Fixing Pakistan’s Embattled Economy

Via Foreign Policy, a look at Pakistan’s embattled economy:

Pakistan warrants concern, and not just because it is sitting on the fifth largest nuclear arsenal in the world. The country is in the throes of a destabilizing and dangerous energy crisis. It faces gas shortages, and electricity outages of up to 20 hours a day. As a result, factories have been forced into closing. There is double-digit inflation. Infrastructure is crumbling for want of resources. And harrowing stories of the newly impoverished setting themselves on fire or resorting to crime have become the new normal.

Good deeds never go unpunished in Pakistan. The United States, Pakistan’s most generous ally, remains public enemy No. 1 for reasons that do not withstand any rational scrutiny. But then Pakistan has never been accused of being terribly rational. As someone invested in Pakistan’s progress, I have always maintained the U.S. must provide an energy lifeline to our ally country to establish in real and rapid terms the consideration it accords the 190 million people of Pakistan. If the U.S. were to help solve Pakistan’s energy crisis-and it can-there could be no better measure to manage and mitigate anti-America sentiment in the country and no better billboard to showcase that the U.S. means business.

Unfortunately, far too often the urgency of U.S. economic support announcements and photo ops in Islamabad are dulled by inaction or bungled by red tape in Washington. This fuels disenchantment at many levels. Speaking at the Woodrow Wilson Center in Washington last April, Pakistan’s finance minister Abdul Hafeez Shaikh said his country had “not even received $300 million” of the $1.5 billion in annual economic support promised to Pakistan under the Enhanced Partnership with Pakistan Act of 2009.

It is also true that the government led by President Asif Ali Zardari is crippled by compulsions of keeping intact a coalition of disparate parties often at odds with each other. Thus, Mr. Shaikh is the country’s fifth finance minister in four years. The turnover at the other key ministries-water and power, and petroleum and natural resources-is just as alarming. The government’s capacity for economic and information management also seems woefully inadequate.

Then there are the corruption allegations Mr. Zardari faced in the 1990s and which didn’t lead to a single conviction. These are still in circulation and, coupled with Pakistan’s governance crisis, provide Zardari critics in Pakistan’s freewheeling media and opposition virtually uncontested space to hurl with indignant certitude all manner of accusations against foreign, and local, investments made on his watch. In other words, any projects during the last four years for the economic advancement and eminent good of Pakistan-including the Enhanced Partnership Act with the U.S.-are, in the popular imagination, either Trojan horses or sweetheart deals.

As if things weren’t bad enough for Pakistan’s image abroad, the country’s irreversibly sensational and bizarrely anti-business media gleefully peddles self-fulfilling prophesies of an economic and political meltdown. If you strip down the self-righteous rhetoric, the media in particular is determined that Pakistan’s economy fail-at least while Mr. Zardari is around.

We have seen this picture before. In the mid-90s, when Mr. Zardari’s assassinated wife, Benazir Bhutto, charmed investors into setting up privately-owned power plants, her government was accused of corruption. When Nawaz Sharif’s government took over, it launched “investigations,” arresting not only the executives of these foreign and local power companies but also their family members. The effects were disastrous. The investment climate became toxic and would remain so until 9/11. And potential investors like Gordon Wu, who had wanted to invest $6 billion in Pakistan, ran for the nearest exit.

Faced with international censure and arbitration proceedings, Islamabad eventually agreed to a settlement: the power companies reduced their tariffs to afford the government some face saving, and the government rewarded the companies by extending their contracts with public sector power buyers. Today, the “independent power plants” Bhutto set up provide almost 30 percent of Pakistan’s total electricity supply. One hopes that Bhutto and Zardari opponents realize how much worse the energy crisis would have been had these power plants not been installed.

Since the summer of 2006, Pakistan has seen recurrent and riotous protests over power shortages. These picked up after the Zardari-led government was elected in 2008 and as outages grew, exacerbated by the government’s liquidity problems. The protests have resulted in the destruction of public property-and deaths. The opposition has led several of these protests while simultaneously ensuring through litigation and an unrelenting media trial that no new power generation capacity comes online during Zardari’s term. Yet, no one has called out the opposition over its rank contradictions and persecutory power past.

For the last two years, Pakistan’s Supreme Court had been hearing three “human rights” petitions, including one filed by a Sharif lieutenant, challenging the installation of fast-track power plants as a short-term solution for the country. On March 30, the eve of another power protest by the opposition, the court delivered its verdict: all “rental power” contracts were declared illegal and rescinded and an independent agency was ordered to launch inquiries in support of the judgment. At 7:40 p.m. that day, we were directed to shut down power supplies to Naudero, Bhutto’s constituency. American personnel at the plant have been flown back. Almost all Pakistani staff has been laid off.

In Pakistan’s increasingly cynical society, all success is suspect. Unless you’re Chinese, all foreign investors are viewed not as risk takers and growth drivers for the Pakistani economy but as usurpers, looters, and worse. After the recent court judgment, even the Ankara-supported “Turkey-Pakistan friendship” power ship has been impounded. And the proposed Iran-Pakistan gas pipeline is popular not just because it is critically required but because it also provides the added bonus of showing down the United States., which is opposed to the project.

There’s also the Tethyan Copper Company, a partnership between Chile’s Antofagasta and Canada’s Barrick Gold, which spent $220 million working toward a $3.3-billion copper and gold mine in Reko Diq in Pakistan’s restive Balochistan province only to be stamped as colonizers by the courts and media. When the company was forced into placing advertisements to push its facts forward in the public domain, it was slapped with a gag order and disallowed to challenge the fevered narrative of misrepresentations against it. Tethyan is headed for international arbitration, an all too familiar venue for foreign investors who put store in Pakistan. 

Pakistan is complicated. It hates the U.S., yet America is the second most popular destination for Pakistani immigrants. It resents American economic support, yet complains that there is too little of it. It craves investment, but will rescind legal contracts in paroxysms of nationalist hysteria casting a cloud over every existing and future contract.

America can help. It needs to emphasize to all Pakistani stakeholders-politicians, the judiciary, the Army-that their country must abide by its legal contracts and that it must unreservedly depoliticize the energy sector and the economy. Pakistan must enact a real defamation law that provides economic disincentives to the incendiary media and sets it on a path to self-correction. The U.S. must facilitate capacity building, especially in key Pakistani energy ministries and agencies, to effect durable, long-term economic planning. It can and should provide speedy debt support, for example through the U.S. State Department’s Overseas Private Investment Corporation, to expedite energy projects that can visibly and meaningfully improve the lives of Pakistanis. The U.S. must make its aid to Pakistan conditional on the country delivering on these basic and essential reforms.

The opposition and torch-wielding media lynch mob claim to have the best interests at heart of the tens of millions of Pakistanis-whose everyday lives are roiled by energy shortages and rendered meaningless from darkening economic prospects-but if they think they’re doing well by the people of Pakistan, they should think again.

This entry was posted on Thursday, April 19th, 2012 at 12:44 pm and is filed under Pakistan.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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