Pakistan’s slump creates opening for extremists
USA Today
By Paul Wiseman

FAISALABAD, Pakistan — The mob was hungry.

Police had stopped hundreds of jobless Pakistanis from marching on the offices of the Faisalabad electric company, which they blamed for daily power outages. So the protesters went after the Treats bakery instead.
They hurled rocks through the windows and stormed the place, beating anyone who tried to stop them, throwing the owner down a flight of stairs, looting the cash register and grabbing cookies, cakes and loaves of bread. “They put their anguish on us,” store manager Muhammad Shafiq recalls. “Whatever food they found, they ate it.”

A month later, some of the windows at Treats haven’t been repaired. Customers have returned, but many employees bear physical scars from the assault. Worst of all, Shafiq fears poverty is rising so fast in this city of 2 million people that conditions are ripe for another riot. “The unrest will continue,” he predicts, “until the problems are solved.”

The lingering tensions in Faisalabad highlight how, in the early days of the Obama administration, the global economic crisis is making combustible countries such as Pakistan even more of a security risk to the United States and its troops abroad. The fear here, and in other parts of the Muslim world, is that unrest over soaring unemployment and food shortages could cause unpopular governments to collapse, resulting in more support for militant organizations such as al-Qaeda or the Taliban.

“If the economy goes down, the militants benefit,” says retired army lieutenant general Talat Masood, a prominent Pakistani political analyst. “If the economy was strong, many things would take care of themselves.”
Even before the economic mess took hold, Pakistan was one of President Obama’s biggest foreign-policy headaches.

Despite receiving more than $11 billion in U.S. aid since the 9/11 terror attacks, its fragile government has been unable to stop Islamic extremists based on its soil from launching attacks in neighboring Afghanistan, where Obama announced plans last week to send an additional 17,000 U.S. troops to combat the growing Taliban insurgency. Pakistani militants also were responsible for November’s assault on two hotels and other landmarks in Mumbai, India, which killed 170 people and raised the prospect of war between the two nuclear-armed rivals.

Now, as the financial crisis chokes off trade and the flow of money to all corners of the world, “a lack of job opportunities may increase the incentives for many young Pakistani men to join militant groups,” according to a recent report by the Center for American Progress, a Washington think tank. The report also warned that support for beleaguered Pakistani President Asif Ali Zardari “could quickly erode.”

Obama has urged Pakistan to do more to eradicate “safe havens” for militants, and earlier this month he sent Richard Holbrooke, his new special envoy to the region, to Islamabad to press for action. Pakistani officials responded by asking for more military funding and urgent economic aid.

Pakistan’s economy is slowing dramatically — from growth of 6% or more in recent years to just 0.6% in 2008 and a projected 2.4% in 2009, according to HSBC bank. And in a country with a youthful and rapidly growing population of 173 million, anything less than 3% growth amounts to a recession, Pakistani economist Mohsin Khan warns.

Meanwhile, the government is so strapped for cash that it has fallen behind on payments to power companies, leading to the electrical blackouts that sparked the riots in Faisalabad and have chilled economic activity even further.

The fallout from the blackouts was clear one recent day outside a factory in Faisalabad, where Muhammad Ashiq and some weary colleagues were waiting next to a pool of stagnant water, hoping the electricity would come back on. Since the outages started eating into the plant’s working hours, Ashiq’s previous wages of 6,000 Pakistani rupees a month — about $75 — have been cut in half.

“It is terrible,” Ashiq says. Half his reduced income goes to rent on his house, and the soaring cost of electricity takes up most of the rest.

As food prices also rise, Ashiq has been getting his groceries on credit, but shopkeepers have begun cutting off cash-poor workers and the unemployed. He doesn’t blame them: “They are broke,” he says with a shrug. “We are broke.”

Poor feel squeeze
The situation was similar 230 miles to the north in Rawalpindi, twin city to the capital Islamabad. Machinist Muhammad Shafiq (no relation to the store manager in Faisalabad) was sitting in the chilly darkness of his engine repair shop, waiting for the power to come back on. “We are doing nothing,” said Shafiq, 62.

Such stories help explain why, in a survey conducted last fall for the International Republican Institute (IRI), a U.S.-funded pro-democracy group, 73% of 3,500 Pakistani adults said their personal finances had deteriorated over the previous year, and 59% expected things to get worse.

Asked to name the country’s No. 1 problem, 58% picked inflation and 12% chose unemployment. Just 10% of those polled cited the recent wave of suicide bombings that has hit Pakistani cities as militant groups try to destabilize the government.

Pakistan’s poor have been particularly squeezed. Shoppers are paying 2½ times as much for wheat as they did in April 2007, according to the government. Palm oil, which is instrumental for cooking here, has tripled in cost during that time.

The economic distress has hit hard in Faisalabad and the surrounding countryside. This is Pakistan’s heartland and the center of its textile industry, which accounts for more than 60% of the country’s exports. Workers in their traditional shalwar kameez— tunics worn over baggy pants — pour in from the countryside to take jobs weaving, sewing and dyeing fabrics.

When work is plentiful, they send the bulk of their earnings back to their families. These days, work is scarce and getting scarcer. In the village of Fakharabad, unemployment is running at 80%, estimates Muhammad Anwar, a former factory manager who lost his job in December.

People there are not accustomed to poverty: Muhammad Mushtaq, 21, had earned $100 a month — a decent salary here — for the previous four years. He lost his job in early January, and now his family is getting by on homegrown wheat and on credit from Fakharabad’s general store.

“We’re starving to death,” Mushtaq says. “How can I be happy?”

Anwar sees even more problems ahead: “Because of the abrupt, increasing and severe joblessness, problems could emerge,” he says. “Young guys can turn to crime.”

Anwar says that, because they follow a moderate form of Islam, Fakharabad villagers haven’t been lured by Islamic militant groups. Even so, patience with the government in Islamabad is waning: “The entire economy is in crisis, and the government is sleeping,” says Ejaz Ahmed, owner of a Faisalabad cotton-cycling plant.

Like a blessing from God
Elsewhere in Pakistan, though, Islamic extremists are making headway in winning support.

In Muridke, 75 miles northeast of Faisalabad, a charity affiliated with the extremist group Lashkar-e-Taiba — which the Pakistani government says was responsible for the Mumbai terrorist attacks — is providing services the government doesn’t. Jamat Ud Dawah, which the U.S. Congressional Research Service calls an “incarnation” of Lashkar, runs a hospital in Muridke for the poor.

“For us, they are like a blessing from God,” shopkeeper Abdul Hameed says. “In this era of high inflation, poor people can’t afford to seek medical treatment, even for kids.”

Even in bad times, Pakistani militant groups draw donations from sympathizers across the country and in the oil-rich Middle East; some also make money from criminal enterprises. “Their economy doesn’t go down — their narcotics, their smuggling, their kidnappings,” Masood says.

“The militants have plenty of money and can simply offer either income to the unemployed or a better income” for those who have jobs, says Shaun Gregory, director of the Pakistan Security Research Unit at Britain’s University of Bradford. And joining militant groups also “carries much great status and honor than most menial jobs.”

In Pakistan’s Swat Valley, just 100 miles from Islamabad, Taliban militants have grown so powerful that the government decided this month to stop military offensives there.

It’s unclear whether Pakistan’s government is capable of reversing the rot. Most other governments in the world — from New Delhi to Seoul to Washington — have reacted to the economic crisis by slashing interest rates, cutting taxes and pumping up spending on infrastructure. Pakistan is doing just the opposite, though: raising interest rates and cutting government spending.

Those are the terms of a $7.5 billion loan it secured in November from the International Monetary Fund, which demanded Pakistan’s government control its budget deficit and bring inflation down from its 20% pace. The IMF acknowledged that the “measures could further intensify existing social tensions.”

One solution would be to collect more taxes, but that’s not easy in a country that, in a recent ranking of perceived corruption levels by the Berlin-based organization Transparency International, came in 134th among 180 countries, with 180th being the most corrupt. Meanwhile, cutting defense spending is next to impossible for Zardari, who took office last year after nine years of military rule — especially at a time when the Taliban is on the rise and tensions are running high with rival India.

So the government is reportedly tightening social spending — on just the kind of projects that could help ease poverty in the short and longer term. According to the newspaper Dawn, the government spent less than $900 million of the $2.5 billion it had expected to spend on development in the second half of 2008.

“We’re creating a problem for ourselves,” says Fasih Uddin, retired chief economist for the Pakistani government and author of a book criticizing IMF policies toward Pakistan. “Raising interest rates when everyone else is cutting? The world economy is in recession right now. … Defense spending cannot be cut. What is left is development expenditure — health, education, power, sanitation. They are being gutted.”

Some miss military rule
Meanwhile, Zardari’s hold on power is weakening. The widower of opposition leader Benazir Bhutto won elections a year ago in a wave of sympathy after she was assassinated. But the IRI poll last fall showed that 63% of Pakistanis disapproved of his performance. Only 19% said they’d support his Peoples Party if there was another election, down from 50% in January 2008.

That’s bad news in a country where democracy has a tenuous grip. For more than half its 61-year existence, Pakistan has been governed by the army, including the nine-year regime of former president Pervez Musharraf, who seized power in a 1999 coup.

Some Pakistanis even miss military rule, fewer than six months after the unpopular Musharraf was forced out. “A military government at least is organized,” says Mian Muhammad Shabbir, who owns a textile spinning mill outside the Punjbai city Lahore.

Gregory, author of the forthcoming book Pakistan: Securing the Insecure State, believes the crisis could deteriorate quickly: “If the demonstrations grow in number and frequency and the government can’t address food and fuel issues in particular, then a momentum against the government might build.”

If that happens, Gregory says the military — which proved largely ineffective at combating militants under Musharraf — could try to seize power. He says the key will be whether there are more incidents such as the one at the Treats bakery. He says Punjab region’s recent volatility is a “test” for what might be to come.

In Faisalabad, Gulzar Ahmed, a 70-year-old worker at a cotton recycling plant, sees only dark days ahead. His monthly income has plunged by half. “I’m fed up,” he says, his face covered with the white lint that floats around the factory. “Everyone is angry.”

Contributing: Zafar M. Sheikh.

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