Pakistan has become a country that generates two types of stories: one positively glowing, extolling the recently healthy financial markets and rising foreign direct investment; one wholly negative, after the country’s latest skirmish with one or more of rising militancy, dictatorship, government strife or old-fashioned bankruptcy.
The latest troubles in Islamabad have, rather, oddly, created a new, hybrid strain of the two. This time the country’s president and (for a short while yet) army chief, Pervez Musharraf, who rose to power eight years ago in a bloodless coup, first dissolved the Supreme Court and then imposed martial law, mirroring India’s own Emergency of 1975, when Indira Gandhi dissolved parliament and threw the country’s constitution out of the window.
Yet while the global diplomatic community has rushed to show their distaste for Musharraf’s decision by shaking their heads and tutting very loudly indeed, the broad domestic and global financial community has quietly applauded what they see as his doggedness and determination in adversity. They’ve clearly also decided that an alternative government might be far less market-friendly, and more inclined to backtrack on the financial and economic reforms of recent years.
A Musharraf fan
"I would love to see Pervez Musharraf regain control of both positions [president and head of the military] for five or 15 years in order to get democracy back on track," says Farrukh H Sabzwari, chief executive at KASB Securities in Karachi, the local joint venture partner of Merrill Lynch. "If he needs to sidetrack lawyers, so be it."
It’s honest, if nothing else. Yet it’s also a view shared across a broad spectrum of the financial community in Pakistan. In a November 8 research note titled Emergency: Economics untouched, KASB economist Muzammil Aslam noted with some surprise that in the days following Musharraf’s decision on November 3 to declare emergency rule and suspend the country’s constitution, "no panic was witnessed in the foreign exchange market, and the Pakistan rupee remained stable against the US dollar".
He also added that there was a "key distinction" between previous emergencies and the present one, noting that the decision to invoke martial law had had "no impact" on the country’s economy, and that neither foreign exchange regulations nor capital restrictions had been touched.
That might explain why Musharraf’s decision to tear up the country’s rule book in early November was met with a surprising amount of nonchalance by investors. Shares on the K30 index of the largest Karachi-listed stocks fell just 7.7% between November 3 and November 15, despite having gained 21% in value over the previous two months.
Some are not fully convinced. A Lahore-born banker working in the Middle East notes with some distress that while India’s economy continues to grow by leaps and bounds, Pakistan’s is "about to go down the toilet yet again".
"I agree with much of what Musharraf has done, and even to a large extent with what he is still doing," the banker says. "Without him I think things may become more unstable, and if that happens, the world may look back on many of his recent decisions in a better light. But it’s always the same with Pakistan – just when things are moving in the right direction, we manage to find a way to comprehensively shoot ourselves in the foot."
Going forward, there are greater concerns for the country, particularly if foreign direct investment inflows dry up because of further political uncertainty, and turbulence rises as militancy increases on the western border regions. If that happens, 2008 could be a lean year for new, incoming corporate investments.
Recent global corporate investments in Pakistan – notably by Norwegian telecommunications firm Telenor, Standard Chartered Bank and the world’s largest carrier by subscriber numbers, China Mobile – were trumpeted at the time by Islamabad and Karachi. Foreign direct investment increased by $577 million a month in the 13 months to February 2007, and by $687 million a month between February and October 2007. Next year’s FDI figures look unlikely to be as kind to the country.
In a state of flux
And uncertainty persists: everything is still in a state of flux in Islamabad, and will remain so for months. The KASB economist unwittingly spotlights these future concerns, noting in his November 8 report that while he believes that the uncertainty "will not last long", if things do not improve there will be a backlash from the opposition parties that would result in a drying up of private foreign fund inflows.
Meanwhile, KASB’s Sabzwari does believe that domestic stocks could still decline further before they advance. "Don’t be surprised to see the market fall another 10%" he says. "But stocks will be even cheaper then, so there will still be money to be made. People will come back when the uncertainty clears up. Pakistan has a strong economy still and a clear investment theme."