It’s been a decade since the International Monetary Fund preached its damaging elixir of currency devaluation and tax hikes to Asian nations in financial crisis. As Pakistan’s economy teeters, the IMF is once again on the scene with familiar policy prescriptions. This is no time to recycle past mistakes.

Like Ukraine and Iceland, Pakistan is in a balance-of-payments crisis. The country imports large quantities of food and fuel and pays for it in U.S. dollars. As the price of these commodities rose over the last year — thanks to the U.S. Federal Reserve’s easy money policies — Pakistan spent down its foreign exchange reserves, as the nearby chart shows. Government officials estimate Pakistan needs $3 billion to $4 billion to cover its foreign-currency debt obligations over the next month alone. Islamabad could ask for as much as $15 billion from donors.

Pakistan’s new government could have mitigated this pressure earlier this year had it moved quickly to stabilize the country’s security situation and court foreign investment. Instead, Asif Ali Zardari’s ruling People’s Power Party focused on domestic political battles, such as the reinstatement of judges fired under former President Pervez Musharraf. Domestic terrorism re-emerged in major cities, investors fled and the local currency, the rupee, fell 25% in value, fueling inflation and making imported fuel and food relatively more expensive.

Now Islamabad has few good options. Its traditional partners — Saudi Arabia, China and the U.S. — have declined so far to provide additional short-term capital. (The U.S. has given Pakistan more than $10 billion since the 9/11 attacks.) Read more »

In the 9/11 terrorist attacks on twin towers in New York in which about 3000 persons died, no Afghan or Pakistani was involved. All the 19 perpetrators of the crime were Arabs, mostly hailing from Saudi Arabia. Yet the wrath of USA fell on Afghanistan for a bizarre reason that the so-called master mind behind the attacks was Osama bin Laden based in Afghanistan. Mullah Omar kept requesting that proof of his complicity should be furnished to enable him to hand over his guest but none was provided.

Terrorism became a buzzword and the fuming sole super power pounced upon militarily extremely weak and economically impoverished Afghanistan with utmost ferocity and decimated it. The whole world including UNSC supported the ghoulish invasion and its occupation under the hope that it would help in eliminating global terrorism.

Iraq too was pulverised on a cooked up story of WMDs and linkage with Al-Qaeda. Both charges turned out to be totally fabricated. Saddam as well as UN inspectors kept saying till the last that there were no WMDs, but Bush and Blair ignored them as well as world protests and went ahead with the second invasion without UNSC blessing. After destroying the two countries, USA is now bent upon destroying one of its close allies Pakistan which had played a key role in ousting Taliban and in getting Karzai elected. Without Pakistan?s all out military support, it may not have been possible for US-NATO forces to stay in Afghanistan for that long.

In case of Afghanistan and Iraq, both Mullah Omar and Saddam Hussein refused to buckle under US repeated threats followed by troop mobilisation. Instead of submitting to US diktat they opted to fight the aggressor well knowing that they were non-nuclear states and their conventional means were no match to the military prowess of sole super power duly aided by all the advanced nations of the world. In our case, we had nuclear weapons and adequate conventional means to defend our homeland. However, our commando General who never tired of bragging about his boldness, turned into a kitten when he received a phone call from Washington. He hastily threw in his towel and provided US spy agencies and its military forces large-scale facilities to make easy USA task of achieving its long term objectives. He justified his cowardly act of ditching the friendly Taliban and befriending USA on the premise that had he not done so Pakistan for sure would have been destroyed. Read more »

ISLAMABAD, Pakistan — Take a restive, nuclear-armed nation with an untested new government, an escalating Islamic insurgency, long-standing tensions with its neighbors and an economy in free fall for months.

Then add in a global financial crisis. Some analysts and diplomats fear that Pakistan could come to exemplify a perilous new phenomenon: a strategic but unstable state at risk of being pushed to the breaking point by external economic factors.

Government officials insist that Pakistan’s economic fundamentals, while weakened, are holding steady. But this politically volatile country of 165 million people, a U.S. ally in the fight against the Taliban and al-Qaida, can ill afford more upheaval.

Pakistan’s creditworthiness rating is the second-worst among nations ranked by Standard and Poor’s, superior only to that of the Seychelles. Last week, the country’s president, political novice Asif Ali Zardari, felt compelled to offer public assurances that “Pakistan is not going bankrupt.”

On Monday, armed police surrounded the Karachi stock exchange to prevent a recurrence of stone-throwing rioting by investors that occurred in July.

“The global crisis has really added fuel to the fire,” market analyst Muhammad Suhail said. “There was a time window earlier this year to address all this, and we missed it.”

At the onset of days of current mayhem in worldwide markets, Pakistan — a relative economic success story for much of the past decade — was undergoing a punishing reversal of fortune.

In the past six months, its main stock exchange has lost more than half its value. The national currency, the rupee, stands at historic lows, even with propping up by the state bank, which also intervened to improve market liquidity. Foreign-exchange reserves are dangerously depleted, the budget deficit is at a 10-year high, inflation is running about 25 percent annually and debt obligations are looming large. Read more »

In the first two parts of the essay, ‘are we ready to eat grass?’ a bird’s eye view of security perspectives arising out of a Pakistani mindset have been discussed. The question that now arises is, ‘do we have the potential to grow the grass we intend to eat?’ In this regard an interesting development on River Chenab could be a measure of events to follow.

A few days ago India decided to first reduce and then block the water of River Chenab, allocated to Pakistan under the Indus Waters Treaty 1960. If India continues this violation of blocking waters, it will have a serious effect on the cotton and rice crops immediately and wheat/ sugar cane in the winter season.  Besides raising military tensions in the region, this will also aggravate the existing grain and power shortages in Pakistan.

Pakistan had moved the case of Baglihar Dam for international arbitration.  The ruling of the arbitration indicated that due to technical incompetence, India had a much better argument and Pakistan could only gain an advantage of 1.5M freeboard and getting the pondage volume reduced from 37.4Mm3 to 32.56Mm3 instead of 6.22 Mm3 that was demanded.  The effects of this arbitration and manipulative capability of India thereof, on Pakistan’s agrarian economy and minimum outlet flow are yet to be ascertained. Metaphorically thus, how will we eat grass if we have no water to grow it? Read more »