Eye on Pakistan

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
Advertisements
Tagged with: ,