Pakistan could face economic pain from return to terrorist financing ‘grey list’

Paramilitary soldiers walk past the Parliament building in Islamabad. The US has called for Pakistan to be placed on a ‘grey list’ of countries deemed to be doing too little to comply with anti-terrorist financing and anti-money laundering regulations. (Reuters)
Updated 16 February 2018

Pakistan could face economic pain from return to terrorist financing ‘grey list’

ISLAMABAD/WASHINGTON/HONG KONG: The prospect of Pakistan being placed back on a global terrorist financing watchlist could endanger its handful of remaining banking links to the outside world, causing real financial pain to the economy just as a general election looms.
Washington and its European allies have co-sponsored a motion calling for the nuclear-armed nation to be placed on a “grey list” of countries deemed to be doing too little to comply with anti-terrorist financing and anti-money laundering regulations, with a decision expected next week when member states of the Financial Action Task Force (FATF) meet in Paris.
The move is part of a broader US strategy to pressure Pakistan to cut its alleged links to terrorists waging chaos in Afghanistan.
Pakistan, which denies such links, last month shrugged off a US aid suspension worth $2 billion. But inclusion on the FATF watchlist could inflict real damage, bankers and government officials say.
Islamabad has sought to head off the motion by amending its anti-terrorism laws and by taking over organizations controlled by Hafiz Saeed, a Pakistan-based Islamist whom Washington blames for the 2008 Mumbai attacks that killed 166 people.
But there are concerns Pakistan’s nearly $300 billion economy, expanding at its fastest rate in a decade at above 5 percent, could lose steam if it ends up on the FATF watchlist, from which it was removed in 2015 after three years.
“We don’t think the consequences are going to be drastic but it’s definitely not good,” said one senior finance ministry official.
Military successes against terrorists and massive Chinese infrastructure investments have restored some vim to an economy hobbled by a long-running insurgency and wrecked by the 2008/09 global financial crisis.
Officials are aiming for economic expansion to hit 6 percent this fiscal year (July-June) and Prime Minister Shahid Khaqan Abbasi’s ruling party will want to avert a slowdown in the lead up to a general election due in about six months.
Being placed on the FATF watchlist carries no direct legal implications, but brings extra scrutiny from regulators and financial institutions that can chill trade and investment and increase transaction costs, according to experts.
Mike Casey, a partner at law firm Kirkland & Ellis in London, said being put back on the grey list would heighten Pakistan’s risk profile and some financial institutions would be wary of transacting with Pakistani banks and counterparties.
“Others might elect to avoid Pakistan altogether, viewing the legal risks associated with doing business there to outweigh any economic benefits,” he said.
A decline in foreign transactions and a drop in foreign currency inflows could further widen Pakistan’s large current account deficit, the Achilles heel of an economy that required an IMF bailout in 2013 following a balance of payments crisis.
Another major worry is that the likes of Standard Chartered, the largest international bank in Pakistan with 116 branches, or Citibank and Deutsche Bank, who mostly deal with corporate clients, would pull out.
Banks have been retreating from high-risk countries in recent years amid intense pressure from global regulators to guard against money laundering and terrorist financing.
“The level of due diligence is already high in countries like Pakistan, but if this goes ahead then the banks will really have to reassess the risk-reward scenario,” said a senior executive with a large foreign bank, which has business interests in Pakistan.
In September, Pakistan’s biggest lender, Habib Bank, was fined $225 million and effectively forced to shut its US operations by the New York regulator due to compliance failures over money laundering and terrorist financing.
US watchdogs have dished out more than $16 billion in fines for anti-money laundering (AML) compliance failings since the end of 2009, according to data compiled by Hong Kong consultancy Quinlan & Associates.
“No one wants to be get caught in a situation where for a few million dollars of business the bank will have to pay billions in fines,” added the foreign bank executive.
There is no immediate indication the handful of international banks that remain are considering leaving Pakistan, and banking sources point out that these banks are well-versed with the risks of operating in the country.
Citibank, in a statement, said: “Citi complies with all applicable US and international anti-money laundering requirements and economic sanctions.”
Standard Chartered said it was “closely monitoring the situation and as a matter of policy, we do not comment on market speculation.” Deutsche declined to comment.
The FATF threat has begun to weigh on Pakistan’s stock market, although local businessmen say the country’s companies are accustomed to operating in tough conditions.
Yet some are unnerved.
One Pakistani money manager launching an alternative investment fund said he fears his new venture could now struggle to attract US and European investment.
“It’s already tough to raise money in Pakistan and anything to do with a ‘terror financing’ watchlist will just scare people,” said the fund manager. “There will be more scrutiny and some foreign funds will back away.”
A Pakistani finance ministry source said the government also fears a downgrade by the credit ratings agencies, making it harder or more expensive for Pakistan to raise debt on the international markets.
“It reduces our credibility in the world, which is unfair,” added Pakistan’s State Minister for Finance, Rana Afzal.
Some Pakistani officials say there is growing confidence in the country that recent efforts against Saeed, who was the focus of the FATF motion, will be enough to stave off further action.
“We’ve taken the wind out of their sails,” said one senior Pakistani government official. “If we now get punished, it would be a political move and vengeful.”

The Key Points
  • Financial Action Task Force (FATF) meet in Paris next week to decide whether Pakistan returns to terrorist financing watchlist
  • Move is part of a broader US strategy to pressure Pakistan to cut its alleged links to terrorists waging chaos in Afghanistan
  • Pakistan has denied accusations of turning a blind eye to terrorist financing, shrugging off a US aid suspension worth $2 billion
  • Concerns Pakistan’s nearly $300 billion economy, expanding at its fastest rate in a decade, could lose steam if it ends up on FATF watchlist
  • Major worry is that the likes of Standard Chartered, the largest international bank in Pakistan, Citibank and Deutsche Bank, will pull out

Indonesia’s Go-Jek close to profits in all segments

Updated 18 August 2018

Indonesia’s Go-Jek close to profits in all segments

  • Go-Jek is Indonesia's first billio-dollar startup
  • Ride haling app evolves into online payment platform

JAKARTA: Go-Jek, Indonesia’s first billion-dollar startup, is “extremely close” to achieving profitability in all its segments, except transportation, its founder and CEO Nadiem Makarim told Reuters.

Launched in 2011 in Jakarta, Go-Jek — a play on the local word for motorbike taxis — has evolved from a ride-hailing service to a one-stop app allowing clients in Southeast Asia’s largest economy to make online payments and order everything from food, groceries to massages.

“We’re seeing enormous online to offline traction for all of our businesses and are close to being profitable, outside of transportation,” said the 34-year old CEO.
The startup is expected to be fully profitable “probably” within the next few years, Makarim added.

Already a market leader in Indonesia, where it processes more than 100 million transactions for its 20-25 million monthly users, Go-Jek is now looking to expand in Southeast Asia.

Ride hailing services in Southeast Asia are expected to surge to $20.1 billion in gross merchandise value by 2025 from $5.1 billion in 2017, according to a Google-Temasek report.

Go-Jek said in May it would invest $500 million to enter Vietnam, Singapore, Thailand and the Philippines, after Uber struck a deal to sell its Southeast Asian operations to Grab — the bigger player in the region.

Go-Jek is seeing strong funding interest from its backers as it targets an aggressive expansion, Makarim said.

“Since its Aug. 1 launch, the app has already grabbed 15 percent of market share in Ho Chi Minh,” Makarim said. The firm this week opened recruitment for motorcycle drivers in Thailand.

The startup expects anti-monopoly concerns swirling around the Grab-Uber deal, which Singapore said had substantially hurt competition, to help clear a path for its expansion.

“We’re bringing back choice. The Singapore government is particularly eager to bring back competition,” Makarim said, adding that the order of overseas rollouts had not been set.

Go-Jek’s offshore push comes at a time when Singapore-based Grab is stepping up funding to expand in Indonesia and transform itself into a consumer technology company, starting with a partnership with online grocer HappyFresh.

“Mimicking Go-Jek’s strategy is the highest form of flattery,” laughed Makarim.

Grab told Reuters in a statement, “The super app strategy has been around for a while now and no Southeast Asian player can claim to have pioneered it.” The company also said Grab has not lost market share in Ho Chi Minh since August, but declined to provide market share data.

Makarim believes Go-Jek’s understanding of food merchants will give it an edge over Grab, which counts investors such as Chinese ride-hailing firm Didi Chuxing and Japan’s SoftBank Group Corp. among its backers.

Makarim, who sees food delivery as Go-Jek’s core business, said he was not concerned about funding, without giving details.

Go-Jek was reported in June as being in talks to raise $1.5 billion in a new funding round and was valued at about $5 billion in a prior fundraising, sources have told Reuters. The firm had said in March it was considering a domestic IPO.

Makarim noted Go-Jek’s backers were sharing both capital and expertise. The company is collaborating with Alphabet Inc’s Google on platform mobility, Tencent on payments strategy, on logistics operations, and Meituan Dianping on merchant transactions and deliveries.

Go-Jek has set up a venture capital arm, Go-Ventures, to invest in startups in Southeast Asia “with strategic importance to our business,” the CEO said.