June 15, 2011
Pakistan army’s commercial ventures slammed
By Abdus Sattar Ghazali
On April 12, 2004, Makhdoom Javed Hashmi, a leading politician of the Muslim League-N, was sentenced to 23 years in prison for inciting mutiny in the army, forgery, and defamation.
His crime: In October, 2003, he had read a letter that he received in mail, signed anonymously by some active military officers at Pakistan Army's Headquarter, known as The Generals Headquarter (GHQ), calling for an investigation into the corruption in the armed forces and criticizing the President and Chief of Army Staff General Pervez Musharraf.
On August 3, 2007, a three-member bench of the Supreme Court of Pakistan under Chief Justice Iftikhar Chaudhry granted him bail after serving approximately three and a half years in prison. Javed Hashmi was released next day from the Central Jail Kotlakhpat in Lahore.
This was the pre-May 2, 2011 era when hardly anybody, like Hashmi, dared direct or indirect criticism of the powerful army that is described by Dr Ayesha Siddiqa, author of Military Inc: Inside Pakistan's Military Economy as the largest political party. [P-68]
After the May 2 US operation in Abottabad, close to the capital Islamabad, the fortunes of the army have been changed. The US claims, without providing any proof, killing Osama bin Laden who was said to be hiding there for many years. Since then there has been open criticism of army in parliament as well as in press. Ansar Abbasi, commentator of The News, a leading Pakistani English daily asked: Why should we raise and sustain the world's seventh largest Army, costing more than Rs 600 billion per year, if it could not or does not counter such a foreign invasion?
Members of Parliament, newspaper editorials and political talk shows are calling for an explanation and challenging the all powerful army and intelligence establishment which is also part of the army, the two institutions previously immune to public criticism.
On June 9, Pakistan Muslim League-N member, Khawaja Saad Rafiq, used what Prime Minister Yousuf Raza Gilani called “abusive language” against the army that was expunged from the National Assembly record of the proceedings. Rafiq called the Army Major General led Sindh Rangers as ‘terrorists in uniform’ for killing an unarmed youth in Karachi.
On June 13, Awami National Party (ANP), an important ruling coalition party went a step further when its Parliamentary Leader in Senate Haji Muhammad Adeel asked the finance minister not only to provide details of the defense budget, but also give details of income of the commercial institutions being run by armed forces. He told the house that today the armed forces were involved in construction of plazas, cement and pharmaceutical businesses and even running petrol pumps, CNG stations and marriage halls. He argued that following in the footsteps of the army, now police and other institutions had also started doing businesses.
Dr. Ayesha Siddiqa’s book Military Inc – Inside Pakistan’s Military Economy provides an insight into the vast and expansive empire that the Pakistani Military has set up in Pakistan over the past six decades. Not surprisingly, the book, published in June 2007 is banned in Pakistan.
The book estimates the military’s share of the economy at over 20 billion dollars, besides owning 11.58 million acres.
What has happened in Pakistan is that any sector which could be monopolized, has been attempted by the military. The military is entrenched in the corporate sector. The list of industries where military or ex-military were in charge included steel mills, sugar factories, cement factories, fertilizer factories, cereal factories, banks, logistics companies, construction companies, utilities, even universities and other higher education institutions.
Milbus or military business
Dr. Siddiqa uses the term Milbus or military business to describe the vast economic empire of the army. Milbus is found in other countries as well. However, Pakistan’s Milbus signifies internal political and economic predation of the military, she says.
Today the Pakistan military's internal economy is extensive, and has turned the armed forces into one of the dominant economic players. The most noticeable and popular component of Milbus relates to the business ventures of the four welfare foundations: the Fauji Foundation (FF), Army Welfare Trust (AWT), Shaheen Foundation (SF) and Bahria Foundation (BF). These foundations are subsidiaries of the defense establishment. [P-18]
Retired and serving officers run secretive industrial conglomerates, manufacture everything from cement to cornflakes, and own 12m acres [4.8m hectares] of public land, says Dr Ayesha Siddiqa. Of the 96 businesses run by the four largest foundations, only nine file public accounts. The generals spurn demands by parliament to account for public monies they spend.
Since the four foundations were established under the Charitable Endowment Act 1890 or the Societies Registration Act 1860 as private entities, the accounts of these foundations are not audited by the government's prime accounting agency the Auditor- General of Pakistan. [P-219-220]
Siddiqa’s research indicates that the military businesses thrive, thanks to invisible state subsidies in the form of free land, the use of military assets, and loans to bail them out when they run into trouble. Given the lack of transparency of the military-controlled companies, it was not possible to access updated financial information. From a technical/legal standpoint, the welfare foundations are not liable to provide information regarding their operations to the public. [P-219]
The Army Welfare Trust (AWT)
According to the book: "The Army Welfare Trust (AWT) asked for a financial bailout worth five billion rupees in 1997 and was given relief worth two billion from the national exchequer by the Sharif government. A bail out was again requested from the Sharif regime in February 1999. The finance ministry referred the matter to the parliament 's cabinet committee of economic affairs with the request that it approve a guarantee of Rs2.5 billion which would be used to redeem the earlier guarantee of four billion rupees. The AWT had sought a fresh loan to pay off part of the earlier financial liability. A fresh financial guarantee was sought from the government despite the fact that the army welfare trust was declared to be a private sector entity which could not get financial aid from the government as the latter was not responsible for its debt repayment. The AWT also borrowed from local national and private banks and the international financial market. Approximately six and a half billion rupees out of a total of fifteen billion rupees deficit was borrowed from the National Bank of Pakistan, Allied Bank Limited and ABN-Amro against official guarantees. In addition, AWT owed one and a half billion rupees to a foreign financial company Laith Ltd which had filed a recovery suit against it in the United Kingdom."
The Fauji Foundation
The Fauji Foundation does not fare dramatically different. One learns from reading the book that the Fauji-Jordan Fertilizer Company secured four foreign currency loans. This comprised US$30 million from the Canadian Export Development Corp, US$ 53 million from Kreditanstalt fur Wiederaufabau of Germany, US$ 57 million from a consortium of French banks and a US$ 40 million facility from the Export-Import Bank of the United States. The money was used to purchase a second hand ammonia plant from the United States worth US$ 370 million. This did not turn out to be a wise investment as in 2001 FJFC's stock fell by 21.1 per cent within thirteen weeks. This compelled President Musharraf to ask Fauji Foundation to improve the profitability of certain projects. This advice was given along with financial help from the government. The government's economic survey shows that Fauji Foundation was consistently subsidized to the tune of over one billion rupees annually. No such help has been extended to other private sector organizations.
Frontier Works Organization
The book also talks about the Frontier Works Organization. According to Audit Report 179 for the financial year 1999/2000 there was a deficit of Rs4,076.868 million. The organization's receipts for the financial year were Rs4,191.365 million and the expenditure was Rs5,171.391 million. The difference of Rs980.026 million represents deficit expenditure that was borne by the state.
The book cites Special Audit Report 187 on the accounts of the cantonment boards of Clifton in Karachi, Walton in Lahore, Sialkot and Gujranwala pointed out a loss of Rs1,006.083 million as a result of illegal conversion of military residential land for commercial use and another Rs129.700 million because of the commercialization of land originally meant for the army's operational use. It is important to mention that the military land manual forbids the use of military land for any purpose other than the defense force's operations, the book says.
Army Generals are neo-land barons
But the biggest and the most visible perk is the rural and urban land given out to serving and retired officers. They also get subsidies and other benefits to develop the land. A major-general can expect to receive on retirement a present of 240 acres of prime farmland, worth on average 1.1 million dollars as well an urban real estate plot valued at 1.4 million dollars. The Pakistan military, as a single group, owns more land than any other institution or group, amounting to about 12 per cent of total state land. And unlike other state institutions, the military can convert this land for private usage.
The military is a significant stakeholder in agricultural land. Out of the 11.58 million acres that is controlled by the armed forces, an estimated 6.9 million acres, or about 59 per cent of the total land, is in rural areas. [P-174] Out of the 11.58 million acres that is controlled by the armed forces, an estimated 6.9 million acres, or about 59 per cent of the total land, is in rural areas. [P-177]
Of the 11.58 million acres of land under its control, more than half is owned by individual members of the armed forces, mainly officers. Ms. Siddiqa argues that the “monopolization” of land by the armed forces is aimed not just at increasing the financial worth of individuals or groups within the army, but also to increase its social and political worth. “The military owes it authority to change the usage of land to its phenomenal political clout. The land redistribution policy has an impact on the relationship between the powerful ruling elite in the country — of which the military is a part — and the masses.”
The military has also begun to act in the manner of a feudal landlord. When landless peasants in central Punjab complained in 2001 that the army had changed the status of the land on which they depended for their subsistence (forcing them to pay rent in cash, rather than working the land on a sharecropping basis) the army cracked down, beating many and leaving eight dead. At one point, Dr Siddiqa quotes a naval officer who questions why landless peasants should have any rights in relation to the land they till. ‘They do not deserve land just because they are poor,’ he says.
The subsidiary foundations, the FF, AWT and BF, are all beneficiaries of the defense establishment's land grant policy. The FF farm in Nukerji in Sindh covers 2,498 acres.23 Located close to the foundation-owned sugar mills, the farm is used to experiment in trying to develop new varieties of sugar cane. The AWT's main ownership of agricultural land is in the form of its partnership with the army in controlling the Okara farms. The BF's farms are used mainly as dairy farms to provide milk and other dairy products at subsidized rates to serving naval officers. [P-180]
The military has acquired about 6.9 million acres of land for further redistribution to individual officers and soldiers. The entire concept of land grants to the military is mired in the larger and redundant colonial tradition of buying allegiance in exchange for land. As part of the policy pursued after 1857, the British rewarded their loyal subjects with land and access to water sources for irrigation. [P-180]
Army in high civilian positions
Not only on economy, the armed forces have penetrated deep into Pakistan’s civil service. The military was granted a quota of 10 per cent of civil service positions at grade BPS-17 and above. During Zia ul Haq's regime the government agreed to reserve 10 per cent of all public-sector vacancies for former members of the armed forces. [P-212]
In 2003, as many as 104 serving and retired Lieutenant Generals, Major Generals or equivalent ranks from other services were among the 1,027 military officers inducted on civilian posts in different ministries, divisions and Pakistani missions abroad after Oct 12, 1999 military takeover. The number of army Brigadiers or their equivalent ranks from the Navy and Air Force is even higher at 160, according to an annexure placed before the Senate. There have been 14 ambassadors and a high commissioner from the military ranks during this period. In the Foreign Affairs 13 Lieutenants and Major Generals were appointed as ambassadors in different countries, while one Brigadier and a Major also got ambassadorial positions. [Chowrangi.com]
It’s hard to imagine anyone managing to circumscribe the economic power of Pakistan’s army. The military’s financial security reinforces its desire to retain control of the state. If full democracy were permitted in Pakistan, it would constitute a threat to the army’s throttling power. And since political power in turn creates greater economic opportunities, it’s in the interest of the military fraternity to perpetuate it. More political power leads to greater profit, and vice versa.
Financial autonomy has also engendered in the military a dangerous sense of entitlement. When any premier or leading politician attempts to limit the army’s power, or even emasculate it, they get slapped down. On the rare occasions when any constitutional body has stood its ground, the army has given it short shrift. In 2005, the Fauji foundation was asked by the elected parliament why it had sold a sugar mill at a ludicrously low price to senior army personnel. The Ministry of Defense refused to reveal any details of the deal.
A July 2007 article by Kashif Aziz (Chowrangi.com) perhaps best describes the position of Army in Pakistan: “Every Country has an Army, Pakistan Army has a Country.“
Now let us see how the army – weakened by the Osama episode and its unpopular operations in FATA and Baluchistan - will respond to the ANP demand for submitting details of its economic ventures.
Abdus Sattar Ghazali is the Editor-in-Chief of the Journal of America.