTC, the present (Sharif) government had already sent the wrong signal to financial areas more so to the defaulters who are now turning a deaf ear to the amnesty scheme by the government.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.