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US mulls fresh sanctions; financial experts want Pak's 'CEO' to act quickly

C K Arora/UNI in Washington

The Clinton Administration is considering imposition of a fresh dose of economic sanctions on Pakistan in protest against its military's action in toppling the elected government of Prime Minister Nawaz Sharief.

Assistant Secretary of State for South Asian Affairs Karl Inderfurth, during a Senate panel hearing on Thursday on the ''Political Crisis in Pakistan'' drew attention to Section 508 of the Foreign Operations Appropriations Act which ''contains a prohibition against a broad range of assistance for a country whose democratically elected head of government is deposed by military coup or decree.''

''We are now in the process of making the legal determination that such sanctions should be applied,'' he added.

He, however, hastened to add: ''As a practical matter, most forms of assistance were already prohibited for Pakistan under the Glenn Amendment and other statutory restrictions.''

Earlier, Inderfurth agreed with the assessment of Senate panel chairman Sam Brownback (Republican) that what had happened in Islamabad on Tuesday was a military coup under any normal definition. ''Indeed, the definition does meet that of Section 508, and as i said in my (written) testimony, we are preparing the formal legal determination of that now.''

Indications here are that the US would formally decide on the sanctions only after hearing from its ambassador in Pakistan, Bill Milam, who is scheduled to meet coup leader General Pervez Musharraf shortly in Islamabad.

He will deliver to Gen Pervez Musharraf a message from the US government, containing its publicly stated expectation that democracy and civilian government must be restored as early as possible.

''He will also make clear that we expect that Prime Minister Sharief and all other detainees will be treated properly,'' Inderfurth said. ''We understand that Prime Minister Sharief, his brother, the chief minister of Punjab, Shahbaz Sharief, and some Cabinet members and Gen Ziauddin, head of the Intelligence Services, remain under house arrest.''

The United States called upon the military authorities to ensure their safety.

Inderfurth said it was unclear whether Gen Musharraf intended to remain in political control even in the short term.

While Indian forces had gone on alert, this appeared to be only a precautionary measure. ''There does not appear to be a heightening of tensions between India and Pakistan. The official Indian reaction, as expressed in statements of Prime Minister Atal Bihari Vajpayee and others has been cautious and low key,'' he added.

''With respect to foreign policy, February's euphoria, the good will at bus diplomacy and the historic summit meeting in Lahore between Prime Minister Sharief and Vajpayee, had dissipated by this summer. The reason was Kargil,'' he added.

Inderfurth said, the 'serious and deadly' fighting in the region ended only when Sharief, in a meeting with President Clinton at Blair House (in Washington) on July 4, made the ''wise and courageous decision to take steps to encourage the intruders to withdraw.''

He said Sharief's decision engendered strong opposition at home. Some argued that it was a mistake to withdraw from Kargil. ''We could not disagree more. It was the right thing to do. The mistake was to launch the incursion in the first place. Civilian and military leaders alike, at the highest level of government, share responsibility for that grave error which set back the prospect of reconciliation with India which had seemed so promising at Lahore, and also raised the prospect of a larger war between two nuclear-capable adversaries,'' he added.

He said the US was consulting the key states regarding the situation and had a great many important issues to address with Pakistan. These included contributing to the development of stable, peaceful relations between Pakistan and India, averting a nuclear arms race in South Asia and stabilising the situation in Afghanistan.

Deutsche Presse-Agentur adds from Karachi

Pakistan's military rulers have set putting the political house in order but the ailing economy apparently demands more attention, analysts in Karachi, the commercial centre of Pakistan, said today.

General Musharraf looked more concerned how to pacify the donor countries who are outraged at the military coup.

In his brief address to the nation after staging the coup on Tuesday evening, General Musharraf had described the state of economy as near collapse.

Musharraf can address the problem only when he becomes politically strong to take tough decisions, Mansoor Ali, chief analyst of a leading brokerage house in Karachi, told the DPA.

''This is a critical juncture and a complicated situation for General Musharraf as he does not have a dedicated and able team of economic managers,'' he said.

Pakistan's weak foreign exchange reserve position will force the new set-up to introduce additional capital controls, a process already initiated yesterday with the central bank suspending trading in the open currency market for a week.

Pakistan's foreign exchange reserves stood at $ 1.4 billion and the financial strength would be under test if foreign assistance remains suspended.

Pakistan is critically dependent on the continuation of financial support from the multi-lateral donor agencies like the International Monetary Fund, World Bank, the Asian Development Bank, the United States, the European Union and other donors.

All of them have warned that the vitally needed assistance would stop flowing if democracy was not restored ''as soon as possible'' in the country.

The situation would worsen if the donors reverse the agreements already reached or negotiated on rescheduling and restructuring of old loans which Pakistan had not been able to pay back, partly because of the sanctions imposed by the donors in 1998 after Pakistan carried out nuclear tests following tests conducted by India.

Some rescheduling arrangements have yet to be ratified by the respective institutions and countries.

Economists see a major task ahead for the military rulers to assure the world that the country would fulfil all its international commitments.

Ovais Subhani/Reuters adds from Karachi

Wafer-thin foreign exchange reserves and the suspension of the IMF funds may force Pakistan's army rulers to bring in an element of civilian rule to ward off impending economic meltdown, analysts said today.

"The military will first have to get legitimacy in a way acceptable to the international community, especially major western powers,'' said one Karachi financial analyst who declined to be identified.

''Without their (western) support you can simply forget any inflows, which will result in a meltdown,'' the analyst said.

He was speaking hours after General Musharraf, the army chief, appointed himself ''Chief Executive'' of the nation of 135 million.

With $ 32 billion in foreign debt, Pakistan has had to survive on hand-to-mouth IMF handouts since it carried out nuclear tests in May last year, which triggered heavy sanctions from key donors Japan and the United States.

Pakistan's foreign exchange reserves are about $ 1.46 billion dollars, a scant four months' import cover and a major headache for Musharraf, who will need to keep up the flow of imports to maintain popular support for the overthrow of Sharief's team.

Under Sharief, the government pledged to carry out key economic reforms but stalled on many because they would have hit the ruling elite, which has plundered state banks for cheap loans totalling some Rs 200 billion ($ 3.85 billion), the analysts said.

It repeatedly promised widescale privatisation and to boost tax returns in a country where less than two per cent of the population pays any tax at all.

But each time the government backtracked to avoid alienating both the public and the elite, in a pattern that critics dubbed the ''one-tranche politics of the Sharief government''.

Gen Musharraf appeared to have moved to tap popular resentment at the way the elite enriched itself by freezing the domestic bank accounts of politicians today. The vast majority of the Rs 200 billion was loaned to members of the National Assembly.

But he will need to match popular gestures with quick moves towards bringing civilians into power to unlock the coffers of the IMF, World Bank and other multilateral and bilateral donors, the analysts said.

''Our dependence on multilateral and bilateral inflows is almost complete. There is no other way of funding imports and making international payments,'' said another analyst who asked not to be identified.

''On the domestic front, the military can take decisive action against loan defaulters, tax evaders and the corrupt and inefficient bureaucracy, which could result in at least some confidence building and could be seen as encouraging even foreign private investors and expatriate Pakistanis,'' he said.

Analysts said that even if the central bank, the State Bank of Pakistan, stretched out its reserves for some time and managed to maintain some sort of credence with donors by making loan repayments, money for essential imports would soon run out.

This could, in a worst-case scenario, lead to shortages of staples such as wheat, powdered milk and cooking oil as well as fuel. Pakistan imports 60 per cent of its petroleum needs.

''In the immediate term, if they start facing shortages of essential food items or fuel, then everything will be up in air,'' said another professional analyst with a financial institution in Karachi.

''The problems are so deep-rooted that tinkering with the system will not help. The decision that has to be taken is very basic. Either you want to continue playing political games with a nation of empty stomachs or build a strong economy and a prosperous nation sacrificing some of the democratic rights.''

Financial analysts echoed western diplomats in urging Gen Musharraf to make clear what his political and economic plans are without delay to avoid alienating an already perturbed but sympathetic western donor audience.

''We need at least five years of focused leadership and uninterrupted solutions to economic problems. What Gen Musharraf needs to do right now is to show his decisiveness and start doing things quickly. The more he delays, the more he will be bogged down by the political wranglings,'' one said.

UNI

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