AERC Alumni Reunion

It was a Sunday evening and what a evening it was. AERC lawn was full of young, aged and old faces who had spent memorable years of their academic life in AERC. They were gathered to celebrate reunion, perhaps first reunion. The event was attended by a large number of old and new AERCians.

Director AERC, Prof. Dr. Nuzhat Ahmed was the key speaker. She highlighted the history and early days of the institute besides appreciating the services of AERCians in the industry. She also promised many new steps, including launching of virtual directory of alumni, new AERC website, arranging visiting lectures and continuation of alumni gathering. Other noted guests include Mansoor Ali (State Bank), Dr. Ayub Mehar (FPCCI), Dr. Naved Ahmed (IBA), Riaz Hussain (AASA), and Amjad Nazeer (MM Securities). Dr. Ayub Mehar ensured the sponsorship for the next alumni reunion. At the end of session, Zia Abbas and Kamran Ali Khan entertained the attendants with their touchy and witty poetry (note, it was the full moon night as well). Later all mingled informally and had dinner.

This Alumni Reunion was the brain child of Minhajuddin Siddiqi, researcher and instructor mathematics, who not only floated the idea but also managed the whole event effectively, albeit did not appear on the stage. So due credit should go to him. Zia Abbas, Tehsin Iqbal, Kamran Naqvi, Khurram Iftikhar, Asghar, Kamran Ali Khan and other young fellows dedicated their time and efforts to make the event successful. But unfortunately, no invitation or press release were forwarded to any newspaper or television. Consequently, the event could not find space in media. But keeping in view the resources, said reunion was indeed a great beginning perhaps first step towards a thousand miles journey.



PS: I'll share the event's pictures soon. Right now they are too heavy to upload.

FEDERAL BUDGET 2009-10

RELIEF MEASURES

The basic limit of exemption from income tax in respect of salaried persons is proposed to be increased from Rs.180,000 to Rs.200,000. In the case of women salaries taxpayers, this limit is proposed to be increased from Rs.240,000 to Rs.260,000.

Presently senior citizens are allowed 50% relief in tax liability provided the taxable income, in a tax year, does not exceed Rs.500,000. In view of inflationary trend, it is proposed to enhance limit of taxable income to Rs.750,000.

In view of the less margin of profit available to cigarettes and pharmaceutical products distributors, withholding tax rate in respect of such taxpayer is being reduced from 3.5% to 1%.

At present, the taxpayers are entitled to compensation @ 6% for the late payment of refunds. Considering the prevailing interest rates on bank loans the rate of compensation is being increased to 10% per annum.

Presently, receipts form accumulated balance of voluntary pension scheme is exempt up to 25% of the available balance. In order to promote the voluntary pension schemes and allow relief to pensioner class the said limit is proposed to be enhanced to 50%.

Under the existing provisions of the Income Tax Ordinance, a person is entitled to tax credit on interest payment of housing loans up to 45% of the taxable income or Rs.500,000 whichever is low. The said limits are proposed to be enhanced to 50% and Rs.700,000 respectively.

Presently, tax collected on monthly electricity bills in respect of non-corporate Commercial and Industrial consumers is treated as final tax. An amendment has been proposed in section 235 of the Income Tax Ordinance by virtue of which the tax deducted on the monthly electricity bills exceeding Rs.30,000 will be adjustable which consequently could be refunded.

Last year amendment was made in the seventh schedule to the Income Tax Ordinance whereby the banks were deprived of the facility to claim deduction on account of provisions of non-performing loans. This facility is being restored. However, the same is proposed to be restricted to 1% of the total advances made by the bank in a tax year.

REVENUE MEASURES

Before amendment made through Finance Act, 2008 withholding tax on imports was collected @ 5% which was reduced to 2%. The benefit of reduction in tax rate could not be passed on to end users therefore, the rate is proposed to be enhanced to 4% across the board.

Presently, advance tax is payable in four quarterly installments on the basis of last assessed income. It is proposed that far working out the advance tax liability the sales should also be taken in to account.

Last year the provision regarding payment of minimum tax on declared turnover by the companies showing losses for one or other reasons was deleted mainly for the reason that the revenue collection was insignificant. Subsequently, it was found that actual collection from this source was much higher, however due to misclassification, the same could not be reported properly. In view of huge revenue loss the provision is being revived.

Presently, the indenting commission is being taxed @ 1% of the gross receipts whereas the general rate for commission and brokerage is 10%. In view of the gross disparity in the rate it is proposed to be enhanced to 5%.

The scope of advance tax collection on purchase of new locally manufactured motorcar/jeep is proposed to be extended to all types of motor vehicles.

In order to raise funds for the rehabilitation of internally displaced persons (IDPs) of Swat, Dir & Bunir it is proposed to charge 5% tax on tax payable by individuals and AOPs whose taxable income exceeds one million rupees.

In order to support IDPs in their habilitation a new tax is being proposed to be charged on bonus income of corporate executives @ 30% of the bonus. This is a one time levy and payable for tax year 2009 only.

At present, additional tax is chargeable @ 12% per annum on late payment of tax. The rate being low as compared to prevailing interest rate on bank loan gives temptation for delaying payment of tax. It is therefore, proposed to increase the rate of additional tax to 15% per annum.

At present, depreciation on passenger transport vehicles is allowed on total cost which has encouraged the purchase of luxury vehicles mainly used for personal purposes at the cost of revenue. It is, therefore, proposed to restrict the value of such vehicle to Rs.1.5 million for the purpose of depreciation.

Presently the large trading houses are exempt from payment of withholding tax on imports as well as sales of goods. The facility of exemption of tax at import stage is being withdrawn. However, the tax so collected will be adjustable against final tax liability.

The exemption regime provided under the second schedule to the Income Tax Ordinance has been reviewed to delete the redundant and unjustified exemptions as per detail given in the Finance Bill.

It has been noticed that the facility of tax exemption available to educational institution is being grossly misused by private universities and medical colleges etc. It is therefore proposed that such facility would only be available to those institutions which have been approved by the concerned Director General of LTU/RTO for this purpose.

At present no tax is collected on export of goods made without form “E” because in this case export proceeds are received in cash. An amendment has been proposed in section 154 whereby the Collectorate of Customs shall collect tax @ 1% at the time of clearing goods for export made without form “E”. Presently such exports are mainly allowed to Afghanistan through land routs.

Source: www.brecorder.com The Daily Business Recorder (June 14, 2009)

Economic Survey of Pakistan released

Tough times, tough decisions ahead; GDP growth 2pc; public debt crosses 7 trillion mark; external debt $51 bn; official inflation 23pc; real poverty 30pc

ISLAMABAD: The government has missed virtually every main macro-economic target set in the budget 2008-09 for the outgoing fiscal. This includes the projected 5.5 per cent GDP growth, 12 per cent inflation, Rs1,250 billion revenue and per capita income of 1,085 dollars, reveals the Economic Survey for 2008-09 released here by Adviser to Prime Minister on Finance Shaukat Tarin.

The survey states that Pakistan ’s GDP growth has been estimated at 2 per cent for the current fiscal as against the original 5.5 per cent target, which was then revised to 3.5 per cent and further clipped to 2.5 per cent as agreed with the IMF. Likewise, the inflation target was fixed at 12 per cent by the government in the budget for the current fiscal, which in reality stood at 22.3 per cent in the first 10 months of 2008-09. “Per capita income in dollar terms rose from the finalised figure of $1,042 last year to $1,046 in 2008-09, showing a marginal increase of 0.3 per cent.” However, in last year’s Economic Survey the target of per capita income was $1,085, which has come down to $1,042.

The revenue target was fixed in the budget at Rs1,250 billion and was irrationally revised upward by the government to Rs1,360 billion, then revised downwards to Rs1,300 billion and yet again reduced to Rs1,180 billion, which also seems impossible to achieve.

However, Adviser to Prime Minister on Finance Shaukat Tarin said during a press conference here on Thursday that the country’s real GDP grew by 2 per cent in 2008-09 against a target of 4.1 per cent.

He said that the 2 per cent economic growth was a result of four shocks, which include macro-economic imbalances, external trade shocks, the global economic crisis and domestic security issues. He mentioned that when the present government took charge, Pakistan ’s balance of payments, current account deficit and trade deficit were in the danger zone, but have now improved after joining the IMF programme. He said that the government had consolidated the economy in the current fiscal and was now ready for a growth-oriented budget to be announced on June 13.

He was also asked why the government has not included the 17.2 per cent poverty figure of 2007-08 worked out by the Centre for the Poverty Reduction and Social Policy Development (CPRSPD) and validated by the World Bank. In response, Tarin said that while the WB has validated the 17.2 per cent poverty figure there are indications that in the last quarter of 2007-08, poverty surged and we have initiated the rapid survey to this effect which would come up with a final poverty figure after a three-month period.

However, he said that estimates are that the poverty figure would stand at over 30 per cent during the last fiscal year. He also argued that people are committing suicide and selling their kids because of poverty, so obviously the poverty figure of 17.2 per cent needed to be closer to reality.

To a question he said that the FBR needs to be reformed in such a way that maximum revenue could be collected in the next fiscal and to this effect structural reforms are being implemented and the World Bank’s team is already in town for talks on this very important issue. He said that the government would not forget the fault lines and put its house in order to increase the revenues of the country.

On the issues of change in methodology in the construction sector and drastic cut in last year’s growth from 5.8 per cent to 4 per cent which was done apparently to bring the reasonable growth of 2 per cent close to the target agreed with the IMF, he said this government is crystal clear in its facts about growth and does not believe in the manipulation of figures. However, he said that Pakistan has asked the World Bank and IFCs to come forward and help the government to make the Federal Bureau of Statistics independent which will report not to the Ministry of Finance, but to the National Assembly.

He said that the country’s debt has increased to over $51 billion by the end of this fiscal and total public debt has increased by Rs1.367 trillion in the first 9 months of 2008-09 to Rs7.3 trillion, up by 23.2 per cent in nominal terms.

The increase in total public debt is shared between rupee and foreign currency in a ratio of 40:60. The rise in debt is mainly because of depreciation in the Pak rupee. The total domestic debt is positive at 3.7 trillion at end-March, 2009 which implies a net addition of Rs484 billion in the nine months of the current fiscal.

Mentioning taxation, he said: “I will not tax the people who are already paying, rather I would tax those who are not in the tax net.” He said that the government would levy taxes on real estate and the services sector. However, two other sectors which include the stock exchanges and the agriculture sector would be included in the tax net the next time. To a question as to why the economic mangers have failed to bring the agriculture sector into the tax net, which grew by 4.7 per cent, he said he is ready to tax this sector, but he will be subjected to martyrdom on the next day. In the last 62 years, no one had dared to impose taxes on the agriculture sector because of the the strong lobbies in the country. However, he assured that in the years to come this sector will be brought under the tax net.

The government would come up with a major allocation for IDPs and will not bank on foreign aid. However, he expects that Pakistan will get over $ 2billion from the Friends of Democratic Pakistan (FODP) in the next fiscal and $550 million for IDPs. He explained that his government remains stuck to the fiscal deficit of 3.4 per cent, but this has been relaxed to 4.6 percent because of the $2 billion inflows from the FODP, which will be spent on social sector. The 6.6 per cent fiscal deficit has been further increased to 4.9 per cent keeping in view the expected inflows for the IDPs. He said that budget deficit financing would no more be a issue as the country would be getting more grants from the FODP and 100% grants for IDPs. He also dispelled the impression that the fiscal deficit’s increase to 4.9 per cent would increase inflation, saying that grants would deflect inflationary pressure.

To a question Tarin said that in case the inflows of $5.28 billion pledged by the FODP get delayed, then Pakistan will move the IMF to fill the gap and whenever the FODP inflows come in, then the same amount would be given back to the IMF. He said that Pakistan has asked the IMF for an additional facility of $ 4 billion for this purpose. He said that $ 4 billion will be part of the stand-by arrangement and it will not be treated as a loan.

The manufacturing sector has contracted by 3.3 per cent in 2008-09 as compared to expansion of 4.8 percent last year. Large-scale manufacturing showed a contraction of 7.7 per cent as against an expansion of 4.0 per cent in the last year and 5.5 per cent target for the year.

The services sector grew by 3.6 per cent as against the target of 6.1 per cent and last year’s actual growth of 6.6 per cent. The finance and insurance sector witnessed a slowdown to 12.9 per cent in 2007-08 but registered negative growth of 1.2 per cent in 2008-09. The Transport, Storage and Communication sub-sector depicted a sharp deceleration in growth to 2.9 percent in 2008-09 as compared to 5.7 per cent of last year. Real private consumption rising by 5.2 per cent as against negative growth of 1.3 percent attained last year. However, gross fixed capital formation could not maintain its strong growth momentum and real fixed investment growth contracted by 6.9 percent as against the expansion of 3.8 percent in the last fiscal year.

However, the survey says that the agriculture sector has shown a stellar growth of 4.7 percent as compared to 1.1 per cent witnessed last year and the target of 3.5 per cent for the year. Major crops accounting for 33.4 percent of agricultural value added registered an impressive growth of 7.7 per cent as against a negative growth of 6.4 per cent last year and a target of 4.5 per cent. The livestock sector grew by 3.7 per cent in 2008-09 as against 4.2 per cent last year. The overall FBR tax collection remained less than satisfactory and actually witnessed deceleration in real term. Resultantly, the FBR tax collection to GDP ratio is likely to deteriorate to around 9 per cent of GDP as against the target of bringing it in the vicinity of 10 per cent of GDP. Tax revenue collected by the FBR amounted to Rs.898.6 billion during the first ten months (July-April) of the current fiscal year, which is 17.7 per cent higher than the net collection of Rs.763.6 billion in the corresponding period of last year. The net direct tax collection was estimated at Rs332.5 billion against the target of Rs496 billion which implies a growth of 16.9 percent during Jul-April 2008-09. Indirect taxes grew by 18.2 per cent during Jul-April 2008-09.

Source: The News (June 12, 2009)

The Economist 11th April 2009

Dear all,  Please find ecnlosed the latest issue of The Economist. kind regards, Afridi

A Tribute to Agha Hasan Abedi : A banking legend Of Pakistan

By Muhammad Nasim Khan

Fore sight is a talent. Foresight with vision is leadership. Leaders fall short of prophecy yet exercise this exquisite art of observing, feeling, knowing and doing about the needs of the people surrounded them. It’s only when you add humility to this visionary leadership that you get Mr. Agha Hasan Abedi. Through the vision beyond boundaries one man single handily:
* Founded two banks of stature and global reach in one life span.
* Initiated the very concept of IT by founding FAST, over a quarter century ago when few in the country knew what it meant.
* Instituted four charitable Foundations in Pakistan, Bangladesh, Zimbabwe and United Kingdom which even today dish out over Rs 500M annually.
* Rubbed shoulders with the heads of states of many important countries including
* America, Russia and China and claimed their personal friendships even though coming from a middle class family of no professional or political origin.
* Patronized an institute of global excellence like GIK University, not to mention the Rs. 750M grant.
* Employed large number of Pakistanis globally. * Turned youthful graduates into bankers and power executives.
* Had the vision to focus the need of third world foundation and global 2000 in 1970’s and 1980’s. * Put Pakistan on the map of corporate excellence.
* Dreamt to transform Pakistan into a power of technology and advancement.

Remained solely responsible to feed around 100,000 families for over 3 decades. The continuum of knowledge remains incomplete without learning from the experience of great leaders who have embedded their names in golden words in the history. I am trying to touch upon a Pakistani legend in the banking sector. My humble effort can only be equivalent to awe for the legend: Agha Hasan Abedi for all the years that I have had the opportunity to work under his guidance.

Mr. Agha Hasan Abedi born in 1922 in a middle class family in Lucknow, did his masters from Lucknow University in English literature; joined Habib Bank Ltd. in Bombay as a selective service officer in 1946. He excelled in his assignments and attained senior positions very fast. His power of excellence remained thirsty, which led him to found a new Bank by the name United Bank Ltd in 1958. His charismatic personality obtained spontaneous acquiescence and obedience. Within five years of its inception, he brought United Bank in Pakistan up at par with the largest private sector bank claiming number two position in the Country.

I am positive that there is hardly any professional person who has not heard great epics of the late Mr. Abedi. Infact I can safely vouch that there must be quiet senior bankers here whose inspirations were propelled by the name itself. I don’t talk of mere inspiration Mr. Abedi was an institution in himself. Not only being the founder and the president of a global bank in just one feat but taking it to the height of excellence through his ideals and philosophy reflects the epitome of leadership. Bank of Credit and Commerce International (BCCI) had its presence spanned over the globe in 73 countries in less than three decades; and even begged the position of the 6th largest bank in Country network against the difficult competition of Citibank, Barclays Bank and other top Banks of the world. At the helm of all these achievements was the magnificent leader Mr Agha Hasan Abedi himself.

Mr. Abedi was a man who immensely impressed the throngs of people who surrounded him and it is not surprising to hear bankers still quoting him on various occasions. He brought a revolution in the banking sector not only in Pakistan but over the globe. His staff practiced management philosophy which provided opportunities for maximum initiatives, decision making and enterprise within the concept of “joint personality” and “real management” which, while creating built in controls, inspired dedication to result oriented performance in the management team. The mission statement always remained “Submission to God, Service to Humanity, Giving and Success”. Since I have had a chance to work in the institution created by Mr. Abedi, I can relate to his philosophy and how he developed the character of his institution. The philosophy defined all dimensions and domain of vision and quality of vision with clean instinct and clear perception. The joint personality concept was preached to learn to live in totality with acceptance and responsibility and make to feel the power of togetherness and how it energises each other. The spirit of mutual love and respect permeated by moral pledge was professed. The guardianship concept had won the hearts of the BCC family for internal flow of guidance and love. Moral and material are two sides of a coin thus are inseparable but learn to bring equilibrium between our moral and material balance. Mr. Abedi believed in developing the human resource full of human capabilities supported with the moral and professional values and competence of highest level. The state of art management development centers and the staff colleges of BCC in Bogotá, New York, London, Cairo, Harare, Abu Dhabi, Karachi, Bombay, Dhaka and Hong Kong was a proof of his belief and he was always heard saying:

“We do not want to make you machine like traditional banker; we want you to grow as man of knowledge while also having technical knowledge. Although technical ability or technical knowledge, what ever you may call it is essential, development ability is the core of ability in banking”.

It was the management philosophy and encouragement of Mr. Abedi that led every employee put in his best efforts to make the organization grow to its full potential having an in built feeling that each one of them is the stake holder of the Bank. Mr. Abedi always referred to his success as the success of the organization and considered himself as only a part of the big picture. The humble individual that he was had associated success to hard work. His advice to young professionals who joined his league was:

“The source of all factors that play a part in the success of any operation is the ability to discover realities. You have to break through the barters of traditions and environment, which are not in tune with the reality of your life, and make you ignorant of your own bio-reality. The less you mortgage yourself to ego, the more you are able to disentangle yourself from the web of inhibitions and complexes and the more you relate to your actions to realities, the nearer you are to success. Unless you tackle your greatest enemies: ego and time, squarely you will never succeed”

Management conferences of Geneva, Vienna, Luxemburg and London of 1980’s attended by almost 500 professionals at each occasion including top auditors like Price Waterhouse and Earnst Whinney, few American congressmen, visionary ex- Finance Ministers and ex-ambassadors, were the true learning of real management in two days session. The motivation of staff in those conferences was evolved through deliberations on the floor on “Vision, Quality of vision, and Quality of commitment, Desire, Love, Moral and material, Joint Personality, Power of togetherness in addition to core banking discussions. The discussion of these concepts in the large meeting of professional managers and top bankers was not understood at that point in time by the world bankers and critics of Mr. Abedi but discovered later through a deep American Management research in late 1990’s and declared that “Love” is the most important factor in the motivation of employees against all benefits, perks, positions, bonuses and gratuities including stock options. Abedi was a dynamic personality who on one hand took the reigns of the Bank and took it to the peek of brilliance and on the other hand he was a tycoon who contributed to the economy of Pakistan and the diplomat as the roaming ambassador who rubbed shoulders with the elite of the world. His close association with the world leaders like Jimmy Carter, Deng Xiao Ping, Michael Gorbachov, Indra Gandhi, Shaikh Zyaid and many others brought recognition to the financial vista of Pakistan and uplifted the Pakistani talent in the eyes of the global community. He was a living example of “People Management” and harbored on establishing relationships on this principal. Mr. Abedi use to say: “What is really difficult is dealing with man and that you can learn only dealing with them”. Unquote All the past Heads of States of Pakistan since the early 70’s could be counted as his close friends. The ruler of UAE particularly of Abu Dhabi and Dubai treated Mr. Abedi with utmost respect and sought his advice and assistance on personal and state finances. Opening up a BCCI branch in India and China was a high mark in public relation and a great tribute to his personal contribution. During 1987 BCCI organized Third World Advertising Congress in China and to the great astonishment and pride of all; The Great Hall of People of China was made available for the conference. I remember the days of my career when Mr. Abedi was the role model of every young banker entering into the financial arena. Those who didn’t know him were impressed by his professional achievements and those who had the opportunity to work under his leadership or to meet him were impressed not only by the thorough professional that he was but also by the fine aspect of his personality. He was one of the few bankers who had anticipated nationalization of banks by ZAB and started planning for an independent overseas bank with Arab capital. He witnessed nationalization as anticipated and faced undue criticism from the Government of Pakistan while he was founding president of United Bank Ltd., yet he was never wary of Pakistan. Infact, he proved to be a compassionate patriot who offered his services to the Country at times of dire need. There was more to his personality that what one can say. Where Mr. Abedi took the role of a great leader, He also played the part of a mentor for his staff, an inspiration to the entire financial sector, and envy to competitors, awe to the peers and addition to the list of great leaders. Mr. Abedi brought marketing revolution in banking and introduced new marketing culture. Opened the closed doors of western banking disciplines and brought the Bank to the doorsteps of the customers. New banking products which were not known to the financial markets of third world in 1970’s and 1980’s were introduced with exemplary service and lot of mileage was covered which created a threat to the western banking, finding it difficult to compete. The IMP (internal market place) & EMP (external market place) products generated volumes of business, internally and externally at each location in addition to the credit cards and traveler cheques sales which captured the market business to the extant of over 80% at few locations and generated large profit volumes and fund float. The best furnished premises of the banks at best locations, equipped with a state of art technology were introduced by Mr. Abedi in those days in the third world countries to provide best services for the customers no less than the first world environment and even better. In the changed unique management style, the cabinised senior executives and bankers including him were brought on open floors to sit and interact with their colleagues to lead them with the joint personality and participative management concept. Mr. Abedi’s credo of “giving and service to humanity” for business relationship and social interaction is little known – so is his very tangible contribution to charity: Mr. Abedi said. “The spirit of charity is tarnished and evaporates should any other, beside the resilient, get to know about it”. Some of his enthusiastic ventures in the realm of charity can now be mentioned: BCC staff was granted a specific gratuity every year meant for the colleague to specially seek the needy, give this amount and feel the joy of giving.

BCCI Fast foundation to promote technical education in computer sciences through injection of huge endowment funds produced degree colleges in Islamabad, Lahore and Karachi. BCCI foundation now known as Infaq is not only serving the poor and poverty stricken but also cash starved health and educational institutions. Thousand of individuals, ordinary people in adversity, writers, artists, sick and needy are provided succor. Sind Institute of Urology and Transplantation (SIUT), National Institute of Cardio Vascular diseases karachi, GIK Engineering University Topi N.W.F.P, Shaukat Khanum Cancer Hospital Lahore, Lady Duffirin Hospital and Sir Syed University Karachi are few known major beneficiary institutions. The foundation had all along been funded with the endowment from BCCI operating profits in Pakistan, which instead of being repatriated overseas were dedicated to charity by Mr. Abedi. The foundation never takes any donation from anybody even now. His vision beyond the boundaries extended beyond the grasp of foreseeable time, but it was the magnitude of his desire to transform that vision into pragmatic reality to be put to use for the betterment of the Country, the people, the purpose and the deprived that called for more than a lifetime. I cannot say that I have presented to you Mr. Abedi as the person, he was, because there are volumes to quote to his dynamic personality. You would all agree that any man who can achieve all that he did and was poised for more was surely not just another man. He was a man full of capabilities that knew his potentials and utilized the gifts of his abilities. I summaries it as : “His routine was to dream and his schedule to achieve them. His desire was to change the way we think. His passion was to have us standing with our heads high. His commitment was to give us excellence, competence, health, education, science and technology and self-reliance. His achievement was he did all the above”. I conclude my presentation with an official statement of Lord Justice Bingham of UK: released in 1992: “He aimed to create an international bank which would not simply be a national bank expanded overseas, but a worldwide \Organization at home everywhere and bring its services in particular to less developed Countries of the world where such facilities were least readily available. There was nobility in his ideal which, by his ambitions, energy and flare he did much to realize. The vices, which brought BCCI down, should not obscure the virtues it showed in some places and which inspired its creations”. Lord Bingham attributed the banks failure to the banks treasury losses claiming them on Quote “Incompetence and errors of unsophisticated immature venturing into highly technical and sophisticated markets”.

Robert Lee Pemberton – the erstwhile Governor of the Bank of England had also given a similar statement despite his negative role against BCCI as the then Governor in 1991. Mr. Abedi suffered a massive stroke early 1988, had a heart transplant, and was rendered incapable of any work. In this capacity he lived for almost six years and died on 04th August 1994 in Karachi leaving behind a widow and the only daughter in the family and million of admirers and followers and new generation of bankers over the globe called “BCCI Product” to carry the flag of burning desire with unmatched quality of commitment and professionalism to deliver the legacies of Mr. Abedi to the future generations.

Mujhe Ghuroob na Jano Jo main ufaq Pe Naheen
Bikhar gaya Hoon Undheron main Kehkeshan ki Tarah

It seems not all recessions are created equal

It seems not all recessions are created equal

By Samuel Brittan

Published: March 12 2009 14:46 | Last updated: March 12 2009 14:46

As can be imagined, international economic organisations, whatever else they do or do not do, spawn vast numbers of research papers. Most of them are worthy but of limited interest, a hypothetical example being "Forward Markets and Cash Crops in Ruritania". But occasionally something of real interest arrives. A recent example is an International Monetary Fund working paper entitled "What Happens During Recessions, Crunches and Busts?"* Although there is no such thing as "letting the figures speak for themselves", this paper is relatively theory-light.

Specifically it asks the question: "Are recessions associated with credit crunches and asset price busts different from other recessions?" The authors have examined 122 recessions in 21 Organisation for Economic Co-operation and Development countries over the period 1960-2007. This approach has the apparent defect of treating economies such as Portugal's as being as important as that of the US. But it has the advantage of providing more cases to examine. Moreover, international business cycles are sufficiently synchronised to prevent the study from being overwhelmed by the idiosyncrasies of a few countries.

The authors find that the typical recession in the period lasted four quarters and led to an output loss of 2 per cent of gross domestic product. One out of six recessions was associated with a credit crunch, one in four with a house price bust and one in three with an equity crash. Recessions associated with such financial stresses result in average output losses two or three times greater than other recessions.

Although financially generated recessions last only three months longer than other recessions, there is often a lag between the financial events themselves and the associated recessions. A typical credit crunch lasts 2½ years and is associated with a 20 per cent decline in credit. An equity price crash lasts for about the same time, but is associated with a drop of about half in the value of equities. Housing busts last even longer, namely 4½ years, and bring with them a 30 per cent fall in real house prices. The most robust of the relationships is between house price falls and the depth of recessions. Despite the volatility of equity prices their relation to the real economy is more uncertain. Paul Samuelson has quipped that the stock market has forecast eight of the past five recessions.

There is, however, worse to come. Recessions associated with oil price shocks bring with them a drop in output 0.8 percentage points greater than in other recessions. Although oil prices of about $45 a barrel are now regarded as very low, in the first half of 2008, when the recession was gathering force, they reached heights of about $135 compared with less than $20 at the end of the 1990s.

Taken by themselves the results of the IMF study are gloomy rather than catastrophic. Their results do not claim to represent more than average experience. In any case we are not doomed to repeat the past exactly. The 19th-century philosopher Hegel said that the only lesson of history is that "peoples and governments have never learnt anything from history, or acted on principles deduced from it." His disciple Karl Marx, who seems to be back in fashion, said that history does repeat itself - first as tragedy, then as farce. Nevertheless, history is all we have to go on.

This encourages me to ventilate the view that, "The recession will be over sooner than you think", to quote the title of an article in CentrePiece by two US academics, Nick Bloom and Max Floetotto. The bit of history they emphasise is that of uncertainty exhibited in the equity market, measured by the implied volatility of the S&P100, apparently known as the "financial fear factor". This reached an all-time peak at the time of Lehman Brothers' collapse last September but has since fallen back by 50 per cent, and "other measures of uncertainty have also fallen".

The authors predict that US GDP will start to rebound from the autumn of this year. The indicators used by these economists may seem a flimsy basis from which to base such forecasts. But no more so than the more heavyweight multi-equation models that have let us down so badly at crucial moments. My own intuition suggests that the US will start to recover before other big economies partly because of national "can do" attitudes, especially under the Obama administration.

In any case the US is admirably free of concerns about budget and balance of payments deficits and Federal Reserve "printing of money". Whether these attitudes are a matter of hard conviction or merely reflect a feeling that the US is better placed to flout orthodoxy than other countries is neither here nor there.

The most encouraging thing I have read was the interview in the Financial Times this week with Lawrence Summers, economic counsellor to Barack Obama, who called for a short-term demand stimulus by governments. He added that the old global imbalance agenda of "more demand in China, less demand in America" should be shelved. "There is no place that should be reducing its contribution to demand right now." Amen.

 

Regards,

 

Haider Hussain

Economist

Elixir Securities Pakistan

UAN: +9221 111-354-947 Ext. 3331

Fax: +9221 2420527

http://www.elixirsec.com

 

 

Everyone is an economist

One of the best Zaidi's articles I've ever read......

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Everyone is an economist
S. Akbar Zaidi
Dawn, Saturday, 25 Oct, 2008

 

Pakistan’s economic crisis and confusion, exacerbated primarily on account of unforgivable delayed responses by the incumbent government, has also revealed the rather sad state of Pakistan’s media and of its economists.

 

The huge media explosion, particularly in the electronic media but also the English newspapers, has revealed how bare Pakistan’s scholarly cupboard is, and how charlatans have been crowned kings. These days, given the deserved interest in both the global financial crisis and the domestic economic meltdown, all television channels have been giving extended time to information and views pertaining to such issues on their channels.

 

Today, the electronic media has made bankers, businessmen, stockbrokers and journalists experts on the intricacies of economic and financial issues of which most know very little. Personal anecdotes, and not even informed opinion, replace any sound academic or general discussion about Pakistan’s economy or about the international financial crisis.

 

Barring very few exceptions, most supposedly informed guests on these channels cannot distinguish between the capital market, capital investment or the capital account, yet speak with an authority which only reveals their complete ignorance. Stockbrokers hold forth on monetary policy, bankers and MBAs on fiscal policy, and journalists on an assortment of issues ranging from what they think the impact of raising (or lowering) the CRR and SLR would be to the impact of an IMF programme of which they know barely the basics and can claim no understanding.

 

In the 25 years in which I have taught and done research in economics in Pakistan, I have never seen so many people appearing in the public arena and being called ‘economists’. Most of these self-styled, or increasingly media-styled, economists have hardly written academic papers or books, yet speak with the authority of someone who understands how a complicated and complex social, political and economic system works. Many now call themselves ‘political economists’ which gives them license to talk about anything at all, without having understood what it is that makes up the discipline of political economy. High journalism — and usually not even that — substitutes for scholarly and academic discussion in the media. Moreover, access to the Internet has made a cut-and-paste job far easier, and for many newspaper readers who do not scan more than just a single column, material which has been developed and debated in very different contexts is recycled as original.

 

Editors often complain about the huge dearth of ‘good writers’ and this is particularly marked in the case of economic and financial issues. While many articles or reports in newspapers simply provide a great deal of information, the inability of many writers to make sense of the data is an obvious and chronic problem. Given the format of the electronic media, even data and information are not a requirement, and with generalist anchors not even trained in the very basics of economics and hence unable to ask the right questions, both anchors and their guests make do with a few popular sound bites, talking a lot but saying very little. It is very seldom that one hears an informed discussion on the economy.

 

Yet, it is important to state that it is not just the media that is responsible for the low level of discussion or debate, but economists too are to blame. While there are a few competent and trained economists in Pakistan, many of them having worked in educational institutions and with practical experience, most shy away from the media leaving the spaces to be filled in by the excess supply of mediocrity that this country has to offer. In the long list of highly accomplished eminent economists who constituted some of the many committees set up by this government, very few speak to the media or write in the press.

 

Some of course, for numerous often petty reasons, prefer not to be seen as critics of the government and stay away. Others consider themselves to be ‘above’ such populist or frivolous activity, feeling that their time is better spent teaching, writing papers or advising government. Then there are those who hardly have the time any longer, given the huge commitments their lucrative consulting involves. Moreover, speaking publicly may require them to articulate an opinion which may cause any one of their donors to take issue. As one prominent economist said once when asked why he didn’t write: discretion is the better part of valour.

 

Nobel prize winners like Joseph Stiglitz and Paul Krugman, to name perhaps the two most prolific, write regular columns in numerous newspapers in addition to teaching and their academic commitments which include writing articles and books. They write for a general audience and are immensely popular and critical of numerous issues. I believe, following the footsteps of such economists, there is a need for many of the best economists in Pakistan to intervene and shape public opinion and educate readers and viewers in the country.

 

There is a large audience out there, hungry for scholarly and academic discourse on issues which now affect everyone’s lives. More importantly, only those with understanding and scholarship can replace much of the nonsense that one reads or hears regarding the economy in Pakistan’s media. 

 

 

Regards,

 

Haider Hussain

Economist

Elixir Securities Pakistan

UAN: +9221 111-354-947 Ext. 3331

Fax: +9221 2420527

http://www.elixirsec.com

 

 

US $2 mn for Thatta Coastal Area Farmers

Islamabad, March 12, 2009- The Japan Social Development Fund (JSDF) will provide around US $2 million grant to improve the living conditions of approximately 6,500 small farmers’ and tenants’ households in coastal area of Thatta, Sindh by increasing household income and decreasing household expenditure and burdens. An agreement in this regard was signed between the Japanese Embassy and the World Bank on Thursday.

The Japan Social Development Fund (JSDF) provides grants in support of innovative social programs to help alleviate poverty in eligible client countries of the World Bank Group. The JSDF was established by the Government of Japan and the World Bank in June 2000. These grants target initiatives that foster direct participation of non-governmental organizations (NGOs), community groups and civil society at large.

This JSDF grant “Improving Living Conditions in a Changing Environment of the Thatta Coastal Farmers”, for US$1,977,650 will be implemented by Action Against Hunger (AAH) over a period of 3 years. High investments on inappropriate agricultural inputs, poor returns on agricultural activities and high health care costs due to the high incidence of waterborne diseases have created low standards of living for coastal farmers in district Thatta. As a result more small farmers and tenants are dependent on loans not only to procure agricultural inputs to sustain their livelihood activities but also for daily food items and health care.

Source: World Bank (South Asia) 12-03-2009

UK Economy

-- Khalid--
The weak lose themselves in God, the strong discover Him in themselves. (IQBAL)

An excellent resource for Economics books and articles

 

http://www.econlib.org/index.html

 

 

 

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Regards,

 

Haider Hussain

Economist

Elixir Securities Pakistan

UAN: +9221 111-354-947 Ext. 3331

Fax: +9221 2420527

http://www.elixirsec.com

 

 

Adam Smith's market never stood alone

Adam Smith’s market never stood alone

By Amartya Sen

Published: March 10 2009 20:15 | Last updated: March 10 2009 20:15

 

Exactly 90 years ago, in March 1919, faced with another economic crisis, Vladimir Lenin discussed the dire straits of contemporary capitalism. He was, however, unwilling to write an epitaph: “To believe that there is no way out of the present crisis for capitalism is an error.” That particular expectation of Lenin’s, unlike some he held, proved to be correct enough. Even though American and European markets got into further problems in the 1920s, followed by the Great Depression of the 1930s, in the long haul after the end of the second world war, the market economy has been exceptionally dynamic, generating unprecedented expansion of the global economy over the past 60 years. Not any more, at least not right now. The global economic crisis began suddenly in the American autumn and is gathering speed at a frightening rate, and government attempts to stop it have had very little success despite unprecedented commitments of public funds.

 

The question that arises most forcefully now is not so much about the end of capitalism as about the nature of capitalism and the need for change. The invoking of old and new capitalism played an energising part in the animated discussions that took place in the symposium on “New World, New Capitalism” led by Nicolas Sarkozy, the French president, Tony Blair, the former British prime minister, and Angela Merkel, the German chancellor, in January in Paris.

 

The crisis, no matter how unbeatable it looks today, will eventually pass, but questions about future economic systems will remain. Do we really need a “new capitalism”, carrying, in some significant way, the capitalist banner, rather than a non-monolithic economic system that draws on a variety of institutions chosen pragmatically and values that we can defend with reason? Should we search for a new capitalism or for a “new world” – to use the other term on offer at the Paris meeting – that need not take a specialised capitalist form? This is not only the question we face today, but I would argue it is also the question that the founder of modern economics, Adam Smith, in effect asked in the 18th century, even as he presented his pioneering analysis of the working of the market economy.

 

Smith never used the term capitalism (at least, so far as I have been able to trace), and it would also be hard to carve out from his works any theory of the sufficiency of the market economy, or of the need to accept the dominance of capital. He talked about the important role of broader values for the choice of behaviour, as well as the importance of institutions, in The Wealth of Nations ; but it was in his first book, The Theory of Moral Sentiments, published exactly 250 years ago, that he extensively investigated the powerful role of non-profit values. While stating that “prudence” was “of all virtues that which is most helpful to the individual”, Smith went on to argue that “humanity, justice, generosity, and public spirit, are the qualities most useful to others”.*

 

What exactly is capitalism? The standard definition seems to take reliance on markets for economic transactions as a necessary qualification for an economy to be seen as capitalist. In a similar way, dependence on the profit motive, and on individual entitlements based on private ownership, are seen as archetypal features of capitalism. However, if these are necessary requirements, are the economic systems we currently have, for example, in Europe and America, genuinely capitalist? All the affluent countries in the world – those in Europe, as well as the US, Canada, Japan, Singapore, South Korea, Taiwan, Australia and others – have depended for some time on transactions that occur largely outside the markets, such as unemployment benefits, public pensions and other features of social security, and the public provision of school education and healthcare. The creditable performance of the allegedly capitalist systems in the days when there were real achievements drew on a combination of institutions that went much beyond relying only on a profit-maximising market economy.

 

It is often overlooked that Smith did not take the pure market mechanism to be a free-standing performer of excellence, nor did he take the profit motive to be all that is needed. Perhaps the biggest mistake lies in interpreting Smith’s limited discussion of why people seek trade as an exhaustive analysis of all the behavioural norms and institutions that he thought necessary for a market economy to work well. People seek trade because of self-interest – nothing more is needed, as Smith discussed in a statement that has been quoted again and again explaining why bakers, brewers, butchers and consumers seek trade. However an economy needs other values and commitments such as mutual trust and confidence to work efficiently. For example, Smith argued: “When the people of any particular country has such confidence in the fortune, probity, and prudence of a particular banker, as to believe he is always ready to pay upon demand such of his promissory notes as are likely to be at any time presented to him; those notes come to have the same currency as gold and silver money, from the confidence that such money can at any time be had for them.”

 

Smith explained why this kind of trust does not always exist. Even though the champions of the baker-brewer-butcher reading of Smith enshrined in many economics books may be at a loss to understand the present crisis (people still have very good reason to seek more trade, only less opportunity), the far-reaching consequences of mistrust and lack of confidence in others, which have contributed to generating this crisis and are making a recovery so very difficult, would not have puzzled him.

 

There were, in fact, very good reasons for mistrust and the breakdown of assurance that contributed to the crisis today. The obligations and responsibilities associated with transactions have in recent years become much harder to trace thanks to the rapid development of secondary markets involving derivatives and other financial instruments. This occurred at a time when the plentiful availability of credit, partly driven by the huge trading surpluses of some economies, most prominently China, magnified the scale of brash operations. A subprime lender who misled a borrower into taking unwise risks could pass off the financial instruments to other parties remote from the original transaction. The need for supervision and regulation has become much stronger over recent years. And yet the supervisory role of the government in the US in particular has been, over the same period, sharply curtailed, fed by an increasing belief in the self-regulatory nature of the market economy. Precisely as the need for state surveillance has grown, the provision of the needed supervision has shrunk.

 

This institutional vulnerability has implications not only for sharp practices, but also for a tendency towards over-speculation that, as Smith argued, tends to grip many human beings in their breathless search for profits. Smith called these promoters of excessive risk in search of profits “prodigals and projectors” – which, by the way, is quite a good description of the entrepreneurs of subprime mortgages over the recent past. The implicit faith in the wisdom of the stand-alone market economy, which is largely responsible for the removal of the established regulations in the US, tended to assume away the activities of prodigals and projectors in a way that would have shocked the pioneering exponent of the rationale of the market economy.

 

Despite all Smith did to explain and defend the constructive role of the market, he was deeply concerned about the incidence of poverty, illiteracy and relative deprivation that might remain despite a well-functioning market economy. He wanted institutional diversity and motivational variety, not monolithic markets and singular dominance of the profit motive. Smith was not only a defender of the role of the state in doing things that the market might fail to do, such as universal education and poverty relief (he also wanted greater freedom for the state-supported indigent than the Poor Laws of his day provided); he argued, in general, for institutional choices to fit the problems that arise rather than anchoring institutions to some fixed formula, such as leaving things to the market.

 

The economic difficulties of today do not, I would argue, call for some “new capitalism”, but they do demand an open-minded understanding of older ideas about the reach and limits of the market economy. What is needed above all is a clear-headed appreciation of how different institutions work, along with an understanding of how a variety of organisations – from the market to the institutions of state – can together contribute to producing a more decent economic world.

 

*An anniversary edition of ‘The Theory of Moral Sentiments’ will be published by Penguin Books this year, with a new introduction in which I discuss the contemporary relevance of Smith’s ideas

 

The writer, who received the 1998 Nobel Prize in economics, teaches economics and philosophy at Harvard University. A longer essay by him on this topic appears in the current edition of The New York Review of Books

---------------------------------

Regards,

 

Haider Hussain

Economist

Elixir Securities Pakistan

UAN: +9221 111-354-947 Ext. 3331

Fax: +9221 2420527

http://www.elixirsec.com

 

 

European Central Banks Cut Rates to Record Lows

Posted by Bashir Ahmad Fida European Central Banks Cut Rates to Record Lows By JOELLEN PERRY and MARCUS WALKER in Wall Street The European Central Bank and the Bank of England cut interest rates to record lows on Thursday, further underlining the severity of the economic downturn in the 27-nation European Union. The Bank of England also announced a seldom-used measure known as "quantitative easing." The £75 billion ($105.96 billion) program is aimed at boosting banks' lending by buying assets directly with newly created money. ECB President Jean-Claude Trichet suggested new measures are in the offing, saying the bank is "discussing and studying possible new nonstandard tools. We exclude nothing." Official figures Thursday confirmed that euro-zone gross domestic product in the fourth quarter of 2008 shrank by 1.5%, the worst contraction on record. On an annualized basis, the economy contracted by 5.8%. While the drop was led mostly by a fall in exports, a surprising fall in consumer spending also contributed -- undermining hopes that receding inflation can buoy spending in the face of mounting job cuts. Collapsing global trade is walloping export-dependent countries such as Germany. At the same time, the threat of job losses are damping the consumer spending that has traditionally been a strength in economies of countries such as the U.K., France and Spain. Euro-zone unemployment hit a two-year high of 8.2% in January as companies cut swaths of workers, adding strain to already-struggling state coffers. Economy Heard: BOE Takes Aim at Long-Dated Yields Real Time Econ: BOE Statement "Pretty much everywhere you look in Europe, the news is awful," said Ken Wattret, economist with BNP Paribas in London. Companies across Europe echoed the bleak outlook. "At the beginning of 2009, I thought we would see an economic recovery from the middle of this year," says Jan Alblas, owner and head of Dutch logistics company Alblas InternationaalTransport BV, which specializes in trucking goods between the Netherlands and Germany and the EU's new member countries in Central and Eastern Europe. Until 2007, business was booming along with trade between Europe's East and West. Now, with cross-border trade collapsing, Mr. Alblas says recovery "will take much longer." In a press briefing after the ECB lowered its key rate by half a percentage point to 1.5%, Mr. Trichet stressed that was not "the lowest level," though he repeated he sees "a number of drawbacks" to taking interest rates near zero -- as the U.S. Federal Reserve has done. Mr. Trichet also said inflation pressures are receding markedly in the face of the economic slowdown, leading many economists to predict the central bank could lower its key rate to 1% or 0.5% this year. ECB Cuts Rates To Near Zero The European Central Bank cut its key rate to near zero Thursday. ECB President Jean-Claude Trichet said board members agreed an easing was needed after an in-depth discussion about euro-zone economic conditions. The Bank of England lopped a half percentage point from its key rate to bring borrowing costs to 0.5%, their lowest since the bank's founding in 1694. Its plan to purchase government and corporate debt with the new £75 billion program will funnel funds to the struggling banking system, which could increase banks' ability to make new loans. ECB policy makers have been reluctant to take such measures. But Mr. Trichet said Thursday the central bank will continue offering euro-zone banks unlimited loans at the central bank's policy rate until at least the end of this year. That program, launched last October and originally set to expire at the end of this month, has so far helped to swell the central bank's balance sheet by some €600 billion. Jean-Claude Trichet, president of the European Central Bank, announced in Frankfurt Thursday the ECB will cut a key interest rate to a record low. ECB staff radically lowered forecasts for the $12.2 trillion euro-zone economy's performance this year, predicting it will shrink by about 2.7%. That's far worse than a December forecast of a contraction of about 0.5% and well below the International Monetary Fund's estimate of a 2% contraction. The ECB forecasts essentially flat growth in 2010. The Bank of England's nine-member rate-setting committee said Thursday that the pace of the U.K.'s fourth-quarter contraction -- output there also shrank by 1.5% -- likely continued through the beginning of this year, as surveys suggest consumer spending and business investment continued to fall. The rapidly worsening outlook in Europe's Eastern countries is also pulling down growth in the West and raising questions about whether Western policy makers should do more to prop up their struggling neighbors. Policy makers in financially strong European countries such as Germany have said in the last two weeks that they would intervene to save a euro-zone country from bankruptcy. But Western Europe has so far rejected calls from Hungary and the World Bank for concerted aid to the East, saying such aid should come from organizations such as the IMF. So far, European nations Hungary, Latvia and Ukraine have already turned to the IMF for aid. Mr. Trichet hinted Thursday that self-preservation might yet motivate Western Europe to come to the east's aid. Stressing it was "possible" that countries in "exceptional difficulty" could get help from the EU, its wealthier governments or the central bank itself, he said, "our first duty is to understand that we are all in an inter-dependency mode." -- Mark Whitehouse, Neil Shah and Sebastian Moffett contributed to this article.

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