Pakistan - It's the Economy, Stupid

By Aryn Baker/Islamabad

In recent weeks, Pakistan has been further shaken by, of all people, a bus driver, a ski-lift operator and a gym rat. On June 28 Pakistani paramilitary forces chased militants led by Mangal Bagh, who used to drive a bus, from the fringes of Peshawar, a key transit point for supplies for U.S. and NATO forces fighting the Taliban insurgency in neighboring Afghanistan. While the operation was nominally successful — Bagh and his men were driven from the area and his compound was blown up — the militant leader was back on his pirate radio station a few hours later, vowing to continue his fight for an Islamic state.

In Swat, once a tourist haven 100 miles (160 km) from the national capital Islamabad, militants burned down the country's only ski resort and torched 21 girls' schools. A spokesman for Mullah Fazlullah, the local Taliban leader who used to work the resort's chairlift, said their group was forced to act because government security forces were using some of the schools as bunkers.

In the forbidding tribal zone of Waziristan, followers of Baitullah Mehsud, the physical-education teacher turned assassin (both the CIA and Pakistan's intelligence agencies say he is behind the attack that killed former Prime Minister Benazir Bhutto in December), slaughtered 22 government negotiators seeking to cement a cease-fire accord. And on July 6 a suicide bomber blew himself up near Islamabad's Red Mosque, killing 19. While no one has claimed responsibility, it's assumed that the attack was in revenge for the death of some 100 Islamic militants who died in clashes with security forces at the mosque exactly a year ago. "Radicalism is on the rise," says political analyst Talat Masood. "The government has not been able to take control of the situation."

Five months after elections brought a civilian government back to power, Pakistan is reeling. It's not just the attacks by militants. The economy, which had been growing steadily, has been hit hard by spiking fuel and food costs. The parliamentary coalition that eclipsed the former military leader, Pervez Musharraf, promised to bring peace and progress. Instead, the new leaders are preoccupied with wrangling over who is in charge. Prime Minister Yousaf Raza Gilani, a stalwart of Bhutto's Pakistan People's Party (PPP), bows to Asif Zardari, Bhutto's widower, who is co-chair of the party but does not hold government office. The government is an unwieldy coalition between bitter enemies: the PPP and the Pakistan Muslim League-N, led by former Prime Minister Nawaz Sharif; the two parties traded power three times in eight years before Musharraf put an end to their bickering by overthrowing Sharif in a 1999 coup. Their power-sharing agreement, formed out of a common desire to oust Musharraf, is now riven over how to accomplish that. Musharraf, meanwhile, has been reduced to a largely ceremonial role as President. Says Masood: "The people are disappointed with the leadership and they are losing faith in democracy."

In order to fix Pakistan, the new government must move simultaneously on several fronts: besides tackling militancy, also the slowing economy, skyrocketing inflation, a nationwide electricity shortage and the integration of the troubled tribal areas that operate under colonial-era laws separating them from the rest of the country. But first the coalition partners need to figure out how to cooperate. "Nobody is minding the store," says Shaukat Qadir, a retired brigadier. "If they don't start paying attention, we will be in trouble."

The most immediate casualty of the political shenanigans in Islamabad is the global war on terror. According to a report released by the Pentagon on June 27, Taliban militants in Afghanistan have regrouped after their fall from power and "coalesced into a resilient insurgency." That resilience, say Western military officials in Afghanistan, has a lot to do with their ability to find sanctuary in Pakistan's lawless tribal areas along the border. The day before the report's release, U.S. Defense Secretary Robert Gates said in a press briefing that he had "real concern" that Pakistan was contributing to Afghanistan's instability by failing to prevent militants from crossing into Afghanistan to carry out attacks on coalition forces. Cross-border attacks on U.S. troops in eastern Afghanistan have gone up some 40% in recent months. Gates attributes the increase to cease-fire accords between Pakistani authorities and Islamic militants, under which Islamabad agreed to pull its military out of areas controlled by the radicals in exchange for their promise not to attack government institutions. The deals meant that "the pressure was taken off" the militants, who are now "free to be able to cross the border and create problems for us," said Gates. Not that Americans are the only target — on July 7 a suicide bombing outside the Indian embassy in Kabul killed at least 40 people — an attack Afghan authorities blamed on Pakistani elements.

To be fair, Pakistan's new government came into power after the military, at the behest of Musharraf, decided to negotiate with militants. The administration embraced the peace effort in the hope that diplomacy would succeed where force had failed. Perhaps over time the accords would have worked. Says Ayaz Wazir, a former Pakistani ambassador who hails from Waziristan: "We have a saying in Pashto [the local language], that if you fight for 100 years, on the last day you will again sit around the table and find a solution. So why not just start it now?"

But negotiations require effort, attention and political will — all of which the current government, embroiled in power plays in the capital, has not been able to muster. Though the government has granted the army full authority in the tribal areas along the Pakistan-Afghanistan border, the army has refrained from retaliation. "We are awaiting the results of the jirga [the peace meeting between tribal heads and government negotiators]," says Lieut. Colonel Baseer Haider, a military spokesman. "Then we will decide the next course of action." A Western military official compares the government's approach to that of a man seeking to buy a house without deciding ahead of time how much he is willing to spend, for how long he is willing to pay a mortgage and what conditions would not be acceptable. "[The government is] going into these talks unprepared and that's why a lot of people don't have confidence in the results."

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.

A Terrorist Sanctuary

The federally administered tribal Areas, which include Mehsud's South Waziristan base but not Swat, have always been Pakistan's Wild West, a lawless frontier land notorious for smugglers, thieves, guns and drugs. The FATA, as the area is called, is a legacy of a 19th century agreement between the British rulers of undivided India and the Pashtun tribes inhabiting the mountainous fringes of the Empire. In exchange for autonomy and the freedom to run their affairs in accordance with their Islamic faith and customs, the tribal leaders promised to guard the border with Afghanistan and keep peace in the region. At independence in 1947, Pakistan kept the agreement. The army stayed out. In place of government, Pakistan adopted a set of administrative and legal measures called the Frontier Crimes Regulations (FCR) that forces the tribes to take collective responsibility for the actions of their members. Justice follows the tribal code and is meted out by clan elders who consult in public gatherings called jirgas. It was an imperfect solution to a difficult problem. But when al-Qaeda leaders fled Afghanistan in the wake of the 2001 war on their Taliban hosts and took refuge in the tribal areas, it became downright dangerous.

In May CIA Director Michael Hayden called the FATA an al-Qaeda "safe haven" that presents a "clear and present danger to Afghanistan, to Pakistan and to the West in general, and to the United States in particular." Admiral Michael Mullen, Chairman of the U.S. Joint Chiefs of Staff, says, "If I were going to pick the next attack to hit the United States, it would come out of FATA." Intelligence officials in the region, and abroad, say that al-Qaeda operatives, taking advantage of the limited reach of government, have been able to set up sophisticated communications systems, financial networks and training facilities. Al-Qaeda "has hundreds of training camps" scattered throughout the FATA, says a Western official in Pakistan with access to intelligence reports. "Most are less than an acre in size, so they are difficult to detect."

To Khalid Aziz, a onetime political agent appointed by Islamabad to administer to the tribal areas, the militancy is an obvious outcome of the antiquated agreement. Development that brought schools, jobs, roads, health care and electricity to the rest of Pakistan largely bypassed the tribal areas. Unemployment among the population of 3.5 million hovers around 70%. Two-thirds live below the poverty line. Only 6% of inhabitants can read. For women it's less than 1%. "Given that kind of environment; it's not likely that you will see a Leonardo da Vinci come up," says Aziz, who now heads the Regional Institute of Policy Research and Training in Peshawar. "You'll get an Osama or one of his clones instead." Aziz welcomes the U.S. Administration's promise of $750 million to provide economic development in the area but says it is not enough. "What we need are jobs."

Most FATA people want development, but not at the expense of their traditional ways. Shari'a law is the foundation of their justice system and few will willingly give it up. Rather than a wholesale elimination of the FCR, there should be a gradual transition, says Haider Mullick, a former Brookings analyst. "It's not rocket science. It's sitting down with them and saying, O.K., here are 100 things that are different from how we operate in Islamabad. We will concede on some of these issues. But there are going to be some no-nos on our side, and some on yours. For example, no public stoning of women — that's out of the question. In turn we will ensure that no soldier can walk in and search your house and strip you naked and beat you up.' There needs to be a give and take on each side."

A Helping Hand

Democrats in the U.S. senate have proposed a $7 billion aid package to Pakistan, including a "democracy dividend" of $1 billion, over the next four years to help the civilian government with education reform, health care and infrastructure. It's a welcome move, but opening up the U.S. market to Pakistani products such as textiles would provide a longer-term — and taint-free — solution. The chorus among businessmen and analysts across the country is "trade, not aid." The U.S. presence in Pakistan, particularly in the FATA, is viewed with suspicion. American Predator drone attacks on apparent al-Qaeda targets have claimed scores of civilian lives, and the Pakistani military presence in the FATA is seen to be at the behest of the U.S. "There is so much resentment in our blood now that even if you give us candy, we will think it is poison," says Malik Sherzada, a school principal in Bajaur, which has been the site of one such Predator attack.

If Washington really wants to help Pakistan, its policies must move beyond Musharraf and the military and give the people a higher priority. Seth Jones, a terrorism expert at the Rand Corp., says that Pakistan has become the neglected stepchild, only third or fourth in a list of U.S. strategic interests that start with Iraq and Afghanistan. "Pakistan should be No. 1," says Jones. "The most serious homeland threat to the United States from abroad comes from militant groups operating in Pakistan."

This is Pakistan's war to win, and the best way the U.S. can help is by letting it fight on its own terms. But the new government can only do that if the two parties in the coalition work together. They must remember that the true enemy is not Musharraf or the military or their political opponents, but poverty, extremism and injustice.