KARACHI: A run on bank lockers and withdrawal of foreign currency deposits were seen in Karachi yesterday as rumors flew that these were about to be frozen or nationalized.
The State Bank of Pakistan, the country’s central bank, had to issue a strongly-worded denial later to restore public confidence in the government’s ability to deal with the situation. The rumors were apparently fueled by the sudden departure of a powerful delegation under Finance Minister Naveed Qamar for negotiations with the International Monetary Fund (IMF) in US.
“The Rumors are unfounded” said the central bank, assuring the public that foreign currency accounts, allowed to be operated by individuals and the corporate sector by then Prime Minister Nawaz Sharif in 1991, “cannot be frozen by the State Bank.” Banks reported resource scarcity and a rush was seen on lockers for withdrawal of gold and valuables by ordinary citizens and jewelers.
The rumor factory worked overtime to spread the word that US dollars, soaring in value against the rupee, both in inter-bank deals and in the open market, were in great demand. Their prices had shot up from Rs.78.50 to Rs.80.25 before noon.
“All foreign currency accounts, hundreds and thousands in number, and huge in value, were to be frozen to help the government tide over the crisis and danger of bank liquidation, it was said.
“Nothing of the sort is happening. No bank is going to default. Foreign currency accounts are safe and well protected under a presidential decree of 2001. The law can only be modified by a joint session of the Parliament, comprising the directly elected National Assembly and the upper house, known as Senate.” The Central bank or any other organization or individual had no power to touch these accounts, but government credentials were doubted because of a bad experience in the past. The Nawaz Sharif government hours after exploding a nuclear bomb in May 1998, had seized all dollar accounts, depriving the countrymen of their precious savings.
The denial did work to some extent and helped retrieve a situation which was getting out of hand and could well spell disaster for an economy which is already in oxygen tent.
The central bank had earlier released $100 million from its accounts to the open market and forced private banks to release another $50 million from their funds, a step which did help in controlling the rupee parity to a modest level.
Insiders reported that major corporations dealing in fertilizer and oil refining, had run short of funds. One such firm was refused further financing by a recently privatized bank, partly owned by Gulf businessmen.
Refinery sources indicated that they were running out of petrol stocks. The country, feeling comfortable at its $16 billion foreign deposits till before the national election in February, was left now with only two months of import bills to take care of.
The country’s economy managers seemed to have little clue of the extraordinary situation which finally forced Prime Minister Yusuf Reza Gilani to appoint an experienced banker like Shaukat Tareen as his financial adviser. Market sources said that Tareen had helped save the banks from going into default. The economy is still at a dangerous level and unless huge fundings are done from somewhere, Pakistan may fall into further abyss.