No professional can oppose the idea of privatisation to lead economic growth.
KARACHI: This is with reference to your news item “Economic liberalism: IBA dean delivers strong defence of privatisation” (September 14). The news item talked about Dr Ishrat Hussain’s philosophy that supports privatisation as a means of economic growth. I would like to comment on Dr Hussain’s philosophy.
No professional can oppose the idea of privatisation to lead economic growth. Undoubtedly, private entrepreneurs can induce growth and foster competition through efficient use of resources, which creates more jobs. However, privatisation of government enterprises, without an appropriate regulatory framework and oversight mechanism, leads to cartelisation. We have the example of the banking industry, where a few banks have created a cartel to deny returns to depositors. This was revealed by an economist who is also an ex-governor of the State Bank of Pakistan, in an interview taken by Mr Nadeem Malik for a private TV channel in August 2007. Her statement was further supplemented by the huge penalties imposed by the Competition Commission of Pakistan on the banking cartel. The case is still pending with a high court.
The spread, which is the difference between the mark-up charged by banks and the rate of return paid to depositors is at eight per cent, which is among the highest in the world. Before privatisation, the government had to incur losses, mainly due to the high level of non-performing loans. Now these losses are being incurred by the poor depositors. The spread earned by banks is one of the major reasons for the increase in the profitability of banks.
Muhammed Saleem Rehmani
Published in The Express Tribune, September 18th, 2012.
