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Sunday, August 19, 2007

Pakistan's Challenges

Read here a story about Pakistan at 60 taken from Forbes.com. The story talks about the challenges that Pakistan currently faces.



"At 60: Pakistan's Potential, Pakistan's Conundrums", by Ruth David

Sixty years of independence may have mellowed its fights with its fraternal twin, India. But Pakistan is still struggling to realize its full economic potential as political uncertainty and the image it bears of being a safe haven for terrorists discount its standing among global investors hunting for new markets.

A country that grew at 7.5% annually over the past five years and is estimated to grow at around that rate for the next five is finding it tough to attract an abundance of outside money because of mainly political concerns. Last year, Pakistan got about $8.5 billion in foreign investment.

“Overseas investors, especially in the Western nations, have become more cautious. But investors from regions like the Middle East and China don’t seem to be as worried about political risks,” said Ahsan Chishty, an economist at Standard Chartered Pakistan. Legislative roadblocks to privatization and delays in important private sector listings have also emerged as a key concern for investors.

Pakistan’s trade balance remains problematic, as imports are growing twice as fast as exports, he observed. The current account deficit will probably reach 5.0% of GDP, against 3.8% in the last fiscal year.

But going by Pakistan’s history, there’s a consensus that economic and trade policies will more or less remain the same even if governments change, Chishty said. And the military government has been more successful than democratic governments in executing economic policies, he pointed out.

The Muslim-majority nation’s Independence Day celebrations Tuesday come at a tough time for President Pervez Musharraf, who assumed leadership after a bloodless coup in 1999.
The president’s attempt to fire independent Chief Justice Iftikhar Mohammed Chaudhry resulted in months of street protests. Ultimately, the Supreme Court struck down Musharraf’s action. The setback led to renewed vigor among the political opposition, though they’re not yet fighting as a unified front.

And in July, Musharraf’s decision to send the army into Islamabad’s Red Mosque--where militants were holed up and had taken innocents captive--resulted in the deaths of around 100 people. He drew flak for not cracking down earlier on extremists using the mosque. More than 200 people have died in attacks by militants in Islamabad since the mosque encounter.

The incident, a stark reminder of the potent presence of terror groups in Pakistan, prompted Standard and Poor’s to revise its outlook on both the country’s foreign currency rating and the ability of local companies to meet domestic and overseas obligations to “stable” from “positive.” “The outlook revision reflects growing concerns over the country’s deteriorating security environment and the risk of potential fiscal slippages,” it said.

Pakistan is seen as a key ally in the U.S. fight against militant groups in the regions. Nevertheless, “While he has helped undermine one specific terror organization [Al Qaeda], Musharraf and his team have very systematically encouraged the growth of several other terrorists on Pakistani territory. But the West chose to ignore that,” said Sundeep Waslekar, president of the think tank Strategic Foresight Group.

Neighboring Afghanistan is has suffered because Taliban members using remote areas of Pakistan as a refuge have been attacking bases in that country since 2002, Waslekar pointed out. And, New Delhi has on several occasions accused Islamabad of sheltering terrorists who launched attacks on its soil.

But Pakistan’s ties with India have improved considerably in the last few months. Officials from both countries are engaged in yet another round of peace talks aimed at resolving economic and political issues, including Kashmir, over which they have fought two wars.

They now aim to increase bilateral trade to $10 billion, up from last year’s level of $1.6 billion. Restrictions from both sides have severely hampered business in the past, encouraging the growth of trade by smugglers via Saudi Arabia and across land borders, estimated at a whopping $2 billion.

“The India-Pakistan dialogue is serious, and the two countries are committed to finding some way to reduce tension if not resolve all the conflicts.… But the main problem is not so much any specific issue, including Jammu and Kashmir, as it is the lack of willingness on the part of security elite in the two countries to accept the other as an adult partner in the relationship,” said Waslekar.

Amid mounting pressure internally and from the United States, Musharraf is expected to call national elections early next year so the country can return to democracy. And, though plenty of uncertainties remain, if the political transition is smooth, the economy will “outperform,” predicted Chishty.

But, as with India and several other emerging nations that are witnessing a spurt in growth, Pakistan has taken criticism for a pattern of growth that leaves behind large segments of the population. In a country of 160 million, where 33% live under the poverty line by U.N. estimates, the state has completely neglected the impoverished, say critics.

The national mood is mixed. The corporate sector and business community have benefited a lot in the past eight years. They have made huge profits and would like the status quo with minor variations to continue. But the broad masses are highly restive. “Inflation has hit them hard,” said political commentator and former army General Talat Masood. Inflation is topping 6% at present.

“Clean water is a luxury and public transport throughout the country is pathetic. Infrastructure in major cities remains inadequate, and there is a huge energy deficit,” he added.
But there’s optimism that Pakistan’s civil society is reasserting itself, as witnessed during the judicial crisis earlier this year. “There is a definite change in the attitude of people,” Masood said.

But the former army man was unequivocal on one issue. “Pakistan needs genuine democracy and not a fake one if it has to be at peace with itself and the outside world.” Inshallah to that!"

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