London reaps benefits from Pakistan’s flight of capital

Billions of dollars flying out of Pakistan, due to growing fears of terrorism and worsening economic situation, came to be a boon for London’s slumped property market. A number of projects, worth millions of dollars, proposed to be set up in Pakistan by its expatriate community were kept on long hold as they adopted a `wait and see’ policy and the money is diverted to acquisition of property in the UK.

According to property dealers here in London, Pakistani politicians and military officers have been investing in areas around the prestigious Park Lane and Mayfair in central part of the city, which are historically the most sought after areas for the rich and famous Pakistanis. Shortage of land in these areas has opened up adjoining residential districts, which are now being preferred to by many Pakistanis for investments and development. They feel that investments in the UK are safe bet than putting their money in Pakistan.

Mr. Rehman Malik, Advisor to the Prime Minister on Interior Affairs, stated in Gilgit on November 10 that the government has taken measures to prevent illegal transfer of funds abroad. Head of the country’s largest foreign exchange company, `Khanani and Kalia Interntional’, was arrested on charges of illegal transfer of billions of US dollars abroad. More than 10 billion dollars were reported to have been transferred by this company till October.

Pakistani official data shows that its foreign exchange reserves have fallen from $ 16.5 billion in October 2007 to 6.75 billion in November this year. While many Pakistanis living in the UK have commented that there is nothing wrong with investing where returns are safe and guaranteed, they agree that large amounts of cash are slipping out of Pakistan in transactions which are of questionable nature. Most of these deals have the involvement of politicians as well as senior military officers, who employ `reliable and dependable’ friends for such transactions and therefore raise suspicions as to the acquisition and depositing of this wealth.

Many of the observers felt that in the absence of a corporate structure in Pakistan handling international money transfers, the benefits are often reaped by underground operators. The State Bank of Pakistan is the licensing authority for money changers but it seems to have very little control over such illegal transfers. For instance, the State Bank issued orders in the month of May, 2008 to stop Exchange companies from sending cash abroad in foreign currencies like Dollars, Sterling, Euro and UAE Dirham in an effort to stabilize the local currency, Rupee, but the recent arrests of some of the `money changers’ show that the official measures had no effect and illegal transfers continued to be made.

Pakistani watchers claimed that when politicians and senior military officers themselves were involved, it is difficult for the Central Bank to do anything to stop this flight of capital.

Politicians and senior army generals siphoning off huge funds and buying property abroad is not a secret. British papers carried reports of President Zardari and slain former Prime Minister Benazir Bhutto owning palatial buildings in London, equipped with best polo courts. Many of the cases against him in Switzerland were dropped only recently. Another former Prime Minister Nawaz Sharif is also accused of mercurial rise through questionable means.

According to the report in Asia Week, quoting London-based Observer newspaper, the Sharif family acquired properties in London through two companies, Nescoll and Nielson Enterprises, registered in the British Virgin Islands and linked to a bank account in Lahore in the name of a fictitious person: Sulman Zia. The four flats in Avendale House in Park Lane are said to be worth at least £ 750,000, which worth millions of pounds.

Dr. Shahid Qureshi, a respected Pakistani journalist based in London, wrote in his recent article that Pakistanis’ wealth in foreign banks is estimated over $ 200 billion. Only 45 Pakistanis have deposited $ 23 billions in foreign banks. He quoted an analyst saying, “Zardari’s financial advisor Mr. Tareen, Shahid Javeed Burki, Shaukat Aziz, Salman Shah, Mian Mohamad Somor are the pimps of the international financial mafia”. The article mentioned that late Benzair Bhutto’s assets were worth more than $ 2 billion, according to Saifurahman and according to NAB the figures are around $1.2bn [£ 830m].

Qureshi stated that the military officers are no angels and are equally plundering the country at the cost of common people. “The personal wealth of Musharaf’s key generals is estimated at £3.5m a head. And Musharraf himself, who has a combined salary of £700 a month for his jobs as president and army chief, has acquired a real-estate portfolio worth £5m”, according to The Guardian’s report, “The plot to bring back Benazir” published on 21st July 2007.

Pakistan’s military today runs a huge commercial empire, writes noted columnist Ayesha Siddiqi in her recent book, “Pakistan’s Military Inc”. According to her, “This is a peculiar kind of military capital that is used for the personal benefit of the military fraternity, especially the officer cadre, but is neither recorded nor part of the defence budget… Since this military capital is hidden from the public, it is also referred to as the military’s internal economy…. Although it is not possible to give a definitive value of the military’s internal economy, because of thelack of transparency, the estimated worth runs into billions of dollars.”

The establishment of the Askari Commercial Bank (AWT) in 1992 was a major development designed by the Army to legalize such questionable funds and safely siphon them off to foreign accounts. Nawaz Sharif’s finance minister, Sirtaj Aziz, said that the bank was General Mirza Aslam Beg’s idea, says Ayesha Siddiqi. “An important question is that why the army thought of entering in the banking sector.” Experts like Peter Lock are of the notion that it is natural for militaries to enter the banking sector, especially for money laundering. According to the book, Pakistan’s Military Inc, “the timing of the establishment of the bank was certainly critical: the early 1990s was a time when rumors were afloat of a lot of drug and corruption-related money in the financial markets. The ballooning of the black market had, in fact, started under Zia and continued through the 1990s.”

In his book `Whiteout’, Alexander Cockburn , a columnist for the New York Times, accused a senior General of Zia army, General Fazle Haq, who was also the governor of the NWFP, of being part of the drugs trafficking racket. Another story appeared in Pakistani paper, `The Nation’ on 16 April1997 about the arrest of a PAF officer in New York on charges of heroin smuggling. It indicated that the officer and his accomplices had used a PAF transport aircraft. “What is certain is that the Askari Bank signified the army’s financial autonomy, as in other countries such as Thailand where a powerful military operates a bank as well,” according to Ayesha Siddiqi.

Hassan Abbas, a former police official who served in the National Accountability Bureau (NAB) during the early Musharraf regime, claims in his book Pakistan’s `Drift into Extremism’ that the NAB’s hands were tied in investigating the alleged corruption of senior military officers, such as Generals Aslam Beg, Hamid gul, Zahid Ali Akbar, Talat Masood, Saeed Qadir and Farrukh Khan, and Air Marshals Anwar Shamim and Abbas Khattak.

According to `Pakistan’s Military Inc’, “One of the key examples in Pakistan is private ventures like the Varan Transport Company. Owned by the daughter of the former head of the intelligence agency, ISI, Lt. Gen. (retd) Hamid Gul, the company is clear example of how a military-oreinted patronage system benefits its clients. Varan was given preferential access to bus routes between the twin cities of Islamabd and Rawalpindi, and the company’s management and drivers behaved with impunity.”

The economic effects of the latest `capital flight’ are already being strongly felt in Pakistan as inflation has increased and the Central Bank has been forced to increase the interest rates from 10 to 12 percent.

Some leading Pakistani businessmen in the UK felt that the environment in their country is les than conducive for doing business at present. According to them, law and order, growing terrorist menace, political uncertainties, corruption and economic downturns are just a few factors. The overall situation is of paranoia and fear and in such a situation, Pakistan is the last thing any investor would be interested in.

Meanwhile, both ethnic Pakistani and British construction companies in the UK are reaping all the benefits. The most attractive offers for average British Pakistanis are the housing schemes in major cities of the UK. Satellite TV channels, owned by ethnic Pakistanis, have been putting out attractive advertisements luring these investors with slogans like `higher margins for investments in London than in Lahore or Islamabad’.

Pakistani rich and elite have pushed the prices high in the prime localities like London Hyde Park, Bayswater and Sussex Garden, where it ranges from about 500,000 to many millions of Pounds a piece.

It is a tragedy that billions of dollars are finding their way out while remittances from expatriate community dried up leaving the foreign exchange reserves with State Bank of Pakistan reduced to only $ 5.4 billion at the beginning of November, 2008, according to economists.