Forex dealer's arrest raises more questions than answers

Pakistan's action against one of the country's top foreign currency dealers raises more questions than it answers.

As Munaf Kalia, a director of Khanani and Kalia Foreign Exchange Company, along with three co-accused, faces the wrath of the law following his recent arrest, Pakistan's regulators-namely the central bank and to some extent the federal investigation agency have come in to action.

But the role of these regulators, notably the central bank, must be scrutinised. The suspected flight of capital from Pakistan for which Kalia is being held, began a good few months ago, only added to a depletion of foreign currency reserves.

While the individuals now in custody may well be guilty of facilitating flight of foreign capital from Pakistan, the role of some in power, notably the authorities responsible for oversight on such matters, must be central to a scrutiny.

Under Pakistani law, it is the responsibility of the central bank which is known as the State Bank of Pakistan, to monitor activities of money changers. Was the central bank caught unawares while a crime was being committed under its very nose? The circumstantial evidence seems to indicate affirmative answer.

An accelerated flight of capital from Pakistan has been the case for a good part of this year since some key government leaders were first quoted to have predicted the economic meltdown.

No government can predict doom and gloom and still expect certainty to prevail as far as the circumstances at hand are concerned. The government itself must accept responsibility for having provoked a situation which led to added uncertainty that then prompted many armed with substantial wealth to seek destinations outside the country.

The flight of capital, which took place, all happened for a good reason.

To that extent, the onus of responsibility must be shared by the government for its failure to curb the emerging trend and to curb the outflow of foreign exchange. The prevailing conditions in Pakistan today may have been tackled relatively better without such flight of capital taking place in the first instance.

Taking the central bank to task for what appears to be at the very least a bit of delayed action, must also involve taking apart and scrutinising the various levels of the central bank where decisions relevant to this sorry situation took place.

This is absolutely essential to avoid future crisis of a similar kind, in a country which can ill-afford such difficult situations. Pakistan's long term economic prosperity lies in its ability not just to meet such challenges but in fact in pre-empting them as much as possible.

Irresponsible

For too long, Pakistan has lived under governments that have taken it upon themselves to be irresponsible and short sighted. The circumstances the country faces clearly demonstrate an element of both of these sorry trends.

As for future action, the money changers found guilty should be punished. Equally if not more culpable are the very officials whose job it was to closely monitor the money changers. It is clear that such official networks failed to live up to their responsibilities.

Once this sorry episode is brought closer to resolution, it is also vital that the broad Pakistani public must be made aware of the challenges surrounding the business of money changing.

For too long, such businesses have flourished and Pakistanis have been endowed with the opportunity to easily make transactions between their rupees and foreign currencies and vice versa. But to date, little has been done to educate the public at large.

The writer is a journalist based in Islamabad.