What happens now in Pakistan?

Pakistan President Pervez Musharraf responds to people gathered after the farewell ceremony on his departure of the presidency in Islamabad on August 18, 2008.

TEXT OF STORY

Kai Ryssdal: There are times when it's tempting to try to shoehorn an economic angle into a political story. Today's news out of Pakistan presents no such dilemma, because the country arguably at the center of American efforts at regional stability in the Middle East is loaded down with some very serious economic troubles. Troubles that whoever takes Pervez Musharraf's place is going to have to deal with sooner rather than later. Ahmad Faruqui writes regularly on the Pakistani economy. Mr. Faruqui, good to have you with us.


Ahmad Faruqui: Thank you. My pleasure.

Ryssdal: President Musharraf went out of his way this morning to reject blame for the state of the Pakastani economy. What is the state of the that economy today?

Faruqui: Well, the state actually is pretty grim. There is a very high rate of inflation in excess of 20 percent. Oil prices, of course, are a part of it as are food prices. But in general, the economy is in bad shape also because of a power shortage.

Ryssdal: But there have been points in the last nine years, during the Musharraf presidency, when the economy was doing pretty well, wasn't it?

Faruqui: Yes, it really picked up in the post-911 period, because of a lot of economic aid and concessions from the United States and the international lending agencies. Plus a big factor was foreign remittances started coming into the country at a very high rate, again a post-911 scenario, if you will.

Ryssdal: If you could get the current coalition on the phone right now and give them some advice about how to turn things around, what might you say?

Faruqui: Well, what I think what they need to do in the very near term, of course, is to restore an element of law and order, and security on the streets, because there's nothing like destruction on the streets to discourage economic growth and particularly investment from abroad. Then they have to turn their attention to the large budget and trade deficit. Revenues are not keeping pace with expenditures, so they need to find a way to cut those expenses. But they have to do them in such a way that
they don't upset the politics of the street. So they have to find temporary loans, perhaps from the Saudis, perhaps from the World Bank to still keep the subsidies in place, but to gradually phase them out to raise revenues.

Ryssdal: Loans from the Saudis to cover their oil and gas subsidies, right? What about just cutting out those subsidies themselves.

Faruqui: Well, if they were to cut the subsidies out tomorrow, let's say, there would be riots in the streets and the coalition would collapse. They shouldn't have been subsidizing to begin with, right. But that was the Masharraf era. And they were hiding the real costs from the customers. That's why the budget deficit was growing, because the subsidies were rising and nobody paid much attention to it, because everything looked pretty good. He kept talking, what, 8 percent a year growth.

Ryssdal: Do you think the United States is going to continue its aid programs to the same degree?

Faruqui: Excellent question, and I think the answer is yes. But what will change is the share of the civilian aid for economic and human development projects. I believe that number is going to triple ..., if the recent resolution in the Foreign Relations Committee passes in the whole
Senate. That should help strengthen the social-economic development side, improve the relationship between the Pakastini people and the American people, mitigate some of the anti-Americanism that has really crept into the political fabric there. And that's where we will see some real changes.

Ryssdal: Ahmad Faruqui is an economist up in San Francisco. He writes a regular column for the Pakistani English-language newspaper Dawn. Mr. Faruqui, thank you so much for you time.

Faruqui: My pleasure. Thank you.

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