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Books on Pakistan
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Update No: 024 - (23/01/08)
Instability begins to dent economic growth
Pakistan’s political life was marked in January by the assassination of
Benazir Bhutto at the end of December, which made an already complicated picture
even more so. The assassination was followed by days of rioting and violence,
which severely disrupted the economic life of the country and contributed to
create a climate of uncertainty and insecurity. In particular, power cuts got
worse after the rioters damaged transmission lines; the textile and steel
industries have been damaged particularly badly. The rail network also suffered
significant damage. An ongoing terrorist campaign and the worsening insurgency
in the NWFP also contributed to dent the consensus optimism about Pakistan’s
economic performance. Although the Karachi stock exchange did not experience any
collapse after Bhutto’s killing, it is remaining for the moment muted and is
no longer breaking record after record. The State Bank of Pakistan, however,
revised its inflation forecast upwards, from 6.5% to 6.5-7.5%, while the GDP
growth forecast has been cut to 6.6-7% from 7.2%. Most foreign observers believe
that the inflation rate is higher than official figures suggest and will climb
higher than forecasts. A steep decline in services exports during November, the
last month for which data is available, might reflect the impact of rising
worries over the political situation. However, remittances continue to grow and
were up 19% on the previous period during July-December, although being measured
in dollars this might reflect in part the depreciation of the American currency.
In January Tullow Oil, an European company specializing in oil and gas
exploration, announced it was leaving the Pakistani market. Although oil and gas
exploration in Baluchistan and NWFP have been hampered by the violence, the move
seemed to reflect the prospect of higher profits elsewhere more than any concern
about political risk (prices of gas in Pakistan are very low).
Whoever will be ruling Pakistan after February, the general economic direction
is unlikely to change, but the mood in the streets is getting darker. Shortages
in supplies of wheat and flour and power cuts are irritating the lower strata of
society. It is likely to get worse, because so far the government has not been
passing on to consumers higher oil prices, allowing the government deficit to
continue worsening. After the elections it will be necessary to let prices grow,
hitting the population hard.
Where is Pakistan going?
With Bhutto gone, nobody is sure anymore of where Pakistan is going. The PPP is
likely to benefit at the polls in February, but it does not have a unifying
leadership anymore. Benazir’s husband is now its provisional leader and might
well try to consolidate his hold in the future, but he has no legitimacy and his
reputation as a crook will not help; many of the PPP’s leaders oppose him.
Musharraf, on the other hand, has also been significantly weakened. Most
Pakistanis believe that either the government or security agencies orchestrated
the killing of Bhutto, largely on the basis that when in doubt, ‘blame the
government’. The situation seems to be getting out of control in several parts
of the country. It appears that the Pakistani intelligence has lost control of
the militant groups which it had been nurturing for a long time, who are now
engaging in an insurgency against the Pakistani state. In Baluchistan many
Punjabi settlers are being forced to flee or re-settle by the increasing hatred
of Baluchis against them. At the same time, because of American pressure, the
option of negotiating with the militants is also precluded.
Musharraf’s inability to contain violence is contributing to deligitimise him,
while at the same time possibly eroding support for the President among the top
ranks of the army too. Unhappy about becoming increasingly involved in internal
repression, some army generals might be tempted to use Musharraf as a scapegoat
and recover some credibility by ridding Pakistan of him. The big argument
against that is that Musharraf is the one stable factor in a chaotic political
soup; there are just no other giant political figures in the country except him,
and generals on the whole, do not seek anarchy for their state.
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