8 January 2001 - Pakistan at a Crossroads

Americans complain a lot about road rage on the highways but they’ve got nothing on the Pakistanis. We were driving down Pakistan’s main highway, a road which connects Karachi and Lahore, the country’s two largest cities, when we were cut off by drivers weaving in and out of lanes at twice the speed limit. Many times, cars merged in front of us from on-ramps as if we weren’t even there.

Cars, though, aren’t the only hazard. We passed people riding bicycles on the highway and farmers leading ox carts down the middle of the road. Some people even decided to drive on the wrong side of the road because there was less traffic on one side. More than once, I had to switch lanes because a camel cart was headed right at me. Nowhere was there a highway patrol willing to control the chaos.

Such an experience was emblematic of the problems we discovered in Pakistan, a country that, like its highway system, can’t seem to get everyone going in the same direction. It’s plagued by government corruption, economic mismanagement, and cultural rifts. Such woes are eating away at the country from the inside. Worst of all, its problems have led Pakistan, a long-standing American ally, in a direction that is becoming more and more at odds with U.S. interests.

Pakistan is wedged between Iran, Afghanistan, and India along the Arabian Sea. It’s a large country, roughly the size of California. Like other countries in the sub-continent, the landscape can change dramatically from one area to the next: Much of central Pakistan is dominated by farmland but a vast stretch of desert borders the country to the southeast. Towering mountains, including K2, the world’s second tallest peak, command the north.

When I visited on my last trip back in 1988, I was taken with the country and its people. Pakistanis were some of the smartest and friendliest people I had met along the course of my trip. At the time, I talked to Pakistan’s Minister of Tourism and he told me about plans to develop the tourism industry in the northern mountain region. He had plans to expand the hotels, building luxury housing to draw tourists from around the world. I even went to the stock market in Karachi and did some research on Pakistani companies. The Indus Valley, long considered one of the cradles of civilization, is an ideal region for cotton farming, Pakistan’s chief crop. Textile production, in fact, still represents 60 percent of Pakistan’s export earnings; more than half of the population works in agriculture. Back in 1998, such resources looked like Pakistan’s ticket to success. Locals were building clothing factories and manufacturing plants, always a sign of a productive economy.

After what I’ve seen this time around, I’m glad I didn’t invest. Pakistan’s economy is in awful shape. With a gross domestic product of $10 billion, the country has become helplessly reliant on foreign aid donors like the IMF, Paris Club and World Bank to keep its economy afloat. Foreign loans and grants, in fact, account for one-quarter of all government revenue. Payments to service its $32 billion worth of debt total more than 50 percent of Pakistan’s annual budget.

The country is heavily dependent on oil imports for energy and has been suffering as oil prices have reached new heights. Recent cotton harvests have been strong but the government never invested any money on infrastructure development. As a result, many farmers can’t deliver their cotton to port to sell or are forced to sell to the government at incredibly low prices. What little is left in the budget goes to finance the on-going war with India over Kashmir, a territory bordering the two countries to the North that has been in dispute since their independence.

What went wrong? The revolving door at the top leadership position certainly hasn’t helped. Over the past decade, no one person has stayed in office longer than a few years; the ruling party has repeatedly swayed between military and civilian leadership. When I was last here, Benazir Bhutto, the first woman ever to head an elected government in Islamic office, was elected prime minister and head of the government. Oxford and Harvard educated, she was the darling of the western press, a comforting image of Pakistan’s promise. She was also the daughter of Zulfikar Ali Bhutto, the man who had restored constitutional government and civilian rule to Pakistan back in the 60s and 70s.

Within two years, Bhutto was deposed on accusations of corruption. Her husband was known as Mr. 10 Percent because he supposedly took a cut of everything the government made. (Years later, when she returned to power, his nickname changed to Mr. 50 Percent.) Nawaz Sharif of the Pakistan Moslem League went on to succeed her, but, he, too, was ousted only a few years later. Current military leaders say that Bhutto and Sharif bled the country of nearly $30 billion, three times the poor country’s annual budget.

Such inconsistent and corrupt leadership has discredited the government and weighted the country under a cloud of fear and uncertainty. The customs agents we met when we arrived in Karachi actually detained us for six days, afraid that if they let us enter, they would be punished for their actions. One agent told me that although it was legal for us to enter, he was worried a new government might be in power shortly that would say otherwise. After all, a local “accountability” bureau has the right to arrest and detail locals for 90 days without any charges.

Bureaucracy is rampant. We were told we needed a non-objection certificate, or NOC, in order to drive in certain areas of the country. This wasn’t something needed only by foreigners; locals all need it. The ethnic rifts run so deep that many people don’t want certain sects of the population driving in their region.

Such bureaucracy has also made the country incredibly protectionist. The import duties on foreign cars in Pakistan are 350 percent. We saw vehicles that had been donated by the Japanese government in a good-will agreement that had been held up in customs for months because the Japanese hadn’t paid the duty.

Ultimately, the roots of Pakistan’s problems stretch back to its independence from Britain back in 1947. When the British left, giving the region its independence, they divided the land according to the religion of the people. The area to the Northeast and Northwest, which was inhabited primarily by Muslims, became East Pakistan and West Pakistan. Hindus dominated the remaining territory, which remained India.

While the borders established by the Brits took into account religious differences, they often neglected cultural and social differences within those territories. Even though they shared the same religion, the people of East and West Pakistan had many cultural divides between them. And, of course, they were split in half by the Indian land mass. Years later, a civil war ensued, which ultimately led East Pakistan to become Bangladesh.

Even today, there are cultural differences that continue to divide the populace. For instance: Pakistan’s official language is Urdu, but large portions of the population speak Baluchi and Punjabi, Pushtu and Sindhi. These divisions have spawned ethnic and regional rivalries, which have led to violent outbreaks. Last time I was here, no one carried guns in streets. On this trip, we encountered armed security and military everywhere we went. Four bombs went off the first day we arrived in Pakistan.

For the many that live in the over-crowded cities like Karachi and Lahore, the situation is incredibly gloomy and hopeless. Most Pakistanis struggle to make a living, earning $400 a year on average. Literacy is deplorable: Only 30 percent of the population can read or write. Among women, that figure is close to 5 percent.

General Musharraf, the current military ruler, has pledged to restore democracy and improve the economic situation in Pakistan with an ambitious economic agenda that includes privatizing the public sector, improving balance of trade, and attracting foreign investors. Currently, only one percent of Pakistan’s 140 million people pays taxes; he wants to widen the tax net, giving the government another source of income beyond foreign aid. He has promised to hold provincial and local elections, bringing in leaders to unify the country. Unfortunately that has been said many times in the past few decades. But any economic development is hamstrung by the growing conflict with India over Kashmir, a conflict that seems to escalate despite periodic attempts at peace. Both countries now possess nuclear weapons.

Remember that Pakistan has long been an ally of the United States. The relationship took a crucial turn during the 1980s, when the U.S. poured aid into the country to train Muslims from around the region to resist the Soviets in Afghanistan. Now some of those well-trained, deeply religious fighters are our national demons: They are Taliban members and even terrorists, and the growing influence of their anti-Western views is roiling the country. One day, I saw someone selling Osama bin Laden T-shirts. The next day the government shut that down. The fundamentalists continue to make inroads since they are the main organized, coherent group left in the country.

A turn toward anti-Westernism threatens to yank Pakistan out of its alignment with its allies, and that could have a destabilizing effect on the entire region. I’m the kind of investor who doesn’t mind seeing difficult situations: When a country or an economy is down, I like to try to understand how and when it’s going to get back up. I like to buy at the bottom. In fact, I entered Pakistan with the notion of buying into its cotton industry. But this country of fine people may not be at a bottom, economically or politically. That’s a waste and a shame, and it’s truly unsettling. It was not just as an investor that I felt deeply saddened by Pakistan and foreseeing only more instability.