ISLAMABAD — Pakistan’s military leader, Gen. Pervez Musharraf, who remains under U.S.-led Western pressure to sign the Comprehensive Test Ban Treaty, also faces another challenge: that of reforming his country’s battered economy.
Although some of the punitive economic sanctions imposed following Pakistan’s 1998 nuclear tests have been relaxed, the country is not far from economic collapse.
In just a few months, the government must begin preparing for another round of international debt restructuring. One cornerstone of the proposed new restructuring is a yet-to-be-negotiated IMF program that would give Pakistan the credibility that many of its other lenders and donors seek.
Can Musharraf meet the challenge of taking Pakistan through debt restructuring, if only to prevent the country defaulting outright on its debt repayments, even if he is unable to sign the CTBT?
Many Pakistani hawks, most notably members of the numerically moderate though well organized Islamic groups, continue to oppose the idea of accepting the CTBT. If Musharraf refuses to budge on the CTBT, his best chance of preventing further economic slowdown would lie in turning Pakistan’s economy around decisively enough to gain favor with the International Monetary Fund and other lenders.
While the so-called community of nonproliferationists may continue to seek punitive measures, it would be difficult for important Western economic powers and economically influential states like Japan to block or even substantially curtail new financial flows.
Pakistan’s nuclear status has not won wide support, but it would be hard for the global community to find fault with a state that can offer substantial economic reforms as an added guarantee of future responsible behavior on the nuclear front.
But Musharraf, whose government has just delivered its first budget, needs to move on at least three fronts before he can expect to receive international support for Pakistan’s beleaguered economy.
First, Musharraf’s promise to increase Pakistan’s tax revenues by a staggering 24 percent in the next 12 months will be hard to fulfill. The military regime has set itself the task of turning around Pakistan’s weak economy, one in which a large black market means that few people pay taxes. In fact, just 1 percent of a population of 140 million pays any income tax. The government needs to see a rapid improvement in tax collection if it is to trim the large budget deficit of around 6.1 percent of gross domestic product.
However, it is unclear where the first phase of the tax reforms, announced earlier this year, will eventually lead. A coalition of Pakistani businessmen is strongly opposed to a plan to send out tax auditors. Businessmen argue that the plan is flawed because it leaves them at the mercy of tax officials, themselves notoriously corrupt.
In the next few months, if Pakistan fails to get more people paying their taxes, the government will likely lose face with its Western lenders and donors, making it more difficult for a new IMF program to be launched.
Second, Musharraf will find it difficult to deliver on his promise to clean up society by means of the so-called accountability venture — the process of prosecuting the corrupt. This is a tall order. During the 11 years of democracy before Pakistan’s Oct. 12 coup last year, many politicians and leading businessmen found themselves becoming embroiled in corruption. But finding enough evidence to prosecute those accused of corruption is much harder than making promises.
In the first eight months of the military’s rule, the government’s National Accountability Bureau has received almost 5,000 complaints of corruption against senior bureaucrats, politicians and retired defense officials. So far, investigations have begun in just 700 cases, partly because there are just not enough qualified investigators in the country to adequately investigate white-collar crime.
As long as this issue remains unresolved, the Pakistani economy risks being weakened still further as prospective investors shy away. It is significant, then, that Pakistan is to receive an estimated $450 million in new foreign investments in the financial year that ended this June, marginally up from the $415 million invested during the previous year. Musharraf’s biggest dilemma here must be that in moving to clean up society, he is bound to trigger a drying-up of investment as nervous businessmen take a back seat, or perhaps even consider leaving the country rather than risk prosecution.
Finally, the issue of economic management is intrinsically linked to Pakistan’s foreign-policy choices. For years, the country has fallen into increasing disrepute because of its international image as a safe haven for militant groups involved in fighting the “jihad” or holy war, especially in the predominantly Muslim Indian state of Kashmir.
The activities of these groups have not left Pakistan unscathed. Within the country, bloody violence involving members of rival Muslim sects has at times involved groups fighting for a holy cause elsewhere. The main problem here is that once a group is armed and trained, it then has the independence to choose its own battlegrounds.
As Musharraf tries to reform Pakistan’s economy, he must move to rein in some of these groups.
Finally, the bloodless coup makers of last October were accorded celebrity status by many Pakistanis simply because people were tired of the regime of former prime Minister Nawaz Sharif, best remembered for trying to accumulate overwhelming power while ignoring the need to introduce reforms. But with the passage of time, many Pakistanis have reason to ask themselves exactly why they continue to support the new regime.
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