Pakistan Economy: The Country's new President Zardari Faces Major Economic Challenges

September 15, 2008by KeithTimimi

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Karachi, 15 Sep 2008. Zardari, the controversial new president, has seen his share of troubles – and now he has a whole nation’s set of problems to fix.

When former Prime Minister Benazir Bhutto was in power, her party kept her husband, Asif Ali Zardari, out of the public eye as much as possible. He didn’t really have the best reputation. His nickname “Mr. 10%” is not as bad as it could be, considering he was accused of murdering his wife’s brother, and of strapping a remote control bomb to a businessman’s leg and having him withdraw money from a bank for a payoff. Corruption charges were brought against him in a scam he and his wife ran with Swiss company SGS.

Then he went to prison, (where he says he was tortured) while afflicted with diabetes and a spinal disorder which means he can’t walk without a cane. Next, his wife was assassinated in December of 2007. Then, in 2008, he was cleared of various corruption charges and in September was seemingly-fairly elected president of Pakistan.

The guy’s been through a lot, so hopefully he will be able to deal with the nation’s crippled economy. His shady past doesn’t seem to inspire a lot of confidence in the nation’s citizens – especially not when the president once claimed to be suffering from dementia (and post-traumatic stress disorder). Not a good attribute for someone with his finger so close to the nuke button. Especially not when questioned by the finance minister about his solution to raising subsidies for Punjab wheat farmers and his answer was, “Print the notes.” At least if he didn’t know anything about economics he could have admitted it, like John McCain did.

Nevertheless, he was elected. And the nation’s economy is in trouble. The country’s foreign reserves are down to around $5 billion now. Compare that to the $14 billion under Pervez Musharraf in November 2007. This $5 billion is only sufficient to cover imports for two months. Usually, a country will keep around triple that. Moreover, this sharply contrasts with a recent trend of developing nations to accumulate more than six months’ worth. The fact is, inflation is hurting the nation. Not just domestic inflation, but the costs of imports.

The export side is not faring well either, and the Karachi Stock Exchange is down 40% from a high in April. With the currency sliding it is becoming harder to import, and with investors pulling out of the stock exchanges, it’s a downward spiral.

However, the colorful president does have some plans to revive the economy. First, his party will raise fuel prices and cut electricity subsidies. Maybe the people won’t notice – in July, the nation experienced 24% inflation. Next, they will sell Treasury bills to the public, promising high interest rates. Last, they will sell shares of government companies and entirely privatize others to raise more funds.

The Asian Development Bank and World Bank may contribute $1.5 to $2 billion this year, while Saudi oil suppliers might give credit on the 100,000+ barrels of oil it exports to the country each day.

No matter what, Zardari has a long, hard, road ahead, and the opposition parties will not make it easy for him.

Santos de la Raya, EconomyWatch.com