The international economic crisis has exposed Pakistan's economic frailties, writes Graham Usher in Islamabad The headquarters of the police's Anti-Terror Squad (ATS) in Islamabad stands like a monument to fear. On 9 October a car packed with explosives rammed into the three-story building, collapsing each floor on the other like so many cards. The aftermath was a mess of broken glass, smashed masonry and dazed, frightened policemen. Mercifully only eight of their colleagues were hurt: small wounds compared to the hundreds killed every week from the Taliban-led insurgency in Pakistan's borderlands with Afghanistan. But the fact that a car bomber could penetrate one of Islamabad's most fortified zones -- and on a day when 7,000 security personnel were mobilised to secure a special session of the National Assembly -- underscores just how dangerous a place Pakistan's dull, whitewashed capital has become. And how frightened are its denizens. Down the road from the ATS HQ is Islamabad's G9 market: a covered bazaar where you can buy everything from fish to haberdashery. A year ago the market was teeming with Pakistanis of all classes shopping for fruit and vegetables at government subsidised prices. Today G9 is emptier. One reason is the "explosions", cede the vendors. But there are others. "I come here every Friday and every Friday the prices go up. Last week we came and today the prices are double what they were," says Dr Rafiq Raja, a veterinary surgeon, carrying two shopping bags for his wife. "It hurts us but at least we can afford to pay. It must hurt the poor even more." Inflation is the most tangible symptom of Pakistan's worst economic crisis in a decade. It was triggered nine months ago by the global hike in oil prices, and has been aggravated by a security crisis that has seen indigenous and foreign capital flee Islamabad for the safer climes of Dubai, London and Switzerland. But the reason Pakistan has fared so much worse from the crisis than say India or Bangladesh has little to do with oil prices or even the insurgency. It has everything to do with the eight years of military rule by General Pervez Musharraf when Pakistan was lauded for "record" economic growth and political stability. "It was a hot air balloon," smiles economist Kaiser Bengali, National Coordinator of the government's Benazir Income Support Program (BISP). "For eight years we generated our resources from industry and agriculture but failed to reinvest in those sectors. Instead we invested in non-productive sectors like the military, banking and luxury housing. Pakistan was like a company that invested all its revenue in the head office building and in an army of security guards but had no money left for raw materials and spare parts. To overcome the crisis we are going to have to cut our non-development expenditure and invest instead in infrastructure." In the short term Pakistan will need an injection of "about $10 billion" to shore up dangerously depleted foreign currency reserves and restore a degree of business confidence, says Bengali. It may happen. Next month twelve countries, the so-called "Friends of Pakistan", are due to meet in Dubai to agree terms for the bailout. The Pakistan government hopes relief will come via deferred payment on oil imports from Saudi Arabia as well as foreign investment from China, historically Islamabad's two closest allies. The fear is any aid will be shackled in conditions laid down by the International Monetary Fund (IMF). Pakistan has been down that road before. And the cure is worse than the disease, says Bengali. "The IMF is responsible for the structural problems in Pakistan. Its programs are like steroids. They fix the immediate problem but aggravate the underlying problems. For example: the IMF always wants to cut development expenditure rather than non-development expenditure. But what Pakistan needs is more development expenditure so we can improve our productive capacity and not be so dependent on imports. We know cutting non-development expenditure will impinge on powerful forces in our country like the military and civil administration. But we expect international support to help us deal with those forces." It's unlikely to happen. With large parts of Pakistan falling to the Taliban the last thing the world will tolerate are cuts to the 600,000 strong military. The more likely demand will be the removal of government subsidies from oil and food and cuts in social programmes like BISP. It's a fool's remedy, says Bengali. In his opinion there is a direct relation between economic deprivation and militancy. "I see this insurgency as a product of the economic crisis that has been simmering for decades. In Pakistan we have created a highly unequal society and all the profound feelings of anger, hopelessness and desperation that go with it. And it is inequality that creates the anger that turns people toward militancy. If, under international pressure, we are compelled to invest what little resources we have into military rather than social programs, that anger will grow."
