How
Politically Motivated Decisions Caused Loss of Hundreds of Millions
to Investors
Special
SAT Report
ISLAMABAD: Economic managers of Pakistan have been using
all kinds of gimmicks to present a very bright picture of the country’s
economy to the people and SA Tribune has 
caught
them red handed in the middle of one such trick --- artificially
propping up the Stock Market--- which caused losses of hundreds
of millions of rupees to the tax payers and investors.
Documents
now available reveal that shortly before the cataclysmic events
of Sept 11, the economic managers were under so much pressure that
they were forced to use all means, fair or foul, to present a rosy
picture of their performance.
Since
the Stock Market was an easily identifiable barometer of the health
of the economy, they secretly decided to boost it by forcing government
owned financial institutions and funds to allocate a certain percentage
for investment in the capital market, irrespective of whether this
public money promised any dividends or not.
These
clever managers did not take this decision themselves but involved
General Pervez Musharraf, as Chief Executive. Being an army man
who knew very little about these economic gimmicks, General Musharraf
was on, August 13, 2001, made to preside over a meeting of these
government institutions, including State Life Insurance (SLIC),
National Investment Trust (NIT), National Bank (NBL), Habib Bank
(HBL) and Employees Old Age Benefit Institution (EOBI) and a highly
controversial decision to create a Rs. 3 billion (over US$ 50 million)
fund for pumping it into the Stock Market was taken.
While
some banks and SLIC tried to keep the newly created fund under their
own control, contrary to a “professional Fund Manager”
promised at the meeting, EOBI, which was under the late Labour Minister,
Omar Asghar Khan, was tagged with the NBL. EOBI was asked to contribute
Rs 1.7 billion from its Rs 40 billion portfolio of pension funds.
View Letter of Labour Ministry Page1
| Page2
All
these financial bodies keep people’s money in shape of investments
in policies, fixed deposits and other financial instruments. EOBI
carries pension funds of workers. The managers of these funds are
supposed to invest this money in secure avenues to ensure that a
dividend is paid in time and no losses are incurred. The government
order to pump in a huge amount in the Stock Exchange, when growth
was declining and the market was almost dead, was a recipe for a
total disaster at the expense of the depositors.
EOBI
Board of Trustees made some angry noises but no one listened to
them as none could stand up to the military government's decision.
But at least Omar Asghar Khan, in sheer desperation and anger, brought
their views on the record in the files. “The Board of Trustees
were of the opinion that the pension funds of the workers should
only be invested in the least risky investments, whereas, the investment
in Stock Market is volatile, speculative and unpredictable,”
he noted in the letter to the Finance Minister.
The
President of the Board of Trustees, the senior most bureaucrat of
the Labour Ministry, tried to explain that every care would be taken
not to incur losses, but a majority of the Board member rejected
the proposal to invest in the Stock Market. No one, however, listened.
By
October 2001, the EOBI had been forced to pump in over Rs 115 million
in the Stock Exchange although its Chairman kept on trying to persuade
the Finance Ministry that the target of Rs 1.7 billion was too high
and EOBI had no available cash to invest as most of its funds were
already invested in various securities and bonds.
On
October 25, 2001, the Chairman, who is also the Labour Secretary,
sent a signed letter to the Finance Ministry seeking lowering of
the target to Rs 500 million from Rs 1.7 billion. View
Letter Page1 | Page2
Millions
of rupees were artificially sunk by other financial institutions
in the Stock Exchange, under government orders, but as expected,
the market did not move because of the underlying weakness in the
economy.
The
economic managers thus caused losses to the tune of hundreds of
millions and ultimately the investors and the tax payers had to
pay for these politically motivated decisions.
