Boston Globe
Boom aside, Pakistan disparities linger
By Declan Walsh, Globe Correspondent | June 4, 2006
LAHORE, Pakistan -- Pakistan's bumpy streets are crowded with wheezing rickshaws, garishly decorated trucks, and motorcycles carrying as many as six people. Now, add an incongruous newcomer to the chaos -- the latest Porsche.
The country's first Porsche dealership opened last month with a glitzy ceremony at one of Lahore's most exclusive clubs. Importer Abukhar Bokhari said he has already sold 30 cars -- three-fourths of his annual quota. ``Business is booming," he said with a smile.
The glamorous sports cars are the high end of a little-publicized economic boom in a country more frequently associated with Islamic extremism and anti-American sentiment.
Despite the devastating earthquake in October, Pakistan's economy grew by 8.4 percent last year, second only to China in Asia. This year's gross domestic product growth is forecast at a healthy 6.3 per cent. Exports increased by 19 percent over the past year and per capita income will reach $800 by June, up one-third from last year, according to the government.
Bokhari said he expected the iconic 911 to be his most popular model -- a fitting irony since the aftermath of the Sept. 11 attacks set the stage for Pakistan's dramatic turnaround.
After America launched its ``war on terrorism" in late 2001, Pakistan's president, Pervez Musharraf, cut his ties with Afghanistan's extremist Taliban government and joined the hunt for Osama bin Laden and the Al Qaeda leadership. In return, he won key economic rewards that pulled the Pakistani economy out of a nosedive.
The United States forgave $1.5 billion in debt and in 2004 offered Pakistan $3 billion in economic and military assistance over five years. Washington also ended sanctions it had imposed on Pakistan after controversial nuclear bomb tests in 1998.
Money from outside the country also fueled economic growth. Wealthy Pakistanis living abroad, nervous about their position in the West after 9/11, started to send their savings home. Foreign remittances jumped from $1.5 billion a year in 2001 to about $4 billion currently, triggering a massive investment boom.
Property prices have soared, the Karachi stock exchange has become the top performing exchange in Asia, and sales of televisions, mobile phones, cars, and other luxury goods have soared.
``9/11 was a horrible tragedy, but it saved Pakistan," said Nassir Kasuri, the 28-year-old son of Pakistan's foreign minister and the owner of a new Porsche 911.
Prime Minister Shaukat Aziz, a former New York banker, has won praise from international financial institutions for increasing tax revenues and privatizing state companies in banking, cement, and utilities.
Industrialist and real estate developer Asif Kamal, who recently bought an investment bank and is constructing a 20-story office building in downtown Lahore, said of the new prosperity: ``It's the best it's ever been. There's never been so much money and so many opportunities."
Kamal recently bought a new Porsche Cayman S for about $140,000 -- about $80,000 more than the US list price because of Pakistan's punishing tariffs on foreign car imports. ``It's a nice toy, just for fun," he said with a smile.
But many economists and businessmen warn that the boom has a worrying downside. The spending splurge is limited to a small minority of rich Pakistanis. Most of the country's 160 million people remain desperately poor, barely able to afford a motorcycle. The rich-poor divide is wider than ever, and poverty remains particularly deep in rural areas. Only 46 percent of the population is literate, compared with 63 percent in economies of similar size.
Inflation, which rose to 11 percent last year before easing to 8 percent, is the main difficulty.
Outside Kamal's office stood Abdul Rehman, a 55-year-old ``tea boy" who has served hot drinks in Kamal's company for the past 30 years. His monthly salary of $103 is increasingly stretched by soaring prices for flour, sugar, and transportation, he said.
``A bag of sugar that used to cost 25 rupees two years ago is now 40 rupees," or about 80 cents, said the father of six. ``It's really terrible."
In contrast with India or China, Pakistan's economic boom has done little to swell the ranks of its middle class, which remains small.
The government has increased health and education expenditures -- it says the percentage of people living below the poverty line has dropped from one-third to one-quarter -- but continues to pour money into expensive military hardware, despite a diminishing threat from neighboring India. Last month, Musharraf ordered 62 new F-16 jets from the United States at a cost of $2.5 billion.
Economists worry the boom is built on foundations of sand. The stock market is considered to be dangerously overvalued. Property prices have dipped in cities such as Lahore, but remain at Western levels in the capital, Islamabad. The Central Bank recently made front-page news with a stern warning about the dangers of further inflation. The current account deficit is projected to rise from $1.8 billion in 2005 to $5.5 billion this year.
Shahid Javed Burki, a former World Bank vice president, has cautioned that Pakistan is in the grip of a ``casino culture" and is showing the symptoms of a major financial crisis similar to one suffered by Mexico a decade ago.
``When I look at all these things that preceded the Mexican crisis, I can see all of them present in Pakistan today," he said at a conference in Washington last month.
Economist Shahid Kardar said: ``You can see the way society is polarizing between rich and poor on the streets, and it's very alarming."
Diplomats are also concerned. ``Pakistan is going in the right direction but it's traveling on a tightrope," said one British official, who said a splurge in credit card spending had left many consumers vulnerable to a downturn.
The uncertainty is also linked to tough political issues.
Musharraf, who came to power in a 1999 military coup, needs to muster as much support as possible ahead of elections promised for next year.
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