Dar defends his
Govt in missing Rs. 11 billion scam
Special
SAT Report
ISLAMABAD:
In a belated response, the Finance Minister of Prime Minister
Nawaz Sharif's ousted government, Mr. Ishaq Dar, has denied a
SA Tribune story published on Sept 23, 2002 about Rs.
11 billion missing under the Nawaz Government, still not traceable.
In
a detailed E-mail to the SA Tribune, Mr. Dar has given
his version of the story but SA Tribune Correspondent,
Ahmed Khan, firmly stands by his story and has cited a number
of Government documents and letters to prove that Mr. Dar was
not telling the whole story and trying to divert attention from
the issue.
Mr.
Dar in his E-Mail said: Refer your Cover Story “The Missing
$ 250 million forgotten by everyone” in SA Tribune
Sept 23-29, 2002, Issue No 10. The story indicated that a Japanese
Loan of $250 million given in 1998 had mysteriously disappeared
and even the military Government had failed to trace it. The story
also indicated that a huge amount was utilized by Prime Minister
Nawaz Sharif and myself (as Finance Minister) in the name of “Qarz
Utaro Mulk Sanwaro” (repay debts for prosperity). It
appears as if the story were published to malign the PML-N Government,
Prime Minister Nawaz Sharif and myself.
I
wish to inform your readership, through your web newspaper, that
the story is not correct and appears to be devoid of any understanding
of how the foreign aid is disbursed and utilized in Pakistan.
First
of all I would clarify that when the said Japanese loan was signed
in March 1998 or when the ‘Qarz Utaro Mulk Sanwaro’
scheme virtually finished around June 1998, I was Commerce Minister
and not Finance Minister and both these matters were handled in
accordance with the laws of Pakistan by my cabinet colleague and
the then Finance Minister Mr. Sartaj Aziz. I took over responsibility
of Finance Minister in Nov 1998. Having said that I, as President
of International Affairs of Pakistan Muslim League (N), have the
responsibility to release the facts on the said story for the
benefit of your readership on behalf of Prime Minister Nawaz Sharif’s
Government.
The
writer has ignored the fact that all sums, whether loans or other
receipts, of the Federal Government are taken in the Federal Consolidated
Fund. Article 78(1) of the Constitution of Pakistan reads as under:-
“All
revenues received by the Federal Government, all loans raised
by that Government and all moneys received by it in repayment
of any loan, shall from part of a consolidated fund, to be known
as the Federal Consolidated Fund”
It
is, therefore, absolutely wrong for anyone to say that this particular
Japanese loan of US $250 million did not form part of Federal
Consolidated Fund. The factual details of this loan are as follows:
1.
A loan agreement number OECF L/A PK-C-18 was signed between Government
of Pakistan and OECF of Japan on 27th March 1998 for an amount
of Yen 32 Billion approx.
2.
This loan was STRUCTUAL ADJUSTMENT LOAN and was not a Social Action
Program (SAP) related loan as alleged in your story.
3. It was, however, agreed between OECF of Japan and Government
of Pakistan that the Counterpart Fund in Pak rupees that would
be realized from this loan shall be utilized on such Projects
approved under the PUBLIC SECTOR DEVELOPMENT PROGRAM that are
mutually agreed between OECF and Government of Pakistan.
4.
The State Bank of Pakistan converted the said loan amount into
Pak rupees using an exchange rate of Rs 0.341989 per yen. The
total rupee amount thus worked out to Rs.10.94 Billion.
5. The above mentioned amount in rupees remained throughout with
the State Bank of Pakistan as part of the Consolidated Fund and
was transferred to Federal Government’s Account Number 1
with the State Bank of Pakistan on 27th September, 2001.
6.
All expenditure on development projects of the Federal and Provincial
Governments, met out of these funds is subject to normal audit.
As
far as ‘Qarz Utaro Mulk Sanwaro’ Scheme (National
Debt Retirement Program or NDRP) is concerned, it was launched
in February 1997 and had the following three components:
a)
An outright donation with no payback.
b) Qarz-e-Hasna deposits for a minimum period of two
years; no interest payments but principal repayments could be
taken in Rupees or foreign currency.
c) Profit bearing deposits for a minimum period of two years.
All
funds in the aforesaid NDRP were directly received in the Federal
Government’s account with State Bank of Pakistan as per
laws of the land. The largest receipt of funds was in profit bearing
deposits. Inflow of funds under this Scheme virtually stopped
in June 1998. The foreign exchange component generated through
this NDRP scheme formed part of State Bank of Pakistan’s
foreign exchange reserves in lieu of which Mian Nawaz Sharif’s
Government arranged the retirement of most expensive domestic
national debt amounting to Rs.1.7 billion which carried interest
at 17.3% per annum and resulted into perpetual savings of Rs.294
million per annum to the nation through reduction in national
debt service amount. All depositors, including deposits in foreign
currency in this scheme, whose deposits matured for repayment
before the black day of 12th October, 1999 were duly repaid on
due dates through State Bank of Pakistan. All these facts relating
to NDRP Scheme can be verified from State Bank of Pakistan’s
Annual Report for year 2000-2001(Page 127 and 128)
It
should also be known that every donor monitors the utilization
of their respective loans and grants very closely. Under no circumstances
any donor allows its loan/aid to be utilized for any purpose other
than the one specified by them in the Agreement.
Mohammad
Ishaq Dar
President, International Affairs Pakistan Muslim League(N)
& Former Federal Minister for Commerce & Finance
Islamic Republic of Pakistan
SAT Correspondent Ahmed Khan, standing by his
story, replies from Islamabad:
The
story was based on documents which were posted and are still available
in the Archives of the SAT Issue No 10. Click
Here for Page1 | Page2
| Page3 | Page4
| Page5
Perhaps
Mr. Ishaq Dar is not aware of the fact that OECF loan under question
was transferred to Pakistan after State Bank of Pakistan opened
a separate "Counterpart Fund Account". It was not put
in the Federal Consolidated Fund as he has wrongly claimed. This
loan was a separate entity and contained special conditions. The
loan was for restructuring purposes with the condition that its
equivalent money would be generated by Government of Pakistan
and would be first put in the “Counterpart Fund Account”
and then transferred to the Social Action Program (SAP).
The
OECF account was opened under the title “Banking Sector
Adjustment Loan (BSAL-II) of the State Bank of Pakistan with the
initial amount of Rs 10.942 million on 27.3.1998. Mr. Dar is thus
not correct when he says that this loan was made part of the “Federal
Consolidated Fund”.
According
to the Audit Documents published by SA Tribune, the AGP
had disclosed that the entire amount of the loan and the deposit
in Counterpart Fund Account "was never transferred to the
Federal Consolidated Fund account, which was a violation of article
78 of the Constitution."
An Auditor General of Pakistan (AGP) team gave its finding that
were forwarded to the SAP Coordinator Mushtaq Khan by the Director
General Audit SAP, Shabbir Ahmad Dahar, dated November 21, 2000.
The DO letter No was: DGA/SAP-II/FSS, Planning /99-2000. Click
Here for Letter
According
to this letter: GoP received a loan of Yen32 million (equivalent
to $250million or Rs 11 billion) as banking sector adjustment
loan from OECF on 27.3.1998. As per loan agreement the GOP was
required to create a Counterpart Fund for the implementation of
"SAP projects", not PSDP as Mr. Dar claims.
The
letter further says: “The amount of loan was to be utilized
by 27.3.2000. During the audit of federal SAP secretariat the
audit team while scrutinizing files pertaining to OECF loan No
Pk-C-18, observed that loan was not accounted for. Neither the
equivalent amount credited to the Counterpart Fund nor allocation
for utilization arranged. The Audit letter had recommended that
in view of this serious problem, an in-depth inquiry was inevitable."
Earlier,
Nawaz Sharif Government had tried to convince the OECF that the
funds could be used under PSDP program, upon which, OECF reacted
sharply and refused to concede the request.
A
letter written by Mr. Ikuro Sato Chief Representative of OECF,
Islamabad office dated January 21, 1998 (Letter No OECF/98-013,
Subject Japanese loan for balance of payment support) said: “In
1990 and 1994, OECF provided a Yen 19.3billion for loan for financial
sector reforms a 16.5billion yen for public sector reform respectively.
Macro economic statistics of Pakistan since then indicate however,
that the loans have not given positive impact on the economy so
far. In order to justify a loan from Japan and OECF under another
SAL loan this time , it has been necessary to make schemes which
will explain more clearly, effectiveness of our support to the
economic reforms efforts of Pakistan. Earmarking uses of Counterpart
Fund to highly prioritized project is one of the ideas to resolve
the issue. We do not earmark the usage of the Counterpart Fund
to OECF on going projects since to cover self finance portion
of our projects by our friends is not in accordance with our basic
operational policy which is support self efforts of recipient
countries. We do not fund those project already being funded by
other donors. So, we have been emphasizing SAP for earmarking
project because of reasons that we want to develop SAP sector.
So, Counterpart Fund to be generated under BSAL should be used
to cover the expenses of projects under SAP”.
Mr.
Dar’s claim that the amount was meant for PSDP is therefore
not correct. The issue turned serious when the missing of billions
was brought to the notice of the Chief Executive Secretariat.
The secretariat through letter No 689/Dy Dir(D.1)CES/2000 dated
September 27, 2000 asked the Secretary Planning Fazal Qureshi
to immediately submit a report on the bungling done by the Government
of Nawaz Sharif. When the Planning Division delayed the reply
a reminder was sent.
Once
the report was submitted by the Planning Division, it pointed
out to the CE Secretariat: “Under the agreement, borrower
(GOP) was required to deposit the equivalent in Pakistani rupees
in the Counterpart Fund which was opened with the SBP but only
Rs.10 million was deposited in the account against Rs. 11 billion."
Planning
Division further informed the CE Secretariat In October 1999 that
the Japanese donors had expressed concern over non utilization
of the Counterpart Fund under the loan amount for SAP.
In
the meanwhile, at a meeting held in Economic Affairs Division
(EAD) on 10.6.2000, the provinces raised hue and cry for non disbursement
of money to them under the OECF loan.
About
the issue of financial irregularities, the Planning Division Secretary
in the same letter said: “The Auditor General of Pakistan
has not been able to conduct financial audit of the accounts of
schemes, programs under Japan loan in compliance with the loan
agreement as Counterpart Fund for the project have not been provided
by the Finance Division”.
The
Planning Division report is enough to prove that Mr. Dar is trying
to divert the attention and cover up the matter. The report is
still lying with the CE secretariat.
The
Finance Ministry led by Mr. Dar tried to cover up the matter by
telling the provinces that they should consider the amount given
to them under PSDP (an altogether separate annual development
annual program which has nothing to do with SAP for which that
amount was given by Japan) as released from the Counterpart Fund
of the Japanese loan.
Upon
this Sohail Rehan, Project Manager Implementation (SAP) wrote
a note dated May 20, 1998 to the SAP Coordinator Dr Mushtaq Khan,
which said: “Ministry of Finance should be convinced that
the allocation to the provinces under PSDP from the OECF loan
should be over and above the PSDP allocation provided to the provinces
through budgetary mechanism. It would not be advisable to adjust
the provincial overall PSPD by this much amount. This may have
certain negative consequences… if the loan is adjusted against
PSDP, it would reduced GoP contribution in the SAP and again create
some problems at the time of reimbursement because of another
agreement signed with World Bank that envisage GoP ratio in the
SAP for 1998-99.”
He
further suggested that to avoid such instances these transfers
to provinces may be made out of foreign aid component for SAP
through making adjustment within given size of the foreign aid.
Mr.
Dar’s claim that the billions collected under the “Qarz
Utaro, Mulk Sanwaro” scheme were used for debt retirement
is also doubtful. Recently this issue was raised in the Public
Accounts Committee where the Finance Ministry was asked to give
details of how much money collected under the scheme had been
used for debt retirement. “Not a single penny”, came
the startling answer from the present Secretary Finance.
Mr.
Dar is also silent over the reported force used against the then
SAP chief, Mr. Qizilbash, by Captain Safdar, the son in law of
Prime Minister Nawaz Sharif and his political secretary Muthaq
Tahir Kheli. Mr. Qizilbash still tells his friends how he was
picked from his office and brought to the PM Secretariat where
he was made to help the PM and his Finance Minister.
