We agree with most of the issues raised in an article published on this page in yesterday's edition on the Stock Exchange by Khalil Ahmad. However, we feel it is premature on the part of the writer to put the blame for non-payment of claims on the Arbitration Committee of the Karachi Stock Exchange.
And highly unfair is it to call the mechanism a "corruption committee". Arbitration Committees in various bodies are meant for quick disposal of disputes. They are usually comprised of elected directors, and normally include persons who are knowledgeable about the intricacies of the trade disputes, being involved as they themselves are in the same trade.
This newspaper more than others in the media has played a watchdog role in the affairs of KSE for the last four decades. It has received numerous complaints in the form of letters, e-mails and articles. But none of them has ever complained that the KSE Arbitration Committee was biased or involved in any kind of moral turpitude.
Arbitration is a time consuming exercise and the directors who serve on it do not charge for the time given to it. Dispute resolution through arbitration is a vital function and needs to be continued. It deserves to be appreciated that the settlement and risk system at KSE has worked despite the steep fall in the Index.
However, after the placement of the floor cap on September 27th, both the Asset and Liability sides of the balance sheet have been frozen, whether it is of the brokers, mutual funds, development financial institutions or the investment banks. Government's plan to create a Rs 20 billion opportunity fund is yet to get going. And the Rs 30 billion "Put Option" scheme for overseas buyers of scrips in nine government entities does not make commercial sense.
Removal of the floor cap is dependent on Pakistan signing up with the International Monetary Fund. The real problem in the non-bank financial sector is not liquidity but solvency. Not only is the investors' confidence badly shaken, but the banks themselves are hesitant to lend to them.
The whole financial system has been severely mauled. The two financial regulators have failed not only to act in a timely co-ordinated fashion, but have been unsuccessful in providing the right advice to the government. The cost of any kind of rescue plan for the financial sector can only come from the tax payers. Therefore, parliamentary approval of the same would be necessary.
SBP, as a first step, needs to ascertain why the Rs 319 billion in additional liquidity has not overcome the paralysis in the credit market. Which banks despite getting the liquidity are still not lending and instead of lending are investing only in government paper?
It is unfair to expect the large banks to solely bear the brunt of credit demand. If others are not lending, then monetary tools must be used to give advantage to those who are lending in commodity operations, by lowering their SLR by 50 percent. Some kind of credit line or temporary credit guarantees to illiquid banks from SBP are needed instead of across the board guarantees for interbank lending from the government.
Due to the proposed agreement with the International Monetary Fund, the government cannot take on additional contingent liabilities. Failure to provide credit at reasonable price to trade and industry will lead to business closures and unemployment. An elected and responsible government can ill afford to allow this to happen. Restoration of financial stability and confidence is vital for the smooth functioning of the economy.
Comments
Comments are closed.