Investors upbeat about strong legal system

Pakistan's equity investors on Monday welcomed the return of Iftikhar Mohammad Chaudhry as chief justice of the supreme court, underlining business interests linked to stability of the legal system.

Share prices on the Karachi Stock Exchange (KSE) rose about five per cent, while business chambers across the country put out one statement after another, welcoming Chaudhry's return.

The upbeat mood in the stock market came just a day after one of the worst series of violence in Lahore, Pakistan's second largest city. There, protesters beat back riot policemen and caused destruction to private property.

By midnight on Sunday, the government of president Asif Ali Zardari had to give way to Chaudhry's return, as the only option to prevent the violence from spreading further. This primarily political event indeed has a strong economic and business dimension.

There are plenty of reasons, both short term and long term, for investors to be jubilant over a stronger legal system. In one of the most widely quoted examples during the past week, much damage has been caused to Pakistan's trucking business which is the lifeline of the country's business supply change.

As a crackdown progressed with the government making efforts to stop opposition activists and protesting lawyers from marching to Islamabad, up to 5,000 transport containers were confiscated. These containers were essentially used to block the roads which were to be used by the protesters.

Images of rotting supplies of fruit and vegetables made the rounds across the country on private TV channels. For businesses, it is impossible to assess the full scale of the damage. But that loss in itself must be considerable, which raises the fundamental question of a close link between periods of violence always causing damage to economic interest. A prolonged crisis without Chaudhry's return as chief justice would have mounted the losses further in the days to come.

However, there is a long-term interest for businesses too. Pakistan has one of the world's worst track records of enforcing contracts and agreements. There are innumerable instances of investors losing out because of a non supportive legal system. Chaudhry's return does not immediately change this non-conducive environment. But there is certain more optimism on this front.

Going forward at least two helpful trends are set to emerge from this development. On the one hand, the strengthening of the judicial environment must create the basis for the courts to become more independent over a period of time. For investors looking to resolve their disputes through courts, there is obviously now more hope than in the past when many investors simply failed to receive adequate legal help for their cause.

On the other hand, a stronger legal system is likely to prompt businesses more than before, to turn to the judicial system for support. In the past, many businesses have simply ignored turning to the courts, mainly because they had no faith in the legal system.

Pakistan must indeed learn lessons from other countries with strong legal systems. The capacity of such countries to attract larger investments is well established, which simply proves an obvious point. A strong economic environment can simply not be created without a strong legal system.

While Pakistan celebrates Chaudhry's return and goes forward, some element of relief may come sooner than expected. For long, successive Pakistani governments have simply disregarded the importance of the courts in cases where they are directly involved.

One such case was the privatisation of Pakistan's government owned large steel mill in Karachi. Chaudhry to his credit reversed that privatisation in a widely publicised verdict, proving the point the judiciary has a central role in economic affairs of the country.

- The writer is a journalist based in Pakistan.