Military Inc - Some Insightful Figures

Military Inc – a preview
The News, June 6, 2007

The movie 'The General's Daughter' has a line which goes something like this, 'There are three ways of doing anything; the right way, the wrong way and the army way.' Just what exactly is the army way is what is in the book Military Inc--Inside Pakistan's Military Economy by Dr Ayesha Siddiqa. Increasingly the army's corporate interest has become the subject of considerable interest of the Pakistani intelligentsia.

Focusing in detail on the army's undocumented and unscrutinised corporate interests, known as Milbus, one comes to know the history of the evolution of the Pakistan Army's corporate face. The book reveals that although the military's internal economy was established in 1953-4, it did not grow as rapidly. The book maintains that "it was after the third martial law in 1977 that the military started to work more consistently on expanding its economic interests. This coincided with the efforts to establish the military as an independent entity parallel to all other political and civil society players. Contrary to claims from the armed forces that the National Security Council is necessary to strengthen democracy, the underlying concept is to establish the military's position as an independent entity that can present and support its interests like other members of the ruling elite. Moreover as the defence establishment gained experience of governance and political control, it expanded its economic interests as well. Each military regime gave greater advantages to its personnel than its military predecessor and became more accommodative of the personal interests of its office cadre. Each military leader for his own survival has to reward the senior echelons of the military to ensure their allegiance and establish unity of command in the forces".

Since all of the officers are beneficiaries of the profits of the khaki corporate face, it is in everyone's interest to further expand and consolidate the economic pie. There is a popular joke that asks how can an educated middle class Pakistani become the head of the state? The answer is "by joining the army". However, even if the Pakistan Military Academy graduate does not become head of the state, he is guaranteed a comfortable life ranging from subsidised milk from the military diary farms, free medical care from the military and combined military hospitals to a nice plot in one of the many Army Welfare Trust Housing Schemes or the defence housing societies of the country. All this is offered to the military personnel because they defend the country's borders with their lives.

This train of thought echoes the practice in sixteenth and seventeenth century Europe where, according to the book, the ruling elites extracted tribute from their citizens in the name of providing security against threats. "The rulers maintained large militaries to invade foreign territories in order to increase their power and expand markets for local entrepreneurs. The military was thus central to the system of resource generation, externally and internally. The money for financing foreign invasions was raised by a monarch from the local feudal lords and other concerned parties such as entrepreneurs. In other words, these individuals paid a 'tribute' as a price for the financial opportunities created by the military's foreign expeditions.'"

It is popularly believed that army run corporations are efficient and profitable. That army personnel, serving and retired, take great pride in their superior management skills and firmly believe that they are better than the 'bloody civilians' who are inefficient.

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 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 subsidised to the tune of over one billion rupees annually. No such help has been extended to other private sector organisations.

The book also talks about the Frontier Works Organisation. According to Audit Report 179 for the financial year 1999/2000 there was a deficit of Rs4,076.868 million. The organisation'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 commercialisation 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 defence force's operations, the book says.

In the 60th year of our existence, perhaps it is time to take stock of some of the myths that have existed.

The writer is a freelance consultant based in Islamabad. E-mail:


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