Dangerous Ground

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It's the Economy, Stupid
The economy needs attention, too. During Musharraf's eight-year tenure, first as General, then as President, foreign direct investment rose, the Karachi stock exchange outperformed regional neighbors and GDP grew on average 7% a year. The lifting of international economic sanctions, imposed in 1998 when Pakistan tested its first nuclear bomb, was partially responsible for the boost, but Musharraf also privatized key industries and opened up the banking sector. The rapid growth, however, exposed cracks in infrastructure that was failing to keep up. "The economy has been good for big business, good for the per capita averages and good for GDP," says Tasneem Noorani, who served as Secretary of the Interior under Musharraf. "But it has not been good for the common man. We are all waiting for the trickle-down effect."

While Musharraf's government brought electricity to remote villages — a popular vote earner — it failed to increase energy production. "Sure, we saw incredible growth over the past five years," says industrialist Mirza Ikhtiar Baig, "but the previous government failed to generate a single additional megawatt. If you have that kind of growth but do not generate the power to go with it then the system will collapse." Load-shedding — as much as 18 hours a day in some areas — has brought production lines in key employment sectors such as textile-manufacturing to a standstill. Rising oil prices had been mitigated by government subsidies during much of Musharraf's tenure, but such subsidies can no longer be sustained. The cost of fuel — used for both transportation and energy production — jumped 17.7% in March, echoed by a 20.6% leap in food-price inflation. The price of bread has nearly doubled. So has the cost of a haircut and a shave on the streets of Karachi. "What can we do?" says barber Shoaib Ahmed, a bachelor who eats all of his meals at a nearby hostel. "If the hotel raises the cost of a roti [a small, flat bread], there is no way then but to raise the haircut prices."

The new government points out that it is not responsible for the country's current economic difficulties. "How many of Pakistan's problems have been created solely during the last 100 days [that the coalition government has been in power] and how much is the cumulative effect of constitutional deviations and patchwork policies over several years?" says Farahnaz Ispahani, a PPP parliamentarian and spokesperson. "Food-price inflation and high oil prices are now a global phenomenon. Bringing prices down may be beyond the capacity of any Pakistani government." But Gilani's administration cannot just wring its hands. It could start by encouraging foreign investment and privatization — moves that have been anathema to his socialist-leaning PPP. The pro-business Muslim League may prove useful. "At this point in time, given the state of the economic crisis, it actually makes sense to have a coalition between these two parties," says Samina Ahmed, South Asia project director of the International Crisis Group. "The workers have a voice in government as much as the industrialists, traders and the business community." If they can work together, she says, they may be able to form a compromise that pushes the economy forward.

Most urgently the government will have to address Pakistan's pressing energy needs. It has already installed barge-based power generators that run on diesel, but that is a temporary, and expensive, solution. The building of dams and coal-based generators is stymied by political disputes. The Indus River, a potential source of hydropower, runs through two provinces whose governments cannot agree on water-sharing rights. Development in Baluchistan, which has rich reserves of coal, has been held hostage to a local insurgency rooted in long-simmering resentments over what it considers to be the central government's exploitative approach to the province. "Baluchistan is central to Pakistan's economy," says the Crisis Group's Ahmed. "It is incredibly rich in not just the resources that are being exploited, but in the resources that are yet to be exploited. Bringing the alienated Baluch back into the fold by stopping military operations and by releasing political prisoners means that the riches of Baluchistan will work to benefit not just the federation but also the Baluch people."

Riots over power shortages, usually a standard summer feature when demand is at its highest, are rocking Pakistan's major cities. In the industrial town of Multan, a recent protest over power outages saw 58 gravely injured and hundreds of thousands of dollars in damage to government buildings, factories, utilities and vehicles. If the problems continue it could lead to political instability. "The economy is more urgent than extremism," says an American diplomat in Islamabad.