Property Rights: Reforms and Challenges in Pakistan Ali Salman Economic Freedom Network Asia Manila September 2008

Property Rights: Reforms and Challenges in Pakistan 2 Motivation To understand history of reforms and current challenges in private property rights in Pakistan To explain existing situation in the light of De Soto’s framework To identify a road map of investigative research

Property Rights: Reforms and Challenges in Pakistan 3 Main Results Pakistan has remained a heavily under- capitalized country due to  Information Failure  Legal Failure  Political Failure  Limited access to capital PROPERTY RIGHTS

Property Rights: Reforms and Challenges in Pakistan 4 Methodology Based primarily on secondary sources Review of past reports and articles Some Interviews

Property Rights: Reforms and Challenges in Pakistan 5 THEORETICAL FRAMEWORK [DE SOTO] PROPERTY RIGHTS  Ownership of Legal Title of an Asset  Process to convert Asset into capital MYSTERIES  Information  Capital  U.S. History  Political Failure  Legal Failure

Property Rights: Reforms and Challenges in Pakistan 6 MYSTERIES EXPLORED INFORMATION: the case of 9.3 trillion dollars … CAPITAL: ownership is the iceberg… POLITICAL AWARENESS: taking stakeholders on board… U.S. HISTORY: long struggle involving judiciary and politicians… LEGAL FAILURE: merging ‘social contract’ into law…

Property Rights: Reforms and Challenges in Pakistan 7 Property Rights in Pakistan Reforms and Challenges

Property Rights: Reforms and Challenges in Pakistan 8 Mystery of Information World Bank Project worth USD 45 million to improve:  Land records service delivery  Tenure security  Operations of land market Computerization without structural reforms does not alter the relationship Facts finding about millions of small and informal enterprises remains a very big challenge

Property Rights: Reforms and Challenges in Pakistan 9 Mystery of Capital The only instrument used by the government to expand formal sector is by some tax breaks and tax incentives.  Pay 2% and white your assets! Size of ‘extra-legal’ economy could at least be 50% and it grows 3% faster than official economy! Challenge is to win the trust of small enterprises for access to finance…

Property Rights: Reforms and Challenges in Pakistan 10 Mystery of Political Awareness Transfer of assets to the poor without any political strategy is counter productive  Transfer to landless farmers (haris) A violent struggle over land tenure and tenancy issues between Military and farmers

Property Rights: Reforms and Challenges in Pakistan 11 Mystery of Legal Failure Western Union money transfer is an example of a ‘social contract’ building upon efficiency of hawala system and transparency of banking system. USD 5 billion annual flow through informal channels, i.e. 130% of official flow. Challenge is to identify an efficient and cost effective method for transfer of money

Property Rights: Reforms and Challenges in Pakistan 12 Recommendations: Fact Finding Impact of land transfer to landless farmers Potential wealth of small and informal enterprises Study of an ‘illegitimate’ law and projected effect of reforms Evaluation of Land Record Information Systems Comparison of money transfer through legal and illegal means