By Eric Ellis
Euromoney’s correspondent has spent more than two decades navigating Asia’s often fathomless vagaries. But this was an exceptional experience. Having been lured to the most dangerous city – Karachi – of one of the world’s most dangerous countries – Pakistan – to interview the governor of the central bank we found that he had resigned as we sat in his office preparing to interview him.
That was the scene June 3 in the State Bank of Pakistan building in downtown Karachi as Euromoney was ushered in to meet the governor, veteran banker Syed Salim Raza, for a long-promised meeting.
We arrived early for the 10 a.m. appointment, and all seemed in order. Our bona fides were included in the all-important book at the SBP’s imposing front gate that marks Karachi’s II Chundrigar Road as Pakistan’s Wall Street, a bustling thoroughfare that has been targeted by terrorists in recent years. Waved through the bomb-proof bollards by heavily bearded guards, we made our way inside the compound, running the chaotic gauntlet of touts, currency-wallahs and scrip-dealers who crowd around the SBP’s office, flanked by the offices of Pakistan’s leading commercial banks.
As we were ushered into Raza’s plush suite of offices by his aides, various SBP hangers-on fussed around to make us comfortable, plying us with tea, cakes, sweets and Pakistani hospitality. We then realized we didn’t have a copy of the advance questions requested last week by the bank’s PR department. Raza’s secretary emerged from his office, smiling to greet us and we asked if she could kindly photocopy the email of questions previously sent to her. The answer was unexpected.
“It won’t be necessary to copy your questions, Mr Ellis, because the governor has just resigned,” she said. Resigned? Raza was barely halfway through his basic three-year term, after taking over in February last year from the well-regarded “Iron Lady” Shamshad Akhtar, who left to join the World Bank in Washington.
The bank’s public relations manager, Syed Wasimuddin – the one who had done the inviting – looked on sheepishly as Raza's secretary explained that Raza had submitted his resignation on May 6, almost a month earlier, and that deputy governor Yaseen Anwar had stepped in as acting governor. As Pakistan’s stock and currency markets took in the news, the two men – Raza the now ex-governor and his successor Yaseen – were standing metres away, exchanging power.
Given that Raza had offered his resignation nearly a month ago, we asked Wasimuddin why hadn’t he told us earlier that this interview would not be happening. We appreciated, we told him, that he could not have told us that the governor had resigned but at the very least he could have postponed our meeting until things had become clearer internally. A mid-level PR official, Wasimuddin didn’t answer, because he couldn’t in the complex politics of the moment.
So what had happened? Raza’s younger brother, Syed Ali Raza, the chief executive of state-owned National Bank of Pakistan, told us his elder brother had a “bad back that had troubled him for a while”. Although the governor’s departure was well ahead of the end of his contract, Syed Ali Raza assured us that his brother wasn’t pushed out by the government, this as he also assured us there were “very significant official walls between” the two siblings when it came to discussing matters of state.
Raza’s departure comes at a difficult time for Pakistan. The country is three days away from announcing its 2010 Budget, and bankers here gossip about long-running tensions between Raza and his masters in Islamabad, notably president Asif Ali Zardari and his finance “adviser”, Abdul Hafeez Shaikh. Pakistan’s shaky economy has been without a formal finance minister since the shock resignation in February of Shaukat Tarin. Credit rating agency Moody’s said Raza’s resignation was another indication of Pakistan’s political unpredictability since the country’s wobbly restoration of democracy in February 2008 after a decade of military rule – and a boom economy – under former president Pervez Musharaf.
Pakistan, which is regarded as one of the world’s most corrupt countries, is under considerable pressure from the IMF to reform its economy, as it wages an internal war against Islamist extremists moving between its northern borders with neighbouring Afghanistan. After years of being propped up by US military aid, the country got a $11 billion emergency bailout in November 2008 from the IMF, in return for a promise to institute deep reforms in the economy. Governor Raza had been intimately involved in negotiations with the IMF to implement the reforms. The IMF wants Pakistan to increase its tax take, institute a consumer value-added tax, and increase revenues from state utilities, long one of the key vehicles of political patronage.
One banker said Raza’s evocation of “personal reasons” as the factor in his unexpected departure was to mask a power struggle within the government for control of the economy. A key moment seems to have come earlier this week when the SBP issued a report that painted a bleak portrait of the economy under this government, citing concerns for inflation while recommending the politically unpopular imposition of a VAT so long as receipts were not “misused”.
Markets have discounted Raza’s influence for some time and took his resignation in their stride. Standard & Poor's analyst Agost Benard told Reuters that his departure “does not fundamentally change anything... there are many other sources of anxiety that investors would focus on”.
Benard added: “The deciding factor is still whether the fiscal and other reforms that the country has committed to with the IMF are being implemented and whether Pakistan can remain on track.”