Opinion: Pakistan Is Dangerously Close to Collapse

Pakistan is no stranger to economic and political crises. The country has had many since its independence in 1947, including the military coup in 1958 and a civil war in 1971. With luck, some timely help from friends and allies and the resilience of its people, the nation has always managed to survive. A host of recent troubles, however, has brought Pakistan to the brink of collapse. Vast segments of Pakistan's western borderlands are all but ungovernable, the Taliban has started to reconstitute itself in these areas and suicide bombers have struck in the hearts of major cities. These problems, coupled with a global economic downturn and food inflation, has turned this country of 165 million people into a powderkeg of popular disaffection, as last week's attack on the Karachi stock exchange shows.

What set the events of last week in motion was a 35 percent plunge in the Karachi Stock Exchange-100 index from a record high in April, mostly in the span of a single day. The stocks of many small investors took a terrible beating. Most analysts attribute the crash to the steadily weakening Pakistani rupee. A recent inflationary spiral, which has now reached 21 percent, was brought on largely as a consequence of abrupt rises in the costs of food and fuel. Growing frustration with what most Pakistanis perceive as the indifference and callousness of their government with rising prices and the wiping out of meager but vital investments prompted the attack, in which hundreds of protesters smashed windows of the exchange.

Pakistan's wafer-thin elite, who live in gated (or more accurately, walled) communities and have all but opted out of public services, can withstand the vagaries of the stock market and inflationary spikes. Their substantial wealth leaves them mostly immune to these scourges. Such is not the case for the vast majority of Pakistan's urban population, which is increasingly faced with a breakdown of basic municipal services such as the provision of water, electricity and sanitation. These problems, coupled with soaring inflation and growing lawlessness, are proving to be a truly combustible mix. In recent years, small traders who do not have substantial savings had invested heavily in the booming stock market. The abrupt crash of the market essentially wiped out their precious nest eggs.

It is tempting to attribute Pakistan's latest crisis of governance and social breakdown to the country's recent rocky transition to democracy. Yet such an explanation is too easy. The myriad problems that the country confronts, from rapidly declining foreign exchange reserves (which pay for imported fuel and foodgrains) to rising tides of Islamist violence, cannot be solely attributed to the unseemly, internecine squabbling between the dominant Pakistan People Party and its junior partner, the Pakistan Muslim League (Nawaz). Instead, their origins can be traced to two very different sources that have converged to produce this most unhappy set of circumstances.

During much of the last decade, military rule has had a corrosive effect on a wide range of institutions, including universities, local police and paramilitary organizations, municipal bodies and the higher judiciary (which prompted the lawyer's revolt against General Pervez Musharraf). Economic institutions were not exempted from this process of decay. As a consequence, oversight of the stock market was allowed to atrophy. When an external shock comes along, such as the sudden weakening of the rupee, the market had proven to be brittle. What occurred last week in Karachi was merely a reflection of growing public frustration with a legion of current economic woes coupled with the endemic weakness of public institutions.

It would be a mistake to see last week's upheaval as a one-off event. Instead it is an important harbinger of what may happen with some frequency throughout Pakistan's major cities as the global economic downturn wends its way into vulnerable economies with few internal mechanisms for cushioning setbacks. As economic conditions continue to spin out of control, there's a possibility of much greater popular discontent and violence spreading across Pakistan.

Given the obvious importance of Pakistan in the region's security, the United States should take heed. It needs to urge the PPP-PML (N) coalition government to set aside their petty differences and focus their attention on the country's burgeoning economic and security problems. The coalition should start to embark upon modest efforts to rein in the Inter-Services Intelligence Directorate, to stop appeasing the resurgent Taliban, to formulate sustainable economic policies and restore the independence of the judiciary. Fortunately, at this particular juncture, the Pakistani military seems to be in no mood to step in to what it must see as a potential political quagmire. However, if historical evidence is any guide, such restraint on the part of the military may yet prove to be fleeting if conditions continue to deteriorate.

America retains considerable leverage over Pakistan, despite popular wisdom in some quarters of Washington, D.C. to the contrary. Given that the stakes are so high for the United States, the region and Pakistan, it is critical that the Bush administration in its final months try and prevent the fledgling democratic regime in Pakistan from dashing its population's hopes for a more secure economic future. The alternatives are too grim to contemplate.

Sumit Ganguly is Director of Research of the Center on American and Global Security at Indiana University, Bloomington and an Adjunct Fellow at the Pacific Council on International Policy in Los Angeles.