MR.SHOUKAT AZIZ EXPECTATIONS FROM PAKISTANIES

[Ehrar_ACMA]

The new efforts made by The Finance mister (FM), Mr. Shoukat Aziz is to develope capital market to build the confidence of local & foreign investor, bring forx , etc.

It is very positve sign for the economy of a country if its capital market is developed. For this pupose FM introduces many changes in local laws & new laws as well e.g CCG, law relating to money changers, square the Stosk exchange amount etc.

On the other side FM reduces the rate from investment schemes e.g DSS, SSD, bank rate of return . The aim is to provide a divergent from risk free return to risky return.This is a good step being a professinalist, definetly it will increase capital market when nation has nothihng to invest any where except in stock.

But on the other side FM did not care what ever the problem is being faced by general public. The major affectees of this policy are retired/viodows/ pensioners/ disabled persons who were just eating from what ever return they were getting from NSS(That was 16%p.a before). They are totaly dependent on their funds that received on their retirement.As per their situation these investors will go for risk free high return because they invest to eat not to earn.

On average basis if a person receives Rs 1 million as a retirement fund it means he is getting now Rs 60,000 annually & Rs 5,000 monthly ( net 6% p.a.).While he was getting Rs 13,333 monthly before (16%).
If u consider the current situation in comparision, Is it possible for a person to live in Rs 5,000 monthly with his wife and education of a son(More conservative)? Becoz in pakistan after 25 yrs average guy starts his job after education.

Does it justify to develope capital market at the cost of poverty..?

Now they have two choices. One to start personal business another to play in shares.

First of all they will not go to do either of the things becoz as i have told u, they invest to eat not to earn & in this situation they will act as risk averse.

Now our master mind FM thinks they should come into Capital Market Operation(CMO) to earn money and he will provide healthy market.

Rationally 80% of them even dont know the exact meaning of shares & trading in stock exchange. Now FM expect from them to learn all about the CMO at this stage to play with the only money they have.

Now tell me is it possible to do this job..? (after 58 yrs as a normal retirement age)

What about disabled /vidowers.....?

Ok. If some one knows CMO being a commerce professional .who can give guaranttee that he will earn.....? Many persons who knows ,.even are the Lion of CMO , get losses or even insolvency...
How FM expect to earn from them.....?

Another thing , Every rational knows trading in stock exchanges of pakistan. There is a group who operate & control the market. I would like to quote you practicle example. in KES 100 index if the share price of Hub power decrease Rs 2.00 then index also decreases from 5 to 10 as it is the major part of the indexual companies.

During the fight of USA vs Iraq , every stock exchane in the asia & USA were showing down fall but opposite was there in Pakistan.
Hub power share decresed by RS 10 still there was increasing trend in index ok KES
Do u think it is fair ....place to play for these people...?

AS per the desire of FM index cross 3000 points..then after there is some actuall movements but not more than 30%.

Apparently he has given relaxation Rs 900 per month return on one lac for widowers .Now a laddy is widow .ok. definetly she will have at least on child being a conservative ...Can she live within Rs 5,000 per month . Frankly speaking Rs 3000 is minimum monthly bus fair for a student.
Why FM does not think about these people.?
Even there are so many ways to develope CMO.
I suggest there should be inclusion of such provisions in monetary policy & in IT ordiance that should provide relaxation after 58 years of age to the tax payer as a senior citizen..and other provisions realted to widowers & disable

Another joke in IT ordinance
Senior citizen age is after 70 yrs ( Ab jaan chooti Tax say kaafi had tak)
while the retirement age is 58 yrs. ( Laikin retire is age main kiyoon 70 main hi kero phir)

Our Fm expectation is more from every pakistani even after retirement.



Kh. Ehrar Hasan

[sumaaan]

Interesting.

[Pervez]

Hi Brother Ehrar!
Looks like u have plenty of free time at office to post something so lengthy! Anyway, the observations were interesting but,unfortunately, almost one dimentional! U will ask how! I will tell u (don't mind if i am a bit probing at times, it is just to add some spice in the argument, nothing personal!) Ever heard of a term called 'dependency graph'. If u have read the Economist magazine a few weeks back, it had an interesting article on it. This graph represents population < 17 and >60. These are poeple who are not in active employment and are dependent on others or their pensions. Interestingly, in western world, this dependency graph has an upward slope, whereas in developing countries, it has downward slope. It means in developing countries, there are more young people who are entering the job market than those who are retiring. This is the case with Pakistan as well.
So u have presented the case from a retiree's point of view, what about those young people who are entering job markets or are already under-employed or unemployed? Don't we need growth and investments for these people.
As far as forcing people to take risk in the capital markets. Nobody expects or even hope that individuals should directly be involved in these markets on their own. That is where the role of a portfolio manager comes in. He determines what is the risk-return utility of an individual, taken into a/c a number of factors(age is one of them)
Then these professionals like urself give constant advice to these people. Now this may raise the question of costs involved. Look if we develop the markets fully and with our talented and plentyfull workforce, we should be able to afford these services at reasonable price.
As for determining the interest rate that ur money should earn on fixed investment, this should be decided by market forces not by any central authority. If we pay artifically high interest rates (16% on fds is 4 times as high as in a developed country) then where can u put this money to use. Of course, whoever is paying this rate has to earn some margin on it to lend. That means that the loans which these institutes give out have to be charged higher than 16% interest. This lending rate is way too high for start up companies. Higher interest rates are a big hurdle for economic growth. As u know current Fed Rates are 40 years low in US (around 1%) and they are willing to cut even further if economy stalls. The only other way i see is govt schemes where govt. gurantees this rate, which are basically handouts and every citizen bears the burden of such schemes.
As for the control of a few groups on our market. There i agree with u a 100%. The number one problem is Demutualization of our stock exchanges (currently these exchanges are not run by public companies)past chairman of SECP (Mr Mirza) has raised his voice in this direction. Of course he had abstained from forcing his opinion on current exchanges.
The other aspect is a wider involvement of general public in investing(not speculation). Currently 48% of US households own stocks in one form or the other. In our country, this is considered either a game or too technical (only institutal investors can get involved). This has to change. More bright professionals like yourself should be involved in it. More research should be carried on different companies. I tell u there is no harm in learning even from our enemies(obviously i am referring to India) in this respect. I was simply amazed how much information about Indian companies u can get on internet. And they are not some rich first world economic power. But they are producing more information Samurais (the latest "in" word) than anyother country in the world! Amazing and they don't even look different than us!!!!!
The sooner we discard this image of a stock broker as a pawn-chewing,
beree-puffing, chapal-wearing character from Bolton market, the better off we will be.
I think i will take a break at this stage and come to this topic again.
In the meantime, thank u for starting this topic.
Regards




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[Ehrar_ACMA]

Hi Friends

Thanks Mr Sumaaan and Mr Pervez. Actually I never use internet in office(Bank) other than office work. I have cable net in my home and daily i check mail after few hrs studies of CIMA.

The other side pointed by you is very imortant for an economy but you did not go in deep. The interest rate should be low for lending & investment point of view, I agree with u but my point is what about the retired & old persons. If there is certain provision in tax law for these peoples keeping interest rate & other things remain the same then ..? What will happen, they will be relaxed to fight against povert & inflation.

As far as quantity is concern , if you go through the ecnomic events from 1995 & on ward (GHS)Golden shake Hand (Vouluntry retirement scheme) was introduced by the government . Under this scheme many persons have been retired. On the contrary many financial institutions has been wound up after giving GHS.

Few are as under
Banker equity Limited (closed) ICP(Closed), PIDC(CLosed), Mehran Bank (Closed),American express Bank(Took over). Philips (Down sized, 5000 employees),Platinium commercial Bank(Took over by KASBB) UBL(took over by ALfalah gp)ABL(is in process of Privitization), PSo is in process, Pak railway in process, PIA( down sized) etc

These all had/have many branches that either has been closed or going to be or Down sized. In all the case they all have been given GHS. This is the policy adopted by Privitization Commission (PC) as per intructions given by our FM. But why he did not think on the contrary if he is economist.

After the event of Sep 11, US govt. support all companies to struggle at possible extent.They think on the contrary.. Why our FM does n't...?

As far as FUnd managers are concern, What they will earn from Stock ..what a fund manager can do..? ok If he gives return but when after one year, or IS it poosible to get capital gain ...Why dont you think itis very risky ,painful and stressful job my dear. OK. try ur self if you registered with any broker for trading ..Do u know how many phone calls they do in a day or in an hour..?

They all agent they need commission on trading just ..Most of these are siple graduates orInter or masters as see the dwan u will find an add every sunday from Harvest . They give then title business executives after one month formal training do u think that training is enough no..no..nor fair for old men by FM.

DO u agree..?

Thanks








Kh. Ehrar Hasan

[Pervez]

<b>Dear Ehrar!</b>
Let us go to second stage of the debate. I will shed some light on each one of the main points u raised.
<font color=red>Retirees' Problems</font id=red>
So according to ur analysis, we have two types of retirees one that has reached their natural retirement lives and the others who r forced to take early retirment. Remind u that some of them may still be willing and able to work if they can find something. Now this problem of people having to let go becuase the company is privatized or down sized is not exactly current regime's fault. These people should not be there in the first place. Most of them were hired due to political pressures. I know many towns and even cities that depend on Railways. Railways hire a lot of unemployed people just becuase it is a way to sustain the economies of these small places. But my problem is that this practice is not economically viable neither sustainable.
How do u think we brought the country to the brink of bankruptcy? The govt just spent what it never had. It had to borrow beyond its means, and one day the lenders came knocking on the doors. So i am not against giving tax breaks to retirees. If they have no source of income other than their retirement funds, than tax thershold should be higher for these people. But for the govt. to gurantee them a certain rate of interest make no sense. Ok if a fund manager cann't generate a good return for his clients, where do u think the govt. is going to get that return? U guessed it right IMF and the begging bowl.
<font color=red>Why the privatization and downsizing and what govt can do</font id=red>
I can assure u there is not a single well-known economist in the free world, who will disagree with this process. Govts are not meant to be in the business of running companies. Capitalist society is run by private sector and any other experience has failed. We went on this foolish path of nationalizing private enterprises in 70s and lost 30 years of opportunities. Look Korea become independent with us and they borrowed our first five year plan(courtesy late Dr. Mehboobul Haq). Today compare Korea with Pakistan.I don't have to say any more in this respect.
Some of the companies u named UBL,ABL,PIA,KESE. These used to be thriving businesses once upon a time. Then Govt. put its nose where it didnot belong. These companies were left with bare bones. I am even surpised that private sector is still interested in them. If the executives and management of these firms have any dignity they should resign and hide themselves from shame.
Privatization would result in temporary displacement for workers. But believe me those who are capable and were hired on merit will find an alternate. But those who were brought in on quota system my suggestion to them is either change with the times or go back and start farming what is wrong with that.
<font color=red>State of investment management industry</font id=red>
We need standards in this industry just as in other professional fields in our country. But look it has only been a few years since we are out of those dark ages of Bibi and Baba. The private sector is beginning to breath again. If we can reduce our debt burden faster, probably, we can devote some resources on regulation of investment industry. So long as we are on the right path that is what matters. U know how long it took to build ROME?
<font color=red>Other matters</font id=red>
Your refernce to US govt's help after 9/11 is not accurate. The only changes they made are in taxation of dividends and reduction of tax rates for high income individuals. In fact most states are in very poor financial shape and Fed Govt. has not given them any support.
If u have any other information then i will be glad to share it with you.
Regards and we will meet again.


Edited by - Pervez on Aug 03 2003 040303 AM