Washington Report on Middle East Affairs, October/November 1998, pages 35, 102

Special Report

Grim Economic Day of Reckoning Arriving for Pakistan

By M.M. Ali

“Over 90 percent of the people in Pakistan live in abject poverty. They are deprived of the most basic amenities of life while less than 5 percent live in a state of obscene luxury,” Shahbaz Sharif, chief minister of Pakistan’s Punjab state and brother of Pakistani Prime Minister Nawaz Sharif, told a Washington, DC audience in mid-August. This opening gambit was meant less as a confession of national failure than a means of diffusing the sharp questions that were bound to follow his speech.

Shabaz Sharif’s visit to Washington has been interpreted variously. Although he has no official position in Pakistan’s federal government or its foreign affairs establishment, his arrival to meet overseas Pakistanis was given almost official treatment.

In Washington he was escorted by Pakistani Ambassador Riaz Kokhar, a veteran career diplomat, to meet members of Congress, and to closed door sessions with such senior State Department officials as Undersecretary of State Strobe Talbot and Assistant Secretary for South Asian Affairs Rick Inderfurth.

Interestingly, Shahbaz Sharif’s visit coincided with a visit to Washington by Indian Minister Jaswant Singh, who speaks for the ruling BJP party on foreign affairs. This fueled speculation that perhaps the United States was assisting India and Pakistan to conduct informal negotiations to reduce tensions in the subcontinent. However, it could not be ascertained whether or not Shabaz Sharif and Jaswant Singh ever met face-to-face during their respective U.S. tours.

In two carefully choreographed speeches at a Washington luncheon and a dinner, both on Aug. 19, the visiting Pakistani chief minister acknowledged that “not all is well” in Pakistan. He regretted that the United States had clamped on sanctions while making no distinction between India, which had opened the nuclear Pandora’s box in South Asia with five nuclear tests, and Pakistan, which reacted by conducting its own nuclear tests.

“There is no question that the sanctions are hurting us,” Sharif said. “But, insha’Allah, we shall brave it out.” He went on to list efforts being made in Pakistan “to improve the law-and-order situation, to increase literacy and to provide at least basic health and medical amenities of life.” Predictably, Shahbaz also cited the construction of the Islamabad-Lahore highway, a costly pet project of his brother, Nawaz Sharif, as visible evidence of growth.

Pakistan’s Shattered Economy

Unfortunately, the up-beat pronouncements of Shahbaz Sharif, especially on the economic front, were not echoed from Islamabad by the new deputy chairman of Pakistan’s Planning Commission, Ahsan Iqbal, who enjoys the rank of minister at the federal level. He pointed out that the Pakistani government is faced with a 70 billion rupee (official rate is Rs. 46 to one U.S. dollar) shortfall. The minister explained that Pakistan’s estimated revenue target for the year is Rs. 350 billion, whereas a sum of Rs. 420 billion is required to meet defense and debt servicing (Rs. 145 for defense and Rs. 275 bn for debt servicing). Minister Iqbal said that the government has saved Rs. 20 bn through austerity measures but still needs Rs. 90 bn to meet net expenditures. In fact, the declining value of the rupee has led to steep inflation, while new taxes on consumer products have imposed additional hardships on the Pakistani public.

On the same subject, the Aug. 22 London Economist wrote: “The government’s immediate problem is a drastic shortage of cash. For decades Pakistan has imported more than it has exported, using foreign aid, commercial loans, remittances from workers abroad and foreign investments to finance the shortfall.”

Following the nuclear tests in late May, Pakistan imposed a state of emergency, and the State Bank froze over $11 billion in local dollar accounts. This led to an end of remittances through banks, and severely damaged the credibility of the banking system.

More recently, the State Bank has declined to authorize any foreign exchange to anyone, including students studying abroad. Instead it advises people to buy foreign exchange from the open market, where the dollar is selling at Rs. 60. Each week, as traditional sources have dried up, both internal and external debts keep mounting.

The World Bank and the International Monetary Fund now are calling for strict financial discipline before any monies can be released. Japan has declined to provide Pakistan with loans. Saudi Arabia, Kuwait, and the United Arab Emirates, which had been providing some relief in recent months, also are reluctant to lend.

Unless a major bailout is arranged, Pakistan may have to default on its debt repayments, or even declare outright bankruptcy.

Although U.S. sanctions have aggravated them, these grave economic problems are not anything new. Neither the government of Benazir Bhutto nor of Nawaz Sharif has tried to deal with them seriously, choosing instead to play politics with the economy. Now Band-Aid treatments are only adding to the huge debts, without providing any solutions. Pakistan’s external debt today stands at $4.5 billion and is growing.

The highly publicized austerity measures taken so far have been no more than cosmetic. The prime minister moved into smaller housing and put up the palatial official residence for sale. Everyone knows that such steps produce newspaper headlines, but do little to offset the huge national debt. While the government declines to come to grips with reality, disaster is moving closer.

Politics of Pakistan

For a long time when no political party could form an independent government, Pakistan experienced political instability. But now that Mian Nawaz Sharif’s Muslim League has a clear majority in the National Assembly, the country faces new problems.

Taking advantage of his party position, Mian Sahib, as he is popularly known, persuaded the National Assembly to pass, in March 1997, the 13th amendment to the constitution abolishing the president’s powers to dismiss the prime minister. In June 1997, under Nawaz Sharif’s prodding,

parliament passed the 14th amendment, removing the same authority from the parliament by making sure that members cannot cross the floor or change parties. In November 1997 he reduced the authority of the judiciary, and in December 1997 he replaced the president, a holdover appointment by Benazir Bhutto, with his hand-picked nominee.

Still the internal law-and-order situation remains out of control, corruption is rampant, the economy shows no signs of improving, and political unrest is evident. There is growing talk of the need for change.

Now Nawaz Sharif has introduced a bill (which, if passed, would become the 15th amendment) declaring that Pakistan will be run in accordance with tenets of the Qur’an and Sunnah. He knows, as do both his rivals and supporters, that the present desperate conditions in Pakistan are far from conducive to instituting a far-reaching constitutional transformation to Islamic law at this time. However, it also is true that in times of stress Pakistanis look to their religion for the assurances and security they have not found in secular institutions.

Particularly since the U.S. missile attacks on Sudan and Afghanistan, which violated Pakistani air space and killed Pakistani nationals in Afghanistan, right-wing forces have gained political momentum in Pakistan.

Recent Taliban military victories inside neighboring Afghanistan also have fueled expectations of Pakistan’s right-wing groups. In their initial reactions to the U.S. attacks, Osama bin Laden has become an innocent victim of U.S. arrogance in their eyes. Perhaps Nawaz Sharif concluded that the best way to silence them was by pulling his religious critics directly into politics.

Although he has toyed with the Islamization card for some time, Pakistan’s current political turmoil and possibly imminent economic collapse provided the incentive to fall back on the Book. Sharif’s mentor, the late Gen. Zia ul-Haq, also used this technique at one time. And over the past half-century in Pakistan, whenever things have appeared to be getting out of hand, the army has intervened to bring back normalcy.

To counteract such an eventuality this time, yet another card has been put into play. The word has gone out that army chief Gen. Jehangir Karamat comes from an Ahmadi family. The Ahmadi sect, it may be recalled, has been formally declared non-Muslim in Pakistan and some other Islamic countries.

In view of the proposed 15th amendment, therefore, Karamat would have to think twice before ordering a new military intervention. It is ironic because the Pakistani army today is not led by Sandhurst-trained officers. Instead, many of its commanders are abstemious practicing Muslims.

The 15th (Islamization) amendment, however, is not likely to sail through the National Assembly. Sensing the likelihood of opposition, Sharif has decided to test public support on the issue before letting it come to a vote in the parliament. Meanwhile, even religious parties are questioning Sharif’s motives.

Moderates are reluctant to endorse a radical change in the political and legal management of the country. Many are wondering how the institutions built on the secular concepts of democracy will mesh with the requirements of the shariah—the Islamic code—overnight, particularly when Pakistan’s economic fortunes are at such a low ebb. The whole issue has started a fresh national debate which can either inject a new note of realism into the country’s economic life, or can polarize the country further.

President Clinton’s surprise call to Nawaz Sharif on Sept. 8 is being interpreted as a softening of Washington’s attitude toward economically strapped Pakistan. Nawaz Sharif is scheduled to visit the United States in the third week of September.

Speculation is that, except for the Kashmir issue, Sharif is likely to sign on all the dotted lines, including the Comprehensive Test Ban Treaty, if that is what it takes to re-open the jammed assistance doors. While the country’s economic situation depends to some extent on negotiations during the trip, it may seem like a restful vacation compared to what might await him when he returns to Pakistan.