Worries deepen over future of Pakistan
Sunday, 11 November 2007
Farhan Bokhari and Quentin Peel
SHARES on the Karachi stock exchange, the Pakistani military regime's main economic showpiece, fell more than 4.0 per cent in the wake of the imposition of emergency rule.
The fall prompted worries over the future of investments in an economy which has recovered with the aid of generous foreign assistance, led by the US, following years of sanctions.
Rumours, subsequently denied by the government, that General Pervez Musharraf had been ousted in a coup and the latter move by Moody's credit rating agency to put Pakistan's ratings on review deepened these worries.
"For fund managers, this is a difficult moment. We have tried building up confidence around this market on the basis of Musharraf's continuity in office leading to a continued economic upturn," said one fund manager. "If there is long-term volatility and Musharraf becomes ineffective, would the inflows continue? That's the ultimate question."
During the last financial year, sentiment in the stock market was supported by a record rise in foreign direct and portfolio investment to $8.3bn, almost double the $4.4bn recorded in the previous year.
General Musharraf's government has been credited with overseeing important privatisations in key areas such as the financial services sector.
In the past five years, Pakistan has had economic growth in the 6.5-7.5 per cent range or higher, well above the 4-4.5 per cent range of the 1990s. Liquid foreign currency reserves of about $16bn are equivalent to seven to eight months of imports -- a sharp improvement from the 1990s when reserves of about $1.0bn were enough to finance just three to four weeks of imports.
"This economy is still vulnerable in spite of the recovery in recent years. Unexpected future shocks will not help," said Abid Hasan, a senior former World Bank economist.
"Even if the economy does not take a major hit in the short run, the problem is still that a growing political crisis can increase the vulnerability, especially if there is a slowdown in equity investments.
"Keeping liquid foreign reserves and building them up further is vital to keep the inflows stable."
Kaiser Bengali, a Pakistani economist, warned that prospective new investors would be discouraged by the imposition of emergency rule.
"It is not just the danger of new uncertainty which will keep investors away. Many of them will ask: 'how reliable is Pakistan when it comes to enforcement of contracts when you have just had the constitution set aside?' " Businesspeople warned that growing turmoil would take a toll.
"If this crisis is resolved in the short term, confidence will return," said a senior Pakistani banker.
"The worry however is that General Musharraf is getting sucked into political quicksand. With confrontation growing with lawyers and other activists, it means it is only a matter of time before political parties actively join this movement. Something like that will badly damage the economy."
Meanwhile, another news analysis by Quentin Peel notes : There has been a dreadful sense of inevitability for months about the declaration early this month of a state of emergency in Pakistan. The cause has been the growing weakness of the military government of General Pervez Musharraf, rather than any newfound strength of his opponents, whether they are traditional political parties or fundamentalist groups.
In the eight years since he first seized power from the civilian government of prime minister Nawaz Sharif, Gen Musharraf repeatedly promised to return his country to fully-fledged democracy, and repeatedly failed to do so.
Instead he has allowed the military to entrench itself in business, reinforcing its role as a state within a state; he has allowed fundamentalist groups to flourish, partly as a counterweight to the established political parties he mistrusted; and he has presided over a steady decline in the power and authority of the central government, and a rise in demands for greater autonomy from regions such as Balochistan and the North-West Frontier province.
On the plus side, Gen Musharraf tried to make some progress in talks with the Indian government over the future of Kashmir, but at the same time allowed militant groups to continue their attacks on Indian forces in that territory. He has also presided over an economic recovery, with a positive programme of privatisation helping attract a notable increase in foreign investment. But the benefits of that growth have failed to filter through to the bulk of the Pakistani population, and have done nothing to stabilise the political situation.
When he came to power in 1999, Gen Musharraf was seen as a potential saviour of the country from the corruption of civilian rule and a staunch opponent of Muslim fundamentalism. He was said to have modelled himself on Kemal Atatürk, the founder of the modern Turkish state, who established a secular, democratic constitution, while coming from a strict military background.
In the event, Gen Musharraf failed on both fronts. He allowed some of his generals to dabble in jihadism, greatly increasing its influence in public life. He has also repeatedly balked at reintroducing genuine democratic elections, with all their potential faults.
The former civilian governments of both Mr Sharif and Benazir Bhutto were riddled with corruption, and the international community was tempted to give Gen Musharraf the benefit of the doubt in 1999, while going through the motions of condemning the overthrow of democracy. The Pakistani leader is trying to pull off the same trick again, although this time not as the man who would clean out the Augean stable, but as the bastion against fundamentalism and a vital ally of the US in its "war on terror".
By launching a second coup d'état he acutely embarrasses the US and other allies, including the UK. All the evidence suggests that his move was not against fundamentalist groups so much as against the judges of the Supreme Court. They might not have confirmed his eligibility to stand for election as president before he had given up his military uniform.
There are no easy solutions to Pakistan's instability, and few believe democratic elections alone will provide the answer. No stability is possible without the close involvement of the military and security establishments. But the past eight years suggest that weak and indecisive military rule provides no answer either.
.........................................
FT Syndication Service
SHARES on the Karachi stock exchange, the Pakistani military regime's main economic showpiece, fell more than 4.0 per cent in the wake of the imposition of emergency rule.
The fall prompted worries over the future of investments in an economy which has recovered with the aid of generous foreign assistance, led by the US, following years of sanctions.
Rumours, subsequently denied by the government, that General Pervez Musharraf had been ousted in a coup and the latter move by Moody's credit rating agency to put Pakistan's ratings on review deepened these worries.
"For fund managers, this is a difficult moment. We have tried building up confidence around this market on the basis of Musharraf's continuity in office leading to a continued economic upturn," said one fund manager. "If there is long-term volatility and Musharraf becomes ineffective, would the inflows continue? That's the ultimate question."
During the last financial year, sentiment in the stock market was supported by a record rise in foreign direct and portfolio investment to $8.3bn, almost double the $4.4bn recorded in the previous year.
General Musharraf's government has been credited with overseeing important privatisations in key areas such as the financial services sector.
In the past five years, Pakistan has had economic growth in the 6.5-7.5 per cent range or higher, well above the 4-4.5 per cent range of the 1990s. Liquid foreign currency reserves of about $16bn are equivalent to seven to eight months of imports -- a sharp improvement from the 1990s when reserves of about $1.0bn were enough to finance just three to four weeks of imports.
"This economy is still vulnerable in spite of the recovery in recent years. Unexpected future shocks will not help," said Abid Hasan, a senior former World Bank economist.
"Even if the economy does not take a major hit in the short run, the problem is still that a growing political crisis can increase the vulnerability, especially if there is a slowdown in equity investments.
"Keeping liquid foreign reserves and building them up further is vital to keep the inflows stable."
Kaiser Bengali, a Pakistani economist, warned that prospective new investors would be discouraged by the imposition of emergency rule.
"It is not just the danger of new uncertainty which will keep investors away. Many of them will ask: 'how reliable is Pakistan when it comes to enforcement of contracts when you have just had the constitution set aside?' " Businesspeople warned that growing turmoil would take a toll.
"If this crisis is resolved in the short term, confidence will return," said a senior Pakistani banker.
"The worry however is that General Musharraf is getting sucked into political quicksand. With confrontation growing with lawyers and other activists, it means it is only a matter of time before political parties actively join this movement. Something like that will badly damage the economy."
Meanwhile, another news analysis by Quentin Peel notes : There has been a dreadful sense of inevitability for months about the declaration early this month of a state of emergency in Pakistan. The cause has been the growing weakness of the military government of General Pervez Musharraf, rather than any newfound strength of his opponents, whether they are traditional political parties or fundamentalist groups.
In the eight years since he first seized power from the civilian government of prime minister Nawaz Sharif, Gen Musharraf repeatedly promised to return his country to fully-fledged democracy, and repeatedly failed to do so.
Instead he has allowed the military to entrench itself in business, reinforcing its role as a state within a state; he has allowed fundamentalist groups to flourish, partly as a counterweight to the established political parties he mistrusted; and he has presided over a steady decline in the power and authority of the central government, and a rise in demands for greater autonomy from regions such as Balochistan and the North-West Frontier province.
On the plus side, Gen Musharraf tried to make some progress in talks with the Indian government over the future of Kashmir, but at the same time allowed militant groups to continue their attacks on Indian forces in that territory. He has also presided over an economic recovery, with a positive programme of privatisation helping attract a notable increase in foreign investment. But the benefits of that growth have failed to filter through to the bulk of the Pakistani population, and have done nothing to stabilise the political situation.
When he came to power in 1999, Gen Musharraf was seen as a potential saviour of the country from the corruption of civilian rule and a staunch opponent of Muslim fundamentalism. He was said to have modelled himself on Kemal Atatürk, the founder of the modern Turkish state, who established a secular, democratic constitution, while coming from a strict military background.
In the event, Gen Musharraf failed on both fronts. He allowed some of his generals to dabble in jihadism, greatly increasing its influence in public life. He has also repeatedly balked at reintroducing genuine democratic elections, with all their potential faults.
The former civilian governments of both Mr Sharif and Benazir Bhutto were riddled with corruption, and the international community was tempted to give Gen Musharraf the benefit of the doubt in 1999, while going through the motions of condemning the overthrow of democracy. The Pakistani leader is trying to pull off the same trick again, although this time not as the man who would clean out the Augean stable, but as the bastion against fundamentalism and a vital ally of the US in its "war on terror".
By launching a second coup d'état he acutely embarrasses the US and other allies, including the UK. All the evidence suggests that his move was not against fundamentalist groups so much as against the judges of the Supreme Court. They might not have confirmed his eligibility to stand for election as president before he had given up his military uniform.
There are no easy solutions to Pakistan's instability, and few believe democratic elections alone will provide the answer. No stability is possible without the close involvement of the military and security establishments. But the past eight years suggest that weak and indecisive military rule provides no answer either.
.........................................
FT Syndication Service