Eye on Pakistan

MCB’s purchase of Royal Bank of Scotland’s Pakistani assets collapses

Posted in Political Economy by onpakistan on January 6, 2010

MCB’s ongoing disagreements with the State Bank of Pakistan, regarding the State Bank’s request for a deposit of MCB shares, has scuppered the agreed sale of RBS’s Pakistani branches to MCB. Other buyers are thin on the ground.  Foreign investors appeared to have learned their lessons following a string of disastrous acquisitions – not least ABN Amro’s 2007 acquisition of Prime Bank and RBS’s acquisition of ABN Amro’s Pakistani operations (also in 2007). Consequently RBS now has little choice but to remain in Pakistan (a market to which, following the recent banking crisis, it now has no commitment) for the foreseeable future. RBS is likely to keep its Pakistani subsidiary largely as it is for the time being, with an attempt at some light (and so relatively low risk) cost cutting. Deep cost cuts (such as merging the erstwhile ABN Amro and Prime Bank operations) are risky and may damage the future sale value of its Pakistani assets.

For more information see:

RBS’s stock exchange announcment.
The two most informative press articles are: an article in Pakistani Daily Times, and an article in London’s Financial Times.

I reproduce the Financial Times article below:

RBS fails to conclude sale of Pakistan arm
By Adam Jones in London and Farhan Bokhari in Islamabad
Published: January 4 2010 08:58 | Last updated: January 4 2010 16:44
Royal Bank of Scotland’s withdrawal from retail and commercial banking in Asia has suffered a setback after a plan to sell its Pakistani arm unravelled.
RBS announced in August that it was selling a 99.4 per cent stake in its RBS Pakistan subsidiary to MCB Bank, a Pakistani rival, for PKR7.2bn (£53m).
However, in a brief stock exchange statement on Monday it said that the deal had lapsed because it had not received the necessary regulatory approval by the end of 2009.
Pakistan’s central bank in Karachi said it had refused to clear the deal because of a dispute over MCB depositing its shares as security.
RBS indicated that a fresh buyer was now being sought for the unit, which has more than 300,000 customers.
An official said: “The Pakistan business remains part of the non-core businesses and the process of identifying a suitable buyer is under way.”
However, bankers in Karachi said RBS would face a difficult challenge in finding another buyer soon, in view of concerns over Pakistan’s internal security conditions and its moribund economy.
The president of a private Pakistani bank said “MCB is out of the race. But finding another buyer may not be that easy at a time when investors looking at Pakistan see the country surrounded by many issues, mainly security and the economy”.
A Pakistani central bank official who did not want to be named said RBS would have to consider continuing to function in Pakistan for the foreseeable future.
The official said: “Unless the RBS managers have something up their sleeves, I don’t see the likelihood of another deal coming together anytime soon. RBS will have to consider functioning as it is”.
RBS, which is majority-owned by the British government, said in February that it was withdrawing from retail and commercial banking in Asia, arguing that its presence in the region was too small and too thinly spread.
In August, RBS announced the sale of assets in Taiwan, Singapore, Indonesia, Hong Kong, the Philippines and Vietnam to ANZ, the Australian lender.
Shares in RBS closed 9.5 per cent higher at 31.98p after reports that Brazil’s largest bank, Itau Unibanco, was considering taking stakes in a number of UK banks.

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PIA the First to Submit to America

Posted in Domestic Affairs, Foreign Affairs, Political Economy by onpakistan on January 4, 2010

Foreign nationals (and American ethnic minorities, no doubt!) flying in from 14 “predominantly Muslim” countries are to undergo “enhanced screening” at American airports. (Official TSA announcement here).

According to press reports, and a statement from the airline itself, PIA was the first airline to submit to these procedures, and had done so from the 2nd of January: “Sultan Hasan said the passengers are subjected to special screening, including full body searches, in a designated area of the departure lounge. He said the airline had run advertisements in newspapers to warn prospective passengers of the increased safety measures.” How kind of PIA to offer itself as an advance guinea pig for the new procedures!

This is part of a wider trend towards increased American jurisdiction and control over Pakistani nationals. This is occurring through both legal treaty, and unofficially. The case of Aafia Siddiqui is already well known ( and quite rightly called the “tip of the iceberg”), but there are other recent insidious trends in the same direction. I have already blogged about how Pakistani government attempts to channel money flows in and out of Pakistan through the institutionalized and regulated banking sector will allow for greater U.S. control of Pakistani money transactions. Now this: the Pakistani government has conveniently discovered that it can actually legally deport Pakistanis to America: “We have an extradition treaty with the US,” Foreign Office spokesman Abdul Basit said at a recent media briefing. The basis is, rather flimsily, a US-UK accord dating back to 1932!! Zardari et al clearly want to protect themselves from torture and human rights-based litigation once they retire to their palatial mansions in the UK or Switzerland.

But why bother with formal extradition, when the Pakistani government has allowed American security forces and mercenaries to harass Pakistani citizens in their own homes…in Pakistan? (At least this ‘fortunate’ woman was not dragged off to Bagram, or reditioned to be tortured in Syria – like this unfortunate, and almost randomly chosen, Canadian citizen).

Talk of tortue, ofcourse, takes one back to the countries chosen for additional screening (strip searches anyone?) by the US authorities. They are:

Saudi Arabia

What an assorted bunch they are. They include strong allies of the US (Pakistan, Saudi Arabia), sworn enemies (Iran, Cuba, Syria), client-states (Yemen, Iraq, Afghanistan, Lebanon) and, interesting, governments which happily torture on behalf of the US: Saudi Arabia, Pakistan, Algeria, Afghanistan, Syria, Libya. I would not be surprised if Jordan is eventually added: it is both a client-state and lead-torturer.

A final note on PIA. It is in under imminent threat of bankruptcy. It cannot even now pay for the government’s five (yes, five!!) private VVIP jets.  Responsibility for their financial upkeep has now been transferred to the military. (see this report) This may be in preparation for an eventual privatization of PIA. Once the Arabs purchase PIA (and the Arabs are the only politically viable purchasors), the airline will no doubt further fall prey to American security demands. Whilst Bilawal and his buddies will continue to fly in VVIP comfort, Pakistan’s flying masses will have to get used to used to KESC-style service (KESC having been rather disastr0usly sold to Dubai-based Abraaj Capital a while back).

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Pakistan Remittance Initiative – terrorising the hawala system?

Posted in Political Economy by onpakistan on December 14, 2009

The Pakistani government has been for several years trying to (or at least pretending to try) to increase its influence on and supervision of money movements in and out of Pakistan. According to the National Bank of Pakistan (and the Financial Times), the Pakistan Remittance Initiative is leading to an increase of foreign remittance through government monitored sources such as banks, and a decrease in remittance through the ‘Hawala system’. From the Financial Times:

Pakistan takes grip on money transfer

By Farhan Bokhari in Karachi

Published: December 10 2009 02:00 | Last updated: December 10 2009 02:00

The events of September 9 2001 quickly made legislators and the wider public familiar with the hawala system of informal money transfer between poorer workers in Asia and the Middle East who fall outside the banking system. In March, the Pakistani government, sensitive to the accusation that it was doing too little to monitor funds that could be used to fund terrorism, launched the Pakistan remittance initiative, or PRI. The measures foreseen by the PRI range from requiring Pakistani bankers to visit prospective depositors, no matter how small, even in neighbourhoods in the Middle East, to speeding the pace of the transfers. The central bank says the initiative is beginning to work. In the first four months of the financial year, which runs to the end of June, remittances through the banking system from Pakistanis worldwide rose by nearly a third over the same period last year to $3.1bn. Officials at Pakistan’s finance ministry expect to see a record of more than $9bn in annual remittances through the banking system during the current financial year. In October, Pakistani workers in the United Arab Emirates sent home $175m via the banks – up from about $76m a year ago, according to finance ministry officials. Workers in Saudi Arabia transferred $154m, up from $127.3m. Salim Raza, Pakistan’s central bank governor, says he personally oversees measures aimed at reducing the time taken for transfers from the Middle East to reach bank accounts in Pakistan, “not in terms of days but in terms of minutes”. The speed of transfers has been at the centre of the popularity of the hawala system. Mr Raza says that regular banks’ rising foreign exchange reserves are another sign that the PRI is working. “We are working to provide the best possible environment to speed up transfers and facilitate the customers. They are obviously responding,” Mr Raza says. Syed Ali Raza, president of the government-owned National Bank of Pakistan, says that three years ago, about $4bn was transferred via banks while about $6bn was believed to be coming through hawala . “The trend is changing. Now, at least 75 per cent or even more is coming through official channels and the space taken by hawala is shrinking,” he says. This year the Pakistani authorities shut at least two prominent money changers, who were found to be under-declaring the remittances they received from abroad. While there is acknowledgement of the success of the PRI, some analysts say that the worldwide financial problems of the past year and more are causing Pakistanis, Indians and Bangladeshis to send savings home for fear of their money being caught in a financial crisis somewhere overseas. “This is indeed an important consideration. People are sending back their savings because of such fears,” says Ishrat Hussain, a former Pakistan central bank governor. Western economists warn, however, that it is still too early to say if the trend will be sustained in the medium to long term, as Pakistan not only grapples with a moribund economy but is also gripped by fears of growing internal insecurity. A record rise in suicide and bomb attacks by Taliban militants this year has prompted many domestic and foreign businesses active in Pakistan to consider security, or the lack of it, as their primary challenge. Workers overseas may well develop the same perspective and keep their money under the mattress, says one western economist. “The sense of security in Pakistan is very fragile. If the sense of insecurity grows further, there is a chance that these remittances may begin shrinking,” the economist says.

The West, ofcourse, would like nothing better than to be able to monitor all cash flows in and out of not only Pakistan, but all countries around the world. For Interpol and the United States Department of the Treasury, the Hawala system is nothing more than a conduit for money laundering. The IMF argues that “more should be done to keep an eye on IFT [Informal Fund Transfer] systems to avoid their misuse by illicit groups.” Pakistani intellectual classes agree. For The News, appears to believe that eliminating the informal money transfer system stop the wealthy from taking their wealth out of the country!
For Newsline, banking through Hawala is “Banking on Terror”.
Lets be clear: destroying the Informal Fund Transfer systems that operate in the Middle East and South Asia will NOT stop the transfer of funds to Pakistani and Afghan militant groups, and it will NOT stop the withdrawal of wealth by Pakistani elites. There are deeper reasons for this funding, and for ebbs and flows of elite wealth, which need to be addressed for these things to happen. American attempts to control international monetary flows long predate post-9/11 terror rhetoric. These attempts will continue, under some other pretext, once this rhetoric abates. Bringing the Informal Fund Transfer systems under Pakistani state control will only further enrich Pakistani banks and related industrialists, and give the West more influence over the Pakistani financial system
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ISI and MI investigating Oil and Gas Industry

Posted in Domestic Affairs, Political Economy by onpakistan on November 24, 2009

Why is ISI and MI doing this? I would have thought this was outside their remit. Iqbal Z Ahmed was close to Musharaf and has been harassed by the government recently.

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Taxing the Rich, and the Friends of Pakistan Group

Posted in Domestic Affairs, Foreign Affairs, Political Economy by onpakistan on June 14, 2009

From the Dawn‘s editorial on the budget: “It is unfortunate that the rulers have again failed to tax the rich agriculturists.” “Unfortunate” is an understatement. It is a travesty, albeit a travesty we have seen repeated year-on-year. Arguably this year was not anyhow the best recent opportunity to tax the rich – that came and went under the strongest years of the Musharraf government.

Is it also not “unfortunate” that the so-called ‘Friends of Pakistan Group, who will be assisting the Pakistani government to the tune of Rs170bn, have not pushed for the taxation of the rich? Its not in their interests ofcourse.On the ‘Friends of Pakistan Group’, see, appropriately, this Voice of America news piece. The Group includes Britain, France, Germany, the United States, China, the United Arab Emirates, Canada, Turkey, Australia and Italy plus the United Nations and the European Union. It doesn’t include, bizarrely enough, the single most interested-in-Pakistan nation in the world: Saudi Arabia. Does anyone know why not? Also, by the way, there is no ‘Friends of Afghanistan’ or ‘Friends of India’ Group. I am not sure if that’s good or bad news for Pakistan.

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Jundullah, Iran, and the Iran-Pakistan Gas Pipeline Project

Posted in Foreign Affairs, Political Economy by onpakistan on June 1, 2009

Following the bombing in Zahedan, the Iranians have protested against the Pakistani government’s sheltering of Jundullah. According to Dawn, “Islamabad has ordered the group be disbanded and wiped out.” But the question is (as it often is): will the Americans allow this to happen? I think not. Instead, Islamabad may continue to blame a “a third player aiding and abetting the anti-Iran activities of Jundullah with a view to damage [sic] the Pak-Iran ties”. Ironically, this rhetoric may not be too off the mark: the “third player” being not Islamabad’s bette noir India, but in actual fact the United States. The Iranians have raised the spectre of Jundullah disprution to the Iran-Pakistan gas pipeline project. I don’t know how realistic a threat this is, but I wouldn’t be surprised if the Americans offer compensation for potential damage, in return for Pakistan not taking its focus off the NWFP militants. The Americans, ofcourse, would like to see this pipeline fail (and they may well succeed, not withstanding their current softened opposition) – though they’re not the only ones. As always, powerful industrial interests in Pakistan oppose the project too.

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Significant interest in RBS’s Pakistani branches

Posted in Domestic Affairs, Political Economy by onpakistan on May 31, 2009

Contrary to the impression gained from the British financial press, there appears to be significant interest in RBS’s Pakistani assets and subsidiaries.

From the Business Recorder: “RBS Pakistan is said to be an attractive franchise after acquisition of former Prime Bank assets. The balance sheet has been reportedly cleaned up. However, the administrative cost is said to be on the high side due to the quality of staff in the bank.”

From the Daily Times: “Jahangir Siddiqui group and Orascom are the major contenders for RBS…These groups may offer between $150 million and $200 million.” (this link is troublesome, also try: http://www.dailytimes.com.pk/default.asp?page=20095\30\story_30-5-2009_pg5_1).