Pakistan: Now Testy Times

After riding the crest of popularity, Sharif runs into stormy weather on the domestic political front and is criticised for his handling of the economy.

Things that go up should come down. Including nuclear hubris. Pakistan Prime minister Nawaz Sharif indeed got the entire nation grandstanding him after the May 28 nuclear tests. Just three weeks later, much appears to have changed. His decision to build a controversial multi-billion dollar hydro-electric dam on the Indus river in the Kalabagh district of his native Punjab province has provoked a strong political backlash in other provinces. the Kalabagh issue has come close on the heels of other contentious ones like his initiatives on land reforms and loan recovery that have annoyed well-entrenched elements of Pakistani society.

The Kalabagh project was conceived more than four decades ago, but successive governments postponed a decision largely due to resistance from other provinces. With his popularity rating at an all-time high following the nuclear tests, Sharif presumed the move would invite no opposition. It has, in fact, divided the country along provincial lines and created an explosive situation that Sharif would be hard-pressed to deal with.

Sharif's move has, no doubt, generated tremendous support for him in his home province. The federal and the Punjab governments contend the dam, which will cost $6 billion (Rs 25,200 crore) is essential for the country's economy as it will help irrigate millions of acres of barren land and provide cheap electricity. But there is a strong fear that the proposed dam would only benefit Punjab and cause serious ecological damage to the Sindh, Baluchistan and North West Frontier Province (NWFP).

Sharif received a major setback when the Sindh branch of the ruling Pakistan Muslim league and its coalition partner, Mohajir Qaumi Movement, rejected the project. A strike called by the opposition parties against the proposed dam brought a major part of the province to a halt. Chief Minister Liaquat Ali Khan Jatoi of the Sindh provincial government declared that he would not support any move that harmed the interest of his province. The situation in NWFP is equally volatile, with Nasim Wali Khan, the leader of the opposition in the assembly, accusing the prime minister of paving the way for the disintegration of the country. The most scathing criticism of the federal Government came from Sharif's former ally in the NWFP, National Awami Party (ANP). "Nawaz Sharif is systematically trying to destroy the federation and establish the dictatorship of Punjab," says ANP chief Ajmal Khatak.

The row has severely dented Sharif's recently announced national agenda for self-reliance to cope with the sanctions imposed by the US and other western countries. Pakistan needs over $11 billion (Rs 46,200 crore) in the next three years for external debt repayment alone, whereas the existing foreign exchange reserves of $1 billion (Rs 4,200 crore) are barely enough to finance six weeks' import bill.

Its decision to declare an emergency in the country and freeze foreign currency deposits worth more than $10 billion (Rs 42,000 crore) only expedited the ongoing process of economic deterioration. In 1992, the Government had allowed resident and non-resident Pakistanis to open foreign currency accounts. By the end of December 1997, these deposits surged to over $10 billion in less than six years, attracting more than $1.5 billion (Rs 6,300 crore) per year in the form of foreign exchange for the Government. "The freezing of foreign currency accounts is the biggest failure of the banking system in Pakistan's history, causing huge losses to depositors in the form of exchange rate difference," says Muhammad Zubair, a noted economist and former caretaker commerce minister. A report by SocGen-Crosby Securities, a French securities company, warns, "Pakistan is fast approaching the crunch where, if there is no significant growth impetus in the next six months, it may be forced to impose a moratorium on external debt servicing."

But instead of preparing contingency plans to meet an exceptionally unusual impending economic crisis, Sharif is fuelling socio-political and economic unrest in the provinces by announcing populist schemes. Sharif's much-trumpeted austerity drive is already running out of steam . In some cases, the government's decisions have proved more costly. For instance, some analysts say, attempts to move government offices out of the existing secretariat could well increase rather than reduce Government expenditure. The rents needed to be paid for new premises and the administrative difficulties that accompany such shifting are likely to make the moves highly counter-productive. Some reports suggest that the Government might end up paying more for the so-called austerity.

"The real austerity drive must of course move beyond mere symbols and adopt reforms which can make a real difference," says an editorial in the English language daily The News. To help the country out of its financial plight, mere cosmetic gestures are not going to prove sufficient.
- with Musfirah Altaf in Islamabad

BANGLADESH
A Damsel in Distress
Dhaka fears it will suffer because of the subcontinent's nuclear blasts

Bangladesh Prime Minister Sheikh Hasina Wajed today is -- to use a phrase that the father of Pakistan M.A. Jinnah dropped in the company of the Mountbattens -- "a rose caught between two thorns". Hasina's country has umbilical links with the two nuclear gladiators in South Asia -- India and Pakistan. But they are not judged identically by her countrymen. At least half of them would go with her main political rival, Begum Khaleda Zia, in finding the Pokhran blast more foul than the Chagai Hills explosion. Still, India sits along all but a 10th of Bangladesh's land border, whereas Pakistan, despite the historical ties, is a good 1,800 km away. If the western powers' sanctions hobble the Indian economy further, it will undermine the country's claim on foreign investment as a "gateway to the Indian market".

No wonder, therefore, that Hasina flew to both Delhi and Islamabad in the past fortnight as a concerned neighbour, if not as a mediator. She knows that mediating between prime ministers A.B. Vajpayee and Nawaz Sharif is a tall order. "I don't have illusions of getting a space denied even to superpowers," she said last week on the eve of her 20-hour visit to Islamabad. But the buzz in Dhaka's diplomatic circles is that Hasina's expression of sub-regional concerns may help soften the blow of sanctions on both India and Pakistan.

Any takers in India and Pakistan for her brand of damsel-in-distress diplomacy will be seen at the SAARC summit next month, when the nuclear neighbours have an opportunity to smoke the peace pipe. If they do so, Hasina obviously intends to claim at least a part of the credit as honest broker. That will give her some leeway on the domestic front. More importantly, it can win her applause from the US, the superpower on which Bangladesh is increasingly dependent for investment, notably in the infrastructure sector. Bangladesh is so desperate about US support that it is ready to sign with it the Security Forces Agreement (SOFA), under which the US army, navy or air force may be given the right to build bases in the country. India has expressed its concern over the proposed agreement, but Dhaka perhaps hopes that the concerns will be overlooked by India in exchange of its peacemaking role.

Nevertheless, Bangladesh is put in an unenviable situation because of the slowdown in its giant neighbour's economy. The $900 million (Rs 3,780 crore) Bangabandhu Jamuna Bridge, inaugurated by Hasina last week, relies heavily on the traffic between India's northeast and the Chittagong port in Bangladesh. The country's trade balance with both India and Pakistan will dip further as a result of the nuclear stand-off and its economic implications.

- Udayan Namboodiri in Dhaka