07/12/12

Thursday, July 12, 2012

Draft Law and Religion In Pakistan - Review


This article serves the purpose of highlighting the impact of religious laws in Pakistan. This article diverts the reader’s attention towards the implementation and interpretation of these laws without going into the finer and complex nuances of either law or religion. The text of the article suggests that the promulgation of legislation enacted as Islamic in Pakistan has been used by the state to control and discipline the imagination of its citizens and to limit the political choice of populace.  Unfortunately the politics on the name of Islam is also a common practice to crush political opposition and gain legitimacy, especially for autocratic regimes. The alarming issue here is that these laws served nothing good but these laws affect ordinary citizens on daily basis. Social fabric and plurality of Pakistani society is badly ruptured. Contrary to the claims only negative changes are observed after the consecutive attempts to make Pakistan an Islamic state.

The article highlights the problem of identity crisis and the confusion and disillusionment regarding the legal and political doctrine in Pakistan. The confusion in the minds of masses on the ideology of Pakistan as an Islamic or secular state is still not solved. One of the main reasons of this confusion is also the politics through which a separate state Pakistan was achieved by Jinnah and Muslim League but before the boundary commission the politics of Jinnah revolved around Islam and his 11th august speech which clearly states Pakistan as a secular state.

After creation of a new state in Muslims dominant western regions as Pakistan, Muslim league was not in position to dodge people on the question of religion. Islam was the driving force throughout the whole process of partition. The Lahore Resolution in 1940 and the elections of 1945-46 were the two prominent and notable incidents which depict the political situation at that time. These two events show a very good picture of how Islam was used to mobilize Muslims of Indian subcontinent for the cause of a separate state. This tactic for mobilization worked very effectively and Muslim league gathered a huge support of Muslims throughout India.
Soon after partition a demand for incorporation of Islamic laws in constitution and for bringing different sets of laws in conformity with Islam continued. The dominant feature in all the three constitutions of Pakistan was injunction of Islamic principles. It was assured in all these constitution that anything contrary to Islam’s basic principles would be invalid even though the state commitment in this regard varied greatly. The state used Islam as a special tool for political negotiations, legitimizing itself, and gaining political and moral support of masses for itself on various occasions.


The article informs its readers that the post-partition state of Pakistan inherited the colonial state structure as its very first constitution was ‘Government Act of India 1935’ with minute changes in it. To understand the Pakistani state structure the need is to analyze the colonial state structure as well. The colonial state structure was designed to exploit the resources and labor force of India for commercial and economic interests of the Empire. Legislation backed by force of implementing machinery was the device to control and to amend the behavior of the indigenous people in response to the colonial exploitation. The violence of state and severe penalties imposed by laws made sure that the native population never disturbs the interests of the colonial regime.

The article suggests that from jurisprudential perspective, there has been much confusion and a variety of postulations claiming the doctrine governing Pakistan’s legal structure. The most prominent is the basic structure argument, that pursuant to the events leading to creation of Pakistan, and subsequent State Acts such as the objectives’ resolution, the preamble of all constitution, the state has a certain minimal structure that may be termed its basic structure, comprising if such inherent principles as being Islamic, which cannot be changed. Another view that courts have explored is the hierarchy of applicable law, which differs under different regimes or political setups.

Under the military, the military law takes over any other, the Civil Code and Islamic taking turns in hierarchy. During the setup labeled as the civil rule, determination of norms is such a nature as may be observed same to one that is secular. The article points toward the fact that at numerous instances Islamic law is applied as a tool of interpretation of the Civil Code or the legislation and applicable law. Judges, in employing the law, have and have not used religious principles in their legal reasoning. Many a times these adjudicate political issues.

Finally, the author in his article highlights various legislations, legislative acts and amendments which are stained in the color of Islam under different constitutions and political and military regimes. The author in his article mentions objective resolution and argued that it has found expression in all three constitutions of Pakistan as a preamble. It was made as a substantive part of the current constitution under Article 2A through a presidential ordinance by General Zia in 1985. The current laws against Ahmadis were never seen before 73’s constitution. They were not even the part of original 73’s constitution. They were enacted via 2nd amendment deeming them Non-Muslims by Zulfiqar Ali Bhutto in 1974.

After, Bhutto’s government was over thrown by General. Zia a new wave of Islamization was observed in the country. The most notable legislative acts through Presidential Ordinances under Islamization process are the Zina, Qazaf, Prohibition and Property Ordinances. In 1984, an ordinance under title of ‘Anti-Islamic Activities of Qadyani Group Ordinance’ was promulgated which added something very brutal and against the basic ‘Fundamental Rights’ which are granted by the constitution of Pakistan to its every citizen. New sections 298B and 298C were introduced in Pakistan Penal Code, refraining and penalizing Ahmadis in case of proffesing their religious obligations. Several institutions under Islamic titles which are still enjoying constitution protection, like Federal Shari’ at Court and Council of Islamic Ideology, were created.

Concluding and analyzing the current legal framework of Pakistan it is evident that Pakistan’s legal system is derived from English Common Law and is based on the much amended 1973’ Constitution and Islamic law. The rule of law in this country has suffered due to the reason of holding the political setup by military. Political process and democratic governance in this country is frequently disturbed by military take over. Tensions between the inherent common Law System and the Islamic law based on Quran are also there. An unexpected outcome of all this practice was that by relying on a policy grounded in Islam, the state fomented factionalism.

PAKISTAN’S EQUITY DERIVATIVE MARKET


This article is an in-depth look at the state of the equity derivative market in Pakistan. It examines the current market state, compares its performance with those of India, and offers explanations for the problems faced by the market. In the end, the writer offers several recommendations on how the various regulatory bodies and institutions can seek to improve the state of the derivative market.
We start of by defining exactly what a derivative is. A derivative is a financial instrument whose value and cash flows depend on the value and cash flows of an underlying asset. Examples of such instruments are forward and future contracts, options, swaps etc. However, in this presentation we only consider the equity derivative market of Pakistan.
The derivatives market in Pakistan was started in 2001, with the introduction of single stock deliverable futures. Since then, various other instruments have been introduced, such as cash settled futures, index futures (based on KSE 30 index) and 7 day cash settled futures.
However, despite these developments the performance of the Pakistan equity derivatives market remains poor, as compared to India (which started its derivatives market in 2000), and other developing countries. The trading volume is 3-4% of the spot market volume, which is very low. Also, most of the investors in this market are individual and small investors. Institutional participation is very subdued, and only limited number of banks, NFBCs, and companies take part in this market. Further, the single stock deliverable future remains the most popular instrument traded, with almost 100% volume attributed to this. Other instruments like cash settled futures and index futures are traded minimally, despite their myriad advantages.
The author bases her reasons on a survey she conducted on reasons for the low participation of institutions in the market. According to her, the major reason for low institutional involvement is the lack of knowledge and technical expertise, along with internal policies prohibiting investment in derivatives. Further, the lack of liquidity is another factor, and the fact that due to technological improvements, the margin calls of derivative investments now come directly to institutions.
The author finally gives some recommendations, which include increasing investor knowledge and human capital development to increase expertise, as well as developing clear and string risk management policies for institutions. Finally, she recommends that public sector get more involved in these markets to improve liquidity.



Can China's Currency Go Global - Commentary


The article “Can China’s Currency Go Global” by John H. Makin considers whether the yuan could replace the dollar as an international reserve. The author delves into the current economic market of the Yuan and its financial viability, while also reflecting on its future. He looks at both sides of the coin, and after due deliberation reaches his conclusion.

The fact which most supports the globalization of the Yuan is China’s rapid emergence as a global economic superpower. As the second largest economy in the world, China accounted for about 90 percent of global growth in 2009. However, the author contends that it cannot be assumed that China’s economic achievements will translate completely into its financial markets. China has not yet achieved financial superiority and the Chinese securities market as yet poses no threat to the US, even though large companies such as Caterpillar and McDonald’s have issued Yuan-denominated bonds. 

Another issue that the author looks at is the growing use of Chinese currency for trade. According to Makin, China is heading towards internationalization of the Yuan and has thereby expanded the scheme that allowed imports and exports to be invoiced in the Yuan, with trade settled in Yuan between June and November 2010 equaling 340 billion Yuan. However, the widespread use of Yuan as a medium of exchange and unit of account (since goods are being invoiced in Yuan) does not necessitate its adoption as a reserve currency. The reason cited for this by the author are the restrictions imposed by the Chinese government.

The adoption of the Yuan as an international reserve must be preceded by a guarantee of full convertibility by the Chinese government. It would have to allow capital outflows and respect property rights. Essentially, lack of full convertibility means that to invest in capital (i.e. buy an equity stake, purchase an asset or take part in any merger/acquisition) in China you need to have an investment holding company in China which requires minimum capital of US$30 million.

Thus, Makin argues that for the Yuan to emerge as a global reserve currency not only is full convertibility imperative, rather it must also forego all further controls on global capital flows and avoid relentless currency intervention.


In his conclusion, the author uses the words ‘evolution, not revolution’, i.e. the Yuan will continue to flourish and develop, however, due to the aforementioned factors it cannot replace the US dollar an as international reserve currency for the foreseeable future.

Analyzing the article, and the ideas presented by the author, we can see that the author points out that steady economic growth has provided China with an opportunity to contest against the US dollar’s role as an international reserve currency and in June 2010 China’s government promoted trade to be conducted in Yuan through the ‘Yuan settlement scheme’.  However, according to our research, it would not be very wise to expect continuous economic growth in the future. As China has an export based economy, the existing global crisis could severely harm demand for its exports. In September 2010 exports rose by 17.1% but fell from a 24.5% growth in the previous month (BBC). This is in line with Makin’s view that present economic achievements notwithstanding, China’s currency cannot be seen as an international reserve in the near future. We agree with this viewpoint, since looking at the ground realities it is very difficult to expect the Yuan to supersede the Dollar in the near future.

Also, currently China’s USD reserves amount to a high proportion of the total reserves, because China has been buying dollars in order to keep the exchange rate low. However in order to successfully globalize its currency it needs to build its metal reserves (gold and silver). China’s current Gold holdings are 1,054 tonnes while China needs around 8000 tonnes to surpass US’ holdings of 8,133 tonnes. In last ten years China has accumulated only 550 tonnes. If China starts buying gold from the international market, rise in demand of gold would result in high prices which will increase china’s cost of purchasing gold. So China’s claim to buy 10,000 tonnes in next 10 years seems unlikely. (International Business Times)

The author further points out that in order to promote internationalization of Yuan, China allowed banks in Hong Kong to accept deposits in Yuan. However, China’s restrictions on capital flows leave people with no incentive to hold Yuan as a reserve currency. We agree with this point completely which is further validated by John Peace, chairman of the British bank Standard Chartered, "I don’t see in the short term the Renminbi replacing the Dollar, what I do see the Renminbi becoming as important as the dollar”.(Voice of America) Also, according to a New York Times article (New York Times), the banking sector in China is not at a mature enough stage to be able to handle the load of full convertibility which does not bode well for the Yuan’s role as a global currency.

Another fact which supports Makin’s view is that the acceptability of Yuan as a reserve currency in the future would depend a lot on the expected inflation rate in China. The fact that China’s inflation is expected to rise in the future, primarily because of artificially fixing exchange rates at a low level, does not place China in a position to contest against USD. Rising inflation would reduce the purchasing power of Yuan. On the other hand USA’s current and expected inflation rates are less than China’s. So it makes more sense to invest in US dollar denominated securities rather than Yuan. (Forecast Chart.com, Trading Economics.com)

Hence, in conclusion, for a currency to turn global it needs high liquidity, central bank credibility, strong internal financial market, and strong bond markets. China has not fulfilled these conditions completely yet. Its financial markets are government controlled and people’s Bank of China does not hold the required credibility. Consequently Chinese currency has a long way to go before it turns global. However, we cannot completely dismiss the Yuan.

BIBLIOGRAPHY

 “China's trade growth decelerates amid global slowdown”. October 13, 2011. BBC Com. (http://www.bbc.co.uk/news/business-15285105)

“Gold Reserves: Tough for China to beat US”. April 13, 2010. International Business Times.

Heda Bayron , China Pushing for Yuan to be Global Currency. January 24, 2011. Voice of America.

David Barboza, “China Pushing for Yuan to be Global Currency”. February 10, 2011. Global Business,  New York Times.(http://www.nytimes.com/2011/02/11/business/global/11yuan.html?_r...)