June 6, 2001	atimes.com

India/Pakistan High price for a golden handshake ISLAMABAD - Over the past four years, tens of thousands of Pakistan state employees have opted for the government's retrenchment or "Golden Handshake Scheme" which offered a generous package of cash and other benefits. And on May 28, the federal government once again offered a similar "voluntarily early retirement scheme" to 40,000 of its employees or nearly 12 percent of its 3.5 million-strong federal bureaucracy, which is considered too large for a developing country. The decision was made by military ruler General Pervez Musharraf, who also approved the restructuring of federal departments, reducing their number to 21 from 35. As part of its efforts to cut spending, the government is also planning to privatize many of its corporations. By letting go of 40,000 employees, the government hopes to reduce its salary and pension bill for civil servants by about US$500 million a year, officials say. Planning Commission chief economist Pervez Tahir says employees will be offered a package equivalent to 36 months of their last salary in addition to other benefits. The decision is believed to have been taken under pressure from international financial institutions, such as the International Monetary Fund, which want the government to cut its expenditure on salaries and instead spend more on social sector development. But although the downsizing is aimed at promoting efficiency in the bureaucracy, critics say it will worsen unemployment in the country, where 2.4 million people are without jobs. The plan is also receiving criticism because it is targeting only low-income employees, or those with a monthly income of between $50 and $150. And while the government has spelled out its retrenchment plans, it still doesn't have the resources to implement them, observers say. According to official estimates, the present retrenchment plan is going to cost the government around $4 billion which, official sources say, the government will borrow from international donor agencies. So although the plan was unveiled late last month, there is no certainty as to when it will be implemented and how. Its previous Golden Handshake Scheme was discontinued because of opposition. The scheme has prompted similar moves in other sectors. Four provincial governments and semi-government corporations, taking a cue from the federal government, have announced plans to cut staff positions. Among them are Pakistan International Airlines and Pakistan Telecommunications Corp. A 1998 World Bank document on the previous retrenchment program stated that "Civil service reform is a complex and difficult task. While in Pakistan the government rapidly initiated a downsizing exercise involving a review of the rationale for the existence and staffing of government agencies, the resulting recommendations were not implemented due to concerns about the large numbers of public sector employees that would be rendered redundant. "Instead, an untargeted voluntary Golden Hand Shake Scheme was promulgated in August 1997, under which employees could retire early with enhanced benefits," it said. "More than 80,000 persons responded to this offer, but due to its high up-front cost and Parliamentary and labor opposition, the scheme was shelved temporarily." People who took part in the earlier scheme have suffered at the hands of poor interest rates. In 1997, commercial banks were offering rates of return of around 18 percent a month. Now the rate of return has been cut by almost half. Coupled with a 13 percent inflation, retrenchment packages that were invested have lost a lot of value. Last year, the government reduced the monthly interest rate on government saving schemes, hoping people would switch their investments into new businesses, ultimately reviving the stagnant economy. The government estimates that as many as 4,000 industrial firms are financially weak. Advising the government not to go ahead with its downsizing plans, The News, a leading English daily, said that at a time when jobs are not easily available, the government has to shoulder the responsibility of being the largest employer. "As the total projected savings is much too small, less than half a percent of the government's total annual expenditure of 600 billion rupees [$12 billion], the decision of declaring thousands of employees as surplus could have been avoided. The people should have been allowed to go at their usual retirement age [60 years] allowing the government to grow thinner slowly and gradually," it said in an editorial. (Inter Press Service)

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