World Savvy Monitor

November 2008

The Financial Situation

In the context of the global financial crisis, Pakistan has been experiencing immense trade and budget deficits, capital flight, and rapidly dwindling foreign currency reserves.  It is in danger of defaulting on loans to the international community that will be due in early 2009.  The IMF has said that Pakistan will need $10 billion US  in order to make its loan payments and stabilize its economy.  On October 28, German Foreign Minister Frank-Walter Steinmeier announced that Pakistan had just “a few days” to raise billions of dollars in foreign loans.

Pakistan’s traditional backers – the US, China, and Saudi Arabia – have so far been unwilling to provide the nation and its fledgling government (President Asif Ali Zardari’s administration took office in early September) with the needed cash assistance.  Many analysts speculate that in addition to being embroiled in their own financial problems, the nations do not wish to spend money on a government they view as inefficient and unlikely to make needed reforms.  After a visit to China, Pakistani officials received promises of business investment and help building two nuclear plants.  The Saudis are also in negotiations to arrange deferments on payments for Pakistan’s oil imports.

It seems increasingly likely that Pakistan will be forced to borrow from the International Monetary Fund (IMF).  Most analysts agree that this would be a highly unpopular move with the Pakistani people, as the loan would require Pakistan to make reforms that could hurt the poor.  Specifically, this would obligate the government to raise taxes and cut spending by eliminating government jobs and cutting government programs.  As of October 28th, however, Pakistan denied any formal request for an IMF loan.  An IMF spokesman subsequently announced that talks had taken place with Pakistan to allow the IMF to quickly grant a loan should it be formally requested.

Marriott Hotel Bombing

On November 20th, a truck bomb exploded at the entrance to the Marriott Hotel in Islamabad, Pakistan, killing at least 53 people and wounding 266.  The bombing is thought to have been planned to coincide with President Zardari’s first address to the Pakistani parliament earlier that day.  The bomb exploded just a few hundred yards from the prime minister’s house, where all the government leaders were dining.  The Marriott Hotel is an important symbol to many Pakistanis.  Abdullah Riar, a former aid to Benazir Bhutto, commented that, “It’s like the twin towers of Pakistan.  It’s a symbolic place in the capital of the country, and now it has melted down.”

The attack is thought to have been in retaliation for the launch of Pakistani army operations in Bajaur, a district in the Federally Administered Tribal Areas (FATA) that borders Afghanistan.  Al Qaeda is assumed by most to be responsible for the attacks.

This attack exacerbated the financial situation in Pakistan, causing businesses to become even more nervous about remaining in the country.  Following the attack, the international credit rating agency, Moody’s, adjusted Pakistan’s credit rating from ‘stable’ to ‘negative.’ British Airways, which provides the only direct flights between Europe and Pakistan, also announced that it was suspending all flights from London to Islamabad.

Conflict in the FATA

Since mid-September, fighting in the Federally Administered Tribal Areas of Pakistan has escalated.  Tribal militias known as lashkars and the Pakistani army have joined American troops in an attempt to root out al Qaeda and Taliban militants in Pakistan’s semi-autonomous tribally administered areas.  

After a September 3^rd ground raid into FATA by US commandos produced a great deal of public outcry from Pakistani officials, the US has changed tactics.  The US is now focused on the use of remotely piloted Predator aircraft to bomb the area.  From August to September 28th, there were 19 such attacks, as compared to five attacks in the first seven months of the year.  The US has become increasingly concerned with these areas. Taliban and al Qaeda forces continue to use the region as a staging ground for carrying out attacks on American and NATO soldiers across the border in Afghanistan.

The Pakistani government has begun employing lashkars to combat the rise of the Taliban and al Qaeda in the tribal belt.  The militias, which have partly emerged as the result of the desire of the tribal belt to run its own affairs, have received the support of the Pakistani military to a degree.  The army does not want the lashkars to themselves become a threat.  For example, while the military will provide supporting fire, they will not offer the militias heavy weaponry.  As a result of this ambivalence, al Qaeda and Taliban forces have often easily overpowered the lashkars, who lack the funding, sophisticated weaponry and tactical knowledge of the Islamists. 

There are signs that Pakistan is losing its appetite for militarily engagement.  In October, closed sessions in Pakistani parliament were dominated by appeals to initiate dialogue with the Taliban, particularly by Nawaz Sharif’s Pakistan Muslim League-N.  Legislators made a distinction between the Taliban and al Qaeda, characterizing al Qaeda members as outsiders, and the Taliban as Pashtuns living in Pakistan.  Lawmakers also criticized the war as an American war imposed on the Pakistani people, arguing that eliminating al Qaeda and the Taliban would benefit Americans more than Pakistanis.  On October 28th, after meeting with Afghan leaders, the leader of the Pakistani delegation, Owais Ghani, announced that “influential people from both countries [Afghanistan and Pakistan]” would attempt to contact “all those who are involved in this conflict situation.”  The statements released by Afghanistan and Pakistan also noted that both sides would continue to deny terrorists sanctuary within their borders.