The suspense mounted as 16 November drew near. A month earlier, the new military ruler of Pakistan, Gen Pervez Musharraf, had warned all "willful" loan defaulters to repay their debts back to the banks by that date or face the consequences. The build-up to mid-November was marked by daily countdowns in newspapers and TV, and advertised warnings. But when the day came around, the defaulters had returned only 10 billion rupees out of the total colossal figure of PKR 211 billion (USD 1 = PKR 50 approx).

The expectation was that the army would crack down heavily on those who didn't pay back. And some fantasies did come true, with the people getting to see some bigwigs being rounded up; 35 of the top defaulters are now in custody, joining the company of fellow defaulter, former prime minister Nawaz Sharif.

As a symbolic gesture, the arrests were significant as many of those detained represent some of the most influential families in Pakistan, and the nabbing of a retired air marshal sent out the message that even armed forces personnel (albeit retired) would not be spared. Meanwhile, another former prime minister, Benazir Bhutto, wanted in cases of corruption, was declared a fugitive from justice.

Loan defaults have been a highly emotional issue in Pakistan since 1988, when parliamentary democracy was restored to Pakistan with the death of military dictator Zia-ul Haq in a mid-air explosion. Using their new-found freedom, journalists began reporting how top politicians and businessmen connived with bureaucrats and bank officials to plunder people's savings from nationalised banks in the name of loans that they never paid back, and which were often ultimately written off.

Loans were taken out in the names of benami companies, which didn't really exist, or in the names of those who came to called "frontmen", with no intentions of repaying. Officially, out of the net 211 billion unrecovered loan, 100 billion has to be paid back by 322 families or groups. "The bulk of them are what we call willful defaulters," says Zubyr Soomro, president of a nationalised bank. "It [default] was not because of genuine business reasons. They had no intention of paying back the money."

As pressure mounted on the government to act against the "Loan Mafia", the Nawaz Sharif government launched two schemes to recover the money during its second tenure (from 1997 till his ouster in October earlier this year). Under the first scheme, defaulters were offered generous incentives to entice them to repay. Those who had defaulted over a longer period of time, however, were offered a better deal; they were only required to pay a fraction of what they had borrowed. Nothing much was achieved, and when the expected dead end was reached, all that the government could show by way of recovery was about 11 billion rupees, out of which only around 5 billion were in cash; the rest comprised rescheduled loans.

The second scheme, aimed at taking strict legal action against the non-payers collapsed even before it began. Under this scheme, some of the offenders, including Nawaz Sharif, was put under a new category, of those who had "engineered default". As law minister Khalid Anwar explained it, "Default was engineered for political reasons by suddenly with drawing banking facilities from companies which were not defaulters, which were making repayments as per schedule." Thus, instead of repaying, these "engineered defaulters" served damage suits for "artificially and illegally engineering defaults".

For his part, Sharif went on television and offered repayment by handing over his loss-making industries to the banks. This was nothing more than a hoax because the property had been over-valued in the first place. Also, he was seeking to repay only his portion of the amount out of the net default incurred by his family's business empire. But more recently, after the prime minister's arrest, his family cleared PKR 270 million that their Ramzan Sugar Mills owed to the Habib Bank Limited.

While the military's present drive has not been all that successful, it is still talking tough. It has put some 5000 persons on the Exit Control List, and says that more arrests will be made, and the loans recovered in any case. According to Interior Minister Gen (retd) Moeenuddin Haider, action has been taken against 1939 "willful" defaulters, each of whom have to pay back PKR 100 million and above.

Loan defaults, however, are not the only main ills plaguing Pakistan's economy. If the economy has to be truly revived as per the military's declared intentions after it took over on 12 October, other than the relatively easy task of recovering loans, the authorities have to crack down on all kinds of corruption, including the graft that went into huge 'development' projects. That is the real challenge facing the army now.

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Himal Southasian