20000331

International central banking course organised

RECORDER REPORT

ISLAMABAD: Supervisory and regulatory mechanism for short-term capital inflow is essential to ward off any financial reversals in developing countries, this was stated by a senior economist Dr Aleem Mahmood at a banking seminar here on Thursday.

Addressing the participants of an international central banking course organised by the State Bank of Pakistan, on lessons of economic and financial crisis in East for the developing countries, Dr Aleem Mahmood said the short-term capital should be chased and watched. Its induction in the capital market is particularly baneful as when the going is good, it mops up profits and flees at the earliest if there is negative signal.

Dr Mahmood, Additional Secretary, Economic Affairs Division, cited the example of Malaysia, which has clamped tax if the capital stays for less than one year and eases the rate gradually for higher time spans. At the time of crisis, the East Asian countries were vulnerable to such hit and run tactics.

Speaking about the experience of banking sector in the country, he said that its size and strength depended on the quality of supervisory mechanism. The crash of Mehran Bank, Bankers Equity Limited (BEL), etc brought the issue to the fore.

Dr Aleem Mahmood said that the State Bank of Pakistan has hired the services of foreign consultants Arthur Henderson to study the issue. The performa are being simplified and the supervisory role is being streamlined. A good number of foreign qualified MBAs are being associated with the project.

He did not favour premature liberalisation of capital account and said that short-term credit should not be utilised for long-term projects as it created a clear mismatch of maturity leading to difficulties.

Giving figures of short-term debt, he said that in Pakistan it amounted to $2.816 billion. Its ratio to exports is 0.24, ratio to GNP is 0.24 and to reserves with the State Bank are 5.4. In India, the short-term debt amounts to $6.726 billion. Its ratio with exports is 0.13, with GNP 0.02 and with foreign reserves 0.33.

He said short-term credit adds to economic vulnerability and macroeconomic distortions if not properly harnessed and supervised.