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HVK Archives: Pak pays for Chagai everyday as panic creeps in

Pak pays for Chagai everyday as panic creeps in - The Indian Express

Kamal Siddiqi ()
July 12, 1998

Title: Pak pays for Chagai everyday as panic creeps in
Author: Kamal Siddiqi
Publication: The Indian Express
Date: July 12, 1998

Pakistanis get a daily reminder of the Chagai nuclear blasts on
May 28. Every day, the Rupee slides further down against the
dollar in the open market and the State (Central Bank puts more
restrictions on the outflow of precious foreign exchange
reserves, which have dipped to just over $800 million from the
predetonation $1.3-billion level.

Amid talk by the finance minister that country may end up
declaring a partial moratorium on its international debt
commitments, many businessmen and economists are panicking over
what the next few months hold for the country. Pakistan has to
pay back $800-million debt in the next month. If this payment is
made, Pakistan will have no money to pay for imports.

The mood on the street does not reflect this grim reality. e
are ready to make the sacrifices, says Muhammad Riaz, a flower
seller in Karachi's posh Clifton area. Riaz, and many Pakistanis
like him, however, are unaware of the extent of sacrifices they
would have to make if Pakistan goes down under.

Funds are drying up and people are slowly feeling the pinch as
the prices of essential commodities are rising, Many shops see
their stocks depleting as importers are reluctant to bring in
foreign brands and the local brands are fast selling out. Staples
like wheat, rice and cooking oil are still available but
shopkeepers say that their prices are about to take a big jump.
Many people with the means to do so have quietly started stocking
up on edibles.

While the traffic continues to roll on busy streets in urban
Pakistan, few people are aware that the country is staring at a
financial crisis in the face. But the situation is not lost on
the Karachi stock market, the country's biggest bourse. "There is
a lot of talk of a default in the market" says Mudassir Malik who
heads research at BMA Capital, a local brokerage house.

Malik and many other analysts like him say that the way things
are going, a default seems a distinct possibility. That explains
why the Karachi Stock Exchange has been registering record lows
in its index in the past month.

A default would mean super-inflation and a jump in the value of
the dollar against the rupee. It would also mean a cut in imports
of various kinds to a trickle, and rises in the price of petrol,
gas, power and essential commodities.

Till now, foreign banks have rolled over about $ 314 million lent
to the government in swap funds due at the end of June. Another $
100 million was received from the Islamic Development Bank. And
some $ 200 million were roped in from exporters. These measures
allowed Pakistan's foreign exchange reserves to stand at $ 913
million on June 30, 1998. Since then, the reserves have started
to deplete again.

Pakistan maybe on the verge of default but many people are acting
as if it has already defaulted, says one analyst. The biggest
problem facing the Nawaz Sharif government is that it is
suffering from a crisis of confidence. "There is a serious lack
of confidence m government policies," comments Nasir Shah Bokhari
of brokerage Khadim Ali Shah Bokhari (KASB), a financial house.

For one, the revolutionary "national agenda", presented by the
Prime Minister on June 11, seems to have been forgotten within
days of its unveiling on national television. The government has
side-stepped its commitment to nab tax evaders and recover
defaulted loans on a "war footing".

One swoop against a factory belonging to a close relation of the
interior minister brought to a halt all the tall claims of
sparing no one. The recovery process has once again become
partial and politically motivated.

Contrary to his commitment to cut expenditure on government
functioning by 50 per cent the government actually ended up
cutting 15 per cent in the budget. The tough decisions and the
cuts that were expected after the national agenda for self-
reliance are still awaited.

More attention is on rhetoric than on reality. Vacating the Prime
Minister's secretariat has been an expensive proposal. Millions
have been spent refurbishing offices in the capital to house the
bloated staff of the PM's Secretariat. There still has been no
talk of cutting down the size of the government.

For his part, the Prime Minister isn't acting like the head of a
country that is about to declare bankruptcy. He has announced
another scheme of loans for unemployed youth, unmindful of the
bad debts that the nationalised banks accrued through his other
failed schemes.

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