Plundering of Public Assets in Pakistan - A Chronology of Privatization - (1991-2006)

30 January 2008 by Abdul Khaliq


(CADTM-Pakistan)

Pakistan, under the gospel of market economy is aggressively pursuing the policy of market liberalization and privatization since 1991.

Government of Pakistan during 1990s after being hit by economic downturn was forced to adopt Structural Adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

IMF : http://www.worldbank.org/
Program (SAP) under IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
to reform economy suffering from macroeconomic instability. Under the SAP, it adopted the policy of market liberalization, privatization and deregulation.

Pakistan, since then seems to have indulged in privatization binge under which plans have been set to sell off a number of profitable public sector institutions in sheer hurry, without realizing the negative consequences on the socially marginalized classes.

Since 1991 till April 2006, Government of Pakistan had completed or approved 160 transactions at gross sale price of Rs. 395.241 billion in the last 15 years. The sale of 26 per cent PTCL shares in 2006 alone fetched $2.5 billion. An astounding 130 privatized enterprises out of total 160 have been collapsed.

According to the Privatization Commission Ordinance 2000, 90 percent of the proceeds are spent for debt servicing and 10 percent go to poverty alleviation programs. But the privatization proceeds are reportedly misused by successive regimes.

Since 1990, about 0.6 millions workers have been rendered jobless as a result of implementation of ruthless and thoughtless privatization and neo-liberal policies in Pakistan. 64 percent of the workers in privatized units were forced to take “golden shake hand” in the name of voluntary separation scheme (VSS).

The privatization of State Owned Enterprises (SOE) became an important instrument of the state economic policy in late 80s. However, it was in 1991 that privatization process in Pakistan became effective. In 1988, the new government of Benazir Bhutto appointed a British firm M/s N.M. Rothschild, as consultants, to undertake a study on privatization strategy and selection of prospective candidates. The consultants submitted their report to the government in May 1989.

The report recommended privatization on widespread ownership basis as an appropriate strategy for Pakistan. By “Wide Spread Ownership” the consultants meant development of Pakistan’s capital markets. After analysis of more than 50 companies, the consultants short-listed seven companies as potential candidates for widespread offers. These included Habib Bank, Muslim Commercial Bank Pakistan National Shipping Corporation (PNSC), Pakistan International Airlines Corporation (PIAC). Pakistan State Oil (PSO), Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Ltd (SNGPL). The government of Benazir Bhutto had not enough time to privatize the identified units as it was sacked on charges of corruption in early 90s.

The government of Nawaz Sharif soon after assuming power in November 1990, declared privatization as its primary economic policy objective. The agenda of privatization announced by the Government covered a wide spectrum of fields like industries, banks, development finance institutions, tele-communications and infrastructure facilities.

As a first step towards privatization, a Committee on Dis-investment and De-regulation was formed. The committee recommended the disinvestment of 118 industrial units, which included 45 nationalized units taken over during the period 1972-74. The government approved this disinvestment plan and announced the creation of a Privatization Commission on 22nd January 1991. This period of Nawaz Sharif government saw massive privatization in all sectors with 68 units handed over to private owners from 1991 to 93.

In the period from 1992 to 1994 assets worth Rs.120 billion were divested. The consultants engaged by Asian Development Bank conducted a thorough study of the first period. They published a detailed report in 1998. According to an evaluation of privatization in 1992-94 by ADB, only 22% of the privatized units were performing better than in the pre-privatization period, 44% approximately the same and about 34% worse than before.

Moreover, the most tragic consequence of privatization was the closure of 20 units after transfer to private owners. The closure of these units has played havoc with the national economy and the first phase of privatization contributed to the lower rate of industrial and economic growth. The GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
growth, which was above 6% in 1980s declined to around 4% in the post privatization period. The buyers were not interested in running the privatized factories but in stripping the assets. This is a frequent bane of privatization. Assets strippers buy, pay one installment, remove the machinery, sell the real state and then walk away. All the engineering units except Millat and Al-Ghazi Tractors were closed after privatization, as their buyers had no intention of running them.

Analysis of the first this period of privatization has shown that it has not been able to achieve the intended goals of privatization. The procedure of privatization, according to ADB consultants, was also not transparent but smacked of cronyism and corruption.

The anti-trade union measures by successive regimes resulted in decrease of trade unions and union memberships. The number of registered unions increased from 708 in 60s to 2,522 in 70s and 6,551 in 80s respectively. Similarly their declared membership rose from 350,000 in 60s to 736,000 in 70s and 870,000 in 80s.But after the process of privatization trade union membership decreased from 870,000 in 80s to 296,257 in 1999.

General Mushraff regime after taking over in 1999 announced to continue neo-liberal policies. The regime has been bent upon privatizing big public units in industrial and services sector, like Habib Bank Limited, Pak Saudi Fertilizers and Pakistan Steel Mills.

The roller coaster of privatization in Pakistan was suddenly halted when Supreme Court of Pakistan, through suo moto notice, struck down the privatization of Pakistan Steel Mills in 2006. Gen Mushraff had sold out the only steel mills of Pakistan to his cronies at a throw away prices of just Rs. 33 billion. Only the affiliated assets of PSM stand at Rs. 133 billion.

The general perception that privatization result in higher level of efficiency is not true in case of Pakistan. Privatization has caused social development slow down. The pre-privatization period (1981-1991) witnessed an annual average growth rate of 6.7 % of GDP while it went down to 4.4 % during privatization period (1991-2001). Two major objectives of privatization in Pakistan; debt-servicing and poverty alleviation have not been achieved. The total external debt rose from US $ 23.363 billion in 1991 to $ 40 billion in Dec 2007.

The reports of plundering of privatization money are also published. In July 2002, the Public Accounts Committee (PAC) had detected a massive sum of Rs. 80 billion missing, collected from privatization, when it was disclosed that this money was not used for the debt retirement purpose. In addition to it, indiscriminate use of billions of rupees collected from the privatization money on consultant salaries and legal experts also raised troubling questions that who was actually benefiting from the whole privatization process after laying off thousands of workers. The PAC also learnt that consultants and advisors generally hired by the PC are heavily paid. As much as Rs.5 billion were spent on the consultants, advisors etc.

In most of the responses to privatization union leadership failed to protect the genuine rights of the workers. They fell to opportunism, and succumbed to pressure of state, generating a great deal of disappointment among the workers and the general public. But the resistance of PTCL workers in 2005 was by no means a minute task. The 10-day strike was a great success. Though the spirit of this resistance, however, has not yet donned the cloak of a movement. But it definitely shows the decisive role of workers in the economy and the society.

Several other State Owned Enterprises including Pakistan Steel Mills, Pakistan State Oil, Pakistan Railways, Wapda and other gas and energy units are in queue to put on the block. The commitment with which the state is pursuing the privatization agenda has virtually turned Pakistan into a hunting ground for international capital.



Abdul Khaliq

CADTM Pakistan

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