Keeping its word to crack down on financial corruption and banking abuses, Pakistan's new military government today arrested some of the biggest names in industry and politics for defaulting on loans.
Military teams swept through major cities between midnight and dawn searching for hundreds who failed to meet Tuesday's deadline to pay what they owed, renegotiate their debt or face prosecution and prison. Those wanted include several former cabinet ministers and legislators from both major political parties, as well as a handful of retired military officers.
The government's arrest order listed 35 people to be seized and prosecuted on charges of deliberate loan default, tax evasion and corruption. It included Nawaz Sharif, the prime minister who was overthrown one month ago and is in military custody, and his rival Benazir Bhutto, the former prime minister now living in exile in England.
"We are sending a strong message that enough is enough," Interior Minister Moeenuddin Haider said in an interview today. "We do not want to tamper with the business climate, but we don't want to be blackmailed either. We will be impartial and not vindictive, but we have to show resolve."
The crackdown sent shock waves through Pakistan's business community, and some people warned it could frighten away investment that the country badly needs. Some major defaulters reportedly fled Tuesday night, but with the army patrolling all airports and immigration officials given lists of the 1,900 top debtors, escape from the law seemed unlikely.
"Oh my God, they have made us criminals," said Arif Zahoor, a major textile mill owner in Karachi who owed more than $40 million in delinquent loans but managed to work out a repayment plan 48 hours before the deadline. "We are productive people, but they have made us criminals. I will never set up another project in Pakistan."
Officials said that by Tuesday night they had recovered almost $115 million of $4 billion owed to five major banks. More than 75 percent of the money was returned within the past week as the government announced that it would ask no questions about the source of repayment funds.
Despite the relatively low percentage of loans recovered, political analysts and bankers said the arrests would give a major boost to the credibility of the new military ruler, Gen. Pervez Musharraf, who said after taking power that he would clean up widespread financial corruption and abuse.
Initially, many Pakistanis welcomed Musharraf's vow but expressed doubts about whether he could carry it out. Several civilian and military Pakistani governments began similar financial purges in the past, but they usually degenerated into economic vendettas aimed at political opponents.
"This is a huge litmus test for the new government," Amir Haider, a regional loan recovery officer for Habib Bank, said Tuesday. "If it works, perhaps we can create a new culture of repayment in Pakistan. But if it fails, the military will not be able to show its face to the nation, and it will not be able to tackle the really hard targets, such as terrorism and religious fundamentalism."
Haider sat at his desk until midnight Tuesday, taking call after panicked call from overdue borrowers who never imagined they would face the prospect of prison. Some had allowed civil court cases against them to drag on for years. Smiling jovially, Haider invited each caller to come visit him as soon as possible and said he would do his best to help.
"Sir, it is my greatest desire that your name be deleted from the list so you will not go behind bars," he said politely into one phone as two others rang. "I am available any time, but time is running short."
Although thousands of Pakistanis have allowed business loans to become overdue under a lax and corrupt lending climate, the new government decided to focus its efforts on several hundred of the top defaulters, including the family of former prime minister Sharif, a wealthy industrialist who was ousted by the army Oct. 12.
In addition to pursuing loan defaulters, the new government also is seeking to prosecute corrupt politicians and tax evaders. In an order issued today with the list of the first 35 people to be arrested, the government said politicians convicted of the charges would be disqualified from holding office for 21 years and could face 14-year prison sentences.
A list of 322 major defaulters published in Pakistani newspapers last week included leaders of Sharif's Pakistan Muslim League and its rival, the Pakistan People's Party. The list also included prominent families who own textile mills and foundries and cement plants. The two largest defaulters listed were the Saigol industrial clan of Lahore, which owed more than $40 million, and the Sharif family, which owed more than $20 million.
After consulting with bankers, the government said it would draw a distinction between "willful" defaulters who never intended to repay their loans, and "circumstantial" defaulters who were unable to repay because of business losses or economic policy changes. Many business leaders had protested that it was unfair to penalize both groups equally.
"There are many criteria. One is to look at the person's assets and lifestyle; see whether he drives Land Cruisers and owns a [$1 million] house in the hills," said Haider. Banks were ordered Tuesday to draw up lists of defaulters to turn over for arrest, but they were told not to include women, the elderly or anyone who owed less than $2 million.
For years, fraudulent business investment borrowing has drained huge amounts of money from Pakistan, while the nation has sunk deeper into poverty and debt. Such practices grew under recent governments headed by Sharif and Bhutto, leading to public disillusionment with democratic rule.
Constable reported from Islamabad; special correspondent Khan reported from Karachi.
CAPTION: Nawaz Khokhar, information secretary of the Pakistan People's Party, is arrested in Islamabad during crackdown on corruption.