PAKISTAN: Trading insults as the economy turns around

23 December 1994

BITTER political rivalry is once again threatening the future of democratic government in Pakistan. In a neat reversal of roles, opposition leader Nawaz Sharif is using charges of corruption to try and dislodge Prime Minister Benazir Bhutto and the ruling Pakistan People's Party (PPP).

The target is different but the tactics are the same as those that brought down Sharif's own government in 1993. His repeated accusations against Bhutto, her family and its friends have stirred unrest in the national assembly and on the streets.

Another drain on the government's morale is the unabated violence in Sind, where the Mohajir Quami Movement (MQM) is challenging the PPP's traditional domination. Tensions have also arisen in the Punjab, where power is in the hands of the chief minister Mansour Wattoo, a nominal ally. He is believed to be building a third political force to exploit the apparently irreconcilable differences between the PPP and Sharif's Pakistan Muslim League. Their inability to co-operate has delayed adoption of a constitutional amendment to clip the extensive powers of the president.

Beset by turmoil in internal politics, Bhutto has fared little better in the thorny dispute with India over Kashmir. Her government was embarrassed when an attempt to move a UN resolution on the future of Kashmir failed to muster sufficient support. Still deadlocked over Kashmir, Delhi and Islamabad are also at odds over the nuclear question. Pakistan's refusal to sign the nuclear non-proliferation treaty, making it conditional on India doing likewise, has meant that the US has maintained its sanctions on economic and military aid. Its development aid programme will also end this year.

As ever in Pakistani politics, the premier's survival depends on a good working relationship with the army, now headed by chief of staff General Abdul Waheed. Bhutto is tackling essential issues of economic reform and the military has no quarrel with the policies she has pursued during the first year of her new administration.

There has been some progress towards meeting the IMF targets laid down in November 1993, and the efforts to reduce the budget deficit, build up foreign reserves and stimulate private investment have been recognised. The IMF made more than $1,350 million worth of resources available in February, while the World Bank, Asian Development Bank and Japanese agencies have also approved a series of concessionary loans over the last year.

Raising revenues is still a problem. Widespread tax evasion and resistance to a new general sales tax will oblige Pakistan to continue relying on external sources of income. Privatisation is one source of funds which is expected to gather momentum as the government prepares to extend the range of sectors for sale.

Foreign investors have responded keenly to the introduction of new incentives in the hydrocarbon and power industries. Exploration acreage is being snapped up by international oil companies that are excited by Pakistan's gas potential.

In the power sector, project proposals with a total generating capacity of more than 8,000 MW, and industrial projects worth more than $1,700 million, are under discussion. As long as the political risks of investing in Pakistan can be contained, international enthusiasm for this challenging market seems set to flourish.

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