Rehman Malik has, yet again, emerged as the man most visible on our television screens and our front pages in recent days in true political mode. His critics allege that his love for publicity knows no bounds; grapes are sour he may well reply as unlike the other politicians he has a one man constituency: President Asif Ali Zardari.
The rest of the country, however, does not appear to be as enamoured of Rehman Malik, attributed to a number of blatant faux pas ranging from his silence on a major issue one day followed by irrefutable proof of his complicity the next. Examples are the explosive revelation by the ANP leader that his request for a delay in the bye-elections where Shahbaz Sharif was to be a candidate was at Rehman Malik's request. Then there was the matter of bringing ISI under his purview - a decision that the government reversed amidst much embarrassment.
Malik has invariably ignored all allegations made against him and instead would justify his frequent appearances on the media on the grounds of visible success in dealing with corruption and terrorism in all its manifestations. The most recent manifestation of corruption was, according to Rehman Malik, could be seen in the arrest of the powerful Khanani and Kalia, representing the single largest foreign exchange company operating in the country accounting for 40 percent of the entire foreign exchange business in Pakistan.
One computer alone has revealed the outflow of 39 billion rupees, so claims the Advisor to the Prime Minister on Interior - peanuts for many of our politicians, retired generals and bureaucrats, as well as non-elected advisors the general public has been muttering about in surveys and interviews.
Implicit in the FIA allegation against Khanani and Kalia is the fact that monitoring of this 'illegal' activity was, supposedly, under the purview of the National Accountability Bureau (NAB), an arm of the government that ostensibly was engaged in a witch hunt against the PPP and PML (N) high commands when in exile. Thus in one fell swoop Rehman Malik has killed three birds, or so he believes: discredited NAB further, laid the blame for the delay in apprehending those sending money abroad through the hawala system on the State Bank's ineffective monitoring whose Governor's tenure is not expected to be extended, and tried to divert people's attention away from Pakistan going on the IMF programme which the government had been at pains to state earlier that they would not entertain.
A visibly charged Malik said on the floor of the House that Khanani and Kalia were engaged in illegal activity and that no one will be allowed to run a parallel banking system and thereby harm the economy. This time around he had quite a few people agreeing with him. The public anger against those who have shifted their wealth out of the country through the hawala system runs deep. Money outflow is being cited as the main reason for the low foreign exchange reserves as well as the declining rupee dollar parity which is forcing the government, or so we are told, to go on the IMF programme with all its accompanying harsh conditionalities.
Television anchors and newspapers are at pains to determine whether this particular activity, ie sending money abroad without informing the State Bank, is legal or not? Rehman Malik obviously considers it is not; the State Bank issued its own statement saying that it has no enforcement capacity. Without going into the details of if and when the 1947 Foreign Exchange Act was amended, or whether the subsequent PERA 1992 amendments over ride the 1947 Act, or whether a secret notification that made this activity illegal was issued that, according to a newspaper report, no one knew about, the fact remains that laws, by themselves, are not implementable.
Take the case of the Pennsylvania Liquor Control Board set up a long time ago in the wake of the 21st amendment to the US Constitution (1933) and the end of Prohibition. The outcome: Pennsylvania has the strictest licensing laws making it more costly to not only buy but also sell liquor. The markets response has been simple: licensed restaurants allow the customers to bring in their own and do not charge corkage like in restaurants in other states.
On the floor of the House Hina Rabbani Khar, Minister of State for Finance stated that she had requested clarification on the news story from the Ministry. Her numerous detractors, belonging to the (Q) league as well as those PPP stalwarts jealous of the renewal of her assignment by their leadership, would, without doubt, allege that as an integral component of the Shaukat Aziz era, her claim to lack of information shows incompetence at best and lack of integrity at worst. Be that as it may it may simply be a case of the right hand of government not knowing what the left hand was doing. The motive however for this secrecy is not apparent in this case.
So what is the true picture? And was FIA action merited? Few doubt the fact that the company was involved in hawala. At the same time few economists/analysts would support the FIA action. The reason is simple: hawala system can not be eradicated by decree alone, or by the promulgation of laws or by arresting a handful involved in the activity. As long as there is a demand for hawala there will be hawaladars willing to take the risk of undertaking the activity, however arduous the punishment, if caught.
What the government needs to do is to take away the demand ie customers of the hawala system. That can be done by plugging the tax loopholes and creating the right economic climate to attract investment and arrest the deterioration in our macroeconomic conditions. The true culprits for the continuation of hawala may not be the hawaladars who are merely taking advantage of the situation but an inept government unable to provide stability to the economy.
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