Finance minister of the year 2001: Shaukat Aziz, Pakistan


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If ever a finance minister was in the firing line, Shaukat Aziz is that man. The 30-year veteran of Citibank is saddled with the task of selling yet another military government in Pakistan to a sceptical international investor community.

Shaukat Aziz faces the considerable challenge of rebuilding an economy that, in his own words, was in "a pretty bleak situation" when Pervez Musharraf staged his bloodless coup. When the general seized power in October 1999, all the talk was of default and isolation and a total breakdown in expenditure controls and relationships with bilateral and multilateral donor agencies.

It is just as well that Aziz radiates the demeanour of a man who remains calm under fire. On one flank he is confronted by the IMF demanding deep structural reforms and economic progress before agreeing to move on from standby loans to a critical $1.5 billion medium-term poverty reduction and growth facility (PRGF). At the same time Aziz has to fend off attacks at home from sections of the press, heady with a new freedom from censorship, stirring up criticism of the man they accuse of setting out with his begging bowl for loans for a nation already overburdened with external debt.

Aziz shrugs aside these populist attacks and has instead focused his efforts on the challenges confronting one of Asia's most ramshackle economies. Moreover, with the radical reforms he has initiated, Aziz is optimistic the PRGF is likely to be the last funding Pakistan will seek from the IMF. The 52-year-old banker is adamant that Pakistan should abandon its history of borrowing for consumption. To this end he plans to introduce a financial responsibility law to discourage incurring debt for consumption.

"Pakistan's situation was such that it needed once and for all a fundamental tackling of the basic issues," says Aziz, shortly after announcing his Budget for the 2001-02 financial year. Aziz has set a target of 4.5% GDP growth for the current fiscal period, almost double what Pakistan achieved last year. This perhaps has something to do with the risk-savvy banker coming to the fore. Last year's growth suffered largely because of a severe drought that hit agricultural output hard. "We anticipate agriculture to grow normally in this financial year," he says. "God has been kind as rains have already started to provide necessary irrigation water."

Aziz's palatial Karachi villa conveys the air of an office annexe. The house hums with the bustle of secretaries rushing in and out with stacks of papers and cups of tea as Aziz prepares for an official visit to China.

"The first task was to put our house in order and to accomplish this we initiated a major programme of structural reform to provide a sustainable basis for building Pakistan's economy," he says. "Now we face the challenge of achieving growth."

His first step was to stabilize the economy through measures such as the liberalization of the rupee exchange rate and by building up the treasury's depleted reserves, which now stand at $3.2 billion. Aziz ensured that with a more comfortable foreign exchange reserve position the country was current on all its payments.

It helps to have the backing of the people in charge, which in this case is the army. This enabled Aziz, for the first time in the country's history, to announce a freeze on civil government and defence spending under the budget announced in June. "This means a decline in real terms," he says. Aziz lived up to his promise to make it an investor-friendly budget aimed particularly at restoring investor confidence from abroad.

There will be an ordinance for the protection of foreign currency deposits, a law targeted at limiting the government's access to borrowing for current expenditure and a package of incentives designed to encourage investment flows. Aziz hopes that a number of budgetary measures, including a three-year capital gains tax exemption, tax breaks on equity investments and preferential tax treatment of dividend income for the insurance sector, will attract long-term capital flows to the equity market.

Aziz is keen to allay investors' fears over a Supreme Court ruling on the introduction of Islamic banking. He and his colleagues were able to strong-arm the judges into granting a one-year extension on the deadline that was meant to have taken effect in June. This could have a devastating effect on the government debt market as most products lack the underlying asset transaction required under Shariah law.

Aziz knows his way through the maze of Islamic banking, having worked as Citibank's head of corporate and investment banking for the Middle East and managing director of Saudi American Bank, as well as country manager for Citibank in Malaysia. "Wherever we can adapt to financing on Islamic principles we will do so," he says. "It is important to bear in mind that the decisions of the Supreme Court do not affect foreign transactions. We are studying systems of other countries such as Saudi Arabia, Malaysia and Egypt to see how we can evolve to a system that meets the needs of all our constituents and that does not prevent us from benefiting from globalization and links with other countries."

As finance minister, Aziz is ubiquitously involved at the sharp end of policy and planning. Few nooks and crannies of the country's economy elude his direct control. The hats he wears include that of chairman of the economic co-ordination committee of the cabinet, the cabinet committee on investment, the national economic council's executive committee and the cabinet committee on privatization.

"He has a clear cut and determined idea of how he wants things to be run," says a government colleague. "In his quiet way, Aziz is almost single-handedly staging an economic revolution."

Aziz considers himself above all a realist with a deep-rooted faith in long-termism. "Reform and change are painful, but if we don't do that we'll be back to the days of the past where there was a lot of ad hocism and expediency as a driver of decisions, rather than doing what's good for the economy in the long run," he says. "The government has been saddled with this task. I believe that as a result of our efforts we will bequeath a strong economy to this and future generations."