127-128). Also organized during this period were the Pakistan Industrial and Credit Investment Corporation (PICIC) and the Industrial Development Bank of Pakistan (IDBP), both of which were important to industrial development, obtaining "large amounts of capital from the World Bank, the former for investment in large industries, the latter in relatively smaller enterprises" (Burki, 1999, p. 128).

This may account for the relatively better developed structure of Pakistan's economy compared to those of other poor nations. Although services in Pakistan accounted for 50% of the economy in 1995, the service sector had changed in 50 years because of Khan's attempts to modernize it. In most less developed nations, the service sector provides employment for those with no skills who would otherwise not have a job at all. In more developed countries, service industry jobs tend to require a considerably higher level of skill, sometimes higher even than the levels of skill demonstrated by and demanded of employees in other sectors.

The greater-than-average range and reach of banking services, encouraged by Khan, may be responsible for the better-than-average situation in Pakistan. Under Khan, "The financial sector not only grew rapidly but also modernized. A number of privately owned commercial banks, most notably United Bank and Habib Bank, penetrated deeply into the country with an extensive network of branches" (Burki, 1999, p. 128). These were commercial banks; the government-0wned National Bank of Pakistan was also active, and that bank (and a few others) established themselves outside the country. In addition, and most importantly for the current topic, "The banks established training institutions that turned out a large number of graduates who found employment in the fast developing financial sector" (Burki, 1999, p. 128). Pakistan, despite being a young country, has taken steps toward 'old nation' expertise in its banking functions.

While Khan's innovations survived beyond his tenure, and were even expanded, public sector modernization ended suddenly in January 1972, when President Zulfikar Ali Bhutto nationalized large-scale industry and a little later, privately owned banks and insurance companies (Burki, 1999. p. 133). Greater economic and financial services industry damage was done when Bhutto eventually politicised commercial and investment banks and a host of other essential services, including commercial concerns and the national airline.

While Bhutto's government fell in 1977, its attitude toward public firms operating in the private sector did not. "The administrations headed by President Zia ul-Haq and Prime Ministers Benazir Bhutto and Mian Nawaz Sharif continued to use firms operating in the public sector to accommodate friends and political associates as managers and then require these managers to find employment for political followers" (Burki, 1999, p. 134).

Banking nearly failed to survive these subsequent administrations of self-serving politicians. "By the time Benazir Bhutto's administration was dismissed from office in November 1996, most public firms in the service sector were either bankrupt or close to insolvency. The number of people they employed greatly exceeded their requirements. A significant number were 'ghost workers' who collected pay checks but did not add any value to the work of the companies" (Burki, 1999, p. 134). This was simply the out picturing of financial debacles that had been taking place for decades. Before Zulfikar Ali Bhutto nationalized it (subjecting it to the above abuses and more), the Karachi Electric Supply Company (KESC), was regarded as one of the finest power companies in Asia.

By 1997, Pakistan's GDP growth rate was miniscule, mass poverty was increasing, and the government was incurring large deficits in attempting to increase development by internal and external borrowing. "By the end of the 1990s, Pakistan was one of the most indebted countries in the world. The total amount of debt, internal and external, exceeded the gross domestic product. Two-fifths of all export earnings went to service external debt, the stock of which was increasing rapidly because a great deal of government borrowing was short-term and thus obtained at high rates of interest" (Burki, 1999, p. 134). This could not help affecting Pakistan's banking industry, and thereby its bank managers.

After the dismissal of Prime Minister Benazir Bhutto, Burki estimated the cost to the country of all the...

In absolutes, this was the equivalent of $15 billion.
Burki found that "The greatest amount of damage was done to financial institutions -- commercial and investment banks owned and operated by the government, public sector insurance agencies, and investment institutions such as the National Investment Trust (NIT) and Investment Corporation of Pakistan (ICP)" (1999, p. 174). While a good deal of this was traceable to the Bhutto administration, much of it had begun long before and that non-performing banking assets had been building for a long time.

Khan had set up the National Investment Trust in the 1960s in order to provide a source of long-term finance for private industry and to expand industrial asset ownership. The NIT had been a well-run institution, until the Bhutto regime, when bad governance and outright corruption intervened (Burki, 1999, p. 174).

Burki cites the definition of the World Bank for governance: "the exercise of authority, control, management, power of government" all factors essential to fostering development and operating under sound economic policies. Governments, which establish the rules of commerce, require systems of accountability at the very least. While much of the military rule of Ayub Khan was effective, misallocation of resources also occurred. However, "The state's intrusion into the markets took a giant step under the nationalization policies of the government of Prime Minister Zulfikar Ali Bhutto, adopted between 1972 and 1976 ... (when) the National Finance Development Corporation was established to channel resources into the public sector industrial corporations" (Burki, 1999, p. 177). He set up the road to corruption (Burki, 1999), but he did not do so out of a misguided attempt to "Islam-ise" finance. He limited democracy and nationalized finance not because it was the will of Allah, but because "he believed the citizens of the country he governed were not literate enough to exercise full democratic rights. Ayub Khan's sole gesture toward the religious forces was to name Pakistan's new capital Islamabad" (Burki, 1999, p. 220).

There had been a resolve to keep religion out of politics until Pakistan broke up in 1971, at which time that resolve began to weaken. In 1974, the National Assembly prohibited the use of alcohol and switched the weekly day of rest from Sunday, inherited from the British raj, to Friday. While these changes may not have affected banking and bank managers profoundly, making Friday a holiday, when most world banking works on that day, might be presumed to have an effect on global banking/Pakistani banking, and perhaps less effect on the day-to-day operation of national, regional and local banking managers.

It would be fair to say, however, that a combination of corruption and dissociation from global banking had served to make the Pakistani banking industry into a ruin. From that ruin, however, the Bank of Credit and Commerce International (BCCI) emerged. "By the time Prime Minister Ali Bhutto nationalized all privately owned banks in the relatively new nation, certain ambitious bankers were already planning the Bank of Credit and Commerce International, a bank designed to be not merely multinational, but transnational, with no true parent country or home regulator" (Marietta, 1996, p. 79+).

Doubtless because of its intent, BCCI Holdings S.A., parent company of the bank, was registered in the "secrecy haven" of Luxembourg in September of 1972. By 1975, BCCI had to major divisions, BCCI S.A. (Luxembourg) dealing chiefly with Europe and the Middle East, and BCCI Limited (Overseas), dealing with developing and less developed nations.

BCCI started out insolvent, and was in some ways an ego-salve enterprise for at least one founder, Agha Hasan Abedi, "who had built his United Bank into the second largest in Pakistan" (Marietta, 1996, p. 79+), before nationalization. That its intention was to supply resources and prestige to developing nations, as a sort of Third World bank, probably did not help the solvency problems.

Moreover, BCCI failed to follow traditional paths to banking profits, instead engaging in continual expansion of branches and "acquisition of deposits, while a combination of imprudent and fraudulent uses of this money yielded substantial losses that were cleverly hidden" (Marietta, 1996, p. 79+). Its ethics were shaky at best, and it performed multitudinous extralegal services to attract funds.

Marietta notes:

BCCI resorted to extralegal remedies, including the facilitation of flight capital, bribery of government officials to induce deposits of government reserves, falsification of letters of credit, facilitation of illegal arms transactions. catering to dictators and terrorists, and money laundering. Apparently for these services there was a substantial demand, which BCCI systematically filled. Full details of BCCI's varied activities may never be available, but those that have been documented seem to share a common theme: institutional circumvention of legal norms and desire for a continuous cash flow (1996, p. 79+).

BCCI also capitalized on its reputation in the so-called Third World to gain deposits from economically advanced nations, but its main active pursuit of deposits was among the nouveau riche sheiks…