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Time and Money
Running Out for Pakistan
By Omar Waraich/Islamabad Saturday, Oct. 25,
2008; http://www.time.com/
You wouldn't want to be the President of
Pakistan: Even as the military finds itself embroiled in a war against
militants that much of the country's elected leadership (and even more of
the electorate) opposes, it's hard even to keep the lights on as the limits
of the country's electricity supply mean daily blackouts in major cities.
The economy, meanwhile, is in a perilous state, with inflation running
rampant, the currency having lost a third of its value, and foreign currency
reserves reduced to the point that they can finance no more than six weeks
of imports. Pakistan, in fact, is in danger of defaulting on its substantial
foreign debt if it can't get help either from its friends or from the IMF —
and the price of such help will be politically unpopular: a stepped up
effort against the Taliban and, perhaps, some tough domestic economic
reforms.
No wonder, then, that the forthcoming U.S.
National Intelligence Estimate (NIE) on Pakistan reportedly makes "bleak"
reading. The NIE represents the consensus of the 16 U.S. intelligence
agencies, and according to a McClatchy newspapers report, an official
familiar with the contents of the document that will brief the next
President says it warns that Pakistan has "no money, no energy, no
government". Washington's primary concern remains al-Qaeda, which John
Kringen, the CIA's director for intelligence, recently described as being
"resurgent" and "well-settled" in Pakistan's tribal areas. But the presence
of Bin Laden's group is enabled by an indigenous militant insurgency — the
Pakistan Taliban — and Pakistani leaders remain divided over
how to respond to this challenge.
President Asif Ali Zardari and his seven
month-old civilian government have given priority to combating militancy,
and having abandoned failed negotiations with the Pakistan Taliban, the army
is currently fighting militants in the notorious arms manufacturing town of
Darra Adam Khel, the scenic Swat Valley, and most visibly in the Bajaur
tribal area. Although the U.S. NIE reportedly criticizes the Pakistan army
for a "reluctance" to launch an all-out confrontation with the militants,
military spokesmen point out that the Pakistan army has lost over 1,500
troops since it began confronting militants on its own soil. And they see
the tide turning in their favor in the ten-week-old military operation in
Bajaur, where they say the Taliban last week offered negotiations — a sign,
say government officials, that the militants' resolve is weakening. "It was
the first time that the government rejected an offer of peace," says Mehmood
Shah, a former chief secretary for Pakistan's tribal areas.
Pakistani officials are also encouraged by
the emergence of tribal militias who have turned on the Taliban. "We cleared
them out of our area in a week," says Akhunzada Chettan, a lawmaker from a
part of Bajaur, and there have been similar successes in Dir and,
reportedly, Lakki Marwat. These developments are significant, officials say,
because in the past the tribes had feared that the army would fail to
protect them.
Although the current offensive in Bajaur
and other areas has been applauded by Washington, Prime Minister Asif
Zardari is having a harder time convincing his own people of the wisdom of
waging war on the militants. While some had hoped that last month's
horrific terror attack on the Marriott Hotel in Islamabad would rally
the nation to fight militancy, instead divisions have only deepened. Recent
opinion polls still find a majority of Pakistanis opposed to their
government's support for Washington's "war on terror" — despite their anger
at the recent wave of suicide bombings, these Pakistanis believe
the
attacks are a consequence of
Pakistan waging "America's war".
Zardari had hoped that holding a
parliamentary debate on how to respond to militancy would help make the
campaign "Pakistan's war" and give the military political support for its
actions. But after more than two weeks of behind-closed-doors deliberations,
parliament unanimously adopted a resolution urging a resumption of dialogue
with the militants, and an end to military operations "as early as
possible". Although the parliamentary debate reflected the power plays of a
political culture in which parties rarely put the national interest above
their own, it also reveals a profound difference in perspective even within
the ruling coalition — Zardari's allies in the religious Jamiat Ulema-e-Islam
party demanded an end to military operations against the militants.
"The military wants political back up, and
the government is supporting them, but I do not expect all the parties to
unite," says military analyst Hasan Askari-Rizvi. "The political leaders
seem too interested in settling scores against each other."
The absence of a consensus on fighting the
militants compounds Zardari's difficulties in tackling the economic crisis
he inherited — a crisis that, in turn, threatens to deepen the militant
challenge. Rising world oil and food prices have sent the inflation rate
soaring to 25% (and as much as four times that on basic foodstuffs), while
the political uncertainty over the past 18 months fueled extensive capital
flight that has weakened the rupee and depleted forex reserves. A failure to
increase the capacity of electricity production now plunges Pakistan's main
cities into darkness for up to ten hours a day, with longer periods in rural
areas. Industrial output has shrunk with employers now laying off employees
they can no longer afford to keep. And Pakistanis have begun to take their
anger to the streets. In parts of Lahore on Monday, scores of protesters
laid siege to the local office of the electricity utility, ransacking the
building and burning their electricity bills. The mounting economic crisis
is likely to fuel social unrest — "The general mood is one of despair," says
Yousuf Nazar, a leading economic commentator. And despair and anger among
Pakistan's poor are likely to swell the ranks of the militants.
The bleak economic situation has prompted
Pakistan to desperately seek aid from such long-term allies as Saudi Arabia,
Britain, the U.S. and China. Despite Zardari
flying to those countries in recent weeks to make his case, he has yet
to secure the loans needed to avoid a default on Pakistan's debt. Pakistani
officials insist that they have no intention of defaulting, and the
Pakistani rupee rose this week amid signs that the International Monetary
Fund might step in to rescue this frontline state in the war on terror. The
IMF confirmed Wednesday that it would soon enter discussions with Pakistan
over ways to assist its economy. But help from the international community
will almost surely be conditional on a more robust effort against the
militants — an option that raises political problems for Zardari — and also
on economic reforms that might prove unpopular. There are clear and
challenging downsides to any of the choices available to Pakistan's
leadership right now. And playing for time may not be an option in the face
of that dwindling pile of foreign exchange reserves.
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Iran feels economic
pain as oil prices fall
The Associated Press; October 30, 2008
TEHRAN, Iran: Three weeks ago, a hard-line
cleric close to Iran's president gloated publicly that the world financial
crisis was God's punishment on the United States. The laughter, however, was
short-lived.
Iran plunged this week into a bitter storm of political recrimination,
largely directed at President Mahmoud Ahmadinejad, as officials and ordinary
Iranians realized with shock that the Islamic republic faces a severe
economic crisis of its own.
The reason: As oil prices plunge because of the global slowdown, Iran is
caught in a classic crunch. Ahmadinejad's government failed to save enough
of the billions in oil windfall it earned during the good years to now
cushion the bad.
The same crunch afflicts Venezuela and to a lesser extent, Russia, as all
three struggle with falling oil prices.
But in Iran, the economic crisis has quickly turned political. Economic woes
are the key issue as Ahmadinejad — already deeply unpopular and suffering
from exhaustion, he said this week — seeks re-election next summer in a
tough vote. And they are shaping up as his weakness.
Critics say he has recklessly squandered
Iran's oil windfall on costly, subsidized imports, from fruit and other
goods to the gasoline the country must buy overseas because of a refinery
shortage, while failing to take any needed reforms.
"The Iranian people got a golden opportunity in history. But it was buried
under this government's wrong policies," said Mohsen Safaei Farahani, a
former lawmaker and reformist economist.
Among the dire statistics made public this week: The government may have as
little as $9 billion left in its hard-currency reserve, the rainy day fund
set aside to bolster the currency, import goods or pay off debt, according
to one official, an ally of the president, who gave that figure to
newspapers.
Other officials immediately disputed that, saying Iran still had closer to
$20 billion or $25 billion in the fund.
But the relatively low figures shocked the country, leading one state agency
to send an investigative report to Iran's supreme leader, Ayatollah Ali
Khamenei, and parliament Monday, accusing Ahmadinejad's government of
financial violations. Among the accusations: His government unlawfully
withdrew money from the fund.
Even if Ahmadinejad is not re-elected in June, it is unclear how much Iran's
foreign policy would change. Khamenei, a hard-liner, has the final say in
all state matters and strongly supports Iran's nuclear program and dislike
for the United States.
But the combative tactics of Iran's current policy could alter, especially
if a more tempered reformist is elected.
There is little question Iran should be swimming in money, according to an
Associated Press review of Iran's economic statistics: The country has at
least tripled its oil earnings in the last few years as prices spiked.
Precise government numbers are hard to come by. But Iranian economists
contacted by the AP estimated the government earned more than $200 billion
from oil exports in the last three years, during Ahmadinejad's tenure, or an
average of $66 billion a year.
That compares with just $173 billion earned in the previous eight years, or
an average of $21 billion a year.
OPEC put the value of Tehran's exports at $64.9 billion last year, up 22
percent from two years earlier and more than three times as high as 2001,
when production was only modestly lower. But those figures were before
prices soared to an all-time high above $145 a barrel earlier this year.
Benchmark prices have since tumbled, with light, sweet crude for December
delivery at $65.96 a barrel on the New York Mercantile Exchange.
With that kind of cash inflow, Iran could easily have built a $100 billion
hard-currency reserve, said another economist, Mohammad Bagher Nowbakht.
Oil is by far Iran's most important product — the world's fourth-largest oil
exporter, the country depends on oil revenue for a whopping 80 percent of
its government budget, the same economists estimated.
For Ahmadinejad, the hard currency dispute was just the tip of the bad
economic news.
Tehran's stock index also plunged about 12 percent in a week, its lowest
close in years. Soaring prices continue to hurt ordinary people, with
inflation estimated at 27 percent or more.
Iranian economists warn publicly of a budget deficit next year if oil sells
at below $60 per barrel. The International Monetary Fund is more dire,
estimating Iran would need prices at $90 per barrel to stay in the black.
Ahmadinejad, under severe political pressure, named five top officials
Monday to study the global financial crisis' impact even as critics called
it too little, too late.
Former President Akbar Hashemi Rafsanjani, still a powerful figure, late
last week publicly cautioned Ahmadinejad and the cleric who had gloated
about America's crisis, Ayatollah Ahmad Jannati, to end their populist
slogans and become more serious.
"The consequences of this crisis hit
everybody," Rafsanjani said. "The first wave of the crisis are the low oil
prices that have reached us. This is a big loss."
The president was already under attack from both reformers and
conservatives, who brought him to power but now complain he spends too much
time on fiery anti-U.S. rhetoric rather than managing the country.
Middle-class Iranians, who have seen their standard of living fall, often
speak scornfully of his economic naivete. In July, he predicted oil prices
would never fall below $100 per barrel.
Ahmadinejad said earlier this week that he suffers from exhaustion.
Yet he appears unbowed. In a speech Wednesday, he called the world financial
crisis a U.S. creation, although he stopped short of outright calling it
God's punishment.
"They say it is a global crisis. No, this crisis is your creation," he said
of the United States, addressing a group in western Iran in a speech carried
on state TV. "You plundered moneys and are in debt. Now you want to take
money from the pocket of other nations again."
The crisis, he said, "is the result of your behavior, the result of you
distancing from divine rulings, the result of trampling morality, the result
of aggression and lying. The only solution is a return to morality."
Iran's economy was in some trouble before Ahmadinejad took office, but many
economists blame him for making it worse.
They say Iran can only recover by ending expensive fuel subsidies and luring
more foreign investment to develop oil and gas fields and build refineries.
But Ahmadinejad was elected in 2005 on a populist agenda promising to bring
oil revenues to every family, eradicate poverty and tackle unemployment. In
office, he handed lucrative contracts to cronies including former members of
the hard-line Republican Guards, and tried to develop fields on Iran's own.
His efforts to inject liquidity into the economy to create jobs, something
economists say they repeatedly warned against, led to higher inflation.
One independent economist, Mousa Ghaninejad, said Ahmadinejad encouraged
spending oil revenues to subsidize imports. Iran imported more than $56
billion in goods last year, a 50 percent increase from three years ago.
The government did impose some limited fuel rationing — a wildly unpopular
measure. But fuel subsidies are still high and drain the country of hard
currency.
Iran also spends large amounts on its nuclear program and sends money to
groups such as the militant Hezbollah in Lebanon, including an estimated
$1.2 billion to Hezbollah in 2006.
With money tight, it's unclear what will give.
If Iran does see a budget deficit next year, it would need to either trim
spending, print more bank notes, or borrow money. The country is thought to
have $28.6 billion in foreign debt already.
That makes many Iranians nervous, especially about the state of
hard-currency reserves. Mohammad Nahavandian, the head of Iran's chamber of
commerce, predicts dire times. The government's plans, he said, "will run
into trouble."
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Obama quashes
Iran's hopes for change
By Jim Muir
BBC News, Tehran, 09-10-2008
If anybody had hoped that Barack Obama's
election victory would lead to a swift breakthrough in Washington's
relations with one of its toughest adversaries, Iran, the honeymoon seems to
be over before it even began.
Many Iranians, including some officials, were
thrilled by the stunning election victory, seeing it as offering hope of a
radical change in US foreign policy and relations.
The two countries have had no diplomatic relations since shortly after the
Islamic revolution in 1979, and tensions have risen recently over Iran's
nuclear programme.
Both Mr Obama and his future vice-president, Senator Joseph Biden, have in
the past advocated unconditional dialogue with Iran.
That was one reason behind the excitement generated in Iran by their
election success.
No 'knee-jerk' response
That excitement led the country's quixotic president, Mahmoud Ahmadinejad,
to break with precedent and send a congratulatory message to the American
president-elect.
But it swiftly became apparent that a whirlwind romance was out of the
question, as political problems sprang up on both sides.
In Iran, both Mr Ahmadinejad's initiative and Mr Obama's cagey response drew
fierce attacks from rival hard-line circles, where the political atmosphere
is already heating up sharply in advance of Iranian presidential elections
next June.
On the American side, while Barack Obama
responded gracefully and personally to messages of congratulation from other
world leaders, he held back from doing so with Mr Ahmadinejad, mindful of
the political implications of such a gesture.
He said he would be reviewing the Iranian president's letter and responding
appropriately, rather than reacting in a "knee-jerk fashion".
But Mr Obama made it clear that he will not be a soft touch when it comes to
Tehran.
"Iran's development of a nuclear weapon I believe is unacceptable. We have
to mount an international effort to prevent that from happening," he said.
"Iran's support of terrorist organisations, I think, is something that has
to cease."
The Speaker of the Iranian parliament, Ali Larijani - who has been sharply
at odds with President Ahmadinejad over parliament's impeachment last week
of the latter's interior minister - described Mr Obama's comments as a step
in the wrong direction.
"It signals a continuation of the erroneous policies of the past," he said.
"Change has to be strategic, not just cosmetic."
Hard-line Iranian newspapers on Sunday took up the theme of continuing
American hostility to Iran and a common policy shared by Republicans and
Democrats alike.
Some also pointed out that one of Mr Obama's first actions was to appoint as
his chief of staff Rahm Emanuel, whose background reportedly includes
volunteer service in the Israeli army.
Reformist support
Some also criticised Mr Ahmadinejad directly for stretching out his hand to
the American president-elect.
The right-wing daily Jumhouri Islami said his initiative was wrong on
several counts.
If it was a prelude to reopening a dialogue with Washington, it said, such
issues were of a magnitude which only Iran's Supreme Leader, Ayatollah Ali
Khamenei, was qualified to address.
Ironically, the main voices raised in support
of Mr Ahmadinejad's overture came from the reformist camp, which favours
dialogue with Washington and which is normally at loggerheads with the
president.
The issue of opening a direct dialogue between Washington and Tehran is
clearly a political minefield for both sides.
But that does not necessarily mean it will not happen.
As he pointed out in his remarks about President Ahmadinejad's letter, Mr
Obama's hands are in any case tied until he takes office in January.
The economic and financial crisis will then be his obvious first priority.
But he has already singled out Iran and its pursuit of nuclear technology as
a compelling foreign policy issue to be addressed, and he has not so far
drawn back from the idea of direct talks, an approach long championed by
Senator Biden.
Shark-pool
Back in Tehran, much will depend on the position taken by Ayatollah Khamenei.
His addresses are often very tough on the United States.
But some Iranian officials say that he is not against a direct dialogue, if
it is without preconditions and Iran's dignity is respected.
There is even some speculation about who might be qualified and authorised
to conduct talks from the Iranian side.
Only if a dialogue had the clear support of
the Leader - who cannot be criticised - would it be likely to resist being
torn to shreds in the shark-pool of Iranian factional politics.
If direct talks did get under way, it would clearly not be plain sailing.
Iranian officials and leaders remain adamant about what they see as their
absolute right to pursue nuclear fuel enrichment, which they insist is only
for peaceful power-generation purposes.
The Americans and others - apparently including Mr Obama - are convinced
that Tehran is actually seeking to develop nuclear arms, and insist it must
stop enrichment operations in exchange for imports of ready-enriched nuclear
fuel and other inducements.
Some reformist leaders have suggested that the ascendant hard-liners don't
really want normalisation with the US, on the grounds that continuing
tension allows them to focus on external threats and silence their domestic
critics.
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