Walker's World: Pakistan poised to become Asian tiger
By Martin Walker
UPI Editor Emeritus
Published June 5, 2006

WASHINGTON -- War is not often seen as a source of economic growth,
but Pakistan seems likely to emerge as one of the main beneficiaries
of the Bush administration' s War on Terror. As a front-line state and
major base for the U.S.-led campaign in Afghanistan, Pakistan has
enjoyed U.S. financial support that has paved the way for new private
investment and is turning the country's period of military rule into
an economic success story.

The publication Monday of the Pakistan government's budget
demonstrates this dramatic change in the country's financial fortunes,
with surging growth and new investment plans that suggest the world's
second most populous Islamic nation is poised to join China and India
as one of Asia's new "tiger" economies.

The Persian Gulf sheikhdom of Dubai is to invest an initial $10
billion in Pakistan's boom, mainly in property, port and transport
development, a sum that may triple to $30 billion if current
negotiations succeed.

The World Bank, now run by former U.S. Deputy Defense Secretary
Paul Wolfowitz who urged heavy U.S. financial support of Pakistan when
the country was being wooed after the Sept. 11 attacks as a key
partner in the war on terror, is now doubling its own investment loans
to $6.5 billion. The government is also to increase its own
development budget by 50 percent.

Salman Shah, economic adviser to Pakistan's prime minister,
announced in a press conference Sunday that the country's gross
domestic product has grown at an annual rate of 6.6 percent in the
latest fiscal year.

"This year also the economy has shown a solid growth in spite of
major setbacks during the year," Shah said, citing the massive
earthquake that killed some 70,000 people last October and the
dizzying climb in oil and commodity prices.

Pakistan's growth rate has averaged an annual 7 percent over the
past four years, helping lift almost 20 million of Pakistan's 150
million people out of poverty. The proportion of Pakistanis officially
calculated as living below the population has fallen from over a third
to less than a quarter in the past five years, Shah said.

Pakistan's take-off began with the War on Terror, starting with
the war to topple the Taliban regime in Afghanistan in 2001. That
triggered a big U.S. aid program, starting with $91 million in the
first year and rising steadily to $706 million in 2005.

"The U.S. forgave all bilateral debts to Pakistan, helped
reschedule debts involving multinational lenders, provided billions in
economic and military assistance, and encouraged international banks
to provide even larger amounts of aid. As a result, Pakistan's foreign
debt declined from $47.8 billion to $30.3 billion (today's estimate).
Foreign exchange reserves, boosted largely by the transfer of large
sums of money from expatriate Pakistanis, rose to $12 billion," notes
Dr Ahmad Faruqui, research director at the American Institute of
International Studies

U.S. and international funds were joined by private investment
from the Arab world and the Gulf states as the military government of
President Gen. Pervez Musharraf launched a program of economic reform
and privatization. Pakistan Telecom was privatized last year, with the
bulk of the shares being bought by companies based in the United Arab
Emirates.

Already closely linked to the oil-rich Gulf economies through some
3 million Pakistani guest workers, Pakistan is now benefiting from new
infrastructure investment. Dubai Ports World is bidding for the
management contract to run the new Chinese-built port of Gwadar, near
Pakistan's frontier with Iran on the Indian Ocean, and other Gulf
companies are investing in the new road and rail links from Gwadar to
China and Central Asia.

President Musharraf is now seeking to emulate India's success in
the high-tech and IT sectors, telling the annual OPEN Silicon Valley
conference Saturday that "a network of infrastructure is in place to
serve as trade and energy corridor for the landlocked Central Asia,
South Asia, the Gulf region and China."

"We have put in place an elaborate IT infrastructure; connected
cities and towns to the Internet; and three submarine cables are to
further enrich the IT scenario," Musharraf said. "On top of it, we
have talented English-speaking graduates, which are an asset for the
country and international investors."

"Pakistan today is in an altogether different league
economically, " Musharraf told the conference by video. "It has been
put firmly on path of high economic growth with its GDP having more
than doubled to $135 billion and all macro-economic indicators
including exports, revenue collection, foreign investment, foreign
exchange reserves staying positive."

Pakistan's future prospects are far from guaranteed. Political
instability, violent spillovers from the Taliban insurgency in
Afghanistan, a new surge in the oil price or new tensions with India
could all jeopardize the country's future growth.

But once again, a pattern emerges of a major U.S. strategic
initiative bringing financial aid and investment and transforming
regional economies. It happened in the Cold War, when America's
Marshall Plan revived the war-battered economies of Western Europe. It
happened in Japan, when that country became the industrial base for
the Korean War in the 1950s and then the U.S. strategic base in Asia.
It happened again in the Vietnam War, when U.S. aid and investment
helped Thailand, Malaysia and Singapore into their economic takeoff,
and led to the formation of ASEAN, the Association of South-East Asian
Nations that has become a regional powerhouse.

And now the same seems to be happening in Pakistan. The one
exception to this rule of U.S. strategic involvement leading to a
surge in growth is Iraq, where the instability of the insurgency has
been a disincentive for outside investors. But the part played by the
Iraq war in suppressing Iraq's oil production has led to higher
prices, and the massive inflows to the oil-rich Persian Gulf countries
that are now pumping some of this money into Pakistan.

Source : http://www.wpherald .com/storyview. php?StoryID= 20060605- 105018-7702r